Paul Newsome: No, that was great. Lots of good details, no doubt. I want to move on to sort of the rate versus inflation conversation that we have with just about every company. It sounds like in your major businesses, like commercial auto and workers’ comp, you are raising rates about what you think claims inflation is, but you didn’t – I don’t think you commented on the rest of the businesses. Overall, you think you’re just sort of covering current levels of inflation or do you think you’re still making progress towards expanding the underlying profit margins?
Craig Smiddy: Right. So, well, this one is a bit tougher because it really varies by line of coverage, and I’ll just comment on a few. So, workers’ compensation, we’re giving up a little bit of rate there, but the – if you think about what drives the premium there, its payroll. And payrolls are up pretty substantially. So we’re getting more premium, because of the higher payrolls, while at the same time medical inflation, which is the biggest component of our loss payout, is relatively stable. Wage inflation, which is a smaller part of our workers’ compensation payout, is going to be generally commensurate with your payroll growth. So, that’s a one-for-one kind of trade-off there. And you don’t have the social kind of inflation that you have on – in workers’ comp that you see in auto or general liability.
So, just with the payroll growth alone should be accretive to profitability and loss ratios on workers’ comp. On auto, again, we feel very good about our accident year loss ratio. We have multiple years of compounded rate increases built into our portfolio. We’re trying to stay even with what we’re seeing on severity and frequency is stable. So, therefore, our loss ratios on auto should be pretty solid. Some of the specialty coverages like aviation, for instance, we’ve seen dramatic rate increases in that line of business that will and are definitely driving greater profitability and lower loss ratios on that line. On D&O, we mentioned earlier, D&O, the market is soft. I think I mentioned this on the last call that there is increased competition in the D&O marketplace, and a lot of that is, because the last several years have had robust rate increases.
And that has coupled with lower security class-action lawsuits over the last year or so. And the latest report out indicates that, we’re kind of holding steady with a lower security class action frequency. So, on D&O, we’re giving up rate, but that rate we’re giving up is more in line, not with inflation, which was part of your question, but more relative to securities class action lawsuit frequency, which is considerably down. So, hopefully, that helps. I think I gave you four different diverse examples there and which underscores my opening comments that you really have to look at the line of coverage and what’s going on in that particular line of coverage.
Paul Newsome: Great. Absolutely great. Thank you. Appreciate the help.
Craig Smiddy: Thank you. We appreciate your support.
Operator: The next question is from Matt Carletti with JMP. Your line is open.
Matt Carletti: Hi, good afternoon.
Craig Smiddy: Good afternoon, Matt.
Matt Carletti: I’ve got a few questions. Maybe stick with General Insurance to start. The past two, three quarters have definitely seen a higher level of favorable development than some of the quarters before that. You pointed to workers’ comp and commercial auto as the drivers. Can you give any color around, are there particular accident years that the majority has been coming from or has it been kind of pretty well spread over time?
Craig Smiddy: Frank is in a good position to give you a little more color around that.
Frank Sodaro: Hie, Matt. It’s really spread out. The analysis we look at go back 10 years and almost every year has favorable development coming from it on an all lines basis. So, I’d say about two-thirds of the development is coming from workers’ comp, with another third coming from commercial auto, but it is really – it’s widespread.
