Joseph Lacher: You could think of it as both Greg. We’ll hit it for the full-year.
Gregory Peters: Thank you very much.
Operator: Thank you. And your next question comes from the line of Andrew Kligerman from TD Cowen. Your line is open.
Andrew Kligerman: Hey. Good evening and congrats on the really solid result. My first question is around the – maybe you could go to Slide 10 actually. My first question is around the rate change and I think prior discussions were around 27% of rate – earned rate coming into 2024. And if I look at that gap in the upper right corner of the slide, there’s about 19 points. So should I think about that rate increase as about 7-ish points a quarter give or take earning in?
Joseph Lacher: That’s correct. When you look at – I think you’re looking back at Q3 slide deck, you’re looking transitioning from Q3 to Q4 about 7 points. It’ll accelerate a little bit as we enter 2024, and then it’ll level off. So you expect a steeper curve here in the first half of the year and kind of leveling off in the back half of the year. Andrew, does that help with what you’re thinking, how you’re modeling?
Andrew Kligerman: Yes. Absolutely. And yes, maybe I’m a little lower than that, which is good to hear. But it sounds like, all in you’re kind of coming out at that 27-ish number that’s been talked about. So that’s great. Then I just want to make…
Joseph Lacher: That’s correct. So to think about that – Andrew, remember to think about that from the fourth quarter through 2024, and so we’ve already earned some of that. Now you have what’s remaining in 2024.
Andrew Kligerman: Got it. And then if you look at the loss cost on slides 15 and 16. I just want to make sure I’m clear on those. I’m just going to go to those slides. And maybe you could just kind of talk about what you’re seeing. You said it remains elevated inflation. What is elevated? But you said it’s also stable. So as I kind of look at these slides, how should I think about what you’re seeing in terms of loss cost inflation early into 2024? What have you seen in the first month and what are you expecting if it stays elevated?
Matt Hunton: Yes. This is Matt. I guess I would break apart loss costs into the two sub components, frequency and severity. When we say, inflation remains elevated, really talking about that on the severity side. And the range is sort of mid-single digits right on the higher end, 5 to 7 points somewhere in that range. And obviously the texture varies a bit by your metal coverages, which have flattened out a bit as we’ve seen some of the inflationary pressures run off and bodily injury. By geography it varies a bit, but generally on the lower side of the single-digit view. And on the frequency front, right, that’s really influenced by the underwriting actions that we put in place. And as we start to re-expand some of the new business and remove some of those underwriting restrictions on a period-over-period basis, we’ll see some of that mix start to drive the frequency number a bit.
But frequency is heavily influenced favorably by the underwriting actions that are earning into the book.
Joseph Lacher: I think the way to think about it – if I can add to that, Matt. The underlying frequency we’re seeing that’s environmental was on the low side of what we would think of from a seasonal perspective. And I completely agree with Matt, we’re going to see some things in our actuals that are a function of our mix that’ll move up and down, I think the most important and that’s normal and it’s expected and it’s in our pricing. I think what you’re really looking for is the underlying question. And we saw the fourth quarter within at least our version of seasonal, but it was at the low end of the seasonal expectation. And then maybe to wrap up on this, Andrew, just to one last comment for you. Elevated, as Matt alluded to mid-to-high single digits or 5% to 7%.
Elevated means, where it was historically from 3% to 5%. Now remember, elevated and stable is fine for us. We can price to that and we have done so. So that shouldn’t be a worry to you from a modeling standpoint. I just want to highlight that for you.
Andrew Kligerman: Yes. That sounds very manageable in the context of the rate that you’re getting. I guess just on the frequency, because it sounds like there are some offsetting factors going on. I mean, would I be safe to be modeling for kind of the very low-single digits for frequency into 2024?
Joseph Lacher: We’re looking at each other, Andrew. I’m going to answer your question in two ways. I think that would be a reasonable way to think about it. I think if I were doing the modeling, in my head, I’d stop and I’d go, okay, there’s frequency and severity that generate loss inflation, there’s earned rate that’s coming in, that will more than offset it. If I only looked at those two items, I would then be projecting a very, very significant profit margin increase. And if you only looked at those items, you would miss the fact that we’ve said we’re taking off some of the non-rate actions we put on during the pandemic or the early phase of the recovery that restricted new business and they tightened underwriting. They were there to improve profitability, but they also restrict growth.
