Michael Phillips: John, the question relates to kind of timing of reserve reviews. I think this kind of comes up every now and then, but maybe a refresher here. What you give us for general liability reserve changes, obviously, that’s kind of a total of what you do because of all the granular data that you have inside the house that we don’t have, right? So I don’t know how many segments are that feed into your general liability when you do independent reviews at each one of those individual pieces. But whatever that number is, it rolls up to your general liability that we see. So when you give us a charge like today or favorable — whatever it is on a quarterly basis, does that mean you’ve — each quarter, you’ve looked at all those individual pieces or is there some done one quarter, some done another?
So what’s that like? And I ask John, because two parts really. What did you see this quarter for the current accident years that maybe you didn’t see last quarter when you took the older accident year charge? Is it because there was just some timing changes that you didn’t see or you didn’t review? And then, obviously, the second part of that would be, what does that mean going forward? Are there other pieces that you haven’t looked at yet that might impact future quarters?
John Marchioni: So we do a reserve evaluation at a somewhat segmented level within GL. So excess and then products and non-product GL exposure, and that’s done consistently every quarter. So it’s not that there’s something that happens in Q1 that’s different from Q4. There are a couple of things we do. We mentioned the workers’ comp tail study that’s done annually in Q4. But generally speaking, and the emergence we saw this quarter comes through what is a quarterly exercise. So I think that’s the key point to the first part of your question. With regard to the second part of your question, with regard to — in Q1, what we saw, and you saw this in the prepared comments, is we were reacting to emergence with regard to paid severities.
And I think this is an important point because when you think about the immaturity of these accident years and think about the fact that the percent paid at this point in the maturity of those years relative to the ultimate expected percent paid is quite low. So for the — and I’ll give you approximate numbers, not exact numbers, but for the ’23 accident year, the expected paid — or the paid percentage relative to expected is probably in the upper-single-digits to 10% at the most. And when you go all the way back to ’21, your percent paid at this point is probably somewhere in the 30% to 40% range. So we’re reacting to paid data, and then you look at your historical development factors based on what you know relative to paid and you respond accordingly.
So I just — that’s an important point. When we say we’re reacting quickly, that’s what we’re talking about. It’s a relatively small portion of the paid percentage relative to the ultimate that you expect. But I also want to reinforce the point that the actuaries provide us with various methods. They’re looking at paid on an unadjusted and adjusted level and are looking on incurred losses, which include paid and case reserves on an unadjusted and adjusted level. And then those adjusted methods respond to things like changes in reporting patterns, changes in disposal rates, case strength — case story reserve strengthening or weakening. And then you apply different weights to those outcomes based on what you know about the environment. But it was really the change in the paid methods, recognizing they’re immature and it’s a small percentage of paid activity where we felt appropriate, it was appropriate to respond to them at this point.
Tony Harnett: And Mike, maybe I would just add that in the current year, there’s nothing specific we observe. It’s a really immature accident year at this point. However, if you look at the years that we did make adjustments to, it’s those years that are informing our position on the current accident year and the adjustment we made.
Michael Phillips: Second question, different tone is your growth in commercial lines at around 15%. Well, obviously, lot of it is driven by two parts that you’re getting pretty strong pricing, and pretty strong exposure growth. I don’t know how much underneath that is pure new customer count — you talked about new business growth, but I assume it’s also because of exposure. How much are you really pushing, let’s get more customers in the door in commercial lines, at a time when there’s so much uncertainty, couple that with you are expanding in new states, which you kind of always do, which is great. But I guess the question really is, how much new customers are you really trying to push through right now? And is that a focus or is it maybe more of a time to kind of take a pause and let’s get this law strengthening our belt?
John Marchioni: And listen, I think we’re not a growth-on, growth-off company. The way we think about it is, we have pricing expectations for new business, and where those pricing expectations are relative to where the market might be, will drive our hit ratio and ultimately drive our new business production. If you look at the pieces underneath that growth, and I think we had this in the prepared comments, but just to reiterate it, the total renewal premium change for commercial lines was 12.3%. Retentions were strong and stable. Generally speaking, policy count is up in the low-single-digits. And remember, we continue to add agents in our existing footprint. We’ve continued to open up new states that will create some organic growth opportunities, but we’re not sitting there saying, put the pedal down on growth.
And when I look at our new business pricing diagnostics, so we don’t disclose these because they’re not as specific because you’ve got a different basket of policies relative to your renewal book. Our new business pricing metrics show that pricing has continued to be strong on new business. So what that tells you is, we’re writing business new at the price point we want to be writing it at and the growth is really driven by how that’s currently perceived in the marketplace. But it’s really driven by rate and exposure and strong retention on an overall basis.
Operator: Your next question comes from the line of Dean Criscitiello with KBW.
Dean Criscitiello: You guys talked about looking for rate increases within the general liability line. And I was wondering if there are maybe any states that are likely to either like oppose or slow approval of such rate increases?
John Marchioni: No, that issue is more of an issue for Personal Lines. Generally speaking, with regard to commercial lines, you have a number of other pricing tools that you evaluate on an individual risk basis through scheduled debits and credits, and you’ve got multiple companies filed in any individual state that gives you a lot of pricing flexibility. And our pricing expectations in commercial lines are well within the ability of us to use those tools to achieve that.
