Good day, everyone, and welcome to Selective Insurance Group's Third Quarter 2022 Earnings Call. At this time, for opening remarks and introductions, I would like to turn the call over to Senior Vice President, Investor Relations and Treasurer, Rohan Pai.

Good morning, everyone. We're simulcasting this call on our website, selective.com. The replay is available until December 4. We use three measures to discuss our results and business operations. First, we use GAAP financial measures reported in our annual, quarterly and current reports filed with the SEC. Second, we use non-GAAP operating measures, which we believe make it easier for investors to evaluate our insurance business. Non-GAAP operating income is net income available to common stockholders, excluding the after-tax impact of net realized gains or losses on investments and unrealized gains or losses on equity securities. Non-GAAP operating return on common equity is non-GAAP operating income divided by average common stockholders' equity. Adjusted book value per common share differs from book value per common share by the exclusion of total after-tax unrealized gains and losses on investments included in accumulation -- in accumulated other comprehensive income. And GAAP reconciliations to any referenced non-GAAP financial measures are in our supplemental investor package found on the Investors page of our website. Third, we make statements and projections about our future performance. These are forward-looking statements under the Private Securities Litigation Reform Act of 1995. They're not guarantees of future performance and are subject to risks and uncertainties. We discuss these risks and uncertainties in detail in our annual, quarterly and current reports filed with the SEC, and we undertake no obligation to update or revise any forward-looking statement. Now I'll turn the call over to John Marchioni, our Chairperson of the Board, President and Chief Executive Officer, who will be followed by Mark Wilcox, our EVP and Chief Financial Officer. John?

Thank you, Rohan. Good morning, and thank you for joining us today. Before getting into the details of our performance for the third quarter and year-to-date, I think it's important to put these results in the proper context. We are operating in a very challenging environment defined by historically high levels of economic inflation, elevated catastrophe losses and capital market volatility. Despite this challenging backdrop, Selective continues to deliver consistently strong top and bottom line results. Through the first nine months, net premiums written were up 11% and our non-GAAP operating ROE was 11.6%. Based on our updated 2022 guidance, we expect to produce a full year operating ROE of 12%, marking our ninth consecutive year of double-digit ROEs for our shareholders. While pleased with our overall results, our underlying combined ratio has been under pressure due to higher severities in the property and auto physical damage lines of business. We remain disciplined in addressing this through a combination of pure price and exposure increases. On the flip side, higher inflation is also the impetus for the higher interest rate environment. This has allowed us to pick up significant book yield in our investment portfolio and boost overall returns now and into the future. Moving on to results in the quarter. Growth in net premiums written of 11% was driven by strong renewal pricing in Standard Commercial Lines and Excess and Surplus Lines, strong retention rates and new business growth in Standard Commercial and Personal Lines and positive exposure change. Our combined ratio was 96.8% in the third quarter and 95.2% for the first nine months. Catastrophe losses accounted for four points during the quarter, which was in line with our expectations and included a $10 million estimate for the ultimate net loss related to Hurricane Ian. However, non-catastrophe property…

Thank you, John, and good morning. I will review our consolidated results for the quarter and for the first nine months of the year, and we'll discuss our operating performance and financial position. I will then finish with our updated guidance for 2022. For the third quarter, we reported net income available to common stockholders per diluted share of $0.66, a non-GAAP operating EPS of $0.99. Despite a high level of attritional non-cat property losses and a small loss from our allocation to alternative investments this quarter, we reported an annualized non-GAAP operating ROE of 10.5%. Based on our full year guidance, we are positioned to deliver solid results for the year with a 12% operating ROE, which is above our 11% target. Given a higher expected cost of capital going into 2023, we expect to increase our operating ROE target for next year. Turning to our consolidated underwriting results. We reported 11% growth in net premiums written for the quarter and year-to-date, driven by strong growth in each of our segments. We reported a consolidated combined ratio of 96.8% for the third quarter, down from 98.6% in the year ago period. The combined ratio included $34 million of catastrophe losses, or four points, and $16 million of net favorable prior year casualty reserve development, accounting for 1.9 points. We booked $10 million in ultimate net losses for Hurricane Ian related primarily to losses for the second landfall in South Carolina as we do not have a meaningful property exposure in the state of Florida. In addition, we reported $1.9 million in estimated claims handling fees from Hurricane Ian from our participation with FEMA's National Flood Insurance Program. On an underlying basis or excluding catastrophes and prior year casualty reserve development, the third quarter combined ratio was 94.7%. This was…

[Operator Instructions] The first question is coming from the line of Michael Phillips of Morgan Stanley.

I guess I want to focus on your commercial pricing is up sequentially. I'm trying to get a sense of how much of that is, property versus casualty. As I compare, John, your comments on the casualty loss trend, you're still assuming 5.5%. So I kind of want to focus on the casualty side of that for a second. I'm assuming that the property rates are moving up pretty hard in reflection to the inflation. So I assume that's a pretty easy fix over next year. I want to see how much cushion there is in the current price on the casualty side as we think about your 91.5% this year and what that might look like next year.

Yes. Sure, Mike. Thanks for the question. And I think there's a lot of pieces in answering that question so I'll try to work through them. Just at the highest level, that the 5.8% in the quarter for Commercial Lines pricing, the comp -- workers comp continues to be a negative impact on that. So workers comp pricing continues to be relatively flat. So excluding comp, the overall pricing is at 6.6% on a quarter - for the quarter, 6.1% year-to-date. Commercial property is at 7.5%. Now I think that's an area that we expect to see go higher as we move into next year. And like you've heard from many of our competitors, when you think about the inflationary impacts on loss trends and the inflationary exposure adjustments for commercial property, in particular, the blending of rate and exposure were up about 12% this year. So again, we'll think about it in those terms. But I think it's important to recognize that while the exposure increase provides a loss ratio offset, I won't call it a benefit but it sort of neutralizes the impact of some of this inflation, it shouldn't be mistaken for replacing the needed rate in that line of business for us and the industry. So yes, you want to look at them together in terms of the changes in severity but rate continues to be a need for that line of business. So that's kind of how we think about it overall. And as I said earlier, we see, when you look at our retention and as strong as our retention continues to be, that the market remains constructive and will remain constructive. But I think the other part of your point, and I just want to clarify that the 5.5% loss trend that you…

Yes, I think you did. I appreciate it. And then I'll switch over to investments. You've done some work there to kind of reorganize the book and take advantage of the yields. It sounds like you're not done from what Mark was saying. I guess I'm going to kind of reconfirm that there's -- you're still putting new money into the higher rates and maybe it sounds like a positive for -- even more of a positive for where yields can be -- your earned yields could be for next year.

Mike, this is Mark here. That's exactly right. I would say it's been a very constructive environment for fixed income investing this year. We've put new money to work in much higher reinvestment rates than we've seen in quite some time. And as I mentioned in my prepared comments, we've been able to increase the embedded book yield within our fixed income and short-term investment portfolio. We've taken it up from 2.97% to 3.79% in just the first three quarters and we expect to see that to continue. We have cash flow we can put to work. We can opportunistically, with a few constraints, trade the portfolio. And we continue to have the allocation to the front end of the curve with our funding rate exposure. And we've seen LIBOR, SOFR, whichever benchmark you want to use, increase significantly, and that's increased significantly since quarter end as well. So we're going to continue to optimize our risk-adjusted returns in the investment portfolio. And I think that's going to continue to deliver a higher level of core fixed income, investment income over the next number of periods.

And I guess just to reinforce the point Mark explained well how we think about investment -- investing and our philosophy around investing. That increase in investment ROE we view as positive. And in the near term, it does serve as a bit of an offset to the property commentary we just had around underwriting margin pressures. But our focus remains on improving that underlying combined ratio and addressing those inflationary pressures in the property line. So this is a great offset, and we'll continue to balance them to give us additional upside from an overall operating ROE perspective, but we expect to continue to boost underwriting margins going forward.

We have the next question from the line of Paul Newsome of Piper Sandler.

I want to return to kind of the thinking about how we should think about the prospective margin expansion prospectively. I was hoping you can sort of critique my basic thinking. About 10% of the business, I think, is in workers comp, and I may or may have a view on margin contraction or expansion there. It sounds like if I take workers' comp out, about 2/3 of your business is in liability insurance, and it looks like rate is about matching the ratio, as we speak. And then the issue seems to be the other roughly 1/3 -- 1/4 of the business that's property where you may or may not be exceeding rate. But I guess, do I have the math there right? And is the issue really about, in a sense, whether or not I think that 12% inflation on property will continue and my own opinion about what happens with the margins in workers comp? Is that a fair way to look at it?

Paul, it is a fair way to look at it. I think the way you split the book up is right in terms of the property, the casualty split and with and without comp. And I think, to your point, you've got an assumption relative to comp margins going forward and that is what it is. But I think that's exactly right. The pressure we've seen in our underlying combined ratio this year is entirely driven by non-cat property losses, and that those non-cat property losses, in our estimation, are not an underwriting concern. There's nothing in our portfolio that's dramatically shifted. It's purely a severity being pushed higher by the cost of repairing and replacing property, be it commercial property, personal property or auto physical damage. And the direction of that alongside of the direction of rate plus exposure on those property lines is where you ought to think about margin impact on a go-forward basis.

So is there anything, in your opinion, that might change what would happen with property inflation that -- other than just a macro view on what's going on with property inflation, with respect to book or with respect to industry?

I think for our book -- and I can't speak for others, for our book, this is not about replacing parts of the portfolio because there's some underwriting concern in the portfolio. This is about pricing and making sure our exposure is accurate. Now I will tell you, this exposure dynamic is not a new concept for us. We've always reviewed individually and the entire portfolio to make sure our insurance to value was strong, and it always has been strong. So that's got to be a focus. But I do think the other important point here, and again, for us, this goes back to good risk selection, good pricing and good exposure management is, while there's a lot of focus on for the industry on catastrophe exposure from hurricane, we have seen as an industry and as a company an increased frequency of severity of severe convective storm activity across the country. And I think this is something we've always focused on. We look at a line-by-line risk-adjusted combined ratio target. And when you think about it in those terms, your risk-adjusted target combined ratio for the property lines for everybody needs to be in the mid-80s. And the market is not currently pricing the property line to the mid-80s, and that has to happen. And I think that's -- this is not just about keeping up with inflation. This is -- these are lines of business that need additional underwriting margin improvement that may still largely be achieved through pricing.

That makes sense. So I guess the way to sort of boil this down to, if I think about your underwriting performance next year, it's going to be about what I think is happening with both inflation on property in general, plus this issue of convective storms and essentially risk rising to property, whether in the business itself. Is that a way to summarize it?

I think that's the right way to think about it. Again, I don't want to get too far out in front of our own guidance for next year, but the dynamic -- the marketplace dynamic and the Selective dynamics on casualty and property are different dynamics. And I think they're important to understand and think about separately.

We have the next question from the line of Meyer Shields of KBW.

So I want to follow up on the last question, if I can. When you talk about risk selection, are the ideal risks in an inflationary environment the same as the ideal risks in a less inflationary environment? Does that change the standards for risk selection?

I don't -- it shouldn't because again, I think you always want to pride yourself on getting your exposure correct. And as long as you're doing that, your inflationary environment should not be a factor in terms of risk selection. And that's an interesting question and I'm sort of thinking about how I answer it as I'm answering it. But I don't -- nothing jumps out at me as to why we think about that differently. As long as you have a good organizational discipline about getting accurate exposures upfront -- and again, premium is rate times exposure, so you need both to be right on a consistent basis. And as long as you understand where your rate level needs to be based on underwriting characteristics, age of building, damageability, roof age, roof type, all of the occupancy protection, all of those things, they can be considered in your underlying rate. But if you have that right and you get your exposure right, it shouldn't be an inflation up or inflation down difference in risk selection.

Okay. No, that's helpful. I was thinking more on the casualty question. Thinking is the wrong word, but I was curious as to whether in the area of -- in a time, I'm sorry, of elevated social inflation, whether targets look different than they might have in the past. But I completely understand what you're saying.

Yes. Now social inflation, though, Meyer, just to follow up on it, social inflation is a little bit different, and I think that's where you do want to be very focused on your hazard mix across your casualty lines of business. And again, for us, our hazard mix remains fairly stable, and it allows our actuaries more stability when they look at frequency and severity trends, both of which could be influenced by social inflation. But again, it's about getting those underlying fundamentals right and then it shouldn't make a difference. I think the bigger question is, if you see a shift in your casualty portfolio, that presents a different frequency and severity pattern because your hazard mix has shifted. That's a different answer, but our portfolio has been quite stable from a mix perspective.

Right. No, perfect. And that would certainly help with the credibility, which is, I think, critical at this point. And then a more production question for Mark. Can I just get cat losses by product line for the quarter?

Sure. So the cat losses for the quarter, if the focus is Standard Commercial Lines, let me start there in commercial auto, $1.4 million; in commercial property, $13.3 million; in BOP, $3.4 million. With a little rounding, that should add up to the $18.2 million that's in the financial supplement. Did you need the year-to-date or any of the other segments or does that...

No, I'll take -- if I can just -- I mean, I assume the assessment's all for property but can you do personal lines mix?

Yes. So for Personal Lines, it's about $1 million in personal auto; $10.3 million in homeowners so that's $11.3 million; and then in E&S, $4.6 million in property; and the combination of all three should add up to the $34.1 million for the quarter.

Okay. Perfect. And then looking forward, with regard to floating rate securities, I was hoping you could update us on the plans for either expanding or contracting that portion of the portfolio.

Yes. So that's an excellent question, Meyer. From our perspective, we look at the overall portfolio and all the key risk metrics in terms of credit quality, liquidity, book yield, et cetera. And as I mentioned in my prepared comments, we have taken the opportunity to strengthen the overall investment portfolio. We did increase the average credit rating in the portfolio back to AA- on the back of the purchases, the $2.3 million in purchases we put to work here today. We still have a pretty significant allocation to the front end of the curve. It allows us to barbell the entire curve and go a little bit longer. At the long end, we have that short-term allocations. And we see still a little bit more room to run in terms of LIBOR or SOFR with the set expectations in terms of hiking. Some of that's already built in, but I think there's a little bit more room to grow there. But I think one of the things we're thinking about is not to get caught with that reversing on us. And so our expectation is -- and with all investment decisions, the markets change daily so things can change as you move from period to period. But at this point, I think our plan would be to take that floating rate exposure down at some point over the next quarter or two, being mindful of duration. The yield curve is pretty flat. We don't want to extend duration too much. Some of that floating rate exposure is to AAA and AA rated securities. With a potential recession next year, we'd like to be up in quality. So we need to be mindful of credit quality as well and making sure there's liquidity in the market to execute the sale of some of that floating rate exposure. But if you put it all together, I think expectations are to ride it for a little bit longer and then perhaps take that floating rate exposure down over the next quarter or 2.

We have the next question from the line of Grace Carter of Bank of America.

Looking at the attritional loss ratio in Personal Lines, it doesn't seem to have moved around quite a bit over the past few quarters, which we've seen, at a lot of peers, some pretty substantial, sequential deterioration. I was just wondering if you could help us think through what might be shielding your book from some of the volatility that we've seen. Appears so far that has to do with the transition towards mass affluent and just kind of how we should think about that trending from here in light of inflationary pressures.

Yes. Grace, thank you for the question. I don't know that I could point to anything specific other than what you've already pointed to, which is our book has been transitioning meaningfully from the mass market to the affluent market. And that does present a different pattern from a loss trend perspective that we anticipate and plan for. But I don't want to suggest that there is an absolute change in frequency and severity that's already evident in our portfolio. We like the business we're writing. We constructed a rate plan specifically targeted for that segment of the marketplace. And again, I think the other important point is we didn't cut prices in the middle of the pandemic like many of our peers did. So our starting point was a little bit different. We opted to do premium credits that we thought were appropriate but didn't change our underlying base rate structure. This is not to suggest we don't think rate needs to go higher. And as I mentioned in my prepared remarks, our filed impact of the rate changes we're taking in both auto and home are going higher. But I do think it's a little harder to compare our results because we're in the middle of this meaningful transition of the book of business.

And I guess, in light of widespread expectations for substantial increases in property reinsurance pricing, and I would think, given lower exposure to cat-prone regions in your books, that you would probably compare pretty favorably versus peers when trying to renew things at a reasonable price. But if you could just kind of help us think through how you're thinking about upcoming reinsurance renewals.

So we've agreed, and we appreciate your comment that reinsurers should view our program as very attractive on a relative basis. But I'll hand it over to Mark to let him talk a little bit about what they're seeing in the market.

Yes. Good question, Grace. So I won't repeat all of the industry information that's out there on the state of the reinsurance market. But at the highest level, there's clearly a need for primaries in the U.S. to buy more on the back of exposure growth that we've seen this year. We expect to see next year and clearly, a little bit of a lack of perhaps capacity, given results, lack of retro and then other factors and alternative investment markets. But I think you summed it up nicely for us. Reinsurance is a core part of our capital management program. It's important we have a well-placed, well-structured reinsurance program across our property pro-risk, casualty XOL and then property cat to manage volatility and solvency. And we trade with highly-rated reinsurance partners. We have a -- really an extensive panel of reinsurers, whether that's in London with THE Lloyd's syndicates, whether that's in Europe, whether that's in Bermuda or the U.S. And we take a really long-term view and a partnership approach to managing our reinsurance relationships. And one of the things that I think is a little bit differentiated about Selective is the exposure management around property cat, and John mentioned that in the prepared comments. We have been running a property cat or a cat loss ratio on the overall combined almost two points below the industry as a whole. And when you think about the last six years, going back to 2017, all the loss activity that's happened, whether that's in Florida, whether that's in Texas, whether that's in California, having a book of business that's well managed from an aggregation perspective but outside of those peak perils, I think, differentiates us against our peer group from a reinsurance marketing perspective. But as we look ahead to 1/1, our cat treaty does renew on 1/1, we look to place that. It has been very clean. It generated very strong profits for the reinsurers. But it's also well priced from a buyer's perspective, and we'll continue to look to get the reinsurance purchases that we need to protect the balance sheet, to reduce the earnings volatility and get that at a reasonable price. But we do recognize that there is a market dynamic that's happening. And suffice to say, I think as a whole, but as we all know, reinsurance prices are likely to rise at 1/1 through property cat.

We have the next question from the line of Matt Carletti of JMP.

I just had a follow-up on Grace's question related to Personal Lines. Can you help us a little bit with -- I know you've said kind of pure pricing is, I think in the quarter, you have kind of 0.5% increase, and you spoke a little bit about kind of pushing for more. Could you talk a bit about inflation guard features or other exposure type features that might be particularly in some of the home policies? And if you're getting kind of exposure increases there that act like rate and to what magnitude that might be helping things?

Yes, Matt, sure. And I want to just make sure we're clear on this. This -- we need to increase rate in our home book, and we're filing to start to increase rates in our home book. But to your question, as an offset to the inflationary impacts we're seeing, an exposure increase does serve to mitigate that. And I know oftentimes, people use the term acting like rate, I think you want to be clear on what that means. We view it as a loss ratio neutralizer, not a loss ratio benefit. So it addresses the trend that you're seeing. Our actual exposure change year-to-date on the home book is 10%, roughly 10%. And we've got a very disciplined process. We rely on a third party that updates replacement costs and repair costs on a regular basis. Those feed right into our automated renewal process. And while there's a month or so lag in any updates to that, that automatically flows through the renewal portfolio. So yes, pricing needs to move and will move in our home book, but we're still getting the exposure -- the automated exposure increase, and it's running around 10%.

We have the next question from the line of Mike Zaremski of BMO.

On the FEMA flood fees, Mark, I think you said it was $2 million. Is that -- do you expect more to come in the coming quarters? And should we still think that the majority of that hits the bottom line?

Yes. Good question, Mike. It was, yes, $1.9 million that we booked in the quarter. The event did happen right before quarter end. Our objective in booking that fee estimate is to think about the ultimate fees that we expect to collect based on an expectation of frequency and severity for the floods that happened, principally in southwest Florida but other parts of Florida and the Carolinas as well. So that $1.9 million reflects our ultimate estimate, so we would not expect that to have more fee income on a go-forward basis. But I will highlight that the event did happen right at quarter end. There was quite a few estimates to come up with ultimate claim frequency and severity and coming up at $1.9 million. But I wouldn't expect that to move materially on a go-forward basis.

Okay. Got it. And so did most of that kind of make it to the bottom line into core income, like how it used to in terms of the margin on that?

Yes. Yes, that's exactly right. So that is fully owned as we reported. It effectively shows up in the Personal Lines segment in other, and it's a reduction of the loss and loss adjustment expenses. So it's a little bit of a benefit on the loss ratio within Personal Lines in the quarter. But that's how that shows up, when it's fully earned.

Okay, great. And switching to the expense ratio. I believe -- I will read the transcript. You talked about inflation and higher reinsurance costs kind of changing your outlook on the expense ratio. Maybe you can unpack those, especially the economic inflation element. Is that wages or just a mix of a lot of things?

Yes. Thanks, Mike. You did pick up on that correctly. If I take a step back for a second, I think we've been on a journey to improve the overall operational efficiency of Selective over the last five years. And we've taken just over three points off the expense ratio, which is has been meaningful, and we continue to expect to drive operational efficiency and expense ratio down over time. This year, as you might recall, embedded in our guidance was an expectation of a 32.5% expense ratio, and we expect to come in a little bit better than expected for the full year, which is embedded in our updated full year guidance. We had expected to take somewhere close to the 32%, which is our longer-term target for 2022. And we hope and expect to keep that going into next year. What we're highlighting is when you think about the potential for higher reinsurance costs, it will come out with the guidance as we deliver the fourth quarter results next year. But when you think about the potential for higher reinsurance costs, we don't know exactly what that is today. But also some pressures from economic inflation coming through on wages and other line items. And then also, we've enjoyed -- I shouldn't say enjoy, we've had a little bit of a benefit in 2022 on the expense ratio in terms of having a slightly higher level of attrition than we've seen in the past. But we do expect labor markets to cool off a little bit and that to come back to us and therefore, have the right headcount within the organization. And you put all those factors together, we just wanted to highlight that compared to our prior expectations, we are expecting perhaps a little bit of drift up in the expense ratio going into next year than we thought perhaps a quarter or two ago. So a little bit disappointed on that. We continue to look for expense ratio improvement over time, but I think we're going to face some headwinds going into 2023.

Okay, that's helpful. And maybe lastly, in terms of the great color you guys provide on loss cost trends, you talk about casualty claim frequencies have been emerging better than you all expected but -- and also below pre-pandemic levels. Are you willing to or able to kind of unpack by broader casualty lines? Is that coming more so workers comp or is it also commercial auto and general liability? Any color there would be great.

Yes. I think it's been -- I would say it's fairly consistent across the casualty lines. It's -- we're seeing a fairly similar dynamic. There's noise when you break it down that far so I won't go into individual lines. But as a general rule, if you look at on levels frequencies adjusting for the impact of rate change, they're all behaving relative to expectations, and they're all down a little bit relative to what we saw pre-pandemic.

Got it. And maybe lastly, sticking to loss costs. And just because I feel like you guys have done a much better job in commercial auto than the industry. But not to be negative, but most of the context you provided is that the higher than expected has come from the physical damage side. And just want to make sure you're not seeing a creep up in the nonphysical damage severity because I feel like that's -- that was one of the issues the industry was having during kind of the last hiccups for the industry and you guys, to a lesser extent, in commercial auto. Or maybe I'm wrong, and it was also an issue back then, too.

Yes. No, I think your question is a good one and an important one that I'm actually glad you're asking and hope you're asking of others. Severities in auto liability have been going higher the last few years for us and for the industry. You've seen some fair amount of commentary around that. And we embedded that assumed higher severity in our '22 loss picks for the auto liability line. But again, you've got to think of everything on an on-level basis. And for us, generating north of 8 points, actually 8.7 points in the quarter on commercial auto liability or commercial auto total, excuse me, is part of a response to that continued severity pressure on the auto liability line. So I don't want you to think that the liability that severity hasn't been moving higher. It has, but we reflect that in our loss picks, and it was reflected in our '22 loss pick, that higher severity persisting, and that's in our casualty reported numbers that you're seeing come through. I can't speak to whether others are assuming that severity to continue or not. But I can tell you that's our philosophy. It's part of our prudent and consistent planning process. And that's why we continue to achieve higher rate level in commercial auto and expect to continue to do that going forward.

And do you feel the industry is pricing commercial auto at adequate levels? Or is competition, especially given the lull in frequency, has that kind of heightened competitiveness there? I swear -- promise, that's my final question.

Yes. So I think the industry is pricing conservatively. It's not an aggressive market, let me put it that way, for commercial auto. But I think we're talking about keeping up with higher severity trends with the current rate levels. The bottom line is there's more work to be done because the starting point for commercial auto industry-wide was still a reasonable amount above a risk-adjusted combined ratio target. So it's not irrational. It's certainly favorable, and I think in line with the severity trends that we're seeing, as it for the industry, but it still needs more improvement, which would suggest higher rate is needed.

We have the last question from the line of Jamie Inglis of Philo Smith.

Could you give me a sense of where the -- your Personal Lines growth is coming from? Are you just gaining market share or is it a particular geography that you're getting business? Or is it a type of competitor that you're getting business from?

Yes. The growth, and we pointed to this the last couple of quarters, is driven by the strategic shift we made to compete in the mass affluent market. That's driving it. It's in our existing footprint that we've had for Personal Lines, and that's really where the growth is coming from. It's really sort of deemphasizing the mass market personal auto and pursuing a segment of the market that we think places higher value on coverage and service and is a much better alignment with our business philosophy and our operating model.

Right. I understand that. But there are others that are in that business. Who -- where are you getting that business from? Who's giving that business up, I guess?

So I guess there are others in every business segment that we compete in and we compete successfully against. And we've got an organizational reputation for offering really good products, really good underwriting and pricing discipline and really good service. And we've got very deep agency relationships as a result of that foundational organizational strategy. And that benefits us in the personal lines affluent market, no different than it benefits us in the commercial construction market and the commercial manufacturing market and the E&S market.

Okay. And I wanted to swing to something. I think, John, you mentioned that your invested assets per dollar of equity is 3.40, which is up sort of, I would say, noticeably from the end of last year. I assume that's not a measure you manage to. It's just a result of how you run your business. Is that true?

Yes. This is Mark. That's exactly right. The leverage ratio for invested assets to common equities is outcome, not a metric that you really have a lot of control over. It is obviously a function of growth in invested assets, which is a function of cash flow and valuation changes and then also earnings in the denominator and how much you retain versus how much stock you buy back and other capital management activities like dividends, et cetera. So I think what you've seen with that ratio increasing over the last couple of quarters to the 3.38 at 9/30 is the fact that investment valuations are down, that's impacted GAAP equity and with the leverage of 3:1, it has more of an impact on the ratio because the denominator is going down pretty significantly and increases the overall invested asset leverage. But not -- unless you have significant capital management transactions, including issuing debt, et cetera, it's difficult to move that ratio around and manage to it. In the short run, it really is an outcome.

At this time, speakers, there are no questions on queue. You may proceed.

Great. Well, thank you all for joining us. And as always, feel free to reach out to Rohan with any follow-ups. And we look forward to speaking with you again.

Thank you.

And that concludes today's conference. Thank you so much, everyone, for joining. You may now disconnect, and have a great day.