I think GL is the line that I would expect to firm a little bit more. And I know when you talk liability; it does include GL-plus, professional liability and D&O and cyber. I’m talking just standard general liability. I think that’s where some more of the pressure has been, and that hasn’t been as strong from a pricing perspective as auto and commercial property have been for the last couple of years. So while you might see auto come down a little bit, I think it’ll still be strong, and I think you might see some movement higher in GL. But we feel good. We look at our retentions pretty closely and measure them a number of different ways to understand the market reaction to our pricing. And our retentions continue to run really strong on standard commercial lines, and I think that bodes well.
Mike Zaremski: Got it. And if I could sneak one final one in. You’ve had some management changes in recent months. Has a new set of eyes or different set of eyes or different people in charge of any processes recently? Does that any impetus for some of these changes that were made in terms of the loss assumptions and reserve changes?
John Marchioni: Not at all. So it’s actually the same eyes, and I want to reinforce that point. So, obviously, Mark left at the end of Q3, but the rest of us who are always involved alongside of Mark, are the same group and have the same philosophy and the same approach to evaluating our results and evaluating our reserves. And that includes myself, it includes our Chief Actuary who’s been here for a long time and continues to be here, and it includes Tony, who as the Chief Accounting Officer who he’s been with the company 24-plus years, but the last seven, as the Chief Accounting Officer before becoming interim CFO, was also deeply involved in all decisions, not just related to reserves, but all accounting matters. So it’s a very consistent leadership group and a very consistent philosophy. But appreciate the question, because I think it’s a great opportunity to kind of reinforce that point.
Mike Zaremski: Thank you.
Operator: Thank you. We will move now to the next question coming from the line of Paul Newsome with Piper Sandler. Your line is now open. Paul, your line is now open.
John Marchioni: Good morning, Paul.
Paul Newsome: Good morning. Sorry about that. Was hoping we could switch to net investment income and remarkably large expected improvement next year. That new money yield number that you mentioned seemed pretty darn good. Is there anything under the hood there in terms of a shift in what you’re investing in or anything else that would give you that sort of lift? I mean, everyone’s seeing a lift, but it seems to be a bigger lift than a lot of folks are talking about for 2024?
John Marchioni: Yes, Paul. Great question. So I think a lot of this is really indicative of the hard work that was done over the last two years to really build the embedded book yield. So since the beginning of the interest rate cycle, from year-end 2021, we’ve picked up 173 basis points of embedded book yield. And that allows us to really have a solid view of our ability to continue to pick up net investment income on a go forward basis and have that strong contribution to operating ROE. The overall profile of the portfolio remains relatively consistent, but when you have the opportunity to put money to work at an investment grade fixed income at 5.5% or 6% on a pretax basis, it allows you to really lock in those yields for an extended period of time, and that’s really allowed us to boost that return.
And with an invested asset leverage a little over 3 times, we don’t have to take on a lot of additional risk to produce that kind of upside from an ROE perspective, so nothing significant in terms of shifting the strategy. In fact, I would say the overall bias would remain up in quality. When you think about those investment grade fixed income returns that we’re getting, it really raises the bar on investing in risk assets. And we’ve been sitting at the lower end of our kind of target range from a risk asset perspective at just over 10%.
Paul Newsome: No shift in duration. No shift within credit quality segment…
John Marchioni: Duration was right around four years. I think we finished at four years.
Tony Harnett: Been around four years for the last three years, and we’ve been at AA- or A+ for the last three years.
Paul Newsome: That’s great. Thank you very much. Appreciate the help as always.
John Marchioni: Thank you.
Operator: Thank you so much. We will move now to the next question [Technical Difficulty] Bank of America. Your line is now open.
Unidentified Analyst: Hi, everyone. Sticking with…
John Marchioni: Good morning, Grace.
Unidentified Analyst: I was hoping we could get maybe a little bit more color on the workers comp reserve release. I think that you all had previously flagged that just given the extended period of favorability in that line, that going forward it might slow a little bit, but that seems to have not been the case this quarter. So I was just curious if anything has changed and just kind of the drivers of the favorability there?
John Marchioni: I think the biggest difference from what you had seen in previous quarters is, as we do every year in Q4 as we update our tail factor study. And the tail factor study is really designed to understand the movement to ultimate for your accident years that are outside of your typical reserving triangle. So I think 20 years and older, and we update that based on our own experience, blended within this industry experience and data and that was a big driver of the overall movement in comp in the quarter.
Unidentified Analyst: Thanks. And I guess thinking about the 95.5% combined ratio for next year, I mean, and I think everyone’s expecting some pretty strong improvement in personal lines over the course of the year. But E&S has been running quite favorable here lately. I guess just trying to think about the timing for a potential return to that longer standing 95% combined ratio. And I guess just if we should consider E&S favorability to be kind of more enduring and maybe offset, ongoing re-underwriting in the personal lines book that that might take beyond next year to improve to the target?
John Marchioni: Yes. So we pride ourselves in providing very detailed guidance, but we do stop short of guiding at the individual segment level. I think, as you’ve pointed out, overall, the guidance is a 95.5% and on an underlying basis, when you take out that 5 point cat assumption, it’s relatively stable year-over-year. I think the pieces you’re pointing to are reasonable approaches, which is when you think about the run rate performance of E&S and the rate we’ve been achieving in that line and continue to earn in that line, we expect strong margins to continue. And I think from a commercial line standpoint, which we’re currently running right around that target, just a little over 95% strong rate, which is running [indiscernible] in the quarter, with 7% for the full year in line with where we had loss trends going into the year.
