John Marchioni: Yes. Great question. So I would think about the $95 million that we have overall as applying to all three of our business segments, including personal lines. Now again, in today’s interest rate environment, that 95% will generate an ROE well in excess of our 12% long-term target. But we think it’s important for the underwriting organization to remain focused on that on a consistent basis. So that would apply. It hasn’t changed with regard to how we view mass affluent. Obviously, we think about casualty lines in the personal lines segment, we think about personal auto different than home in terms of that target. But when you roll them together, 95% all in is the way to think about it on a target basis.
Grace Carter: Thank you.
Operator: Thank you. [Operator Instructions] And our next question comes from the line of Andrew Lambrecht from Piper Sandler. Your line is now open.
Andrew Lambrecht: Hey, guys. Thanks for the call.
John Marchioni: Good morning.
Andrew Lambrecht: I’m just wondering if you can update us on your expectations for alternative investments over the long-term, sort of been a little bit all over the place in recent quarters and you guys lowered guidance for the year. I’m just trying to better understand how to think about them prospectively?
Mark Wilcox: Yes. This is Mark here. Let me kind of walk you through that. So as you know, alternatives is an asset class that has generated very, very strong returns for us. Within alternatives, that’s a relatively broad description. We have a pretty healthy allocation to private equity. We have an allocation to private credit, and we have an allocation to what we call real assets, and that includes real estate and infrastructure. And it’s about call it, 70%, 22% and 8% split between those three categories. Each of those asset classes are going to generate different returns over the longer run. Overall, when we think about it on a prospective basis, we’ve put probably about a, call it, about a 10% return expectation out there for those asset classes.
This year, we’ve had a dial back expectations. We had a $30 million after-tax gain expectation for alternatives in 2023. We had a good start to the year. But as you saw, the S&P 500 was down about 4% in Q3. So when you go through the math on year-to-date old income versus guidance of $20 million, we’re basically saying zero return in the fourth quarter, and that’s sort of our best estimate at this point. If you were to take a look back at our portfolio over a multiyear period and sort of call it ex-legacy, we had a portfolio that came out of the financial crisis. But since the new investment team came in and started to ramp the alternative portfolio back up in 2016, it’s been just under a 20% IRR. So it’s generated very, very healthy returns.
And you might recall, in particular, 2021 having very, very strong returns with a gain and seem to remember about $90 million, $93 million after tax. So it tends to bounce around a little bit. But I think longer term, I would go with about a 10% return expectation for the portfolio.
Andrew Lambrecht: Great. Thank you so much.
Operator: Thank you. Our next question comes from the line of [Dean Cristello] from KBW. Your line is now open.
Unidentified Analyst: Hey. My first question was about the E&S line. I was a bit surprised to see the deceleration of pricing increases within the non-admitted line. Is there any additional color you could provide there? Or are you guys still seeing strong submission flows into those lines? Or have you seen sort of a change in the market dynamics recently? And if you could sort of like bifurcate that between property and casualty, that would be great as well.
John Marchioni: Yes. Sure. So I guess I’d hesitate to use the term deceleration. It was 6.6% in the quarter and 7.1% on a year-to-date basis. So that’s strong. And that’s extremely strong in the context of an all-in combined ratio of 89.7% on a year-to-date basis and an underlying of 82.5%, so despite those higher-than-expected cats in that segment, we’re still producing a 90% combined ratio. So with regard to the pricing overall, I would consider that more stable than I would a deceleration. And from a casualty to property perspective, casualty was 6.2% in the quarter and property was 7.3% in the quarter. So we see strong growth. I think the business we’re writing and that’s driving that growth is business we have a long track record with.
We haven’t really stretched from an underwriting appetite perspective. We continue to see ample opportunities and continue to see a favorable market dynamic. I will say just generally speaking, and I think this is around the edges, as a lot of players in that market have started to really move away from property you’ve seen a little bit more competition for casualty-driven business, but I would still call that around the edges, as you could see from our growth overall and the pricing we’re getting on both property and casualty. We think the market dynamics there remain pretty constructive.
Unidentified Analyst: Awesome. Thank you for that color. My follow-up question was back to the personal lines mass affluent market. We’ve noticed recently a number of competitors have sort of pulled back from certain markets in certain regions. Do you guys have plans to sort of expand into certain regions to sort of capitalize on that? And is there any chance you could quantify what percent of your total personal lines portfolio is from that mass affluent market?
John Marchioni: Yes. So with regard to the distribution at this point, we’re a little north of 50%, five-zero, 50% on mass affluent relative to non-target at this point. But obviously, you’re seeing – and certainly in the last couple of months, in particular, a much higher proportion of that from a new business perspective being tilted more towards the mass affluent space than the nontarget space. We don’t have any near-term plans to expand. Our focus right now is on making sure that we could achieve our profit targets for that segment of business in the 13-state footprint – that we 13,15-state footprint, my apologies that we currently have. There are some states that we have on the board for potential expansion down the road.
