Andrew Robinson: Okay, so I know that certainly, at this exact same call last year. And maybe even the call before that, I kept making the point that as it relates to commercial auto. If we are seeing high single digits, 10-ish loss cost inflation and now we kind of see that unabating I can give you a granular kind of view as well in a moment there, but like that feels unsustainable when you keep saying that over and over and over, right? So okay, so what are you going to get 11% or 12% rate, but you’re in a 10% loss cost inflation environment. That is not the kind of marketplace that we want to grow into. And I think that what has happened here with elements of the planet bar and social inflation, finding its way into different things.
I’ll give you a simple example. Sorry, this week, we received a first ever first notice of loss with a styles demand, a high moment demand attached to the first notice of loss, right? And by the way, it was a pretty heavily prepared document from a plaintiff lawyer. Like that just feels like a different day. Now whether there’s validity to it or not, just the efforts to move on to a first notice of loss like that is in itself a heavy work. But it is an indication as to what’s happening in this marketplace. And we just, on the personal injury part of the market, if we can lean up on the accelerator and tap on the break, we’re going to do so. And then ultimately, it’s up to the states as to whether they can reform the legal environment, the torte environment to make it more reasonable.
Because it is just — it’s out of control. And everybody who’s close to it understands it viscerally. And so we’ve been studying it and studying and studying it and I think I indicated that we were going to ease up on exposure, and we have been easing up on exposure. And that premium doesn’t even fully reflect the lower exposure because the rate that we’ve been getting for each unit that we write is higher than the average rate for the rest of our business. So that’s the thinking behind it.
Meyer Shields: Okay, perfect. That’s very helpful. And one last quick one if I can. Updated expectations maybe for the net to gross written premium ratio for 2024, first quarter came in a little higher than I expected.
Mark Haushill: No. Meyer, it’s Mark. It’s in line with where we were in the first quarter, low 60s is what we’re looking for. So I think it’s where we thought it would be.
Andrew Robinson: Meyer, I’d remind you that there is a little bit of noise for you and others as well. There was a little bit of noise last year. We had a quota-share contract that ran through first and second quarter that we unwound in the third quarter. And so there’s some geography issues that play through. But I also do think that when we set guidance for the full year, we were quite explicit saying that our full year ’23 gross to net is a reasonable planning assumption for your models.
Meyer Shields: Yes, perfect I just want to see the update that’s very helpful. Thank you so much.
Andrew Robinson: Thank you.
Mark Haushill: Thanks, Meyer.
Operator: Our next question comes from the line of Yaron Kinar with Jefferies.
Yaron Kinar: Thank you. Good morning.
Andrew Robinson: Good morning.
Yaron Kinar: Good morning. I just want to start with maybe a quick one. The Baltimore bridge collapse, do you have any exposure to that?
Andrew Robinson: No.
Yaron Kinar: None. Okay. Then maybe a broader conceptual question with regard to the mix shift. Obviously, benefited the underlying loss ratio to an extent but we also see that coming back a little bit through a higher expense ratio. So can you maybe talk through in a more holistic sense what the benefit of the mix shift is maybe beyond the underlying combined ratio? Is it a better capital efficiency? Is it a better long-term risk profile? What do you see about the debt mix that, that is attractive to you?
Andrew Robinson: Well, look, great question, by the way. And the answer is it’s part of all the things that you talked about. So if you really look at a lot of where the growth has been coming from, we’ve driven a lot of growth from Surety. We’ve driven certainly a lot of growth from our transactional E&S. You are correct, our higher expense ratio business part of that is the — in the case of E&S, it’s wholesale, so your commissions are high. Air surety is obviously the highest commissions. And yes, we’re comfortable with that trade-off. We think that both our sort of belief that that sort of profile of risk exposure and then ultimately loss has less of some of the things that, for example, we were just talking about, which is kind of uncertainty around loss inflation on personal injury.
And that’s included, by the way, in our — from what we write in our general liability within transactional E&S. I would characterize that same way. And then, by the way, in the case of Surety and others, they’re incredibly good applications of our capital, very diversifying. And quite honestly, one of the reasons that I believe that we’re able to sort of achieve the kind of capital leverage that we’ve been able to achieve. So it is all those things. I think the other part of it is we keep just coming back to it. We want to have a well-diversified portfolio, right? So for example, if we could press down faster and harder in A&H because for us, it’s great diversification, we would. There’s boundaries to our ability to grow profitably there at maybe the same speed we can in certain areas.
That may change a year from now, but that’s what we’re seeing right now.
Yaron Kinar: Thanks. That’s helpful. If I could also squeeze in one comment/question, and forget if I missed that, I did not see disclosures of premiums by division in the press release last night. And if you chose to remove those, I’m just curious as to why just considering that so much of the story I think is about sort of exceptional premium growth. And understanding the drivers for that growth has been helpful for us in the investment.
Mark Haushill: It’s Mark. Good question. We will be including in the press release going forward. The Q will be out tomorrow. So it’s there. It was just a matter of — it will be in the Q. We’ll have it in the press releases going forward, but you’ll see in the Q tomorrow.
Andrew Robinson: And just for your benefit, not to sort of throw a bunch of numbers at you, but industry solutions grew 16%;global property and ag, 35%; programs, 7%; A&H, 14%; captives, 49%; professional lines, 27%, surety, 37% and transactional E&S, 43%.
Yaron Kinar: Awesome. Thank you so much.
Andrew Robinson: And apologies for the oversight. We will correct that. Thank you for that. You’re right in that observation.
Operator: Our next question comes from the line of Bill Carcache with Wolfe Research.
Bill Carcache: Thanks. Good morning, Andrew and Mark. As investors analyze the interplay between your growth and returns, how much of that is an outcome versus something that you’re actively managing to? I appreciate your comments around the nuanced market with attractive opportunities for the best underwriters. And it seems like you’re focused on identifying those areas where you’re competing beyond just price. But it would be helpful if you could sort of address how important of a lever pricing as you manage your targets?
Andrew Robinson: Yes implicitly thank you, by the way. It’s a great question. I think implicit in your question, if I’m correct, is just the, hi, what happens if you got double the price, but you got less growth, how does that look? And I think our general philosophy is as follows, which is that we’ve stated in unambiguous terms that we’re targeting a 15% plus return on equity. And I think that — and by the way, we’ve been consistently kind of showing up at or above that number. And our sense here is as long as we can add units and we believe the units kind of fit with our strategy, that our ability to sort of capture value in some of our businesses keep that value for a long time, right? Surety would be a great example of that.
That’s a good proposition for our shareholders, right? Areas like transactional E&S are more transactional. That’s sort of a lower retention business. We might write an account for a couple of years and then you might not write it again. But I just will tell you that the watermark for us is trying to make sure that we’re writing above a 15% return. And if we can add more units there, we generally will do so. And then the good news is if we do that well, we might get some expense leverage, you might get some capital leverage that ends up giving you a bit more juice in terms of your ROEs that kind of aren’t formulaic.
Bill Carcache: That’s very helpful. Thank you. And then following up on your success onboarding underwriting talent and enjoying incremental business that’s come with that, how concerned are you about competitors potentially poaching some of that talent in the future? Have you seen evidence of that? Maybe speak to your success rate in retaining the talent that you have out boarding.
Andrew Scott Robinson: It’s a really excellent question. What I can tell you is that our voluntary attrition last year was 7%. And we share data with a consortium of other insurers, not just on retention, but on a range of people HR matters. And by our measure, that’s kind of close to the best, if not the best out there. And I think as you get into the specialty space, I think the war for talent is much greater than, for example, if you’re in personal lines or small commercial. So there’s a dearth of talent and it is specialty, right, which means that generally speaking, people are good in their technical focus areas and so forth, they’re harder to come by. And so I feel very good about our specials. Yes, I think the war for talent continues.
