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Selective Insurance Group Inc (NASDAQ:SIGI)
Q4 2020 Earnings Call
Jan 29, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone. Welcome to Selective Insurance Group's Fourth Quarter 2020 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. You may begin.

Rohan Pai -- Senior Vice President, Investor Relations and Treasury

Good morning, everyone, and welcome. We're simulcasting this call on our website, selective.com, and the replay will be available until February 28, 2021. Our supplemental investor package, which provides GAAP reconciliations of any non-GAAP financial measures referenced today also is available on the Investors page of our website.

Today, we will discuss our results and business operations using GAAP financial metrics that are also included in our annual, quarterly and current reports filed with the U.S. Securities and Exchange Commission. Non-GAAP operating income, which we use to analyze trends in operations and believe makes it easier for investors to evaluate our insurance business. Non-GAAP operating income is net income available for common stockholders excluding the after-tax impact of net realized gains or losses on investments and unrealized gains or losses on equity securities and statements and projections about our future performance.

These forward-looking statements under the Private Securities Litigation Reform Act of 1995 are not guarantees of future performance and are subject to risks and uncertainties. For a detailed discussion of these risks and uncertainties, please refer to our annual and quarterly reports filed with the U.S. Securities and Exchange Commission, which includes supplemental disclosures related to the COVID-19 pandemic. You should be aware that Selective undertakes no obligation to update or revise any forward-looking statements. On today's call are the following members of Selective's executive management team, John Marchioni, President and Chief Executive Officer; and Mark Wilcox, Chief Financial Officer.

Now I'll turn the call over to John.

John J. Marchioni -- President and Chief Executive Officer

Thank you, Rohan, and good morning. I'll make some opening remarks and then turn it over to Mark to provide the details on our results for the fourth quarter and the year, and I'll return with a few closing comments before opening the call up to questions. We generated excellent financial results in the fourth quarter with an 18% annualized non-GAAP operating ROE. For the full-year, our 10.5% non-GAAP operating ROE was strong in the context of the myriad challenges for the industry, including from COVID-19, record low interest rates and significantly elevated catastrophe losses.

In addition, the decline in interest rates has resulted in $5.09 of after-tax unrealized appreciation in book value per share, which lowered our non-GAAP operating ROE by 1.2 points. 2020 was our seventh consecutive year of double-digit operating ROEs. And while our 2020 operating ROE fell just shy of our 11% target. This long-term track record puts us in an elite group of top performing property and casualty insurance companies. We are extremely proud of this accomplishment.

Before discussing our results further, however, I wanted to highlight what I believe are some of our major accomplishments, which often do not get mentioned. 2020 was in many ways one of the biggest challenges faced by our industry from both an operational and financial standpoint. I'm extremely proud of how we came together as a company to help our customers, distribution partners and communities navigate the challenges of COVID-19 and help get lives and businesses back together after the severe catastrophic events that affected many parts of our country.

Times like these help reinforce our value proposition as an insurance carrier. We also took steps to play our part in the national conversation around race relations, continuing to build the culture that celebrates diversity, equity and inclusion. These are key elements in developing a highly engaged team of employees and driving innovation and creativity. I firmly believe that by working toward the benefit of all of our stakeholders, we will reward our shareholders with sustained financial and operating performance over time.

Our fourth quarter results reflected strong underwriting and investment performance. Our solid premium growth was driven by overall renewal pure price increases averaging 4.8%, strong standard lines retention rates and an increase in new business. Our ability to generate solid profitable growth in a challenging economic backdrop is truly a testament to our excellent franchise distribution partner relationships and sophisticated pricing and underwriting tools. Our 88.1% combined ratio for the quarter benefited from 5 points of favorable prior year casualty reserve development and 1.4 points of lower current year accident year -- accident losses. Our fourth quarter underlying combined ratio of 90.3% illustrates the strength of our positioning for continued profitable growth. I'd like to highlight a few key themes.

First, we are extremely proud of our ability to consistently balance our growth and profitability objectives. Our commercial lines renewal pure price increased 5.1% in the fourth quarter, which was up from earlier this year. We're able to simultaneously achieve a commercial lines renewal retention of 86%, 200 basis points higher than last year. For smaller accounts with policy premiums of less than $10,000, renewal pure price increased 4.2% in the quarter, while larger accounts in excess of $100,000 of premium generated renewal pure price increases of 6.2%.

Across all-size cohorts for the year, our highest quality accounts based on future profitability expectations produced 2.9% pure rate and point of renewal retention of 92%, while our lowest quality accounts generated 10.4% pure rate and point of renewal retention of 84%. Our sophisticated pricing and underwriting tools allow us to administer our strategies at an extremely granular level and obtain the appropriate price for the risk we are assuming. It is this ability that has allowed us to consistently generate price increases in line with or above expected loss trend for over a decade without sacrificing our renewal retention or new business goals. This approach also positions us to achieve loss ratio improvement from mix of business changes.

Second, the prolonged record low interest rate environment will continue to put downward pressure on industrywide investment portfolio returns and consequently ROEs in the coming year. We will remain disciplined and conservative in how we manage our investment portfolio. We recognize that we will need to increase underwriting margins to offset challenges, including the impacts of lower investment returns and higher reinsurance costs. Every one of our competitors face these same issues. Our track record of delivering strong underwriting results position us to thrive in this type of environment.

Third, the pandemic and resulting economic impacts reduced claim frequencies in most lines of business, although much uncertainty remains around the ultimate severities for many of those same lines. At the start of 2020, the commercial lines pricing environment was reflective of emerging loss trends and our assumption is that those trends will reemerge as the economy normalizes throughout 2021. We view 2020 as an anomaly in terms of loss frequency and severity and our guidance for '21 needs to be viewed in our context.

Fourth, while fourth quarter catastrophe losses will moderate, the year experienced a significantly elevated frequency of catastrophic events. These included a record number of landfall and hurricanes as well as convective storms, hailstorms, wildfires and civil unrest. This serves as a reminder of the catastrophic potential of not just a large single event, but the accumulation of many smaller events. Our combined ratio in 2020 included 8 points of catastrophe losses, which was close to our highest level in over 20 years. We manage our catastrophe risk through underwriting discipline and a conservative reinsurance program that attaches at $40 million per occurrence within our primary footprint states.

Over the last 15 years, catastrophe losses have averaged a manageable 3.5 points in our combined ratio. That said, we recognize that 2017, '18 and '20 were all close to record years of catastrophe losses for the industry, and as such, we believe it's prudent to expect higher frequency and severity of events going forward. We've increased our own catastrophe loss assumption slightly to 4 points for 2021 and continue to do property as a line in need of additional rate level.

Finally, we took steps during the quarter to continue to build capital flexibility, while optimizing our capital structure. In early December, we issued $200 million of 4.6% perpetual preferred stock, which is an extremely efficient form of capital for us. In conjunction with this issuance, our Board authorized a $100 million share repurchase program, which we intend to deploy opportunistically, allowing us to buy back our shares when attractive product shareholders.

I'll come back to provide a bit more commentary on some of our strategic initiatives for 2021, but now I'll turn the call over to Mark to review the results for the quarter.

Mark A. Wilcox -- Executive Vice President and Chief Financial Officer

Thank you, John, and good morning. I'll review our consolidated results, discuss our segment operating performance and finish with an update on our capital position and guidance for 2021. For the quarter, we reported net income per diluted share of $2.10, a non-GAAP operating earnings per share of $1.84. We reported an annualized ROE of 20.6% and a non-GAAP operating ROE of 18% with the strong finish to the year driven by both our insurance and investment operations. For the full-year, we generated a 10.5% non-GAAP operating ROE and increased book value per share by 15% or 17% adjusted for dividends.

Each year we established an operating ROE target based on at least a 300 basis point spread of our weighted average cost of capital as well as other factors including market conditions. For 2021, we have established a non-GAAP operating ROE target of 11%, which is close to 400 basis points over our current estimated weighted average cost of capital. Our target sets a high bar for our financial performance, balances us the performance of that and aligns our incentive compensation structure with shareholder interests. We enter 2021 at it's strongest financial position in our company's long history, including a record level of GAAP equity, statutory capital and surplus and holding company cash and invested assets. We believe we are extremely well-positioned to continue delivering strong growth and superior operating performance.

On a consolidated basis, it was a solid growth quarter with net premiums written up 8% compared with the year ago, driven by higher retention in Standard Commercial Lines, overall renewal pure price increases averaging 4.8%, and new business growth of 7%. For the year, consolidated net premiums written growth was 3%, but included about a 4 point negative impact related to COVID-19. This impact reflects our $75 million first quarter order premium accrual and the $19.7 million of second quarter premium credits.

We reported an extremely strong consolidated combined ratio of 88.1% for the quarter, which included 2.8 points of catastrophe losses. Favorable net prior year casualty reserve development totaled $35 million that benefited the combined ratio by 5 points. Secondly, we recorded a $10 million or 1.4 point benefit from a reduction in current accident year casualty loss ratio selections in the commercial and personal auto lines driven by loan frequencies. Additionally, we reduced our COVID-19 ultimate property loss estimate, which relates to Board of Health mandated clean-up costs to $5 million from $10 million. There was no change in our bad debt provision in the quarter.

On an underlying basis or excluding catastrophes of prior year casualty reserve development, the combined ratio was 90.3% in the quarter compared to date 93.8% in the prior year period. For the full-year, our 94.9% combined ratio reflects the elevated level of catastrophe losses we experienced in 2020, which added 8 points to the combined ratio or 4.5 points higher than our expectations for the year. On an underlying basis, our combined ratio was a profitable 90.1%. However, there are several one-time items that provided net benefit to our 2020 underlying combined ratios that I will cover shortly.

Turning to the impact of COVID-19. For the full-year, COVID-19 specific pre-tax underwriting charges totaled $33.8 million and increased our combined ratio by 1.1 percentage points, mainly impacted our expense ratios. These charges reduced our 2020 EPS by $0.44 and decreased our ROE by 1.1 percentage points. Offsetting these COVID-19 specific underwriting charges has been a lower level of reported claim frequencies in 2020 due to the drop-off in economic activity. This resulted in a lower level of non-cat property losses, which for the full-year were 1.2 points better than expected.

In addition, we reduced our 2020 commercial and personal auto casualty loss tends in the fourth quarter that partially reflect lower frequencies for the shorter tail liability lines of business, which benefited a full-year combined ratio by 40 basis points. Despite the loan frequencies in 2020, our casualty loss ratios selection essentially remain on plan, reflecting the ongoing inherent uncertainty presented by COVID-19, including the potential for late reported claims and higher severities. We will continue to monitor these trends as we progress through 2021.

Moving to expenses. Our expense ratio was 33.4% for the quarter and 33.8% for the year. The full-year expense ratio includes 1.1 points of COVID-19 specific items included a $13.5 million addition to our allowance for bad debts and lower net earned premiums for the auto premium -- the order premium accrual and premium products. Excluding these COVID-19 specific items, our underlying expense ratio of 32.7% reflect ongoing expense management initiatives. Due to this unique COVID-19 operating environment in 2020, we view about 70 basis points of these reductions is temporary. We do, however, expect the expense ratio improvement in 2021 as well as over the next couple of years. Corporate expenses, which are principally comprised of holding company costs and long-term stock compensation totaled $6.1 million in the quarter, which was up $2.6 million from a year ago due to higher stock-based compensation expense driven by the 30% increase in our share price in the fourth quarter of 2020.

Turning to our segments. For the fourth quarter Standard Commercial Lines reported impressive 10% growth in net premiums written, new business increased 2% relative to your a year ago, retention increased 200 basis points over the prior year to a very healthy 86% and renewal pure price increased to 5.1%. Renewal pure pricing has been trending up through the year. The commercial lines combined ratio was an extremely profitable 86.8% for the quarter. The combined ratio includes 1.3 points of catastrophe losses and 6.3 points of net favorable prior year casualty reserve development. The favorable reserve development includes $20 million from our workers' compensation line of business and $15 million from general liabilities, driven by favorable claims emergence in the quarter. The underlying combined ratio was also profitable at 91.7% and includes a 90 basis point benefit from a reduction in our commercial auto 2020 accident year loss ratio selection due to the lower frequencies.

In our Personal Lines segment we reported a 2% decline in net premiums written for the quarter, reflecting continued competitive market conditions. Renewal pure price increases average 1.1%, retention held relatively steady at 84% and new business volume was up 13%. The combined ratio was a profitable 93.6% for the quarter. On an underlying basis, the combined ratio was 78.8%. The underlying combined ratio includes the 6.6 percentage point benefit from a reduction in our personal auto 2020 accident year loss ratio selection due to the lower frequencies. There was no prior accident year reserve development.

In our E&S segment, we reported 6% of net premiums written growth for the quarter relative to a year ago. Renewal pure price increases average 7.4% and new business was up at strong 23%. The combined ratio was a profitable 93.4% for the quarter. Catastrophe losses added 1.9 points to combined ratio and there was no net prior year reserve development. The underlying combined ratio was a solid 91.5%.

Moving to investments. Our investment portfolio remains well positioned. As of year-end, 92% of our portfolio was invested in fixed income securities and short-term investments with an average credit rating of AA- and an effective duration of 3.8 years, offering a high degree of liquidity. Risk factors, which include a high-yield allocation to take within fixed income, public equities and limited partnership investments and private equity, private credit and real asset strategies represent 10.4% of our investment portfolio. This is up from an 8.1% allocation at year-end 2019 as we found attractive opportunities during the year to increase our allocation to risk assets given market conditions.

After-tax net investment income of $55.5 million was up 18% from the comparative prior year quarter with the growth driven primarily by $18 million of pre-tax alternative investment gains, which we report on one quarter lag. The strong capital markets performance in the second half of the year resulted in $27 million of pre-tax gains from alternative investments in 2020 and we finished the year with $185 million of after-tax net investment income. The after-tax yield on the total portfolio is 3% for the quarter and 2.6% for the year. The total return of the portfolio was 1.8% for the quarter and 6% for the year. The investment portfolio has delivered a very strong 9 points of ROE contribution this quarter and 7.8 points for the year.

Despite the strong performance, the average after-tax new money yield on fixed income purchases during the quarter continued to decline to almost 2.1%, down from 2.2% in the third quarter and 2.4% a year ago. Retention rates remain low and credit spreads continued to tighten in the fourth quarter. As I mentioned last quarter, we continued to reinvest proceeds from non-sales social activity related primarily to AAA rated Agency RMBS into other high-quality, but non-AAA rated fixed income sectors as we find the risk adjusted returns more attractive. This will result in our average credit rating notching down modestly to A+ from AA- over the coming quarters. But we do not anticipate a material shift in the overall risk return characteristics of the portfolio.

Turning to capital. Our capital position remain extremely strong with $2.7 billion of GAAP equity, up $544 million from a year-ago. Our net premiums written to surplus ratio is at the low end of our target range of 1.3 times. Operating cash flow is strong in 2020 to $554 million or 20% of net premiums written and we have built significant financial flexibility with $490 million of cash and investments at our holding company. During the fourth quarter, we repaid the remaining $167 million of our short-term Federal Home Loan Bank debt that we borrowed earlier in the 2020. Our debt to capital ratio now stands at 16.7%, providing us flexibility to raise additional debt appropriate. Overall, our strong balance sheet and holding company cash and liquidity provides us with the financial resources and flexibility to continue to invest in our business and grow our insurance operations.

With regards to our reinsurance program, we successfully renewed our catastrophe program on January 1st. We've retained our existing structure that maintains the 1 in 100 a 1% net probable maximum loss or PML from a major catastrophe risk, a U.S. hurricane at a very manageable 1% of GAAP equity and a 1 in 250 net PML of 0.4% probability or 4% of GAAP equity. We also renewed our non-footprint catastrophe program with a $5 million retention for our five expansion states and our E&S stays outside of our previous 22 states Standard Commercial Lines footprint. Pricing on the cat program increased due to market conditions, but was in line with that a loss free accounts in the U.S. As a reminder, our reinsurance program also includes our access to loss agreements, which limits the impact to us of individual loans losses to $2 million for both property and casualty losses. With factoring actual and expected risk adjusted price increases, we are forecasting about a 50 basis point headwind to our 2021 combined ratio from higher reinsurance costs.

I'll finish with some commentary on our initial guidance for 2021. First, we expect the GAAP combined ratio excluding catastrophe losses of 91%. This assumes no prior accident year casualty reserve development, while the 91% is higher than our 90.1% reported underlying combined ratio in 2020. As I highlighted, there were several one-time items that had a net positive benefit of over a 1 point to our 2020 underlying combined ratio. I would point you to our initial expectations of 91.5% underlying combined ratio in 2020 as a better starting point for comparison. Catastrophe losses of 4 points on the combined ratio this is higher than the 3.5 points in the past and reflects expectations for increased frequencies and severities for the severe weather events.

After-tax net investment income of $182 million, including $16 million in after-tax gains from our alternative investments, but we expect continued downward pressure on our fixed income book yield to a very low new money rate environment in 2021. We continue to generate strong cash flows that provided some offset. But overall effective tax rate of approximately 20.5%, which includes an effective tax rate of 19% for net investment income and 21% for other items. This assumes the current federal corporate tax -- income tax rate of 21% remains throughout 2021 and weighted average shares of 60.5 million on a diluted basis. So simple to this does not factor in any share repurchases we may made under our authorization.

With that, I'll turn the call back over to John for a review of our strategic initiatives.

John J. Marchioni -- President and Chief Executive Officer

Thanks, Mark. I'm going to highlight some of our major areas of strategic focus as we move through 2021. We're well positioned with a high quality book of business that continues to generate strong profitability. With the tailwinds of rising commercial lines pricing, we'll be focused on identifying opportunities for profitable growth, including maximizing market share with our distribution partners, strategically appointing new partners and identify a new stage to expand our footprint.

We continue to invest in tools and technologies that enhance our market position with our distribution partners. Our MARKETMAX tool provides our distribution partners with insights into their overall portfolio and positions them to expand their relationship with us. We rolled out the tool of 250 of our distribution partners and already seeing substantial success and believe we are only in the initial stages of recognizing our full potential.

The roll out of our new agency interface for small business remains on track and should continue to enhance our opportunities in this space by significantly streamlining the quoting and issuance process. We ended 2020 with 1,400 distribution partners and average commercial lines premium volume per agency of $1.6 million. We added approximately 90 new relationships net of terminations, a trend we expect to continue in the next few years.

We also anticipate restarting our geographic expansion strategy. The five states we opened during the 2017 to 2018 time frame, including a new southwest region are all performing ahead of expectations. Over the next two years we plan to open three additional states with others plan for subsequent years. Our long-term goal is to have national capabilities, although we will follow a measured and disciplined approach to identifying and opening new markets.

In personal lines, we begun shifting our focus toward the affluent market, a customer base that is less price sensitive and derives greater value from coverage and service. For E&S, our enhanced automation platform is rolled out for new business in late 2020, enhancing our competitive position in this important market. Second, we remain focused on delivering a superior omni-channel customer experience, which has been a true differentiator in the current environment. We were able to generate significant values for our customers through proactive and targeted communications based on their preferences. Enhancements to our digital self-service offerings have resulted in utilization growing to over 40% of our customer base. Our claims and safety management teams continued to enhance the customer experience and increased operational efficiency through a deployment of virtual servicing technologies.

Finally, one of our biggest priority remains building a culture that fosters innovation and idea generation as we seek to develop a deep bench of leaders take the company for the future. Building a highly engaged team of employees and leaders is one of our core strategic imperatives. I'm a firm believer that creating a culture centered on the values of diversity, equity and inclusion is essential to keeping employees engaged and contributing at their highest levels. We've already taken a number of steps during 2020 to raise awareness around this issue within the company, as well as increased the level of diversity at all levels within the organization. This will remain a major priority for us in the coming years.

As we look out to 2021 and beyond, I'm extremely confident in our competitive position in the marketplace and then tools, talent and relationships on which we have built our platform. Over the past several years, we have demonstrated our ability to generate consistent industry-leading financial returns for our shareholders and I'm optimistic in our ability to continue to do so in the coming years.

With that, we'll open the call up for questions. Operator?

Questions and Answers:

Operator

Certainly. [Operator Instructions] The first question is from Mike Zaremski of Credit Suisse. Your line is open.

Michael Zaremski -- Credit Suisse -- Analyst

Hey, good morning.

John J. Marchioni -- President and Chief Executive Officer

Good morning.

Michael Zaremski -- Credit Suisse -- Analyst

Maybe, first question, if you can maybe try to parse apart kind of what's causing the top line growth to accelerate nicely? And maybe you can talk about exposure changes versus the competitive environment versus, I know, probably tough to quantify, but maybe some of the digital improvement processes you've been speaking to with your agencies?

John J. Marchioni -- President and Chief Executive Officer

Yes, sure. I'm happy to answer your question, and I appreciate the question. I think, let me just start with exposure change, which was one of the topics you're looking for a little bit more insight in. And remember with the action we took in Q1 by recording a $75 million accrual for expected negative audit and mid-term endorsement premiums, we got a lot of that out in front of us and that was for the 331 enforce policies for the balance of their lives, the unearned premium on those policies. So that we took that noise out of our subsequent quarters and we don't have that drag because that -- as that estimate has largely held up and as you heard earlier, we've got about $25 million remaining at accrual.

So if you include that and look at exposure, overall, and again, exposure is sometimes hard to measure, but I would characterize our exposure on our renewal portfolio for the year of about 1% positive. And you think about a normal year for us would be in a 2% to 3% range. And I think a lot of that does have to do with our mix of business and our mix is skewed toward contractor classes which is about 40% of our premium and actually in the auditable lines of GL and comp, it's a higher percentage, probably closer to 50%.

So I think that's helped the exposure base on our customers hold up a little bit better than average. Certainly, rate has contributed to our growth rate. We've seen a little bit acceleration there. And as I mentioned in my prepared comments, at 86% our retention was about 200 basis points over prior year and we think that also speaks to the approach we continue to take and the granularity with which we administer our pricing philosophy.

Now the other benefit, clearly, that is even in this environment and with a lower average exposure industrywide, we saw commercial lines new business up a little over 2% for the full-year and that's something we're very proud of. I think, we always talk about the strength of our agency relationships and our franchise value model. And I think in a time like this, you really saw the true evidence of the strength of those relationships, because of the significant role we play for our partners I think they were inclined to find ways to continue to grow with us and that certainly helped as well.

The mix of business we're seeing from new business, I would say, is relatively stable with what we've seen in prior years. I think small commercial, non-contract and small commercial is the area of most significant pressure for us. We saw a little bit of an improvement in large accounting business, which for us is over $250,000 in premium, but the primary driver for us continues to be our strong middle market presence, which we would define generally speaking as accounts between $25,000 and $250,000 in premium.

So I think I hit most of the topics you were looking for, but I would say those are the primary drivers of growth for us. And the other point I do want to reinforce I think it's an important one is, the same discipline we have and the same granularity we use on managing our renewal portfolio is also deployed on new business. So we are very responsible writer of new business. We measure underwriting quality and new business pricing at a fairly granular level and feel very confident about where the growth is coming from.

Michael Zaremski -- Credit Suisse -- Analyst

All right. That's helpful. Would you say that talking to agency partners that Selective's may be asking for a little less rate increase than the industry average or certain peers which seem to be kind of pushing potentially maybe some corrective actions more so than Selective?

John J. Marchioni -- President and Chief Executive Officer

Well, I won't comment on individual competitors. I think one important point though to make is, when you look at where the headline price number is coming from, in many cases, it's coming from the large, the higher exposure areas, the more specialty lines of business like D&O and EPL and access, significant access layers there's not a lot of that in our portfolio. If you focus more on the sort of main lines of business, property GL, workers' comp and commercial auto and focus on the small to middle market end of the business, I think our pricing might be a little bit lower than average. But I think in the context of our profitability is where it should be and I think that's put us in a good position.

And again, I know we've been a bit of a broken record on this. You can look back at our disclosures at our guidance over 10 years. And what you'll see is a very strong discipline, not just around rate level and getting rate level, but also having an explicit assumption for trend year-over-year and recognizing that our expectation for trend was always our hurdle rate for pricing in terms of driving that loss ratio improvement. That has put us in a good position and has allowed us to have to go out to market with significant price increases that could cause disruption for our agency partners.

Michael Zaremski -- Credit Suisse -- Analyst

Understood. If I could switch gears to John your comments about increasing diversity within the organization, are there are -- I'm curious, do you think Selective and I think others too, it's tough for us to really measure whether diversity levels are increasing, do you expect to put out some metrics over time to to help investors and others track the performance of these goals?

John J. Marchioni -- President and Chief Executive Officer

We do. And I appreciate the question, and I appreciate your follow-up to the points I raised in the prepared comments, because this is a very important issue for us and we think should be for all companies across the country. We have taken specific actions. And I think you probably saw our most recent corporate responsibility report or ESG report, which was the first iteration from this past March, and with our next-generation, our full intent is to provide more data relative to where we stand from a diversity perspective. And I think we are more than willing to acknowledge that we have work to do on this front, and the work for us has really come on in a couple of areas. Number one is making sure we have not just the right practices for hiring, new hiring, but more importantly, we do have a lot of diverse employees in our organization that we have made sure have full access to the training opportunities and development opportunities and mentoring opportunities that we make available to our employees and ensure that our next-generation leadership programs are appropriately balanced in terms of the diverse makeup of those groups.

And I think that's been a big part of our focus of late. But I'll also say the other part of this that has always been one of our core values as a company is inclusion and that's more of a leadership approach. And you could do a lot to build a more diverse organization in terms of your employee population, but I think it's equally important to make sure that you lead in a very conclusive manner so that people of different backgrounds can actually feel like they can have an impact on the organization, and I would say the inclusive aspect of this has been as much of a focus for us as has been the diversity. And then a final point I'll make there and I think this has always been a topic for us, but I think you saw in the last year a real positive move here is making sure we have diverse backgrounds and experiences on our Board of Directors and we added four additional Board members this year which was a little higher than we would normally do, but found four people with excellent backgrounds and also very diverse individuals to our Board, which we've already seen improve the level of discourse on our Board because of the different perspectives they bring.

Michael Zaremski -- Credit Suisse -- Analyst

Okay, great. Look forward to seeing the next corporate responsibility report. My last question probably for Mark and is probably in your prepared remarks and will go over the transcript, but I think you mentioned some of the reserve releases were from general liability or maybe it was current accident year benefits as well, maybe you can kind of -- I think most of the industry hasn't been in releasing that much in the GL line, maybe you can talk about what you're seeing there?

Mark A. Wilcox -- Executive Vice President and Chief Financial Officer

Sure, Mike. So, you're right. We had some reserve releases in the current quarter on the prior accident year it was $35 million and as I mentioned in the prepared commentary, $20 million of that came from workers' compensation and $15 million from general liability. We also took a hard look at the 2020 accident year as we closed out the year and clearly the year characterized by lower frequency for the shorter tail liability lines within commercial auto and the personal auto. We did respond to a portion of the loan frequency that was to the tune of $5 million in commercial auto and $5 million in personal auto that had a net benefit of 1.4 percentage points on the combined ratio in the current quarter or 40 basis points for the full-year. And then when you look at the reserve releases, for the full-year it was $85 million, $50 million from workers' comp, $35 million in general liability. And then you might recall, in the third quarter, we did take some action on -- in commercial auto in the prior year, and increase the returns by $10 million, but that I'd say $5 million in total for the 2020 year.

John J. Marchioni -- President and Chief Executive Officer

And I would just add to that, if you look back over the long-term, our general liability line has significantly outperformed the industry at a very consistent basis. So you could strip out the prior year development this year and each of the last several prior years and on an accident year basis that line has a run rate around a 90% for us, which -- whether on a straight or risk-adjusted basis is very strong performance. And again I think reflective of -- we do have a bigger portion of contractors and we ride that extremely well. Our limits profile tends to be lower. We ride a fair amount of manufacturing and wholesaling, but it's not the real heavy products exposure that create some of that volatility. So that's just a line that we have really outperformed on and feel like we're in a really good position relative to the underlying performance, and I think you've seen that over the long-term.

Michael Zaremski -- Credit Suisse -- Analyst

And the -- just to be more specific the GL prior year reserve, positive development, was that sprinkled across a lot of previous accident years or any color on the accident years?

Mark A. Wilcox -- Executive Vice President and Chief Financial Officer

When you look at GL and will be -- if everything goes according to plan filing the 10-K in the next two weeks, so we have quite a bit of reserve information in there that follows service it is statutory books at the end of February. So you have all the specificity, but GL was sprinkled across multiple accident years. Going back, there is no particular accident year that jumps on the workers' compensation side. We typically do an annual tail factor review in the fourth quarter so that impacts the older accident years pre-2010 and that was a big, the bigger drive of the fourth quarter $20 million reserve release that came through. But we've also seen already some favorable emergence in the '16, '17 and '18 years of workers' compensation as well. But no specific year is really standout in general liability.

Michael Zaremski -- Credit Suisse -- Analyst

Thank you very much.

Mark A. Wilcox -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from Matt Carletti of JMP. Your line is open.

Matthew Carletti -- JMP Securities -- Analyst

Hi, thanks. Good morning.

John J. Marchioni -- President and Chief Executive Officer

Good morning, Matt.

Matthew Carletti -- JMP Securities -- Analyst

John, I was hoping I caught in your comments about personal lines. I think you said you kind of shifting toward, more toward the mass affluent market. I was hoping you could just dive in a little deeper there and kind of flip in on how the product might be changing, whether be service levels, coverage levels, things like that and then how we should expect to see that whether you're kind of go in state-by-state or what the timetable is?

John J. Marchioni -- President and Chief Executive Officer

Yeah, sure. Thanks again for the follow-up question on that. So you have do a correct. Our move in the personal line space is into a segment of the market we think is a much better fit for how we do business and it's the mass affluent market. So you generally talking about income levels between a $200,000 to $1 million and net worth in the $1 million to $5 million. It's not the high net worth or ultra high net worth. It's sort of that middle slice in that tier. I would actually say from a product and service perspective, we have the majority of what we need to serve that market. Now there are some items around the edges in terms of product little bit on the service side that we intend to start rolling out on a countrywide basis in mid-'21 and there is a couple of additional items that will roll out in the latter part of '21, into the early part of '22.

So from a product and service perspective, I think there is really not more -- not a lot more we need to do. I think it's more of just clarifying our appetite and our message to agents in terms of our desired market segment. And I'll also say that our agency partners, our current distribution partnerships are well positioned. This tends to be a lot of what they focus on from the personal line perspective. So this is really allows us to very quickly ramp this up and we're going to expect to roll it out in all of our personal lines states on that same calendar starting in call it early third quarter of this year.

Matthew Carletti -- JMP Securities -- Analyst

Okay, great, very helpful. Maybe just shifting real quick to standard commercial and circling back to one of the questions Mike had on kind of working through kind of top line growth trends. How should we think about Q1 and I'm not asking for guidance or anything like that, but just if my notes are right, I recall right, you guys took about kind of a $75 million headwind in Q1 '20 from audit premium, mid-term endorsements kind of COVID-related stuff. Is the right way to think about it that that was a one-time and as we anniversary that, that kind of goes away, so kind of add $75 million back to Q1 '20 and that's kind of the starting renewal level if you will and then we can assume whatever macro trends we want assume from there, how should we think about that as we get to Q1?

Mark A. Wilcox -- Executive Vice President and Chief Financial Officer

Yeah. Matt, this is Mark. You're absolutely right. I would add the $75 million back to the top line to get a better sense as to what the NPW number is. And this is really important for comparison for Q1. If you look back at Q1 2020 for Standard Commercial Line, we were down 5%, but we had a pretty significant negative impact from that audit premium accrual that went through and the actual underlying growth rate was closer to 8% to 9%, 8.5% was the growth rate not add that back. Now, just as a reminder, the $75 million was NPW number and that was ruined over the remaining life of those policies, which go all the way through till March 31st of 2021. Most of that was fully owned in the 2020 year. There's a little bit of a tail that trickles into Q1 '21, but on annual basis it have much of an impact in the fourth quarter, because it really reflected two weeks of the earnings of that adjustment from when COVID-19 started, but I would just highlight the impact versus the net premiums written impact as well.

Matthew Carletti -- JMP Securities -- Analyst

Okay, great. And then my last question, sticking with the standard commercial. I guess across the book what I presume that's mostly tend to commercial. When you think about the accident year, ex-cat accident year guidance 91% combined. How should we broad strokes think about the puts and takes? Is it -- you obviously have auto lines where there were some frequency benefits in '20 that we'll see whether they keep repeating or not, but probably a good presumption is not assume they do? And then on the flip side of that, should we think about some of the other lines where you're getting rate ahead of trend then there might be a favorable glide slope to the accident year results?

Mark A. Wilcox -- Executive Vice President and Chief Financial Officer

Yeah. Why don't I start Matt and then John can jump in to provide some additional commentary. It's a good question, because when you look at the guidance of 91%, the actual reported underlying was 90.1% in 2020 and both John and I provided to provide -- tried to provide a little bit of commentary in the prepared comments, but really the best starting point is to kind of adjust out some of those one-time as clearly 2020 was an unusual year. But not to get into too much detail, but -- and I provided most of these items in my comments. But there was the 1.1 points of COVID-19 negative impact that will reduce the starting point. We have the non-cat property which is favorable by 1.2 points the current accident year's development, which is favorable in the fourth quarter, you have to back that out that was 40 basis points. The underlying expense ratio ex-COVID-19 is favorable by about 70 basis points and that is about 20 basis points of other. And that kind of gets you back to the 91.5%, which was our initial expectations going into 2020, as a better starting point of comparison when you roll from '20 get into '21.

Now when you roll from '20 to '21, we typically provide a pretty detailed waterfall chart at our Investor Conference in early February that we'll probably do again this year. But a couple of the puts and thanks would be when you start with that 91.5% rolling to a 91%, you have about 50-50 basis points of headwind from reinsurance comps that I mentioned, reflecting the higher risk adjusted pricing on the roll out of our programs for 2021. We don't have to worry and we have trend and our expectation is that rate will continue in 2021 on a loan basis to see trend. We have some underwriting and claim benefit that will drive some underlying margin improvement, and then we expect to drive the expense ratio down in 2021 as well. So when you put it all together that is about net, net about 50 basis points of margin improvement year-to-year and a portion of that really is driven by the rate of trend of expectations that of course varies by line of business.

Matthew Carletti -- JMP Securities -- Analyst

Great, very helpful. Thank you.

Operator

Thank you.

John J. Marchioni -- President and Chief Executive Officer

Thank you, Matt.

Operator

The next question is from Meyer Shields of KBW. Your line is open.

Meyer Shields -- Keefe, Bruyette & Woods -- Analyst

Thank you. I wanted to go back to the personal lines plan again. John, I think I understand what you're saying you have the capability to service this market adequately despite higher demand. Is there going to be any impact in the mix between loss and expense ratio on that book?

John J. Marchioni -- President and Chief Executive Officer

I'm sorry, Meyer, you really broke up there. You're looking for the difference between loss and expense ratio on that book? Sorry.

Meyer Shields -- Keefe, Bruyette & Woods -- Analyst

Yeah. In other words, as you shift to higher net worth customers, is there a different allocation of combined ratio to expenses rather than the losses?

John J. Marchioni -- President and Chief Executive Officer

Actually, no, I wouldn't think there would be honestly a significant difference between loss and expense. A lot of the servicing expense, the commission loans, which is a driver major of expense ratio aren't going to be meaningfully different. I think this is more about a book that you would expect to have a higher persistency, which over time would also generate a little bit of loss ratio benefit, but I wouldn't view this is necessarily a segment of the market that's going to command a higher expense ratio in terms of the performance.

Mark A. Wilcox -- Executive Vice President and Chief Financial Officer

I think the other point on personal lines and the expense ratio is, we have really worked hard to drive the expense ratio down. You can see some improvement in 2020 versus 2019. We believe we need to continue to drive that down a bit to be competitive in that space.

John J. Marchioni -- President and Chief Executive Officer

And the other point is to the extent there are additional coverage enhancements that are contained in a program for certain customer base. We're going to assume that the incremental price that underlies that enhanced coverage is adequate and should be loss ratio neutral to the extent those coverage and enhancements were added on a policy-by-policy basis.

Meyer Shields -- Keefe, Bruyette & Woods -- Analyst

Okay, that's very helpful. If I can switch gears a little bit and I'm wondering is how that can be answered, but what are -- what would it take before there is like an official acknowledgment that some of the frequency benefit in workers' compensation or other lines that are longer-tailed, will this take before you'll have comfort saying OK, that's it?

John J. Marchioni -- President and Chief Executive Officer

Well, I'll start and I appreciate your lead into the question, because there is no clear answer to that question, and it's going to be very company specific. I mean our philosophy around reserving continues to be the same, which we do a full reserve review for all major lines of business on a quarterly basis. And obviously, the longer tail lines that you're referencing, the severity on those lines and included the claim reporting as well certainly takes well beyond the end of the accident year to comment the full view.

Is the frequency decline that we saw across all lines real? Yes, it is. And I think, as we mentioned previously, the question remains what is the offsetting severity impact, and how long will it take for that to emerge in a manner that we have confidence with. So the only way I can really answer the question is to say with each passing quarter and with feature associated reserve review with each passing quarter, our level of confidence on the accuracy of our views of ultimate frequency and ultimate severity by line will continue to grow in confidence.

We did take a little bit of action in commercial and personal automobile, because that is a line that has a slightly faster reporting pattern and a slightly faster development pattern and we felt that what we saw gave us the confidence to make those small adjustments for the 2020 year in the fourth quarter, but for GL and comp, it's a much longer maturation process to really get a good insight into the -- into an accident year.

Meyer Shields -- Keefe, Bruyette & Woods -- Analyst

Okay, that's helpful. And then just a final question on that. Should we assume that same conservative, I think the answer is yes, but the same conservatism underlies the pricing that you're putting in place for these lines of business?

John J. Marchioni -- President and Chief Executive Officer

Yeah. So we've got a very disciplined process and the results of our reserve review feed all of our accident year planning. Our accident years are fully baked into our pricing indications from our actual pricing team. Those pricing indications don't just drive our rate filings in commercial lines, they also file the pricing guidance that we provide to our accounts -- to our underwriters on an account-by-account basis. So what you see in terms of our view of the 2020 accident year is fully reflected in how we think about pricing on a go-forward basis. And as those numbers adjust then your pricing indications adjust accordingly, because you've got multiple accident years that are built into your pricing indication process.

Meyer Shields -- Keefe, Bruyette & Woods -- Analyst

Okay, excellent. Thank you so much.

John J. Marchioni -- President and Chief Executive Officer

Thank you, Meyer.

Operator

Thank you. The next question is from Bob Farnam of Boenning & Scattergood. Your line is open.

Robert Farnam -- Boenning & Scattergood, Inc. -- Analyst

Yeah. Thank you and good morning.

John J. Marchioni -- President and Chief Executive Officer

Morning.

Robert Farnam -- Boenning & Scattergood, Inc. -- Analyst

So, given your guidance and your commentary, it sounds like 2021 is set up pretty well for you guys. So, but what are your biggest concerns as we move through the year? What do you worry about the most, particularly regarding your ability to reach your objectives for the year?

John J. Marchioni -- President and Chief Executive Officer

Yeah. So I think obviously we continue to be in a pandemic and the pandemic is certainly having some economic impacts and some of those economic impacts, as we mentioned, are impacting our expectations for investment yield on a go-forward basis, which supports the need for additional margin improvement. And we're assuming that the pricing environment remains constructive and remains a tailwind and we think that that's going to be a support for us in terms of achieving our objectives. As investment ROEs continue to drop, you need a corresponding drop in everybody's combined ratio to make up for that difference.

To the extent, we see competitors look at 2020 and the view it as something other than anomaly and view it as some sort of a fundamental shift in frequency and severity trends that could create a little bit more headwinds in the market, and will not knock us off of what we're focused on, because I think we've demonstrated we can manage pricing regardless of the market environment overall, but I would say that continues to be a risk.

And then obviously the longer we go with the economic pressures, it could ultimately start to impact exposures more significantly than it has to at this point. So are those concerns, yes. But I think the way you open the question is, which is how we think about it, which is we're very well positioned. And with our higher operating leverage, it requires less underwriting combined ratio improvement to make up for that loss of investment yields and I think other companies that are operating at a 1-to-1 or even lower have a bigger gap to make up for that loss in investment ROE.

Robert Farnam -- Boenning & Scattergood, Inc. -- Analyst

Right, good. Thanks for the color. And my last question is on share repurchases. So given your new authorization kind of what goes into your decision to repurchase shares rather than use your excess capital some other way?

Mark A. Wilcox -- Executive Vice President and Chief Financial Officer

Yeah. Thanks. Good question, Bob. And I will start with the best use of our capital is to deploy into our insurance operations and to grow our franchise. We generated very strong and attractive returns in our business and that's what we want to continue to do. So we're looking to grow in a disciplined and profitable way. We're looking for ways to continue to accelerate the growth rate. John talked about the strategies around retooling the personal lines strategy, the GL expansion of the new technology with an access and surplus lines and that really is the number one use of our capital is to put it back into the business. To the extent that we do have excess capital above what we need to run the business above the tests, we're a conservative company. We'd like to have a little bit of a buffer, a little bit of a headroom. And then when we get into a position where we have, what we would call returnable capital in excess of our access, then we looked at different ways to think about using the -- which would include a variety of capital management objectives including share repurchases. So we look at a couple of different metrics. We look at IRR calculation versus cost of capital for share repurchases. We look at a book value accretion time period in terms of looking at share repurchases. So look at very different metrics.

Today we have executed under the share repurchase program. As we mentioned, when we put that into place back in the December, we'd be opportunistic and disciplined in terms of share repurchases. But we view it as a nice tool to have in the tool kit today. It allows us to return capital to our shareholders over time and part of the delivery, good growth in book value per share plus accumulated dividends over the long run. It's not only delivering a strong ROEs as John mentioned seven years consecutive years of double-digit ROEs, but also make good steward to the company's capital into these that we do have a returnable amount and it's a good return and we'll look to execute on the share repurchase program.

Robert Farnam -- Boenning & Scattergood, Inc. -- Analyst

Okay, very good. Thanks, Mark.

Mark A. Wilcox -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from Ron Bobman of Capital Returns. Your line is open.

Ronald Bobman -- Capital Returns Management -- Analyst

Hi, thanks a lot, and good morning to everybody. Hope everybody's well.

John J. Marchioni -- President and Chief Executive Officer

Good morning.

Mark A. Wilcox -- Executive Vice President and Chief Financial Officer

Good morning.

Ronald Bobman -- Capital Returns Management -- Analyst

I had two questions. One, just curiosity sort of what percentage of the -- of your office staff your -- maybe headquarters are coming in on a regular basis? I was just sort of curious about a rough figure. And then I had a question about the wholesale business. What is the recent sort of trend of late, whether it'd be fourth quarter and maybe even early in January generally speaking as far as sort of application count, the level of competitiveness among other competing markets? Thanks.

John J. Marchioni -- President and Chief Executive Officer

Sure. Thanks. Yeah. With regards to percentage of our employees in our corporate headquarters at one of our physical locations, it's roughly 75 employees across all of our offices, out of 2,400 employees, so a very small percentage. And again, we've said this previously and part of this is our strong distributed employee model that we've always had and a lot of work from home employees, but all of our employees have the tools to work remote and it's really just some folks in our data center, which happens also be here in Branchville, New Jersey and some folks who need to come in and do some mail scanning to distribute mail electronically to folks that are ones that are considered essential and coming in on a regular basis.

With regard to the E&S business, if you look at our performance for the year, we saw some pretty strong new business growth. I think we had some mix pressures that have created a little bit more top-line volatility in total, but our new business was up around -- on average around 20% for the full-year, which is pretty strong and is driven by some higher application activity, higher submission activity, but there are pockets of competitiveness and I think we did see a little bit more success in new business on the brokerage side and we saw in the small binding authority side and for us again brokerage is not the higher hazard open brokerage business. It tends to be business that's just a little bit above our binding authority constraints that we offer to wholesalers.

So I feel pretty good about the flow of new business opportunities. I don't -- I haven't seen any significant shifts in the competitive environment, although there are certainly a lot more opportunity coming in for wind exposed and coastal property, which is not part of our appetite for E&S. So I think a lot of what might appear to be significant uptick in opportunity as a lot of markets have tightened down on our capacity for coastal wind. It's just not really helped us based on the underwriting philosophy we have for that segment.

Ronald Bobman -- Capital Returns Management -- Analyst

Okay. And then as far as whether it's the fourth quarter compared to the third or even January compared to the fourth quarter, any change in the trend line, the trajectory as far as submission flow in, again, the E&S business were not noticeable?

John J. Marchioni -- President and Chief Executive Officer

I would say it's not noticeable. Now for us we're pretty excited about the new automation platform. We just rolled out and it rolled out in the latter part of the fourth quarter on the new business basis, which we really think helps improve our competitive positioning in this space and makes us a lot easier to do business with in the small binding and the small worker side as well and that's something we do expect. Regardless of what the overall market dynamic is in terms of opportunity, I think by improving our standing from an ease of doing business perspective, we expect to provide Selective moving into the first quarter and the balance of '21.

Ronald Bobman -- Capital Returns Management -- Analyst

Great. Well, congrats, and good luck with that. Hope and again stay well.

John J. Marchioni -- President and Chief Executive Officer

Thank you. Thank you, Ron.

Mark A. Wilcox -- Executive Vice President and Chief Financial Officer

Thank you.

Ronald Bobman -- Capital Returns Management -- Analyst

Goodbye, guys.

Operator

Thank you. The next question is from Scott Heleniak from RBC Capital Markets. Your line is open.

Scott Heleniak -- RBC Capital Markets -- Analyst

Hey, good morning. I was just curious that I don't know if you can share this or not if you want to, but the geographic expansion you mentioned the three states, I don't know if those are ones you want to share, if not that's completely fine too. And I was wondering if those will be in -- is that going to be in both commercial lines and personal lines or one of the other or is that still kind of being worked out?

John J. Marchioni -- President and Chief Executive Officer

Yeah. So, yeah, I'm happy to answer the question. And I think we've talked about some of the states we had on our list of targets, but I don't know if we specifically disclosed the three, but the work if we've gotten. So the next three that we have for expansion which are going to be launched call it latter half of '22, but the work is starting in earnest as we speak would be Alabama, Vermont and Idaho and those are really round out states and adjacent states for our existing footprint. They don't have the same opportunity in terms of market players to some of our more recent states, but as we restart, those are the three most obvious candidates and we've got a number of others that we're evaluating for the next tranche where the work will start and earns in '22 as these states are starting to roll out.

Scott Heleniak -- RBC Capital Markets -- Analyst

Okay. And is that -- so is that in commercial lines interest line...

John J. Marchioni -- President and Chief Executive Officer

Commercial lines only. Sorry, I know you asked...

Scott Heleniak -- RBC Capital Markets -- Analyst

Commercial lines only, OK. Got you.

John J. Marchioni -- President and Chief Executive Officer

Commercial lines only.

Scott Heleniak -- RBC Capital Markets -- Analyst

Yeah, OK. And then I was just curious too on the agency plans. It sounds like those are still going to be kind of similar with what you've seen here for 2020, what you've seen in recent years. So, was wondering if -- so it sounds like COVID-19 didn't really have an impact on new appointments or personal lines, the high net worth personal lines initiative that really hasn't influenced, how you kind of looking at that? Is that...

John J. Marchioni -- President and Chief Executive Officer

It hasn't, Scott. There was a bit of a wobble in terms of new appointments coming on Board in, call it, April to June time frame as agents were scrabbling to get their lives under that in this remote environment, but we -- our prospect and process takes a long time and we engage pretty actively before we make an appointment and go through a process to ensure that it's a good fit. So that pipeline is pretty robust and allowed us to continue to make appointments. I would say this year, we're probably a little bit more back loaded in terms of when the newer appointments came on. But a number of 90 net of a small average termination number is a run rate we would expect to continue for the next few years and that doesn't anticipate new states and these states will obviously be additive to that number. But this is all within the context of our longer term targets of achieving a 3% market share, pushing on two levers, the share of wallet, which we talk a lot about and the agency control the markets that we're in being at least 25% across all of our states. We've got the headroom there. And it's --we're about 22% on average across our footprint. So this is still within our strategic framework of franchise value as we push toward that 25%.

Scott Heleniak -- RBC Capital Markets -- Analyst

Okay, understood. And then just last question was just on personal auto. You talked about the increased loss picks and everyone seeing lower frequency. The rates are coming down pretty much from what we hear across the board and you're seeing some competitors taking rate declines in certain states. So I'm just wondering how you're looking at the growth appetite versus rates kind of continuously coming down and whether you see a big change in -- have you seen a big change in the competitive environment since March and COVID-19 and all the auto insurers you are having favorable frequency? Just anything you can share there.

John J. Marchioni -- President and Chief Executive Officer

Yeah. I know, I -- there is no question. The competitive environment for stand-alone auto has definitely become more competitive. And this ties into the earlier discussion about how you view 2020 and how you modify your base pricing on a go-forward basis to incorporate the results of 2020 which is certainly what's happening in personal auto. The personal auto is also set up to more quickly havoc to the extent frequencies and severities normalize based on the annual policy cycle and the fact that base rate file changes actually immediately make their way into their -- for your book on an earned basis as you renew policies unlike in commercial where base rates are just one piece of the equation of managing your price on a year-over-year basis. So, yes, the competitive environment has tightened. But I think this is also sort of underlies our shift in strategy. And our expectation is -- and we've already been writing a fair amount of business on a multi-policy basis where we're writing both the auto and the home. And as we sort of migrate to the Apple in market, it's -- price still matters, but price isn't the deciding factor like it is in the mass market for personal auto. And I think that's just a -- that's a tough business to compete in mass market personal auto unless you've got significant scale and significant expense ratio advantages, because it is much more of a price game and we're migrating into a different marketplace.

Scott Heleniak -- RBC Capital Markets -- Analyst

All right, great. That's very helpful. Good luck. Thanks.

John J. Marchioni -- President and Chief Executive Officer

Thank you, Scott.

Mark A. Wilcox -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. That's our last question on queue. Speakers you may proceed.

John J. Marchioni -- President and Chief Executive Officer

I'm sorry. Operator, we're having a hard time here hearing you.

Operator

That's our last question on queue. You may proceed.

John J. Marchioni -- President and Chief Executive Officer

Great. Well, thank you very much for attending, for your time this morning. I appreciate the questions. And as always, any follow-ups, please reach out to Rohan. Thank you.

Mark A. Wilcox -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]

Duration: 67 minutes

Call participants:

Rohan Pai -- Senior Vice President, Investor Relations and Treasury

John J. Marchioni -- President and Chief Executive Officer

Mark A. Wilcox -- Executive Vice President and Chief Financial Officer

Michael Zaremski -- Credit Suisse -- Analyst

Matthew Carletti -- JMP Securities -- Analyst

Meyer Shields -- Keefe, Bruyette & Woods -- Analyst

Robert Farnam -- Boenning & Scattergood, Inc. -- Analyst

Ronald Bobman -- Capital Returns Management -- Analyst

Scott Heleniak -- RBC Capital Markets -- Analyst

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