Q1 2024 The Hanover Insurance Group Inc Earnings Call

Chuck: Good day, and welcome to the Hanover Insurance Group's first quarter earnings conference call. My name is Chuck, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode.

Good day and welcome to the Hanover Insurance group's first quarter earnings Conference call. My name is Chuck and I'll be your operator for today's call. At this time all participants are in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

Chuck: Should you need assistance, please signal conference specialists by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touch-tone phone.

Chuck: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone and so it's got all your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Oksana Lucas Showboat. Please go ahead.

Chuck: And to withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Oksana Lukasheva. Please go ahead.

Oksana Lukasheva: Thank you operator, good morning, and thank you for joining us for our quarterly conference call. We will begin today's call with prepared remarks from Jack Roche, Our President and Chief Executive Officer, and Jeff Farber, Our Chief Financial Officer available to answer your questions. After our prepared remarks are <expletive> Lavey President of agency markets and.

Oksana Lukasheva: Thank you, operator. Good morning, and thank you for joining us for our quarterly conference call. We will begin today's call with prepared remarks from Jack Roche, our President and Chief Executive Officer, and Jeff Farber, our Chief Financial Officer. Available to answer your questions after our prepared remarks are Dick Lavey, President of Agency Markets, and Bryan Salvatore, President of Specialty Lines. Before I turn the call over to Jack, let me note that our earnings press release, financial supplement, and a complete slide presentation for today's call are available in the investor section of our website at www.hanover.com.

Oksana Lukasheva: Ryan Salvatore President of specialty lines before I turn the call over to Jack Let me note that our earnings press release financial supplement and a complete slide presentation for today's call are available in the investors section of our website at Www Dot Hanover Dot com. After the presentation, we will answer questions in the queue.

Oksana Lukasheva: After the presentation, we will answer questions in the Q&A session. Our prepared remarks and responses to your questions today, other than statements of historical fact, include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.

Oksana Lukasheva: Rene session, our prepared remarks and responses to your questions today other than statements of historical fact include forward looking statements as defined under the private Securities Litigation Reform Act of 1995. These statements can't relate to among other things our outlook and guidance for 2024 economic conditions and related effects.

Oksana Lukasheva: These statements can relate to, among other things, our outlook and guidance for 2024, economic conditions and related effects, including economic and social inflation, potential recessionary impacts, as well as other risks and uncertainties, such as severe weather and catastrophes that could affect the company's performance and or cause actual results to differ materially from those anticipated. We caution you with respect to reliance on forward-looking statements, and in this respect, we refer you to the forward-looking statement section in our press release, the presentation deck, and our filings with the SEC.

Oksana Lukasheva: Including economic and social inflation potential recessionary impacts as well as other risks and uncertainties, such as severe weather and catastrophes that could affect the company's performance and or cause actual results to differ materially from those anticipated. We caution you with respect to reliance on forward looking statements.

Oksana Lukasheva: And in this respect refer you to the forward looking statements section in our press release, the presentation deck and our filings with the FCC todays discussion will also reference certain non-GAAP financial measures such as operating income and accident year loss and combined ratio excluding catastrophes among others. A reconciliation of these non-GAAP financial measures to the.

Oksana Lukasheva: Today's discussion will also reference certain non-GAAP financial measures, such as operating income and accident-year loss and combined ratio, excluding catastrophes, among others. A reconciliation of these non-GAAP financial measures to the closest GAAP measure on a historical basis can be found in the press release, the slide presentation, or the financial supplement, which are posted on our website, as I mentioned earlier. With those comments, I will turn the call over to Jack. Thank you, Oksana. Good morning, everyone, and thank you all for joining us.

Oksana Lukasheva: Closest GAAP measure on a historical basis can be found in the press release, the slide presentation or the financial supplement which are posted on our website as I mentioned earlier with those comments I will turn the call over to Jack.

Jack: You Oksana good morning, everyone and thank you all for joining us.

John Conner Roche: We open 2024 with an excellent first quarter, delivering robust earnings and effectively executing on our margin recapture and cap mitigation initiatives, consistent with our focus over the past several quarters. We remain disciplined and discerning in our growth as we continue to reposition our personal lines business and improve earnings resiliency in our overall mix in order to drive strong, sustainable returns for our shareholders over the long term. On today's call, I will share my perspective on our results, as well as my thoughts on why we believe our company is well positioned to continue to deliver improving financial performance in 2024.

Jack: We opened 2024 with an excellent first quarter delivering robust earnings and effectively executing on our margin recapture and cat mitigation plans.

John Conner Roche: Consistent with our focus over the past several quarters, we remain disciplined and discerning in our growth as we continued to reposition our personal lines business and to improve earnings resiliency in our overall mix in order to drive strong sustainable returns for our shareholders over the long term.

John Conner Roche: Jeff will review our financial and operating results in more detail and discuss our expectations for the second quarter and through year end. Finally, we will open the line for questions. After-tax operating income for the quarter was $112 million, or $3.08 per diluted share, generating an operating return on equity of 15%.

John Conner Roche: On today's call I will share my perspective on our results as well as my thoughts on why we believe our company is well positioned to continue to deliver improving financial performance in 2024.

John Conner Roche: Jeff will review, our financial and operating results in more detail and discuss our expectations for the second quarter and through year end.

John Conner Roche: Finally, we will open the line for questions.

John Conner Roche: After tax operating income for the quarter was $112 million or $3.08 per diluted share generating an operating return on equity of 15%.

John Conner Roche: We improved our XCAT combined ratio by more than 2 points in the quarter, demonstrating the effectiveness of our Margin Recapture Initiative. As expected, overall growth was subdued in the quarter at 2.3% as we continued to prioritize the Profitability Improvement Act. We expect to accelerate the pace of growth throughout 2024, and we expect to generate net written premium growth in the mid-single-digit range for the full year. We continue to effectively leverage our strong relationships with our best-in-class independent agent partners. Helping them successfully navigate the dynamic marketplace and enabling us to build momentum in our target market. Now, returning to our segment highlights.

John Conner Roche: We improved our ex cat combined ratio by more than two points in the quarter, demonstrating the effectiveness of our margin recapture initiatives.

John Conner Roche: As expected overall growth was subdued in the quarter at 2.3% as we continued to prioritize profitability improvement actions.

John Conner Roche: We expect to accelerate the pace of growth throughout 2024, and we expect to generate net written premium growth in the mid single digit range for the full year.

John Conner Roche: We continue to effectively leverage our strong relationships with our best in class independent agent partners, helping them successfully navigate the dynamic marketplace and enabling us to build momentum in our target markets.

John Conner Roche: Turning to our segment highlights.

John Conner Roche: In specialty, we delivered another quarter of exceptional profitability, generating a combined ratio of 87.6%. Consistent with the outlook we provided in our year-end call, specialty growth picked up from the low water mark in the fourth quarter. The market is very healthy and remains robust, with exciting opportunities across multiple lines, including excess and surplus lines, marine, specialty industrial property, health care, and surety. Other areas, such as professional and executive lines, remain competitive, but we are seeing opportunities and premium growth picking up as well.

John Conner Roche: In specialty we delivered another quarter of exceptional profitability generating a combined ratio of 87.6%.

John Conner Roche: Consistent with the outlook, we provided on our year end call specialty growth picked up from the low watermark in the fourth quarter.

John Conner Roche: The market is very healthy and remains robust with exciting opportunities across multiple lines, including excess and surplus lines marine and specialty industrial property health care and surety.

John Conner Roche: Other areas, such as professional and executive lines remain competitive, but we are seeing opportunities and premium growth picking up as well.

John Conner Roche: In light of our robust profitability in this sub-segment, we will continue to strike a prudent balance by appropriately pricing risks while protecting our highly profitable book of business and pursuing quality new business opportunities. At the same time, our specialty top-line results still reflect the impact of underwriting actions on specific underperforming programs within our specialty P&C subsets, although the impact of these actions is expected to decrease as the year progresses.

John Conner Roche: In light of our robust profitability in this sub segment, we will continue to strike a prudent balance appropriately pricing risks, while protecting our highly profitable book of business and pursuing quality new business opportunities.

John Conner Roche: At the same time, our specialty topline results still reflect the impact of underwriting actions and specific underperforming programs within our specialty P&C sub segment the.

John Conner Roche: The impact of these actions is expected to decrease as the year progresses.

John Conner Roche: We expect specialty net written premium growth in the upper single digits for the full year of 2024 as we further capitalize on our broad diversification and favorable market dynamics in most of our segments. In marine, we anticipate significant growth in 2024 as we capitalize on opportunities across our diverse portfolio of inland marine products and sectors. In E&S, we expect the recent implementation of our new policy platform will enable us to capture even more market share, beginning in the current quarter.

John Conner Roche: We expect specialty net written premium growth in the upper single digits for the full year of 2024 as we further capitalize on our broad diversification and favorable market dynamics in most of our segments.

John Conner Roche: In Marine we anticipate significant growth in 2024, as we capitalize on opportunities across our diverse portfolio of inland marine products and sectors.

John Conner Roche: And E&S, we expect the recent implementation of our new policy platform will enable us to capture even more market share beginning in the current quarter.

John Conner Roche: In professional and executive lines, we see potential for increased growth in areas such as management liability and selected areas of our professional liability board. We're confident we can capitalize on these opportunities as they present themselves throughout the year and that we will drive meaningful top-line growth and further diversification. Looking at core commercial, we are pleased with the segment's strong performance as we continue to provide our agents with a highly attractive portfolio of capabilities. Our core commercial team maintained its focus on driving growth in small commercial while executing on margin improvement initiatives in the middle market. Small commercial grew by approximately 8% in the quarter.

John Conner Roche: And professional and executive lines, we see potential for increased growth in areas, such as management liability and selected areas of our professional liability business.

John Conner Roche: We're confident we can capitalize on these opportunities as they present themselves throughout the year and that will drive meaningful top line growth and further diversification across our overall business mix.

John Conner Roche: Looking at core commercial we are pleased with the segment's strong performance as we continue to provide our agents with a highly attractive portfolio of capabilities.

John Conner Roche: Our core commercial team maintained its focus on driving growth in small commercial while executing on margin improvement initiatives in middle market.

John Conner Roche: Small commercial grew by approximately 8% in the quarter.

John Conner Roche: Fueled by the continued success of our highly intuitive TAP sales platform. Our national rollout of this quote-to-issue platform for BOP business is now complete. With that, we are actively working on adding the workers' compensation line of business to the platform, which will support our new business growth efforts in that area. In addition, we are expanding the use of APIs to further enhance our retail reach by efficiently connecting to additional sources of business and adding targeted products to our specialized offerings.

John Conner Roche: Fueled by the continued success of our highly intuitive tap sales platform.

John Conner Roche: Our national rollout of this quote to issue platform for BOP business is now complete.

John Conner Roche: With that we are actively working on adding the workers compensation line of business to the platform, which will support our new business growth efforts in that area.

John Conner Roche: In addition, we are expanding the use of a pea is to further enhance our tap sales reach by efficiently connecting two additional sources of business and adding targeted products to our specialized offerings.

John Conner Roche: In the middle market, we continue to achieve better and more consistent earnings performance by aggressively non-renewing bottom-decile property. We're also adjusting our new business appetite to reflect the changing environment and ensuring that our pursuits are focused on high-quality accounts in targeted sectors and geographies. Additionally, we are making considerable progress against our IoT sensor enrollment program. While the program is targeted at most of our property lines, the middle market remains in the epicenter of these actions, given the higher limits profile. Across all of our business lines, we've deployed over 10,000 water and temperature sensors.

John Conner Roche: In middle market, we continue to achieve better and more consistent earnings performance by aggressively non renewing bottom decile property business.

John Conner Roche: We're also adjusting our new business appetite to reflect the changing environment and ensuring that our pursuits are focused on high quality accounts in targeted sectors and geographies.

John Conner Roche: Additionally, we are making considerable progress against our Iot sensor enrollment program.

John Conner Roche: While the program is targeted at most of our property lines middle market remains in the epicenter of these actions given the higher limits profile.

John Conner Roche: Across all of our business lines, we've deployed over 10000 water and temperature sensors that program has already resulted in numerous instances of loss prevention and mitigation. We believe we have achieved scale, meaning that operationally we have enough sensors deployed where we can collect data and recognized trends such as.

John Conner Roche: That program has already resulted in numerous instances of loss prevention and mitigation. We believe we have achieved scale, meaning that operationally, we have enough sensors deployed where we can collect data and recognize trends, such as identifying geographic territories with higher risk profiles, several types of system failures, or trends across certain Overall, the commercial PNC market remains rational and continues to support needed price increases.

John Conner Roche: If I in geographic territories with higher risk profiles, several types of system failures or trends across certain industry sectors.

John Conner Roche: We believe this data will enable us to work even more effectively with our policyholders providing guidance on how best to build resiliency.

John Conner Roche: Overall, the commercial P&C market remains rational and continues to support needed price increases amid recent property loss trends and emerging industry concerns about casualty.

John Conner Roche: Amid recent property loss trends and emerging industry concerns about casualty, for example, new business pricing and small commercial continues to accelerate an outpaced loss trend in what has become an increasingly dynamic loss trend environment. We're often asked about our position relative to the social inflation challenges affecting the P&C industry. As a member of the American Property Casualty Insurance Association and other trade associations, we are actively engaged in promoting awareness and reforms to stem the costs of legal system abuse and advocating for change.

John Conner Roche: For example, new business pricing in small commercial continues to accelerate and outpace loss trends.

John Conner Roche: And what has become an increasingly dynamic loss trend environment, we're often asked about our position relative to the social inflation challenges affecting the P&C industry.

John Conner Roche: As a member of the American property Casualty Insurance Association and other trade associations.

John Conner Roche: We are actively engaged in promoting awareness and reforms to stem the costs of legal system abuse in and advocating for change.

John Conner Roche: In addition, we believe our current liability profile will help us effectively navigate current social inflation trends. On a relative basis, we have a low policy limit profile, with over 93% of our liability policy limits at or below $1 million. We have secured and are maintaining low per risk reinsurance retention, which attaches at $2.5 million. Additionally, we have avoided areas that attract a higher level of liability severity and are increasingly challenging to price adequately, such as Public D&O Insurance and Stand Alone Excess Umbrella Policy.

John Conner Roche: In addition, we believe our current liability profile will help us effectively navigate current social inflation trends.

John Conner Roche: On a relative basis, we have a low policy limit profile with over 93% of our liability policy limits at or below $1 million.

John Conner Roche: We have secured and are maintaining low per risk reinsurance retention, which attaches at $2.5 million and we have avoided areas that attract a higher level of liability severity and are increasingly challenging to price adequately such as public D&O insurance and standalone excess umbrella policies.

John Conner Roche: Yeah.

John Conner Roche: Over the last several years, we've also taken steps to lower our risk exposure in large metropolitan areas and in industries that are more susceptible to social inflation, reducing umbrella limits in certain lines in highly litigious jurisdictions and executing rate increases to stay on top of trend assumptions. We have approached this issue with a thoughtful and intentional strategy that we believe enables us to effectively manage the current liability environment. Turning to Personal Lines,

John Conner Roche: Over the last several years, we've also taken steps to lower our risk exposure in large metropolitan areas and in industries that are more susceptible to social inflation.

John Conner Roche: Reducing umbrella limits in certain lines and highly litigious jurisdictions and executing rate increases to stay on top of trend assumptions.

John Conner Roche: We have approached this issue with a thoughtful and intentional strategy that we believe enables us to effectively manage the current liability environment.

John Conner Roche: Turning to personal lines.

John Conner Roche: The business continues to demonstrate improved profitability and is performing largely on track relative to our expectations. Our loss ratio in both auto and home decreased compared with the first quarter of last year, in line with our assumption. Persoline's renewal price change was a robust 22.8% in the quarter.

John Conner Roche: The business continues to demonstrate improved profitability and is performing largely on track relative to our expectations.

John Conner Roche: Our loss ratio in both auto and home decrease compared with the first quarter of last year in line with our assumptions.

John Conner Roche: Personal lines renewal price change was a robust 22.8% in the quarter.

John Conner Roche: What's more, all targeted new business is subject to product changes, including an increase in all peril deductibles and the addition of when-inhaled deductibles in certain geographies. These changes also are being rolled out with the renewals in targeted states. In addition, we continue to address geographic microconcentrations in the Midwest. As a result of our intense focus on profit improvement, as expected, net written premium growth in purse lines was flat year over year in the first quarter. We reduced our exposure in the Midwest in a deliberate and controlled manner during the quarter, resulting in a 4% decline in premiums in this region and an approximate 8% decline in policies in force.

John Conner Roche: What's more all targeted new business is subject to product changes, including an increase in all peril deductibles and the addition of wind and hail deductibles in certain geographies.

John Conner Roche: These changes also are being rolled out with the renewals in targeted states.

John Conner Roche: In addition, we continued to address geographic micro concentrations in the Midwest.

John Conner Roche: As a result of our intense focus on profit improvement as expected net written premium growth in personal lines was flat year over year in the first quarter, we reduced our exposure in the Midwest and a deliberate and controlled manner during the quarter, resulting in a 4% decline in premiums in this region and an approximate 8% decline.

John Conner Roche: And policies in force.

John Conner Roche: Having the flexibility and the willingness to shed premiums to reposition our book will lead to improved profit margins and a higher, more resilient profit pool in the future. To that point, excluding Midwestern states, we have delivered growth of 4%, with PIF down only 2% year-over-year, primarily driven by lower new business, while retention remained relatively stable at over 84%. This said, in select geographies, we are already pivoting to a more aggressive new business standard, where we have hit our profitability milestones on a written basis, and where we are already comfortable with diversification positions. Overall, the purse lines market remains robust.

John Conner Roche: Having the flexibility and the willingness to shed premiums to reposition our book will lead to improved profit margins and a higher more resilient profit pool in the future.

John Conner Roche: To that point, excluding Midwestern states, we have delivered growth of 4% with picked down only 2% year over year, primarily driven by lower new business, while retention remained relatively stable at over 84%.

John Conner Roche: This said in select geographies, we are already pivoting to a more aggressive new business dance, where we have hit our profitability milestones on a written basis and where we are already comfortable with diversification positioning.

John Conner Roche: Overall, the personal lines market remains robust.

John Conner Roche: We expect premium growth to accelerate from this point forward and pricing to remain firm in 2024. In the Midwest, we are seeing others follow our lead, implementing higher deductibles and introducing other product changes to offset loss trends. Our Purse Line's account orientation is unique in the independent agency channel, with about 88% of our business representing a whole account.

John Conner Roche: We expect premium growth to accelerate from this point forward and pricing to remain firm in 2024.

John Conner Roche: In the Midwest, we are seeing others follow our lead implementing higher deductibles and introducing other product changes to offset loss trends are personal lines account orientation is unique in the independent agency channel with about 88% of our business, representing a whole account and.

John Conner Roche: In our view, that orientation creates a preferred customer base that is both more protection-minded and far less price-elastic, which we believe will position us for continued success. As we work to institute increased pricing deductibles and to adjust terms and conditions, our strong independent agency relationships are once again proving to be critical. Just a few weeks ago, we met with over 120 of our largest, most successful agents at our annual President's Club Conference.

John Conner Roche: In our view that orientation creates a preferred customer base that is both more protection minded and far less price elastic, which we believe will position us for continued success.

John Conner Roche: As we work to institute increased pricing deductibles and to adjust terms and conditions.

John Conner Roche: Our strong independent agency relationships are once again proving to be critical.

John Conner Roche: Just a few weeks ago, we met with over 120 of our largest most successful agents at our annual President's Club Conference. We held a number of executive meetings focused on how we can best support our agents in the current dynamic market environment and grow our business together, we believe our independent partner Ey.

John Conner Roche: We held a number of executive meetings focused on how we can best support our agents in the current dynamic market environment and grow our business together. We believe our independent partner agents fully recognize the critical role they play in our efforts to advance customer adoption of risk prevention and mitigation tools, as well as in garnering customer support for the needed pricing increases we are implementing. We walked away from this annual event with more confidence than ever in the strength of our distribution platform and the commitment of our agent partners.

John Conner Roche: Gents fully recognize the critical role they play in our efforts to advance customer adoption of risk prevention and mitigation tools as well as in garnering customer support for the needed pricing increases we are implementing we walked away from this annual event with more confidence than ever in the strength of our distribution platform and.

John Conner Roche: The commitment of our agent partners in.

John Conner Roche: In summary, our excellent performance in Q1 underscores the strength, diversification, and resilience of our business. We have already begun to see the positive effects of our underwriting actions, catastrophe management initiatives, and other proactive steps to enhance profitability across our business. We look forward, through year end and beyond, with a tremendous sense of optimism. We are confident in our ability to deliver increasingly stronger results, to execute on our strategic priorities, and to deliver value for our shareholders, agent partners, and customers. With that, I'll turn the call over to Jeff. Thank you, Jack, and good morning, everyone.

John Conner Roche: In summary, our excellent performance in Q1 underscores the strength diversification and resilience of our business.

Jeff: We already have begun to see the positive effects of our underwriting actions catastrophe management initiatives and other proactive steps to enhance profitability across our businesses.

Jeff: We look forward through year end and beyond with a tremendous sense of optimism.

Jeff: Confident in our ability to deliver increasingly stronger results to execute on our strategic priorities and to deliver value for our shareholders agent partners and customers.

John Conner Roche: With that I'll turn the call over to Jeff.

Jeffrey Mark Farber: I'll begin with an overview of our first quarter results, discuss our segment financial highlights and investment performance, and then mention our 2024 outlook. We are very pleased with our strong start for the year, posting a first quarter combined ratio of 95.5%. We delivered a combined ratio excluding catastrophes of 89.5%.

Jeff: Thank you Jack and good morning, everyone I'll begin with an overview of our first quarter results discuss our segment financial highlights in investment performance and then mentioned our 2020 for outlook.

Jeffrey Mark Farber: We are very pleased with our strong start for the year posting a first quarter combined ratio of 95.5% we.

Jeffrey Mark Farber: We delivered a combined ratio excluding catastrophes of 89.5% a 2.2 point improvement over the prior year quarter, our current accident year loss ratio, excluding catastrophes improved 1.9 points to 59.3%, reflecting the continued earning.

Jeffrey Mark Farber: 2.2 point improvement over the prior year quarter. Our current accident year loss ratio excluding catastrophes improved 1.9 points to 59.3 percent, reflecting the continued benefit of price increases. Our results were highlighted by a year-over-year reduction in the underlying loss ratio in personal lines and specialty. Strong and steady margins in core commercial also contributed to the excellent performance. The continued improvement in profitability validates the effectiveness of our Margin Recapture Plan and gives us confidence that we are on the right path to deliver on our long-term ROE target of 14% or higher. At 30.9%, our first quarter expense ratio was slightly above our full year target of 30.7%, primarily due to the timing of certain expenses.

Jeffrey Mark Farber: N of price increases.

Jeffrey Mark Farber: Our results were highlighted by a year over year reduction in the underlying loss ratio in personal lines and specialty.

Jeffrey Mark Farber: Strong and steady margins in core commercial also contributed to the excellent performance the.

Jeffrey Mark Farber: The continued improvement in profitability validates the effectiveness of our margin recapture plan and gives us confidence that we're on the right path to deliver on our long term Roe target of 14% or higher.

Jeffrey Mark Farber: At 30.9%, our first quarter expense ratio was slightly above our full year target of 30.7% primarily due to the timing of certain expenses.

Jeffrey Mark Farber: Relative to the first quarter of last year, the expense ratio is higher, primarily driven by changes in variable compensation accruals between the two periods, as well as increased investments in our specialty business this year, consistent with our growth and market share gain strategy. We remain on track to deliver a full year expense ratio of 30.7% in 2024. Catastrophe activity was within our CAD assumption for the quarter, accounting for 6% of net earned premium. Northeast floods in January and hail events in February and March were the main contributors to CAT losses.

Jeffrey Mark Farber: Relative to the first quarter of last year. The expense ratio was higher primarily driven by changes in variable compensation accruals between the two periods as well as increased investments in our specialty business. This year consistent with our growth and market share gain strategy.

Jeffrey Mark Farber: We remain on track to deliver our full year expense ratio of 30.7% in 2024.

Jeffrey Mark Farber: Catastrophe activity was within our cat assumption for the quarter accounting for 6% of net earned premium nor.

Jeffrey Mark Farber: Northeast floods in January and hail events in February and March were the main contributors to cat losses.

Jeffrey Mark Farber: XCAT's prior year development was approximately $10 million favorable in the quarter, driven by overall favorability in core commercial and specialty. Additionally, each of the main lines of business in our core segment developed favorably. Personal lines prior year development was immaterial overall; favorable development in auto was offset by some unfavorable development in home and other. As we noted in our year-end call, the industry is experiencing elevated auto-related umbrella losses, and we prudently increased our recent prior year loss expectations in response to COVID-19.

Jeffrey Mark Farber: Ex cat prior year development was approximately 10 million favorable in the quarter driven by overall favorability in core commercial and specialty.

Jeffrey Mark Farber: Each of the main lines of business in our core segment developed favorably.

Jeffrey Mark Farber: Personal lines prior year development was immaterial overall.

Jeffrey Mark Farber: Favorable development in auto was offset by some unfavorable development in home and other.

Jeffrey Mark Farber: As we noted in our year end call. The industry is experiencing elevated auto related umbrella losses, and we prudently increased our recent prior year loss expectations in response.

Jeffrey Mark Farber: Overall, a combination of reserving prudence and favorable liability mixed characteristics in commercial lines continues to serve us well. Now I'll review underlying segment results beginning with specialty. Our specialty book continued its track record of profitability in the quarter, delivering an XCAT combined ratio of 85.4%.

Jeffrey Mark Farber: Overall, our combination of reserving prudently.

Jeffrey Mark Farber: And favorable liability mix characteristics in commercial lines continues to service well.

Jeffrey Mark Farber: Now I'll review underlying segment results beginning with specialty.

Jeffrey Mark Farber: Our specialty book continued its track record of profitability in the quarter delivering an ex cat combined ratio of 85.4% 2.4 points better than the prior year quarter.

Jeffrey Mark Farber: 2.4 points better than the prior year quarter. The underlying loss ratio of 48.7% marked an improvement of 4.8 points over the prior year quarter, primarily from lower than expected losses in our specialty property business. Our longer-term loss expectation for specialty remains in the low 50s. From a top-line perspective, we remain on track to accelerate specialty growth to the upper single digits for the full 2024 year. Our core commercial segment delivered an XCAC combined ratio of 90.0% in the first quarter, a 2.1 point improvement year over year. The core commercial current accident or loss ratio, excluding catastrophes, was relatively in line with our expectations and the prior year quarter at 58.5%.

Jeffrey Mark Farber: The underlying loss ratio of 48.7% marked an improvement of 4.8 points over the prior year quarter, primarily from lower than expected losses in our specialty property business.

Jeffrey Mark Farber: Our longer term loss expectation for specialty remains in the low fifties.

Jeffrey Mark Farber: From a topline perspective, we remain on track to accelerate specialty growth to the upper single digits for the full 2024 year.

Jeffrey Mark Farber: Our core commercial segment delivered an X cat combined ratio of 90.0% in the first quarter of 2.1 point improvement year over year. The core commercial current accident year loss ratio, excluding catastrophes was relatively in line, where their expectations and the prior year quarter.

Jeffrey Mark Farber: At 58, 5%.

Jeffrey Mark Farber: At the same time, we are intently watching for liability trends, including social inflation pressures in casualty lines. However, trends in our book of business so far remain stable and very manageable. Our litigated frequency per exposure has returned to normal levels in 2022 and 2023 after an unusually low frequency of litigation in 2020 and 2021. Overall, general liability loss frequency continues to decline while the mix of claims is shifting to more complex claims, contributing to an increased loss severity.

Jeffrey Mark Farber: At the same time, we are intently watching for liability trends, including social inflation pressures in casualty lines.

Jeffrey Mark Farber: Trends in our book of business, So far remained stable and very manageable.

Jeffrey Mark Farber: Our litigated frequency per exposure has returned to normal levels in 2022 and 23 after unusually low frequency of litigation in 2020 and 21.

Jeffrey Mark Farber: Overall general liability loss frequency continues to decline while the mix of claims is shifting to more complex claims contributing to an increased loss severity.

Jeffrey Mark Farber: Commercial auto liability frequency seems to have settled at a new normal somewhat below the pre pandemic levels, while severity is elevated but manageable.

Jeffrey Mark Farber: Commercial auto liability frequency seems to have settled at a new normal somewhat below pre-pandemic levels, while severity is elevated but managed. Workers' compensation remains stable, with a slight increase in indemnity, while medical inflation remains within our expectations.

Jeffrey Mark Farber: Workers compensation remains stable with a slight increase in indemnity, while medical inflation remains within our expectations of course, we continue to monitor trends closely.

Jeffrey Mark Farber: Of course, we continue to monitor trends closely. We are managing our liability profile very carefully, as Jack discussed. Importantly, we are maintaining a very disciplined approach to our prudent liability loss picks and prior year estimation, taking small adjustments if and when needed and promptly incorporating our updated view of trends into pricing and terms and conditions. We established this approach back in 2016 when we materially added to our reserve position as a new leadership team while at the same time initiating a shift in liability measures. We also adhered to thoughtful prudence during low-frequency COVID periods.

Jeffrey Mark Farber: We are managing our liability profile very carefully as Jack discussed importantly, we are maintaining a very disciplined approach to our prudent liability loss picks and prior year estimations taking.

Jeffrey Mark Farber: Taking small adjustments, if and when needed and promptly incorporating our updated view of trends into pricing and terms and conditions.

Jeffrey Mark Farber: We established this approach back in 2016, when we materially added to our reserve position as a new leadership team while at the same time initiating a shift in liability mix.

Jeffrey Mark Farber: We also adhered to thoughtful prudence during low frequency COVID-19 periods, we continue to feel confident in our reserve position.

Jeffrey Mark Farber: We continue to feel confident in our reserve position. Core Commercial Line's net written premiums grew 3% in the first quarter. Rates continue to hold firm in both property and most liability lines, while retention ticked down 1.7 points for the quarter. Due to targeted non-renewals in the middle market, in keeping with our positive strategic decision to sacrifice some top-line growth in exchange for improved margins. Now moving on to Personalize.

Jeffrey Mark Farber: Core commercial lines net written premiums grew 3% in the first quarter rates continue to hold firm in both property and most liability lines, while retention ticked down 1.7 points for the quarter.

Jeffrey Mark Farber: Due to targeted non renewals in middle market in keeping with our positive strategic decision to sacrifice some topline growth in exchange for improved margin.

Jeffrey Mark Farber: Now moving on to personal lines.

Jeffrey Mark Farber: This segment delivered an XCAT combined ratio of 91.1%, an improvement of 5.1 points over the first quarter of 2023. The Personal Line's current accident year loss ratio, excluding catastrophes, improved 2.4 points to 65.6%. With the accelerating benefit of prior and current rate increases earning in, coupled with moderating collision and property loss costs, we expect meaningful improvement in our XCAT loss ratio to continue throughout 2024. Auto current accident year loss ratio excluding catastrophes of 73.6% in the first quarter improved 2.2 points year over year, driven by the benefit of earned pricing increases.

Jeffrey Mark Farber: This segment delivered an X cat combined ratio of 91.1% an improvement of 5.1 points over the first quarter of 2023.

Jeffrey Mark Farber: The personal lines current accident year loss ratio, excluding catastrophes improved two four points to 65.6%.

Jeffrey Mark Farber: With the accelerating benefit of prior and current rate increases, earning in coupled with moderating collision and property loss cost, we expect meaningful improvement in our ex cat loss ratio to continue throughout 2024.

Jeffrey Mark Farber: Auto current accident year loss ratio, excluding catastrophes of 73.6% in the first quarter improved 2.2 points year over year.

Jeffrey Mark Farber: Driven by the benefit of earned pricing increases.

Jeffrey Mark Farber: Additionally, our data indicates that collision loss severity is easing, in particular for used car prices. We are also experiencing some deceleration in the cost of parts as well as lower rental costs due to shorter repair cycles. At the same time, we remain cautious about liability coverages in auto and therefore reflected an elevated loss expectation in current accident year picks for bodily injuries. Similar to commercial auto, bodily injury frequency seems to have settled at a level below pre-COVID, while severity is elevated due to a higher occurrence of catastrophic claims including pedestrian, bicycle, and motorcycle hits and crashes at high speed.

Jeffrey Mark Farber: Additionally, our data indicates that collision loss severity is easing in particular for used car prices. We are also experiencing some deceleration in the cost of parts as well as lower rental costs due to shorter repair cycle times.

Jeffrey Mark Farber: At the same time, we remain cautious about liability coverages in auto and therefore reflected an elevated loss expectation in current accident year picks and bodily injury.

Jeffrey Mark Farber: Similar to commercial auto bodily injury frequency seems to have settled at a level below pre COVID-19, while severity is elevated due to a higher occurrence of catastrophic claims, including pedestrian bicycle and motorcycle hits and crashes at high speeds. However.

Jeffrey Mark Farber: However, as the benefit of higher rates continues to earn in, and The Property Loss Trends Ease, we expect significant loss ratio improvement for auto throughout 2021. Home and other current accident year loss ratio, excluding catastrophes, improved 2.4 points to 54.5 percent, driven by rate and exposure adjustments. Also, within Home & Other, we prudently increased our loss ratio expectations for umbrella coverage in response to prior year developments and an increase in catastrophic auto accidents in the industry.

Jeffrey Mark Farber: <unk> as the benefit of higher rate continues to earn in and the property loss trends ease we expect significant loss ratio improvement for auto throughout 2024.

Jeffrey Mark Farber: Home and other current accident year loss ratio, excluding catastrophes improved 2.4 points to 54.5% driven by rate and exposure adjustments, earning in.

Jeffrey Mark Farber: Also within home and other we prudently increased loss ratio expectation for umbrella coverage in response to a prior year development and an increase in catastrophic auto accidents in the industry of course umbrella rates are up meaningfully compared to historical levels and the market is real.

Jeffrey Mark Farber: Of course, umbrella rates are up meaningfully compared to historical levels, and the market is reacting accordingly. Both auto and home lines of business achieved strong pricing increases in the first quarter. Auto prices were up 18.2%, and we expect them to continue to stay solid throughout the year. Home prices were up 30.2% on average in the first quarter, including 19.6 points of rate and 10.5 points of exposure increase.

Jeffrey Mark Farber: <unk> accordingly.

Jeffrey Mark Farber: Both auto and home lines of business achieved strong pricing increases in the first quarter auto price was up 18.2% and we expect it to continue to say solid throughout the year.

Jeffrey Mark Farber: Home price was up 32% on average in the first quarter, including 19.6 points of rate and 10.5 points of exposure increases, we expect personal lines pricing to remain robust for the remainder of the year.

Jeffrey Mark Farber: We expect Personal Line's pricing to remain robust for the remainder of the year. However, home exposures will tick down starting in the second quarter as insurance-to-value inflation adjustments return to more normal levels. Additionally, all peril and wind and hail deductibles start being applied to the majority of our target renewals in April, effectively lowering our risk on every property where such deductibles are applied. Equally important, earned prices will continue to accelerate for some time.

Jeffrey Mark Farber: However, home exposures will tick down starting in the second quarter as insurance to value inflation adjustments returned to more normal levels. Additionally.

Jeffrey Mark Farber: Additionally, all peril and wind and hail deductibles start being applied to the majority of our target renewals in April effectively lowering our risk on every property, where such deductibles are applied.

Jeffrey Mark Farber: Equally important earned prices will continue to accelerate for some time increasing underwriting margins.

Jeffrey Mark Farber: Increasing Underwriting Margin. Looking ahead, we expect the benefit of strong earned personal lines pricing and a more stable property loss trend to drive a meaningfully improved personal lines current accident year XCAT loss ratio throughout 2024. Furthermore, we anticipate some additional improvements as the result of increased home inspections and new business rigor implemented in 2023 for homeowners. We expect significant margin improvement in auto and home to pace a return to target profitability by the end of this year on a written basis and in 2025 on an earned basis.

Jeffrey Mark Farber: Looking ahead, we expect the benefit of strong earned personal lines pricing and more stable property loss trend to drive a meaningfully improved personal lines current accident year ex cat loss ratio throughout 2024.

Jeffrey Mark Farber: Furthermore, we anticipate some additional improvements as the result of increased home inspections, and new business rigor implemented in 2023 and homeowners.

Jeffrey Mark Farber: We expect significant margin improvement in auto and home to pace, our returned to target profitability by the end of this year on a written basis and in 2025 on an earned basis.

Jeffrey Mark Farber: Moving on to investment performance, net investment income increased by 11 million, or about 14%, to 89.7 million in the first quarter of 2024, primarily driven by strong fixed income results from higher bond. The current rate environment should continue to provide an accumulating benefit to net investment income in 2024 and subsequent years.

Jeffrey Mark Farber: Moving on to investment performance net investment income increased 11 million or about 14% to $89 7 million in the first quarter 2024, primarily driven by strong fixed income results from higher bond yields.

Jeffrey Mark Farber: The current rate environment should continue to provide an accumulating benefit to net investment income in 2024 and subsequent years.

Jeffrey Mark Farber: Historically, much of our investment portfolio was internally managed. After an in-depth and thoughtful analysis, we have made the decision to transfer management of the investment grade fixed maturity portion of our investment assets to an external manager. We believe the switch to an outsourced model will allow us to benefit from the expansive capabilities of a large-scale asset manager, including their market depth and knowledge, among others. Longer term, we hope that the External Asset Manager will help us to further optimize our investment portfolio's contribution to Hanover's bottom line.

Jeffrey Mark Farber: Historically much of our investment portfolio was internally managed after.

Jeffrey Mark Farber: After an in depth and thoughtful analysis, we have made the decision to transfer management of the investment grade fixed maturity portion of our investment assets to an external manager.

Jeffrey Mark Farber: We believe the switch to an outsourced model will allow us to benefit from the expansive capabilities of a large scale asset manager, including their market depth and knowledge among others.

Jeffrey Mark Farber: Longer term, we hope that the external asset manager will help us to further optimize our investment portfolio, whose contribution to the hanover's bottomline we.

Jeffrey Mark Farber: We expect to complete this transition before the end of the second quarter. Moving on to book value and capital position, strong earnings in the first quarter were partially offset by an increase in the fixed income portfolio's unrealized loss position, marking a 1.9% sequential increase in GAAP book value per share to $70.22. The statutory surplus increased by about 5% to $2.8 billion.

Jeffrey Mark Farber: We expect to complete this transition before the end of the second quarter.

Jeffrey Mark Farber: Moving on to book value and capital position strong earnings in the first quarter were partially offset by an increase in the fixed income portfolios unrealized loss position.

Jeffrey Mark Farber: Marking a 1.9% sequential increase in GAAP book value per share to $70.22 stack.

Jeffrey Mark Farber: Statutory surplus increased by about 5% to $2 8 billion.

Jeffrey Mark Farber: In this dynamic environment, we remain focused on ensuring we maintain ample financial flexibility to support our business. Although we refrain from making any share repurchases this quarter, returning capital to shareholders through regular quarterly dividends and share buybacks remains an important element of our long-term capital allocation strategy. For the second quarter of 2020, our planned cat load is 8.5%. As we mentioned in February, we have intended to pick higher on the probability curve in establishing our full-year 2024 cat load of 7% and that it should decline for 2025. Our CAT guidance does not yet reflect the ultimate impact of substantial terms and conditions changes in personal lines that are currently underway.

Jeffrey Mark Farber: In this dynamic environment, we remain focused on ensuring we maintain ample financial flexibility to support our business, although we refrain from making any share repurchases. This quarter, returning capital to shareholders through regular quarterly dividends and share buybacks remain important elements of our long term.

Jeffrey Mark Farber: Our capital allocation strategy.

Jeffrey Mark Farber: For the second quarter of 2020 for our planned cat load is eight and a half per cent as we mentioned in February we have intended to pick higher on the probability curve in establishing our full year 2020 for cat load of 7%.

Jeffrey Mark Farber: And that it should decline for 2025.

Jeffrey Mark Farber: Our cat guidance does not yet reflect the ultimate impact of substantial terms and conditions changes in personal lines that are currently underway.

Jeffrey Mark Farber: In summary, we are off to a strong start in 2024. We are executing successfully on our Margin Recapture Initiatives and Discipline Growth Strategies concentrated on our most profitable lines of business. Our financial and operational performance is underpinned by targeted underwriting, strong pricing, and a commitment to provide the products and services our agent partners and customers value most. We will continue to focus on creating long-term growth and superior returns for our shareholders. With that, we will now open the line for questions. Operator?

Jeffrey Mark Farber: In summary, we are off to a strong start in 2024.

Jeffrey Mark Farber: We are executing successfully on our margin recapture initiatives and disciplined growth strategies concentrated on our most profitable lines of business.

Jeffrey Mark Farber: Our financial and operational performance is underpinned by targeted underwriting strong pricing and a commitment to provide the products and services, our agent partners and customers value most.

Jeffrey Mark Farber: We will continue to focus on creating long term growth and superior returns for our shareholders.

Speaker Change: With that we will now open the line for questions operator.

Chuck: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone.

Operator: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.

Chuck: If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2, and at this time, we'll pause momentarily to assemble our roster. And the first question will come from Michael Phillips with Oppenheimer. Please go ahead. Hey, good morning.

Michael Wayne Phillips: To withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.

Chuck: And the first question will come from Michael Phillips with Oppenheimer. Please go ahead.

Michael Wayne Phillips: Thank you. Um, first question, Jeff, on your comments there on core commercial, specifically geo frequency, still down. Good news there.

Michael Wayne Phillips: Hey, good morning. Thank you first question, Jeff on your on your comments there on core commercial specific NGL frequency is still down good news there I guess.

Jeffrey Mark Farber: I guess maybe a brief description of why you think that's still the case and how long that could continue. And then part of that, too, is that you said more complex claims. Can you talk about what you're seeing to describe this complex claim? Who are they, in terms of frequency? I think we're seeing some of our insureds; there's less physical activity going into the premises. And, you know, in some cases, people aren't going into malls, people aren't going into restaurants, you know, quite as often.

Jeffrey Mark Farber: Maybe a brief description of why you think that's still the case and how long that can continue.

Jeffrey Mark Farber: And then part of that too as you said more complex claims can you talk about what you're seeing.

Jeffrey Mark Farber: To describe this complex claims.

Jeffrey Mark Farber: Sure in terms of the frequency I think we're seeing some of our insureds, there's less physical activity going into the premises.

Jeffrey Mark Farber: And in some cases people aren't going into malls people are going into a restaurant deal quite as often and thats, creating a reduced frequency that's been pretty pretty dramatic in terms of the complex claims you're seeing less minor claims. So the overall proportion of claims is growing.

Jeffrey Mark Farber: And that's creating a reduced frequency that's been pretty, pretty dramatic. In terms of the complex claims, you're seeing fewer minor claims. So the overall proportion of claims is growing with respect to the complex claims or those with more severity that's having lawyer involvement and the like. Okay, thank you.

Jeffrey Mark Farber: With respect to the complex claims are more severity that that's having a lawyer involvement and the like.

Michael Wayne Phillips: And then I guess secondly, maybe just a higher level, you talked about in the specialty business, the investments you're making, and some pressure on the expense ratio. How long will those investments continue? And then maybe just talk about growth opportunities or what those investments are going to give you over the next couple years. Yeah, Mike. This is Jack.

Speaker Change: Okay. Thank you and then I guess secondly, maybe just more higher level.

Michael Wayne Phillips: You talked about in the specialty business, the investments Youre, making and.

Jack: And some pressure on expense ratio.

Michael Wayne Phillips: Along with his investments continue and then maybe just talk about growth opportunities are what those investments are going to accrue to you over the next couple of years.

John Conner Roche: Thanks for that question. We're quite excited about the performance of our specialty business. And as 2023 concluded, we made a decision to look at the best performing areas of specialty, and I made some additional investments from a resource standpoint. And we also invested in a platform that affected a few of our newer and profitable businesses. So I'll let Brian kind of speak to that.

Michael Wayne Phillips: Yeah, Mike This is Jack thanks for that question.

Brian: We're quite excited about the performance of our specialty business and.

Brian: 2023 concluded we made the decision to look at the best performing areas of specialty.

John Conner Roche: But I think, you know, we know that the growth trajectory that we have ahead for specialty will make the expense ratio very palatable. And overall, what you should get from that is that we're investing in one of our key businesses. Yeah, sure.

Brian: I'll make some additional investments from a resource standpoint, and we also invested in platform that affected a few of our newer and profitable businesses. So I'll, let bryan kind of speak to that but I think we know that the growth trajectory that we have ahead for specialty will make the expense ratio very power.

John Conner Roche: <unk>.

John Conner Roche: And overall, what you should get from that is that work invest.

Brian: Investing in one of our one of our key businesses Yeah sure. So I'll just give a little bit more detail. There HR. For example, we've been leaning into technology for our E&S business right. This is a.

Bryan James Salvatore: So I'll just give a little bit of more detail there, okay? So for example, we've been leaning into technology for our E&S business, right? This is a fast growing, very profitable area. We built out a completely new system for them.

Bryan James Salvatore: The fast growing very profitable area, we built a completely new system for them. As you May know they also have a lot of submissions and quotes in the E&S space. So we will get a lot of efficiency and upside from that.

Bryan James Salvatore: As you may know, they also have a lot of submissions and quotes in the E&S space, so we will get a lot of efficiency and upside from that type of investment. We're also adding staff to that area, and it's not just in our E&S group.

Bryan James Salvatore: We're also adding staff to that area and.

Bryan James Salvatore: And it's not just in our E&S area. We're also investing in the platform for our industrial property business and we're investing in staff for our marine business and our healthcare business city. So a number of our areas that we see is quite profitable growing and having a lot of opportunity were investing in and I do think that.

Bryan James Salvatore: We're also investing in the platform for our industrial property business, and we're investing in staff for our marine business and our healthcare businesses. So a number of our areas that we see as quite profitable, growing, and having a lot of opportunity are investing in. And I do think, to Jack's point, you know, that will earn through, the revenue will earn through, and that will absolutely help us on the expense side. Mike, notwithstanding investing heavily in our most profitable and ultimately fastest growing business, we're still committed to the 30.7% expense ratio for the overall firm. Yeah, perfect.

Bryan James Salvatore: <unk> point that will earn through cause revenue both earn through and that will absolutely help us on the expense side, Mike notwithstanding investing heavily in our most profitable and ultimately fastest growing business, we're still committed to the 37% expense ratio for the overall firm.

Bryan James Salvatore: Sure.

Mike: Yeah perfect. Thank you guys appreciate it.

Michael Wayne Phillips: Thank you, guys. I appreciate that. The next question will come from Michael Zaremski with BMO Capital Markets. Hey, good morning.

Bryan James Salvatore: The next question will come from Michael Zaremski, with BMO capital markets.

Michael David Zaremski: This is Jack for Mike. You touched on this in the prepared remarks, but I'm just curious if you could offer more Keller on the deconcentration strategy and progress and personal lines. I'm specifically in Michigan, perhaps in the Northeast as well.

Michael Wayne Phillips: Hey, Good morning, this is Jack on for Mike.

Jack: You touched on this in the prepared remarks, but just curious if you could offer more color on the deconcentration strategy and progress in personal lines.

Michael David Zaremski: Typically in Michigan, perhaps in the northeast as well.

John Conner Roche: Are you reducing concentration in those geographies meaningfully? Or are you losing fewer customers and expectancies as you successfully push improved terms and conditions, including higher deductibles? Yeah, this is Jack again.

Jack: Are you reducing concentration of those geographies meaningfully.

John Conner Roche: 16 of our customers and expected successfully pushing today in terms of conditions.

John Conner Roche: The higher deductibles.

John Conner Roche: I couldn't be any more pleased with the execution that we're seeing, within purse lines and, frankly, the rest of the enterprise because as we think about property aggregations and we think about spreading our risk and implementing terms and conditions that require the entire enterprise to kind of contribute. Specific to Personal Lines, we are right on target with the thresholds and the milestones that we set for ourselves, so much so that with the implementation, particularly on the renewal terms and conditions, if that continues to go as well as we project, we can continue to change the dials on our new business appetite. We've already done that in five of our states.

John Conner Roche: Yeah. This is Jack again.

John Conner Roche: I frankly couldn't be any more pleased with the execution that we're seeing.

John Conner Roche: Within personal lines and frankly, the rest of the enterprise because as we think about property aggregations, and we think about spreading our risk and implementing terms and conditions.

John Conner Roche: That that requires the entire enterprise to kind of contribute but.

John Conner Roche: Specific to personal lines.

John Conner Roche: We are right on target with the thresholds and the milestones that we have.

John Conner Roche: Set for ourselves.

John Conner Roche: So much so that with the implementation, particularly on the renewal terms conditions if that continues to go.

John Conner Roche: As well as we.

John Conner Roche: Project.

John Conner Roche: And that we can continue to change the dials on our new business appetite, we've already done that in five of our states. We're looking at the next five.

John Conner Roche: We're looking at the next five. So I think of this as the big picture: we're making meaningful progress on our margin recapture and simultaneously advancing our diversification efforts at a really good clip. So couldn't be more pleased with the way that's playing out in the purse lines. From a premium and insured perspective, you'll see some PIFF shrink into 2025, but from a premium growth perspective, you'll start seeing some growth continuing and continuing to get larger from here on, from here forward. And this is Dick Lavey, one last point on your question about the Midwest versus the Northeast.

John Conner Roche: So I think of this at the Big picture is we are making meaningful progress on our margin margin recapture in.

Richard William Lavey: And simultaneously advancing our diversification efforts.

John Conner Roche: At a really good clip so couldnt be more pleased with the way that's playing out in personal lines from a premium and ensured perspective youll see some pip shrank.

Richard William Lavey: Into 2025, but from a premium growth perspective, youll start seeing some growth.

John Conner Roche: Continuing in Tianjin to get larger from here on from here forward and this is <expletive> Lavey, one last point to your question about the Midwest versus the northeast, Yes, exactly as Jack said, our manufacturing the <unk> reduction in the Midwest three to four times.

Richard William Lavey: Yeah, exactly. As Jack said, we're manufacturing the piff reduction in the Midwest three to four times the rate in other geographies. That's really where the confection storm issues have prevailed, and the wind hail deductibles are being put in place. The Northeast doesn't have those perils.

Speaker Change: <unk> and other geographies.

Richard William Lavey: It's really where the confection storm issues have prevailed in the wind hail deductibles are being in place the northeast doesn't have those perils, so our northeast business.

Michael David Zaremski: So our Northeast business retention is higher, and piff shrinkage is less. Thank you. The second question is on reserve development, which was healthy again this quarter. I was wondering if there's been any change in your high-level view on loss expense trends. I think you talked about frequency trends normalizing for some casualty lines, but I'm wondering if you're seeing any changes in severity. I'm just asking given that some other insurers have increased their loss inflation forecast recently. Yeah, so overall, we're very comfortable with our balance sheet and very prudent in how we set reserves in core commercial. We had every major line was favorable.

Michael David Zaremski: Retention is higher than to shrinkage is less.

Speaker Change: That's very helpful. Thank you.

Michael David Zaremski: Second question is on reserve development, which was healthy again this quarter.

Michael David Zaremski: It doesn't have any change in your high level view on loss expense trends that you talked about frequency trends normalize it for some casualty lines, but wondering if you're seeing any changes in severity.

Michael David Zaremski: It's actually given us some other insurers have increased our loss inflation forecast recently.

Jeffrey Mark Farber: So I'm feeling really good about that. Overall, our property casualty mix, while a little bit challenging during inflation and that period, serves us reasonably well as casualty trends spike up. And specialty is also largely a claims-made policy construction, which will help us. Jack talked about the limit structure and his prepared remarks where 93% is less than or equal to a million dollars overall and 77% in core. And we also talked about how comfortable we are and the approach we took around reserve funding both in 2016 and 2020. And then finally, the concentration in our geographic focus. We back in 17, 18, 19, we really wanted to deemphasize the major metropolitan cities, think about LA, Chicago, New York.

Michael David Zaremski: Yes. So overall, we're very comfortable with our balance sheet and very prudent in how we set reserves in in.

Jeffrey Mark Farber: Core commercial.

Jeffrey Mark Farber: Every major line was favorable so.

Jeffrey Mark Farber: Feeling really good about that overall, our property casualty mix, well a little bit challenging during the inflation at period serves us reasonably well as casualty trends spike up.

Jeffrey Mark Farber: And specialty is also largely a claims made policy construction, which will help us Jack talked about the limit structure in his prepared remarks, where 93% is less than or equal to $1 billion overall, and 77% and core and we also talked about how.

Jeffrey Mark Farber: Comfortable we are in the approach we took around reserving both in 2016 and 2020.

Jeffrey Mark Farber: And that has really, really served us well. So while frequency is down, severity is up dramatically, and I think we've been prudent at picking and preparing for that, all the while increasing our severity picks.

Jeffrey Mark Farber: And then finally, the concentration in or our geographic focus.

Jeffrey Mark Farber: Back in 17, 18, 19, we really wanted to deemphasize the major metropolitan cities think about L. A Chicago, New York and that is really really served us well. So while frequency is down severity is up dramatically and I think we've been prudent picking and preparing for that all the while brings.

Jeffrey Mark Farber: Up our severity picks.

Speaker Change: Thank you.

Speaker Change: Thank you.

Jeffrey Mark Farber: Thank you. Thank you. The next question will come from Meyer Shields with KBW, please go ahead. Hi, thank you for being on for me.

Jeffrey Mark Farber: The next question will come from Meyer Shields with K BW. Please go ahead.

Jeffrey Mark Farber: Hi.

Meyer Shields: Thank you.

Meyer Shields: Hello, Matt.

Meyer Shields: My first question is on the core loss ratio for commercial. It was flat-ish year-over-year. Just curious what your expectation from here onward is the run rate that we should think about going forward? Yeah, we're getting a rate meaningfully above the loss trend, and so we feel optimistic about our ability to have some improvement in the loss ratio going forward. From time to time, you have particularly higher or lower individual losses for property.

Meyer Shields: My first question is on the core loss ratio.

Meyer Shields: Sure.

Meyer Shields: It was flat.

Meyer Shields: Yes.

Meyer Shields: Just curious if you well.

Speaker Change: Thank you onward.

Meyer Shields: The run rate that we should think about going forward.

Meyer Shields: Yes.

Meyer Shields: We're getting rate meaningfully above loss trend and so we feel optimistic about our ability to have some improvement in the loss ratio going forward from time to time you have.

Meyer Shields: Particularly higher or lower individual losses for property and I think a year ago. We happened to have had some lower levels of losses, this particular quarter, a little bit higher but.

Jeffrey Mark Farber: I think a year ago, we happened to have had some lower levels of losses. This particular quarter, a little bit higher, but I'm pleased with how that business is producing at 58.5, but I think we have a little bit of an opportunity to improve that going forward as the rate earns in. Perfect, that's helpful. My second question is personal auto. I saw like a slight reserve track there, but I know it's very small.

Jeffrey Mark Farber: Im pleased with how that business is producing at 58, five but I think we have a little bit opportunity to improve that going forward is as the rate earns in.

Meyer Shields: Just wondering if you can add more color to that. Just want to make sure I'm not missing anything behind. Can you clarify the question? I think I missed a word or two. It was about personal automobiles and what was the concern on the slide?

Jeffrey Mark Farber: Perfect.

Jeffrey Mark Farber: Helpful.

Speaker Change: Second question on Tom touched at all at all.

Meyer Shields: Absolutely.

Meyer Shields: Chuck.

Meyer Shields: Just wondering if you can add more color on that just wanted to make sure.

Speaker Change: <unk> behind it.

Speaker Change: Can you clarify the question I think I missed a word or two it was about personal auto and what what was the concern on the slide.

Meyer Shields: Oh, it's not a concern, just, um, there's a slight reserve, um, charge, um, on that. So, in personal lines, overall, we had no development. Auto was favorable, and home was slightly adverse. And in home, it was actually the umbrella.

Speaker Change: Alright, thanks, guys.

Meyer Shields: Slide please.

Meyer Shields: Charge.

Meyer Shields: Hi.

Meyer Shields: So in personal lines overall, we had no development.

Meyer Shields: Auto was favorable and home was slightly unfair was adverse and in home. It was actually the umbrella and truth be told it's actually auto that's showing itself in the umbrella and I think we talked in our prepared remarks about some of the cat.

Jeffrey Mark Farber: And truth be told, it's actually the car that's showing itself in the umbrella. And I think we talked in our prepared remarks about some of the catastrophic activities, such as, you know, pedestrian hits, and some of those things are driving us to increase our picks for both prior and current periods for the umbrella. Oh, God, sorry, I missed that. Thank you. No problem. The next question will come from Grace Carter with Bank of America. Please go ahead.

Grace Helen Carter: Strophic active.

Jeffrey Mark Farber: Activities, such as pedestrian hits in some of those things are driving us to increase our picks for both prior and current period for umbrella.

Grace Helen Carter: Oh, sorry, I missed that thank.

Grace Helen Carter: Thank you.

Grace Helen Carter: No problem.

Grace Helen Carter: The next question will come from Great Carter with Bank of America. Please go ahead.

Grace Helen Carter: Hi everyone, the data on limits that y'all gave for the liability exposures in core commercial is really helpful. Just kind of looking at continued growth in the small commercial book versus the re-underwriting in the middle market over the past few quarters, even though that's kind of veered towards the property side. I was wondering if you expect any sort of perceptible impact on the limits. Going forward in the liability book, maybe a greater emphasis on smaller accounts. Yeah, Grace. This is Jack.

Grace Helen Carter: Hi, everyone.

Grace Helen Carter: Clinical data on the limits that you all gave for the liability exposures in core commercial is really helpful.

Jack: Just kind of looking at continued growth and the small commercial book versus three underwriting in middle market over the past few quarters, even though that kind of geared towards the property side. I was wondering if you expect any sort of perceptible impact on the limits.

Jack: Going forward in the in our liability book, just kind of given maybe.

Jack: A greater emphasis on smaller accounts.

John Conner Roche: You know, given our current trajectory of growth patterns, I think those that limit our profile will be either equally as impressive or maybe even a little bit better, because we are growing our smaller business, both in the core lines and in specialty, at a faster clip, and we believe we have a real competitive advantage in both of those areas. That said, I think as we move through this, you know, liability environment, longer term, our hope and expectation is that we can put ourselves in a position so we can participate in the mid-range specialty business and eventually the middle market in a more robust way. But this is an environment where I think caution and prudence are appropriate.

Grace Helen Carter: Yeah, Greg This is Jack.

John Conner Roche: Given our current trajectory of growth patterns, I think those that limits profile will be either equally as impressive or maybe even a little bit better because we are growing our smaller business both in the core lines.

John Conner Roche: And in specialty at a faster clip and we believe we have a real competitive advantage.

John Conner Roche: And both of those areas.

John Conner Roche: That said I think as we move through this.

John Conner Roche: Liability environment.

John Conner Roche: Longer term, our hope and expectation is is that we.

John Conner Roche: We can put ourselves in a position so we can participate in.

John Conner Roche: The mid range specialty business and eventually middle market in a more robust way, but this is an environment where I think.

John Conner Roche: Caution and prudence is appropriate.

John Conner Roche: But I don't want you to miss the point that our relevance with agents and our ability to take the company to the next level have some bearing on whether we can navigate these trends that we're all going through and grow all of our businesses into the future. So that's how we're approaching it. Thank you.

John Conner Roche: But I don't want you to Miss the point that our relevance with agents and our ability to take the company to the next level.

John Conner Roche: Has some bearing on whether we can navigate these trends that we're all going through and grow all of our businesses into the future. So that's how we're approaching it.

Grace Helen Carter: And I guess following up on that, I think last quarter you mentioned maybe a greater emphasis on liability lines versus history going forward. I was just wondering if, given kind of, I guess, the noise is growing louder on social inflation around the industry, if there's been any tweaks to that plan so far on the magnitude of the shift and just kind of any sort of progress on how you're thinking about that so far.

Speaker Change: Thank you and I guess following up on that I think last quarter, you all had mentioned.

Grace Helen Carter: Maybe a greater emphasis and liability lines versus history going forward.

Grace Helen Carter: Just wondering if given kind of I guess the noise is growing louder on social inflation around the industry. If theres been any tweaks to that plan. So far on the magnitude of this shift in just kind of any sort of progress on how youre thinking about that so far.

Grace Helen Carter: Yeah, I think at the time, we were clear about the fact that this was not going to be a major step change in one direction or the other. We were clearly disadvantaged last year by having more property in our mix than some of our competitors.

Speaker Change: Yes, I think we.

Grace Helen Carter: I think at the time, we were clear about the fact that this was not going to be a major step change in one direction or the other we were clearly disadvantaged last year by having more property in our mix than.

Grace Helen Carter: Some of our competitors.

Grace Helen Carter: I believe will be less disadvantage and potentially advantaged going forward, if the liability trends continue to present themselves.

John Conner Roche: I believe we'll be less disadvantaged and potentially advantaged going forward if the liability trends continue to present themselves. So I think, to your point, Grace, we're not having an identity crisis with our book mix. We're trying to optimize and where we see, particularly in certain geographies, in certain sectors, we are moving forward on our liability mix. Bryan spoke about that, particularly in E&S and the lower end of management liability and our healthcare businesses. We have great margins, and great transparency about what growth looks like. So overall, I think you're right. It'll be somewhat balanced.

Grace Helen Carter: So I think to your point Grace, where we're not having an identity crisis with our book mix, we're trying to optimize and.

John Conner Roche: Where we see particularly in certain geographies and certain sectors. We are moving forward on our liability mix, Brian spoke about that.

John Conner Roche: Particularly in E&S and the lower end of management liability and our health care businesses, we have great margins great transparency to.

John Conner Roche: To what growth looks like so overall I think youre right it'll be somewhat balanced.

John Conner Roche: We're pretty excited about our business mix going forward. Thank you. The next question is a follow-up from Michael Phillips with Oppenheimer. Hey, thanks. Let me pop back in.

John Conner Roche: We're pretty we're pretty.

Michael Wayne Phillips: Excited about the business mix going forward.

Michael Wayne Phillips: Thank you.

Michael Wayne Phillips: The next question.

John Conner Roche: The next question is a follow up from Michael Phillips with Oppenheimer. Please go ahead.

Michael Wayne Phillips: Just your last couple of questions there on small commercials kind of prodded me on this one. You know, small commercial has been kind of a sweet spot for the industry for a while. You guys are killing it there. But I guess because it's been such a sweet spot, it seems like, at least going back a couple of years, that's a place where many people said they would want to go, and I'm not sure you've seen them come into that space, and maybe the competitive landscape has changed, and if not, I'm curious why not.

Michael Wayne Phillips: Hey, guys. Thanks, Let me just.

Michael Wayne Phillips: Your last couple of questions. There on small commercial kind of proud of me on the phone.

Michael Wayne Phillips: Small commercial has been kind of a sweet spot for the industry for a while.

Michael Wayne Phillips: You guys are killing it there.

Michael Wayne Phillips: But I guess, because it's been such a sweet spot it seems like.

Michael Wayne Phillips: It feels like at least going back a couple of years Thats the place where many people said they would want to go and I'm not sure you've seen them come into that space and maybe the competitive landscape has changed and if not just curious why not.

Michael Wayne Phillips: Maybe what's the moat to get into that space and be as successful as you guys are? Thanks. Yeah, Mike, I think that's very perceptive. And I'll let Dick speak to that. But I do believe that Small Commercial is a business that takes significant investment and, frankly, insight in terms of where the profit pools are, and what pricing sophistication needs to look like. And so it is not something that you can just turn the switch and get into.

Michael Wayne Phillips: What's the mode to get into that space and be as successful as you guys are thanks.

John Conner Roche: And there have been carriers that have highlighted that and either not made the progress that they intended to make or, in some cases, regressed. So, Vic, maybe you can build on that. Yeah, you hit it well. I mean, this business is one where easy-to-do business wins the day, and I know that's an overused term, but that means all the elements of the operating model align from the people, the way you have them, the way you do new business, the way renewals are handled, and, of course, the platform that you put on the agent's desktop for them to submit an issue business.

Dick: Mike I think that's very perceptive and I'll, let I'll, let <expletive> speak to that but I do believe that small commercial is a business that takes significant investments and frankly insight in terms of.

Vic: Where the profit pools are what pricing sophistication needs to look like.

Vic: And so it is not something that you can just turn the switch and get into.

Speaker Change: And there have been carriers that have highlighted that and either not made the progress that they intended to make or in some cases regressed. So <expletive> maybe you can build on that you hit it well I mean this business is one where ease of doing business wins, the day and I know thats, an overused term, but that means all the elements of the operating model.

Vic: Aligned from the people the way the way you have them the way you do new business.

Vic: Renewals are handled and of course the platform that you put on the agents desktop them.

Vic: To submit that in issue business. So as you know we've made significant investments going back three or four years on that our first product. Bob is now rolled out and we're working hard to get where comp added to it. So other competitors Havent frankly made those levels of investments there are some that we compete well against.

Richard William Lavey: So, as you know, we've made significant investments going back three, four years on that. Our first product, BOP, is now completely rolled out, and we're working hard to get WorkComp added to it. So, other competitors haven't, frankly, made those levels of investments.

Richard William Lavey: There are some that we compete well against day-to-day, but we're absolutely thrilled with where this business is and looking into the future. Now that the platform is nearing completion, we feel comfortable actually expanding distribution and finding other points of access. Okay, perfect. Thanks, guys. Appreciate it.

Michael Wayne Phillips: Thank you, Mike. This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Oksana Lukasheva for any closing remarks. Please go ahead. Thank you, everybody, for your interest and participation. We are looking forward to talking to you next quarter. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. BF-WATCH TV 2021, Copyright 2020, New Thinking Allowed Foundation. All rights reserved. BF-WATCH TV 2021

Oksana Lukasheva: Day to day, but where we're absolutely thrilled with where this businesses and looking into the future now that the platform is nearing completion, we feel comfortable actually expanding distribution and finding other other points of <unk>.

Michael Wayne Phillips: Access.

Speaker Change: Okay perfect. Thanks, guys I appreciate it.

Oksana Lukasheva: Thank you Mike.

Oksana Lukasheva: This concludes our question and answer session I would like to turn the conference back over to MS. Oksana Lucas show about for any closing remarks. Please go ahead.

Oksana Lukasheva: Thank you everybody for your interest and participation. We are looking forward to talking to you next quarter.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Michael Wayne Phillips: Okay.

Michael Wayne Phillips: [music].

Michael Wayne Phillips: Yes.

Michael Wayne Phillips: [music].

Michael Wayne Phillips: Yes.