管理層發言
Good day, and welcome to the Selective Insurance Group Second Quarter 2025 Earnings Conference Call. As a reminder, this call may be recorded. I would now like to turn the call over to Brad Wilson, Senior Vice President, Investor Relations and Treasurer. Please go ahead.
Good morning. Thank you for joining Selective's Second Quarter 2025 Earnings Conference Call. Yesterday, we posted our earnings press release, financial supplement and investor presentation on selective.com's 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 second quarter results and take your questions. John and Patrick will reference non-GAAP measures that we and the investment community use to make it easier to evaluate our insurance business. 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 disclose 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 delivered an operating return on equity of 10.3% this quarter with excellent investment income, which increased 18% from the prior year period. Excess and surplus and Personal lines produced strong results in the quarter, with both segments reporting quarterly and year-to-date combined ratios at or below our 95% long-term target. Overall, our insurance segments grew 5%, reflecting our disciplined underwriting and pricing strategy in an increasingly competitive market. In Standard Commercial Lines, renewal pure price increased 8.9%, and we continue to execute targeted underwriting and claims actions that I will describe later in more detail. We recorded $45 million or 3.8 points of unfavorable prior year casualty reserve development related to general liability and commercial auto. This pushed our overall combined ratio for the quarter to 100.2%, including an assumed 6 points of catastrophe losses.
Given this reserving action and those in 2024, I want to provide context around our process, current risks and how we respond when new loss data emerges. In addition to comprehensive quarterly reserve reviews, we conduct semiannual independent reserve assessments and periodically engage third parties for benchmarking and methodology reviews. Ultimately, reserve development reflects the quality of our initial loss picks. Historically, those have held up quite well. Focusing on the more mature 2015 to 2019 accident years, we increased our other liability occurrence ultimate losses by 5.5% from our initial picks compared to an average 14% increase for the industry. In the 2021 to 2023 accident years, we increased our ultimate losses by 13% compared to the industry's 5%. While industry trends in recent years have not matched pre-pandemic levels, there have been significant reserving actions, which we believe point to industry-wide pressure on this line of business.
Schedule P data confirms that we tend to respond early to loss emergence even for relatively immature accident years for longer tail lines. We added new slides in our investor presentation to highlight this point. For more mature accident years and other liability occurrence and commercial auto liability, our booked loss ratio at the third year-end evaluation for a given accident year is similar to the loss ratio at year-end 2024. For the industry, there has been a more meaningful amount of unfavorable development after the third year-end evaluation. This responsiveness informs our view when setting prospective loss trends and pricing strategy. Our casualty mix of business is higher than our peers. This has been a benefit when property lines have been challenged and our historical catastrophe losses and volatility are lower than the industry average. However, the ongoing industry-wide social inflationary environment has an outsized impact on casualty lines, particularly on claims involving bodily injury.
We have been steadily increasing our loss trend estimates for casualty lines in recent years, largely in anticipation of social inflationary impacts on claim severities. Those assumptions are embedded in the current accident year loss ratios we are reporting. In our quarterly reserve review, the frequency and severity estimates included in our ultimate loss selections are key metrics. Claim frequencies are our earliest profitability indicator, and we have a robust monitoring process that includes reviewing actual and expected claim counts. Through the first half of the year, overall accident year 2025 casualty claim frequencies are consistent with or in some cases, better than our initial expectations. Workers' compensation claim counts in particular have been notably lower than expected. However, we responded to elevated recent accident year paid emergence this quarter. In general liability, we recorded $20 million of unfavorable prior year development, primarily tied to the 2022 and 2023 accident years in the umbrella and product sublines.
Higher auto liability severities have increased the frequency of claims piercing the umbrella layer. The product line has also experienced elevated litigation rates and paid severities in recent years, impacting both loss and allocated loss adjustment expenses. In commercial auto, we responded to elevated paid severity emergence in the quarter, strengthening reserves $25 million, primarily related to the 2022 through 2024 accident years. The loss trends we are seeing are broad-based, with impacts across most geographies and major industry groups. Our 2025 loss ratio includes assumptions for escalating severity trends. Even with the reserve increases in commercial auto and general liability for prior accident years this quarter, we remain comfortable with the ultimate severity trend implied by our current year loss ratio selections. We have adopted several strategies in recent years to address social inflation challenges that involve pricing, underwriting and claims.
Related to pricing, we continue to seek and achieve overall renewal pure price increases above expected loss trend. I'll discuss pricing in more detail in our segment results, and we continue to execute these increases in a granular fashion. Within underwriting, we continue to take actions to maximize our well-known strategic competitive advantages. Our strong distribution partner relationships, our unique field-based operating model, and our sophisticated tools. These actions include tightening underwriting guidelines for select liability exposures, including certain contractors' coverage offerings, managing limits in challenging jurisdictions, reducing the number of new umbrella lines with a particular focus on reducing limits greater than $5 million, increasing minimum premiums in general liability and umbrella, trimming underperforming classes or risks with emerging exposures and prioritizing new business in better-performing segments.
Contractors is our largest industry segment and has a higher mix of general liability and commercial auto exposure. We have built strong expertise in this industry segment and remain comfortable in our ability to produce consistent growth and profitability. However, we continue to invest in diversifying our business mix and geographic footprint. In addition to diversification within Commercial Lines, our efforts to expand our E&S business and Personal Lines mass affluent strategy will contribute to a more balanced portfolio in the future. We remain focused on the fundamentals and claims. Our adjusters specialized by claim type, size and jurisdiction. For example, we have a limited number of adjusters assigned to Georgia bodily injury or New York labor law cases to drive greater insight into best practices in analyzing these higher-risk claims and defending related litigation. To address social inflation, we have increased the review of cases going to trial, boosting the use of second opinions, engaging jury consultants, conducting mock trials and using roundtables to gain further insights about potential outcomes.
We also have created an internal task force to evaluate our fraud beta review processes and gain insights about where to invest additional investigatory resources. And we're currently in the process of developing attorney representation claims models to replace our existing claims litigation models to more quickly identify which claimants are likely to seek representation. Our pricing strategies and underwriting refinements contributed to slower premium growth in the quarter. Overall, renewal pure pricing across our three insurance segments was 9.9%, up 80 basis points from a year ago. We will continue to maintain a balanced approach and make investments to support future growth. However, we believe emphasizing improving underwriting margins and tempering the top line in the current environment is prudent. Turning to segment performance. Standard Commercial Lines reported a 102.8 combined ratio, including 4.8 points of unfavorable prior year casualty development.
Renewal pure price increased from a year ago to 8.9%, led by general liability at 11.9%. Commercial auto renewal pure price was 10.4% and Property was 7.8%. Property renewal pure price increases slowed in the quarter compared to our recent run rate, reflecting broader market conditions and improved profitability. Renewal pure price excluding workers' compensation was 10.2%. Retention for the quarter fell 2 points to 83% due to our rate increases and underwriting actions, along with an increasingly competitive environment. Excess and surplus lines grew 9% this quarter, driven by an average renewal pure price increase of 9.3%. The segment's combined ratio was 89.8%, and we see continued growth opportunities for this segment. We have deployed deliberate E&S strategies and introduced new products over time, expanded our brokerage business and invested in operational efficiency. We are now in the early stages of giving our retail agents access to our E&S offerings.
We do not expect to realize immediate significant growth in this latest effort, but believe it will facilitate additional growth capacity over time. The Personal Lines combined ratio was 91.6%, 26.5 points better than a year ago. Our rating and non-rating actions to reposition this book are continuing to gain traction. We are emphasizing growth in states with adequate rate levels. And as a result, Personal Lines net premiums written declined 5%. However, target business grew 16% in the quarter, with nearly all new business being in our target mass affluent market. Renewal pure price for the quarter was 19%. We expect rate changes will remain above loss trends, but moderate in comparison to those achieved in 2024 as the portfolio moves closer to achieving a long-term target profitability. In summary, we delivered a 12.3% operating ROE through the first half of the year and remain focused on executing our risk management strategies while driving long-term profitable growth.
Loss trends remain elevated, but we are confident in our ability to quickly identify and address areas within our control and deliver consistent underwriting margins over the long term. Now I will turn the call over to Patrick, who will provide more details about our financial results.
Thanks, John, and good morning, everyone. For the quarter, fully diluted EPS was $1.36 and non-GAAP operating EPS was $1.31. We achieved breakeven in our underwriting performance, but our return on equity was 10.7%, and operating ROE was 10.3% due to strong performance from our investment portfolio. The GAAP combined ratio for the quarter was 100.2%, primarily impacted by 3.8 points of unfavorable prior year casualty reserve development that John mentioned. Catastrophe losses were 6.7%, performing better than expected and 1.7 points improved compared to the same period last year. We continue to benefit from profitability improvement actions in Personal Lines as we implement our mass affluent strategy. As anticipated, excess and surplus lines performed strongly once again. In Standard Commercial Lines, we are concentrating on appropriate underwriting actions and rate increases to navigate the current environment and meet our target margins.
Our overall underlying combined ratio for the quarter was 89.7%, an improvement of 170 basis points from the previous year. Year-to-date, the underlying combined ratio stood at 90.8%, reflecting a 20 basis point increase from the first half of 2024. Non-catastrophe property losses year-to-date were at 15 points, which is 170 basis points better than last year, showing the continued advantages from property lines' earned rate and the tightening of terms and conditions in recent years. These benefits have been offset by a 140 basis point increase in current year casualty loss costs. The expense ratio rose by 60 points, mainly due to higher expected employee compensation following last year's lower profit-based payouts. We remain dedicated to managing expenses and utilizing capital to support our scale, improve decision-making, and increase operational efficiency. Our second quarter after-tax net investment income was $101 million, up 18% from a year ago, generating a 13 point return on equity, which is an increase of 50 basis points from the second quarter of 2024.
We continue to conservatively manage our investment portfolio without making significant changes to our strategy. At the end of the quarter, total fixed income and short-term investments comprised 92% of the portfolio, with an average credit quality of A+ and a duration of 4.2 years. We experienced strong operating cash flow in the quarter, allowing us to make over $750 million in new investments. The average yield on new purchases was an attractive 5.7% pretax, while the average pretax book yield at quarter end was 5%. We anticipate that this embedded book yield will be a stable source of future investment income. Regarding capital, we ended the quarter with $3.4 billion of GAAP equity and $3.3 billion of statutory surplus. Book value per share rose by 9% in the first half of the year, supported by our profitability and a $1.74 per share decrease in after-tax net unrealized losses in fixed income securities.
Our debt to capital ratio was 21.1%, remaining below our internal target of 25%. We are committed to returning capital to shareholders through regular dividends and strategic share repurchases. During the second quarter, no shares of common stock were repurchased, and $56 million remains available under our repurchase authorization as of June 30. As of July 1, we successfully renewed our casualty excess of loss and property per risk treaties covering Standard Commercial Lines, Standard Personal Lines, and E&S. The casualty excess of loss treaty provides $87 million of protection above a $3 million retention, which we increased from $2 million, while we continue to co-participate in a portion of the first layer. The other treaty layers were fully placed without co-participation. We also renewed our property per risk treaty to now offer $95 million of coverage above a $5 million retention for per risk losses.
The $30 million limit increase from the previous treaty reflects growth and higher insured values. Pricing and key terms were as we expected leading up to the renewal. Given our results from the first half of the year, our revised guidance for 2025 is as follows: we now expect our GAAP combined ratio to be between 97% and 98%, an increase of 1 point from previous guidance. This guidance factors in 6 points of catastrophe losses and the impact of prior year casualty reserve development reported through the second quarter, assuming no additional prior year casualty reserve development and no further changes in loss cost estimates. We do not make future reserve development assumptions as we record our best estimates quarterly. After-tax net investment income is now projected at $415 million, up from the previous guidance of $405 million. Our guidance includes an overall effective tax rate of approximately 21.5% and assumes approximately 61.5 million in fully diluted weighted average shares, including those repurchased in the first quarter, with no further repurchases under the existing share repurchase authorization. Now, I will turn it over to Q&A. Operator, please begin our question-and-answer session.
分析師問答
Our first question comes from Michael Phillips with Oppenheimer.
Appreciate the new slides, John. I guess, I want to ask a question on a slide that's been in your deck for a while, and that's where you show kind of the excellent above average and below average retention in pure price. That slide hasn't changed much over the past year. And I guess, I wonder if we look forward to maybe the next year, should it change specifically the below average, very low jack-up 20% rates and see retention fall to the floor. Why not see that? And I guess, maybe partly the answer could be your comments on broad-based. Is this social inflation issue? Is it across your entire book? Or is it more concentrated in kind of what you're labeling these below average risk?
Thank you, Mike, for the question. We've been presenting this slide for a while, and it highlights our ongoing business improvements. We’re seeing lower retention rates in the lower risk categories and higher retention in the excellent and above-average categories. This is an area we continue to focus on. It's important to remember that unlike in Personal Lines or small commercial insurance, we don't adjust rates on an account-by-account basis as aggressively. Instead, we apply a subjective underwriting process across these categories. Overall, the trends we are seeing align with our expectations, but we will keep adjusting our approach. However, this process is not as straightforward as a true rate plan, such as those used in automated small commercial or Personal Lines, where we can apply consistent pricing without the influence of discretionary pricing and underwriting judgment.
I mean, I guess, part of the question then would be, are the issues you're seeing, are they across your entire book? Or are they more concentrated in certain accounts that you kind of want to win yourself off of?
Yes, I appreciate your emphasis on this point, and while we've mentioned this before, we are continually assessing the situation. The trends we're observing with the rise in paid claims are apparent across various industries and regions, which is a critical aspect to consider. This observation is relevant to our discussions on commercial auto and general liability. Our main objective is to ensure we appropriately address what seems to be a broader societal shift contributing to social inflation, while also recognizing the areas we can control. We need to adopt a continuous improvement mindset to ensure that our decisions regarding individual risks and claims consistently lead to favorable outcomes. We believe there will be ongoing refinement in this area, and it remains a focus for us. The trends we’re seeing are indeed widespread. Based on early feedback from our earnings release, it’s essential to emphasize this.
We certainly have a larger proportion of commercial auto and general liability compared to some of our competitors and the industry overall. Together, these two categories represent about 64% of our commercial lines premium and just over 51% of our total premium. We firmly believe that the severity of claims we're experiencing is influenced by social inflation rather than any unique issues within our portfolio, although we continually assess this belief. To do this effectively, we monitor various risk metrics across our portfolio to ensure stability in both our overall portfolio and the pricing on an individual risk basis, which remains steady. To further evaluate our perspective, we conduct thorough analyses of industry trends related to frequency and severity. We perform detailed Schedule P analyses for our business lines in comparison to our peers and the industry to confirm that the frequency and severity trends we observe align with broader industry patterns, which we find consistent.
We included extra slides in our investor presentation to demonstrate historically how we tend to respond more quickly to these trends, as seen in other liability occurrences and commercial auto liability, referencing prior years before the pandemic. We recognize this is historical data, and we will eventually determine whether this pattern persists in more recent accident years that we are currently addressing. This is a vital topic for us, and we are committed to dedicating the necessary time to discuss it. Rest assured, we are continuously validating our belief that these trends are indeed widespread and rooted in industry-wide factors.
Okay. That's perfect. I guess if I could, and I also appreciate that it's more than pricing, you talked about your underwriting actions and some claims things that you're doing. But should we be surprised at all, if I heard the numbers right, on the GO pricing was 11.9%. It's kind of in line with last quarter, did not see more pricing on the GL's piece.
Yes, that figure is a combined one. It reflects the underlying general liability (GL) and the umbrella GL, which is just under 11% on a year-to-date basis, while the umbrella GL itself is closer to 14% on a year-to-date basis. That number has moved significantly on a sequential basis. I should also point out that, despite what you may consistently hear across the industry about social inflation, higher severity trends, and views on casualty pricing, our pricing stands at about 11% on GL, which is negatively affecting our conversion rate for new business and is putting some downward pressure on our retention. Although our retention remains strong, it has dipped to 83% for Commercial Lines. This is a good indication of where our pricing is in relation to the market. Given that there's not yet full acknowledgment of the higher severities in more recent accident years, you might not see that accurately represented on an industry-wide scale, which is a competitive challenge we're facing. However, as we have stated numerous times, we are confident in our perspective on the more recent accident years, and this reinforces our strong stance on pricing. We are prepared to accept a bit more top-line pressure to meet our profit objectives.
Our next question comes from Bob Jian Huang with Morgan Stanley.
Could you elaborate on the Commercial Auto reserving? When reviewing the latest Schedule P, I noticed you reduced your initial estimates for the most recent accident year, which I believe was attributed to pricing improvements. Considering the reserve charges taken, how can we better understand the changes in assumptions moving forward? Specifically, how can we gain more confidence regarding the assumptions for Commercial Auto and how we should view losses and potential outcomes from this point onward?
Yes. I went over this last quarter, so I'll summarize the key points again regarding Commercial Auto. If you examine our assumed loss trend over the last four accident years, which cover 2021 to 2024, we have an average assumed loss trend of about 8% built into our expected loss ratios. Specifically, I'm referring to Commercial Auto Liability and bodily injury. During that same four-year span, our average renewal pricing for Commercial Auto liability was slightly over 10%. The improvement in our loss ratio seen in our reported results for the accident years is primarily due to the persistent gap between this renewal rate of just over 10% and the assumed loss trends around 8%. As we assess the recent years and the developments observed, we maintain a similar perspective on loss trends across our casualty portfolio, which have generally been increasing. However, for Commercial Auto specifically, we had been incorporating a higher loss trend. That’s the best approach to evaluate the run rate performance for Commercial Auto. We review the emergence every quarter, and if there are changes going forward, we will adjust our pricing strategy accordingly. Based on the Commercial Auto pricing we're currently achieving, we believe it is a sustainable level, which aligns with the industry's pricing trends.
Okay. So maybe just a follow-up on my point then. In this case, so is it fair to say that, despite the charges you took here, you still feel that 8% and the 10% are appropriate assumptions going forward? Or do you think that 8% might need to move up? Or have you moved up that 8%? I'm assuming no, but just kind of curious if that's the case.
We would say those are still reasonable assumptions, based on everything we continue to see.
Our next question comes from Paul Newsome with Piper Sandler.
Good morning. I hope you are all doing well. I would like to get more details about the exit set for the quarter and the year so far. I'm curious if there are any thoughts about raising the accident year target, given the uncertainty we've seen with social inflation. There's a mix to consider, but could you share your thoughts on this and why it might not increase as much, or what your considerations are?
Yes, thank you, Paul. I appreciate your insights. When we analyze our current position and the assumptions we've made, particularly concerning casualty and casualty excluding compensation, we compare this with the trends we are seeing in more recent accident years regarding severity. This helps us determine whether we are confident in our assumptions for the current year. We are comfortable because the severity levels factored into our expected loss ratios for general liability and commercial auto, as well as our overall casualty portfolio, align with what we have observed in recent accident years, which are showing higher severities. This consistency inspires confidence in our estimates. Additionally, reflecting on last year, we raised our expected loss ratio for general liability for the 2024 accident year by over 7 points, which has influenced our outlook for 2025. This adjustment was key in our efforts to address the increasing severity in claims we have been encountering. This context also contributes to our confidence in the current year's loss ratios.
Yes, super helpful. I noticed the workers' comp combined ratio maybe I misread this, I apologize asking a stupid question, popped up for the quarter on the combined. Anything there? I would have thought that would be a little bit different from the kind of social inflation issues, which was much more consistent we've seen in the results in the quarter?
Yes, thank you, Paul. This is something I mentioned last quarter as well. The figures you're referring to in Q2 were also present in Q1 and are consistent on a year-to-date basis. For the 2024 accident year in workers' comp, it was approximately 97%. When excluding the favorable development impact, it remained around 97%. As we've consistently observed a flattening frequency trend in workers' comp, we have assumed no improvement in frequency from 2024 to 2025. Regarding average severities, we see a consistent pattern across the industry, with medical severity around 5% and earned rates slightly negative, in the range of 3%. With flat frequency, severities increasing by about 5%, and rates decreasing by around 3%, this leads us to that 97% which is relevant to the combined or book loss ratio you mentioned. Additionally, in my prepared comments, I noted that for the 2025 year, workers' comp has shown favorable frequency through the first 6 months. While it is only 6 months, and we're not ready to declare it a definitive trend, it may indicate that the flattening trend we observed in recent accident years is not continuing into 2025. Hopefully, this addresses your question.
Our next question comes from Mike Zaremski with BMO.
Reflecting on the reserve additions, I understand you mentioned that the industry is generally behind on this front, and I believe most would agree with that observation. The industry has been increasing its social inflation reserves for several years. However, if we consider Selective's specific situation, you've indicated that there has been a flattening frequency trend in workers' comp. It seems that very few carriers are reporting a similar observation, as frequency is typically more straightforward. Additionally, you've noted that Selective has greater exposure to social inflation, which could be linked to your focus on the contractors' sector. I'm trying to clarify whether it's reasonable to suggest that some of this situation is distinct to Selective because of your unique business mix.
Yes. I think it's important to note that the data we have so far spans six months, and it's possible that the flattening trend we observe could just be a short-term occurrence. We need more time to determine the long-term implications. Looking back, we noticed a steady decline in frequency, though it was slightly less pronounced compared to the overall industry. This is worth mentioning. Our portfolio's heavier focus on construction likely affects our workers' comp results. It's clear that during the pandemic and afterward, remote and hybrid work influenced frequency trends in workers' comp, but construction was somewhat insulated from this impact. This might account for the differences we see in our frequency changes. Additionally, I want to highlight our accident year combined ratio for workers' comp in 2024 is expected to be around 97%. While reported combined ratios grab attention, the industry average for 2024 is close to 100, according to NCCI and other state bureau data. Furthermore, older accident years continue to show favorable developments for both the industry and us. If this trend holds, our current year estimates could be on the cautious side, but that is our approach with a line that has long-term implications like this.
Okay. That's helpful, John. As a follow-up, you've been in this business for decades. We've seen charges in five of the last seven quarters. It feels like this is somewhat unprecedented in Selective's history. Is it normal for underwriters and actuaries to take a lot of time, even years, to understand the loss trend? Should we be focused on whether social inflation continues to rise? Are there any indicators or signs that could give us confidence that there won't be further significant changes going forward?
I believe that the best indication of our confidence comes from our response to very recent and relatively immature accident years. When examining the actual paid and case data from these accident years, it's noticeably underdeveloped. We are analyzing recent paid emergence patterns and anticipating a smaller number of paid claims reaching their ultimate amount, which is why we're focused on the more recent accident years. This approach might be somewhat unique for the industry since it’s driven by these immature accident years in longer-tailed lines. To provide some context, for the 2023 accident year, our projected ultimate expected dollars show that only about 22% of claims for General Liability excluding products are paid so far, approximately 17% for other products, and just over 30% for Commercial Auto. These are still early stages, and we are reacting to payment data, where our actuarial methods are significantly influenced by the limited amount of paid data available.
The emergence of severity in the industry contributes to a heightened level of uncertainty. That’s what makes our situation somewhat unprecedented. Although I can't comment on the actions of others, in light of this information, actuaries tend to focus more on the last few years when assessing trends, rather than spreading weight across the previous seven years as has been done traditionally, particularly affecting a small amount of paid data. I realize I’m delving deeply into the reserving process, but it’s important to address your question directly. We are not attempting to address older accident years. According to Dowling analysis, in 2024, the industry added $10.5 billion to other liability reserves, with nearly half, or around $5 billion, allocated to pre-pandemic years. This reflects how these lines develop over time. However, we have not observed any further emergence since our adjustments regarding pre-pandemic years at the end of 2023, which included a $55 million reserve adjustment.
While I can’t guarantee high confidence in our outlook or in the industry's, what distinguishes our situation is that we are discussing very recent and comparatively immature accident years in longer-tail business lines, and there’s a shared uncertainty about when severity trends will stabilize.
Okay. I think that helps. So I'll have to follow up and use your insights and look at more data. But so you're saying you are seeing paids increase a bit higher than expected in some of these lines. Is that correct in more recent accident years?
Yes. Yes. That's driving the entirety of our reserve adjustments over the last few quarters, it's paid emergence in the more recent accident years. This is not frequently driven. This is not older accident years. It's paid emergence. And you're seeing it in cures as well in course including case reserves, but it's more pronounced in paid emergence.
Okay. Understood. Lastly, you mentioned in your prepared remarks that it is not surprising that commercial property pricing is slowing down a bit, although absolute levels remain fairly healthy due to strong profitability. Is this trend likely to continue given that the industry seems to be earning healthy profits on commercial property? Do you have any insights on this?
Yes, I have noticed some industry commentary that I generally agree with. I think at the higher end of the market, including layered and share programs, we are not heavily involved. There has likely been more pricing contraction in our market segment. I do believe some contraction has occurred, and I expect that to continue. It should remain above where property loss trends are; at the beginning of the year, we reported property loss trends at about 3.5%. Therefore, there is still potential for margin expansion. Additionally, we need to consider potential tariff impacts that many are discussing, which may influence forward projections of loss trend increases. Moreover, there continues to be significant catastrophe volatility across the industry. This will likely moderate the decline, but I expect property pricing to drift slightly lower while still being favorable compared to loss trends, particularly as casualty rates rise.
Our next question comes from Meyer Shields with KBW.
I have two questions regarding Commercial Lines. First, with Commercial Auto, we observed a similar improvement in the loss ratio year-over-year in the second quarter as we did in the first. However, if you increase the accident year '24 loss pick, and that likely requires some adjustment for the first quarter, shouldn't that lead to an acceleration sequentially?
Yes. Now I think I remember the first point is the $25 million was spread across three accident years through '24. And also remember what I had mentioned earlier, which was what we had embedded into our '25 loss trend assumption across our casualty lines, I think that's the primary areas that I would focus you on. And remember, our practices, and we've done this before, we've done it with Commercial Auto over the course of the last 10 years, which has raised the current year loss ratio when we saw an amount of pressure that we thought was the right thing to do. We did it in General Liability last year. We've done it in Commercial Auto liability in the past. So we're certainly open to doing that, but we haven't seen evidence at this point with a 24-year to the level that leads us to think differently about where we're booking '25.
Okay. That's fair. Second question, I guess, I'm looking at the BOP business, and it's good to see that there's been no adverse reserve development there. But I'm wondering why that casualty side hasn't faced the same sort of social inflation that we're seeing in General Liability.
Well, it's much more aligned for us that BOP liability is something that we evaluate every quarter as a line of business basis. But I do think your point raises another point relative to industry comparisons, which is we report all of our General Liability in Schedule P as general liability. We don't include any of that in CMP, a number of our peers do incorporate their GL business that's written on a companion basis, companion policy basis in CMP, which makes it hard to get a full picture of GL performance, because it's co-mingled with property performance, which has been improving. But BOP liability, it's a different mix of business for us. It's a smaller line of business, but it's one that we evaluate on a quarterly basis, the liability portion like we do other lines of business.
Okay. I didn't realize that. So the BOP premium or the BOP the line of business that you report, that's just the property component?
No, no. It's a property liability are in there. All I'm saying is from a reserve review process, we evaluate that subline of BOP on a quarterly basis from a frequency severity and a carry reserve perspective.
Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to John for closing remarks.
Well, thank you all for joining us this morning. We always appreciate the engagement and the questions. And as always, please feel free to reach out to Brad if you have additional questions. Thank you all.
Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.