The Hanover Insurance Group, Inc. (THG) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Q1 2015 The Hanover Insurance Group, Inc. Earnings Conference Call. My name is Mark and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Oksana Lukasheva, Investor Relations. Please proceed.

Thank you, Mark. Good morning and thank you for joining us for our first quarter conference call. We will begin today’s call with prepared remarks from Fred Eppinger, our President and Chief Executive Officer and David Greenfield, our Executive Vice President and CFO. Available to answer your questions after our prepared remarks are Dick Leiby, President of Personal Lines; Andrew Robinson, President of Specialty Lines; Jack Roche, President of Business Insurance; and Bob Stuchbery, President of International Operations and Chief Executive Officer of Chaucer. Before I turn the call over to Fred, let me note that our earnings press release, financial supplement and a complete slide presentation for today’s call are available in the Investors section of our website at www.hanover.com. After the presentation, we will answer questions in the Q&A session. Our prepared remarks and responses to your questions today, other than statements of historical facts, include forward-looking statements, including our earnings guidance for 2015. There are certain factors that could cause actual results to differ materially from those anticipated by this press release, slide presentation and conference call. We caution you with respect to reliance on forward-looking statements and in this respect refer you to the Forward-Looking Statements section in our press release, Slide 2 of the presentation deck and our filings with the SEC. Today’s discussion will also reference certain non-GAAP financial measures such as operating income, operating results excluding the impact of catastrophes and accident year loss and combined ratios, excluding catastrophes, among others. A reconciliation to these non-GAAP financial measures to the closest GAAP measure on a historical basis can be found in the press release or the financial supplement, which are posted on our website as I mentioned earlier. With those comments, I will turn the call over to Fred.

Thanks, Oksana. Good morning, everyone and thank you for joining our first quarter earnings call. We are pleased to report strong and improving results for the quarter as demonstrated by operating income per share of $1.27 and an operating return equity of 9%, which included the impact of elevated winter weather in the Northeast. Along with our financial results, our key metrics and business indicators are tracking in line with our expectations. Specifically, we experienced growth in all our domestic businesses while achieving solid rate increases and improved retention. Domestic combined ratio, excluding catastrophes, improved by almost 2 points over the prior year quarter to 93%. Despite severe weather in the Northeast, catastrophe losses in total were only slightly higher than our expectations. We delivered another good quarter at Chaucer. Our net investment income increased by 5%. And finally, we had an active quarter for capital management repurchasing debt and equity as well as reaching an agreement to divest our U.K. motor business. The continued progress in the first quarter business gives us confidence in the effectiveness of our strategic direction and our ability to generate strong and improving earnings and growth going forward. I will discuss progression towards our priorities in a few minutes. But first, I will turn the call over to David to review our financial results.

Thank you, Fred and good morning everyone. Our first quarter results were very strong and represent a great start to the year underscoring the effectiveness of our business diversification and the strength of our underwriting capabilities. Net income was $55 million, or $1.22 per diluted share in line with the prior year quarter. Operating income was $57 million, or $1.27 per diluted share compared to $47 million or $1.05 per diluted share in the first quarter of last year. The combined ratio was 97% in the quarter compared to 98% in the prior year quarter. Catastrophe losses added 5 points to the combined ratio in line with the prior year quarter virtually all stemming from domestic business in both periods. The X catastrophe accident year combined ratio improved by 1 point compared to the prior year quarter reflecting the strengthening underwriting margins in our domestic business. As a company, we continue to improve our business mix. Our diversified footprint is evident from this quarter’s results despite the severe winter weather we encountered in the Northeast. Catastrophe losses in the quarter were $59 million domestically, primarily due to record snowfall and prolonged low temperatures in the Northeast, especially in Massachusetts that resulted in elevated claims for roof collapses, ice dams and associated water related damages. Non-catastrophe losses also were elevated compared to longer term averages. However, they were generally in line with the impact of the polar vortex that occurred in the first quarter last year making underlying accident year results for the two periods generally comparable. Chaucer catastrophe losses were low this quarter, which helped to offset the elevated weather impact in the domestic business. Moving on to underwriting results excluding catastrophe losses, in Commercial Lines through consistent pricing increases and mix management initiatives, we were able to drive roughly one point improvement in the loss ratio to 58% led by workers compensation and CMP lines. In commercial auto, the accident year loss ratio was unchanged compared to the prior year quarter. The underlying loss dynamics in the current quarter, however, were different from last year. Bodily injury was in line with expectations as we have seen some improvement coming from pricing actions and severity profile management. However, this quarter we noted an increase in physical damage frequency, which we attribute to the heavy snow accumulation this winter. Our recent experiences improved our confidence in this line, but overall this business remains below target profitability and continues to warrant a cautious approach. In that regard, we modestly added to prior year reserves this quarter. We will continue to carefully monitor business mix and rates in relation to loss trends and react appropriately to further improve our profitability. The underlying loss ratio in other Commercial Lines, which includes our domestic specialty business improved compared to the prior year quarter and was one point better than the full year 2014 results. We are definitely seeing the effect of continuing business maturation, mix management and pricing actions. However, this was somewhat offset during the quarter by normal volatility in property lines, which affected the current year as well as prior year reserves due to late reported large property losses from the fourth quarter of 2014. In Personal Lines, the underlying loss ratio for the quarter was 64%, two points better than the 66% in the first quarter of 2014. We experienced some improvement in the accident year loss ratio both in personal auto and homeowners, underscoring our underwriting initiatives. Rate increases in both lines are in the 5% range, which is comfortably above loss cost levels, providing confidence in our ability to generate further margin accretion. Domestic expense results were as we expected. In Commercial Lines, we delivered an expense ratio improvement over 0.5 point compared to the prior year quarter, reducing the ratio to 36%. This improvement reflects continued operating efficiencies and growth leverage, partially offset by mix shift impact of growing our specialty businesses. The Personal Lines expense ratio for the quarter remained relatively flat compared to the prior year quarter. Chaucer delivered a strong performance with a combined ratio of 89% compared to 88% in the prior year quarter. Catastrophe losses were low this quarter at one point of the combined ratio, while favorable development was strong at eight points helped by the impact of foreign exchange on carried reserves. In the quarter, Chaucer recognized $17.4 million of premium and an equal amount of loss reserves related to our reinsurance-to-close transaction or RITC that had no effect on underlying earnings and a negligible impact on the accident year combined ratio. However, this transaction increased the loss ratio by approximately two points and reduced the expense ratio by a similar amount. Excluding the impact of the RITC, the current quarter loss ratio would have been in line with the prior year quarter, while the expense ratio would have increased by about a point driven by change in business mix and the impact of foreign exchange on overseas deposits. Finally, I would like to provide some financial details around the recent UK Motor announcement. The transaction will be executed through 100% reinsurance arrangement for all prior claim liabilities and in-force policies along with property sales and policy renewals. Upon closing, which is expected in the third quarter, our net reserves and invested assets will be reduced by approximately $350 million each. That’s based on current exchange rates as these amounts will all be pound denominated. The impact on earnings this year will be negligible, but the components of Chaucer’s combined ratio will change going forward. The UK motor business produces a relatively higher loss ratio and lower expense ratio as compared to the rest of Chaucer’s business. We anticipate that pulling this business out of the mix will result in a target expense ratio for the go-forward business of around 39% to 40%, up from 38%, which will be offset by a decrease in the overall expected loss ratio. Additionally, the transfer of invested assets at closing will result in lower net investment income in the future. The total consideration for the transaction is approximately $60 million. We expect after adjusting for related intangibles, accounting for the value of the real estate sold, as well as transaction costs and other items, we will realize a gain on the transaction in the range of $30 million. The actual gain will depend on several factors, including the exchange rate at the time of closing. Moving on, consolidated net written premium growth for the quarter was 4%, driven by 8% growth in Commercial Lines and 2% in Personal Lines partially offset by a 2% decrease in Chaucer, which includes a negative impact from foreign exchange of about 3 points. Fred will have more to say on our top line performance in a few moments. Turning to investment results, cash and invested assets were $8.6 billion at the end of the quarter, with fixed income securities and cash representing 90% of the total. Our fixed maturity investment portfolio has the duration of 4.2 years and is roughly 94% investment grade. The portfolio remains high quality and well lathered. We increased net investment income by 5% for the quarter to $70 million compared to $67 million in the prior year quarter. The low rate environment continues to place pressure on income returns. The earned yield on our fixed maturity portfolio was 3.64% in the quarter compared to 3.79% in the prior year quarter and 3.65% in the fourth quarter of 2014. However, we continue to expand our portfolio mix into non-fixed income security instruments, including commercial mortgages, partnerships and other assets. Together with higher cash flows, this helped to offset the yield pressure in the first quarter and should lead to a modestly higher net investment income in 2015 after considering the U.K. motor transaction. I will finish with a few comments on the strength of our balance sheet and capital position. Book value per share grew 1.6% to $65.92 in the first quarter. Our total capitalization is $3.7 billion. Outstanding debt decreased to $841 million at quarter end after we opportunistically bought back $62 million of debt during the quarter. The debt-to-capital ratio decreased 1.6 points to 22.5% from 24.1% at the end of 2014. In addition to debt repurchases, we also purchased about 219,000 shares of common stock for a total of $15.4 million since the beginning of this year. Looking ahead, we will continue to actively evaluate opportunities to repurchase equity and debt though our belief remains that capital is best deployed for continued business growth. Overall, our balance sheet position remains strong and provides a solid basis on which to grow our business. And with that, I will turn the call back to Fred.

Thank you, David. As I noted earlier, we made solid advances on all our growth and earnings goals in the quarter. I will review how we execute on our priorities in each business starting with Commercial Lines. Growth in the first quarter was strong at 8%. All our target segments grew at encouraging levels. We continue to shift our business mix towards higher margin segments, while capitalizing on the momentum, the franchise value and the shelf space we have built with our partner agents. We are pleased with the traction we have established in small commercial business which remains key to our long-term strategy. Our unique operating model allows us to cost effectively target and underwrite both the point-of-sale and non-point-of-sale small commercial markets. This model will provide the agents with the flexibility and efficiency to address the overall market. Our distinctive approach has enabled us to build preferred shelf space and gain access to an attractive part of the market with our agent partners. We also gained momentum in the middle market segment. We are emerging as a leader within many of the vibrant target industry solutions, including in the manufacturing segment, where our growth is supported by strong expertise and helped by a recovering economy. The breadth and depth of our industry solutions is significant giving us the ability to access some of the most attractive businesses and markets our agents are serving. And I am very pleased with the current state of our portfolio and the improving performance. In Specialty Lines, we delivered strong growth in the fourth quarter – the first quarter, excuse me, led by management liability, professional lines and healthcare. Our specialty capabilities provided a solid basis for profitable growth and further engaged with the agents who are looking for carrier that can cover a broad spectrum of specialized needs in the smaller accounts space. Our insight into these markets and our distribution alignment gives us an opportunity to grow these businesses in a very targeted way with our partners. The Commercial Lines market remains competitive but rational. We achieved pricing of 6.6% core commercial businesses, slightly down from the fourth quarter, while increasing retention by 1.84%. Our targeted approach to pricing continues to give us confidence that we are improving the quality of our book. While rates have come down in the overall market, the pricing in our target markets has maintained some stability and we remain confident that we will be able to achieve the price increases we need to meet our targets. Underlying – underwriting profitability in Commercial Lines improved, reflective of the business mix changes and pricing actions. Although the bulk of our exposure work was completed in 2014, we continue to make targeted underwriting adjustments in our portfolio and are taking rate and non-rate actions to improve our portfolio in areas such as commercial auto. In addition, the maturation of our newer businesses and geographies as well as our growth leverage has helped us to deliver the expense ratio improvement we expected. While our results in the first quarter were lower than expected due to elevated weather losses, our Commercial Lines business is in a very strong position. We remain on track for additional improvement and to deliver on our goals and we are maintaining good market momentum that should drive us to achieve additional profitable growth going forward. Turning to Personal Lines, the growth momentum we established at the close of 2014 continued into the first quarter generating a 2.3% increase in net written premium. The rates were up about 5% for the quarter and we expect we will be able to hold rates at this level through 2015. We also increased retention in the quarter to 83%. Retention will continue to improve compared to prior year driven by the shrinking effects of our exposure management, the impact of our growing account mix and the penetration of our Platinum product. We continue to focus on the value account segment and 79% of our premium comes with full accounts in our current book. The Platinum Experience offering is improving the composition of our book and business even further with higher proportion of accounts, higher umbrella penetration and better retention. This premium account product is still in its launch phase and is relatively new to the marketplace. In March, we launched Platinum in Georgia, our 16th state and the responses have been very positive. With 13% of our premium written in Platinum, this offering now represents a more meaningful part of our Personal Lines business. Looking ahead, we will continue to make investments in our Platinum platform to help drive improved profitability and growth that will benefit us over time. Turning to Personal Lines underwriting performance, the combination of recent exposure management efforts in pricing and the improvement of the overall book drove a solid profitability lift in line with expectations. At Chaucer as we discussed, our premium was down slightly due to the market conditions. And as long as the market conditions remain challenging, we will be very selective and cautious in our growth in this segment. We continue to leverage our strong market position and underwriting capabilities to allow us to maximize the profitability of this portfolio and deliver strong earnings. Our focus on optimizing our business portfolio led us to announce the exit of the UK Motor business. This transaction allows us to direct our focus on the international specialty market, where we have deep skills and expertise. We believe over time given the strength of the business, Chaucer will provide significant growth opportunities for the Hanover and we will continue to invest in this business. But in the short-term, growth will likely be limited. To summarize, we are pleased with the first quarter results. We will continue to work on enhancing our underwriting performance and on building upon our portfolio and market position to drive profitable growth. Product and business mix will be paramount as we grow in targeted areas and gain additional shelf space and depth with our agent partners. We feel good about our partners we made in the quarter. And in this respect, we remain on track to deliver an EPS for the year in the range of $5.70 to $6 a share, assuming catastrophe losses normalized to 5% for the full year consistent with our previous guidance. Operator, you can please open the line for questions?

[Operator Instructions] Your first question comes from the line of Christine Worley from JMP Securities. Please proceed.

Good morning, Christine.

Good morning. Thank you for taking my questions. Just sort of focusing on the sale of the UK motor book, I know that you said that your desire to focus more on the specialty side of Chaucer, but just sort of can you give us some thoughts around your decision to the timing of the sale of the book now and sort of how you are thinking about that?

Yes, we actually – since we have purchased Chaucer, obviously, we have had really good success and we have been able to grow our specialty businesses quite significantly. And so it was in light of the fact that we are having success and really in the core areas that we were focused on that we looked at that business and said that is more of a flow business and more of in some ways a commodity business. And we felt that the investment required to kind of grow that business was really not at the heart of what we were trying to do as part of our portfolio. It had outperformed its competitors over a long period of time. So, it wasn’t a difficult thing for us to find somebody interested in it, but we just felt it was in the focus of us at this time.

Okay, makes sense. And do you have any plans for the capital that this sale frees up?

Yes. I think as Fred described, Christine, I mean we are looking at other opportunities in the Chaucer book to use some of that capital, although it’s a tough market as we have described. But in the context of our overall capital plan, the amount of capital being freed up is not significant. And I would tell you we did some things in this quarter that was a little more active than we had anticipated as well with some of the debt buyback as well. So, I think overall I am comfortable where we are from a capital perspective. And we have plenty of opportunity to grow our businesses in other areas and we will deploy capital as and when we need it. And if we need additional capital, we have plenty of opportunity to raise capital if that’s required.

Okay. And sort of sticking on capital for a minute, you guys have reported some pretty decent earnings growth over the last couple of quarters. And I know your primary focus is funding growth, but how do you prioritize deploying capital after that with regards to share repurchases or paying down debt?

I think it’s in some ways almost equally weighted and the fact that we are trading above book. And I think I made this comment maybe at the last call. For the most part, we have always deployed excess capital on share repurchase when we were trading below our book value. But now that we have come above it, it sort of equalizes some of the benefit of looking at some of our debt retirements. And as you know, some of our debt is higher rated or carries a higher interest rate than current market rates are. So, we carried some of that legacy debt and have the opportunity to do so, we will take that advantage.

Yes. And I think what you have seen in our track record, we don’t tend to want to hold a lot of excess debt. We have been very successful with the rating agencies. We expect we will continue to be because we have great capital base and depth, but we are pretty active where we believe that we have some excess and we have been proactive about opportunistically looking for opportunities to deploy and we will continue to do that.

Okay, great. And then my final question just turning to the workers’ comp, you guys put up some decent growth this quarter, where are you seeing the best opportunities in that line?

Yes, this is Jack Roche. I think we continue to expand our small commercial penetration with agents across the country and in particular sectors like our technology business in other attractive areas. So, that leads our growth. And as we get more mature in more territories that in the workers’ comp line of business and continues to improve overall we are finding more opportunities to round out accounts and drive profitable growth in the workers comp line.

Great. Well, thank you for taking my questions.

Thank you.

Thanks Christine.

Your next question comes from Joab Dempsey from KBW. Please proceed.

Good morning.

Hi, good morning everyone and thanks for taking my questions and [indiscernible] I know he certainly wishes he could have been on the call today. With that being said, my first question is sort of more big picture in nature with many of your peers discussing the ramp up in market competition translating the finding fewer business opportunities that meet their target return, could you possibly provide some color on how you guys have been able to go out, find new business particularly around some of your industry focus products?

Yes. It’s a great question and we have talked about this in the past, but our strategy, the difference between our strategy and our distinctive as the marketplace shows up with this type of the cycle, which is time of the cycle, right. Because what you are seeing as price increases come down and people’s retention goes up, less business is disrupted. So for those that have a strategy of waiting for the phone to ring, if you will when things are shoving, you are going to see a decrease in good business. And frankly a risk when you look at the quality of the stuff that goes into marketplace. Our whole approach to the market is a lot different, right. We have brought fewer agents. We have a lot more information about market opportunities. And we are a lot more proactive working with agents to just what we call pipeline so that we identify where the opportunities are, work with them to actually pipeline and have the business be submitted to us, right and for us to look at. And if you think about to Jack’s point on the rounding out, what’s happening now as people likes the way our approach to business is and they are rounding out their small commercial business with us whether it’s point-of-sale, non-point-of-sale or full accounts. And in specialty, where they like to have fewer markets and more direct contact, they are finding pockets of their business that kind of led us look at together and direct to us. So what I would say is we feel pretty good about our ability to consistently kind of grow the business and thoughtfully grow the business at the right price and be able to really make our mix better and better and better. So we feel fortunate right now that we have some momentum like that. And I think it will continue. Again, I said at the beginning of the year, if you looked at January, for those that are kind of held thousands and thousands and thousands of agents and all they do is they kind of wait for the market to come – the business come to the market, what you are seeing is the quality in general of stuff that just gets shopped is going to be less, just because of the way the environment, the pricing environment is. And we don’t really rely on that kind of business acquisition. So again, we feel good about where we are. I don’t know if any of the guys want to comment.

One thing I would add, this is Andrew. There is a couple of pockets where we are seeing some disruption. And I think we are very well positioned to capitalize. And so healthcare is one of those categories where a couple of that sort of traditional lead markets in the specialty domain around, for example, allied care and long-term care, enough disruptions happening in the market and creating some very interesting opportunities. And I think the other thing just to build on a point that Fred said, we – I think between specialty and small commercial we have done so much to be able to deliver a number of our specialty capabilities through our service center and that is a distinctive advantage. And we are using that certainly to grow some of our specialty businesses as well. So there is – there are things that are both happening in specific areas from a disruption perspective, but also I think there are things that we are doing that are unique enough that are for us really distinctive growth drivers. And quite honestly, I think we will continue to see that for some numbers of quarters.

Great, thank you. Thank you so much for all the color on that. It’s very helpful. The second question is switching towards the winter weather in New England this year, with winter storm losses, sometimes you can get a bit of tail on those claims, any sense based on claims volume either slowing down or still coming in over the last few weeks, whether any of this will taper off into the second quarter or do you feel like at this point you have got a real clear picture of the ultimate exposure?

Yes, I think we have a pretty good clear picture. I think unlike maybe kind of hailstorms, frankly. Winter weather is a little bit more distinctive, right you have the freezes, the ice dams. And so we have a pretty good sense – we have a very good sense of what the losses were and the nature of the losses. So, I feel pretty good that we kind of identified it and quantified it appropriately.

Yes, absolutely. We see some coming through, but not dramatically off of expectation and sort of little bit better from a severity perspective from what we had expected. So, yes, I think we have a good handle on it.

Okay, terrific. And then just my last question on the personal auto side, core loss coming down, which is great to see year-over-year, obviously there is a lot of moving parts this quarter, but it seems like loss cost inflation might be taking up a little bit on that line for the industry. First, are you seeing that? And to what extent, should we be thinking about the winter weather moving driving activity and loss cost around a bit?

Go ahead.

Yes, this is Dick Lavey. So, great question. Interestingly, in our book, the headline is we feel our lost cost tax of 3, 3.5 is exactly right and kind of what we are experiencing. There has been some questions on prior calls around severity and frequency. And we are not seeing the uptick in frequency that perhaps others are and I know there has been questions around gas prices going down is that going to lead to increases in frequency and we are seeing the opposite. Severity is up. We have seen that in the last few quarters. So – and we attribute that to sort of the change in technologies being put in cars. These days our model here is increasing. So, we are seeing new models – excuse me and more European imports. So, as you would expect severity would increase that $500 fender bender now is $1,000 fender bender, $2,000 to repair some of the technologies. So, on balance, we actually feel loss costs are in line with what we have in our plans. I think we are fortunate with kind of the niche market strategy that we pursue in Personal Lines. So, we are – I think we are in good shape.

Yes. And I think it’s actually quite quiet in total rate. And if you look at the stability of our book, right, it keep grows everyday. So, we are feeling pretty good about the loss trends. And our pricing as I say we have pretty good transparency because of the way that book gets filed in our growing retention. So, we think over pretty significant periods here, we are going to have pricing above any of the potential loss trends we have in that book. So, we feel good about them.

Well, that’s all I had guys. Thank you very much for taking my questions. Best of luck.

Thank you.

[Operator Instructions] Your next question comes from the line of Dan Farrell from Piper Jaffray. Please proceed.

Good morning, Dan.

Good morning, Dan.

Good morning. Just a question on both Commercial and Personal Lines, I was wondering if you could comment on what your assumption is for loss cost inflation and where does that compare right now to the peer rate component of your renewal pricing that you guys disclosed?

Well, this is Jack. I will start on the Commercial Lines side. I think and I will speak primarily about the core Commercial Lines, because as we said in the past, some of the specialty lines are a little bit more challenging to answer those questions directly. So, we have said for some time that we take a longer term view on loss trend. That number for us is somewhere in the 3.5 to 4 point range. You could look at short-term trends and come up with a slightly lower number than that, but we believe that, that 3.5 to 4 is still the right number to keep in mind as we are pricing our business. And so with that what you can see is that we have been achieving some slightly above market pricing that we believe when you factor in the exposure related to property increases or property insurance value plus our rate, where we are still achieving 1.5 to 2 points above our long-term loss trend.

And this is Dick Lavey. On the Personal Lines side as I mentioned we see loss cost trends in the 3 to 3.5. And the price as Fred mentioned that we are achieving in our book is 5 both in home and auto. And so we are 1 point, 1.5 point ahead of those loss cost trends and that’s what we see continuing for us.

And you know this and because on our property areas, you can actually add to that a little bit and both of those answers, because when you get exposure or ITV value increases or inflation value increases, because you don’t have all them at losses, that also is effectively priced. So we feel very good about where we are and will be kind of through the rest of the year.

And so as we think about this going forward, we will acknowledge that we don’t live in a different market than our competitors. And so we see the dialogue that you all are having with others in this market that we will acknowledge that there continues to be some modest pricing deceleration in the Commercial Lines business. But we believe we will continue to kind of outperform, if you will, based on the three dimensions we have talked about in the past. And that is our average premium size is a full octave lower than many of the people that report out to you guys our product distinctiveness that we built over several years is starting to prove very beneficial. Most agents don’t want to go to market with our renewals if they don’t have to. And last but not least, our distribution strategy is very limited and very specific. So again, we have a little bit more control and a little bit more dialogue with our agents about our renewal pricing and we think that is paying dividends today.

Yes. And we think of – again, one last point, we think of small commercial, little bit like Personal Lines. So, we have gotten – we got region by region and I think you will see there might be some movement we take down a little bit given the profitability, the book of where we are by region. But we feel as I said I keep coming back to the same point I think in we feel very confident that we will continue to be priced in a way that’s going to continue to drive improvement in our book.

That’s all very helpful. And then I just want to ask on commercial auto and I apologize if you touched on this in your remarks, I was little late getting on the call, but you guys I think are obviously still staying pretty cautious on that line. We have seen a number of other competitors that have had some concern about trend there. But we are getting a lot of rate in that line now for a while. I am wondering what your view is how much longer it might take for you or industry to sort of get a handle on this line and sort of get – turn the corner?

Yes, thanks Dan. This is Jack again. I think in the industry, I think you are going to continue to see quite a variety of results because some got to it sooner or some diagnosed this situation differently. For us, you know we have been at this for 3 years. It’s been a bit of a moving target in terms of when would the BI severity levels level off. We are cautiously optimistic that we are seeing the severity itself level off. And even in some pockets start to improve, some of that’s different driven by the fact that we have taken some fairly substantial underwriting actions, particularly in the major metro geographies. So that alone starts to drive your BI severity levels in the downward direction. But to your point, we have been achieving price over loss trend for several quarters now. The auto line leads our pricing right now in the upper single-digits. And so I can say we are cautiously optimistic that the improvement that we are expecting and that is appropriate is going to start to show through.

And I would tell you one other thing to your point, it’s because some people are a little bit late I think to recognize the market is still receiving the price right now, right. So for us, that’s a good thing, right. There is really the market has kind of moved. And I think we are ahead of it, so there is some room here to continue to push, so.

Okay, great. Thank you very much.

Thank you, Dan.

I would now like to turn it back over to Oksana for closing remarks.

Thank you all for joining our call today, and see you next quarter.