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

All right. With that, we are going to move on. We are very happy to welcome Jack Roche, CEO of the Hanover Group; and Jeff Farber, CFO. I'm going to turn to Jack to make some introductory comments, and then I'll start Q&A. As always, if you have questions, please just raise your hand. We'll get the mic to you. I want to make sure that everyone is getting the information that they're looking for. And with that, Jack, Jeff, thank you for coming. And let me turn it over.

Well, Meyer, thank you for the ability to participate in the conference. I appreciate those of you that are visiting with us today. And I'll just make a couple of quick comments. On the heels of our second quarter call and announcements around earnings, I think we feel really, really good about the progress that we're making as a company and the results that we're delivering this year despite the fact that the weather hasn't exactly gotten substantially better. We feel like we're making tremendous progress on our margin recapture plan as well as the CAT mitigation initiatives that we kicked off. 2023 in a lot of ways was humbling because we spent a lot of time building a company to generate top quartile returns and to do that in a consistent way. And obviously, the combination of some high inflationary environment combined with weather patterns that were particularly painful for us in the Midwest set us back. So we took that very seriously and we went to work on how we could lean into a firm market and reposition our CAT exposure and simultaneously quickly get our underlying margins improved. And so happy to talk about that some more, but we feel very, very good about the execution of our team and the progress that we're making. Really looking forward, I think our team is very excited about the next leg of our journey. This is a very exciting but dynamic time in our business. We have a very experienced team, really talented people that have come to our company from some of the best companies in the industry and have rallied behind our strategy, which is to deliver a diversified specialized set of products through a very unique distribution strategy to the best agents in the business, and to do that in a selective and very unique way so that we can differentiate ourselves, both in terms of the product we bring to the market, but the way we interface with top agents at a time when most agents, big, medium and small, are redefining the way they do business. The dynamics in our business don't stop at loss trends and operating models on the carrier side. The consolidation on the distribution side are creating a lot of different operating models and changes that I think the best carriers are going to be able to take advantage of if they position themselves with relevant portfolio and capabilities and the ability to grow their business with the best agents. So happy to engage on some questions, but I just want to express my optimism about this year as well as we look into the future.

Great. That was very helpful. I want to start with one comment that you made. And obviously, this is true and has been very observable. The weather has been terrible for the last couple of years. And in preparation, Hanover is one of a small number of companies that provides guidance on catastrophe loads and catastrophe exposure. And the amount of detail that was put into describing the process as we came out with this year's CAT load guidance was tremendous. I was hoping you could take us through the process that you undertook to assess your catastrophe exposure in what's been a difficult environment from a mother nature perspective, an inflationary perspective. And then maybe how often does this analysis need to be updated so that it's fresh?

Yes. Jeff can chime in here. But listen, we -- as a regular part of our business, with our mix being more 50% property and 50% casualty, 40% of our business in Personal Lines, 60% in Commercial Lines, we have to be good at property aggregation and management. And so I think we felt like we have a fairly sophisticated and dedicated approach towards understanding what the CAT loads are for our business. But clearly, the weather patterns and then at least temporarily, an exacerbated inflationary environment came upon us. And so what we committed ourselves to do is take a step back and say, are we as inclusive as we need to around perils and kind of most recent trends? And should we be even more conservative with some of the assumptions that we make? And I think when we provided that guidance, we tried to show that, that it was a waterfall chart, if you will, that showed the various different steps that we took to take ourselves from roughly a 5.1 to a 7-point CAT load for 2024. We also said at the time that if we do our job right and the weather patterns don't get worse, this should be the high-water mark. And so we'll -- that analysis that we do is ongoing. We have an annual planning process, but much more frequent analysis of our property aggregations, how they've accumulated, the impact of our pricing, terms and conditions, growth patterns. And I think we've laid out pretty well in our subsequent last 2 calls that we are taking meaningful steps to not only get our margins approved, but to change our property aggregations in a meaningful way, particularly in the Midwest where our earnings volatility took a hit.

Right. And Jeff, I don't know if you wanted to add to that?

I think everything we said at year-end last year about our waterfall and our process and our expectations are still true today. There's nothing that we know of that would cause those views to be really any different. By the time we get to very late January of 2025 or early February when we do our earnings release and we'll give guidance for the year, we'll update that. I still believe that 2024 will be the high-water mark year, and we're very comfortable in the CAT mitigation efforts and the exercise we're going through to get our CAT more predictable and more controllable.

Right. And I think that that's very positive because as we said, this has been a tough year from the weather. So the fact that there's been an absence of surprise, this is itself an important issue. Taking a step back, so the goal is 14% return on equity by 2026. Can you talk about where you are in that journey, time-wise, stepwise?

So we have great optimism for our ability to deliver on our long-term aspirational goals of 14-plus percent. And in late 2021 when we did our Investor Day, I think it was September, which was really covering the period 2022 to 2026, we put a 14-plus percent ROE. The view there was to get quite a bit of expense leverage. It was approximately 130 basis points to have -- get some benefit from ULAE and have our loss ratio be fairly consistent. And NII as a percentage of capital actually goes down a little bit because of the leverage and where interest rates were. Things have changed quite a bit. Obviously, we've gone through an inflationary period. We've gone through a CAT period of '23. We've had a lot of activity. Our CAT load projection at the time was considerably lower than it is today. So CATs will be higher than we would have planned, expenses will be relatively similar. The loss ratio will be relatively similar or better. But NII is a powerful driver, which should at least offset our CAT. So where we sit today and the impact of Personal Lines improvement that's expected over the next 12 months, from the earning in of rate and exposure beyond loss trend over that period, gives us great confidence over the next couple of years to be delivering the 14-plus percent ROE that we talked about.

Thanks. Jack, I don't know if you wanted to add to that.

Yes. I think the silver lining of 2023 is that we're able to do things we were never able to contemplate before 2023 in terms of terms and conditions in the Midwest, in terms of pricing overall. So I think the way I think about it is, yes, the component parts of our waterfall, if you will, have changed. But in a lot of ways, our ability to accelerate our diversification and quickly recover in our underlying performance is really a strong opportunity for us, but it's also an opportunity for us to show our investors that we have that level of resiliency and agility. And that's our focus today.

Understood. And again, looking around just to see if there are questions. One perspective that we probably don't investigate enough from the outside, we look at lines of business, we look at performance, we look at growth. We don't necessarily look at the industries and the regions that individual insurance companies are focused on. And I was hoping you could give us some color there. And the backdrop to the question is that several years ago, you disclosed your concerns about social inflation and made underwriting adjustments to avoid the worst parts of it, which was, I think in retrospect, very prescient. So I was hoping you could talk through, again, from an industry standpoint, from a geographic standpoint, the underwriting philosophy that you've adopted because it's worked out phenomenally well.

Yes, thanks for that question, because inherent in our strategy was to try to diversify our firm, but also become increasingly relevant to the better agents, and that required us to be more customer-centric, more what do customers really want in their insurance product. And if it doesn't have some element of what coverages are appropriate for my industry or what expertise in claims capabilities are necessary to be a performer but also relevant all the way to customer lever, then you're just a generic insurance company. So a big part of our transformation was to not be a generic insurance company, be something that agents could easily go describe to their customers on why they picked Hanover. The benefit that we get from that is you have to be expert if you're going to be a niche underwriter. You have to -- because if what you do is you get in and out of things on a regular basis, it affects your relevancy. It affects the brand, if you will, of the company. When we look back to kind of pre-pandemic days, we did see persistent challenges in commercial auto that led us to the assumption that eventually, that would be contagious to the other liability lines or at least in part, where a consumer has been injured, where an individual has been injured. So we looked at that along with what we saw as industry experience in the major metropolitan areas and in certain sectors, and we made some intentional shifts, right? Probably the biggest one at the top of the stack was getting out of monoline umbrella because that was just a capacity play. But if you looked at shifting away from some of the OL&T oriented kind of hospitality and some sectors of real estate, looking at our -- the proportion of our business in construction and making sure we weren't over-indexed there, looking at major metropolitan areas that were in and of themselves, regardless of what class of business you were in, were presenting some challenges. So I think it is our secret sauce, is to try to be looking at geographic mix, industry mix and even class mix within that and figure out where can we earn good returns, be relevant to our distribution, but pay attention to what's happened economically and from an industry trend standpoint and make some adjustments before you have to exit from too many parts of your portfolio.

So from that perspective, can you talk about maybe the process for adding industry expertise so that you're broadening your product portfolio, providing growth opportunities?

Yes, we're kind of blessed in that our Agency Insight tool, which many people know is our -- the way we interface with our agents is to exchange information about their books of business and our capabilities in a way where we can inform our growth strategies. And that allows us to look at tens of billions of dollars of data, market placement data across the industry well beyond our own book of business. And as we look at that, we say -- we can see, I think, what patterns are emerging and what areas of opportunity are there for us. So we look at that at our existing portfolio and say, where are we underpenetrated, where can we grow? And then we look at new capabilities like our financial institutions and kind of the smaller banks and asset management or some of the E&S opportunities that we saw, particularly when we saw E&S lines associated with package accounts and how fragmented that is in the system. So we're really able to use that insight that we develop to plan out where do we think those growth opportunities are. Obviously, you have to bring in expertise if you don't have it. And 100% of the time when we get into a specialized area, we make sure we have the proper expertise, both on the underwriting side and on the claims side. Because you really -- if you don't invest upfront and take a little bit of expense risk, you're destined in our business to have some challenges.

Yes. Water flows downhill. Okay. You mentioned commercial auto. I want to talk about that because it's a lot of business that you're in. It's been -- other than COVID, it's been very difficult for the industry. How are you thinking about that line of business right now, your appetite for maybe monoline commercial auto or how it fits in within packages?

Yes. commercial auto has been an industry challenge for over 10 years. And as much rate as keeps getting thrown at it, it seems to still be a struggle. For us, it's a relatively small business in the sense that it's only 6% of our entire firm premium, maybe 16% of our Core Commercial business, so not a big business. We don't write monoline commercial auto, we're an account writer. It's getting better. There are signs of improvement. We're believing that the current year period is actually running profitably, not at target profit on a stand-alone line, but maybe on an account-by-account basis, but it's getting there. So some signs of life. Notwithstanding social inflation, we're just still after it. We don't have a lot of fleet business, very limited. It tends to often be a contractor's truck or a plumber's truck that goes with it. Sometimes, it's actually a car that is a commercial auto, so not big shipping or those kinds of things. So yes, we're pushing on it, and the industry still needs to get after it.

I'm going to infer from that then that pushing the rate through, I'm sure people don't love it, but it's being accepted by the marketplace if it's an industry-wide phenomenon.

Yes. I think particularly what people are seeing now is that when people -- when we're talking about the liability trends, we're predominantly now talking about the umbrella line, which roughly is about half the loss content is commercial auto and the other half is liability. So it's the story that continues. But the question is, how well positioned are you today? And as the market repositions itself, eventually, there will be opportunity for folks that are profitable and I think are more of an account writer where you want to have a fulsome account, you want every line of business to contribute to that profitability. And I think we're, for the first time, feel like we're on that track. But it also speaks to how well are you assessing these current liability trends. And are you getting on top of that and having good discussions with your reinsurers? Because ultimately, they support your severity.

Right. And I apologize, I should know this, but I don't. Is there any commercial auto in the E&S segment or the Specialty segment?

Not much. Not much. Most of that is either monoline property or monoline liability business. There's some auto, but that's not our focus for the E&S sector.

Okay. And again, if there are questions in the room, please raise your hand. We'll get you the mic right away. Let's talk about workers' compensation, which has been a very positive story for Hanover, for the industry. Where are we now in terms of that profitability cycle? Haven't seen any signs of rapid rate increases, and maybe that's not likely. But how are you viewing the profitability prospects from this point on through this year or next year maybe?

Workers' comp has been an extremely profitable business. The loss content just seems to be evaporating from that business. Obviously, it's going to reach a point of diminishing returns where there's only so far it can go. There's been pretty minor indemnity increases, but mostly, it's been very stable. We've taken the position of being extraordinarily prudent on both reserve releases and loss picks. So we feel very comfortable with our position, our balance sheet, how we do it. It's a small piece of our business. But ultimately, I can't imagine as an industry that the ultimate profitability of lines of workers' comp today will be as profitable looking back as they were several years ago. It's just with lack of rate and ultimate medical inflation, there has to be some deterioration in the line.

Right. Can you give us a sense about how -- what you're seeing in terms of indemnity or medical inflation compares to the assumptions in your pricing and your reserving?

I think one thing to remember is it's so different than 20 years ago that 2/3 of the loss content is actually medical versus indemnity. And in the short term, what's been happening is not only as Jeff said is are we losing some loss content because of some risk management and ways -- changes in the way people do business, but also payrolls have been going up. And so when you have that, yes, you have some medical payments increase, but that's somewhat limited by the fee schedules that are in place and really offset substantially by the payroll increases that we have that generate the premium basis. So the real question is, when will that come about? I think most of us know that the medical system is at a difficult stage. So I'm pretty -- I'm anticipating that down the road, there will be some changes. But remember, the system -- workers' comp system will have a lag because of the fee schedules. So in the, I think, short to midrange, what you need to be watching for is what's happening in the indemnity changes that could really swing faster than the medical payments can systematically.

Right. And -- but so far, even though there have been some wage increase at different points in time over the past few years, nothing disruptive, do you think?

No, no. Surprisingly, behaving as expected. We've lost some -- and we've admitted, we've lost some opportunity. If I knew then what I know now about the last 6 years, we probably would have participated a little bit more in the middle market sector. But as Jeff alluded to, probably not going to have a lot of regrets going forward because at the very least, those margins start to compress a bit.

Yes. No, that absolutely makes sense. If you have to err on the side of conservatism in this industry, it seems to make sense. I want to switch gears a little bit and talk about technology. You've had sort of 2 phases of technological investments. And I was hoping you could walk us through sort of the 2016 to 2020 period and the tech stack, and then 2021 to 2024, what I would call the outreach side of things in the agent or customer experience. Where are we on that process? And how are we seeing -- how are we on the outside seeing the benefits?

Yes. I think as we started to mature as a company and generating the commensurate returns with all the changes we made over the last 1.5 decades, we made a deliberate choice to not underinvest in technology in terms of legacy transformation that needed to be addressed, in terms of platform modernization, which somewhat overlaps. And then innovation and piloting, where do we think either new imperatives are going to emerge or there's areas of distinctiveness or operational efficiency that we could really bank on. And so we're well down the journey of legacy transformation. Every major system in the company has been upgraded to new technology. It's enabling us to get attached to better data to connect with agents on more digital platforms. It's allowing us to build things at a fraction of the price that we historically have. So all of that, I would say, has been a huge part of our progress. But going forward, I think the most exciting but careful part of this is that my observation is that everybody is trying to modernize everything in their company and assume that every tool or technology is going to help transform the economics of the company. And I don't think that's true. I think you can waste a lot of money on technology if you're not clear on what is the benefit you're trying to achieve, how transparent are you about that and how do you do the proper analysis and really prioritization of those things. So in that regard, we have a dedicated team that works on external scanning of what others are doing and what capabilities are emerging. We have an internal process of connecting that to our business strategy to make sure that we're not chasing technology for technology's sake. And then we place our chips in a pretty meaningful way on the subset of those priorities that we think we could sign up for, for either operational efficiency, better customer experiences that would be -- that they would pay for, or accelerated growth. And that's particularly in like the small specialty area where you know if you invest in certain specialty platforms, you can get access and process business much quicker in that small specialty world if you make those investments. So we're very targeted, feel really good. And I think our agents perceive us as being one of the more technologically impressive companies.

Right. I was going to ask that as a follow-up in terms of you mentioned before your unique go-to agency strategy and their appreciation for what you're doing. Can we go a step deeper in terms of the actual advantages of the tools that you're giving them?

So when you get to doing market consolidation or streamlining some of the less profitable business for an agent, our tools are allowing us to get out the small specialty and the small commercial business and help them consolidate that business, which helps them on efficiency and profit sharing, but also helps us move towards a mutually-beneficial partnership. So that's one aspect of it. Just about every large consolidating agent is building centralized views for certain subsets of their business, deciding which subset of their carriers they want to partner with. And our Agency Insight's data helps them get their heads around that and envision what that future could look like. Our separate operating model for consolidations helps them know where the road blocks are or where the challenges are going to be when you go down that path. But the technology, really where the -- when I think of technology, it's more about operating models enabled by technology. What is it you're trying to do differently? How does that technology help you? And I think that's where our agents perceive us as being -- as a strength. When we do our road shows, myself, Dick Lavey, Bryan, we actually -- this is a part of our presentation to kind of tell them where we're headed, get input on what parts of our technology spend is most attractive to them, and we get a lot of positive dialogue around that topic.

And as a follow-up, maybe, what's the time line from presenting that to the agents and actually see them recognize the benefits and seeing internally ramp up on productivity?

Well, some of it we're doing anyway because we've kind of come to the conclusion that it's important, either because it's a new imperative or a distinctive capability. On the margin, I would say the innovation work we do is very informed and is usually quite contemporary. If we're going to build out a specific bespoke capability, either for one distributor or for a subset of the business, it's an annual turnaround at worst. And the way -- that's the way our IP prioritization is. We have longer-term investments and we commit to those. But we have a subset of our investments that are more contemporary, kind of agile type investments, and they usually have a fairly quick impact.

Fantastic. I want to talk a little bit about the Specialty segment. You've talked about a goal, about a 10% gross written premium CAGR. What are the steps associated with that? How are things progressing?

Well, we -- the Specialty business for us has performed extremely well, and it's not been an overnight success. I mean we have worked really hard through a series of acquisitions and organic build-outs and bringing in talent to build out 9 basic businesses and 20-some-odd products that contribute to our 1 billion -- $1.5 billion Specialty business. Along that way and consistent with our kind of enterprise strategy is we -- as much as we see both short- and long-term growth for our Specialty business, to enable that, you've got to figure out when things are going your way, when there's some environmental shifts. So what you saw a couple of quarters back is that we decided that some of our program business and a couple of other niche areas needed some to be addressed, partially influenced by our view on the legal system abuse trends that we saw, but partly because it just wasn't adding up to our acceptable hurdle rates. So we took a small step back, and our growth, I think, kind of got down to about 4%. And now we're elevating purposely because we have more businesses contributing to that profit. In addition, we've added some 4 or 5 new kind of niche areas into that. I talked about financial institutions. We've ramped our E&S, both from a retail and a wholesale standpoint. We have a specialty GL capability that is more products liability and non-consumer oriented products, so we don't get caught up in some of the social inflation areas. So very specific areas. But I will tell you, a lot of our organic growth in the Specialty business is just getting better share in the businesses we're already in. We have massive opportunity, particularly as the larger agents get more serious about taking low EBITDA margins that they have for the smaller Specialty business and getting it in a more efficient approach, which we -- that's our focus as a company.

Right. And I was hoping we could talk about that just a little bit in terms of comparing the efficiency of your systems from the perspective of the agents with the companies that are the most relevant competitors.

Yes. I guess I'd answer that in two ways. A lot of the Specialty business, as you know, beyond E&S, whether it be management liability, professional liability, some of the marine business, is transacted through wholesalers. And that's fine if an agent needs a wholesaler either for expertise or market volatility reasons. But there's a lot of small face value Specialty business that doesn't need to be remarketed every year, but it needs to be handled differently. So as those operating model changes and our technology and our operating models face off on that, we're able to accelerate that growth in a meaningful way. And there's hundreds of millions of dollars in that business. The agent just needs to get their head around centralizing, if you will, some of that placement and then picking 2 or 3 markets that they want to focus on. So I think that's where we excel, is that we've made those investments. We know how to underwrite in that more low-touch environment. And it's really a big part of Bryan and his team's success, is getting ballast and not depending on being the 21st market in a wholesale model, right, which I think longer term could be a challenge to sustain those margins.

Right. And that makes sense. It seems to be very consistent with the overall strategy of saying, we need to be one of the key carriers in the individual agents instead of blasting every agent with 1 or 2 products.

And by the way, wholesalers play a part in ours, but we want to be treated like a partner in that business model like we do with our retail partners.

Right. Perfect. And again, looking around to see if there are questions in here. If not, I'll shift to Personal Lines. And this is a 2-part question as well. One, again, obviously, this is an industry-wide issue, where is Hanover in terms of getting back to targeted margins? And assuming that, that process continues, and we've certainly seen some evidence of that over the last couple of quarters, what's the next phase in terms of growth appetite and strategy?

Do you want to start with the first part and I'll jump in?

Yes. Sure. Happy to. We've made enormous progress on our margin recapture plan in Personal Lines with the epicenter of that. It started with auto, and the improvement happened very quickly, and we're getting very close to target profitability in auto. Home is still a ways away, but the pace of improvement is going to be very rapid over the next 12 months and has been for the last several quarters. As we think about where we are and where we need to be, there's still an enormous amount of premium increase coming into home. So as we think about the 30 points of rate and exposure that we got in the first quarter on a written basis, as that starts to work its way in across the book and starts to earn in, relative to some single-digit loss trend, you're going to see enormous improvement in the profitability of home. So I think auto by the end of this year is at target, home, it will be into next year, and Personal Lines overall is really going to be a very strong performer, at or above target returns in the 2025 and 2026 time frame.

And relative to the second part of your question, what we said in our last couple of calls is that we -- we've already shifted. So we think about our -- like most good companies, we have state management. We look at it by state, we look at it by even sub territory, and we ask ourselves, where are we in that journey towards profitability? And our philosophy is when we see that we're hitting target returns or better at a written basis, it's time to change our behavior, not waiting until it's fully earned. And so we said we had half a dozen states that we did that earlier this year. We are starting to implement on the next set of states. And that has a doubling effect. A, if we're generating the margins that we believe we are, and we can grow that, that's going to help, obviously, our earnings, but it's also simultaneously going to help with our diversification, right? Think of we're bringing down both our PIF and our exposure in Michigan and certain parts of the Midwest through the implementation of really industry-leading deductible schemes and simultaneously growing some of the non-Midwest states at an accelerated pace at the appropriate margins. That's a powerful kind of forward-looking view for us. And we'll look at every state, and when it crosses that Mendoza line, we'll shift, first, in terms of new business appetite, because we not only changed our pricing, but we narrowed the nozzle, if you will, of the point-of-sale system. And it's as simple as deciding to change some of those parameters in the point-of-sale system. It's not like we have to go out and remarket ourselves, we just ingest more high-quality new business at good pricing in the territories that we have confidence.

Yes, I was going to ask you in terms of that, like what is it that you're -- what's the pitch, if you will, to the agents to say, now it's outside of Michigan in the non-Midwest states, the competitive advantages that you're bringing to your agents?

I would tell you, honestly, in this marketplace, if somebody comes to them and says they'll write more new business, that you're going to have no issues participating in that because it's really a very firm market, many companies. And I always try to remind people, 2/3 of the Personal Lines business in the independent agency channel is through regional companies, which many are struggling right now. They're trying to catch up the loss trend. They're trying to implement some terms and conditions, and we frankly just got ahead of them. And so at the point in which we can change our pricing or terms and conditions, we just simply will get more new business in the flow through the point-of-sale system. We also have a tremendous sales force that can go out and say, we're ready. And we've been doing road shows, particularly in the states where we think we're there and telling them we're changing the parameters in our point-of-sale system. And literally, people are running back to their offices to go make sure their CSRs and account managers are taking advantage of that.

Okay. And can you talk a little bit about the interplay of -- because I think, Jeff, you mentioned that auto is a little bit of ahead of home. How does the -- what are the timing implications for growing auto if home isn't quite there yet?

Well, we're an account writer. So we're never really growing auto if home isn't there. Once we decide in geographies we have the right footprint, the right portfolio, we have the right confidence, then you just start growing accounts, and auto and home grow together.

And I think the pricing does take care of itself, right? When you look at the pricing differentials we've gotten through, I mean one of the silver linings of what we've been through is that this will likely be the first time that our Personal Lines business where the vast majority of our states are at target returns or better, right? Usually, you're over-earning in a subset of your states and trying to catch up on the others. But when you're in a firm market like we're in today, if you can't catch up and get your margins to the right level across your entire geographic footprint print, you're not very good at your trade. This is a very unique time in the Personal Lines market to kind of get yourself to that better distributed profit going forward.

Actually that, there was a story in the industry press, I think, earlier this week, about one smaller player giving up on personal lines and saying, okay, we're pulling out. And I suspect that, that trend continues because as scale becomes more and more important, the barriers to not entry, but remaining for these many, many regional players, I think it's going to get tougher and tougher.

Yes. I mean for some of them, particularly in the Midwest, but beyond that, a combination of losing money, losing some surplus, having a very tough renewal discussion with your reinsurers, including attachment points and pricing, and then for a subset of them having some challenges with the rating agency discussions, that creates this hard market. And I know that Progressive and GEICO and others in the direct-to-consumer are telling a different story and having a different experience. But at least heretofore, that's not really where we live, and that's not the intersection that we have. We watch for those longer-term trends. But inside the IA channel, there's a level of persistency and there's quite a separation between the performers and the nonperformers, and that just got accentuated, I think, by these trends and the implications to particularly the reinsurance landscape.

Right. I think that makes sense. You give companies that are marginal a bigger challenge, but then you really get to see who's prepared and who's not. I guess we have time for one more question, so I'm going to focus on this. Jeff, you mentioned earlier a focus on reducing the LAE ratio. Is that something you can walk us through the steps and where you are on that process?

Sure. We've been at this since 2017. And in 2017, we took out 100 basis points of expenses. You saw that hit half in '17 and half in '18 because of when it happened in the year. Since then, we've been at 20 basis points per annum, click, click, click. When we put our Investor Day program out there, we said we'll get 20 basis points a year, maybe it will round to approximately 130 basis points over a 5-year period. We're generally on that path. I'm most focused, as you can imagine, on combined ratio. So if it turns out that because of mix or because that we need to spend more money on inspections or roof work or what have you, we don't get the full 130 but we get a multiple of the 10 basis points we invest in loss ratio, I'm okay with that. I'm very confident in the -- particularly in the Personal Lines where a lot of the activity is, on delivering against the combined ratio.

And we've committed to being very transparent about that. If we make a deliberate choice to do some more risk mitigation like we're doing with IoT sensors in parts of the Commercial Lines business, we'll just tell folks we're doing that, and well, we're going to expect a real return on the loss ratio side.

Right. And people have made the observation, I can't take credit for it, but I think it's accurate. No one's ever gone out of business because of an expense ratio issue. It's a loss ratio problem, and there are expenses that are well worth the upside on loss ratio benefit. And with that, I think we're at time. So please join me in thanking Jack and Jeff for a very, very helpful session.

Thank you.