Selective Insurance Group, Inc. Stock

Good day, and welcome to Selective Insurance Group's Second Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the call over to Brad Wilson, Senior Vice President. Please go ahead, sir.

Good morning. Thank you for joining Selective's Second Quarter 2026 Earnings Conference Call. Yesterday, we posted our earnings press release, financial supplement and investor presentation on the Investors section of selective.com. A replay of today's webcast will be available there shortly after this call.

Joining me are John Marchioni, our Chairman, President and Chief Executive Officer; and Patrick Brennan, Executive Vice President and Chief Financial Officer. They will discuss our results and take your questions.

During the call, we will reference non-GAAP measures used by insurance and investment professionals to evaluate financial and operating performance, including operating income, operating return on common equity and adjusted book value per common share. Reconciliations to the most comparable GAAP measures are available in our financial supplements on our Investor Relations page. We will also make forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements and projections about future performance are subject to risks and uncertainties that we disclosed in our SEC filings. We undertake no obligation to update or revise any forward-looking statements.

Now I'll turn the call over to John.

Thanks, Brad, and good morning. This has been an exciting few months for Selective. In May, we celebrated our 100th anniversary and our 50th year as a public company by ringing the NASDAQ closing bell. More recently, we opened our new corporate headquarters in Short Hills, New Jersey. This office broadens our access to talent and positions us near transportation hubs that connect us more easily across our expanding geographic footprint. On July 1, we opened for business in Montana and Wyoming and are pleased with early traction and agency engagement. These milestones reflect our long-term commitment to disciplined growth and operational excellence.

This marked our eighth consecutive quarter with double-digit operating ROE. We delivered a 13.7% operating ROE led by excellent investment income, which grew 18% year-over-year. Each insurance segment produced an underwriting profit, and our 98% combined ratio improved 2.2 points from a year ago. E&S performance remains strong, and our personal lines combined ratio of 94.1% for the first half of the year is ahead of our 95% combined ratio target.

Driving margin improvement in Standard Commercial Lines, our largest segment remains a key area of focus. Net premiums written declined 5% for the quarter. We believe discipline is imperative in the current environment, and we remain fully committed to expanding our market share meaningfully where and when margins warrant it. We believe the composition of that decline is important as a meaningful portion reflects actions we are taking to improve portfolio economics and long-term returns.

Year-to-date, our E&S and Personal Lines segments outperformed our 95% combined ratio target. In Standard Commercial Lines, our combined ratio was 99.7%. As such, we remain focused on improving margins and further diversifying our business mix. Contractors continues to be an important industry vertical, where we have proven expertise. However, the casualty-oriented nature of this business has pressured performance in recent years as we and the industry worked through elevated commercial casualty loss trends.

In 2025, contractors represented 43% of our Commercial Lines premiums. Through the first half of 2026, it accounted for 33% of new business. While new business diversification improved, Standard Commercial Lines new business premium declined 22% in the second quarter, consistent with the first quarter decrease. Stronger new business pricing informed by our view of expected loss trends, combined with a competitive market drove lower conversion rates.

We are leveraging our tools, granular insights and differentiated operating model to drive higher renewal retention on our best performing business and meaningfully lower retention on our underperforming business through appropriate rating actions. While the overall rate increases have moderated, we expect these mix improvement actions will contribute to improved profitability. The execution of this strategy accelerated during the second quarter. Retention in our best-performing renewal cohort was 89% for the quarter, consistent with a year ago. At the same time, retention in our worst performing cohorts decreased from 81% to 55% and renewal rate increased from 11.5% to 18%. This is exactly the portfolio effect we intended as we believe these actions improve the earnings power of the portfolio over time.

These actions are simultaneously supporting our broader organizational priority to further diversify our business. In the quarter, contractors retention declined approximately 2 points year-over-year, reflecting its casualty orientation and our view of required rate levels in commercial auto liability and general liability. Of the 6 percentage point decline in Standard Commercial Lines net premiums written this quarter, lower new business contributed 3 percentage points of the decrease. Actions on the renewal portfolio, specifically in our worst performing cohorts drove the remaining 3 percentage points.

We are constraining growth where margins do not meet our targets and focusing new business and retention strategies on the business that continues to enhance the earning power of the book. While these actions take time to earn through the portfolio, we believe they position us for improved underlying margins and more attractive risk-adjusted returns.

E&S delivered another strong quarter with a 91.8% combined ratio and disciplined underwriting across both property and casualty. Renewal pure price increased 3.4% with continued rate momentum in casualty, reflecting our view of general liability loss trends. Property pricing was slightly negative, consistent with competitive market conditions and strong margins. Increased competition in the marketplace, along with our disciplined approach, contributed to a 2% premium decline in the quarter. The E&S market has benefited from strong tailwinds over recent years, but historically has exhibited more cyclicality than the admitted market.

We are seeing more capacity entering the E&S marketplace, including appetite expansion by admitted market carriers. With our strong margins, 50-state footprint and expansion of our distribution channel to include our retail agents, we believe E&S continues to present a long-term opportunity to support our profitable growth and diversification objectives.

Personal Lines profitability continues to improve despite expected variability in property losses. The combined ratio was 95.5%, up from 91.6% in the second quarter of 2025, driven by higher non-catastrophe property losses. Year-to-date, the combined ratio of 94.1% was 80 basis points better than the first 6 months of 2025 and compared favorably to the 100.6% combined ratio for the full year 2025. Results remained stronger outside of New Jersey.

Net premiums written declined 8% with target business down 2%. New business decreased 36% in the quarter, driven by an increasingly competitive auto market and restrictions we have in place to manage exposure in New Jersey. Homeowners premium was relatively flat in the quarter as we continue to gain traction in our target market. Average new business home values remained in excess of $1 million for the first half of the year and target market business now represents approximately 70% of our homeowners premium. We are focused on growth in our target market where we believe our rates are adequate. Renewal pure price increased 8.9% with continued refinement of our segmentation strategy.

For each of our insurance segments, the actions we are taking to strengthen our portfolio reflect the same disciplined approach that has long guided Selective's success. We remain focused on improving fundamentals across risk selection, individual policy pricing and claim outcomes, diversifying revenue and income within and across our 3 insurance segments and further leveraging data, analytics and technology, including artificial intelligence to drive operational efficiency and improved underwriting and claim outcomes.

Now I'll turn the call over to Patrick.

Thanks, John, and good morning, everyone. For the quarter, we reported fully diluted EPS of $2.11 and non-GAAP operating EPS of $1.95, resulting in a 14.8% ROE and a 13.7% operating ROE. Our GAAP combined ratio was 98.0%, including 5.6 points of catastrophe losses. Year-to-date, strong after-tax net investment income and a GAAP combined ratio of 98.1% delivered a 13% ROE and a 12.8% operating ROE, ahead of our 12% target.

As in the first quarter, we had no prior year casualty reserve development at the segment or line of business level. Severities have generally tracked in line with expectations. However, we have observed higher-than-expected frequency in the first half of the year for commercial auto liability and have adjusted our current year loss ratios accordingly.

In commercial auto, the year-to-date underlying loss ratio of 69.7% was up modestly compared to full year of 2025, including the current accident year frequency adjusted and previously contemplated severity pressures, partially offset by earned renewal pure price.

In general liability, the year-to-date underlying loss ratio was 0.8 points higher than full year 2025, reflecting elevated severity trends we embedded in the current accident year as part of our planning process.

Turning to pricing. For the quarter, excluding workers' compensation, renewal pure price increased 7.4%, general liability pricing increased 8.7% and commercial auto pricing increased 9.3%, up 20 basis points sequentially. Auto liability pricing approached 13%, demonstrating our ability to deliver rate increases where they are most needed. Property renewal premium increased 7.7%, including 3.3 points of exposure growth.

We are prudently managing the impact of net premiums written as we balance maintaining a competitive expense ratio with strategic investments to support future growth and operational efficiency. We remain committed to technology investments that we believe will increase the capacity and decision quality of our teams.

For 2026, we expect our expense ratio will be consistent with our expectation of approximately 31.5% at the beginning of the year. Effective July 1, we renewed our casualty excess of loss and property per risk reinsurance treaties. These treaties cover our Standard Commercial Lines, Standard Personal Lines and E&S businesses. The casualty excess of loss treaty covers our entire casualty portfolio and provides $87 million of protection in excess of a $3 million retention. As part of the renewal, we reduced our co-participation in the first layer from 20% to 8% and all remaining layers were fully placed with no co-participation.

We also renewed our property per risk treaty, which now provides $115 million of coverage in excess of a $5 million retention on a per risk basis. The $20 million increase in treaty limit from the expiring program reflects continued business growth and higher insured values across the portfolio.

Turning to capital management. Our capital management approach is unchanged. We prioritize supporting the profitable growth of our business over the long term and aim to return 20% to 25% of earnings to shareholders through dividends. We will also opportunistically repurchase shares.

During the quarter, we returned nearly 50% of our after-tax net income to shareholders through regular dividend and $32 million of share repurchases at attractive valuations. Our strong capital position supports this commitment to delivering long-term value. At quarter end, $108 million remained on our authorization.

After-tax net investment income was $119 million in the quarter, up 18% year-over-year. This generated 13.9 points of ROE. The increase in net investment income was due to higher book yields driven by higher interest rates across the yield curve. The deployment of strong operating cash flows and active portfolio management also contributed to this positive outcome. The portfolio remains conservatively positioned with an average credit quality of A+ and a duration of 4.3 years.

Turning to guidance. We continue to expect a GAAP combined ratio between 96.5% and 97.5%, assuming 6 points of catastrophe losses. Given year-to-date underlying results, we expect to be near the top of the range. We now expect after-tax net investment income of $480 million, up from our original expectation of $465 million. Our guidance assumes an effective tax rate of 21.5% and a fully weighted average share count of 60.2 million, reflecting year-to-date share repurchases.

With that, operator, please start our question-and-answer session.

[Operator Instructions] Our first question comes from the line of Michael Phillips with Oppenheimer.

John, I wanted to take my first question on your comments on the opening of the new business and commercial growth or decline in the quarter. I guess two things. First is, I think your renewal pricing, while it was sequentially down, I don't think it was down as much as we've seen from others. And then secondly, this obviously is the first quarter you've taken deliberate actions. And maybe the important point is that second point, it's not the first quarter you've done that. So the drop you mentioned in new business contributed about half of that drop in commercial lines. Were you more aggressive with those actions this quarter than you have been on prior quarters? Or was there something else that led to the decline as we think about kind of what that means for future quarters?

Yes. I guess to your point, Mike, the stance we've taken with regard to pricing overall, and new business pricing is not new. That was certainly there in the latter part of last year and early part of this year. And the decline in new business in Q1 was pretty consistent with what we saw in Q2. I think when we talk about what happens going forward, I think there's a market dynamic here that will certainly drive that. And we've seen pressure on hit ratios in Commercial Lines where our traditional hit ratios would have been in the mid-30s, and I would say they're probably down into the low 30s at this point. And I think that will continue to the extent that market pricing doesn't start to become more reflective of where run rate profitability is in GL in particular and where loss trends are. But at the same time, we continue to view this market as one where individual risk selection matters a lot.

So we've got a view on overall pricing on a line-by-line basis, but there are still high-quality accounts to be found in this marketplace and our ability to identify those accounts, pursue those accounts and ultimately win those accounts will give us potential to continue to generate solid new business on a go-forward basis and improve mix at the same time. So we're not just sitting here waiting for the market to turn. We're dialing up our efforts to increase submission activity in the places on a segment and geographic basis where we can effectively compete at our target pricing levels. Those areas do exist, and our effort is on finding those.

Thanks, John. Patrick, you made the comments on commercial auto and frequency. I guess, do you -- any details you can provide on kind of where that's coming from? Do you think this quarter was more of an anomaly? Is there a trend here that we should be focused on to worry about there?

I would say we saw in the first half of the year some elevated frequency. There's a hypothesis to suggest that you see this when you have a heavier winter like we saw in the northern part of the U.S. this year. But I think from our perspective, rather than put full weight on that hypothesis, we thought it was prudent to react to what we saw.

I'll also say we saw this a couple of years back in workers' comp that ultimately reversed itself and settled out. We're not predicting that happening. I think it's -- we just view it as a prudent step to respond to what you see in the data early in the year. If it reverses, that's great. If it doesn't, we've responded to it already.

Okay. And maybe just lastly, high-level question maybe for the industry. There's been some -- obviously, some tort reform actions in some states, I think less so in some of your higher concentration geographic footprints. But have you seen any -- in any of your states, have you seen any efforts that would give kind of credible evidence that suggest that things might be turning for the better there. Your casualty loss picks are still where they were the last 3 quarters, so it would suggest not. But any evidence that you can rely on there?

I would say there has been some more success, right? Georgia was the first state to make significant reforms. I think that certainly improved that environment. We've seen more targeted reforms in places like South Carolina, around liquor liability. More recently, you saw in North Carolina, significant restrictions, if not outright bans on third-party litigation financing. I think those are all positives. I think some of the more recent actions, while it doesn't affect us on New York with regard to trying to curtail fraud in the claims system, I think that's a positive on a directional basis, but I would consider to -- continue to view these as sort of idiosyncratic items on a state-by-state basis and not broad-based enough to impact the direction of severity trends.

I think our expectation is the environment we're in will continue. It will ultimately find its own natural level, but we're not anticipating or predicting that's going to happen this year or next and our pricing accordingly. But this is a big area of focus for us as an industry. It's our trade association's top item in terms of public policy. So we're doing our best to change that outcome, but I don't expect any significant change in the near term.

Our next question comes from the line of Paul Newsome with Piper Sandler.

Maybe a little bit to tease out on Patrick's comment about the combined ratio, maybe a little bit towards the higher end of the range. In hindsight 20/20, is that kind of a thought that it's about the claim frequency issues that you're talking about? Or is it a competitiveness situation, it's a little bit different than what you've thought about at the beginning of the year and just maybe a little bit of what came in as unexpected over the last 6 months that trend-wise, you think might be interesting that changed it?

Yes, Paul, thanks for the question. I guess I'd frame this in a couple of different ways, one of which is we did indicate a range. We are affirming the range that we started with at the beginning of the year, signaling that the more recent changes that we've had in the current accident year will naturally flow through there. And so I think part of the messaging there is we see that, and we're helping folks understand how we expect the rest of the year to go. When you look at the rest of the year, I think I'd highlight the fact that we have a pretty robust planning process. And in that planning process when we're looking at creating our budgets and forecasts, we understand that there are seasonal aspects and different things that happen throughout the year.

So as an example, if you look at the first quarter of this year, our expense ratio was a little bit higher, that's because some of the corporate expenses tend to flow through in the first quarter, and we see that on a regular basis. Those types of things are built into our plan. And so if you look at the balance of the year, I think we would be sitting here saying, we think we're going to land at the top end of the range. And what drives that is that non-cap property tends to be a little bit heavier in the first half of the year. And we've contemplated all of the other pricing and underwriting actions that we have contemplated for the balance.

So the non-cat weather is sort of the hindsight of the surprise variation -- the quickest transition?

No, actually, quite the opposite. We tend to expect that non-cat weather will be a little bit higher in the first half of the year. So that's why you see maybe different loss ratios implied in the first half versus the second half in our planning process. What I'm saying is the guide to the top end is reflecting the fact that to this point, we've taken additional losses into the current year, and that, therefore, will reflect the full year -- and will be reflected in the full year results. We did not anticipate that as we came into the year.

Okay. Sorry. Sorry about my confusion. Do you -- I mean, kind of back to the same question. From a competitive perspective, do you think it's different than what you expected this year? In general, maybe just some thoughts broadly? Because obviously, you folks are doing a lot of changing and pushing price where others are not. So I think you guys have a little bit different perspective than others might have?

Yes. Thanks. Paul, this is John. So let me tackle that. And again, I hate to always to try to project on how other companies think about the world. But when you look at where the market is and look at where results are, for us and the rest of the industry on a commercial casualty basis, whether it's GL or commercial auto, run rate performance is not good, right? The industry is generating an underwriting loss in general liability and an underwriting loss in commercial auto, specifically on the auto liability side, there's generally not a sense, and I haven't heard any public commentary with conviction that loss trends on commercial casualty are temporary.

So there's no real explanation for why pricing hasn't remained firm, specifically for GL. It has for commercial auto liability, but it hasn't for GL. And I think we do expect that will temper. But when you break down results and look at what happened in 2024 and 2025, the industry on GL added a little over $10 billion of adverse to GL in calendar year '24. And in calendar year '25, the industry added another $8-plus billion to GL prior year. And that should reflect in how we think about current year run rates from a loss ratio perspective. And that should be reflecting in the pricing environment.

And I shouldn't -- it doesn't indicate a declining pricing environment. But that's what we're seeing in GL, which is why we maintain conviction in our view that, that has to reverse itself, and we're going to take that stance.

And I think on the auto side, while pricing has remained firm, specifically on the auto liability side, results haven't really improved across the industry. And I think that -- that would suggest that pricing there will remain firm. To me, the issue is willingness across the industry to subsidize those results, those underwriting losses with really strong property, really strong specialty lines, workers' comp, prior year favorable development and strong personal lines results across the industry.

And our expectation is as the margins in those more profitable lines and segments that I just referenced start to temper and we know they will because pricing in those areas has tightened meaningfully, I think it will put a little bit more pressure on these longer-tail casualty lines, which are currently running at an underwriting loss for the industry and for many companies in the industry, and that will sort of force the issue with regard to pricing. And our efforts not just this year, but over the last couple of years are to stay out in front of that curve.

Our next question comes from the line of Michael Zaremski with BMO.

I guess just curious, given the bump in frequency, which hopefully is temporary, why didn't you decide to take any reserve additions maybe in commercial auto? And I don't know if you wanted to also just maybe talk about GL too. It was good to see no reserve additions, but any -- it sounds like no changes in loss trend assumptions this quarter?

Yes, Mike. So thank you for the question. So to answer the latter part of your question first, we have not seen or are pointing to any change in our view of loss trend. But I go back to the comments Patrick made earlier, and I reinforced with regard to the first question, our reaction in the current year was entirely driven by our view of frequency in the current year. And as a result of that, that's why there's no need or no sort of response with regard to prior years.

Prior years are evaluated separately by line across all prior accident years. And the current year, you see frequency as your early indicator, and we've always said that, and I'll kind of reinforce the earlier point. There's a hypothesis to suggest that this is weather-related in the first part of the year, but we think it's prudent for us based on where this line is to react. And that's what we've done here, and it's incorporated into our results, it's incorporated into our full year guidance, and we think that's a sensible place to be.

Yes, Mike, sorry about GL, yes, the other part of your question, GL has been stable for us since 2024. And as you recall, we took a significant charge in GL in 2024. And when you look over the last 8 quarters since then, our GL reserve position -- our reserves have been very stable. And there's a couple of small movements that we highlighted over the course of 2025, but pointed to umbrella because we include umbrella in our GL line and the umbrella experience was driven by auto, as we talked about over the last couple of years.

So we feel good about the actions we took in GL a couple of years ago. And I'll kind of reinforce the point, you're continuing to see pressure across the industry, and I think we feel good about getting out in front of that issue.

Got it. Not sure you want or are able to quantify IBNR ratios. But is it -- would you be able to share whether the IBNR ratios you're booking in kind of GL and commercial auto for the 2026 vintage are meaningfully higher or the same or lower than kind of how you're booking the prior vintages, as we kind of look at the higher loss ratios or kind of want to tease out whether that's coming from paids being a bit higher? Or is it IBNR?

Yes. I guess what I would suggest is, I would go back and look at what you can see for the -- in Schedule P for 2025 and prior to do that analysis. But I'll also caution you, and I know you know this, but IBNR ratios can't be looked at in isolation. And when you think about these longer-tail casualty lines, you have to evaluate IBNR ratios in the context of what's happening from a disposal rate perspective, and a reporting pattern perspective. And I think most in the industry have commented on this, and you could see it across the industry. Disposal rates have come down meaningfully over the last several years, which means cycle times have lengthened, which would suggest you need higher IBNR ratios when you look at across different companies' results, because your disposal rates are much lower, and that's driven by higher litigation rates that are driving that.

So I just -- IBNR ratios are one data point to look at, and I'm not sort of suggesting that our IBNR ratios don't look strong because I think you'll see that they do when you go through that analysis in 2025. All I'm suggesting is you have to think about that in the broader picture.

For us, our disposal rates on auto have actually held up quite well and have been quite stable despite a higher litigation rate. But I think you'll see it for us and across the industry that that's not necessarily the case in GL where cycle times have lengthened and disposal rates have come down, which creates an additional level of risk when you're looking at those IBNR ratios.

Okay. That's a very good point. Maybe just lastly, you brought up it's exciting the continued transition to the Short Hills or you announced it a while back, but the transition to the Short Hills headquarters, I know you've long had a great HQ in the Branchville area. Just curious, in the short run, obviously, it sounds like a great long-term change. Maybe you can comment on that. But in the short run, has it been creating any kind of turnover or just issues that might be impacting anything like top line, et cetera, as kind of maybe some employees aren't making -- have decided over the past year or 2 not to make that move?

Yes. Thank you for the question. A number of pieces to that. First part -- the short answer to your question around whether that's impacting growth in any way is no. I think it's important to keep in mind, we're moving our corporate functions from our headquarters to the new location. Our underwriting organization is spread out across 6 regional offices, one of which is in Branchville, co-located with our corporate headquarters, and that is not moving. That's going to stay here.

So in terms of disruption to the underwriting organization, I would call it relatively minimal. But with regard to disruption overall, of course, a move like this is disruptive. And the population impacted by this is a little less than 20% of our population. It's stretched out over a period of years in order to provide an appropriate level of flexibility. So we're trying to manage that disruption as best we can. And as we mentioned in the -- as I mentioned in the prepared comments, we think it positions the organization for the future in a much better way. But also we were founded here in Branchville, New Jersey, and we're going to maintain a strong presence here in Branchville, New Jersey.

We're going to have a large underwriting operation here. Our flood operation will be here. A number of other functions will remain. So I just want to -- I want to reinforce that point because the roots of this organization are very strong and deep, and we're going to continue to honor those.

Our next question comes from the line of Meyer Shields with Keefe, Bruyette, & Woods.

Two quick questions, if I can. One, is the premium decline in commercial property, is that a function of rate? Or is that spillover from the underwriting actions that you're taking on other liability lines?

I would say it's related to what we're doing overall because remember, we tend to write on a package basis. I'm not suggesting there's no monoline property in the portfolio, but there's very little monoline property in the portfolio. The decline is a little bit less than you see in auto, but I think that's more of a function of rate being lower in property than it is in auto as an example. But it's not like we have underwriting actions focused on -- specifically on property. And in fact, our property results have been quite strong. So it's really the portfolio effect of what we're trying to do from a profitability improvement perspective.

Okay. That's very helpful. And then second, in the underlying loss ratio in BOP went up. And I'm wondering, is that weather? Or is that also more conservatism on the liability side of things?

I would say it's property related. So our non-cat property in the BOP line in the quarter was a bit over expected. There's variability there, but it's -- there's nothing to point to from a casualty perspective. That's just -- that's non-cat property variability. And on a year-to-date basis, it's a little above expected, but in the quarter, it was a little bit more higher above expected. So that's...

Fair enough. And I know the Personal Lines book is intentionally sort of focused on the mass affluent. When we look at broader industry data, we're still seeing, I think, surprisingly low levels of severity trend outside of bodily injury. And I'm wondering, is that showing up in Selective's results also?

I'm sorry, Meyer. So you're talking about lower levels of BI outside of the auto BI?

Yes. All of the sublines outside of BI, we're seeing, like looking at the ISO data, very low severities that I frankly don't understand. And I was wondering if you're seeing that, and if so, what you think is happening?

Yes. Well, I would say that -- and I think it is pretty reflective of what we see in our own portfolio. But outside of auto BI in the personal lines space, those severity trends are going to be more driven by economic inflation when you think about even PD property damage liability and then auto phys dam and homeowners, it's more economic inflation driven. And I think the tariff impacts being much more muted than anticipated and economic inflation being a lot more well behaved outside of certain aspects of the CPI is probably what's keeping severity trend in check outside of BI.

[Operator Instructions] Our next question comes from the line of Rowland Mayor with RBC Capital Markets.

To start, when did the contractors' diversification efforts kick off? And can you maybe walk through what portion of your book has gone through the renewal process there?

I would say diversification efforts, it's not a new concept for us. And clearly, over the last year or so, we've been particularly focused on making sure we continue to shift the mix in that direction. So it's not like there's some point in time that you're looking for the renewal portfolio to have cycled through. This is a longer-term strategy. And I want to just reinforce the point. Construction is a good business for us, and it has been a good business for us for a long time. This is more about line of business diversification. And auto and general liability are big lines for us and will continue to be big lines for us, but we want to continue to diversify into other lines and other segments of business. And that's the primary driver here.

So it's not like we're taking some concentrated action on the renewal portfolio that you should be looking for to work its way through the book. So I just want to clarify that point.

No, that's helpful. And then, I guess, shifting a little bit. The workers' comp loss ratio improved quite significantly year-over-year and versus the first quarter. What was the driver of that?

Yes. I would say, primarily, we see -- we have a lower frequency, meaning we talked about this in '24, and I mentioned this in the commentary earlier, we started to see a little bit of frequency elevation in the first couple of quarters that ultimately leveled out, and that influenced how we were thinking about '25 when we were seeing that flattening frequency trend. So then we saw frequencies in '25 come through quite well relative to expected. And then we did reflect that in our 2026 expected loss ratios. And then we saw that better frequency continue through the first half of this year.

So I think that's probably the primary point. There's a secondary item there that without getting into too much detail, we've made some enhancements to our audit process that led to some additional premium capture without associated loss exposure coming with it, but that's more of an operational item than anything else.

Okay. And then if I could sneak in just one more. Given the negative top line, can you maybe walk through capital management and whether you'd consider taking the payout ratio up, I think it's about 50% right now?

Yes. Thanks for the question. I think given slower growth, that certainly does change the demand for capital. But I would say we take a long view. We are continuing to look for ways to invest in profitable growth. John talked about where we're looking for opportunities to continue to grow the business. We have our payout ratio from a dividend perspective in the 20% to 25% range over the long term.

And as we've said previously, we will opportunistically buy in shares where we think it's attractive to do so and accretive to do so. Those principles are always in balance. We're always trying to evaluate what is the best use of our capital and how we drive consistent returns over time. And so I would also remind you that the way that we think about this as well is the return on equity is an important financial consideration. So as we think about the amount of capital we have and how we deploy it, we're always looking to ensure that we do that in a way that drives consistent returns from an ROE perspective as well.

And Ron, if I could just add a point or amplify a point because I think Patrick is spot on in how he responded, but just to amplify the point around how we think about organizational growth and the fact that you really want to think about growth over a longer-term time period. And that's how we think about it. That's how we invest in the business. And I think the selective growth story is no different than it was a quarter or 2 ago, but there will be times in our business based on market dynamics and other factors where that growth will temper and there are times where it will accelerate.

And we're positioned to take advantage of those opportunities as they emerge. But I think it's important to always think about the growth story for this company in a longer-term time horizon. We saw this movie before in 2010 and 2011, where growth flattened because we were focused on making sure we had underwriting and pricing discipline where it needed to be. And those actions set us up for a 10- or 12-year period where we grew the organization on a compounded annual basis for about 9%. And we're positioning to do that same thing on a go-forward basis, but we're going to make sure that we're doing it in a manner where profit margins are appropriate over that time frame.

And I'm currently showing no further questions at this time. I would like to now hand the call back over to John Marchioni for closing remarks.

Great. Well, thank you all for joining us. We appreciate your time. I appreciate the interest and the questions. And as always, if you have any additional questions, please feel free to follow up. Thank you.

This concludes today's conference. Thank you for your participation. You may now disconnect.

Good day, and welcome to Selective Insurance Group First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the call over to Brad Wilson, Senior Vice President. Please go ahead, sir.

Good morning. Thank you for joining Selective's First Quarter 2026 Earnings Conference Call. Yesterday, we posted our earnings press release, financial supplement and investor presentation on the Investors section of selective.com. A replay of today's webcast will be available there shortly after this call. Joining me are John Marchioni, our Chairman, President and Chief Executive Officer; and Patrick Brennan, Executive Vice President and Chief Financial Officer. They will discuss results and take your questions.

During the call, we will reference non-GAAP measures used by insurance and investment professionals to evaluate financial and operating performance, including operating income, operating return on common equity and adjusted book value per common share. Reconciliations to the most comparable GAAP measures are available in our financial supplements on our Investor Relations page. We will also make forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements and projections about future performance are subject to risks and uncertainties that we disclose in our SEC filings. We undertake no obligation to update or revise any forward-looking statements.

Now I'll turn the call over to John.

Thanks, Brad, and good morning. We delivered a solid start to the year, demonstrating the strength and consistency of our operating model in an increasingly competitive market. Our reserves remain stable across all insurance segments and lines of business, and our underlying profitability reinforces our confidence in achieving our full year guidance. As the industry continues to wrestle with elevated commercial casualty loss trends, we believe our efforts over the past 2 years have us well positioned moving forward. We generated an operating ROE of 12%, consistent with our long-term target. This was our seventh consecutive quarter of double-digit operating returns, which reflects disciplined execution across all our operations.

As we have emphasized in prior quarters, we continue to prioritize underwriting margins over top-line growth. Our pricing posture on commercial casualty in both standard commercial and excess and surplus lines fully reflects our view on current loss trends. Despite ongoing industry-wide reserve pressure in this segment, market pricing, particularly in other liability occurrence, has not adjusted upward. As a result, our premiums declined 1% year-over-year with E&S up 1% and Standard Commercial Lines down 1%. In Standard Personal Lines, premiums declined 6%, while our target mass affluent market business grew by 1%.

We believe heightened discipline is essential in today's environment. Across the industry, social inflation continues to pressure recent accident years, particularly in general liability, commercial auto liability and umbrella. Based on historical patterns, this could imply further deterioration in run rate industry profitability. In contrast, we believe our planning and reserving processes have been responsive to these trends, and we have taken meaningful action to ensure our assumptions remain aligned with emerging data. Our view of loss trends is integrated into our pricing strategies and underwriting decisions. This allows us to have conviction about where we write business and where we step back.

In general liability, for example, we have delivered renewal pure price increases in the 10% range over the past 7 quarters, even as industry surveys show mid-single-digit rate increases. In commercial auto liability this quarter, we delivered renewal pure price increases approaching 12%. This discipline is impacting our competitive positioning on certain casualty-oriented accounts, but we do not believe pursuing inadequate casualty returns will create long-term value. While taking these deliberate disciplined actions amid increased competition, we are fully committed to the long-term opportunity to meaningfully expand our market share. We continue to execute on expanding our Standard Lines geographic footprint, and we remain focused on growing with existing agency partners and strategically appointing new agency locations within our existing footprint.

We are also seeing positive shifts in our portfolio mix. Our relative exposure to contractors has declined within our new business mix, reflecting our efforts to diversify and improve margin durability. Contractors remain an important industry vertical for us, and we maintain differentiated expertise in serving them. However, a more diversified portfolio positions us better for long-term performance. On renewals, we have the tools and operating model to continuously improve portfolio quality, taking appropriate and granular rate actions. This results in lower retention on underperforming cohorts and stronger retention on well-performing accounts. The expected loss ratio benefit of these mix improvement actions accelerated over the course of the quarter as we leverage this capability more meaningfully.

We believe these actions, combined with the continued earning of strong renewal pricing are appropriate given our market context and will drive improved underlying margins over time. We continue to invest in capabilities that support scale, diversification and profitable growth. Artificial intelligence strategically enables these efforts. Early AI achievements in claims, underwriting and risk management are delivering measurable outcomes in accuracy, speed and productivity, positioning us to responsibly scale AI across the organization. A significant portion of our strategic technology investments in 2026 is focused on improving risk selection, pricing accuracy and productivity. While we have deployed many AI tools and are evaluating more, I would like to highlight 2 that are having a meaningful impact in driving better, more consistent outcomes while also improving productivity.

Our AI claims ingestion tool has processed more than 0.5 million documents, letting our adjusters focus on higher-value work. We also have deployed automation to support evaluation of contractual risk transfer adequacy, a key element of the underwriting process for contractors with over 90% of results returned by the tool within 2 minutes. These tools are supported by a governance program with a cross-disciplinary AI and model governance committee and a focus on human-in-the-loop engagement for AI outputs. These safeguards help us drive accuracy, quality and trust as we scale AI responsibly across the enterprise. We are excited about the opportunities ahead and confident in our ability to execute with discipline.

Now I'll turn the call over to Patrick.

Thanks, John, and good morning. For the quarter, we reported fully diluted EPS of $1.58 and non-GAAP operating EPS of $1.69, resulting in an 11.2% ROE and a 12% operating ROE. Our GAAP combined ratio was 98.3%, including 6.2 points of catastrophe losses. Importantly, we had no prior year casualty reserve development at the segment or line of business level. We're pleased with this stability, and we'll continue to evaluate emerging data with rigor and discipline. Our underlying combined ratio was 92.1%. As a reminder, the first quarter typically runs a higher combined due to normal seasonality, and we expect our full year underlying combined ratio to fall within our original 90.5% to 91.5% range.

Standard Commercial Lines net premiums written declined 1% as lower policy counts offset 7.1% renewal pure price increases and stronger new business pricing. We remain disciplined, focusing on growth in areas that meet or exceed our risk-adjusted hurdles and support our business mix diversification goals. Our first quarter general liability underlying combined ratio was 2.3 points higher than full year 2025 as we continue to embed elevated severity growth into our assumed loss trend for the line.

In commercial auto, the underlying combined ratio for the quarter was 98.0%, 1.1 points better than full year 2025, driven by lower non-catastrophe property losses. Commercial auto liability picks remain consistent with full year 2025 as earned renewal pure price continues to offset severity pressures. Excluding workers' compensation, renewal pure price increased 8%. General liability pricing increased by 9.8% and commercial auto pricing increased 9.1%, up 50 basis points from the fourth quarter. Auto liability price increases approached 12%. Property renewal premium increased 10%, including 3.7 points of exposure growth. Retention was 82%, stable with recent periods, but down 3 points from a year ago due to pricing and underwriting actions to improve profitability.

We are intentionally driving higher point of renewal retention on our best-performing accounts and meaningfully lower retention on underperforming businesses. These actions accelerated through the quarter and should contribute to improved underwriting margins in Standard Commercial Lines going forward. Excess and surplus lines premiums written grew 1% in the quarter with average renewal pure price increases of 4.1%. We continue to push higher rate levels in E&S casualty based on our view of general liability loss trends. Property pricing was slightly negative, reflecting heightened competition and strong margins. The E&S combined ratio was a profitable 89.5%, 3 points better than a year ago.

In Personal Lines, the combined ratio improved to 92.8% for the quarter from 98.0% first quarter 2025 and 100.6% for full year 2025. Results are even stronger outside of New Jersey. Personal Lines net premiums written declined 6% year-over-year with target business up 1%. Nearly all new business came from our target mass affluent markets. Renewal pure price was 10.6%.

Turning to capital management. We continue to prioritize profitable growth and aim to return 20% to 25% of earnings to shareholders through dividends. We also consider repurchasing shares when our capital position and stock price make it attractive to do so. During the quarter, we repurchased $30 million of common stock, building on the $86 million we repurchased in the full year 2025. At quarter end, $140 million remained on our authorization. We will continue to balance opportunistic repurchases with maintaining capital to support profitable underwriting and investment opportunities. After-tax net investment income was $113 million, up 18% from a year ago, generating 13.3 points of return on equity. Our portfolio is conservatively positioned with an average credit quality of A+. We modestly extended the duration of our fixed income portfolio to 4.3 years to support the durability of our book yield.

Turning to guidance. We are reaffirming the guidance we communicated in January. For 2026, we expect to see a GAAP combined ratio between 96.5% and 97.5%, assuming 6 points of catastrophe losses. As a reminder, our forward guidance assumes no future reserve development as we book our best estimate each quarter. We continue to expect after-tax net investment income of $465 million. Our guidance assumes an effective tax rate of approximately 21.5% and a fully diluted weighted average share count of approximately 60.5 million, which reflects first quarter share repurchase activity, but does not make assumptions about future activity.

With that, operator, please start our question-and-answer session.

[Operator Instructions] our first question comes from the line of Michael Phillips from Oppenheimer.

John, you touched on the GL and commercial auto top-line in your opening comments. I guess I want to dive into that a bit here. A little surprised by the downturn in premium growth. I mean maybe you can help us parse out the impact of how much was from what you call the competitive environment, maybe more greedy players at this stage of the cycle versus in your other comments, you talked about kind of deliberate actions. So which one had more of an impact there, I guess, is the first question.

Yes, sure. Thanks for the question, Mike. With regard to -- and I'll focus on commercial overall, you highlighted auto and GL. And clearly, those are the 2 lines that from a pricing perspective, I think we've really shifted our posture over the last couple of years. New business is the biggest driver of the drop in premium, and that's really, I think, predominantly driven by hit ratios. And as we've talked about over the last couple of years, as we've developed conviction in our view of loss trends and therefore, our view of rate need, we've applied a consistent approach and philosophy to how we think about pricing new business. And as a result of that, we've seen hit ratios come down.

Retention on the commercial line side at 82% has been stable with what we saw for the last 3 quarters of 2025. And I think that really reflects our ability to be granular in the execution of our pricing strategy and maintain strong overall retentions, but really drive retentions down in the cohorts of business that we have a view that forward profitability is not where it needs to be. And as a result of that, when you think about deliberate action, I think that's more of a deliberate action focus, sort of maximizing retention on the business we have the strongest forward view of profitability on and maximizing rate and you're seeing retentions come down in those other cohorts. And that's how I piece together what we're seeing there in terms of overall premium growth.

Okay. That's helpful, John. I guess maybe sort of sticking with that theme in a different angle. You give us your slide on the retention cohorts, the retention groups. And this is the first quarter, there was kind of a dramatic change, I think, and the average one came way down. But I guess anything to read on the excellent above average shifted up a bit, good news. The average came way down, 27%. And then the below average and very low sort of ticked up a bit as well. So I don't know if that's a short-term thing, but any comments there? Because you talked about the different contractor stuff in your opening comments, but quite a bit of a shift there in those retention cohorts.

Yes. I would say, generally speaking, the way you want to think about that is there's a modeling output and then there is an underwriting overlay on a segmentation basis that will move those buckets around a little bit to make sure that we're aligned across the board in terms of the business we really want to target. I think the bigger focus area should really be at those extremes, both good on the excellent and above-average buckets and the low and very low buckets, and that's where you really want to see the differentiation between rate and retention. And you're seeing that shift in a positive direction, and I would expect to see that continue on a go-forward basis.

And our next question comes from the line of Michael Zaremski from BMO Capital Markets.

Just kind of, John, thinking about your prepared remarks about kind of the loss trend for the industry, maybe not pricing not reflecting kind of the current loss trend and seeing the -- you pull back in new sales. Is this -- to what degree would you be willing to continue pulling back and pulling back even more? Just trying to think about the pace of the top line change this quarter. Typically, the industry moves, I think, fairly slowly on kind of their view on loss trend. You guys have taken a lot of -- done a lot of deep dives and taking a lot of corrective actions. So I guess, would you allow the top line to start declining if the market doesn't move your way?

Yes. I would say a couple of things. And again, I appreciate the question, Mike. We've been through this before. And you look back to 2010 to 2012, and it was a pretty similar environment. And over the long term, that short-term pain that we felt on the top line positioned us to really outperform significantly over the following decade. And I think we're in a similar situation. Now that said, I think we have the opportunity to continue to mitigate that top line impact through the execution that we talked about in terms of granular segmentation of our renewal portfolio, which should allow us to maintain solid retentions overall and the same philosophy around how we think about new business and new business selection. There are opportunities to write new business in this market and write it profitably and our ability to target those and the depth of relationships we have, I think, will allow us to pivot and maintain strong new business performance.

With regard to your comment on industry trends, though, I just want to reinforce one point, and I alluded to this in the prepared comments. I think if you look at where auto pricing is -- auto liability pricing is in the industry, that has been firmer and has stayed there on an industry basis. I think that's -- there's a better recognition of not just where trends are, but where run rate profitability is. And if you look at where run rate profitability is in commercial auto, the AM Best estimate is just over 103 for 2025. And if you were to split that between liability and physical damage, liability is probably in the 107, 108 kind of range. So the starting point is not great for the industry and the trends are elevated, so that rate need is there. And I would say the industry is more responsive.

I think the bigger challenge is on the GL side, and I pointed to that in the prepared comments. If you look at where GL is, and this is other liability, both products and non-products, and again, there are different estimates out there on an industry basis, but AM best has GL at the 108 range. And I would say when you look at what happened in 2025, there's another $8 billion of adverse emergence booked by the industry. And even so, a lot of that was still '23 and prior. And I don't know that you've seen that fully reflected in 2024 and '25. I think that's the part of the market that hasn't been as responsive.

And I think when you look at the way the claims come through and the shorter tail on commercial auto liability versus general liability, I think it's a quicker recognition, but I would expect that recognition to start to come through on GL in the next couple of quarters. And we see where -- how our peers comment and a couple of peers that have already released and made comments around where they think the direction of pricing is and needs to be on commercial casualty, I think that's in line with what we've been saying and what we would expect to see going forward.

Okay. That's interesting and helpful commentary. Switching gears a bit to the expense ratio guidance from last quarter about some of the investments. Should we be thinking through any operating leverage implications too on the expense ratio from the change in top line?

Yes, Mike, thanks for the question. As we look forward, obviously, we're focused on growing our business the right way. But I would say to the extent that we do see a tempering of growth, we're obviously going to be very mindful of our expense ratio and ensuring that we are continuing to compete with a competitive expense ratio. So that will definitely be a focus. But I would say our focus right now is really ensuring that we can grow the business in a way that meets our overall expectations.

And just to further that point, I think Patrick is exactly right. As we manage the expense side of the equation in light of the top line, we can't lose sight of the fact that the increasing technology investments we pointed to over the last couple of quarters will increase capacity, and I think will be a positive directional item with regard to expense ratio on a go-forward basis.

Got it. And just lastly, real quick, it was great to see no overall reserve development. I think that was a welcome sign. Just curious under the hood on the long-tail casualty lines, was there any thing worth calling out on vintages or changes? I know you're booking your '24 and '25 picks on social inflation at kind of looks like conservative levels. Just curious if there's anything you want to call out.

No, there's -- and we pointed to the line of business as well if there was nothing notable from a line perspective. But to the rest of your question, from a vintage perspective, there was nothing there either with regard to movement across vintages.

And our next question comes from the line of Rowland Mayor from RBC.

Congrats on the quarter. I wanted to quickly ask on the capital return and if you could walk me through your strategy. As we look at lower growth, we start to see the payout ratio climb? Or are there other factors we should be looking at?

Yes, Rowland, thanks for the question. Look, I'd say our overall capital management philosophy is unchanged. We continue to invest in a growing and profitable business. That's our first and best use of capital, as you would expect. Our overall capital management philosophy also contemplates a dividend that is in the 20% to 25% of long-term earnings. And as and when we have capital over and above what we think we need to run the business, that provides us with a lot of flexibility, of which could include share repurchases. When we think about share repurchase activity, it's really a function of what our valuation is relative to our own view of where our stock should trade and as well as that our future needs for capital.

And so I don't think there's anything particularly different about what we've done this quarter relative to the last couple of quarters. Certainly, we've seen our stock trade off. And on a relative valuation perspective, we are coming in at attractive levels at a time when we have additional capital to do that.

That's super helpful. And then I was wondering if you could help me understand the difference between the high end and the low end of the combined ratio guide for the year. Is it largely pricing and competitiveness? Or are we -- is there some non-cat losses that are kind of assumed between the difference between the 96.5% and the 97.5%?

I think it's intended to be reflective of the normal variability in non-cat property. That's the primary driver.

And our next question comes from the line of Meyer Shields from KBW.

I guess a question on workers' compensation. If you go back to 2023, there was sort of steady, modest favorable development just about every quarter. And I'm wondering whether the absence that we're seeing in the first quarter of '26, is that because you're not seeing the same delta or you're taking a more conservative approach to acknowledging it?

I would say just in terms of the trend of favorable emergence in workers' comp, if you look back over the last 2 calendar years, the majority of our action on workers' comp with regard to favorable emergence came in the fourth quarter of the last 2 years and was generally associated with our annual tail study that we do at the end of the year. There might have been some small releases in other quarters, but generally speaking, that's where it came from, and it was -- it was at the end of each year. So I don't think that trend has really shifted.

There's no question. I think our view when you see it in our book loss ratios, our view has been that with regard to the continuing negative price environment and our view of where we believe severity trend to be, you want to take a more conservative stance relative to how you think about those more recent accident years, and that certainly feeds into our view and our philosophy.

Okay. That's very helpful. And then I had a separate question. If you go back to the, I'll call it, the portfolio chart with the different cohorts of performance, when you look at the better performing accounts, are the loss trends different there? I understand the loss experience is different, but I'm wondering whether the trends vary by quality of account?

I would say there might be some nuance there. But generally speaking, especially when you think about why we see elevated trends, they're social inflationary in nature. And as we've said on a geographic and a segment basis, fairly widespread. So I think it's a pretty good assumption that you would expect your severity trend to be pretty consistent across cohorts. I would expect on the flip side, you would see some frequency improvement that might give you a better trend view on a forward basis with regard to that preferred bucket because they're better controlled accounts, generally speaking. So you would expect to see potentially some favorable frequency influencing your view of trends there.

Okay. And if I can throw in one last question really quickly. Does the -- I guess, the mix change away from contractors, does that have any implication for the surety book?

I would say not really. There is some association there, but it's not that significant. We like the surety business. We think there's an opportunity there for us to continue to grow that segment over time. But I also want to reinforce the point, we like the construction business, and we've got a long history there of strong performance. This is really about optimizing other segments which will benefit the mix overall. But we are not walking away from the construction segment by any stretch. It helps us manage our overall catastrophic exposure to property cat. We think we've built up a lot of skills and experience in those -- in the various contractor segments. So we plan on continuing to be a strong player there. We just see opportunities to further diversify segments, which will also help us diversify by line of business over that same timeframe.

[Operator Instructions] Our next question comes from the line of Paul Newsome from Piper Sandler.

Just a couple of actually kind of follow-on questions. Within contractors, obviously, there's a ton of different kind of contractors. Is there any sort of differences within the trends that we would see in that regard? And I guess I'll ask my second question too. Can we also think about or talk about some of these at least from a competitive advantage or business advantage on a state-by-state basis? Do you still have some states that New Jersey was a problem at least one point. So yes, any areas of those 2 kind of broad buckets? Any color would be great.

Yes. So -- and I was having a hard time hearing the end of the question, but it sounded like it was mostly focused around geographic hotspots with regard to loss trends. I would say, other than what we've previously pointed out, and remember, I think that was -- those comments were more around auto than they were around general liability, and that continues to be our view. Frequency and severity trends in New Jersey, auto on both personal and commercial, but we're talking commercial here have remained elevated. And I think we see that across the industry as well. We pointed to a couple of other places, sort of lesser issues, but we pointed to South Carolina. So I would say there's no change there, and that's all reflected in our view from an underwriting and a pricing perspective in terms of how we manage the business going forward.

With regard to contractors, and you're right. I mean that's a very broad classification. But within that -- and our focus tends to be on the artisan contractors. So it's not a lot of the large construction outfits, although we do write some of that, but it's really the artisans. And I would say that the differences we see tend to be more around geography as we're talking about here than it does anything else from a loss trend perspective. Performance is certainly different and the auto relative to the GL exposure is going to be different by classification in terms of the size of the auto fleets in certain construction classes being bigger than in others. So you've got a little bit of a GL versus auto distributional difference.

But generally speaking, the way you underwrite construction is pretty similar in terms of understanding safety practices and making sure those safety practices are employed on a consistent basis across all job sites and also making sure that when you have contractors who are involved on either a subcontracting or a general contracting basis, you've got really good information around the contracts that are in place to understand whether or not you're assuming risk from another party to the contract that you didn't anticipate and your ability to underwrite that effectively, I think it's a pretty consistent consideration across all segmentations within construction.

And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to John Marchioni for any further remarks.

Well, as always, we appreciate your interest and engagement. And if you have any follow-up items, please feel free to reach out to Brad. Thank you very much.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Okay, we're live. Welcome back to the Bank of America U.S. Financial Services Conference. This is sort of what I would say is the insurance sleeve. We have an opportunity here to talk to Selective Insurance with CEO and Chairman, John Marchioni and CFO, Patrick Brennan. So we're really pleased to have them here. [Operator Instructions] And let's see what we can learn. Thank you for being here, gentlemen.

Thank you for having us.

So let's talk about the last couple -- Selective one of just -- Selective has had an unbelievable history in -- and it's -- the fact that there is any sort of volatility is actually a bit of a surprise in what's been a much longer period of great stability and comfort from investors. How do we parse the last couple of years and with the reserving actions? And where do we stand right now in terms of footing?

Yes. I would say, first of all, I appreciate the comments because we are proud of that history, and the long-term history, we'll celebrate our 100th anniversary as a company this year in 2026. We're proud of that, but we're also proud of the more recent track record over the last decade to 1.5 decade, a very strong growth and very consistent returns and averaging a little over 12% ROE across a decade, decade plus, is something we're very proud of and proud of being that consistent growth and profitability story.

Now to your point, the last 2 years have been more challenged in terms of some of the reserving actions we've taken on the very recent accident years, but I would say the overall objective is to maintain that long-term consistency and track record because when it comes to Casualty Lines of business and 2024 was predominantly our general liability line and then 2025 was commercial auto liability, those are longer tail lines and the ability to be a consistent performer over the long term requires that you react quickly when you see emerging trends.

And I think the whole idea of lawsuit abuse, social inflation is pretty common in the industry. I don't think anybody is suggesting it doesn't exist. I think generally speaking, the commentary relative to severity trends in those Commercial Casualty Lines. is high and has been increasing, and we've been reacting to that very quickly. And as a result of that, we've been taking action on more recent accident years based on relatively immature data on both a paid and occurred basis, but we think that's the appropriate posture to adopt when you have a trend environment like we have right now that doesn't have a lot of history that you can look at to predict what it's going to look like going forward.

So we're trying to make sure that we stay on top of it, recognize that emergence, make sure the most recent years are booked where they should be, and that ensures that our run rate profitability going forward is sound.

And I think when you look now a year later, 2024 is when we took the significant action on the general liability line. And that was predominantly, almost entirely the post-pandemic years, but more importantly, if you recall, we also meaningfully increased the 24-year in the '24 calendar year, and that put us on very solid footing and you saw relative stability in the general liability line throughout 2025.

And we think that says that -- that was the right approach for us to take. And then if you look at what happened in 2025, it was similar, maybe a little bit smaller magnitude on commercial auto where we didn't just respond to the most recent years, we also increased the current year to make sure that our run rate profitability is sound.

Is the goal to get the numbers right within a confidence interval x or to be somewhat ahead of trend? Like what is a good a solid footing actually mean for the state of the reserves? What's the goal, I guess?

The goal is to have stability in reserves. We've never -- while we had a history of, call it, 15-plus years of favorable emergence, that wasn't planned. That's how ultimate frequencies and severities played out. We are always planning to book the right amount. And we want to make sure that's the case because our process is all interconnected, reserving feeds expected loss ratios, expected loss ratios feed pricing indications, pricing indications drive your pricing strategy and your risk selection strategy.

And to the extent you fall behind or to the extent you're too conservative in your booking actions, it could create challenges downstream that you want to avoid. So our overall intent is to always make sure we book our best estimate every quarter, make sure that is properly fed into our planning process and then our booked loss ratios are accurate.

So in all of this, I would say that Patrick showed up just in time for all this fun. So I guess, through about 15 months, or I don't know exactly maybe, we'll call it a year plus, tell us about the past year, what you've learned? What's been changed? What you came with? What you're surprised to have at your disposal?

Yes, it's a great question. So I think one of the things that we talk about at Selective is having a long-term view. John talked about our ROE performance over time. We certainly even this past year, we wrote it a 14.2 point operating ROE. So certainly feel good about those results in the context of a long-term track record of producing north of 12 points of ROE. I think coming into this role, I had maybe lower expectations in terms of how much data we might have relative to where I was coming from, where it feels like I was sort of a wash in data.

And I got to tell you, I'm really pleasantly surprised I think we punch above our weight. We have a ton of data available to us. And I think the fun and exciting part for me is to figure out, how to help the team think about unlocking even more value from that because I have a different perspective and others do as well. And so I think there's tons of opportunity there. But even at that, we've been utilizing the data in ways that help us identify what's driving loss cost, and then what do we do about it, where do we apply pricing when we need to apply pricing in a way that's granular that's targeted that's going to drive outcomes that we are seeking.

So I feel really good about that as well, the way that the data is being used. I think as we go forward from an actuarial perspective, from a pricing perspective, we want to make sure that we have precision pricing. You can never be perfect at pricing. There's always ways to get better. And I think that continuous improvement mindset is something that has existed prior to my showing up, it's part of every conversation that we have on a go-forward basis.

We look at the operations efforts that we have. We want to get better information in the hands of decision-makers at the time that they make decisions, leveraging tools and technology, continuing that, the investments that we've made in the past to really amplify their ability to execute against that. And then culturally, I've already touched on the continuous improvement mindset, but we -- John talked about it on our most recent conference call, this relentless focus on the fundamentals, make sure we're doing all the little things right.

We are always looking for new ways to measure and check those boxes to ensure that we're doing that. And so I think in sum, there's tremendous opportunity in front of us. We have the assets, we have the tools. While we've had some challenges in the last, call it, 2 years, we've also really positioned ourselves to take advantage of where we're going on a go-forward basis by making investments. For example, in our technology budget, if you look at what we spent in 2023 on discretionary projects and IT we've more than doubled that in our budget for this year to give a sense of putting our money where our mouth is and really driving towards enhancing those capabilities that we have.

So it's been a very unusual 5 or 6 years from the pandemic to the reopening through inflation. the courts being closed, the courts being open and whatnot. And a lot of what's driven the actions over the past couple of years has been paid claims emergence in immature years.

There might be some false signaling there or maybe there's not. I mean you're going to get -- see the data come through and you're going to take action. Is there something that we are learning about the data as it continues to evolve? Are these real signs of a real persistent loss trend that is rising? Or is just the way claims are emerging is different from the way it's been in the past?

Yes. I would say there's clearly a different pattern. And I think it's gone on for long enough now post-pandemic that I think we could call this an elevated trend driven by different claims patterns than we've seen before. And it's not just the most recent years, but when you look at where average severities are at this point in our mind, and we're very transparent in our trend assumptions. We have all-in severity trends on the casualty side at about 9%. And excluding workers' comp, closer to 10%.

And I think we've got higher conviction as time has passed over the last 3 accident years that those are real. We see those in our paid and our incurred dollars. I think the question is, at what point do we inflect and at what point do we reach a more normalized run rate where the year-over-year increase doesn't continue to be the same as it has been.

It's interesting to me, and we've cited this before, and this has not been the case for us. But in '24, when we booked the significant GL reserve adjustment, that was all in the post-pandemic years. And the industry -- we'll see what '25 looks like, but I wouldn't be surprised if it's similar to what '24 looks like when Schedule Ps all come out, that in '24, the industry in total added $10.5 billion to GL reserves.

Almost half of that was from the pre-pandemic period. And that our pre-pandemic years held up well. And I think what happened was throughout the pandemic with this dramatic drop-off in frequency, there was a full sense of security that, that higher severity in those pandemic years was just anomalistic and it was tied to that really low frequency. The reality was it was settling into a new run rate.

Now we've cited paid data in the more recent accident years as a driver, but I would also suggest incurred data is telling you the same thing. What you -- and this is why single data points on the reserving side, you never want to overly react to 1 single data point because when you see paid data emerge like that in very immature accident years, the leverage effect on those when you project those years to ultimate is significant when you just look at historical development patterns.

So you're also looking at incurred data, but your incurred data, you have to evaluate whether or not you think case reserves, which are a big driver of incurred losses, whether case reserves are stronger or weaker or the same as historical patterns would have told you, that's important. You have to understand whether or not there's a shift in your disposal rates, because if you ignore disposal rates, especially when disposal rates are declining, you're going to look at paid data, you're going to look at incurred data, and it's going to give you a false sense of how these years are actually going to develop to ultimate.

You have to look at litigation rates. So all of those factors alongside of each other, I think we put together -- and so it's not just the paid claims data in those more recent years, it's all of those factors that we would suggest gives us confidence that the trend assumptions we are incorporating are sound and are very reflective of the most recent years.

Now additional point, and we made mention of this on the third quarter earnings call is rather than just rely on our own historical practices and our own evaluations and we've always had a Big 4 accounting firm do their own review of our reserves twice a year. That's been historical practice, continues to be. But we brought in some other independent firms to review all of our actual reserving practices, our planning process that leads to expected loss ratio selections and a review of our claims performance on both a close and an open claims basis.

And I think that sort of reiterated to us a couple of things, and 1 of which was the -- and the positive was that third-party review of reserves, our carried reserves were above their central estimate. So that's another important data point. But I think it also validated for us because we're talking about 3 external firms that have a broad lens into the market is they validated 2 things. Number one, the trends we're seeing on the severity side are very similar to what we're they're across the industry. And number two, our practice reacts much more quickly or puts more weight on the most recent experience. So within the actuarial practice, you could look at longer-term averages or shorter-term averages, and are going to give you very different answers.

If you look in the current environment, a 7-year average, weighted average or a 7-year progressive average is going to give you a very different answer than putting all of the way on the most 3 -- 3 most recent accident years. So our process and our approach is put more weight on those recent years. And we think because of the change since the pandemic, that's the right place to be.

Well, you said you don't want to focus too much on a single data point. I want to focus on a single data point, state called New Jersey. And so how much of all this information is New Jersey specific, like, first of all, how much of this driven what's happened to you to how much is the experience in New Jersey nonreflective of the rest of the country and how much of it is?

Yes. So let me make a couple of comments, and I'm sure Patrick will want to weigh in, and let me take this in 2 dimensions. First of all, for personal auto, for us, it's a smaller book but New Jersey is a bigger portion, it's 30%. All of the reserve adjustments we've taken in '25 relate to New Jersey. And our performance outside of New Jersey on the Personal Lines is much more reflective of our target experience there, but that's a small portion of the portfolio.

In commercial auto, which is where we really focused our attention relative to New Jersey. New Jersey represents about 15% of our commercial auto premium and vehicles and therefore, roughly a similar amount in terms of lost dollars. There are a number of states that have higher susceptibility to social inflation because of the environment, traditional environment, legislative environment, regulatory environment. New Jersey is one of them.

So there was a RAND study done in 2024 on social inflation, evidence of social inflation, and identified 7 states as those that had the highest increase in jury works, trial values, trial awards. Half of them are in our footprint, half of them aren't. So New Jersey is one of them, New York is one of them, Pennsylvania is one of them, and the Illinois might be the fourth. But then the 3 that aren't are California, Texas and Florida.

So you have this group of states, some of which we're exposed to, some of which we aren't, that have had higher impact of social inflation because of their environments. But what everybody has seen and we've seen is this is widespread. It's just exacerbated in certain places like New Jersey. And I would say that, and we singled some of this out over the last 4 or so years, the New Jersey legislature has enacted a lot more pro friendly plaintiffs bar changes to statute that individually don't mean much, but in the aggregate have made it much more fertile ground for the trial bar.

So for instance, minimum limits for personal auto increased, minimum limits for vehicles over 26,000 pounds, not a big portion of our book, less than 10%, but required to carry $1.5 million of limits. Pre-suit disclosure of limits, pre-suit disclosure, lowered the bad faith standard for uninsured motorist claims.

So as a result of this, and by the way, New Jersey always had a much higher litigation rate than the rest of the country in commercial auto. So you have this confluence of statutory changes that have made it more fertile ground and I think, resulted in a higher level of activity there. But I want to reiterate this point.

The severity trends we're seeing are evident across the country. And in fact, the litigation rates we see across the country in commercial auto are actually increasing, whereas in New Jersey, albeit much higher, it's been relatively stable from a lit rate perspective.

Yes. On litigation rate our litigation rates in New Jersey tend to develop to an ultimate rate that's about twice countrywide for commercial auto, just to give a sense. And when you look at industry ALA, as an example, you can see that the ALA for commercial auto tends to be higher in New Jersey than in other states. And in fact, in the last 2 or 3 years has been on an uptrend for the industry from a commercial auto perspective, but also from a other liability occurrence perspective.

So there is evidence that there are environmental differences there that we're seeing and that some of those trends are manifesting across the industry and not just with us.

Markets are fickle, and they react to -- the company that does things first is often the one that's most penalized. Do you I believe that the way you've reserved for things are going to demonstrate that you were ahead of the curve and that you have reasonably by pricing actions seen by your competitors or things that have not emerged that you have evidence that what people are arguing is a Selective issue, we'll be able in 24 months to be diagnosed that you were just ahead of a much broader trend?

Yes, I'll stop short of predicting other companies' performance. What I will say is I think our track record suggests that our -- we get to the ultimate for an accident year quicker than the industry broadly. And we've got slides in our investor deck that show that for commercial auto liability and general liability, and I expect that when the ultimate story is written on these more recent accident years that, that continues to hold.

Now listen, if you stack up our actual performance in general liability and commercial liability relative to our peer group, I think you see fairly similar results. I think what we could be criticized out fairly is we are overweight the lines that are most impacted by social inflation. We have a bigger portion of our premium in commercial auto liability and general liability.

And the reality is if you look over the course of the last 2 years, the majority of the margins in the industry have come from Personal Lines, commercial property, workers' compensation, prior year development -- favorable development and then some of the Specialty Lines, which went through a significant correction, professional liability, cyber, some of those.

The margins on GL and auto -- commercial auto liability have not been strong in the industry. We just happen to be overweight. And I think we're -- it's appropriate for us to make sure that, that internal subsidization that's happening for everybody in the industry with property results, outweighing some of the pressure in these Casualty Lines, we want to make sure that we're addressing that and staying ahead of that curve.

So if we look out to guidance, actually, I'm not a big fan of guidance, it causes people to work to guidance and not work to numbers and sometimes. But you have a long-term sort of 95% combined ratio, rule of thumb, I think is, better than guidance, maybe, and you're running ahead of that right now. That means you might need more price or whatnot? What is the sort of the near-term plan to get the company to the margins that you want to be achieving?

Yes. I think if you look at our underlying ex cat combined ratio guidance and compare it to the underlying accident year in -- actual underlying accident year in 2025, you'll see loss ratio improvement of about 120 basis points. So we were at 91.8% underlying accident year combined ratio, so ex cat, ex development in 2025, our guidance is a 90.5% to 91.5% ex cat. So there's -- let's just take the midpoint to make it easy. There's about 80 basis points of improvement to the midpoint, but we also mentioned that the expense ratio is up about 0.5 point, 40 to 50 basis points.

So you can see the loss ratio underneath that is down about 120 to 130 basis points. And when you look at overall -- and again, we guide across all of our -- we don't do individual underwriting segment combined ratios. We guide to an overall combined ratio. So I want to just focus on overall premium -- pricing and loss trends. The last few years, our written rate all in is about 9.5%. Our trend assumption has been between 7% and 7.5%. So you got about 200 basis points of rate over trend.

You apply that to the loss ratio, call it, 63% of that, and it gets you to right around that in terms of improvement. And that's in our '26 guidance. And based on our expectations, not just for pricing, but for ongoing mix improvement, and this gets to the point Patrick was making about granularity of execution to drive mix of business improvement, which gives you loss ratio benefit in addition to rate relative to loss trend. That's the forward path to get us to that 95%.

So I think about that mix of business, part of the mixing is Personal Lines and part of the mixing is Excess and Surplus Lines. In 5 years, how does the steady state -- steady state is a bad term, but is Selective a different company than it was 5 years ago in terms of like what it provides to the market?

I think we're the same company what we provide to the market, but I think the profile of the company 5 years down the road and 10 years down the road looks different from a distribution of premium and revenue and income than it has. And I think, as I mentioned earlier, our concentration in GL and auto liability served us well when property was the big pressure point, but now it's under pressure. I think we want to make sure we continue to build more diversity in our business.

And what that means varies by segment. So in Commercial Lines, we've invested significantly in building out our geographic footprint. So 7 or 8 years ago, we were in 22 states. We're now in 36 states and quickly, we'll reach 40 states. So there's geographic diversification, which takes some of those more challenging regulatory environments and makes them a little bit less of an impact.

There's also diversification in the segments that we already operate in, outside of the construction arena, which has been very good to us, and we're going to continue to be a player in various construction classes. But there's a lot of other segments we write that have a different mix of premium across the main lines of property, auto, liability and workers' comp. So there's diversification potential there inside of Commercial Lines.

E&S has gone from nothing to 13% of our business over the last 10 years or so. And as we've talked about, we just recently opened up that product to our retail agency partners and have traditionally been wholesale. So there's opportunity to expand distribution significantly. There's opportunity to expand product and appetite on the non-admitted side, but also on the admitted specialty side. That will be a more diverse part of our book going forward.

And then the pivot from mass market Personal Lines, which we don't think we can be a strong competitor in to the mass affluent market. And you can see our average home values of new business has been running around $1 million. That's the segment of the marketplace we think we can be a winner and a key player there. And that will be a diversification play for us as well. And there's geographic expansion potential there as well. So 5 years down the road, 10 years down the road, I would expect you see more diversity in our portfolio, and we think that allows us to be that consistent player again long term.

You mentioned geographic diversity in the context of companies where the regulatory or legal environment are making it difficult. There's a lot of talk about affordability right now in insurance, particularly on Personal Lines. There's also, to my mind, that the places that are harder to price, you can charge more for because -- and whatnot. To the extent to which moving into easier geographies, is that really like a thing? Like can you get a better -- as of -- if you pull out of hard geographies, prices go up because availability goes down. I realize that New Jersey might be a hard place to write, but ultimately, you can't get charged a lot in New Jersey and get paid to do it.

Yes. As long as -- yes, is the short answer. And I don't know -- so that's -- leveraging those environment differentials, I don't think is a long-term strategy. I think our view is, if you're a good underwriting and pricing company, you can operate in any environment.

And we've long -- even with everything we just talked about in New Jersey on commercial auto, New Jersey and New York, 2 of our longest-standing Commercial Lines states, despite all of the challenges in those states are 2 of our most profitable states across the entire portfolio because you've got very good property business there. It's not that these are terrible markets, and you could -- if you know how to operate in those different markets, you could be very successful.

So that's, I think, the most important point is you don't want to try to figure out -- because the more attractive markets where you have lower rates of litigation, you got good regulatory environments, everybody is there competing as well, which is putting downward pressure on margins. So I think that's the important point.

I think the affordability question is an important one. And I think this is where, from a public policy perspective, we just have to do a better job as an industry of expressing what's actually happening here, which is all of this excessive litigation is resulting in higher costs that consumers are paying for. personal consumers and commercial consumers are paying for, but the benefits of that incremental dollar of loss cost is not going back to the claimant. It's going to our defense costs, which are higher, and it's going to the plaintiff's attorneys who are representing them. And the actual portion of that additional dollar that they're paying for is not flowing back to them in terms of the benefit.

And I think our ability as an industry to refine that message in a way that's easily consumable will start to change the public policy landscape. And you'll start to see more of what happened in Georgia, which is the situation gets so bad that, that message starts to resonate with public policymakers and they understand that's negatively impacting their economy and they do something about it.

Let's pivot the topic a little bit to your distribution partners. I guess, retention raising, price has been compromised a little bit, that's always going to happen. Is that steadying out at this point in time right now? And in terms of like -- 1 thing I always want to -- you don't have to mention pricing comparison but always during periods of lower retention, where is the business going? It's something that I always am interested in knowing.

Yes. So I would say it's -- certainly I'm not going to suggest agents love it when you raise prices, especially if your price increases are a little bit above where the rest of the market is. But our approach has always been to be as open in our communication and as targeted in our execution so that you're not just taking significant rate increases across the board, and you're having early conversations on a portfolio basis about the accounts that you're focused on getting a significant rate level or moving the account, having the agent with the account and those accounts where you have room to be more flexible because your view of forward profitability is better.

And as long as we maintain that strong level of communication and the granularity in our focus, agents will come along with us. With regard to where the business goes, listen, we operate in a highly fragmented and a highly competitive marketplace. And every account that you want to achieve outsized rate on or you specifically say to an agent, we would like you to move this account because we don't think we can get to the right price or we don't think the controls are adequate.

There will be somebody there to gobble that account up. It's the nature of our business. It's the nature of the fact that -- on the commercial line side, there's no pricing power because there's so much fragmentation. And I think what's happening of late is as the property market is starting to soften off of some really good results. I think companies are looking for growth and struggling for growth. And as a result of that, you see some aggressive behavior on new business. And I think we're seeing that.

I know that hasn't been the common commentary out there, but there's not an account that we try to up price significantly and somebody else is not going to come in and write and the agent is going to find a home for it.

You probably saw -- yesterday insurance as a segment was down. Insurance distribution was down 9% yesterday. It's not really up to date. So dead cat bounce, there's a little bit, but here and there. People are really worried about AI and whatnot. And I don't exactly agree with all the statements, [indiscernible] some of the things, and 1 of the things I wonder are insurance commission rates sticky? Or should we expect that commission rates are -- may not -- people still use agents, but they might not be able to make as much money as a percentage of premium in the past. Is that reasonable or you don't see that in the cards at this point in time right now?

I don't expect that to be the primary driver of margin improvement in the near term. And agents provide significant value to their partners, balance sheet partners, underwriting partners like us because they develop deep customer relationships over time. And as a result of that, they're compensated for that. I do think you've seen some shifting in certain lines of business downward on a base commission basis. You've seen a little bit more movement away from profit-sharing arrangements to more guaranteed base commission. But in total, that's -- the movement hasn't been that great.

I don't think that's going to be a significant lever in the near term, but it's always part of the conversation in terms of the overall value chain and managing that expense ratio. I think the reaction to distribution based on AI as a little bit of an overreaction, quite honestly. I think the demise of that distribution model has been predicted for 30 years, for different technology advances and it really hasn't come to fruition in the Commercial Line space. It hasn't come to fruition. And I'm not sure that...

[indiscernible] homeowners either, although -- although I do question, I don't really think it's that much harder of a transaction to ensure someone's home, as it is to insure their car. So I think they're -- and if I'm a florist with a storefront and 3 employees in a delivery van, I'm not so sure that direct distribution can't solve for that person also.

There's a risk selection consideration, right? In auto, there's enough homogeneity that you could develop individual class plans and have those fairly accurate, whether it's home or it's Commercial Lines, the, I'll call it, housekeeping in home, and I'll call it management of a firm in commercial. 2 florists are not the same, right? There's a management team or an individual owner in a small business situation that manages that business a certain way that either makes the likelihood of a loss more or less based on how well controlled that account is.

And this applies to a small business accounts as much as it applies to larger accounts. And for instance, you're going to write a school or a daycare facility, being able to evaluate the quality of that account and therefore, the appropriate pricing of that account without knowing not do they have hiring practices and background checks, but do they actually employ them on a consistent basis? And knowing that allows you to understand what's a high-end class exposure or a low-end class exposure.

What is a well-controlled account or a less well-controlled account because the pricing is so varied in Commercial Lines. And I'm not suggesting technology can ultimately replicate what a human does in that situation, no different than being able to understand the cleanliness of a house and the upkeep of a house by seeing the inside of it. There's technology that allows you to do that. But that's -- that makes 2 homes that have everything on the exterior looks the same and the value is the same. And they're in the same ZIP code, but the susceptibility of the loss is very different based on how that's maintained.

And not only that, I think there's no symbol set for homes, right? So in the auto insurance business, you might have a symbol for 2024 Honda Civic Sport. You know what it costs to repair that. You can get a real sense of truly homogeneous risks in that segment. Homes have various vintages. They're built by different builders. There's -- in addition to the pieces that John talks about, about its occupants, but its own construction, there's so much variety there as well.

Arguably, the stock is on conventional metrics, more attractive than it's been from a valuation standpoint in many years. What kind of flexibility do you have as an enterprise to do something about that?

Yes. So we've been active in share repurchase during the course of 2025, even a little bit so far in '26 as well. So we recognize that we need a certain amount of capital to run the business. We want to invest in a growing and profitable business for the long term. And we also know that it's important to return capital to shareholders as and when we can do so.

So we have a dividend policy or dividend program. We target 20% to 25% of earnings over the long term that we return through that mechanism. To the extent that we have additional capital and we like the trade, if you will, or where we are from a valuation standpoint, we will come into the market and invest in our stock. And as I said, we've done that through the course of '25. We returned something in the neighborhood of $100 million worth of capital to shareholders through dividends and share repurchases last year. So we feel like that's appropriate. But first and foremost, we want to invest in a growing business.

There's time for 1 question on the floor. I always want to leave one. But this looks like a very, very anxious crowd and nobody has a question, they're all satisfied. So I guess we'll leave it there. Thank you very much for your time.

Thank you, [indiscernible].

We appreciate it. And everyone, have a good lunch, and we'll come back in the afternoon.

Good day, and welcome to Selective Insurance Group's Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Brad Wilson, Senior Vice President, Investor Relations and Treasurer. Please go ahead.

Good morning. Thank you for joining Selective's Fourth Quarter and Full Year 2025 Earnings Conference Call. Yesterday, we posted our earnings press release, financial supplement and investor presentation on selective.com Investors section. A replay of the webcast will be available there shortly after this call. John Marchioni, our Chairman of the Board, President and Chief Executive Officer; and Patrick Brennan, Executive Vice President and Chief Financial Officer. We'll discuss results and take your questions. We will reference non-GAAP measures that insurance and investment professionals use to evaluate operational and financial performance.

These non-GAAP measures include operating income, operating return on common equity and adjusted book value per common share. The financial supplements on our website include GAAP reconciliations to any referenced non-GAAP financial measures. We will also make statements and projections about our future performance. These are forward-looking statements under the Private Securities Litigation Reform Act of 1995, not guarantees of future performance. These statements are subject to risks and uncertainties that we disclosed in our annual, quarterly and current reports filed with the SEC. We undertake no obligation to update or revise any forward-looking statements.

Now I'll turn the call over to John.

Thanks, Brad, and good morning. We are well positioned to build on recent momentum. In 2025, we delivered an ROE of 14.4% and an operating ROE of 14.2%. This exceeds our 10-year average operating ROE of 12.1% and our 5-year average of 12.5%. We are proud of our long-term track record and are taking clear steps to drive future margin improvement. In 2025, we grew book value per share by 18% and returned $182 million to shareholders through our common dividends and share repurchases at attractive valuations. With our strong capital position, we can deploy capital in several ways that are accretive to long-term value, including continued investments to grow and diversify our business along with opportunistic share repurchases. .

We have a strong foundation with opportunities to drive improvement across our organization. We delivered a 93.8% combined ratio in the quarter, reducing our full year combined ratio to 97.2 just outside the 96 to 97 guidance we provided at the beginning of the year and at the low end of the 97 to 98 guidance provided last quarter.

Net premiums written growth was 5% for the year as we executed deliberate actions to improve underwriting profitability. This remains our primary focus. However, we are also executing strategies to support future growth opportunities, including expanding our geographic footprint and broadening E&S distribution capabilities with retail access. We believe we have the capabilities and strategy to further diversify our premium and outpace industry growth in coming years.

In the fourth quarter, favorable workers' compensation development offset unfavorable prior year emergence in the commercial and personal auto lines and E&S casualty. There are also several smaller adjustments across multiple lines of business, including umbrella, which was driven by auto. In 2024 and 2025, we took meaningful actions to strengthen reserves. Our picks for older accident years have held up well, and our actions have been increasingly weighted to more recent accident years. We are comfortable with our overall carried reserve position.

We firmly believe our disciplined approach responds properly and appropriately to emerging trends and ensures pricing targets keep pace with an evolving external environment, even though it can create short-term volatility. We will stick to our process continuing to assess emerging information, considering risk factors and booking our best reserve estimates each quarter. We expected 2025 accident year margins to improve for commercial automobile as we have earned double-digit rate increases over multiple years that exceeded our assumed loss trend of roughly 8%.

As 2025 progressed, we ultimately increased commercial auto casualty loss costs by nearly 6 points. We also increased our expected severity trend for commercial auto liability to approximately 10%. This assumption is reflected in our booked results and incorporated into our 2026 guidance. In total, we strengthened commercial auto reserves by approximately $190 million in 2025. The majority is attributable to the 2024 and 2025 accident years with 2025, representing the largest share. We are addressing commercial auto with both underwriting and claims actions. For example, we have implemented tighter underwriting guidelines fleet exposures, supported by state-specific tactics and focused our commercial auto telematics rollout in specific segments and states.

In general liability, we discussed our actions to manage limits in challenging jurisdictions and trim underperforming classes. We're also prioritizing new business in better performing segments and have strengthened new business pricing. Standard Commercial Lines is our largest segment and our earnings engine. We have the sophisticated pricing and risk selection tools in the hands of our talented underwriters that are necessary for taking granular action across the portfolio. We are improving it by achieving stronger rate and retention differentiation based on expected profitability while continuing to focus on overall rate adequacy. This is not new, but we expect the amount of differentiation to increase.

We are leveraging our tools, granular insights and differentiated operating model to drive higher renewal retention on our best performing business and meaningfully lower retention on our poorer-performing business through appropriate rating actions. While overall rate increases could moderate in the short term, we expect these mix improvement actions will deliver improved profitability.

Our guidance reflects the benefits we expect in 2026 from the various actions we have taken and our multiyear plan points to continued margin improvement in 2027.

Now I'll turn the call over to Patrick.

Thanks, John, and good morning, everyone. For the quarter, fully diluted EPS was $2.52, up 66% from a year ago. Non-GAAP operating EPS was $2.57, up 59%. Our return on equity was 18.3%, and our non-GAAP operating return on equity was 18.7%, reflecting continued strong investment performance. The GAAP combined ratio was 93.8% a 4.7 point improvement from fourth quarter of 2024, mainly because this quarter had no net prior year reserve development. For the quarter, the overall underlying combined ratio was 92.1% a point and a half higher than the 90.6% a year ago. The increase is attributable to the reserving actions we took to address the 2025 accident year, primarily in commercial auto.

This quarter's Standard Commercial Lines combined ratio was 92.9% and which included 1.6 points of favorable prior year casualty development and 3.2 points of higher current year casualty loss costs. As John noted, the current environment demands strong underwriting and pricing discipline. Standard Commercial Lines premium growth in the quarter was 5%, driven by renewal pure price increase of 7.5% or 8.5% excluding workers' compensation.

General liability price increased by 9.8% and commercial auto pricing increased by 8.6%. While there was some deceleration in commercial auto pricing for physical damage, liability price increases continue to exceed 10%. For property, renewal premium change was 12.2%, including 4 points of exposure growth. Retention for the quarter was 82%, stable with recent periods, but down 3 points from a year ago.

Excess and Surplus Lines premium grew 4% this quarter, with average renewal pure price increases of 7.8%. We continue to push higher [indiscernible] in E&S casualty based on our view of general liability loss trends. The E&S combined ratio for the quarter was 93.1% and a very strong 87.8% for the year.

Turning to Personal Lines. The combined ratio for the quarter was 103%, up 91.7% in the first quarter 2024. There were 2 reasons for the deterioration catastrophe losses, which were 6.2 points higher this quarter and current year casualty loss costs, which increased by 8.1 points. Current year adjustments were driven by New Jersey Personal Auto. For the year, the Personal Lines combined ratio was 100.6%, improved from 109.3% in 2024. Results are even more favorable for the portfolio outside of New Jersey, and we are positioned for profitable growth in those states.

For the quarter, Personal Lines net premiums written declined 8%, with target business up 5% -- all our new business was in our target mass affluent market. Renewal pure price for the quarter was 15.1%. Across all our segments, the combined ratio was 97.2% in 2025, a significant improvement from 2024s 103%, primarily because of lower prior year casualty reserve development and catastrophe losses. Last quarter, we discussed our third-party claims review, which was ongoing at that time. The review is now complete, and the findings were consistent with what we had previously discussed.

Turning to investments. Fourth quarter after-tax net investment income was $114 million, up 17% from a year ago and generated 13 points of return on equity. Our investment portfolio remains conservatively positioned and our investment strategy is consistent with average credit quality of A+ and a duration of 4.1 years. We expect the portfolio strong embedded book yield to continue to provide a durable source of future investment income even if interest rates decline.

We successfully renewed our property catastrophe reinsurance program effective January 1. Our retention remains $100 million, and we increased our coverage exhaustion point to $1.5 billion from $1.4 billion. Property market conditions are attractive, and we completed the renewal with meaningful risk-adjusted pricing decreases in improved terms and conditions. We continue to supplement our main tower with a personal lines only buy-down layer. Our peak peril U.S. hurricane, is well within our risk tolerance and 5% of GAAP equity for a 1 in 250-year net probable maximum loss.

Our capital management strategies continue to prioritize profitable growth within our insurance business and aim to return 20% to 25% of our earnings to shareholders through dividends. We also expect to opportunistically repurchase shares. These actions reflect our commitment to delivering long-term value to shareholders. During the quarter, we repurchased $30 million of common stock bringing our total repurchases for the year to $86 million. We believe these repurchases are completed at attractive valuations.

At year-end, $170 million remained on our authorization.

Book value per share increased 18%, and we reported $3.6 billion of both GAAP equity and statutory surplus. We ended the year with a strong capital position, and we are proud that A.M. Best recently affirmed our A+ financial strength rating. For 2026, we expect a GAAP combined ratio between 96.5% and 97.5%. Our guidance assumes 6 points of catastrophe losses. We do not make assumptions about future reserve development as we book our best estimate each quarter. We expect after-tax net investment income to be $465 million. This is up 10% from 2025, reflecting growth in our invested assets. Our guidance includes an overall effective tax rate of approximately 21.5%. Weighted average shares are estimated to be approximately $61 million on a fully diluted basis without assumptions about share repurchases under our existing authorization. As a reminder, our first quarter underlying combined ratios tend to be higher than the rest of the year due to normal seasonality. For financial modeling purposes, this has historically been most relevant to noncatastrophe pay losses. Corporate expenses also tend to be higher in the first quarter due to holding company expenses related to stock compensation.

Now I'll turn the call back to John.

Thanks, Patrick. Our 2026 guidance implies an underlying combined ratio in the 90.5% to 91.5% range compared to the 91.8% we reported in 2025. Our guidance does not provide segment level combined ratios. However, directionally, we expect underlying combined ratio improvement in personal lines and commercial lines and continuing strong performance in E&S. Our 2026 guidance considers reserve reactions for recent accident years and embeds an overall expected loss trend of approximately 7.5%, up from the 7% we assumed a year ago. .

Our loss trend assumptions are 3.5% per property and 9% for casualty. The casualty trend will be closer to 10%, excluding workers' compensation. We expect our 2026 expense ratio to increase by about 0.5 point as we make strategic technology investments to support scale, enhance decision-making and improve operational efficiency.

With expected strong investment income, our 2026 guidance implies an operating ROE in the 14% range.

Before turning to your questions, I want to remind everyone that Selective is celebrating its 100th anniversary in 2026. We are proud of our history, the work of our employees, and the value we deliver to our policyholders, distribution partners and shareholders. We are excited to build on our legacy of success. To drive this, we remain focused on a set of key priorities across the company including relentlessly improving on the fundamentals across risk selection, individual policy pricing and claim outcomes diversifying revenue and income within and across our 3 insurance segments, and further leveraging our use of data, analytics and technology, including artificial intelligence to drive operational efficiency, improved underwriting and claim outcomes.

I'll now ask the operator to begin our question-and-answer session.

[Operator Instructions] Our first question comes from Michael Phillips with Oppenheimer.

John, my first question is around your last comment here on the guidance. As you said, the core underlying combined, it kind of implies a bit of improvement from last year in 2025. And you said you kind of expect commercial to improve, personal to improve and strong from E&S. I guess if we focus on commercial for a second. There, you're seeing price deceleration, it seems like in line with peers, elevated casualty loss picks that kind of start to pick up in 3Q and 4Q. And then you still got some noise on PYD and commercial auto and GL. I guess given all that, can you just talk about the confidence you have in maintaining or maybe even improving the commercial line margins from here?

Yes. Thanks, Mike. And again, as I mentioned, we provide very detailed guidance when we stop sort of providing individual combined ratio guidance by segment. But as you indicated, we did provide some directional guidance, and I think that's the focus of your question. I think without question, we have continued to take rate on the casualty lines of business and where you've seen the most significant deceleration, albeit not as substantial as maybe reported for larger accounts is on the property side. So we expect to see continued strong pricing on the casualty side within auto, casualty -- auto liability, commercial auto liability and in general liability. .

The other thing I'll point to is, and this has been ongoing for the last couple of years, and this was referenced in my prepared comments as we see meaningful opportunity by further leveraging the tools we have from a pricing and a risk selection perspective, to drive meaningful mix of business improvement on both the renewal portfolio and the new business selection process and that will also result in some of the benefits we're talking about here.

So with regard to your overall question around confidence, as we are based on their confidence in our process, we're confident in the guidance we're providing you. And to your point, on an overall basis, that underlying combined ratio improvement of 80 basis points, if you just focus on the midpoint of our underlying combined ratio, we think, is reasonable. And don't get there's about a 50 basis point increase in the expense ratio. So the underlying loss ratio improvement is a little bit more than that.

Yes. Okay. Good. I appreciate that. That's helpful. I guess second question, we've talked about this before briefly, but maybe just to refresh here. A lot of your comments on reserves have been from higher paid severities in the recent accident years for your casualty business. And I guess I wonder what that means for GL and commercial auto, specifically case reserves for those same recent accident years. What I mean is, I think some companies, there's a disconnect between paid activity and how they set the initial case reserves because a lot of that's done automatically. And there's often a big disconnect there when they see higher paid. I don't think that's the case for you, but I guess what about yours. We're clearly going to be looking at that for a detail in your case reserves for those 2 lines in a couple of months with that data. But can you talk about how any change that might be taking place in your initial case reserves given the higher paid activity?

Yes. I would say -- and I know we pointed to paid, I'd say that we've seen movement from an incurred basis, similar to what we've seen on the paid side. And I think that's reflective of your point relative to case reserves and movement in case reserves. I'll also go back to the point made last quarter where we talked about the outside studies we had done on both the actuarial reserving and planning process as well as the claim process, and that was our way of doing an assessment with regard to any -- understanding any change in underlying case reserve adequacy, either favorable or unfavorable. And I think as we mentioned, we're pleased with the results of those surveys on both sides. And I think indicated that while there's opportunities for us to continue to drive some improvements in our claims organization, very strong performance there.

So -- but we look at both. We look at several [indiscernible]. We're looking at paid in current methods. We're projecting that to ultimate -- that continues to be our process, and we think it gives us the best insight into where most -- more recent prior accident years are and more importantly, where run rate profitability is.

Our next question comes from Paul Newsome with Piper Sandler.

Hoping you could give us just a little bit more detail on the reserve development of personalized business and how it might sort of fundamentally differ from what you had in the commercial lines business size, geography, anything that would suggest other than just sort of differences -- similarity and delaying the overall sort of liabilities claim.

Yes. I guess, Paul, thank you for the question. And we've mentioned this both in prior quarter and this quarter. In personal auto, the prior year development is driven entirely by the state of New Jersey. And in personal auto, New Jersey represents about 30% of our portfolio. So all of that is New Jersey and all of it -- pretty much all of it is the 2024 accident year. And that was the case in the Q4 and also the prior quarter.

So for the full year number when you look at that and the impact on personal lines overall combined ratio that prior development was about 3.7 points in total. All of that is New Jersey. And I think that's important. And I know Patrick referenced this in his prepared comments as well. I think when you get the improvement that we see in personal lines and look at that 100.6% combined ratio recognize that, that almost 4-point impact of PYD is entirely New Jersey, and it really masks the improvement we've seen and the strong run rate performance we're seeing in that personal lines book outside of New Jersey. And we're also taking pretty significant actions to continue to manage that New Jersey portfolio, so it becomes less of an impact going forward. So that's what I would point to. I think that's an important point to make. And it's a very different environment there.

Now we have made comments in prior calls, and I'll kind of reinforce them here. Some of the New Jersey dynamics that we see in personal lines also apply to commercial lines. And New Jersey, has always been a higher litigation rate state for both personal and commercial. And we've seen over the last few years through legislative change, a number of what I'll call sort of pro plaintiffs for legislative enactments that I think have made it more fertile ground for litigation of use and social inflation. So legal changes that require pre-suit disclosure policy limits, increasing private passenger auto minimum limits, increasing mandatory commercial auto limits to $1.5 million for autos over 26,000 pounds, which is a small portion of our book. But I think it's one of those areas that attracts more attorney involvement and then a couple of years ago, a lowering of the bad face standard for uninsured motorist claims.

I think all of those things have driven up the interest of the [indiscernible] is far in that state and have driven up a more aggressive litigation environment, and I think loss trends have reflected that. And unfortunately, on the personal line side, the regulatory environment hasn't been as conducive to rate adjustments to make up for those costs -- so that's an ongoing challenge. I think you see it in fast track data on an industry basis for personal lines. And I think a lot of those same dynamics impact the commercial auto line for that state as well.

Okay. Yes, it sounds like all the layers are moving back to New Jersey from Florida. My second question is -- I wanted to ask about sort of operating leverage from a capital perspective, historically, because of your -- the firm's underwriting consistency, it has been able to run a little bit higher premiums to surplus ratios given some of its peers. And I just want to know if there's anything that we should think about in terms of that change given capital buybacks and such today and when stock is in that interest. But I think that was the question. But if you could talk to that, that would be interesting to.

Yes, sure. So there's no change in how we think about our target operating leverage. You've heard us talk about operating in a range of 1.35x to 1.55x -- and over the last several years, we've been in that range where the couple of years, we're at the upper end of the range, a couple of years at the bottom end of that range. If you look back historically, that operating leverage did tend to be a little bit higher than the peer group. But I would say if you look over the last decade or so, the peer group has generally moved a lot closer to where we operate from an operating leverage perspective. So I just -- it's not that much of a differentiating factor at this point. But in terms of how we think about target operating leverage, that range continues to serve us well. .

Yes. And I think I would just add that operating leverage is one of many capital metrics that we use to evaluate where we are relative to what we think we need to run the business, and we continue to on a regular basis, look at our internal models and calibrate those versus external models as well to ensure that we have sufficient capital to absorb any unvested consequences, but still operate with an efficient balance sheet.

Our next question comes from Jing Lee with KBW.

I'll stay on reserves for SEC. Just curious about schedule reserve can unpack some drivers behind the reserve charge? Is it concentrated in specific accident year geography coverage ties similar to the commercial lines. That's mostly from Commercial Auto. And how does this impact your appetite for growing the E&S platform going forward?

Yes. Thank you for the question. Just let me make sure we're talking about this in the proper context, which is our full year E&S combined ratio was at 87.8%. So strong profitability the reserve action we took in E&S in the quarter, and we hadn't taken any on a year-to-date basis was $10 million. So de minimis in total but spread across the 2020 through 2023 accident year. So 4 accident years and $10 million are very de minimis movements on an annual basis for each of those accident years. So there's nothing noteworthy there. We disclosed a great deal of detail with regard to reserve adjustments. We true up lines at the end of the year, and there's nothing there that's noteworthy from an accident year or a geography or a segment perspective.

And again, this is all in the context of extremely strong operating margins in E&S over the last few years, and we expect that to continue going forward.

Got it. That's very helpful. My second question is on kind of the -- your job [indiscernible] expansion. You've been investing a lot on geographic expansion and new state throughout for several years. Are these newer territories as the mature -- what contribution are they making to the top line growth versus the margin profile?

Yes. The top line growth, if you just look at it on average over the last several years, and remember, we started geo expansion again in earnest in the 2017 to 2018 kind of time frame. And I would say, over that time as states have come on and some of those states have assured while new states are coming on, it's contributed between 1 and 2 points of growth overall on average over that time period. .

I would expect that to continue to temper going forward. But that's what the contribution has been to this point.

With regard to profitability, as we've talked about in the past, for the first few years in a new state, we planned and incorporating to our planning guidance and expected loss ratios that newer states run at worse profitability than our legacy book runs. But I would say our experience over the last 8 or so years has been that those states have consistently performed within our expectations and have improved as they've matured. So there's nothing we're seeing there that is a different profitability profile than what we talk about in terms of the overall portfolio we have.

And our next question comes from Rowland Mayor with RBC Capital Markets.

I guess congrats on 100 years. Even I know you all weren't there the whole time. I wanted to ask just on the workers' comp releases and what accident years those pertain to?

Yes, sure. So there are 2 big drivers, and I want to hit the -- I think it's an important question. First thing is, as you know, we do our annual tail study in the fourth quarter every year for workers' comp. And just without getting too far into the tail study, that's effectively an evaluation of the development with Ultimate for accident years and maturities that fall outside of your traditional reserving triangles, which cover 20 years. And you're really going through that analysis to get an accurate reserving picture for those long-term chronic and permanent injuries that may remain open for decades. And then you apply that development assumption to all accident years as your long-term view of medical inflation, that drove about half of the favorable emergence we recognized in the quarter. .

And I think you want to put that in context, which is because we're talking about decades of accident years, the individual impact by any given accident year for that is de minimis. It's in the, call it, roughly 0.5 point per year over that extended period of time. So that represented half of it. The balance of the favorable booking action in the quarter was from accident years 2022 and prior. So I think that's the other driver. So actually the years 2022 and prior.

As we talked about throughout the year, we continue to see better-than-expected frequency emergence in the workers' comp line. That held up through the full year. But as has been our practice, we won't react that quickly to a long-term line from a frequency perspective. So the actions were '22 and prior and the workers' comp tail study.

That's helpful. And then I wanted to ask on the GL charge. I know this year, I think it's all been umbrella, but in '24, I think a lot of it was primary GL. Was there any movement on the 2024 charges this year?

On the 2024 chart no. So just to reinforce the point you started with, which is -- for the quarter and the full year, the GL adjustments we made in books were predominantly umbrella, and that umbrella is predominantly driven by the auto lines of business. The core GL lines and our book levels for the core GL lines in the priors have held up well throughout the year.

That's great. And then I wanted to just see if I could speak one more in. You talked about the 14% ROE for next year in the guidance. And I think this year, the NII was about 13%. Given all the movement, like do you have an idea of what the long-term target should be at this and straight level in your portfolio?

With regard to investments in particular?

No, just for the overall consolidated ROE, there's a lot of movement in the underwriting margins right now. And I just wondered in a few years from now, is there a goal you're aiming for?

Yes. So I would say that we set our ROE target to be something that we expect to achieve on a consistent basis over time. And we set that target on the basis of what we believe to be sort of long-term rates of return on the investment portfolio. To your point, we're generally returning -- think about a 4% after-tax book yield on the portfolio currently is above where you'd expect it to be on a long-term basis.

And if you look over time, I think something closer to 3% after tax is a more reasonable long-term assumption. And with our invested asset leverage at just over 3x, I think something in the neighborhood of a 9% to 9.5% after tax or ROE impact for investments. And that's why we maintain our 95% combined ratio target because that, over time, will position us to meet or exceed that 12% ROE target. That's how we think about it. That's why we keep that target where it is because we recognize that these returns, while there is durability here, and I do want to stress that point, you heard it in the guidance that Patrick outlined, there is durability in these book yields. If you look at our duration and we feel good about that over the next few years. But we also know that over the long term, you can expect that to be the case.

And I would say the 12% target is intended to provide spread over what we estimate to be our cost of capital. We want to make sure that we're earning our economic freight. So that's how we ground ourselves in that bogey.

Our next question comes from Michael Zaremski with BMO Capital Markets.

Thanks for the color on workers' comp. Clearly, a great result this quarter, too. And then in the past, you -- maybe it was a bit of a head sake, but there were some indications that loss trend might have been getting a bit worse. But just curious on the underlying loss ratio on comp. I think it still appears elevated -- how are you -- how does that line rolling up into the combined ratio guide for next year? That's my first question.

Yes. I guess -- we don't provide individual line guidance. You'll see our reported results, and we give you a lot of detail on the reported results by line. So you'll see that in Q1. But as we talked about in prior years, generally speaking, we've maintained our severity assumptions, our medical severity assumptions and have seen a little bit of upward pressure that we've talked about with regard to utilization and maybe seeing your average medical severities come in a little bit higher than they had been running over the last few years. But we've also continued to see improving frequency trends, and that's held up through 2025. So you have to put those pieces together alongside of the rate level that continues to be slightly negative, and that will all come through in how we set our planned loss ratios for that line of business. And I think you'll see something similar to what you saw in 2025. .

Okay. That is helpful. My follow-up is back on the expense ratio commentary and initiatives there. It's been interesting, I guess, over the last couple of quarters, there's been a few companies that have come out with huge expense -- very large expense ratio improvement guides based on implementing technology and AI, et cetera. And then on the other hand, there's other companies in your camp that are kind of guiding to upward expense ratio movement to make further investments. So I guess I'm just curious, would you say that this is like -- is this kind of a onetime step up to the kind of broaden selective capabilities having to do with the newer technologies? Or is this more of a kind of a all the work you've been doing on improving the reserving and claims processes, et cetera.

Yes. No, it's a great question. And I think we've seen and heard a lot of the same commentary. And clearly, we're in the camp that the investment in technology and our investment in technology has continued to ramp up as a percentage of premium over the last several years, and we expect that to continue. And I think when you look at it at the highest level, we expect the investment in technology to continue to rise as a percentage of premium and the cost of labor, the percentage of premium that goes to labor will be coming down over time as a result of gaining the benefit of these technology investments.

We're not setting aggressive targets but we think there are real opportunities here, not just the drug operational efficiency, but to improve decision-making and improved outcomes across underwriting, pricing, decision-making and claims outcomes. And that's what we're pointing to in terms of the increase in our strategic investment dollars. So if you look over the last 3 years, our split strategic investment dollars in technology relative to running our technology infrastructure, "keeping the lights on," it's about a 50-50 split, which is a pretty significant improvement. So there's more money going into the strategic investments and we more than doubled that over the last 3 years and have been able to manage the overall impact on the combined ratio or the expense ratio, and that will be our focus going forward.

So it's not a step-up per se, but I think we expect technology investment as a percentage of premiums to continue to go higher and then there will be offsetting benefits in other cost aspects and loss ratio benefit as well to be realized.

Understood. That's helpful. And maybe sneak one last one in, and you might have touched on some of this in the prepared remarks. But should we be thinking about the retention ratio staying around current levels based on kind of the indications of kind of making sure to continue to turn out the less profitable business in a decelerating rate environment? Or is this -- or anything that continues out on the retention ratio just be helpful.

Yes, sure. And again, that's not an area we guide to -- we don't do the growth or retention. But I think generally speaking, to your point, our focus is on the granularity of our execution of our pricing strategy. And we believe that by doing that, we should be able to deliver relatively stable retentions, but there's an assumption around market behavior that I think is a little bit tougher to forecast. And I think depending on market behavior with regard to pricing discipline in the casualty lines, that will ultimately influence what that -- where that retention settles. But our focus, to your point, is on that granularity of execution, which we think does allow us to maintain more stable retentions.

Our next question comes from Daniel Lee with Morgan Stanley.

I kind of want to switch gears and kind of ask about -- my first question would be on the E&S segment. I know your growth has been strong for E&S in the past prior years. But starting kind of seems like it's slowing down. Kind of wanted to get your thoughts on how -- what you're expecting for E&S overall and your growth aspirations for the E&S segment?

Sure. That's a business we really like. It's a business that we would expect to continue to become a bigger part of our overall premium in the coming years, but it's also a business where it's important that you maintain consistent discipline from a pricing and underwriting perspective over time. I think there's been a fair amount of industry commentary around some more aggressive pricing behavior there, not just on the property side, but I think leading into the casualty side as well. and we're going to maintain our discipline there. And that might create some downward pressure on growth in the near term.

But in the longer term, I would put that segment in the category of business that we like and we expect to be able to continue to grow as a percentage of our overall premium. We've got meaningful potential to expand our capabilities there from a product and an underwriting perspective, but also having recently opened up retail access channel for our strong retail partnerships on the standard line side. We think that's also a real growth avenue for us in the coming years.

Awesome. So my follow-up, I guess, I wanted to also ask about so E&S casualty, just loss cost trends overall, I kind of wanted to maybe ask just the differences between commercial standard commercial loss cost trends versus E&S casualty and what are some nuances there that we should be thinking about for E&S casualty in terms of loss...

Yes. I would say probably the biggest difference is the E&S that you see it in lower retention ratios, it does tend to be a more transient business, which allows you to turn over the portfolio more quickly and make more significant mix improvements. As we pointed to over the last couple of years as a result of those actions, we've seen a much more meaningful frequency decline in E&S than we have in standard GL. We've seen frequency benefits in our standard lines, but I think it's been a bigger frequency benefit that we've been able to realize in E&S.

But with regard to severity trends, and social inflation, I would say the general dynamics are consistent and what we see them consistent across both admitted and nonadmitted business, I would say the bigger difference that we've seen has been more so on the frequency side. And we had also -- and we pointed to this in prior comments, we had been embedding higher severity increase assumptions into our expected loss ratios in part because of the more transient nature of E&S casualty portfolios.

There are no further questions at this time. I'd like to turn the call back over to John for closing remarks.

Great. Well, thank you all for joining us. We always appreciate the engagement. And if you have any additional questions, please feel free to follow up with Brad.

Thank you for your participation. You may now disconnect. Everyone, have a great day.

Good day, and welcome to Selective Insurance Group Third Quarter 2025 Earnings Call [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Brad Wilson, Senior Vice President, Investor Relations and Treasurer. Please go ahead.

Good morning. Thank you for joining Selective's Third Quarter 2025 Earnings Conference Call. Yesterday, we posted our earnings press release, financial supplement and investor presentation on selective.com Investors section. A replay of the webcast will be available there shortly after this call. John Marchioni, our Chairman of the Board, President and Chief Executive Officer; and Patrick Brennan, Executive Vice President and Chief Financial Officer; will discuss third quarter results and take your questions. We will reference non-GAAP measures that insurance and investment professionals use to evaluate operational and financial performance. These non-GAAP measures include operating income, operating return on common equity and adjusted book value per common share.

The financial supplement on our website include GAAP reconciliations to any referenced non-GAAP financial measures. We will also make statements and projections about our future performance. These are forward-looking statements under the Private Securities Litigation Reform Act of 1995, not guarantees of future performance. These statements are subject to risks and uncertainties that we disclosed in our annual, quarterly and current reports filed with the SEC. We undertake no obligation to update or revise any forward-looking statements. Now I'll turn the call over to John.

Thanks, Brad, and good morning. This quarter, we delivered an operating return on equity of 13.2%, driven by strong investment income, which increased 18% year-over-year. We are on track to deliver full year operating ROE in the 14% range. However, our combined ratio guidance of 97% to 98% exceeds our 95% long-term target. To address this, we are prioritizing profit improvement and moderating premium growth. Risk selection granular and accurate risk pricing and prompt fair claims adjudication are foundational capabilities we have built over many decades. We have a solid foundation but are continuing to strengthen these core competencies to compete effectively in this dynamic environment.

Across the company, we are sharpening our focus on a set of key priorities. First, relentlessly improving on the fundamentals across risk selection, individual policy pricing and claim outcomes; second, diversifying revenue and income within and across our 3 insurance segments. And third, further leveraging our use of data, analytics and technology, including artificial intelligence to drive operational efficiency and improved underwriting and claim outcomes. Turning to results. We recorded unfavorable prior year casualty reserve development of $40 million or 3.3 points in the quarter, $35 million relates to commercial auto and $5 million to personal auto.

Unfavorable prior year development in both lines is attributed to the 2024 accident year and is primarily driven by the state of New Jersey. With recent prior accident year reserve strengthening in each of the last 2 quarters, we refined our view of the current accident year for commercial auto. This adjustment added just under 5 points to the current year casualty loss cost for the line's year-to-date combined ratio. For the quarter, the pressure in casualty lines was offset by light property catastrophe activity and favorable noncatastrophe property results. In total, our combined ratio for the quarter was 98.6. As you know, we book our best estimate each quarter, incorporating new and emerging information as it becomes available.

Consistent with our long-standing practice, we continue to engage an independent party to conduct semiannual reserve reviews and sign our actuarial statement of opinions. Over the past 15 months, we have supplemented these external reviews by engaging other independent third parties to evaluate our reserving, planning and claims processes. Through their reviews, the outside firms have provided us with additional industry perspective on current loss trends and best practices. The reviews confirm that our actuarial processes are reasonable and consistent with best practices for methodology, data and approach. Most recently, we had an independent review of our overall casualty reserve adequacy completed.

It indicated that our book reserves were in a reasonable range and importantly, above the third-party central estimate. The third-party review confirmed that our approach was somewhat more responsive to recent elevated trends they are seeing industry-wide. Consequently, we have greater confidence in our overall reserves and we maintained our actuarial approach and management processes to determine our best estimate for the quarter. The claims reviews included evaluations of samples for both open and closed claim files. The findings on open claims indicate that our claims management and reserving practices are consistent with internal guidelines, aligned with industry best practices and that valuations have been reasonable. The review of closed claims is ongoing. We will continue to incorporate enhancement recommendations from these reviews, augmenting our other ongoing claims handling and litigation management process and system improvements.

Last quarter, we took reserving action in commercial auto liability responding to increasing paid severities. This quarter, these trends escalated in specific jurisdictions, most notably New Jersey. Otherwise, auto liability loss ratios have been in line with our expectations with improving accident year loss ratios driven by consistent rate increases. While rate increases continue to be an important lever, rate alone will not be sufficient to drive and maintain long-term profitability in this line, particularly in certain jurisdictions. The legislative regulatory and judicial environments in these jurisdictions present specific challenges, and we intend to take significant targeted underwriting actions.

Specifically for commercial auto, several actions are underway. In early September, we deployed an updated rating plan and predictive modeling to provide more granular pricing segmentation for the auto line, incorporating several enhanced variables including additional vehicle and driver specific criteria. We've implemented tighter underwriting guidelines on fleet exposures, supported by state-level tactics and analytics to better identify and target risks. We are targeting certain segments in states for higher penetration of Compass, our telematics solution. And in further support of our risk management specialist engagement on fleet safety with our insurance, we are actively promoting increased use of commercial auto self-assessments in our risk management center, which provides customers online risk management guidance and expertise.

We continue to invest in processes and tools to further elevate our underwriting pricing and claims sophistication. While this is not a new initiative, there are opportunities to sharpen fundamental disciplines, including risk selection, individual risk pricing and claims adjudication.

Maintaining our focus and sense of urgency is critical to improving underwriting margins and supporting long-term profitable growth. We continue to diversify our portfolio by expanding our Standard Commercial Lines footprint. Since 2017, we have strategically added 14 states with 2 more planned in 2026. Geographic expansion has significantly increased our addressable market, and we have advanced our stated goal of operating our Standard Commercial Lines business with a near national footprint. Going forward, we will continue to pursue opportunities to further diversify our business within and across our 3 insurance segments. Before I turn the call over to Patrick, I want to reinforce 3 foundational points shaping our performance and long-term strategy.

First, we firmly believe that insurance requires a long-term perspective, particularly with long-tail casualty lines. To that end, we will trade short-term impacts for long-term sustainable success. By reacting quickly to current claim trends, we are better positioned to ensure our pricing indications are appropriately positioned to achieve our long-term underwriting margin targets. Second, we believe that prudent decisions made now with the best information available are the surest way to deliver value over time. Analyzing new information requires us to constantly refine our views of the market and take appropriate and sometimes difficult actions. This ongoing process reinforces the importance of maintaining a long-term perspective.

Third, we continue to invest to deliver long-term profitable growth even as the market is increasingly competitive. Growth levers include achieving greater market share and segment diversification in Standard Commercial Lines, potential geographic expansion in personal lines and increasing our product and distribution capabilities in E&S and other specialty lines. We also prioritize returning approximately 20% to 25% of earnings through our shareholder dividend. In addition, guided by our capital strength and the valuation of our stock, we will opportunistically repurchase shares as we did this quarter.

The $36 million of repurchases in the quarter, the new $200 million purchase -- repurchase authorization and a 13% dividend increase reflect our confidence in the path forward and the value we perceive in our stock. Our full year guidance implies an underlying combined ratio of 91% to 92%, up 1 point from our expectation at the beginning of the year, driven by our actions to strengthen the current accident year. We remain committed to taking a longer-term perspective, making tough decisions when necessary and investing in profitable growth to deliver long-term value to shareholders. Now I will turn it over to Patrick, who will provide more details about our financial results.

Thanks, John. Good morning, everyone. For the quarter, fully diluted EPS was $1.85, up 26% from a year ago. Non-GAAP operating EPS was $1.75, up 25%. Our return on equity was 14% and our operating return on equity was 13.2%, with continued strong performance from the investment portfolio. The GAAP combined ratio was 98.6%, elevated primarily due to 3.3 points of unfavorable prior year casualty reserve development and 6.2 points of higher current year casualty loss costs.

Catastrophe losses were 2.1 points, significantly better than anticipated and 11.3 points better than the prior year period. Our full year guidance now includes a 4-point catastrophe load, reflecting lower-than-expected catastrophe losses through the first 9 months. The overall underlying combined ratio for the quarter was 93.2%, up from 86.1% in the third quarter of 2024, reflecting higher current year casualty loss costs. Non-catastrophe property losses, although better than expected, were 0.9 points higher than last year. Year-to-date, the underlying combined ratio was 91.6%, 2.6 points higher than the first 9 months of 2024. Non-catastrophe property losses were 14.7 points year-to-date.

This was an 80 basis point improvement year-over-year and reflected the continued benefits from property lines earned rate and the tightening of terms and conditions over the past few years. Year-to-date, these benefits were eclipsed by a 3.1 point increase in current year casualty loss costs. The expense ratio increased by 40 basis points primarily driven by higher expected employee compensation compared to last year's lower profit-based payouts.

We remain disciplined in managing expenses while continuing to invest across our business to support scale, enhance decision-making and improve operational efficiency. In Standard Commercial Lines, we reported a 101.1% combined ratio this quarter, which included 3.7 points of unfavorable prior year casualty development and 6.6 points of higher current year casualty loss costs. As John described, the current environment demands strong underwriting and pricing discipline. Consequently, premium growth in the quarter slowed to 4%. Renewal pure price increased 8.9% or 10% excluding workers' compensation. The biggest increases were in general liability at 11.4% and commercial auto at 10%. Renewal premium change for property was 15.5%, including 5.1 points of exposure increase. Retention for the quarter was 82%, down 4 points from a year ago and 1 point from last quarter.

The decrease reflects our pricing and underwriting actions as well as an increasingly competitive environment. Excess and Surplus lines grew 14% in the quarter driven by average renewal pure price increases of 8.3%. The combined ratio was 76.2%. We see continued growth opportunities in this segment despite an increasingly competitive market. Our deliberate E&S strategies include introducing new products, expanding our brokerage business and investing in operational efficiency and piloting expanded distribution by giving retail agents access to our E&S offerings. We are excited about this segment's forward growth prospects. The personal lines combined ratio was 110.1% this quarter, 12 points better than a year ago. However, our New Jersey personal auto reserving actions added 4.9 points of unfavorable prior year casualty development from the 2024 accident year.

It also drove the 7.2 point increase in current year casualty loss costs this quarter. Personal Lines net premiums written declined 6%, However, target business grew 12% in the quarter, with nearly all new business being in our target mass affluent market. Renewal pure price for the quarter was 16.9%. Third quarter after-tax net investment income was $110 million, up 18% from a year ago. This income generated 13.6 points of return on equity, up 50 basis points from the third quarter of 2024. Our investment portfolio continues to be positioned conservatively and we have not significantly changed our investment strategy with an average credit quality of A+, and duration of 4.1 years. We delivered strong operating cash flow in the quarter, supporting continued portfolio growth.

The average new purchase yield was an attractive 5.8% pretax exceeding the quarter end average pretax book yield of 5.1%. We expect this embedded book yield to provide a durable source of future investment income, even if interest rates decline. Turning to capital management. As John mentioned, we continue to prioritize profitable growth within our insurance business and aim to return 20% to 25% of our earnings through dividends. We also opportunistically repurchased shares. These actions reflect our commitment to delivering long-term value to shareholders. We are pleased to announce a 13% increase in our quarterly dividend, our 12th consecutive annual increase. We also repurchased $36 million of common stock during the quarter, with year-to-date repurchases through September totaling $56 million.

Given the increased level of share repurchases in 2025, our Board of Directors authorized a new $200 million share repurchase program, this replaces the previous authorization, and we expect to deploy it opportunistically. We ended the quarter with $3.5 billion of GAAP equity and $3.4 billion of statutory surplus. Book value per share increased 13% in the first 9 months of the year, driven by our profitability at $2.77 per share reduction in after-tax net unrealized losses. Debt to total capital declined modestly to 20.5% below our internal threshold of 25%. In light of results through the first 9 months of the year, we have revised our 2025 guidance as follows: First, we expect our 2025 GAAP combined ratio to be between 97% and 98%, in line with our prior guidance.

Our guidance now includes 4 points of catastrophe losses, lower than our previous 6-point estimate reflecting favorable results through the first 9 months of the year. Guidance also includes the impact of prior year casualty reserve development reported through the third quarter, which equals approximately 2 points on the full year combined ratio. It also assumes no additional prior year casualty reserve development and no further change in loss cost estimates. We do not make assumptions about future reserve development as we book our best estimate each quarter. Second, we also expect after-tax net investment income of $420 million, up from prior guidance of $415 million. We also expect an overall effective tax rate of 21.5% and an estimated 61.1 million fully diluted weighted average shares, reflecting repurchases in the first 9 months of the year and we assume no additional repurchases under our share repurchase authorization. With that, I'll now turn it over to Q&A. Operator, please start our question-and-answer session.

[Operator Instructions] The first question comes from Michael Phillips with Oppenheimer.

John, I appreciate the comments in the opening about the commercial auto, and it seems like this quarter was isolated to 1 accident year and 1 state predominantly in New Jersey. But I guess if we go back to last year when you were taking some GL charges. I just -- correct me if I'm wrong here on my perception of kind of the comments. GL charges last year, you got some questions about could this spill over to commercial auto? And it seemed pretty confident that it wouldn't; last 2 quarters, granted $60 million total in 2 quarters isn't a big number, but it's continued 2 quarters in a row. So is my perception right? And if so, kind of what's changed maybe just New Jersey, but sort of it seems like commercial auto now is the problem child. And if so, if that wasn't the case before, sort of what's different.

Yes, Mike, thanks for the question. So firstly, just going back to the prior comments relative to commercial auto, and you've heard me reference it as probably the earlier evidence of higher severity trends and the evidence of social inflation I think that comment continues to hold weight. And what I mean by that is, if you look back to our public disclosures we have been carrying a higher assumed loss trends in commercial auto than GL dating back to 2021. And in fact, we increased our GL -- I'm sorry, our commercial auto liability trend assumption to 8.5% in '22 and carry it there. I think what we've seen in the last 2 quarters is a reacceleration of severity trend, particularly in the state of New Jersey. And remember, New Jersey is a bigger state for us in the commercial auto line. It represents about 15% of our countrywide commercial auto premium and we've seen higher severity emerge there.

And I'm happy to talk through some of what you think might be driving that. New Jersey has always been a higher severe state across all casulaty lines of business, but we've seen that really impact the last couple of quarters. We didn't point it out last quarter, but it was also the primary driver of our commercial auto emergence that we saw last quarter as well. So I would say that's the change that we've seen and recognized. I think the positive is from non New Jersey perspective and commercial loan liability, not that there hasn't been some pressure there. but our actual emergence in those other states has held up reasonably well relative to our expectations.

Okay. Yes, maybe we can get into the details of Jersey at another venue or here, if I think [indiscernible] just want to appreciate that. I guess second then for me would be, you talked about the added third parties that you kind of looked at reserves for you guys, the internal reviews. And I'm not sure I heard you correctly. It sounded like -- I mean 1 of my takeaways with the [indiscernible] , as they look at your reserves and compared to what they see as industry trends, I sort of heard maybe a warning sign that industry looks like there could be some deficiencies, and you guys are staying ahead of it. but it sounded like some warning signs for some pockets of efficiency for the industry that just hasn't been recognized yet. And did I hear that right? Is that what you're seeing? .

Yes. I guess I'll stop short of suggesting what you're saying there with regards to whether or not there's going to be industry challenges going forward. What I will -- what I will say and reinforce though is the validation from more than 1 external actuarial expert that has a broader view of the industry that the elevated trends that we're responding to in the more recent accident years are evident across the industry. And that is clearly a statement that we've gotten from them.

It's something that we've heard repeatedly from our reinsurance partners, the majority of them we just met with earlier this month out of the CIB meeting. I think that's -- while it doesn't change the results that we're delivering, I think it does suggest that, in fact, this is something that's more widespread. And again, I would encourage you to look over a longer time horizon at both commercial auto liability and general liability. And just look over the last 10 years, up to and including the -- our current view of the more recent years, -- and what you see is our performance over the long term continues to hold up really well for commercial liability and general liability against the industry. doesn't change the fact that these lines are under pressure, and they are under continued pressure from elevated social inflationary trends, but we're reacting and we're reacting in a way that we think is timely and appropriate.

And I'm highly confident that when we look back at these more recent accident years post pandemic as they age for us and everybody else, that our track record and our reputation of being a strong underwriting company history will show that that's continued to be the case. I understand it might not feel that right right now, but that's how we manage our business and that's how we'll continue to manage our business

And our next question will come from Michael Zaremski with BMO Capital Markets.

Maybe you could explain more of the thought process behind continuing to buy back shares if the reserve review has been leading to the loss ratio of profit margin pressure. And you said there's still an ongoing review of closed claims that will or could impact ongoing claims and ultimately reserves. So I guess why not wait until the coast is clear.

Well, just to clarify a point, the open -- the opening and close claims were designed to evaluate whether or not there was something happening in the claims organization that might be driving some of this. There's no evidence of that. And based on the early indications we've had because the closed claim review is actually 2/3 complete, there's nothing there that would suggest any issues. With regard to reserving, we book our best estimates, and we continue to put our best estimates and we have high conviction in those estimates, and that conviction has only been reinforced by the external reviews.

I think the challenge right now is our results on an absolute basis are not the issue. It's our results on a relative to industry basis that is causing the pressure. And with a 6% top line growth rate. And as we said and expectations for the full year of 14% ROE, we are building book value per share. We're building capital and surplus, and as a result of that, that is the Board's way of expressing confidence in our forward earnings now.

Got it. Okay. As a follow-up, on commercial auto, you took up the pick, I think, 5-ish points. How much of that was influenced by the study that you commissioned versus just things you're seeing? Or is it all co-mingled?

Yes. That's a result of our internal analysis. Again, the point we made about the outcome of the third-party review of adequacy was that we are above their central estimate in total. And the reaction, as continues to be the case, is based on our internal valuation. And again, with regard to commercial auto, that continues to be predominantly driven by the state of New Jersey. And based on what we see because we have good insight into other company filings and other companies' indications frequency and severity trends in New Jersey over the last couple of years have accelerated.

And that's all reacting to, and we're seeing that in actual claim merchants on the paid and incurred side in the State of New Jersey.

Got it. And my last follow-up. I believe you said 8.5% is your trend assumption in commercial auto. Is that correct? .

Yes, it is in that range dating back to 2022. And again, those were our assumed loss trends that we incorporated into our expected loss ratios. .

Yes. And so if we look at 8.5%, is it a correct statement for me to say that if we look at your historical loss ratio development for commercial auto, specifically in vintages that are more seasoned. So let's say, '18, '19, I'm going to exclude '20 because of the pandemic year in '21. So if I look at those vintages that are more seasoned and see how the loss ratio has trended. Is it correct to say that loss inflation on those vintages has been higher than 8.5%?

No. We're talking about the post-pandemic accident years. I mean, for commercial auto liability, those prepandemic years are quite mature at this point. and the pressure we've seen of LEAP has not been driven at all by those prepandemic accident years. So I would actually say those are -- there's no change with regard to those. It's more of these recent accident years we are responding to. And again, I think it's important to note that our average commercial auto BI rate over the last 4 to 5 years is a little over 10%. So while trends have been elevated, the earn rate level has been largely offsetting that impact when you look at loss ratios at on level and trended and look at the pre-pandemic block of years to where the current years are, and that's how you want to think about that one. .

And the next question will come from Meyer Shields with KBW.

This is [indiscernible]. My first question is on the deniability results. I know you reported no reserve development, just curious, is there any shift among individual accident years?

No, there's nothing notable with regard to any accident year moving within GL. Those are stable overall. .

Got it. My second question is on your expansion to the new state. You mentioned entering -- this quarter entering Montana, [indiscernible] next year. Just curious what you're seeing in these markets? What's the initial agent receptivity on that? And what feedback do you have? .

Yes. I would say in this -- our expansion has been ongoing since 2017 and results and agency reaction has been favorable. performance has been in your expectations, but I think that continues to be case. And again, as I pointed out in my prepared remarks, one of our organizational priorities is to continue to diversify our business. And part of that diversification is based on the geographic, part of it is 1 of the business and product and part of it is across the 3 primary business as a commercial, personal and E&S. And that's our expansion, it would say, part of our diversification in tend commercial lines, and part of it is we talk a lot about New Jersey so far this morning. It's a state that we have performed well across all lines over the long term, but there is a concentration that we were trying to manage.

And over the last decade, New Jersey share has gone from north of 20% with about 16%. And we think that will continue to happen going forward with our expansion. I think that's just part I would think about the business longer term is to drive greater diversification in both revenue and income.

Got it. Just a follow-up on that. Are there any lines or customer segments you're seeing especially strong interest fund distribution component?

I would say our performance in our expansion states over the last 8 years, the mix of business is generally reflective of the mix we've seen in our existing footprint on a line and a segment basis. .

And the next question will come from Paul Newsome with Piper Sandler.

So again, the first question would be any thoughts you could give us on how we should think about premium growth? I mean I think we could figure out the size of your commercial auto business in New Jersey. But I guess the follow-on question would be, if that business tends to shrink as you become more conservative, does it affect the package business? I think of you folks as being a package provider more than anything else. -- any thoughts that kind of might push us in the right direction would be great. .

Yes, sure. So I'll give you some sort of higher level thoughts around this. First and foremost, and I'll say this has always been the case. We think about growth as more of an outcome as opposed to a target. And for us, it's always about striving to achieve your target margins and then growth will be determined in part by market dynamics, and whether the market is reacting in a similar fashion and has a similar view indicated rate or adequate rate levels on state and line of business basis. .

And there's no question, and you hear the commentary and you see the industry pricing surveys that would suggest that our pricing -- our actual pricing being achieved in GL and commercial auto liability are above where industry surveys are currently showing market pricing mix. That has and will continue to expect to put some pressure on conversion rates. And as we said on multiple occastions, that's a trade-off that we're willing to make. And I think what you saw in the quarter is reflective of that. New Jersey, as I mentioned earlier, is about 15% of our auto premium across the country in a commercial auto premium. And if you're looking at New Jersey in total, it's a similar percentage of our footprint.

So we are going to -- when we have underperforming pockets of business like we're talking about with regards to New Jersey Commercial Auto, we will take aggressive action to address that. And that will impact growth without question. and that's a trade-off on for me.

That sounds good. Another question would be any additional help on thinking about the level of the forward accident year, maybe excluding catastrophe losses. Obviously, you bumped up this quarter because of the commercial auto issues in New Jersey and other places. But I don't know if that's a good run rate for the future? Or if we should think about maybe the run rate on your day results is a better run rate? Any thoughts you have there in terms of what might be a higher accident year loss ratio prospectively? And I realize some of this has to do with pricing and perhaps even a lag between getting the pricing and actually earn in over time.

Yes. So I guess, Paul, the best place to really focus, if you look at the 9 months and then look at the full year guidance, the full year guidance of 97% to 98% with our 4-point assumption relative to cats. to an underlying combined ratio on an accident year basis of 91 to 92. Because you've got 2 points of PYD, roughly 2 points of PYD in the current year.

And you've got the adjustments to the current year casualty loss cost that are at hand out 2 points. And then you've got 9 cat and expense favorable. So when you put all those pieces together, and I think as you're thinking about the [indiscernible] rate, I would focus more on that 91 to 92 that underlies our guidance for the full year of 97 to 98. I'm happy to go [indiscernible] Yes, I know there's moving pieces there, but you have to incorporate the current or loss plus changes that we've been making, but you've got to also adjust for the PYD impact.

And the next question will come from Bob Huang with Morgan Stanley.

Yes. So first question is on the 2025 developments. I think last quarter, you talked about 2025 was still favorable to expectations. Can you remind us -- can you remind us if that is still the case comparing the 2025 pick to the 2024 and the prior pick?

Yes. Just to clarify 1 point. So what we've said and we'll continue to say is that claim frequencies in the current year have been running in line with or better than expected and we pointed particularly to workers' comp as the line that was driving the the better-than-expected accounts. In casualty lines, you never want to react that quickly to favorable claim accounts. But those claim accounts have continued to come in better than expected. That's what we said last quarter, and that's what I'll repeat again. And that's different from the decision that we made in the quarter to book additional loss ratio impact in the commercial auto line of business specifically and specifically driven or largely driven by the saving our.

Okay. No, that's helpful. Second question, and apologies if this is a little hypothetical. Does it make sense to kind of find or somehow explore ways to have a bigger -- much, much bigger balance sheet, either through like a variety of other ways of thinking about the business going forward? Like wouldn't that kind of reduce the reserve volatility? And would that also maybe better absorb reserve volatility. Is there a way to think about does it make sense for Selective to find a way to somehow explore opportunities to have a much bigger balance sheet 1 way or another? .

In our view, this business is still about getting the fundamentals right and achieving your target loss ratios I think -- and again, I realize is [indiscernible] bias, and there's been some challenges in an uncertain loss-trendenvironment -- and we are a little bit overweight to the commercial level liability, general liability, which has created some near-term challenges. But I think when you look at it over the long term, and the way we've optimized the balance sheet and maximize shareholder returns and deliver consistent strong performance from an underwriting perspective. We like the strategy. We like the operating model. and that's going to continue to be our focus. .

And the next question comes from Michael Zaremski with BMO Capital Markets.

I appreciate you letting me follow-ups. One thing that caught my attention was you talked about RPC for property accelerating into the 15s. I think we've been seeing decel industry-wide, what's causing that?

I would say that we've seen a little bit of deceleration in property, but in our mind, property is a line that while the results have improved and continue to improve and rate remains strong. It's aligned on a risk-adjusted basis. You have to think about the longer-term variability and volatility in both non-cat and cat property. So our risk-adjusted combined ratio target for that line is lower. So we're going to continue to try to improve margins there.

So the exposure change has been fairly consistent in that regional premium change that you're referencing and the rate is just under 10%. So that's held as strong, but it drifted down a little bit. And we would expect, based on market dynamics for property -- commercial property pricing could drift down a little bit further, but remains strong against a relatively low exposure trends in that line of business or loss transfer in that line of business.

Got it. And lastly just stepping back, thinking about kind of these corrective actions you're taking to improve profitability. I think when we think of Selective, you all target to have well into the double-digit share of I guess you hold share with your agency partners. And so does that -- and you also talked about the market becoming a bit more competitive overall. So is there -- does it -- in your view, these corrected actions do they need kind of dealt over many, many quarters in order to not let retention continue falling maybe into the 70s? Is that kind of -- are you walking that line?

Yes, it's a great question. First thing I'll say is I think the benefit of depth of relationship that we have and size of relationship we have agency by agency is beneficial because the renewal negotiation ensures that we have good communication back and forth. What I will say is -- and I mentioned this, and this was sort of underlies our discussion about improving the fundamentals. It's important that in an environment like this, you execute your pricing and underwriting strategies and as granular a fashion as possible. by account, by class, by state by line of business and our ability to continue to do that and do that effectively should mitigate some of the downward impact on retention overall. .

Now again, we are willing to make that trade if push comes to shove, but the granularity of our execution will ultimately determine how agents respond to that and how the overall retention rate response to that. And I'll put that in the category, 1 of the areas that we'll continue to focus on from a continuous improvement perspective is the granularity of execution. I think we have to put the tools to do that. We want to make sure we're effectively executing with those tools.

And the next question will come from Michael Phillips with Oppenheimer.

I have 2 follow-ups also. John, I think you said Jersey frequency severity kind of rising over the last couple of years. If I heard that correctly, does that mean that we should be worried in the future about accident year [indiscernible].

No, I would suggest that we continue to book our best estimate across all accident years. So our response this quarter -- we saw this quarter was driven by the 24 accident year, but the actions last quarter were the '22 through '24 accident years. So I would say that we're talking about the commercial on our reserve position across the recent accident years and are acting accordingly across all of those. .

And then -- given the third parties have kind of confirmed and give you some confidence in what you're booking. Have you ruled out or have you considered maybe an LPT for your reserves on the casualty side to help give you confidence in what you're looking .

Yes, I would say that reinsurance opportunities, including some sort of a cover like that are things that we routinely evaluate, but at the same time, these are very recent accident years. We're confident in how we're booking those accident years and the economics on that would not be favorable from our perspective because that -- these are immature years. And anybody who's going to come in on the reinsurance side is going to command a lot of the economics, and that's just not something we think is all that attractive, but we'll continue to evaluate it. We just don't think that makes sense for us at this point. .

I am showing no further questions at this time in the queue. I would now like to turn the call back over to John for closing remarks.

Well, thank you for joining us. We appreciate the questions and the interest. And as always, please feel free to follow up with Brad with any additional questions you might have. Thank you. .

This concludes today's conference call. Thank you for participating. You may now disconnect.