Sean Reitenbach: Got it. Thank you so much, appreciate it.
Operator: The next question comes from Mike Zaremski with BMO. Please go ahead.
Mike Zaremski: Hey, Guys. Good morning. On — back to Personal Lines, obviously, good to see the progress and the pricing increases, and it looks like you’re pushing the terms and conditions changes fairly successfully. But I’m — when you said you expect to achieve target ROEs in ’25. I just wanted to make sure your — you don’t mean by like to their run rate by the end of the year, you mean the full year. And I guess you don’t — when we think about ROE, should we think about kind of your historical combined ratio over long periods of time kind of in the high 90s because you would have more operating leverage. I don’t know if there’s any kind of guidance or math you can help us with on what the implied combined ratio is or any if you don’t want to give the explicit to some kind of triangulation that might help.
Jeff Farber: So we leave 2024 at target profitability on a written basis and for the full year ’25 on an earned basis, I think you should think mid-90s combined ratio for Personal Lines as being what we think about our long-term investment ROE targets, Mike.
Mike Zaremski: Okay. Got it. That’s helpful. And on the investment income, I might — you gave a lot of good disclosure in the prepared remarks, so maybe I missed some of it. But — can you remind us what your new money rate is. And I believe — I don’t believe — I can see that you have a larger gap between your new money rate and your current fixed maturity yield because I believe you had less floaters than many of your peers. So what is your new money right? I don’t know if you’re able to give what your assumption is on your portfolio yield on the fixed income portfolio within your guidance for ’24 because I think there’s maybe some upside to ’25 Q4 — if I’m thinking about the dynamics correctly.
Jeff Farber: So we’ve been buying fixed income in recent days or recent weeks at 5% or so on AA, high-quality, seven year type fixed income. So we’re very comfortable — as you said, there’s a very large spread between either the yield in the portfolio on an NII basis or what’s expiring on a daily basis, and that bodes very well for ’24 growth and even better candidly, for ’25.
Mike Zaremski: So if it is the ’24 growth hindered by just the lack of cash flow this past year, and I guess you get — could you get more — there’s maybe more upside in ’25, I guess we can do the math using the curve. Just — I want to just — I guess, you give specific guidance, I just want to make sure we’re not missing anything beyond ’24, given the gap.
Jeff Farber: Yes. So ’23 was clearly hindered as much as we grew 12%, it was hindered by the lack of cash flow because up until this quarter, we hadn’t made money for the last four quarters. So we would have benefited greatly from that extra cash flow. That does have some impact on 2024. But by the time you get to 2025, much, much less, and we really come out of it with a mature level of cash flow.
Mike Zaremski: Okay. Got it. And maybe I’ll sneak one last one in. Specialty, you’ve had excellent results over time there. I believe you kind of talked about taking some more conservative loss picks. I believe, you’re alluding to it on a go-forward basis. So we should be making sure we think about our — the loss ratio embedding some forward-looking conservatism. I don’t know if you want to give any further color — unpack the comment?
Jeff Farber: Even with conservative liability loss picks, we’re guiding toward a low-50s loss ratio for Specialty over a long-term basis, notwithstanding the 2023 being better than that.
Mike Zaremski: That’s clear. Thank you.
Operator: The next question comes from Grace Carter with Bank of America. Please go ahead.
Grace Carter: Hi, everyone. I think that you’ve mentioned that the 7% CAT load for this year should be a high watermark. I’m just curious about kind of the magnitude of the incremental benefit that you’re expecting in 2025 just from the additional actions that you’re not really, fully contemplating in this 7% number? And if we should think about the 2025 CAT load is being pretty set over a long-term basis? Or just given the ongoing mixed shift efforts that you’ve mentioned, if we should expect kind of a downward drift from those levels as well?
Jeff Farber: Grace, I know you have to model ’25 as your customers expected, but we’re really not prepared to give a 2025 guidance at this point. Having said that, I think the amount of written rate that we’ve been getting in late ’23 and into ’24 and have the impact that, that earned rate has on ’24 and even ’25 is meaningful and will be helpful beyond loss trend. That, coupled with all of the terms and conditions changes that we articulated in the prepared remarks, I think will have a decent impact on that. But it’s a little early to — a little early for us to declare a sizing.
Grace Carter: And I guess back to the Specialty book, I mean, you’ve obviously called out that results were a little bit favorable versus expectations this year. But I guess taking into account the non-renewals in the book as well as ongoing strength in pricing. How should we think about any potential incremental sort of margin benefits versus original expectations for this year for that book going forward? And I guess just the trade-off between the unit growth opportunities in that business versus reaching these margin expectations that you have?
Jack Roche: Grace, this is Jack. I think anybody that’s in this business right now has a newfound respects for the changes in loss trends and the level of uncertainty that we have to adjust to. So the way I think about it, and I think the way we are operating is where we are trying to get double-digit growth and better in the businesses that not only are producing good margins, but that we have the most confidence in. And that is accentuated by where we think social inflation and litigation trends are likely to be least pronounced or impactful. On the other end of the spectrum, as Bryan articulated with a couple of the programs when we have areas of the portfolio that are not meeting our hurdle rate and pose potentially an outsized exposure to those same trends, we’re not afraid to take some pretty aggressive action.
