Selective Insurance Group, Inc. (SIGI) Earnings Call Transcript & Summary

Hi, everyone. We're going to go ahead and get started. Thank you for coming to the Selective Fireside Chat today. We have John Marchioni, the CEO; and Mark Wilcox, the CFO with us today. And we're going to get started with a question about everyone's favorite topic, ROE.

So the target for this year is 12%, which is an increase from the target of 11% at this time last year. Could you also speak to how you establish the target for this year? And the other guidance you provided kind of implies upside to that so if you could just speak to the difference between what the other guidance implies and the ROE target. Maybe you could also hit on your long-term combined ratio target of 95% and how that factors in.

We got a lot of questions in there, Grace. It's all embedded in one. So let me start and maybe Mark could provide a little bit more relative to how we establish the ROE target. Let me just hit the combined ratio aspects of that. But before I get into it, let me just also state that from our perspective, and I know different companies think about ROE targets differently, we don't view our 12% ROE target as aspirational or something that we're chasing. We view that as a target that we expect to consistently hit over a period of years. And in fact, if you look back when we've highlighted this over the last 9 years -- in each of the last 9 years, we produced double-digit operating ROEs. And over that 9-year period, the average of those operating ROEs is 11.9%. So, this is a target that we take very seriously, and we don't view it as aspirational. And in fact, our variable compensation for all of our employees is tied to that ROE target because our view is the variable compensation should tie into shareholder returns and target shareholder returns. So that, I think, is sort of the highest-level point I wanted to stress. In terms of the target combined ratio because when you try to operationalize this, you really want to get your employees focused on what they can control, which is achieving a combined ratio. We set the target at 95% because when you look over the long term and adjust book value to eliminate either unrealized gains or losses, and we know we're in an unrealized loss position right now, which inflates your actual ROE. So, we normalize that. We look at our expected operating leverage, and we're right around 145 premia to surplus, which is kind of in the middle of our range and then factor in our long-term expected return from the investment portfolio. Obviously, right now, we're entering a period where investment returns will be above our long-term expectation, and you put all that together and for us, a 95% is a combined ratio that over time will consistently produce a 12% ROE. Now in 2023, because of where investment returns are and because of the fact that us, like many others are in a meaningful unrealized loss position because of interest rate movements, that 95% combined ratio would produce a much higher than 12% ROE. In a time like this, we expect that to be the case. The 96.5%, which is our guidance, is clearly above our long-term target but because of the higher interest rate environment and because of the lower GAAP equity position, that will also produce higher than a 12% ROE. But we don't want our underwriting staff to be satisfied at 96.5% through pricing, other underwriting and claims initiatives, we're continuing to drive towards that 95% combined ratio, which we think will generate the kind of shareholder returns we expect over the long term. So maybe just a minute or 2 on the WACC and how we get to the 12%...

Just in terms of establishing the ROE target in our industry, different carriers do it a little bit differently. Some have a target that, as John articulated, it's a little bit more aspirational. Others might look at a spread over cost of equity. This might have a spread over a risk-free rate like the 10-year. We have a methodology that's worked well for Selective that we've applied consistently for more than a decade and that really is to look at our weighted average cost of capital. So, we look at our cost of debt, our cost of equity, and then we've talked about having a spread of at least 300 basis points over the weighted average cost of capital, but also taking into consideration interest rates and our P&C market conditions as well. So, for the last couple of years, the target has been 11%. Our weighted average cost of capital has moved up a little bit in '22 going into 2023, but not as much as you might think. Certainly, there was more volatility in the market last year. The cost of debt is up but because the SIGI start traded up last year and the broader market was down, our beta actually is down quite significantly from where it's been historically. Historically, it's been close to 1. I think we finished last year at about 0.7. So, we felt like that was a little bit artificial. We felt like that will probably revert back to the mean over time this year. So, we decided to move the target up to 12%, which implies a spread of north of 400 basis points over the weighted average cost of capital, but that's how we think about it. And then as John mentioned, this year, we laid in the combined ratio target on top of that. But back to one of your other multi-point questions was how do we think about the guidance versus the target. And if you do take a look at the combined ratio guidance of the 96.5% that we put out, in early February. If you add in the investment income outlook that we've provided of $300 million of net investment income after tax and take the other components that we provide in terms of the effective tax rate, it does get you back to the envelope to an ROE that's north of the 12% target for the year.

But we view ourselves as an underwriting company, and that 96.5% is above our target. Despite the fact that it will produce north of a 12% ROE in '23, we're going to work to continue to bring that back down to the target.

Perfect. Thank you. Next, loss cost trends. You increased your expected loss cost trend assumption to 6.5% this year from 5% last year. Could you talk about the trends on the casualty side that drove that increase? And just how we should square the higher expected loss cost trends with the improvement in the underlying combined ratio that you expect this year?

Sure. So again, I think it's important when you talk about loss trend to really talk about it specifically for property versus casualty and your question was specific to casualty. The overall loss trend, we were at 5% in the beginning of '22. That was the amount that was embedded in our '22 loss picks, and that's increased to 6.5%. Now underlying that, and we talked about this throughout 2022, we had a 5.5% trend on casualty last year, and that is now 6%. So, there's -- it's a smaller move on casualty than it was on property. We were at 4% in the beginning of '22 for property, and that's now at 7%. So that's you blend those together, and that's how you get to the 6.5%. And from our perspective, and we've always done this. We've always been consistent about how we've done this. We've always been transparent about how we've done this. We're looking at our actual historical trends. So, what has been the frequency and severity changes in your portfolio versus what you expected, and that helps give you a starting point. And then what's your forward view of rate and trend in the current year, and that's what really drove the increase. That casualty loss trend of 6% is above our historical loss trends. I think that's an important point that gets to your ultimate question. Largely, that's our way of incorporating the potential for additional social inflationary trends to emerge in the future. I think that's how we really think about it. We start with the basket of CPI goods that impact every individual line of business, be it property or casualty and then anything above that we would attribute to social inflationary trends, and that's the primary driver behind that change. But that's also how we evaluate our reserve inventory. I think we can comfortably say and continue to comfortably say that the current trend environment is fully contemplated into our reserve position, both looking back and then certainly into how we select loss ratios on a go-forward basis.

Then maybe the second part of the question on the guidance versus the actual in 2022, perhaps I can walk you through that. So, as we talked about, the guidance is at a 96.5%. That's an accident year combined ratio, so it excludes any anticipation of reserve development, whether positive or adverse that includes the CAT losses, so on of an expectation of 4.5 points. So, the underlying is basically a 92%. If you look at the actual combined ratio in 2022, we came in at 95.1% for the full year. CATs came a little bit heavy than expected at 4.3%. And then we did continue to see favorable claims emergence to the tune of about 2.5 points on the combined ratio. So, the underlying was a 93.3%. So, I think the question was how do you get from a 93.3% to 92% when you trend assumption is up. And there are a couple of moving parts in there. One, obviously, is an expectation of earn rate. We have the written rate that's in the bank for '22 that will earn into '23. And then we have our expectation of the written rate in pure renewal rate in '23 than will earn in '23. We don't specifically provide guidance on that, but that's embedded in our combined ratio guidance. But then we also have the impact of some reinstatement premiums that we incurred in 2022. If you back that out and normalize for that, we had about $9 million of ceded casualty reinstatement premiums in the third quarter and just under $11 million of ceded property CAT reinstatement premiums in the fourth quarter, that's about half of the difference of the 130 basis points. It's about 60 basis points of that difference. And then the remaining difference is really a mix of business, in terms of the growth rates between property and casualty and within the lines of business within casualty. And that sort of gets you from the 93.3% to the 92%. As we've talked about in the past, our expectation of non-CAT property losses embedded within that guidance is pretty flat year-on-year. And then we also see a little bit of a headwind from an expense ratio perspective. It's 20, 30 basis points, not a big move, but a little bit of a headwind, and that all gets factored into the movement from 93.3% to a 92% for 2023 for expectations.

And then just to amplify a point we put out there in the earnings call just in terms of pricing, and Mark indicated, we don't guide to pricing, but we did disclose our January pricing on the earnings call, and it was 6.5% for commercial. And that's almost a full point above where Q4 was.

Perfect. Thank you. You mentioned reserves earlier. If we could get a little bit more color on your reserving process and I guess just how it might be impacted or not when the underlying loss cost trend assumption shifts, like we've seen this year?

Yes, we've had a very consistent approach and a very consistent philosophy. We do a ground-up reserve review by major line of business every quarter and then it's done twice a year by a third party, and that's consistently been our process. I think historically, and you've seen this, and we certainly don't plan for favorable reserve development, but we've had it for 17 years in a row. I think that just speaks to the discipline in our process because I think sometimes people fail to recognize one of the most important parts of reserves and how reserves emerge is the discipline and diligence you have around setting casualty loss picks. That's the process I went through earlier, and this has also been a consistent process for us is when you look at your history of at least the last 5 years, you fully trend those prior accident years for actual changes in frequency and severity. And then you bring all those actually yours to present rates. So, you're getting that comparison of what was your actual loss trend, frequency and severity, and how much rate have you earned against that over those periods. And then that forms your starting point for the upcoming year, and then we inflate that going forward and apply our expected rate level on an earned basis going forward. That process, I think, has allowed us to have really solid picks year after year from a casualty perspective and that's what you're ultimately evaluating. And then, I think we've been in an unusual period, and this is where I think we've seen more uncertainty going forward as an industry with regard to loss trends, which is we've come out of this now 3-year period that's pandemic influenced where frequencies have been generally lower across most major lines of business, certainly on the casualty side, and severities have been higher, and we react to that in our reserving process, and you've seen that in reserve development. Now we've also had a track record of being fairly deliberate in recognizing potential favorable emergence in casualty. And when it comes to the most recent accident years, we're generally going to let those age a little bit to make sure that while frequency emerges relatively quickly in casualty, severity takes a little bit longer to emerge. And we didn't want to just react immediately to lower frequencies in those more recent accident years and let that very emerge. I think that will consistently be a process, the way we administer the process as well. So, I don't know, anything else you would add -- that's been a fairly consistent process for us.

Moving to investment income. Obviously, over the past several quarters, investment yields have ticked up quite a bit, and you benefited from that. Could you talk about any potential changes to your investment strategy in light of the evolving yield environment and just how you're positioning the portfolio going into this year?

Sure. Maybe I'll start now, Grace, and John will probably jump in as well. But I think for investment income and how we're thinking about the investment portfolio, in many respects, nothing's really changed. We take a very conservative approach to managing the investment portfolio. It's there to support the liabilities or to support the capital position. We're predominantly invested in high-quality fixed income securities. So as of year-end, 92% of the portfolio was invested in fixed income and short-term investments. I think what has changed or what was different in 2022 going into 2023 was the rapidly rising interest rate environment. On the one hand, that was a tough year from a total return perspective and what that did to GAAP equity. But on the other hand, it was really a tremendous opportunity to build book yield in the portfolio, which will deliver consistent, stable investment ROE contribution on a go-forward basis, significantly more so than we've seen in the past. So, when you think about our portfolio and what we did in 2022, we really took advantage of the rising interest rate environment. Sort of had one foot on the gas, trying to build book yield; one foot on the brake, making sure we weren't crystallizing too many losses and impacting statutory capital and surplus; trying to thread the needle, you have impacts of deferred tax assets on the unrealized losses you need to consider. So, a lot of different constraints, but we really took the opportunity to turn the portfolio over and we put about $2.7 billion of new money to work in new fixed income purchases in 2022. As we did that, we also took the opportunity to become a little bit more defensive going into 2023, the market is prognosticating a recession. When you have a recession, there's concerns around credit issues. And so, we wanted to be a little bit more defensive from a portfolio perspective. We reduced our allocation to risk assets. We moved up in credit quality. We started the year at an A-plus average credit rating. We finished the year at a AA-minus average credit rating. And we also improved the liquidity of the portfolio to, so really repositioned to be a little bit more defensive. But I think the real differentiator for Selective versus many of our peers that are a little bit more of a buy-and-hold strategy was the trade in the portfolio. And just to put that into perspective, when you tie in that $2.7 billion with the total portfolio, what that did for book yield, we started the year with a pretax book yield on the portfolio at 2.97%. And we finished the year with a pretax book yield of 4.12%. So, we added 115 basis points of pretax book yield for the portfolio. And when you think about our investment leverage at just over 3.3:1, that's 2.7 points of ROE investment contribution for every 100 basis points of pretax book yield on the total portfolio. So, it's meaningful. And those factors are contemplated in the investment income guidance for 2023 that I mentioned earlier at $300 million, which is about, I think, about a 28% increase from the investment income that we had in 2022. So, I think from our perspective, it was a tremendous opportunity. These higher interest rate environments maybe were higher for longer or maybe we go back to lower for longer, but really locking in that book yield was really important for us. One last thing I'll mention is we do have a fairly healthy allocation to the front end of the curve in terms of floating rate securities. If you go back a couple of years, that was as high as 18%. We went into the year at 15% allocation to floaters. But as we got towards the end of 2022, recognizing the Fed might pivot, the front end might drop pretty quickly. That's probably been pushed out a little bit now. We reduced our allocation to floaters to around 10% at the end of the year to really lock in those yields, but also managing against duration and credit quality constraints as well.

Moving into the competitive environment. If I could just get your current thoughts on the competitive dynamics and how they might impact your ability to get the rate that you are seeking in light of the increase to loss cost trends?

Yes. So, I think first thing it's important to put out there, and this has been our history, if you look back over the last dozen years or so, we feel like we've built the organizational muscle to achieve our rate targets regardless of where the market is. We're not going to be dependent on a rising or falling market to establish our pricing strategy. And I think that was evidenced to get in the January pricing that we put up. Now that said, we continue to see a fairly rational pricing environment and my expectation is that it continues. I think what you're seeing though varies meaningfully by line. And you're seeing a movement in the property pricing environment, and I think that will continue. And I think that's driven by increased volatility in both frequency and severity on both CAT and non-CAT basis. I think the reinsurance market is having an impact on that. I think just a recognition that because of the volatility in that line, your combined ratio target needs to be lower than it has historically been to factor in that volatility. And I think all of those factors are propping up the pricing market for the property line, and I would expect that to continue. And then I think the same, maybe to a lesser extent, continues to apply on the commercial auto line of business, where we continue to see healthy rate. You saw in our disclosures, property and commercial auto are probably the 2 biggest lines from a rate perspective. And I think that continues. Part of that has been driven by liability, but more recently, it's been driven by the auto physical damage line subline within commercial auto, and I think that continues to need rate levels. So, I think you're seeing a pretty healthy dynamic in that line. I think GL is the line where folks who are in tune with and reacting to potential social inflationary trends or emerging social inflationary trends will start to react in terms of general liability pricing. Ours has been fairly stable, and our GL results have historically been really strong relative to the industry. But that's -- I would call that a relatively stable line. And then workers' comp continues to be the negative outlier. And I would expect that to continue through the balance of the year. Our pricing in 2022 was a slight negative in the comp line. The bureau filings across our footprint and across everybody's footprints continue to be negative from a loss cost perspective. But yet the industry continues to benefit from a very healthy frequency environment and continued low medical inflation, which when you look at the basket of CPI that impacts the workers' comp line directly, it's still running in the high 3% range and running at a level below where wages are, wage inflation is probably just a tick above 5. So, you've got a favorable gap there, at least on the medical side from a loss perspective. So, I think those lines, I would expect a fairly stable environment to what we've seen. I do think you're seeing a little bit of a competitive dynamic on new business where casualty-driven accounts have become more actively competed for as companies have struggled to achieve profitability on the property side, sorry. And I think I wouldn't call that a market shifting dynamic, but it just bears watching that the new business environment has become a little bit more competitive, especially for casualty-driven accounts. E&S pricing continues to be strong. Our pricing was in the high 7% range last year. We've gotten strong growth there and really strong margin improvement in that segment of business. And I think that continues to be a pretty healthy place for us to be. And then personal lines, I mean, you've seen it from the big personal lines right or the auto line and the home line, there's a fair amount of rate activity flowing through there. And you've seen that in our rate activity. It hasn't hit written or earned yet, but in terms of the filed impact, as we quoted for the fourth quarter, it was running just under 9%, and that will start to work its way into RIN and earn rate as we move through '23.

I guess we're going to pause right quick and offer anyone in the audience who has a question, a chance to ask...

Just really quick on your combined ratio target. I guess what's the growth component of that? Because obviously, like maybe if you're growing faster, you can tolerate a little bit higher and vice versa. So, what sort of premium growth or risk growth or exposure growth is contemplated in that sort of target?

Yes. So, I don't know that there's necessarily a specific growth level that's contemplated in that target. We're not a company that plays in markets where you've got a growth on our growth of mentality based on the market dynamic. What you've seen from us over the last couple of years is growth in that anywhere from 9% to 11% to 12% range from a commercial lines perspective, stronger growth in E&S and lower growth in personal lines because we really view where we are relative to our target profitability by segment as the primary driver of growth. We're not going to be a 20-plus percent growth company. And I wouldn't expect us to be a 0% growth company either. I think you're going to continue to see us in that high single-digit to low double-digit range. But to the extent we feel like we need to generate additional pricing to bring our combined ratio down a little bit and the market is behaving differently. You're going to see the growth get tempered and you might see it accelerate slightly. But I would say it's considered a relatively steady-state growth rate from what you've seen from us over the last few years is contemplated in that.

I was wondering, do you have any cyber risk in your general liability book and that train that derailed recently in Ohio. Is there any pushback to you guys on that?

So just with regard to cyber, our exposure to cyber, I would say, is limited. The stand-alone cyber that we write on the casualty side is written with the reinsurance partner, where the risk is passed to the reinsurer on 100% of the basis. On the property side, we've largely addressed any silent cyber concern through some very low sublimated exposure or limits that are made available. So, it limits the risk to silent cyber. So that's a market that I think we've managed quite well, and you wouldn't view us as a significant player in that space. With regard to that loss you're referencing, there's nothing I would say relative to an individual loss, but our exposure and our book profile tends to be small, midsized commercial lines accounts and anything from an event like that would be sort of ancillary.

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So the question was how do we think about the pricing environment in terms of our ability to enter new geographies or open up new agencies. And I would say, if you look at our track record, we've opened 5 states since 2018, late 2017, early 2018, and we'll continue. We've opened a couple more states in '22, and we'll continue to open states going forward. These do tend to be smaller market opportunity states than the ones we're currently in, but yet still additive to our growth. But our philosophy is no different than it is in our existing states, which is the pricing philosophy that we have in place and the underwriting discipline and the underwriting appetite that we have in place is the same that we apply in new geographies. I think we do recognize, just like we do in our legacy footprint that new business generally produces a higher loss ratio than your renewal portfolio. And I think that's relatively consistent across all lines of business and across all companies, and that gets embedded into our modeling in terms of how we think about ramping up these states. So, I would say we do a lot of work from an actual oil perspective in terms of where to set pricing. But I think more importantly, it's the underwriting discipline we have as an organization and the infrastructure we have around that, that allows us to perform in new states on a relatively strong basis relative to our existing footprint. I would say it's the same for new appointments because we're bringing new appointments into an infrastructure from an underwriting perspective and how we manage agency relationships, how we manage underwriting transactions that's very consistent. It's not a new group of underwriters, handling a new agent, and it's a fairly consistent approach. So, I would say neither one of those is meaningfully impacted by the pricing environment, any different than our existing footprint, our existing agents would be.

While we're on the subject of growth with your agents. Historically, you've mentioned wanting to have agency appointments that cover 25% of market share in a given geography and a target for 12% wallet share with those agents. I'm curious as to where you currently stand with regard to these goals. And if broker consolidation has any impact on the time line for reaching it?

Yes. So again, we talk about being able to grow into a 3% commercial lines market share over time, which is compared to our current about 1.5% market share in commercial lines across our entire now 30-state footprint and look at the 2 primary levers of driving that market share as; one, your ability to expand your agency partnerships in the context of our franchise value philosophy, which is not to just appoint every agency out there. And we think a 25% agency control of the market that we're in is a reasonable target. I would say we're fairly close, maybe slightly above that in the majority of our states. There are a few that we're still growing into. But for the most part, we're fairly close on that. And then the share of wallet or the percentage of business that the agent writes with us as a percentage of their overall portfolio, we're still in that, call it, 8% kind of range across the board. And again, you've got new agents coming on, we add on a net basis of about 100 agents per year. and then you've got the impact of consolidations. But really, that's an operational measure that really incents our field underwriting staff to look at every agency relationship and identify what specific opportunities exist there that would allow us to capture more share. We have a lot of agents that are currently writing 20% or 20-plus percent of their book with us, and that focus is how do we help that agent grow overall, now we will get a fair share of that. In other cases, it might be an agent that is underrepresented with us in one or more segments that we have a lot of success in, and there'll be a concerted effort from a marketing perspective to target those types of accounts. But that continues to be a big driver of our growth. And from our perspective, the lowest risk growth opportunity we have. agents we know on products we know. That's the one big point relative to share of wallet and agency market share. Just in terms of consolidation, which has really been an impact in our distribution plan for several years now. We do have a lot of relationships with a number of these aggregation platforms. I would say, generally speaking, I consider it a net positive overall and I say that for a couple of reasons. Number one, most of these aggregation platforms have recognized that the business is still conducted at a local level and decision-making around who you partner with and where a producer places their best accounts is still controlled locally, which aligns well with our model. But we've had the benefit now of being able to plan corporately with these larger entities, but successfully execute locally. So, plan corporately, execute locally, I think, is an important consideration. That works well with our model. And then in terms of geo expansion, this has also been a benefit because by having these larger relationships that stretch beyond our current footprint, -- when we go into new markets, we've already got an established reputation with a number of these larger players that have offices in these states we're going into, which gives us more credibility before we enter. And I think that's also been a positive from an aggregation perspective.

When you look at your long-term financial targets, let's just say, like 9% to 11% top line, 95% combined ratio, and a 12% operating ROE. Why is that the right balance? Why isn't it 5% to 7% and the combined ratio of 92% to 93% and an operating ROE of 13%, if you could improve your underwriting margin by 50%? Like what is it about the balance of the company and the need to grow and invest and incent that leads you to that? Why do you think that's the optimal balance to drive total shareholder return? Why isn't it something a little bit different, lower top line, better profitability or vice versa?

Yes. I think the way we think about it is the balance we've created and the ability to put up 10% growth on average over a decade and deliver a 12% ROE year in and year out over a decade puts us in a relatively small company of companies who can deliver that kind of consistent growth and profitability. And part of the reason is, and we remind ourselves of this every day. because you've seen a number of examples. This is a business where you could easily grow yourself into bankruptcy because you jump into segments either too aggressively or you jump into segments that you don't really have a good understanding of or enough of a history to understand how to properly underwrite it. And we think that disciplined growth and profit focus is something that has allowed us to continue to deliver that kind of result and reduce volatility because that's one of the other important parts of understanding the selective story is it's not just a strong performance, top line and bottom line. It's the very low volatility relative to our peer group. And I think that combination and sort of tuning the growth and the profit at the levels we have is an important part of how we think about our business model. And again, there are different philosophies, but we write a very consistent portfolio and that consistency gives us a lot of knowledge, and it gives us a lot of credibility in our reserves, and it gives us a lot of credibility in the loss picks we make because it takes one of the variables out, which is your portfolio being stable allows your actuaries to have very predictable frequency and severity patterns when you roll that forward. And that's how we think about the business. That's how we've been able to generate the kind of growth. And then we also think about a sustainable growth rate of, call it, in that 8% to 10% range at our current margins and continuing to keep the leverage ratios relatively stable.

Yes. It's a good question. We think a lot about the targets and they have worked well for Selective, and I wouldn't view the 12% ROE target as a ceiling. As John talked about, with the guidance we put out this year, we would expect that we deliver on that to come in above the 12%. And we wouldn't view the 95% as a floor in terms of the combined ratio. We've had multiple years where the combined when you factor in the favorable reserve development come in in the 92%, 93%, 94% range. So, I think you need to take that into consideration. But if you look back over the last 9 years, with that 11.9% average ROE, the 8.4% MPW CAGR rate and the 10% annual increase in tangible book value per share plus accumulated dividends. That's driven a 15% -- I think about 15.8%, just under 16% annual total shareholder return for our shareholders. And I think that's a track record over the last 9 years that puts us in a good company. It's been a model that's worked well for Selective.

Most of your book is currently in standard commercial lines. Could you hit on the strategy for excess and surplus and personal lines and where you're looking to position those businesses over the long term? And just we should expect those 2 segments to comprise a larger share of the overall book over time?

So, I think the first point I'd make is we're a really good commercial lines company, and that will always be our core business. It's currently a little over 80% of our business, and that might come down over time, but it might not -- it won't come down because we're not growing commercial lines. We're going to continue to grow commercial lines. And that becomes the hurdle for E&S and personal lines in terms of gaining share of the overall company from a premium perspective. But we like both of those other businesses. They're currently about 10% each. And in many ways, it allows us to leverage a lot of the investments we've made in commercial lines to be successful in those businesses. E&S is an area that we put up really strong margins in the last several quarters and last couple of years and really strong growth. And a lot of what we know in terms of technology, in terms of underwriting and pricing sophistication, claim sophistication, are leverageable in the E&S space. And I would expect to continue to see that be a growing share of the organization. But I think we like that business in the, call it, 15% to maybe 20% longer term of the business because that will create some more top line volatility. You're going to have opportunities to grow it, but depending on market conditions that might become pressured from a growth perspective. That's why we like the standard commercial lines, which gives us a pretty consistent opportunity. Personal lines, we've gone through a pretty big transformation. And I think it's a recognition that we were never built to be a strong player in mass market personal lines, where operational efficiency and brand and scale are drivers of winners and losers. We're now competing in a space in the market where the customers value product and service and agents control the lion's share of the affluent and mass affluent markets. And we think our reputation with agents, our track record from a product and service perspective, the investments we've made in digital customer experience capabilities for commercial lines are applicable to personal lines, and we think that allows us to be a more -- a much stronger competitor in that space. But again, I view that as being complementary to our core commercial lines business long term, but we would like to grow that segment of the business. But it won't be our predominant business long term.

Okay. I think we have just a few seconds left. So, if we could get a super quick overview on the capital management strategy and just given some latest repurchases over the past couple of years following an extended pause just where we purchased into that.

Yes. Just very briefly on capital management. As John mentioned earlier, our sustainable growth rate is in kind of the upper single digits. And if you look at growth over the last couple of years, we were 12% last year and 15% a year prior and generating very strong returns for our shareholders. So, the best source of our capital is deployed into the business and continue to grow organically. And that's the plan. That said, in terms of being generating good TSR for our shareholders, generating a good ROE is one part of the story and then being good stewards of our shareholders' capital is the other part of the story. So, to the extent we do find ourselves with some excess capital that becomes a little bit of a drag on the ROE. We certainly look at all means available to return it to the shareholders. We do have $100 million share repurchase authorization in place. We have just over $84 million of capacity left, and we'll use that opportunistically.

Perfect. Thank you. I think that's about all the time that we have for today. So, thank you so much for joining, and thank you all for listening and participating.

Thank you.

Thank you.