Carl Lindner: I don’t think so. I think in past calls, I’ve kind of mentioned when we look at prospective loss ratio trends and the numbers that we’re using for those, they — I think we’ve been pretty conservative or tried to stay with what the trends are for instance. And I think I’ve talked about commercial auto liability not being where we want it to be, probably at around breakeven underwriting profit. We took about 9% rate and our prospective loss ratio trend for that we’re using about 7%. We think that’s pretty good. And I think I mentioned in the past on some of the excess liability, that part of our business, how we’re using, depending on what the business is tend to almost 14% in prospective loss ratio trend as we set our pricing, as we look at our reserving and that. So I don’t think that’s really changed. I think we’ve kind of been in that mode for pretty much for the year.
Michael Zaremski: Okay. And just lastly, just switching gears on the investment portfolio and maybe this was already answered. But in terms of the alternative guide of 7%, does that imply a weaker 1Q ’23? Or is just — it’s been a great run and trying to bake in some — maybe some more lower returns given the macro environment, although interest rates are up. So just trying to — how to think about that.
Stephen Lindner: Yes. This is Craig. I’ll tell you how we arrived at the 7% number. As you know, about 60% of the alternatives are invested in multifamily. We’ve had just an incredible run in multifamily returns the last couple of years, as I recall, were something in the neighborhood of 20%. We were able to push the renewal rates at extraordinary levels. And we also had some sales of properties. So I’d say our view is that we’re back to a more normal environment now. We still really like the asset class. We still like our positioning there. But we’re back to a more normal environment instead of getting the double-digit type increases in rental rates. We’re now — I mean we would guess that this year, it will be somewhere between 3% and 5% increases in the rental rates.
So that will drive the NOI. We think that the marks on the portfolio are reasonably conservative. The average cap rate at the year-end market value was right around 5%. And the strong growth markets that we’re in, we’re not seeing transactions above 5%. So we like our positioning there. We don’t see the really large increases in mark-to-market, and we don’t see ourselves selling properties like we have the last couple of years. So anyway, looking for a high single-digit return on the multifamily piece, the real estate piece which is about 60% of the portfolio. The balance of the alternatives, the 40% that is in more traditional private equity is the piece that’s much tougher for us to value. Last year, we substantially outperformed the market.
I think the S&P was down some 18% and our private equity was up, I believe, around 6% or so. As you know, private equity marks typically are done on a lag basis. So we’re just being a little more cautious on our outlook for the — that traditional private equity piece. It’s — that’s the piece though that’s much harder for us to value. I hope it comes in — given the strength of the market early in the year, I hope that the returns on that piece are stronger than what we’re assuming. But that’s how we arrived at the 7% number on the $2.1 billion of alternatives.
