Peter Zaffino: Yeah. Thanks, Gary, for the question. And I’ll have Dave make some specific comments. When we talk about the headwinds in financial lines, and again, Dave will go into it, but it’s primarily North America and it’s primarily excess. We’ve done a tremendous job over the past couple of years to reposition the business and not only with the underwriting but also with cumulative rate. And so we still think there’s margins, still think our scale and balance across the world is a competitive advantage. And when we talk about some of the challenges in financial lines, it’s really specific to North America. Dave, do you want to provide some context in a little bit more detail, please?
David McElroy: Yeah, yeah. Thank you, Peter, and thank you, Gary. This is obviously a business that I’ve got a lot of scar tissue in over a lot of 40 years of this. And I sometimes think of my career credibility tied into fixing this book, but I’m very confident with where we have positioned the book. The we’ve taken a cautious approach to the large account public company D&O business and particularly excess, Gary, that you’ve referred to. So we’re aware of the consequences of chasing volume okay. We’ve seen companies go close to the sun, they burn out where that’s our sophistication. So the — what we’re doing here, private — public company, the market, the private — the primary market is, frankly, a stable market, okay? It’s holding up well.
cumulative rate increases, even though they went up 120% from the 18 to 21 year, they’re trending around 85% today, and they’re holding. This is going to be about a story about excess. And I do want to frame this, that in that primary market, there are a couple of key points that are also holding and that retentions are holding up very nicely. There hasn’t been an erosion in the self-insured retentions that clients are keeping. And we look at that as sort of an acting hedge against legal cost inflation. And then the other fact that I’ve always been worried about is the arms race back to limits. And this industry did a great job, and I believe there was respect for this volatility by taking 25 million limits down to 10s and 15s down to 5%. So even today, our portfolio is in the 80% to range of those limits on a primary basis.
And, therefore, the arms race to increasing limits, which is often led by those who may not understand the volatility, that has not happened. So that’s a win for the primary. I’m going to be — I’ll call out the excess because the battles and the competition in this market are classic. These are tranches above $50 million. It’s a commodity. We’re seeing more competition there. And we’re — what we’re going to do is we’re going to do what we’ve been doing, reducing our limits, reducing our policy count. Our renewal retention right now is actually running 11 points lower than what would be normal in a standard market, and we’re going to continue that way, not only on a policy count basis but an aggregate basis. The two things I just called out, everybody knows that I’ve lived in this business for a bit.
I’d call out the claim environment in the market. The market may be mistiming the pricing of excess layers. The plants bar has circled back to large account securities class actions, they’re actually up this year and looking more like the 16 to 19 cohort years, which are problematic for the industry versus the 2022 years. So it’s one to be concerned about because that verticality of loss will actually affect the excess towers that are not going to be making money at $80,000 a mill. So this environment is not conducive to be putting out limits access at those layers. And maybe the more important thing is about our AIG global book. It is a formidable asset. And we had the heightened scrutiny on the North American book. We’re confident around what that looks like.
