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The Hanover Insurance Group Inc (THG -0.96%)
Q1Â 2019 Earnings Call
May. 02, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day and welcome to the Hanover Insurance Group's First Quarter Earnings Conference Call. My name is Denise and I'll be your operator for today's call. (Operator Instructions) Please note this event is being recorded. At this time I would like to turn the conference over to Oksana Lukasheva. Please go ahead ma'am.
Oksana Lukasheva -- Vice President, Investor Relations
Thank you operator. Good morning and thank you for joining us for our quarterly conference call. We will begin today's call with prepared remarks from Jack Roche our President and Chief Executive Officer; and our Chief Financial Officer Jeff Farber. Available to answer your questions after our prepared remarks are Dick Lavey, President of Agency Markets; and Bryan Salvatore, President of Specialty Lines. Before I turn the call over to Jack, let me note that our earnings press release, financial supplements and a complete slide presentation for today's call are available in the Investors section of our website at www.hanover.com. After the presentation we will answer questions in the Q&A session.
Our prepared remarks and responses to your questions today other than statements of historical fact include forward-looking statements including our guidance for 2019. There are certain factors that could cause actual results to differ materially from those anticipated. We caution you with respect to reliance on forward-looking statements and in this respect refer you to the forward-looking statements section in our press release slide two of the presentation deck and our filings with the SEC. Today's discussion will also reference certain non-GAAP financial measures such as operating income and accident year loss and combined ratios excluding catastrophes among others.
A reconciliation of these non-GAAP financial measures to the closest GAAP measure on a historical basis can be found in the press release, the slide presentation or the financial supplement, which are posted on our website as I mentioned earlier. With those comments I will turn the call over to Jack.
John C. Roche -- President and Chief Executive Officer
Thank you Oksana. Good morning everyone and thank you for joining our call. This morning I will provide an overview of our first quarter results as well as an update on the execution of our strategic initiatives. Jeff will review our financials in detail and then we'll open the line for your questions. Overall, we are pleased with the progress we have made in the first quarter and our ability to produce strong returns in a dynamic marketplace. Our businesses performed well delivering overall results consistent with our expectations. Our performance further demonstrates the strength of our market position and strategy as we continue to build momentum in our businesses expanding insurance solutions for our distribution partners and policyholders and actively managing our business mix to maintain and enhance superior shareholder returns over the long term.
In the quarter, we posted an operating earnings per share of $1.96, a combined ratio of 95.8%, and operating return on equity of 11.6%, and an adjusted operating return on equity of 13%. I would like to start with some highlights for the quarter. First, we generated consolidated growth of 2.7%. Growth in the quarter was tempered by the successful execution of our pricing and profit-enhancement initiatives, predominantly in our Commercial Lines portfolio, including Commercial Auto and our Program business. Excluding these specific actions, our overall premium growth was 4.3%. We continued to maintain growth momentum in our most profitable segments such as Personal Lines, Small Commercial and most of our Specialty businesses. We also expect our new business initiatives in Commercial Lines to increasingly contribute to growth in future quarters.
As a result, we expect our net written premiums to gradually increase throughout the year. As importantly we are satisfied with the stable rate environment and price increases we are achieving across the portfolio. This includes price increases of more than 5% in each of our businesses; Personal Lines, Core Commercial and Specialty. Second, our property loss results were a positive story overall with some variability between lines. Our first quarter accident year catastrophes were not significantly elevated despite an active catastrophe quarter in our geographic footprint. We also recorded favorable catastrophe prior year development of $13.5 million associated with the expected catastrophe recoveries related to an agreement to sell certain subrogation rights for the 2017 and 2018 California wildfires.
At the same time, we sustained large loss activity in our specialty industrial property unit HSI, including two particularly severe losses. We expect variability of results from time to time in this inherently volatile but extremely profitable business. HSI has demonstrated solid fundamentals and very attractive ROEs and we are confident in its continued strong performance. Third, ex-cat loss trends in our business were otherwise in line with our expectations. We believe our pricing actions and mix management strategies across our portfolio enable us to keep pace with the overall loss trends and we remain intently focused on auto bodily injury trends to ensure continued success.
Moving on to highlights by business starting with Personal Lines. Our first quarter Personal Lines combined ratio was 98.2% and 89.9% on a current accident year ex-cat basis. This quarter's results reflected a more typical level of non-catastrophe winter weather in our northern Personal Lines footprint compared to lighter than usual experienced in the first quarter of 2018. Additionally, given the increasing impact of auto bodily injury severity, we remain prudent in our Personal auto loss selections. We are carefully balancing rate and retention considerations and pursuing more aggressive rate increases in certain geographies and parts of our business as needed. Bodily injury coverage filed rates increased 9% in the quarter and we have plans to continue to achieve significant increases going forward.
We maintained solid growth momentum in Personal Lines during the first quarter increasing net written premiums by 6%. Rate increases, which ticked up 5% in the quarter, continue to be the main driver of premium growth. We also continue to see robust new business from our Hanover Platinum and Prestige products. Overall, we increased policies in-force by 3.3% over the prior year quarter, while we maintain stable retention of 83.7%. We are aware of increased competition in the market with generally lower rate increases from many personal lines players.
Our ability to maintain our strong growth trends while achieving the level of needed rate in this environment is a testament to our strong market position and robust brand with agents and customers. We continue to invest in innovative products and services making it easier for our partners who do business with them and helping them grow. During the quarter, we continued the rollout of TAP Sales, our new agency quoting and service platform. With its recent launch in Maine, TAP Sales is now live in 14 states. We expect to complete the rollout across the rest of the Personal Lines footprint by the end of the second quarter.
In conjunction with the rollout of TAP Sales, our Prestige product offering continues to gain momentum across our footprint. SafeTeen, our telematics and online coaching product designed to keep new drivers safe on the road, continues to gain traction among agents and insurers. SafeTeen is now available in 14 states and we expect to introduce it across our entire footprint by the third quarter. These initiatives help us maintain a robust new business flow and further enhance our focus on account business, which represents 84% of our policies in force and new business.
Overall, we are pleased with our performance in Personal Lines and we believe we can maintain growth levels across our book without compromising our strong profitability.
In Commercial Lines, we delivered a combined ratio of 94.2% and a current accident year combined ratio, excluding catastrophes of 93.7%. Underlying loss trends are generally tracking in line with our expectations due in part to our ongoing pricing and mix initiatives. Commercial Lines net written premiums growth of 0.8% reflects the solid execution of our strategy including growth of our profitable Small Commercial, Technology, Professional Lines and Marine Units and the execution of our profit-enhancement actions in Commercial Auto and our Program business. As expected and as noted on our last earnings call these actions had a negative impact on growth in the quarter.
For instance, Commercial Auto premiums declined by 4.3% as a result of increased rate and nonrenewal activity in less profitable geographies and sectors including monoline a majority of which are in our middle market business. We are sitting little to no impact on growth in our other lines highlighting the strength of our relationship with our agents. Concurrently in our Program business we are managing out specific programs that are performing below our target returns or inconsistent with our franchise agency strategy. We reduced written premiums in our Program business by 12.4% in the quarter. Excluding these targeted actions, Commercial Lines growth was 3% led by our more profitable segments. Commercial Lines pricing dynamics remain rational overall with specific opportunities and challenges by business, geography and industry class requiring us to be deliberate and granular in our execution.
Overall, we increased core renewal pricing by 5.2% in the quarte,r led by 9% rate increases in auto while workers compensation pricing continues to be challenged by continued low industry losses and strong competition. We are increasingly satisfied with our Specialty pricing levels, which are tracking at mid-single digits as well. In addition, we continued to invest in our digital and product innovation strategy in Commercial Lines. In the quarter, we introduced InsureandGo, our innovative, customer-facing digital insurance platform. This platform allows customers to pursue their insurance needs and questions online while providing opportunity to engage the services of a professional advisor in the policy-buying process.
Our partners are able to place their own personalized link into InsureandGo under agency website or social media channels and customers can then easily quote and buy an insurance policy through our company. This effort is consistent with our commitment to pursue innovation through and in partnership with our agents, helping our partners acquire new more digitally inclined customers. At this initial stage, covered business classes include, sole proprietors independent contractors and very small businesses that require professional and general liability coverages. This is an underserved fast-growing market estimated at approximately $20 billion. Additionally, during the quarter, we continued to build out our specialty leadership team to enhance our focus on growth opportunities and further drive value with our agent partners.
In the first quarter, we appointed a new President of our Excess and Surplus Lines business to accelerate our growth in the retail channel in concert with our Small Commercial and middle market teams. In addition, we have leveraged our internal talent to fill our open surety president role with the goal to strengthen our commitment in the surety space. These enhancements round out a series of talent investments made over the last year in our Specialty businesses. We also continue to drive innovation across our core competencies. We are investing in our data and analytics capabilities, which lead to higher customer satisfaction, operational efficiencies and improved loss ratios. We are focused on predictive modeling and imaging analytics, enabling our claims organization to assign claims to the proper resource earlier in the process. At the same time we have improved our claim handling process through fraud detection and subjugation identification models.
We also have implemented a self-service digital appraisal capability, resulting increased low-touch claims adjustments. We are excited about the advancements we have made and we continue to identify new and innovative ways to drive operational efficiencies and analytical insights across our portfolio. We are well positioned as we move forward into the second quarter of 2019. We're executing on our strategy to drive growth in our most profitable businesses to invest in innovation and to deliver on our long-term financial goals.
Before I turn the call over to Jeff I would like to talk briefly about our recent annual presidents club gathering where we hosted approximately 120 of our top agent partners that represented approximately $1 billion of our company's revenue.
Our partners continue to be invigorated by our strong mutually beneficial relationships our franchise strategy and our differentiated product offerings which we continually evolve to meet the needs of our customers. This event provided me and our leadership team with even more confidence in our strategic direction and long-term success and of course additional ideas for taking our company to the next level. I have attended this event for the 12 years that I have been at the Hanover and this year's Presidents Club was the most engaging and encouraging of them all. With that I will turn the call over to Jeff.
Jeffrey M. Farber -- Executive Vice President and Chief Financial Officer
Thank you Jack. Good morning everyone. For the first quarter, we generated net income of $122.4 million or $2. 97 per fully diluted share compared with $67.7 million or $1.57 per share in the prior year first quarter. After-tax operating income was $80.7 million or $1.96 per diluted share compared with $66.1 million or $1.54 per diluted share in the prior year quarter. The difference between net income and operating income per share in the quarter primarily reflects the increase in the fair value of equity security investments.
Our combined ratio was 95.8% compared with 96.6% in the prior year quarter. The improvement was primarily from catastrophe losses when compared to the more severe catastrophe weather experienced in the prior year quarter. Current accident year catastrophe losses totaled $52.9 million in the first quarter of 2019 or 4. 8% of earned premium, slightly above our plan primarily related to severe winter storms in the Midwest and Northeast. Despite the northern industry cat footprint in the first quarter, our relatively moderate cat loss experience is a reflection of our past exposure management and portfolio diversification initiatives.
We also recorded favorable prior year catastrophe reserve development of $13.5 million or 1. 2% of earned premium, which brought our total cat ratio for the first quarter of 2019 to 3.6%. As Jack said, we reached an agreement to sell a meaningful portion of our 2017 and 2018 California reserve recoveries associated with the Atlas, Thomas, Camp and Woolsey wildfires for a pre-tax net benefit of $13 million. Considering the uncertainties associated with the recoveries, potential additional litigation costs and the timing of resolution, the ability to collect a meaningful portion of the subrogation claims now was very attractive.
Excluding catastrophes, our overall prior year reserve development was immaterial in the quarter with Commercial Lines favorable development offset by reserve additions in Personal Lines. Given the size and complexity of our business, we continue to expect variability as losses mature. We will continue to carefully monitor and actively respond to trend changes in order to avoid more significant adjustments and to remain on top of industry trends.
The expense ratio improved 50 basis points from the prior year quarter to 31.9%, driven by earned premium leverage with continued expense reductions funding business investments as well as the impact of the timing of certain expenses. We continue to maintain a disciplined approach to expense management and we remain committed to deliver the expected expense ratio improvement of 20 basis points moving forward. Our current accident year loss ratio increased 2.3 points from the prior year quarter to 60.3%. I will discuss the drivers behind it in more detail in my review of our underwriting results by business starting with Personal Lines.
We delivered a Personal Lines combined ratio excluding catastrophes of 91.6%, up from the 89.1% posted last year. The increase was driven by both unfavorable prior year development and an increase in current accident year losses. We increased our Personal Lines prior year reserves by $7.5 million or 1.7 points of the combined ratio in the quarter. This increase was related primarily to Personal Auto. We continue to see elevated severity of bodily injury losses from intensified attorney involvement, extended time frame related to the submission of the treatment costs and additional medical treatments. Our Personal Lines current accident year loss ratio increased 1.5 points from the prior year quarter to 62. 3%. The homeowners loss ratio of 48.7% was 2.8 points higher due to more normal winter weather compared with lower non-cat weather activity in the first quarter of 2018. Our Personal Auto loss ratio of 70.6% was 0.7 points higher compared to the first quarter last year.
While initial 2019 claim activity in this line is stable, we are maintaining our prudent view on auto bodily injury loss selections. We achieved filed rate increases in this coverage of 9% while the overall auto rate increased by 5.2% in the quarter. Personal Lines net written premiums increased 6% in the quarter, largely the result of rate increases and healthy new business trends.
Moving to Commercial Lines. Our combined ratio excluding catastrophes was 92.6%, up from 91.2% posted last year. The increase was driven by higher current accident year losses, partially offset by favorable development and lower expenses. During the quarter, we recorded favorable prior year reserve development of $7.5 million or 1.1 points of the combined ratio, driven primarily by continued favorability in workers' comp as well as CMP due to some favorable settlements of large cases this quarter.
Our Commercial Lines current accident year loss ratio excluding catastrophes increased 2.2 points to 58.8%. These results were driven by large property loss experienced in our specialty industrial property line and the timing of the increase to commercial auto loss ratio selections last year. While our auto current accident year loss ratio ex-cat of 69.8% is up 1.7 points from the prior year quarter, it actually represents a slight improvement over the full year ratio we posted for 2018. Commercial auto underwriting remains under pressure. But we are pleased to see signs of stability in our results in this line due to the impact of substantial earned rate increases and ongoing underwriting activities. Our CMP current accident year loss ratio ex cat of 55.9% was in line with the prior year quarter and expectations.
Turning now to workers' comp. We posted an ex-cat accident year loss ratio of 59.7%, down 1.1 points from the prior year quarter. We're pleased with the continued strong performance of this line. As Jack mentioned, we experienced large loss activity including two severe losses in our specialty industrial property business, which is reported in other Commercial Lines. The current accident year loss ratio in other Commercial Lines excluding catastrophes increased by 6.3 points to 57.6% in the first quarter of 2019 due entirely to the impact of the specialty industrial property large loss activity. These losses were material in the quarter as we expect variability in this line given the nature of risks we insure. However, this book produces outstanding returns having delivered a 10-year average combined ratio in the mid-70s and a solid underwriting profit every year. Commercial Lines net written premiums grew 0.8% for the quarter reflecting the planned underwriting actions in our Commercial Auto and Program business.
We continue to actively manage our portfolio of businesses through thoughtful capital allocation to profitable opportunities. We believe this financial rigor is critical to our long-term success. Moving on to our investment performance. Net investment income was $70.2 million for the quarter up 6.4% from the prior year period due to the investment of cash flows from operations and the remaining proceeds related to the Chaucer sale. This was partially offset by lower partnership income. Cash and invested assets were $7.9 billion at March 31 with fixed income securities and cash representing 85% of the total. Our fixed maturity investment portfolio has a duration of 4.3 years and is 95% investment-grade. Our well-laddered and diversified portfolio remains of high quality with a weighted average of A+.
Our operating effective tax rate for the quarter was 19.6%, lower than the statutory rate due to the impact of tax deductions on certain stock compensation. We anticipate the effective tax rate going forward will approximate the statutory rate of 21%. Turning now to equity and capital position. Our book value per share was $71.95, up 3.1% for the quarter compared with $69.81 per share at year-end. The increase was attributable to earnings. Unrealized gains from both fixed and equity investments were offset by the payment of quarterly dividends and the impact of the ASR agreement including normal dilution and the timing of the share count reduction. As noted on our Q4 call, the accelerated share repurchase agreement, which had a settlement date of January 2 is reflected in our first quarter results.
Our ending book value was reduced by the total value of the agreement $250 million, while our ending share count for the quarter was only reduced by approximately 80% of the initially expected number of shares to be repurchased. The ASR will conclude in the second quarter with the remaining shares to be retired at that time. This should benefit the share count for both earnings and book value in the second quarter. Our current balance of remaining Chaucer-related deployable equity is approximately $400 million. We fully expect to follow our stated capital allocation framework deploying capital through either investment in profitable business opportunities or returning capital to shareholders. We will communicate our next steps at the appropriate time.
Operating return on equity was 11.6% for the quarter or 13.1% after adjusting for the remaining deployable equity and the net investment income related to the Chaucer sale. Overall, we are very pleased with our results in the first quarter which are a function of our clear strategic focus, financial discipline and commitment to delivering sustainable top quartile results.
We expect to deliver on our full year 2019 original guidance and we note that our second quarter catastrophe assumption is set at 5.5%. In addition, while we expect net written premiums to increase sequentially our second quarter Commercial Lines growth will be impacted by the continued execution of our underwriting actions in our Commercial Auto and Program businesses. With that we will now open the line for questions. Operator?
Questions and Answers:
Operator
(Operator Instructions) And your first question will be from Bijan Moazami of Compass Point Research.
Bijan Moazami -- Compass Point Research. -- Analyst
Good morning everyone. A couple of questions regarding the two lines of businesses that you're shrinking. Program business is not a big chunk of what you guys do. But I'm trying to understand how many MTA relationships you have there. And when you decided to shrink it did you target a particular program? Or did you target a particular MGA that was not performing? And how does that business overlap in terms of product with your core agency distribution?
John C. Roche -- President and Chief Executive Officer
Bijan this is Jack Roche. Thank you for that question. As you know we have been repositioning our Program business over the last few years frankly to move much more toward controlled specialized programs programmatic business in the retail channel less MGA-centric unless the MGA is embedded in a retail agent which we have a high-quality relationship more broadly. So we are substantially more retail agency-focused programmatic business that we believe is in categories that we can underwrite oftentimes leveraging the expertise from some of our more specialized underwriting units and have moved the portfolio quite substantially in that direction.
The other part of your question is from a profitability standpoint, we went into the year as we always do with the border row of programs that are performing very well, some that are performing adequately and others that are on the fence. We hold a high bar on what we expect those programs to perform at. And so maybe I'll just turn it over to Bryan to add a little bit more color about the discipline that we're executing there.
Bryan J. Salvatore -- Executive Vice President, President, Specialty Lines
Thanks Jack. Yes. I think what I would add is that we do have 33 programs. And as Jack mentioned most of those programs are performing quite well. Some of them are really not meeting our threshold. And so as we look at those we do put pressure on the pricing the terms and conditions and in some instances that means that some of those programs are not renewed. But an important piece of what we're doing is also increasing our fee-based business. And so our focus in the near term is building up that fee-based business so there's a balance over time of fee-based business and our traditional Program business. And so as we are putting pressure on that small subset of our underperforming programs, we're growing our new business and the fee business that doesn't come through on the net written premium line. So the reduction you're seeing is really due to -- in large part taking action on programs that are not meeting our expectations and then replacing that with new business that really doesn't come through on the net written premium line.
Bijan Moazami -- Compass Point Research. -- Analyst
Can you give me an example of the fee we generate from the program?
Bryan J. Salvatore -- Executive Vice President, President, Specialty Lines
It's there's a mix. He's telling me sort of one of these programs. At the top of my head I don't have it available to us but it does absolutely have a nice contribution to us over time in terms of our income and I bet their expense ratios as well.
John C. Roche -- President and Chief Executive Officer
Bijan this is Jack again. As you go through the transition that's going on in the Program space again with our bias toward agents that really control a broader subset of the business with us there are agents that are willing to set up captives or arrangements where somebody reinsurers taking a bigger part of the capital. And we can manage the program leverage the kind of industry-leading platform that we built a few years ago and therefore work with the program administrator to provide that chassis and allow the agent and/or customers to take the risk. And so that's really a function of really the hardening of the program sector over the last few years and more and more that business kind of making its way into that model.
Bijan Moazami -- Compass Point Research. -- Analyst
That makes sense. On Commercial Auto, obviously you're getting a lot of rate increase 9%. What are you seeing in terms of frequency of severity in that trend? Are we getting to a point where the business might become profitable? Or is that dynamic that we've been experiencing for the past many years is continuing which is more losses?
John C. Roche -- President and Chief Executive Officer
Yes. This is Jack. I'll let Dick speak to some of those specifics but I'll remind you and others that with respect to Commercial Auto we think of this as the fifth or sixth line of business in our account strategy. Most of what we're doing in the Commercial Line space is trying to be an account writer in the sectors of the business where we think our agents can leverage our capabilities and produce returns for us. And so in that context we're trying to look at the auto line and where the auto line is being subsidized if you will by the rest of the account or the sector then we try to manage it accordingly. Those lines or those sectors that are tend to be more account or auto-centric is where we are particularly forceful with rate and underwriting actions. And so Dick if you want to build off of that.
Richard Lavey -- Executive Vice President, President, Hanover Agency Markets
Yes. Sure. To your specific question we continue to see frequency flat to declining but mostly flat. But the severity is really still topping in the bodily injury coverage and those trends frankly have remained the same. Those external forces that we've seen. The economy remains strong. Distraction remains -- distracted driving remains an issue. Telematics really haven't kicked in. And coupled with that we still see the involvement. I think we've shared before that that's been on the increase over the last five years which then drives the indemnity cost up. So naturally we've been driving rate. And we've been -- as you commented we've been increasing the rate that we've been getting on the book this quarter with that 9%. But if you look at the most recent months we're pushing that toward 10%, which we will continue to do. So it's really up.
The leverage you pull are rate and underwriting reducing our monoline auto on the book shifting away from heavy auto classes as Jack has suggested. The wholesale or class being one of those. But we're really quite happy with the mix of our book. It continues to be a light truck and PPT-centric book. About 70% of it is light trucks and PPT. So we think about classes. We think about geographies. There are certain geographies where these trends are stronger. Some of the New Jersey, New York metro areas. So we're going to continue to stay disciplined on it including in our new business pricing right? Because we don't want to work so hard to fix this book this trend and then to put business on the books at below standard pricing. So it's a comprehensive approach but we are those trends continue and I think we're getting after it the right way.
John C. Roche -- President and Chief Executive Officer
Bijan this is Jack. One last thing on this. Again the industry is still performing in Commercial Auto in total north of 110 combined ratio. So I'm sure there are subsectors of that that are repairing more quickly. But as I said at the onset we're really not targeting trucking or transportation or any of those accounts. And so if we were and if that was a specialty area that we had maybe we would start to think about where do we get a little bit more offensive but we think the industry is a little bit still away from being able to think of auto in a very offensive way.
Richard Lavey -- Executive Vice President, President, Hanover Agency Markets
And maybe just last point I'd add we -- Jack referenced this something we watch very closely is the retention on the other line as we drive this line hard. And we're really pleased that our retentions in the companion lines are meeting our expectations with regards to retention.
Bijan Moazami -- Compass Point Research. -- Analyst
Just one last clarification quickly. The $85.8 million in Commercial Auto that you mentioned in your press release, these are all monoline correct?
Richard Lavey -- Executive Vice President, President, Hanover Agency Markets
No, not necessarily. Some portion of that's monoline. Some of it is in these heavy kind of auto-centric classes.
John C. Roche -- President and Chief Executive Officer
Yes. Monoline is a much smaller number than that the number you just mentioned.
Operator
The next question will be from Christopher Campbell of KBW.
Christopher Campbell -- KBW -- Analyst
Congrats on the quarter. All right. I guess beyond like the $400 million from Chaucer what would you estimate the total excess capital is? Because I don't think you guys are at like target underwriting leverage are you?
Jeffrey M. Farber -- Executive Vice President and Chief Financial Officer
Chris, this is Jeff. We haven't given out our excess capital. We obviously look at rating agencies. We look at our internal economic capital. We feel very comfortable with the capital that we have and we've managed that -- in that framework for a long period of time. We've described the excess Chaucer capital and I think in this -- in the short run that's what should people think about the redeployment opportunity.
Christopher Campbell -- KBW -- Analyst
Okay. Got it. And then can you walk us through the math on the subro sale? Why was this attractive for Hanover right now?
Jeffrey M. Farber -- Executive Vice President and Chief Financial Officer
So as you know we don't write personal lines in California. So in Commercial Lines writer these tended to be chunkier, clearer, more straightforward claims that were very attractive to financial institutions that wanted to buy these things. The -- obviously there are gross losses and to some degree reinsurers participated in providing us sharing in those losses. We sold a variety, which we described earlier on the call of the wildfires to a financial institution. There were some of those proceeds has to go back to the reinsurers. We have some law firm proceeds paid some other expenses and then we net down to $13 million. We haven't sold all of them. We've sold majority of those rights. But for us if you think about the amount of time that it will take to collect the uncertainty around potential bankruptcy filings the additional costs associated with collecting it just felt like a good trade for us to monetize that opportunity and get certainty at a reasonably high percentage.
Christopher Campbell -- KBW -- Analyst
Right. And then just switching to Personal Lines looking at the retention trends. I mean rates are a little bit better but don't seem super high. Is competition increasing? Is that's what's driving your lower retention?
John C. Roche -- President and Chief Executive Officer
This is Jack. I think we noticed as others have as people get healthier and deal with some of their frequency challenges in the past that frankly we didn't experience as much they're getting on top of their loss trends and they are starting to at least become less firm in their pricing. So it's hard to say where all that's going to go but I'll let Dick comment on the fact that we're pleased that we have some stability in our pricing despite the fact that we have a very profitable book of business and some of the pricing in the market is starting to come out of.
Richard Lavey -- Executive Vice President, President, Hanover Agency Markets
Yes. Chris I'll start with the point that our retention in Personal Lines. This quarter has been consistent with what we saw in Q4. We've been really fairly consistent with the rate that we've been taking. We've been taking it up on the BI side nine points but the overall rate of high 4s, 5s has been pretty consistent. So we watch that balance carefully what -- where we can push rate and maintain an adequate level of retention and we're pleased with it. The book is performing really really in the top quartile position. And we think our account strategy and kind of the commitment that we have at the desk level and the agency level is going to allow us to navigate through this as we push more rate.
We are seeing certainly some competition in the marketplace but what makes us feel really confident as we can see the finish line on the rollout of TAP Sales is the level of kind of commitment we're feeling at the transactional desk level with account managers. So our submission rates are up kind of mid-single digits. So we're getting more swing at the bat. Our tip is growing at 3%. So we have what we like to say interest in the firm is up. So this -- our account strategy, the value proposition that we offer, the quality of the products, the prestige we're bringing a lot to the market and that's helping us navigate through what we think is kind of a standard kind of pricing level that we'll consistently need to drive into the future.
Christopher Campbell -- KBW -- Analyst
Got it. And do you think like maybe you need to ease up on rates? I mean if everybody else is getting healthier or is it just you guys find the share dip? Does that make sense?
Richard Lavey -- Executive Vice President, President, Hanover Agency Markets
I think this is kind of the maintenance level of rate. Others if you look at where their starting point is and where they're coming down to it's kind of a mix of business. You have to parse through that. With the account-level strategy we're going to keep this at a maintenance level.
Christopher Campbell -- KBW -- Analyst
Okay. Great. Just one last one on workers' comp. I understand the reserve releases but were you surprised that the core loss ratios keep declining year-over-year? I think four out of the last five quarters you guys have declined year-over-year especially if you think about like wide spread reports of rate pressures and other competitors are increasing those loss picks. So I guess why aren't these like leveling out or potentially rising in Hanover's gate?
John C. Roche -- President and Chief Executive Officer
Chris this is Jack. As you would expect we study this religiously. Because we worked hard to put ourselves in a position where our workers' comp portfolio is very profitable, very complementary to the book of business that we write. And we like to believe because we're more account-centric and we play in the low to lower end of middle market that our business is a little bit less maybe price-sensitive. And we've seen that in that some of the pricing in the market we're able to kind of not give back quite as much because we're talking about an account proposition. But at the end of the day, we are -- we continue to be pleasantly surprised with something actually below benign loss trends. It's unprecedented in our industry. We believe it's not only a function of a stable economy, but also because of some of the jobs that have been repositioned.
We spent some time with NCCI and others to try to explore this and understand why the loss trends continue to be so favorable. And frankly there's a prevailing view that there's some sustainability to the loss trend improvement because of the way jobs have changed over time and to some degree the economic stability we're experiencing. So, we're pleased. Our results are what what they are but we watch it like a hawk and make sure that if there's any kind of change in trends we stay on top of it.
Christopher Campbell -- KBW -- Analyst
That's wonderful. Thanks for the extra color and better luck in the next quarter.
John C. Roche -- President and Chief Executive Officer
Thank you Chris.
Operator
The next question will be from Amit Kumar of Buckingham. Please go ahead.
Amit Kumar -- Buckingham -- Analyst
Thanks and good morning. A few follow-ups. The first question is going back to the discussion on Commercial Auto. On Page 9, the initial loss pick is 69.8%. It was 72.2% year-end 2018. And so what I was trying to reconcile is on one side your initial loss pick is lower. And on the other side we're seeing adverse development. And we've also trued up in the back half of the year. What exactly is the top process? Why not remain conservative and maybe down the road take down the loss pick versus moving to somewhere around from year-end to Q1?
John C. Roche -- President and Chief Executive Officer
Yes Amit. This is Jack. I certainly appreciate as you're trying to follow the waterfall or the flow of the numbers. I think the better comparison though is to look at the full year as we reconcile loss trends each quarter and then compare that to our first quarter and look at the level of rate that we've been putting through the book of business in the last 18 months in particular. We feel like we've -- we're starting to see some improvement there that is worthy of acknowledging in our current accident year picks. I think all in though we still feel like we're being very prudent in not trying to overreact to underwriting actions or things that we're doing. And as we showed you in this quarter we are not -- we are taking some fairly material actions on the underperforming part of our book that isn't fully contemplated frankly in our picks.
Amit Kumar -- Buckingham -- Analyst
So coming to Q3 you are very confident that you will not be looking at an uptick in the loss pick?
John C. Roche -- President and Chief Executive Officer
Listen we've been humbled like everyone else in this line of business Amit so I think it would be inappropriate for us to make any guarantees but I think we work hard at this to try to make sure that our picks are realistic and we have some confidence in our overall picks at this point.
Amit Kumar -- Buckingham -- Analyst
Got it. Switching to Personal Auto. You obviously give good color. I'm curious progressive talked about it the change in I guess in its outlook talk about competition how things are changing. We talked about it in detail on the Allstate call. Are you thinking about especially as a deal with trends and BI are you thinking about this line differently in Q1 versus how strong it was all over 2018 for the industry?
John C. Roche -- President and Chief Executive Officer
I'll have Dick respond to that.
Richard Lavey -- Executive Vice President, President, Hanover Agency Markets
Yes. No. I think we manage this book as a portfolio right? So we look at the auto line and its performance and what our target returns are which drives of course our pricing levels. And of course we pair that with our auto line and our umbrella line. And as we pointed out this portfolio hits or exceeds our target returns expectations. So I wouldn't say we're thinking about the line differently. We're cautious. We've been a consistent pricer as I said for over the past several quarters. And so on this BI emergence it's I'd say our picks were relatively tight and so we're just adding more rate to that the nine points. And we think in due time that should make its way into the performance. But as we see here today when we look at our performance relative to the industry over the last couple of years we've been between one to three points better than average. It's an important part of our value proposition. So we think about the lines in a combined passion.
John C. Roche -- President and Chief Executive Officer
Amit this is Jack. Again I remind people when we look at the Personal Lines marketplace it really has changed over time. And you have obviously direct writers that have been working on low limits monoline auto business and are now trying to figure out how they tweak their strategy. You actually have fewer natural carriers that are focused on this sector and certainly fewer of those that have as robust of account strategy as we do. And over the last few years the regional carriers have actually stepped up market share against the national carriers in the nondirect space. And we stand out frankly as a real industry leader in terms of how our product comes to market and blending pricing sophistication and synchronizing those algorithms so that we have an account strategy. That's a fairly complex thing to do. And once you're there you do put yourself in a somewhat defensive position.
Jeffrey M. Farber -- Executive Vice President and Chief Financial Officer
Yes. I think the last point I'd make is of course we study this line in our book with some really important quality metrics in mind. We hope over 90% of our book has auto liability limits of 100 , 300 (ph) almost 50% of our multicar accounts. So the quality mix to us is important. We think over the long term it's going to drive a good result.
Amit Kumar -- Buckingham -- Analyst
Got it. The other question I have was on the subrogation fees. I would imagine -- is there any adjustment to the reinstatement premium included in that favorable development number or no?
Jeffrey M. Farber -- Executive Vice President and Chief Financial Officer
No. That's not a meaningful portion of the adjustment. It would be that 13 (ph) is net of all costs of reinstatement so that's not really a part of this particular area.
Amit Kumar -- Buckingham -- Analyst
And this -- the $13 million I guess two other pieces. I know that some of these claims are sold on $0.25 (ph) on the dollar et cetera. Can you maybe first of all talk about how should we think about the growth in auto subrogation proceeds you might have received?.And also talk about how do the gross losses for all the fires you mentioned in your opening remarks, what is the pre and post subro gross loss? Thanks
Jeffrey M. Farber -- Executive Vice President and Chief Financial Officer
Yes. We have not shared that. If you go back and read which we did disclosures on 2017 and 2018 you know they weren't outsized. Otherwise they would -- we would have shared those. We didn't have Personal Lines if we exclude a Chaucer. Obviously there were some Commercial Lines losses. I think it would be misleading to give all of that information because of all the complexities. And we certainly could give the gross loss. We could give the reinsurance. We could give the percentage and we do have to give what whether there were any contingent payments to law firms. And we have to show you the waterfall of how much went back to the reinsurer by claims.
What we chose to do is to share $13 million. That was net of all costs all payments all information. And we told you specifically which wildfires it relates to. There are a couple of other wildfires largely Tubs that we have not sold. And we are hanging on to that and we are evaluating that one closely. But I think that is the most effective information in terms of a disclosure just to really give you the net. Otherwise it would be confusing to most.
Amit Kumar -- Buckingham -- Analyst
Fair point. And then just finally in here. And on the capital management I think Chris ask you this question in your opening remarks you talked about opportunity versus additional deployment down the road. I'm curious. Has there been any evolution in the thought process in terms of those opportunities versus when we talked about this in 2018 i.e. I know that at that time probably the top process was that most of it will be returned maybe a small portion gets reinvested in some sort of acquisition which makes sense. Are you just based on the direction of the marketplace and the pricing has your thought process is old where maybe the desire is to hold on to that the remaining sale proceeds or not?
John C. Roche -- President and Chief Executive Officer
Amit this is Jack. I'll start. And certainly Jeff can jump in. I would say that our thought process and the framework is not changed much at all. It's a very dynamic time in our business. We never know when opportunities are going to present themselves. I think we were very disciplined out of the gate to say that we are not going to do something outside that would or certainly would come outside the criteria that we set that would make an inorganic opportunity be beneficial to us. So we're playing out the strategy that we articulated. And so as we move through the second quarter and we finalize the results of the ASR outstanding, we'll revisit where we are. We'll certainly know what's in the pipeline in terms of any opportunities, have a better sense of how our growth looks like in the second quarter and we'll move to the next phase.
Amit Kumar -- Buckingham -- Analyst
There hasn't been any change in the time line right? I mean When we get to Q2 then we get to the wind season and I know in the past we've talked about potentially rethinking this year-end. Does it not get pushed into 2020 is I guess what I'm trying to ask.
John C. Roche -- President and Chief Executive Officer
I would say there's been no change in our thinking in terms of timeline. We haven't been specific of timeline. We've been giving you some indication without specificity. Again we've delivered $450 million back to shareholders. There's $400 million remaining to be redeployed. The nice thing about it is we're finishing the ASR. We've been studying it very carefully and thinking about our options and we get to wait and see how things are playing out what opportunities there are before we actually pulled the trigger and share that with you. But they're has been no change in our timing, our thinking or our commitment. (inaudible) redeploy in short order.
Amit Kumar -- Buckingham -- Analyst
:Perfect. Thanks for all the answers and good luck for the future.
John C. Roche -- President and Chief Executive Officer
Thanks Amit.
Operator
And ladies and gentlemen that will conclude our question-and-answer session. I would like to turn the conference back over to Oksana Lukasheva for her closing remarks.
Oksana Lukasheva -- Vice President, Investor Relations
Thank you everybody for your participation today and we are looking forward to talking to you next quarter.
Operator
Thank you. Ladies and gentlemen the conference has concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Duration: 58 minutes
Call participants:
Oksana Lukasheva -- Vice President, Investor Relations
John C. Roche -- President and Chief Executive Officer
Jeffrey M. Farber -- Executive Vice President and Chief Financial Officer
Bijan Moazami -- Compass Point Research. -- Analyst
Bryan J. Salvatore -- Executive Vice President, President, Specialty Lines
Richard Lavey -- Executive Vice President, President, Hanover Agency Markets
Christopher Campbell -- KBW -- Analyst
Amit Kumar -- Buckingham -- Analyst
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