McDonald Armstrong: Meyer, thanks for asking the question. So as you know, we have written Assumed Reinsurance throughout our history. And a lot of our earthquake partnerships actually are Assumed Reinsurance arrangements, especially in geographies that the average premium is pretty modest; so it’s more effective from a cost and administrative as an Assumed Re deal. So bringing on Matt is really helping us institutionalize what we already have in place. What we did at 1/1/23, for instance, where we set up a lot of, for lack of a better term, kind of swaps, where we were taking some uncorrelated property exposure in exchange for getting excess of loss [indiscernible] on our core quake program. And then Matt joining us will allow us to see more deals.
He has a longstanding track record in this space. What we’ll look to write will be, again, uncorrelated specialty and some property business. And we will write some at 1/1 in addition to what we already have renewing at 1/1. And I think it will kind of really extend our specialty insurer strategy and franchise. So hopefully, some premium at 1/1, definitely at 6/1 and 4/1 of next year, and it’s going to look similar to what we’ve done historically, with probably a little bit more specialty business folded in.
Meyer Shields: Okay. Perfect. That’s very helpful. Unrelated question, but we’ve been hearing some homeowners insurers, and this is really on the standard line side, talk about maybe slowing in inflation guard-related increases. So I’m wondering whether there’s any reason to expect that on your book?
McDonald Armstrong: Meyer, thanks for the question. We have not seen that, but I’m going to let Jon Christianson speak to that.
Jon Christianson: Meyer, so we continue to push through a strong inflation guard increases each year, and we monitor the premium retention, as you know, and watch how that renewal book performs as we push through those inflationary factors. And to date, we have no reason to change our current direction with regard to continuing to push strong inflation guard, regardless of what some of our homeowner carrier partners decide to do independent of our renewal activity. So really, no reason for us to change at the moment.
McDonald Armstrong: And the thing that I would add, Meyer — I would add 2 things. One, first and foremost, we want to underwrite our companion products alongside the homeowners, but come up with what the requisite insurance to value would be. And if a homeowner carrier has one sense of it, we may have a different one. But it’s premised on what our underwriting and what our analytics are determining is the appropriate replacement cost for the structure. And then secondly, we are writing — our inflation guard is probably most pronounced in a state like Hawaii or California, where inflation maybe has not moderated quite as rapidly as maybe other parts of the country. So I think that’s going to inform it, too.
Operator: [Operator Instructions]. Our next question comes from Andrew Andersen, with Jefferies.
Andrew Andersen: Just thinking about the Hawaii reciprocal, do you view this as kind of a proof of concept for other opportunities perhaps? And I’m thinking of Specialty Homeowners, and I think there’s some reciprocal exchanges there. Or is this kind of a one-off opportunity?
McDonald Armstrong: Andrew, that’s a good question. I think having a reciprocal certainly gives us the ability to export that strategy to other lines. But for now, we are acutely focused on it in Hawaii. And this is, again, a very sound strategic — there’s a very sound strategic rationale to putting Laulima in place in Hawaii. We have a 12- to 18-month exercise to transition our exposure off of Palomar Specialty onto Laulima. Maybe at that point, we’ll pick up our heads and see where we can export it elsewhere, because the model does work. But for now, it is a one-trick pony.
Andrew Andersen: Got it. And on Residential Flood, can you maybe just give us an update of what that business is, maybe the size of the market and loss ratio that you’re underwriting to in this line?
McDonald Armstrong: Sure. So our Inland Flood strategy, and I’ll let Jon come over the top on me, is exactly what I described. It’s an inland flood. So we are not writing outside of the state of Hawaii really coastal exposure. We are trying to avoid stacking limits. So if we have some continental hurricane exposure, we’re not going to write the flood. So it tends to be more Inland Flood in Western and Midwestern states and then in the Northeast; most notably, Pennsylvania. It’s all primary limits that’s kind of competing with the NFIP. What we’re looking to do is really underwrite risk in a much more granular level. We write at a 30-by-30 meter GEO code. And that factors in elevation as well as proximity to floodplains and flood zone location.
So we’ve been deliberate in how we’ve grown from a geographic perspective, and I think we’ll continue to do so. We are targeting to use the E&S company in an increasing fashion as well. But this is one where we don’t want to stack limit stack exposure from a loss perspective. But Jon, do you want to [indiscernible]?
Jon Christianson: So I mean, really, we’re targeting from a loss perspective predictable expected losses. So as Mac mentioned, we do not currently write in the Southeastern United States in coastal areas to avoid the volatility of loss. And so we’re able to price the product to a profitable level, pull-in exposure from lower-hazard zones. We will write some higher-hazard zones, but really targeting those risks that fit a predictable profitable loss ratio. And the business is priced on a granular level to ensure consistency in delivering results. And I think even in a heightened loss year of 2023 from a Flood perspective, the product performed as we would expect.
McDonald Armstrong: I think our loss pick on that is going to be around a 40 typically.
