Question-and-Answer Session
Operator
(Operator Instructions) We’ll take our first question from Jay Gelb – Lehman Brothers.
Jay Gelb – Lehman Brothers
I was hoping you could touch on a couple of points. First on the auto frequency trend can you outline to what extent you think that is driven by higher gas prices and consumers driving less and the sustainability there? Also with the combined ratio in auto in the high 90’s do you feel you need to be taking more rate? The second issue I wanted to touch on is I don’t know if you can quantify the fully impact of the non-CAT weather in the large property losses in the quarter and finally Jay if you could touch on your appetite for M&A at this point?
Joseph Lacher
On the auto frequency piece Jay we have seen all the reports on fewer miles driven per vehicle and lots of speculation on gas prices. My answer is going to be equal speculation at this point unencumbered by fact. It looks like it to us. There is no real way to tell. That seems to be the most logical conclusion. We are not making the assumption it is sustainable and will continue to drop over the long-term. Given where we are right now that is not the basic assumption we are making going forward. We are obviously constantly watching it and we’ll see what happens but we are not assuming sustainability in terms of how we are going to navigate the business.
Relative to the pricing dynamic, we shoot for a mid-teens ROE. I’m not going to comment on specific pricing strategies of how we are working through it. We are obviously in the upper end of a tolerable combined ratio and we are obviously seeing the market place conditions we talked about and we’ll factor all of that into our pricing though process.
Jay Fishman
The one observation I can give Jay is we were updating the grid that we shared with you previously at Investor Day for targeted product returns. The combined ratio in auto that we generated in the quarter and I think in the six months, let’s check that but I believe it is true, the returns had an X for the auto business it would still be in that box that meets our targeted threshold of returns. So at these levels even given this interest rate environment because we are factoring that into our analysis the auto business continues to produce our targeted return in that 13-18% range we disclosed previously.
- To read the full transcript on Seeking Alpha, click here »
