Unidentified Analyst : Okay, that’s helpful. My next question is on the return on equity guidance, and I’m asking it in a positive light, appreciative of the volatility of Selective ROE has been much lower than peers too, but just curious, a lot of management teams or maybe a mix of investors too expect your commercial peers to operate or many of your commercial peers to operate at usually higher ROE for thinking about ’23 and €˜24 versus their historical averages for the industry. That’s, it’s a bit of a case for Selective, but not as much. So there was just a management team, I know you guys couldn’t hear all the conference calls that lifted their ROE guidance by a full 100 basis points attributable mostly to higher interest rates.
So just kind of curious, anything structurally that you think that Selective, is this something you’re thinking about? Or is it just the opportunity set is to a low double digit ROE is the right way to think about things in order to kind of continue growing and at a faster pace than your peers?
John Marchioni: Yes, so let me tackle this first, this is John. And I’m sure Mark will want to add some additional commentary. First thing I would say is, our ROE target that we set and provide you every year is not an aspirational target. It’s a target we expect to consistently achieve over time. And in fact, we set that as our target for our variable compensation for all of our employees, including the executive team. So that’s the important point number one. The other point I would make is, when we see years like we have coming up, where you would expect your investment income and the ROE contribution from your investment income to be higher than your long term expected return on your portfolio, we expect to generate higher than our target ROEs in those years.
And that’s why this is an important point, we, in my prepared comments, I went through how we get to a target combined ratio of 95 on a long-term basis. So that assumes our operating leverage, it assumes our invested asset leverage, and it assumes a normal GAAP equity environment, essentially adjusting for the impact of either an unrealized gain or loss position, and then how we think about the expected returns on that portfolio. So in a typical year, that 95 would produce the 12% ROE. Our guidance this year of a 96.5 is obviously above that. Now, because of that higher return from our investment portfolio, as we talked about, that will produce a combined ratio in excess of our target ROE of 12% but that 96.5 is still point and a half above our combined ratio target.
And therefore we would pay out lower from a variable compensation perspective. So that’s how we put it all together. And we do specifically tie that combined ratio target to our compensation plans. And again, it goes into the idea that when you have outsized investment income, you should be delivering higher than average or higher than expected ROE. I am not sure, trying to black out your question here, Mike, but that’s how we think about it. And that’s how we structure our targets internally and compensate all of our place.
Unidentified Analyst : Okay. And to your point, we can see in the proxy that some of those peers don’t see their bar isn’t as high as I guess where use the term aspirational. So they’re not comped on that maybe higher ROE. My last question was just curious when I , when we think of one of Selective’s competitive advantages, you’re closer than many of your competitors to your agents, insurance brokerage agents, in terms of the your model. Now that we’re a couple years of the pandemic, is anything changed, are your insurance brokers not in the office as much and you’ve had to kind of maybe change your kind of your strategy a bit in terms of how you are interacting with your insurance brokers, or is it mostly business as usual now?
