Michael Phillips: Okay, perfect. Thank you, guys. And congrats again to Steve and Steve.
Steve Spray: Thanks, Mike.
Operator: And our next question today comes from Mike Zaremski with BMO. Please go ahead.
Mike Zaremski: Hey, good morning. I guess sticking – going back to the reserving color. Just trying to understand bigger picture. So the reserve charge in casualty, as you stated, on an absolute basis, isn’t a huge number. And so just trying to understand, are you making a material change to kind of your forward loss trend, too, given what you’ve learned in casualty? Or is this just simply the Cinci way of doing things, you’re reacting to bad news trying to get ahead of it. And this is just really a small tweak that doesn’t kind of touch on the changes you made back in ‘22 on umbrella?
Steve Johnston: Yes. Good question, and it’s the latter, Mike. We don’t see it as a material change in our trend. We feel very good about the position that we are in terms of our rate versus our trend. And keep in mind, we’re forward-looking we’re looking for where do we think the loss costs will be out in the prospective policy period. We feel good about that. A little bit historic as we do see good improvement in those accident year ex-cat combined ratios, which I think gives credence to it. And so it’s more of the latter of doing things in Cincinnati way, recognizing some large losses when we see them and also what’s going on in the industry and being prudent with our reserves to keep that 35 years of favorable development stream going to 36.
Mike Zaremski: Understood. And just curious, in a good way, Cincinnati is my understanding, kind of branching into, I guess, broadening the customer base, you can write policies for on the commercial side in terms of going down market into BOP and I believe, into larger commercial too. And just curious as – if I’m right about that, as you’ve gone on this journey in recent years, does that just kind of bring in a little bit more potential volatility in the early years as you kind of learn more about those kind of newer client segments? Is there anything there?
Steve Spray: No, I don’t think it brings in any more volatility than what we would normally experience. Mike. We’ve always had an agency strategy. So we – we’re trying to be as important to each agency that we do business with and be an important partner for all segments, whether it’s small like the box you mentioned, middle markets or larger accounts. We’ve always written small business. We’ve always written larger accounts. That small business, a lot of times, is more of a technology play. And we have – we have launched just an excellent platform, not because I say so, but because our agency feedback is telling us that it’s intuitive and it’s easy. So I expect that you will see us continue to make big strides in the small business area.
And then on the, what we call, key accounts, larger accounts, commercially, we have added a lot of expertise in that area, and we are growing it – we were growing it in a conservative manner and very – underwriting profit first, but our runway on larger accounts and keep moving, I guess upstream as one might say is, I think is very positive too.
Mike Zaremski: Okay. Got it. And lastly, just on the – there is – in my understanding, there is no change to the value creation ratio target, but you are bringing down the – or you are improving the long-term combined ratio target. Maybe just can kind of just help us clarify why not – what brought about that change? And is there any financial incentives that are going to change on a forward-looking basis when we look at the proxy or whatnot because of the combined ratio change?
Steve Johnston: Good question. No, there will not be any change in the compensation targets in that regard. We have been very, I think consistent in the combined ratio. We have got 12 years in a row now with a combined ratio under 100. And so we have seen it be as low as 88.3. And so we felt that we could lower that long-term target down and put us in a position to continue to be long-term thinkers there. I think there has also been great consistency in the value creation ratio. If we look at the 5-year average VCR going back to the 5 years ended 2013, all of those 5-year ending years from 2013 through 2023 have all been double digits. So, we are just reflecting our long-term focus and raising the bar a bit on where we put that long-term combined ratio for you.
Mike Zaremski: Understood. Thank you.
Operator: And our next question today comes from Greg Peters at Raymond James. Please go ahead.
Greg Peters: Well, good morning everyone and congratulations on your 35-year track record and Mr. Spray, you have your work cut out for you to keep that going for the next 5 years, so good luck to you on that. Can we step back and – you provided some data around pricing. And maybe you can help us frame how to think about new business growth, both commercial, personal and E&S as we think about the next 12 months when we compare it to what happened in ‘23?
Steve Spray: I would – this is Steve Spray, Greg. Let me start with Commercial Lines. We use the same predictive modeling tools and have our field underwriters use the art of underwriting and balance that. And if you recall, we started off 2023. New business was, we were under some pressure for new business. We were keeping our pricing discipline going there. And as the year progressed, I would like to say we kind of saw the market come our way. And new businesses continue to get better and better throughout the year in ‘23 and again, kept that pricing and underwriting discipline. Personal Lines, the new business there and the net written premium growth has just been strong throughout the year. And I just think we are in such a good position going forward in Personal Lines as well, because we are – like I have said earlier, we have an agency strategy, and we have become a premier market, both in middle market and high net worth for our agencies, and they tell us that regularly.
And with our $12 billion of GAAP equity supported $8 billion of premium. We are in a good position with our balance sheet to continue to grow Personal Lines. Through this, I will call it tumultuous market. So, feel really good about that. On the E&S side, 90.6% combined ratio are better now for 11 years in a row. It’s about 90% casualty. The submission counts there continue to be strong. You can see that the new business throughout 2023 was strong and I don’t see any reason why that will continue into 2024 as well.
Greg Peters: Okay. Thanks for the color there. I was also listening to your comments about the movements around the reserves. And I was just wondering if you had any comments on just the paid loss trend. It looks like paid losses grew a little bit faster for the full year ‘23 than they did in ‘22. Just wondering, is that just – is there any noise in there or anything you would like to call out?
Steve Johnston: Yes. I would think there really isn’t anything to call out there, Greg. I think it’s just, we are growing and then paid losses and we have seen that fluctuate from year-to-year. And so there would be some noise there.
Greg Peters: Fair enough. Thanks for the answers.
Steve Johnston: Thank you.
Operator: And our next question comes from Meyer Shields with KBW. Please go ahead.
Unidentified Analyst: Hi. Good morning. It’s Jane [ph] on for Meyer. Thank you for taking my question.
Steve Johnston: Thank you.
Unidentified Analyst: My first question – thank you. On the follow-up for commercial casualty reserves, just mainly on the $51 million and $29 million reserve charge prior to accident year 2019, you mentioned some – you outlined some large losses. Is there any other new trends you are seeing in 4Q?
Steve Johnston: No, not really. I think that I don’t see it as a trend. I think we did recognize it. Like I say, there was some volatility through the year. We would have had less of that in the second quarter when we released or recognize the 9.2 points of favorable development. I think we just look – are looking at this now as the whole year and doing our best to put our best estimate forward for the year, which amounted to the $15 million and never want to minimize $15 million. But I think in the grand scheme of things, it’s pretty close to a wash and puts us in a position to continue to have the type of reserve strength and quality of balance sheet that we do.
Unidentified Analyst: Got it. My second question is on the combined ratio target. You mentioned a 5-year average of 92% to 98% to middle point at 95%. So, does that imply that less than 95% combined ratio for ‘24, or is there any color you can provide for ‘24?
Steve Johnston: No, it doesn’t imply a 95% for 2024. And so we are not really giving a 2024 number here. We are again, focusing on the long-term that we have had consistent underwriting profits. We think that the long-term of 95% to 100% is something that we can strive for the long time – long-term to do better and have that be 92% to 98%. We know there will be some years it will be a little bit higher. I think we have been under 100% for 12 consecutive years. I think the highest was 98.1%, the lowest 88.3%. And so there is going to be variation in the market cycles and weather and so forth. We want to focus on the long-term where we continue to grow above the industry average, do it at a good underwriting profit and invest well such that, that value creation ratio stays double digit.
