Q2 2025 Selective Insurance Group Inc Earnings Call
Good day and welcome to the Selective insurance group. Second quarter 2025 earnings conference call. At this time, all participants are only mode after the speaker's presentation, there'll be a question and answer session, instructions will be, given at that time,
As a reminder, this call may be recorded.
Speaker Change: I would like to turn the call over to Brad Wilson, senior vice president, and best relations and treasurer.
Speaker Change: Please go ahead.
Speaker Change: Good morning, thank you for joining selective. Second quarter 2025 earnings conference call.
Speaker Change: Yesterday, we posted our earnings press release financial supplement, and investor presentation on selective.com investor section.
Speaker Change: A replay of the webcast will be available there shortly after this call.
John Marioni: John marioni our chairman of the board, president and chief executive officer and Patrick Brennan, Executive Vice, President and Chief Financial Officer will discuss second quarter results and take your questions.
John Marioni: John and Patrick will reference non-gaap measures that we and the investment Community use to make it easier to evaluate our insurance business.
John Marioni: These non-gaap measures include operating income, operating return on common equity and adjusted book value per common share.
John Marioni: the financial supplements on our website include Gap, reconciliations to any reference non-gaap Financial measures
About our future performance.
John Marioni: These are forward-looking statements under the private Securities. Litigation Reform, Act of, 1995, not guarantees of future performance.
John Marioni: These statements are subject to risks and uncertainties that we disclosed in our annual quarterly and current reports filed with the SEC.
John Marioni: we undertake no obligation to update or revise, any forward-looking statements,
John Marioni: Now, I'll turn the call over to John.
John Marioni: Thanks, Brad, and good morning. We delivered an operating return on Equity of 10.3%. This quarter with excellent investment income, which increased 18% from the prior year, period.
Speaker Change: Excess and surplus, and personalized, produced strong results in the quarter.
Speaker Change: with both segments, reporting quarterly and year-to-date combined ratio is at or below our 95% long-term Target
Speaker Change: Overall our insurance segments, grew 5% reflecting our disciplined underwriting and pricing strategy, and an increasingly competitive market.
Speaker Change: In standard commercial lines, renewal pure price increased 8.9% and we continue to execute targeted underwriting and claims actions that I will describe later in more detail.
Speaker Change: We recorded 45 million or 3.8 points of unfavorable prior year, casualty Reserve development related to general liability and Commercial Auto.
Speaker Change: This pushed our overall combined ratio for the quarter to 100.2
Speaker Change: it also caused us to increase our combined ratio guidance for the Year by 1 point to a range of 97 to 98 including an assumed 6 points of catastrophe losses.
Speaker Change: Given this reserving action. And those in 2024, I want to provide context around our process, current risks and how we respond, when new loss data emerges.
Speaker Change: In addition to comprehensive quarterly Reserve reviews, we conduct semi-annual independent Reserve assessments and periodically engage third parties for benchmarking and methodology reviews.
Speaker Change: Ultimately Reserve development reflects the quality of our initial loss picks historically, those have held up quite well.
Speaker Change: Focusing on the more mature 2015 to 2019 accident years. As of year end 2024, we increased our other liability occurrence, ultimate losses by 5.5% from our initial picks.
Compared to an average 14% increase for the industry.
Speaker Change: In the 2021 to 2023 accident years, we increase our ultimate losses by 13% compared to the industry's 5%.
Speaker Change: While industry Trends in recent years, have not match pre-pandemic levels. There have been significant reserving actions which we believe point to industry-wide pressure on this line of business.
Speaker Change: Schedule P. Data confirms that, we tend to respond early to Los emergency even for relatively immature, accident years for longer tail lines.
Speaker Change: We added new slides in our investor presentation to highlight this point.
Speaker Change: For more mature activity in the years and other liability occurrence and Commercial Auto liability. Our book loss ratio at the third year, end of the valuation for a given accident year is similar to the loss ratio. At year end 2024
Speaker Change: For the industry, there has been a more meaningful amount of unfavorable development after the third year-end evaluation.
Speaker Change: This responsiveness, informs our view when setting prospective loss, Trends and pricing strategy.
Speaker Change: Our casualty mix of business is higher than our peers. This has been a benefit when property lines have been challenged and our historical catastrophe, losses and volatility are lower than the industry average.
Speaker Change: However, the ongoing industry-wide social inflationary environment has an outsized impact on casualty lines, particularly on claims involving bodily injury.
Speaker Change: We have been steadily increasing our lost Trend estimates for cash. The lines in recent years largely in anticipation of social inflationary impacts on claim severities.
Speaker Change: Those assumptions are embedded in the current accident year loss. Ratios we are reporting.
Speaker Change: in our quarterly Reserve review the frequency and severity of estimates included in our ultimate loss selections are key metrics
Speaker Change: claim frequencies are our earliest profitability indicator and we have a robust monitoring process. That includes reviewing actual and expected claim counts.
Speaker Change: Through the first half of the Year, overall accident year, 2025, casualty claim frequencies are consistent with or in some cases better than our initial expectations.
Speaker Change: Workers compensation claim counts. In particular have been notably lower than expected.
Speaker Change: Relevant.
Speaker Change: Primarily tied to the 2022 and 2023, accident years in the umbrella and products sub lines.
Speaker Change: Higher Auto liability severities have increased the frequency of claims piercing the umbrella layer.
Speaker Change: The products line has also experienced elevated litigation rates and paid severities in recent years impacting both loss and allocated loss adjustment expenses.
Speaker Change: and Commercial Auto we responded to elevated, paid severity emergency in the quarter, strengthening reserves 25 million, dollars primarily related to the 2022 through 2024 accident years
Speaker Change: The loss Trends. We are seeing are broad-based with impacts that cross most geographies and major industry groups.
Speaker Change: Our 2025 loss ratio includes assumptions for escalating severity trends.
Speaker Change: Even with the reserve increases in commercial Auto and general liability for prior accident years, this quarter, we remain comfortable with the ultimate severity Trend implied by our current year loss ratio selections.
Speaker Change: We have adopted several strategies in recent years to address Social inflation's Challenges.
Speaker Change: They involve pricing underwriting and claims.
Speaker Change: Related to pricing, we continue to seek and Achieve overall renewal pure price increases above expected loss trend.
Speaker Change: I'll discuss pricing in more detail in our segment results or we continue to execute the execute these increases in a granular fashion.
Speaker Change: With an underwriting. We continue to take actions to maximize our well-known strategic competitive advantages.
Speaker Change: Strong distribution, partner relationships.
Speaker Change: Are unique field-based operating model and our sophisticated tools.
These actions include.
Speaker Change: Tightening underwriting, guidelines for select liability exposures, including certain contractors coverage offerings.
Speaker Change: Managing limits and challenging jurisdictions, reducing the number of new umbrella lines. For the particular focus on reducing limits greater than 5 million dollars.
Speaker Change: Increasing minimum premiums in general, liability and umbrella.
Speaker Change: Trimming underperforming classes or risks with emerging exposures and prioritizing new business in better performing segments.
Speaker Change: Contractors is our largest industry segments and has a higher mix of general liability and Commercial Auto exposure.
We have built strong expertise in this industry, segments and remain comfortable in our ability to produce consistent growth and profitability.
Speaker Change: However, we continue to invest in diversifying our business mix and Geographic footprint.
Speaker Change: In addition to diversification within commercial lines, our efforts to expand our ens business and personal lines. Mass affluent strategy will contribute to a more balanced portfolio in the future.
Speaker Change: We remain focused on the fundamentals and claims.
Speaker Change: Our Justice specialized by claim type size and jurisdiction. For example, we have a limited number of adjusters assigned to Georgia bodily injury, or New York labor, law cases to drive greater insight into best practices and analyzing these higher risk claims and defending related litigation
Speaker Change: To address social inflation. We have increased the review of cases going to trial boosting the use of second opinions. Engaging jury Consultants conducting mock trials and using roundtables to gain further, insights about potential outcomes.
Speaker Change: We also have created an internal task force to evaluate our fraud data review processes and gain insights about where to invest additional investigatory resources.
And we are currently in the process of developing attorney, representations claims models to replace our existing claims litigation models to more quickly identify which claimants are likely to seek representation.
Our pricing strategies and underwriting refinements contributed to slower premium growth in the quarter.
Speaker Change: Overall, renewal pure pricing across our 3, Insurance segments was 9.9%.
Speaker Change: Of 80 basis points from a year ago.
Speaker Change: We will continue to maintain a balance of approach and make investments to support future growth.
Speaker Change: However, we believe emphasizing improving underwriting margins and tempering the Top Line in the current environment is prudent.
Attorney for Segment performance standard commercial lines reported to 102.8 combined ratio, including 4.8 points of unfavorable prior year casualty development.
Speaker Change: Renewal pure price increase from a year ago to 8.9%.
Led by general liability at 11.9%.
Speaker Change: Commercial Auto renewal, pure price was 10.4%.
And property was 7.8%.
Speaker Change: Property, renewal pure price increases slowed in the quarter compared to our recent run rate reflecting broader market, conditions, and improved profitability.
Speaker Change: Compensation was 10.2%.
Speaker Change: Retention for the quarter fell 2 points to 83%, due to our rate increases and underwriting actions along with an increasingly competitive environment.
Speaker Change: Excess and surplus lines, grew 9%, this quarter driven by an average, renewal pure price, increase of 9.3%.
Speaker Change: The segments combined ratio was 89.8 and we can see continued growth opportunities for this segment.
Speaker Change: We have deployed deliberate ens strategies and introduce new products over time, expanded our brokerage business and invested in operational efficiency.
Speaker Change: We are now in the early stages of giving our retail agents access to our ens offerings.
We do not expect to realize immediate significant growth in this latest effort but believe, it will facilitate additional growth capacity over time.
Speaker Change: The personal lines combined ratio was 91.6 26 and 1/2 points better than a year ago.
Our rating and non-radiative.
Speaker Change: We are emphasizing growth in states with adequate rate levels and as a result, personalized net premiums written to declined 5%.
Speaker Change: However, Target business grew 16% in the quarter with nearly all new business being in our Target Mass affluent Market.
Speaker Change: Renewal pure price for the quarter was 19%.
Speaker Change: We expect rate changes will remain above loss Trends, but moderate in comparison to those achieved in 2024 as the portfolio moves closer to achieving long-term Target profitability.
Speaker Change: In summary we delivered a 12.3% operating Roe through the first half of the year and remains focused on executing our risk management strategies. While driving long-term profitable growth.
Speaker Change: Loss Trends remain elevated. But we are confident in our ability to quickly identify and address areas within our control and deliver consistent under underwriting margins over the long term.
Patrick: Now, I will turn the call over to Patrick who will provide more details about our financial results.
Thanks John and good morning everyone.
Patrick: For the quarter, fully diluted, EPS was a136 and non-gaap operating EPS was a dollar 31.
Patrick: Our underwriting performance was Break Even but our return on Equity was 10.7%.
Patrick: And operating Roe was 10.3%, due to the investment portfolios, continued, strong performance.
The Gap combined ratio for the quarter was 10.2 which was elevated primarily due to the 3.8 points of unfavorable prior year. Casualty Reserve development that John discussed
Patrick: Catastrophe losses were 6.7%, which was better than anticipated and 1.7 points better than the prior year period.
Patrick: we continue to see the benefits from profitability Improvement, actions in personal lines as we execute our Mass affluent strategy,
As expected excess and surplus lines delivered, another strong quarter.
Patrick: In standard commercial lines, we're focused on executing appropriate underwriting actions and rate increases to address the current environment and position us to achieve Target margins.
Patrick: Our overall underlying combined ratio for the quarter was 89.7 and Improvement of 170 basis points from the prior year period.
Patrick: year to date, the underlying combined ratio was 90.8, which is up 20 basis points from the first half of 2024,
Patrick: Non-catastrophe property losses were 15 points a year to date, which is 170 basis points better than a year ago and reflects continued benefits.
Patrick: From property lines earned rate and the tightening of terms and conditions over the last few years.
Patrick: Year to date. These benefits are more than offset by 140. Basis point increase in current year, casualty loss costs
Patrick: the the expense ratio increased by 60 points, primarily driven by higher expected employee compensation after last year's lower profit-based payouts
The remain focused on expense discipline and deploying Capital to support scale, enhance, decision-making and operational efficiency.
Patrick: Second quarter after tax, net income. Net investment. Income was 101. Million of 18% from a year ago.
Patrick: this income generated 13 points of return on Equity up 50 basis points from the second quarter of 2024,
Patrick: We continue to position our Investment, Portfolio, conservatively, and have made no significant changes to our investment strategy.
Patrick: Total fixed income and short-term Investments at quarter end represented, 92% of the portfolio and had an average credit quality of A+ and duration of 4.2 years.
Patrick: The average new purchase yield was an attractive 5.7% pre-tax.
Patrick: And the quarter end. Average pre-tax book, yield was 5%.
Patrick: We expect this embedded book yield to provide a durable source of future investment income.
Turning to Capital, we ended the quarter with 3.4 billion dollars of Gap equity and 3.3 billion of statutory Surplus.
Book value per share, increased 9% in the first half of the Year, driven by our profitability, and a 1.74 per share reduction. In after tax net unrealized fixed income security losses.
Patrick: Debt to Capital was 21.1% below. Our internal threshold of 25%.
Patrick: We continue to.
Patrick: Total to our shareholders by issuing.
And opportunistic. Share repurchases.
Patrick: During the second quarter, we did not repurchase any shares of common stock and 56 million remained available under our repurchase authorization as of June 30th.
Patrick: Effective July 1st. We successfully renewed the casualty access of loss and property per risk treaties that cover standard commercial lines, standard personal lines, any and S.
Patrick: The casualty access of lost, treaty covers, all our casualty business and provides 87 million of protection above a million dollar retention.
we increase the first layer to a million dollar retention up from 2 million and continue to retain a portion of the first layer through corporate through a co-participant
Patrick: The remaining treaty layers were fully placed without co-participants.
Patrick: We also renewed our property per per risk treaty. Now, providing 95 million of coverage in excess of a 5 million dollar retention for losses, on a per risk basis.
Patrick: The 30 million limit increase from the expiring treaty reflects growth, and higher insured values.
Patrick: Pricing and key terms and conditions were within our expectations heading into the renewal.
In light of results to the first half of the Year our revised 2025 guidance is as follows.
Patrick: We expect our 2025 combined Gap. Combined ratio will be between 97 and 98 up 1 point from prior guidance.
Patrick: Our guidance includes 6 points of catastrophe losses in the impact of Prior year. Casualty Reserve development, reported through the second quarter.
Patrick: it assumes no additional prior year casualty Reserve development and no further change in loss cost estimates
Patrick: We do not make assumptions about future Reserve development as we booked our best estimate, each quarter.
Patrick: After tax, net investment income of 414.
Patrick: Excuse me, 415, million up from prior year, guidance of 405 million.
Patrick: our guidance includes an overall effective tax rate of approximately, 21.5%
Patrick: Our guidance assumes an estimated 61.5 million of fully diluted weighted, average, shares including those repurchased in the first quarter and assumes. No additional repurchases. Under our existing share repurchase authorization
Patrick: With that. We'll now turn it over to Q&A.
Patrick: Operator. Please start our question and answer session.
Speaker Change: Thank you, if you'd like to ask a question. Please. Press star 1, 1 1 if your question hasn't answered, and you'd like to remove yourself from the queue. Please press star 1 on again.
Speaker Change: Our first question comes from Michael Phillips with Oppenheimer. Your line is open.
Michael Phillips: Uh, yeah. Hey, good morning, um, thanks. Um, appreciate the, the new slide. Uh, John. Um, I guess I want to ask a question on a slide that's been on your deck for a while. Um, and that's um, where you show.
Michael Phillips: Um kind of the excellent above average and below average retention impure price. Um, that side that side hasn't changed much over the past year. And I guess I I wonder if if we look forward to maybe the next year, should it change um specifically the below average very low, you know, jack up, 20% rates and see retention falls to the floor. Um why not see that and I guess maybe partly the answer could be your comments on broad-based. This social inflation issue. Is it a cross your entire book or is it more concentrated in kind of what you're labeling? These below average risk. Thanks.
Michael Phillips: Commercial that you don't deviate on an account by account basis. You're going to push that a lot harder but there's also an underwriting overlay, a subjective underwriting overlay that happens across those buckets. So on a directional basis, what we see there is what we would expect and like to see but that is a dial, we will continue to turn but it's not as absolute. And pure as it might be in a in a true rate plan like you would have in small commercial automated small commercial or personal lines where you don't have discretionary pricing and underwriting, judgement overlaid on top of your model output,
Michael Phillips: I mean, I, I mean, I guess part of the question, then would be are the issues you're seeing, or are they across your entire book? Are they more concentrated in certain accounts that you kind of want to win yourself off of?
Speaker Change: Yeah, I would say and and Mike I appreciate you. You pushing on this point and I know we've said this before, this is something we continue to evaluate what we've been seeing and reacting to with higher paid emergence, is evident across industry classifications and it's evident across geographies. And I think that's a very important point. It applies to our commentary relative to Commercial Auto and general liability as well. Now that said our Focus here is making sure we we're responding appropriately to what we think is an industry-wide, societal shift driving social inflation, but also recognizing there are things in our control that we have to have a continuous Improvement mindset around.
Speaker Change: Making sure that individual wrist selection decisions individual claim, decisions are getting to the right outcome on a regular basis. So there's a there's refinement on that front that we think will continue and we should continue to focus on. But what we're seeing here is in fact, broad-based. And I think, you know, this this I I based on the comments we've seen in the early write-ups, on our after our earnings release. I think it's important to reiterate this point.
Speaker Change: There's no question that we have a higher mix of commercial Auto and general liability than some of our peers and and and for the industry, as a whole, those 2 lines, which are are those 2 that are more impacted by social inflation Commercial Auto and general liability are about 64% of our commercial lines premium and just over 51% of our total premiums.
Speaker Change: Now our our thesis that this these severity emergence that we're seeing is driven by social inflation as as opposed to something idiosyncratic to our particular portfolio. Is something we believe in but it's also a thesis we continue to evaluate critically.
And how do we do that? First is making sure with the volume of risk metrics, we have on our portfolio across our portfolio. Making sure that we have relative stability in the portfolio and relative relative stability in the pricing of our portfolio. On a risk by risk basis that continues to be the case. But let me go a step or 2 deeper in terms of
Speaker Change: How we continue to validate this thesis? As I know many of you do we do deep industry analysis on frequency and severity Trends. So we do deep schedule P analysis for these lines of business for our peer group individually and collectively and for the industry as a whole to validate that the trends we're seeing in frequency and severity match, what the industry is seeing more broadly, we see that and we we see a consistent pattern and the reason we put those additional slides into the the investor presentation is to show at least on a historical basis.
Speaker Change: That we tend to react more quickly.
Speaker Change: And you see that for other liability, occurrence, and you see it for commercial, Auto liability, looking back to those more mature years that were pre-pandemic. Now, I understand that's history. And and at some point, we will learn whether or not that same pattern holds. When you look at these more recent accident years that were reacting to. But I think that's an important data point when you look at at how our estimates have held up, and how quickly we've gotten to what, our our current view of ultimate is for those prior accident years,
Speaker Change: so I I mean I this is an important topic for us to make sure we spend the appropriate amount of time discussing, but we trust me, we continue to validate our thesis that this is in fact, widespread and industry based
Speaker Change: No. Okay, thank you that. That's, that's perfect. Thanks for all the commentary, I guess if I could. Um, and I also appreciate that. It's more than pricing, you talked about your underrated actions and some claims things that you're doing, um, but should we be surprised at all? If I heard the numbers, right on the go pricing was 119. It's kind of in line with last quarter and not see more pricing on the GLS piece.
Speaker Change: TL is GL is just under 11 in that number on a year-to-date basis and and umbrellas closer to 14 on a year-to-date basis inside of that number that actually that number has actually moved on a on
Speaker Change: a pretty uh, significant sequential basis.
Speaker Change: now, I, I'll
Speaker Change: Also make this point. And I think despite what you might be hearing on a consistent basis,
Speaker Change: Across the industry around recognition of social inflation and higher severity Trends and Views around casualty pricing, our pricing stance at, you know, call at 11% roughly 11% on GL. Is it negatively impacting our conversion rate on new business? And it's put a little bit of downward pressure on our retention. You can see our retention while still strong has ticked down to to 83% for commercial lines. I think that's the best indication as to where pricing is relative to the market and to the extent.
Speaker Change: There's not yet full recognition on the higher severities in the more recent accident years. You might not see that fully reflected on the industry basis. And that's a, that's a competitive Dynamic that we're dealing with. But, as we've said on multiple occasions,
Speaker Change: We have high conviction in our view of the more recent accident years and that feeds our high conviction on our pricing stance. And we're willing to make that trade with regard to a little bit more Topline pressure in an effort to achieve our profit objectives.
Speaker Change: Okay, thank you John. I appreciate the answers. Thank you. Thanks, Mike.
Thank you. Our next question comes from Bob Jian Huang with Morgan Stanley. Your line is open.
Speaker Change: Hi, good morning. Uh maybe just want to unpack on the commercial Auto reserving a little bit here. Um, if we revisit the most recent scheduled P, um you lowered your initial loss picks in the most recent accident year and I, I think at the time the explanation was it was due to a pricing improvements. Uh, just given the reserve charts that have been taken. Is there a way for us to really think about the Assumption changes going forward. In other words, how, uh, is there a way to help us gain a little bit more comfort in terms of what is the commercial Auto assumptions? And then how we can think about the losses and the potentials going forward from here?
Speaker Change: Yeah. So our, you know let's I think and I went through this last quarter, I'll I'll kind of Hit the the high points again with regard to Commercial. Auto in particular, if you look at our our ass
Assumed lost trend on average over the last 4, prior accident years. So 21 through 2024 embedded in our expected loss. Ratios was an average assumed loss trends of about 8%
Speaker Change: And, and, and I'm talking to commercial liability Commercial, Auto bodily injury in particular and over that same 4 year time period, our average renewal pricing on Commercial Auto, liability was just over 10%.
Speaker Change: and I think when you, when you look at the the
Speaker Change: Loss ratio Improvement that you've seen in our reported results on an accident ear basis.
Speaker Change: It was really that continued Gap over an extended period of time between that rate of just over 10% and the assumed loss trends at right around 8% and as we evaluate the more recent years and the emergence that we've seen, we continue to have a similar view about loss Trends with across our casualty portfolio, which has been increasing on an overall basis. But in commercial Auto in particular, we had a bit of embedding a higher loss Trend and I think that's the that's the best way to think about run rate performance on a on a commercial Auto basis. Now again we we evaluate emergence on a quarterly basis to the extent that changes on a go forward basis will change our our pricing stance, but when you look at the commercial Auto pricing, we've been
Speaker Change: Getting, we think that's a, that's a sustainable level and and that's where the industry continues to be from a pricing perspective.
Speaker Change: Okay, uh uh thanks. So so maybe maybe maybe just uh follow up on that point. Then, in this case, so is it fair to say that despite the charges you took here, you still feel that 8% and the 10% are appropriate assumptions. Go forward, or do you think that 8% might need to move up? Uh, or have you moved up that 8%? I'm assuming no, but just kind of curious to see if that's the case.
Speaker Change: We we we we we would say those are still reasonable assumptions.
based on everything we can, we continue to see
Speaker Change: Okay, thank you.
Speaker Change: Good morning. Hope you guys are all doing well.
Speaker Change: Um, I was hoping you could um, walk me through a little bit more detail about the accident that you set for the quarter. And I guess so far this year, um, you know, was curious if there's any thoughts about raising that accident, your peg. Um, giving just the uncertainty of what we have seen.
Speaker Change: With social inflation. Um, and obviously there's mix here to account for, but maybe you could just give us some thoughts on that and
Speaker Change: And you know why, they actually, you might not rise as much, um, or or would depend on your thoughts.
Speaker Change: Yeah, no thanks Paul, appreciate that. Um so when you look at
Speaker Change: Where we are. And that the trend assumptions we made, and we give you the, the rolled up number with regard to casualty, and Casualty X comp.
Speaker Change: We then compare that to what are we observing in the more recent accident years in terms of severity Trends? And that's kind of our tests around whether or not we have a level of confidence in the current year assumptions that we made and based on that. That's why we remain comfortable because the the assumed severities that were incorporated, into our expected loss, ratios work, GL and Commercial Auto
Speaker Change: And across our casualty portfolio, in in total, in terms of expected loss ratios.
Speaker Change: Remain in line with what we're observing in the most recent accident years, which is the most elevated point of the diagonal. And I think that's, that is where our confidence remains. Now, the other point I think, is important to make just to bring you back to last year. We also boosted and I'll focus on GL in particular in the 24-year. When we, we took action on prior years, we boosted our GL expected loss ratio, by a little over 7 points for the 24 year that then got incorporated into our view of 2025. So that was an important step from our perspective. And a lot of us to to to make our put our best foot foot forward. In terms of staying ahead of this higher severity emergence. We were seeing and I think that's another important consideration and why we remain comfortable with our, our book loss ratios for the current year.
Speaker Change: That's super helpful. Um,
Speaker Change: Yeah.
Speaker Change: Combination of maybe I misread this. I apologize for asking this stupid question. Popped up for the quarter on the combined. Anything there. I I would have thought that would be a little bit different than the kind of social.
Speaker Change: Inflation issues, which were, you know, much more consistently seen in the results in the corner.
Speaker Change: Yeah, no, thanks Paul. So then this was something I know came up last quarter as well and if you look at, if you look at the 24-year-old, you're pointing to in Q2 was also there in q1. And so it's there on a year-to-date basis. If you look at our 24 2024, accident year for workers comp, it was in the range of roughly a 97. So when you strip out the favorable development impact, it was around the 97.
Speaker Change: and as we've consistently done,
Speaker Change: Based on the fact that we have been pointing to a flattening frequency Trend in workers comp. We assumed no frequency improvement from 20 202, 24 to 2025
Speaker Change: You know, we talked about average severities, I think you're seeing this pretty consistently across the the industry, um, on a medical side and the medical side ever, severity is about 5% and earn rate, that's been running slightly negative, call it in a, in a 3% range. So, flat frequency severity up about 5 rate down about 3. You just take that 97 and Roll It Forward, and that gets you to to that book combined Ratio or book loss ratio that you're pointing to now also highlight in my prepared comments, when we talked about frequencies for the 25 year, we specifically called out workers comp as having frequency favorable through the first 6 months now, granted, it's 6 months and
Speaker Change: And I don't think I'm we're ready to declare that a trend but it might indicate that the flattening trends that we had been seeing or observing in the more recent accident year uh is not continuing through 2025.
Speaker Change: So a lot there hopefully that gets to the to the heart of your question.
Speaker Change: No, it does. Um, if I can see there 1, just 1 more. Um,
Speaker Change: And in fact, if anything, the biggest difference might be on a peer-to-peer comparison basis is our umbrella is entirely supported so we don't write any umbrella where we don't have the underlying Auto or GL or both. And I think that gives us better earlier insight into frequency and potentially severity of our umbrella portfolio. The profile is a is a lower limits profile. So 905% of our of our umbrella and our umbrella is about about a roughly 400 million dollar direct premium, uh portfolio. The 95% of the policies have a limit of 5 million or less and about half of them, have a limit of a million dollars. So that's that's the overall profile of our um umbrella portfolio.
Speaker Change: Great, thanks Jan. Always appreciate the help. And really always respect your response and comments.
Speaker Change: Thank you.
Mike Zimski: Thank you. Our next question comes from Mike zimski with BMO. Your line is open.
Mike Zimski: Hey uh, good morning.
Mike Zimski: Um, no. Just back to the kind of the, um, um, thinking through, um, The the Reserve editions, um, you know, relative that I know you said that the industry is, um, you know, likely kind of behind, um, on on adding reserves. And, and I think we wouldn't, most people wouldn't disagree Direction with that comment, you know, the industry's been adding, uh, to their social inflation reserves for, for years now, um, but I guess just trying to think structurally about selective. You know, you you've you've, you've said that you've seen a flattening frequency Trend and more comp. Um, I feel like most almost almost no carriers out there have have have have cited that, um, and and frequency would just be something, it's just flat more black and white. I would think and, you know, you've also said that you just have more social inflation exposure, which might be due to the contractor's book. So I guess I'm just trying to to tease out. I mean, it it, you know, Collective is unique and
Mike Zimski: That I feel like you do have more of a, you know, special sauce with with contractors is do you, do you feel that, you know, it's fair to, to, to, to, to paint the the, the picture that, you know, some of this is unique to, to selectively due to your mix of business?
Mike Zimski: Yeah. Well, I think and again it's it's 6 months worth of data. I I it could very well be that that flattening frequency Trend was a 1 year phenomenon. Now again I think time time needs to pass to understand whether directionally but if you look prior to that, we had seen a, a pretty consistent downward Trend, and frequency, albeit, maybe at a slightly lower amount than it than it had been across the industry. So I think we should acknowledge that.
Mike Zimski: The fact that our overall portfolio is more weighted towards construction would follow through to our workers comp portfolio. And I think there's no question that through the pandemic period and post-pandemic and the influence of remote or hybrid work on frequencies and other segments of workers comp didn't impact construction. So I think that probably would explain some of the difference with our portfolio relative to frequency change but I think it's important to note that and I cited our accident year combined ratio for workers comp in 2024 of around the 97. I know reported combined ratios tend to get all the headlines. But if you look across the industry, across the across the country based on ncci and other state Bureau reports the accident year for the industry in 2024 was right around 100.
Mike Zimski: Now, again, the the older accident years have continued to emerge favorably for the industry and for us as well. And to the extent that continues our current year assumptions, might prove conservative, but that's that's how we approach a line with a with a tail like that.
Mike Zimski: Or or signs of they can give us confidence that there won't be further. Meaningful changes going forward.
Mike Zimski: I I would say that the greatest confidence you should get from our actions is the fact that we're reacting to very recent and quite immature. Accident years, in terms of when you look at the actual paid,
Mike Zimski: And even case in and paid data from those accident years, it's relatively immature. So we're looking at
Mike Zimski: We're looking at recent paid emergence patterns, and projecting a smaller inventory of paid claims to Ultimate and we're reacting to the more recent action in the years and I think that's what probably makes us a little bit unprecedented for the industry is it's this activity is being driven by very immature accident years on longer tailed lines just to put it in perspective and and I'll give you a rough number.
Mike Zimski: For the 2023 accident year, our expected, our ultimate expected dollars. And you look at what's, what percentage of that is paid at this point for the 23 accident year.
Mike Zimski: For GL, ex products. It's like 22% for products. It's like 17% and for commercial Auto, it's just over 30%. So these are, these are immature years and you're reacting to pay data and your actual methods on the, on a paid basis are highly leveraged when you see severity emerge, like, like we've seen as an industry have seen and that creates a, a higher level of uncertainty.
Mike Zimski: And I think that's that is what makes us a little bit more unprecedented. Now when and I, I, I can't speak to what others might be doing when you see something like this, your Actuarial indications and your actuaries are going to wind up, putting more weight on the more recent years from an emergency as opposed to traditionally. Maybe weight was spread across the prior 7 years. To identify paid emergence Trends. But they're going to put more weight on the last 3 years and that has a leverage effect on a small amount of paid data. So, I know I'm, I'm
Mike Zimski: Deep into the reserving process, but I think it's it's instructive here to get to the root of your question.
Mike Zimski: This is not us trying to get our arms around old accident years. And I think when you look at the industry in total
Mike Zimski: And I, this is from a from ding analysis, in 2024, the industry in total added 10 and a half billion dollars.
Mike Zimski: To other liability reserves, 10 and a half billion.
Mike Zimski: Almost half of that are around 5 billion was added to the pre-pandemic years.
Mike Zimski: And I think that says a lot.
Mike Zimski: In terms of how some of these lines emerge over time. Now for us that has not been the case, we have not seen any further emergence. Since we acted on the pre-pandemic years at the end of 2023 with a 55 million Reserve adjustment. So, I, I, I don't know what I'm giving you anything that's going to give you high conviction.
Mike Zimski: For us or for the industry. But I think what makes this different is. We're talking about very recent, relatively immature, accident years for longer tail lines of business that everybody is trying to determine when the inflection point or when severity Trends will start to flatten out.
Speaker Change: Okay, I think I think that helps so I I I'll I'll have to, you know, I'll have to follow up and use your your insights and look at more data. But so you're saying you are seeing pads
Speaker Change: Um, increase a bit, the higher than expected. In, in some of these lines, is that correct? In more recent action years,
Speaker Change: Yes, yeah, that's driving the entirety of our Reserve adjustments over the last few quarters. It's paid emergence.
Speaker Change: In the more recent accident years, this is not frequency driven. This is not older accident years. It's paid emergence and you're seeing it in a curves as well, encourage including case reserves, but it's it's more pronounced in paid emergence.
Speaker Change: Okay, got it. And then, and lastly, just pivoting to the, um, you mentioned in your prepared remarks, uh, that, um, no surprise that a commercial property pricing, uh, Mr. Decelerating a bit off off. Um, you know, I think absolute levels that are are fairly healthy. Um, due to to healthy profitability is is, um, you, you know, is that, uh, is that a phenomenon? You that would potentially continue given. Um, it does appear in the industries, earning healthy profits on
Speaker Change: Commercial property or any any view viewpoints or insights there? Thanks.
Speaker Change: Continue. I think it'll remain above where property loss. Trends are. Uh which in the beginning of the year, as we talked about, we had property loss Trends all in at about 3 and a half percent. So I think there's still some potential margin expansion there. We also have the overlay of potential tariff impacts that many are talking about. And I think at least building into their forward view of potential loss loss Trend increases and I think we we still have the level of catastrophe volatility across the industry. So I think that'll temper the drop, but I would expect property pricing to continue to float a little bit lower, but remain favorable to loss Trends as casualty goes higher.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you as a reminder to ask a question. Please press star 1, 1 1.
Shields: Our next question comes from mayor, Shields with KBW, your line is open.
Shields: Uh, great thanks and good morning. I too have questions on the commercial lines.
Shields: First uh with commercial Auto, we saw the same loss, issue Improvement.
Shields: Year over year in the second quarter as we did in the first. But if you
Shields: Raise the action in your 24. Loft. Pick.
Shields: And presumably that needs some sort of catch up for the first quarter, shouldn't that include accelerated sequentially.
Shields: yeah, and I think may, I remember the first point is the the 25 million was spread across 3 accident years, 20 through through 24
Shields: And also remember what I had mentioned earlier, which was what we had embedded into our 25.
Shields: Lost Trend assumption lines. I think that's the that's the primary.
Shields: Areas that I would focus you on and remember our our practices and we've done this before, we've done it with commercial Auto in the last over the course of the last 10 years which is raised the current year of loss ratio when we saw an amount of pressure that we thought was the right thing to do. We did it in general liability last year we've done it in commercial. A lot of liability in the past so we're certainly open to doing that but we haven't seen evidence at this point with the 24 year to the level that that leads us to think differently about where we're booking 25.
Speaker Change: Okay, that's fair. Um, the second question I guess,
I'm looking at the bot business, uh, and it's, it's good to see that. There's been no adverse Reserve development there, but I'm wondering why that casualty site hasn't faced the same sort of social inflation that we're seeing in general liability.
It. Well it's it's a much more aligned for us at Bob liability is something
Speaker Change: As a line of business basis.
Speaker Change: I think your point raises another Point relative to Industry comparison, which is we report all of our general liability and schedule p as general liability. We don't include any of that in CMP. A, number of our peers, do incorporate their GL business. That's written on a companion basis. Companion policy basis in CMP which makes it hard to get a full picture of of GL performance because it's co-mingled with property performance, which has been improving. But Bob liability, you know, it's a, it's a different.
Speaker Change: Mix of business for us, it's a smaller line of business, but it's 1 that we, uh, evaluate on a quarterly basis. The liability portion like we do other lines of business,
Speaker Change: Okay, I didn't realize that. So the bot premium or the bot the line of business that you report. That's just the property component.
Speaker Change: No, no, it's a property liability or in there. All I'm saying is from a reserve review process. We evaluate that subline of of Bob, on a quarterly basis from a frequency severity and a and a carry Reserve perspective.
Speaker Change: Okay, and I guess you're either, so you're not seeing uh manifestation of social inflation. I get that, the limit profile is different.
Speaker Change: It's it's a yeah it's a different portfolio of business and it's a much more portfolio. So even even movements, that could happen favorable or unfavorable wouldn't really be noticeable on an overall basis.
Speaker Change: Okay. Just thank you so much.
Speaker Change: Thank you.
Michael Phillips: Thank you. Our next question. Comes from Michael Phillips with Oppenheimer. Your line is open.
Michael Phillips: Hey thanks. I just want to make sure I got this John. The 20 million dollar go 202223 action a year. Um was that entirely in the? It looks like about 100 379 dollars of excess umbrella. It's entirely in the umbrella business not the primary.
Speaker Change: Yeah, we highlighted we highlighted products now. So what we evaluate GL Reserves?
Speaker Change: We look at products, nonprofits and umbrella. We were pointing out that the 2000 was was leaning more from products and umbrella and remember our products portfolio is because of our construction, mix tends to be predominantly completed operations, type claims, as opposed to your traditional, you know, kind of heavier exposure consumer products that you would think of in a more traditional sense.
Speaker Change: Okay, yeah, so that's that's what I'm asking, so that 20 million was umbrella in product.
Speaker Change: Necessarily in your primary go of liability occurs.
Yeah, I I would say generally speaking, you know,
Speaker Change: you haven't seen emergence that required us to act.
Speaker Change: With regard to nonprofits, which was the primary driver in 2024 actions that we took.
Okay, thank you very much.
Speaker Change: Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to John for closing remarks.
John Marioni: Well, thank you all for joining us this morning. We we always appreciate the engagement and the questions and as always, please feel free to reach out to Brad if you have additional questions. Thank you. All.
Speaker Change: Thank you for your participation. This does include the program and you may now, disconnect everyone have a great day.