The Hanover Insurance Group, Inc. (THG) Earnings Call Transcript & Summary

Okay. We are good to get started and very excited to introduce Jack Roche, CEO and President of Hanover and Jeff Farber, who is the CFO; and ADP. We're going to start with some introductory comments from Jack. Then I will ask a few questions. And as always, I want to make sure that if there are questions in the audience, that we give you the chance to ask them to make sure that you're getting the information that you want. So please do not hesitate to raise your hand if you have questions on their own, follow-ups, anything with that. I'm going to turn it over to Jack. Thank you so much.

Well, thank you, Meyer, and thanks for the opportunity. Jeff and I are excited to participate in the conference and meet with investors. So those of you that know us well, know that we've been on a journey for a number of years, the last decade plus on transforming The Hanover into a more distinctive, more specialized more geographically diverse company. And we're really proud of the progress that we've made as a company, the financial track record that we were building as a company particularly after the last several years through 2021. We're also equally excited about the value proposition and how it has been resonating with our agency plan focused on bringing increasingly specialized products together with what we think is a unique agency partnering approach, being very selective in which agents we appoint but going deeper and being more analytical about the future partnerships that we can build together and leveraging that product set with a more intimate approach to engaging with agents. And last but not least, attracting some pretty amazing talent and developing a unique culture that has allowed us to kind of execute and be a pretty agile company. Admittedly, in the last 1.5 years, we've faced some different headwinds. And the challenges of more extreme weather, particularly in some of the geographies that it showed up, combined with a highly inflationary environment. have been challenging for us and also the industry. But given our book mix and given our geographic footprint, particularly in Michigan, we've had a disproportionate amount of the pain at least in terms of the publicly traded companies. So with that, we've really tried to show that we can be resilient and agile and address those extreme challenges that we're facing. And so you may have heard in our last call that we're focused on our margin recapture plan on an ex-CAT basis and taking even more actions and accelerating our CAT management and CAT exposure plans as a company. The only silver lining of this challenging period that we're going through is that, frankly, bolder moves are easier to execute and, frankly, more appropriate. And whether you're talking about internally or externally with our agents, we are having no resistance to leaning into what is a very hard market in the Personal Lines business. and increasingly hard market in the Property Lines within Commercial Lines. So we're going to lean heavily on that marketplace and the partnerships that we built to address some of these challenges head on. And we are extremely determined and confident that we can pop back up to top-tier performance, which is what our goal is to be a company that investors are excited about participating in. So with that, I'll kind of turn it back to you, Meyer, for some questions.

Okay. I'm going to follow up on the margin recapture plan because if you look over really the last 2 quarters, you've laid out a very thoughtful, very detailed plan that covered a lot of this. And you've touched on one aspect of it, which is how agents are dealing with the fact that you're raising rates and in some cases, where there's too much concentration pulling back from that, and that's on the property side. A second impact that could play itself out, and I would love to hear your thoughts on that, is that as you address some of the overexposure in property, that could have some implications on what we call the core of the attritional loss ratio because that business, by definition, has provisions for catastrophe. How should we think about that manifestation of the margin recapture plan? I'm not suggesting that you're doing the wrong things. I don't think you are at all, but this is a secondary ratification.

Super important. So I appreciate the question. And so I'll just follow up on the first part of that, and that is we are definitely in a stage of the market where the dynamics and the universal discipline that we're seeing in the marketplace around property lines and in the personal lines sector is really allowing agents to get their head around what their role is in this. And that is to think more about how they can add value to the customer on what coverages they're getting for the prices they're paying and what can they do from a risk mitigation or management standpoint to improve their prospects of getting better prices in the future. And I see that. I see that with the interactions we're having with agents. But we're not running into a lot of pushback, frankly. Not that they're excited about delivering these messages but we're not getting any meaningful pushback on the pricing and the actions that we're taking here before. From an investor perspective, I think your point is spot on, and it's something we focus on very intently inside the company, and that is we need to improve our underlying margins while advancing the diversification and the CAT management -- exposure management of the firm. And you need to do that in a way that does not compromise one for the other. So as we approach -- in the Personal Lines business, frankly, it's not as hard because it's such a hard market and there's such an overlap of those 2 issues that we are driving major price, major terms and conditions and we are reducing some of our growth aspirations in places like Michigan that will help, I think, advance both causes. In Commercial Lines, it is a little bit more delicate in that you have to understand of the business that you're affecting from a CAT management standpoint, what is the underlying loss ratios. And so both in small commercial and middle market, we go through a very explicit exercise on when we decide to remove certain parts of our portfolio or when we're going to hyper price a certain part of our portfolio, we need to see the explicit underlying loss ratio results to know what that trade-off looks like. And then last but not least, in Specialty. Other than our industrial property and marine business, that is a little less CAT prone, if you will, it's a casualty business. So we're not having to worry much about that. And the margins, frankly, are so good right now that it's really about preserving or those margins while we grow that business.

Okay. You're in the early stages, I think, a really ground up reassessment of catastrophe exposure. Jeff, you've talked about this on the conference call. And I know it's early, but I was hoping you could talk a little bit about what you've concluded so far maybe in the divergence of this year's actual CAT experience with what you expected? Is it frequency of events? Is it the inflation that's associated with that, that's making some marginal events more catastrophic and any other learnings that you could share to date?

Yes. Listen, as perplexing as these times are in terms of understanding weather patterns and how much of it's climate influenced versus cyclical, it's the business we're in. So we have to continue to build on our expertise and the modeling, but obviously supplement and augment that with judgments about where we think those trends go in the future. So I think of it kind of on 2 frames. We can't have such a recency bias that we start playing whack-a-mole on the last peril and the last storm path. That's a fool's errand. You have to keep going back to the fundamental spread of risk concept and understanding where are your micro concentrations, what do you think is changing from a weather pattern perspective and get some help from kind of the science community and others to be able to at least lay out a view of how you would augment and supplement the modeling you do today to kind of better predict what kind of CAT load you need for the future. And that is fundamentally what we're trying to do to kind of get ahead of this for the 2024 guidance that Jeff spoke to. Under any scenario, we need to spread our risk even more -- in a more disciplined way, right, that we don't believe that 2023 is the new normal in particular, but we also don't think that we're going to go back to easier days where we had 2% and 3% at CAT load for years. So we are working through that process, building on discipline that we've worked hard over the last many years to build, and we're going to put forth not only what we think is the appropriate CAT load for our business in 2024 and how that will carry forward into the future, but a little bit of kind of how we went about doing it and what the implications are to bolder moves in our CAT management plan.

Great. I'm sorry, we've got a question from [Jody]. I'm just going to get to the microphone, if that's okay.

A follow-up on that question. Do you have the existing talent? I like Meyers opening thing, what surprised you about what you thought would happen this CAT season versus what you see now? It probably didn't go as expected. Do you have the talent now that you need to take these bold moves? Do you need to consultants? I'm just grasping the straws here.

Yes. I think the core strength of the firm is that we have a terrific underwriting group, we have a strong actuarial team. We have a great risk practice. So all of that, I think the fundamentals are in place. What surprised us about this year is extreme convection storms in our largest state, right? And so does that motivate us to deal with kind of the size of Michigan relative to the rest of the portfolio in a more aggressive way, it does. But that's really the journey we've been on over the last decade plus is building out specialty businesses, building out more geography, we're basically in all states commercial lines player. We've kept Personal Lines in a 20-state footprint, mainly because a lot of the other states that we would consider moving into aren't really that desirable right? We're not in California. We're not in Texas. We moved out of Florida a decade ago, and we can diversify the firm much more effectively outside of Personal Lines than we can inside of Personal Lines. But the long pole in the tent for us based on what 2023 has presented is that we don't have as much time as we thought we did to grow around Michigan. So we're going to accelerate those efforts. And I think that's the biggest learning of this year is that whether it's bad fortune or not, we need to take more aggressive in reducing our PIF and rooftops in Michigan and accelerating growth in particularly small commercial and specialty that we will -- that will help our CAT loads get reduced over time. And both -- all of that is part of the plans that we are aggressively pursuing and frankly, started accelerating last year, just not fast enough to offset the challenges that we're facing during this year. Maybe the last point on this, though, is the silver lining, as I said before, is that it's really hard to look forward and say, how do we kind of reduce the size of Michigan relative to the rest of the company when it's out earning the portfolio, right? There's not too many companies that can look at their best performing geographies or best performing lines of business and say, for the spirit of diversification let's reduce those outperforming areas. We outperformed the industry in Michigan by 8 to 10 points pretty consistently. But these are different times. And so we are able to, I think, use this as motivation, both internally and externally to say, we need to accelerate our efforts. And I think we have great alignment internally and externally on those efforts.

Sorry, we've got a question from [Clayton]. We're just bringing you the mic.

Have you laid out the '24 margin targets? I'm sorry.

Well, what we articulated in the last call is that, obviously, right now, as we approach the marketplace relative to our CAT loads, we're not behaving like the guidance we gave for this year, right? Where you can see in our rate filings and in the way we're pricing our product, we're assuming that CAT loads are higher than our guidance. But relative to our guidance, we are going to finish the work on our ground-up analysis and some of the supplemental work and we're going to present that consistent with our fourth quarter call and try to do our best to not only articulate what that why we believe the new and improved CAT load is appropriate, but a little bit of how we got there. The underlying trends, we'll continue to update on a quarterly basis, and we have a lot of confidence that the underlying performance of our business given the marketplace and the way in which we're operating in the marketplace will show consistent improvement.

So [Joe] asked this question in context of talent, and I want to ask it in a slightly different way. The world is more volatile now. And we noticed this -- we put out a study before showing that auto severity had been more volatile than frequency recently, and that itself is unusual. And I'm wondering, maybe this is an actuarial question but in terms of the processes that you use to balance maybe what the data would spit out if it was purely mechanical and an evaluation of saying, well, this could happen, and we can't ignore that. How are those being balanced in the rate-making and reserving functions?

And you're talking primarily about personal auto or auto brought more broadly?

Auto and property because those are 2 areas where the past is a less useful guide than we might have hoped.

No doubt. I think. I think there's -- we have been practicing inside the firm and wish we -- it was more effective for 2023 is the idea that the traditional methodology and actuarial methods are insufficient, right? As the line of businesses get more volatile and they all are, right? Nobody ever expected that workers' comp was going to have 7 years of incredible performance and property volatility, both CAT and non-CAT, we're going to be at the levels that they are today. So as you look at that volatility, you have to build an ecosystem within your company that has good actuarial process and understanding good business insight about what's going on in the world that might affect those traditional line of business trends, good finance discipline to kind of make sure that, that information is coming to the forefront. And also, I think, to be honest with you, get better at assessing the economy and how that's going to influence a lot of those trends. So we've been working hard over the last several years to make this less about kind of letting the actuaries tell us where the puck is going and then pricing our product and having a much more integrated approach. And I think these times, if you just use Personal Lines, even the best competitors in our business have not been able to get their arms around first-party kind of deterioration, right, which tells you that it's even more important than we thought that you've got to get. I'd like to believe that on that aspect of our business, we've been one of the better reactors to that. Halfway through last year, we clearly saw that the physical damage coverages were not improving at the rate that we thought they were and that there was some delay in not only repairs, but also how those trends were presenting themselves. And we took some meaningful actions midyear to address that, not only in terms of our picks, but in terms of our pricing and our actions. So this period serves as a great catalyst for the company that do have the talent to kind of say, don't have a component part type of approach to this. People have to bring forward their point of view. They have to challenge our thinking, and you have to have a more scenario-based view of the world and how would you behave differently depending on how those loss trends present themselves. And we're just going to keep getting better at it.

I'm going to make your point a little bit stronger, if I can. It's not just first party. It's first party with massive amounts of real-time data and it's still hard to do. I think there's probably an underappreciation of that from I see in terms of like we like to think that if you just press the right button, you'll get the right answer.

Well, think about when COVID started in middle of the early 2020, right? So the courts closed medical procedures stopped. So if you simply tried to square a triangle, you would have been massively under reserving, right? And obviously, we knew right away that there was a delay. So when things slow down, the triangle doesn't really account for that. And then you get into a situation where inflation is happening very rapidly. And historically, short-tail lines that you could look at the last quarter you had to start looking at the last week to get an idea of what things were costing it. And so I think as a learning organization, we're doing a much, much better job of using a combination of traditional actuarial methods and we're contemporaneous external data to inform our judgments.

Fantastic. And again, open for questions from the floor if there are any, but I want to stick with Core Commercial for another minute or 2 because we've been talking about property and the plans there. And you touched a little bit on workers' compensation. Workers' compensation and commercial auto have kind of gone in opposite directions. Workers' compensation profitability has persisted despite rate decreases, not huge but sort of compound and Commercial Auto has been a tough line setting COVID aside. I was hoping you could talk about what you're seeing and what you're planning for in those 2 lines as the economy evolves?

Yes. So yes, Commercial Auto clearly for the industry and to some degree, also has been an ongoing challenge. And when you take a step back and you think holistically of why that is it's really not as perplexing as one might think and that the world is getting more litigious. The costs for the subset of accidents that create injuries are going up. And if you look even into the umbrella lines, north of 60% of the losses that penetrate the umbrella are Commercial Auto. And so if that's the line that attracts the most litigation and it's getting more severe, even after a decade of throwing price at, the industry is really not making any progress. Now there are some that play in subsectors of the business that have made more progress than the standard market is. But I don't know anybody in the standard market that's in the package business that also writes auto that is claiming to be on top of those trends. And I don't think they'll -- I think pricing will eventually bend the curve. But the real challenge is how is the kind of litigation abuse and the lack of reforms on that going to kind of match up to it. I believe that's going to be required for commercial auto return back to its previous profitability. Workers' comp is a bit of an enigma, as you said, and we write a fair amount of it, but it's not, by any means, our largest line. And frankly, Commercial Auto is not one of our largest lines. So they've kind of meaningfully offset each other. And we study workers' comp like everyone else. I still believe that a medical inflation will eventually start to emerge. And so anybody that's just looking back is going to get I think, disappointed in the go-forward returns that you can expect from that line of business. But they kind of go back to the point we were just making is you have to have a retrospective view of the line but you better be thinking about what are the trends or the impacts that could make those businesses get worse or get better. And I think we have the right drill in place to do that. As you look at our Core Commercial lines business, though, 1 advantage we have of being an account writer is that we're not over-indexed on it on either one, right? And so we can get on top of these property trends. I think we'll be just fine in the Core Commercial business.

And broadly speaking, I mean, property has been an issue, but it doesn't seem to be beyond that. The overall results seem very solid. I think we have another question from [Jody]?

Follow-up on is it possible to rip the band aid off and just get out of Commercial Auto because it's an industry problem. So any thought given to that?

Well, listen, we're not in the subsidization business. So I can tell you that pretty regularly, we are driving each line of business to target returns to -- at least that's our intention. And so I don't think it's a holistic answer, but I think there are geographies where our tolerance for subsidization has gone away. I'll just pick on one state in Texas, and that it's such an insurmountable challenge to get on top of the loss trends that are further deteriorating that state that we won't write, for example, a package that includes any kind of auto unless we get the workers' comp, right, to make sure. Whereas historically, what's happened is companies like Texas Mutual have been able to write the comp, everybody writes all the other lines and then they figure out how that works out over time. Well, that's no longer an acceptable proposition. And so we are trying to drive a little bit of a property light and auto light business and make sure that when we write an account, we have the lines of business that give us a better chance of making a profit. But overall, I think I still believe that we can make Commercial Auto less bad on its way to eventually being a contributor to our profits.

Okay. I want to move along to the Specialty segment. I want to introduce this with a very basic question. And that is in insurance, specialty can be a bit of an amorphous term. So I was hoping you could spend a little bit of time describing current specialty and ambitions maybe in the medium term, near and medium term, for what else belongs in there?

Well, we couldn't be any more excited about the specialty businesses that we've been building over the last decade. Inside of our Specialty group is 10 businesses and 20-plus product lines that not only are generating really good returns, but they increasingly make us more distinctive in the eyes of our agency partners, right? Most agents are trying to sell specialized products and not being a generic kind of salesperson. And so the more product you can bring that's specialized, direct to the retailer, the more they can use that to distinguish themselves in the marketplace. And so that's our focus. We also do some business in the wholesale channel across several of our businesses, not just the E&S business. But when we go to the wholesale market, we look for where can we be distinctive. So for kind of the small and midsized kind of E&S business or health care business or professional lines business, where can we be helpful to the wholesaler and filling out their mosaic, but oftentimes, that's influenced by our retailers view of when they leverage a wholesaler, right? We have some very high-quality agents that still choose to use high-quality wholesalers, either for efficiency or expertise reasons, or because the line is so volatile that they don't want to be in the remarketing business every year. So what we do is just try to be very planful about what is the wholesalers' value in the chain, what do we bring to that table. We don't want to be the 21st up and down E&S market, right? E&S has had a wonderful run here, but one of 2 things is going to happen in the overall E&S sector. Either the losses are going to start showing up for the mini hard market we've just had or if the losses don't show up, we're going to have a very soft market in that business. And that's not the kind of volatility and up and down kind of trajectory we want to create for ourselves. So where we place ourselves in the retail specialty business is a good mixture of admitted and non-admitted business that the retailer feels comfortable placing it on their own. Some of it is connected to our core lines, but a lot of it is not. It's a value proposition as of itself. And because we're on the small to lower end of the account size, even in the specialty arena, it's more about operating model and which agents are comfortable handling that on their own. And frankly, the biggest opportunity is to help them handle that business more efficiently because it may be high margin for the carrier, but it's not the highest margin for the agents. So you've seen even on the wholesale side, what Kinsale has done and some other folks, they get at the operational efficiency of the business and that becomes the value proposition. And particularly given the consolidation that's going on in the retail channel, there's an increasing opportunity to help those agents take all that small face value specialty business and just handle it more economically.

Okay. And when you talk about efficiency, we're naturally going to think about technology, can you talk about your differentiators? And can you talk about current priorities for technology-related investment?

Yes, that's a big part of what we've done in our core lines with our platform for Small Commercial, which has been the game changer, all the way through the operating model supported technology and specialty, including some portals for parts of our Marine business, for our Management Liability business, combined with an enhanced architecture that allows us to more cost effectively use APIs to sync up with those agents that are centralizing some of their small face value management liability and professional liability, for example. That's where the action is, is you have to have a chassis that allows you to extend yourself to their system because there is no master plan for the industry to get all on one platform. It's not going to happen in my lifetime. You have to have invested in the core infrastructure in your company to be able to extend that to the various bespoke systems and be able to transact much more efficiently than that business has. But also, the delicacy is do you have a broad enough appetite so that they can do that with a small subset of companies. right? Our data that we show through our Agency Insights tool is that, that business is very fractured. It goes to too many carriers today. So it's not just about the technology infrastructure. It's about the underwriting appetite and the pricing and can you get that right, so agents can move enough of that business to really move the needle from an efficiency perspective. And I just like to think that we're further along in that process than most carriers because that's where we focus in our energies.

And that seems very consistent with the broader agency share strategy that you've had for a while, which is to say, there are some big companies out there who are not necessarily going to displace them, but there's a lot of time and effort expended on smaller companies that becomes inefficient.

It's true. And when you look at the landscape of the Commercial Lines business, which we get a, I think, a deeper view on in the aggregate view of all the agency insight work we do with customers and we compile that data into one big database, nobody has a better view of where the business is fractured, where there are some opportunities to do some consolidation work or to help agents consolidate something that they have a lot of, but it's spread out on too many carriers. But then you got to do the pick and shovel work of figuring out, well, how are you going to get that done cost effectively. And that's even more challenging when people are starving for talent. That dependency is really important to get created, but you have to have a good way to get them to cross that bridge or there's just a lot of impediments to success.

Right. I do think you're touching on something that I have long thought is the industry's major problem, which is not overcapacity, it's too many companies for the talent that we have. And as we see this concentration among capable companies then that allocation of talent becomes easier because that will be spread as steadily. So I think that's positive. I did want to move to talk a little bit about the investment portfolio and the outlook. But if there are questions on the underwriting side, I think this would be a good time to pose them. And in the absence of that, let me start with a very basic question, which is sort of the delta between new money yields. I know this changes almost on a daily basis depending on a million things, but the delta between new money yields and book yields and how we should think about the fixed income, investment income build over the next few quarters?

So higher interest rates for a longer period of time are absolutely our friend. And we're investing today or I should say, each week, we've got an investment that matures and -- or investments. And each week, we're buying new things. So think something matures in the low to mid-3s and something comes on in the mid-5s. And so that is a really powerful flywheel that really starts to turn if you're getting, on average, let's say, a couple of hundred basis points more than something that's expiring and it's a little bit by bit. In any given year, you get about a half year impact of what you bought that year. Then in the following year, you get a half year impact of what you bought that following year, plus a full year impact of what you bought the year before and the full year impact of the year before. So with each passing year, we're just sort of stockpiling our cupboard with higher-yielding investments. So we haven't really shared the impact of that in 2024 yet or '25, but it really starts to get powerful, and we're very excited about that. So we'll do that in the coming quarters, but it really has an enormous impact on NII and enormous impact on ROE.

And as we move into I don't want to take too much credit as a macro guy. I'm not a macro guy, but it seems reasonable that maybe one of the reasons that alternative investments had done well for a while is because of low interest rates. And I'm wondering how you think -- when you're in a higher interest rate environment, and I'm going to say sustainably, that's the word we're always hesitant to use. How does that change your thought process about the value and the importance of an alternative investment portfolio?

So yes, people in this room probably know more about investments, particularly private equity than we might. We do have an allocation toward alternatives, which tends to be more private credit. It was a little more stable than private equity, but some private equity and think $350 million to $400 million of our $8.5 billion to $9 billion portfolio. I like a balanced portfolio. We like some risk assets, lots of high-grade fixed income. But in a higher interest rate environment, the balance between the value on a return on capital basis between alternatives, equities, high-yield and high-grade fixed income really shifts because there's a much higher capital charge associated with alternatives. There's a J curve around when does that pay back. So I think you'll see fixed income play a slightly heavier role in most insurance companies' portfolios with the higher interest rate environment.

Okay. Fantastic. If I can go back to what I would call the normal operating growth strategy. In other words -- and we've touched on this a little bit, where building like -- building your share of an individual agent, individual brokers shelf space is a key advantage. How do you think about, how do you quantify the credibility gap? Because let's be clear, sometimes we can get tunnel vision. We, on my side of the house, looking at public companies, a lot of them are big, a lot of them have huge resources, there are a lot of small companies out there that have less to offer in product breadth and technological capabilities. And that seems to be sort of a ripe market for Hanover to continue to consolidate and say, "Look, we can do more. We can do better. We can do quicker than these companies." How do you quantify that? Does that shrink? Or does that expand over time in terms of your capability superiority to that peer group?

Well, there's no doubt, over the last 2 decades, there's been a material shift from the smaller, less capable companies to the more sophisticated larger companies and even in the midsized companies. There's no doubt that whether it be the small commercial engines that were built to cherry pick kind of the better business or whether it was some of the Personal Lines sophistication, right? A lot of that has come from either kind of moving from the captive environment or directly from the smaller kind of mutual or single state companies. I think we're at a point in the cycle really across the board where I think that gets accelerated in the short, short term, because some of those companies are having some real capital issues, right? There's no doubt we're seeing not just in Personal Lines, but to some degree in small commercial, more and more companies saying, no mas, right? In this geography, we're not taking new business or we're going to take a step back and part of it's CAT management oriented. Some of it is just simply, I suspect, they're having some capital constraints, and they need to adjust their growth pretty quickly. So -- but the longer-term view is where you are going, and that is agents are not selling insurance in a commodity way, right? Even if you look inside the agency model, the average producer that has a specialized kind of orientation sells 2x or 3x as much insurance as somebody that is kind of a general insurance kind of broker. And you see that in their formulas where they're giving everybody a niche and they're requiring that. They look to the carriers to who's going to do that, right? And we've got some Specialty businesses and then we also have some distinct niches in our Core Commercial lines offering that we started over a decade ago because we saw that trend going on, right? So question is, are you good at that? If you have the product set? And I think we have the product set, and we'll continue to build on that, the real rate-limiting factor for growth if you have the right product set is profitability, right? You can't grow if you're not making money. And so that's really our focus is to look in this marketplace on where are the margins not acceptable, whether it's driven by the weather or some of the other trends get those margins back to where they need to be because there's plenty of growth opportunity. And some of it's going to come from the less capable companies, but a lot of it is going to come from who comes out of this cycle with the right margins to enable that growth. And maybe the last thing I would say on that, that's related is our current mix admittedly has challenged us, right? It's not our -- we're more Personal Lines centric than a lot of our public company brethren. And we have a fair amount of property because we're more of an account writer in the Core Commercial lines space. And so we're dealing with that head on. And I have a lot of confidence that we're going to restore those margins. I'm also looking out the windshield and saying, 2 years from now, my guess is that the headlines will be a little bit more about what happened with the liability trends and how quickly the property kind of margins improve themselves, particularly once inflation starts to subside a little bit. And so we're not depending on that. We're going after it very, very hard. But we try to look forward and say, if you can get your current book of business where it needs to be from a margin standpoint and you're good at anticipating what's happening out over the next couple of years, there is going to be enormous growth opportunity for those companies, and that's our intention, is to be one of those companies that can profitably grow at a really critical time in this industry.

Excellent. We have time for one more question. I want to see if there is any from the audience. And if not I'll pose it, how should we think -- and this is maybe segment by segment, the expense ratio as an opportunity, in some cases, maybe a challenge to growth. I certainly get that the vast majority of the margin story is on the loss ratio side. How should we think about the expense ratio prospects?

So we're committed to continuing to capture the leverage that we get on fixed expenses from growth. We've got a pretty good track record back to 2017 of taking out expenses and driving a 20, 30 basis points per annum of improving the expense ratio, and that will really continue. Obviously, things will change over time as you think about different mix change. There's clearly a lower expense ratio associated with Personal Lines and Specialty. At the same time, I think Specialty has opportunities as you get more scale in that business to improve its own expense ratio even if it's not as low as Personal Lines. But I think your point that you shared in your question about the loss ratio is really where the action is. For us, you're talking about a few hundred basis points versus tens of basis points on the expense side.

Yes. And if we're focused on optimizing the combined ratio and ultimately the ROE, we care about those components, but we pursue the best opportunities. And it's our job to articulate to the investment community why we're making those choices, what are the expense implications of some of the mix change that we're creating intentionally. So -- but even when that's all said and done, we have plenty of headroom and plenty of opportunity to further improve our expense ratio across the board. And I do think that's one of the levers that will help us over the longer term. generate high-quality ROEs.

All right. With that, please join me in thanking Jack and Jeff for a very informed discussion.