Earnings Call Transcript - AFG Q4 2022

Diane Weidner, Vice President of Investor Relations

Thank you. Good morning, and welcome to American Financial Group's Fourth Quarter 2022 Earnings Results Conference Call. We released our 2022 fourth quarter and full year results yesterday afternoon. Our press release, investor supplement and webcast presentation are posted on AFG's website under the Investor Relations section. These materials will be referenced during portions of today's call. I'm joined this morning by Carl Lindner III and Craig Lindner, Co-CEOs of American Financial Group; and Brian Hertzman, AFG's CFO. Before I turn the discussion over to Carl, I would like to draw your attention to the notes on Slide 2 of our webcast. Some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties that could cause actual results and/or financial condition to differ materially from these statements. A detailed description of these risks and uncertainties can be found in AFG's filings with the Securities and Exchange Commission, which are also available on our website. We may include references to core net operating earnings, a non-GAAP financial measure, in our remarks or in responses to questions. A reconciliation of net earnings attributable to shareholders to core net operating earnings is included in our earnings release. And finally, if you are reading a transcript of this call, please note that it may not be authorized or reviewed for accuracy. As a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statements. Now I am pleased to turn the call over to Carl Lindner III to discuss our results.

Carl Lindner III, Co-CEO

Well, good morning. We're pleased to share highlights of AFG's 2022 fourth quarter and full year results, after which Craig, Brian, and I will respond to your questions. AFG's financial performance during the fourth quarter was excellent and a strong finish to an outstanding year. Core operating return on equity topped 21% and nearly all of our Property & Casualty businesses grew during the year, establishing a record level of premium production for the company. We are also very pleased to report record full year underwriting profit and investment income in our Specialty Property and Casualty business. Our compelling mix of Specialty Insurance businesses and entrepreneurial culture, disciplined operating philosophy, and astute team of in-house investment professionals collectively have enabled us to outperform many of our peers over time. Craig and I thank God, our talented management team and our employees for helping us to achieve these exceptionally strong results. I'll now turn the discussion over to Craig to walk us through AFG's fourth quarter results, investment performance, and our overall financial position at December 31.

Craig Lindner, Co-CEO

Thanks, Carl. As you'll see on Slide 3, AFG's core net operating earnings were $11.63 per share for the full year 2022, generating a core operating return on equity of 21.2%, which was even better than the excellent 18.6% core ROE achieved in 2021. The earnings power of our operations, coupled with efficient capital management, allows AFG to produce returns on equity in excess of most of our peer property and casualty insurers. Understanding that capital management is a critical component of delivering top-tier ROEs, we make capital management one of our highest priorities. Returning capital to our shareholders is an important component of our capital management strategy and reflects our strong financial position and our confidence in AFG's financial future. Carl and I are pleased that we returned $1.23 billion to shareholders during 2022, including just over $1 billion or $12 per share in special dividends and $197 million in regular common stock dividends. Our quarterly dividend was increased by 12.5% to an annual rate of $2.52 per share beginning in October of 2022. We're proud of our track record of value creation. During 2021 and 2022, we returned a total of $3.9 billion in capital to shareholders in the form of dividends and share repurchases. In addition to deploying the excess capital created from the sale of our annuity business, we've continued to generate and deploy excess capital through AFG's strong property and casualty operations. Growth in adjusted book value per share plus dividends was an impressive 18.5% in 2022. Turning to Slides 4 and 5. You'll see that the fourth quarter of 2022 core net operating earnings per share of $2.99 produced an annualized fourth quarter core return on equity of 22.3%. Net earnings per share of $3.24 included after-tax non-core realized gains on securities of $0.25 per share, which include fair value changes on securities that we continue to hold at the end of the quarter. Now I'd like to discuss the performance of AFG's investment portfolio, financial position and share a few comments about AFG's capital and liquidity. The details surrounding our $14.5 billion investment portfolio are presented on Slides 6 and 7. Pretax unrealized losses on AFG's fixed maturity portfolio were $630 million at the end of the fourth quarter, reflecting the increase in market interest rates and widened credit spreads compared to year-end 2021. As we entered 2022, the duration at our fixed maturity portfolio was at its lowest in recent history. Over the course of the year, we acted on opportunities presented by the increasing interest rate environment and extended the duration of our P&C fixed maturity portfolio, including cash and cash equivalents from approximately 2 years at December 31, 2021, to approximately 3 years at December 31, 2022. In the current interest rate environment, we're able to invest in high-quality, medium duration, fixed maturity securities at yields of approximately 5.5%, which compare favorably to the 4.15% yield earned on fixed maturities at our P&C portfolio during the fourth quarter of 2022. In addition to the positive effect of higher reinvestment rates, we anticipate that our portfolio of floating rate securities, primarily linked to 1-month or 3-month indices, will benefit from further increases in short-term interest rates. Overall, we expect the yield on our Property & Casualty fixed maturity portfolio to rise by 20 basis points by the fourth quarter of 2023 compared to the 4.15% yield in the fourth quarter of 2022. For the quarter ended December 31, 2022, Property & Casualty net investment income decreased by 19% compared to the same period in 2021. This included an annualized return on alternative investments of around 5.3% in the fourth quarter of 2022, significantly lower than the impressive 26.3% return in the fourth quarter of 2021. The average annual return on AFG's alternative investments over the five calendar years ending December 31, 2022, was about 14%. Excluding the effect of alternative investments, net investment income from our Property & Casualty insurance operations for the three months ended December 31, 2022, rose 64% year-over-year due to higher interest rates, aided by the strategic positioning of our portfolio entering 2022 and increased invested asset balances. For the 12 months ended December 31, 2022, P&C net investment income was approximately 3% higher than the comparable 2021 period and included a return on investments on alternative investments of 13.2% for 2022 compared to the remarkably strong 25.3% earned on alternative investments in 2021. We're very pleased with the double-digit return on alternative investments earned in 2022 in a challenging investment environment. Excluding alternative investments, net investment income at our property and casualty insurance operations for 2022 increased 29% year-over-year as a result of the impact of rising interest rates and higher balances of invested assets. As we look forward to 2023, our guidance for the year reflects a return of approximately 7% on our $2.1 billion portfolio of alternative investments with an assumed high single-digit return on our multifamily housing-related investments anticipated to be partially offset by somewhat weaker performance of traditional private equity investments. Please turn to Slide 8, where you'll find a summary of AFG's financial position at December 31, 2022. Our excess capital was approximately $1.4 billion at December 31, 2022. This number included parent company cash and investments of approximately $876 million. During the quarter, we returned $224 million to our shareholders through the payment of a $2 per share special dividend and our regular $0.63 per share quarterly dividend. Yesterday, we announced a special dividend of $4 per share payable on February 28, 2023. This special dividend is in addition to the company's regular quarterly cash dividend of $0.63 per share most recently paid on January 25, 2023. Even with the $4 per share special dividend declared yesterday, we expect our operations to generate significant excess capital in 2023 to the point where we could deploy in excess of $500 million of excess capital for share repurchases or additional special dividends through the end of 2023. As you may recall, the portion of our excess capital that we view is available for special dividends and share repurchases is limited by our internal total debt-to-cap target of 30%, and that capital number is impacted by unrealized gains and losses on fixed maturities. However, it's important to note that each dollar of debt repurchased frees up approximately $2 of excess capital for distribution to shareholders. For the 3 months ended December 31, 2022, AFG's growth in book value per share plus dividends was 8.7%. For the 12 months ended December 31, 2022, AFG's book value per share plus dividends increased by 4.8%, reflecting very strong earnings, partially offset by the increased unrealized losses on fixed maturities from the impact of rising interest rates and widened credit spreads. Excluding unrealized losses related to fixed maturities, we achieved growth in adjusted book value per share plus dividends of 6.3% during the fourth quarter and 18.5% for the full year. The short duration of our fixed maturity portfolio and somewhat limited exposure to publicly traded common stocks when compared to some peer companies helped their performance in 2022. I'll now turn the call back over to Carl to discuss the results of our P&C operations and our expectations for 2023.

Carl Lindner III, Co-CEO

Thank you, Craig. Please turn to Slides 9 and 10 of the webcast, which include an overview of fourth quarter results. Our Specialty Property & Casualty businesses closed out 2022 on a strong note, producing record full year underwriting profit and record full year pretax Property & Casualty core operating earnings. I'm especially pleased that each of our Specialty Property & Casualty subsegments produced combined ratios of 90% or better for the fourth quarter despite elevated industry catastrophe losses. We set new records for premium production in 2022 and are meeting or exceeding targeted returns in nearly all of our businesses. When we look at year-over-year comparison of our Property & Casualty results for the fourth quarter, it's easy to lose sight of the strong fourth quarter results in 2022, especially noting the average crop results achieved in 2022 following the extremely results reported in our crop business in the comparable prior year period. As you'll see on Slide 9, the fourth quarter 2022 combined ratio was an excellent 86.6%, although 5.9 points higher than the exceptional 80.7% reported in the comparable prior year period. If we put our crop business aside, our combined ratio for the fourth quarter was comparable to the 2021 fourth quarter results. Results for the 2022 fourth quarter include a modest 0.9 points in catastrophe losses despite elevated industry catastrophe losses during the quarter. By comparison, catastrophe losses in the 2021 fourth quarter added 1.8 points to the combined ratio. Fourth quarter 2022 results included 3.6 points of favorable prior year reserve development compared to 5 points in the fourth quarter of 2021. Gross and net written premiums increased 6% and 5%, respectively in the 2022 fourth quarter compared to the prior year quarter. Year-over-year growth was reported within each of the Specialty Property and Casualty groups during the fourth quarter as a result of a combination of new business opportunities, increased exposures, and a good renewal rate environment. The drivers of growth vary considerably across our portfolio of specialty P&C businesses. In the aggregate, year-over-year growth in gross written premium for the full year in 2022, excluding crop insurance, is about half attributable to new business opportunities and change in exposures and half attributable to rate increases. Average renewal pricing across our Property and Casualty Group, excluding workers' comp, was up approximately 6% for the quarter and up approximately 5% overall, in line with the renewal rate increases reported in the prior quarter. The renewal rate environment has remained relatively consistent throughout the year and has enabled us to meet or exceed targeted returns in nearly all of our specialty P&C businesses. We've been focused on achieving adequate pricing for some time and have achieved overall rate increases across our entire specialty book for 26 straight quarters. We feel very good about the level of rate increases that we continue to achieve and, importantly, the impact of cumulative rate increases over time which have enabled us to stay ahead of prospective loss ratio trends and helped us to feel even more confident in the adequacy of our reserves. Given the focus on the reinsurance pricing and capacity, I wanted to provide an update on our reinsurance renewals. In January, we successfully renewed our 2023 property cat and property per risk treaties within a challenging reinsurance market. Our other divisional January 1 renewals have gone very well and were executed with terms similar to 2022. Talking about our property cat. Our property cat coverage has traditionally attached at levels that are relatively low compared to similarly sized peers. Having long-standing trusted relationships with reinsurance partners who understand our underwriting discipline and risk appetite and an existing catastrophe bond attaching at $125 million provided a solid foundation as we entered renewal discussions. We placed $75 million of coverage in excess of a $50 million per event primary retention for the vast majority of our U.S.-based operations. This new structure provides for an increase in our per occurrence retention from $20 million to $50 million and collapses our treaty tower to one layer of $75 million excess of $50 million, which covers us up to the attachment point of our catastrophe bond. Our cat bond provides coverage of 94%, up to $325 million for catastrophe losses in excess of our $125 million property cat tower and expires on December 31, 2024. Our management teams always consider reinsurance costs and higher retentions and ensure that these factors are reflected in the pricing of our primary property coverages. The terms, pricing, and retentions of our reinsurance arrangements, including the higher per occurrence retention in our property cat coverage, is factored into our 2023 guidance. Now I'd like to turn to Slide 10 to review a few highlights from each of our Specialty Property and Casualty business groups. Lower year-over-year underwriting profit in the Property and Transportation Group was primarily the result of average underwriting profitability in our crop insurance operations when compared to the exceptionally strong crop results reported last year. Excluding crop, the fourth quarter calendar year combined ratio in this group improved 2.8 points year-over-year, reflecting improved results in the majority of the businesses in this group. Catastrophe losses in this group, net of reinsurance and inclusive of reinstatement premiums were $7 million in the fourth quarter of 2022 compared to $15 million in the comparable last year period and were primarily attributable to Winter Storm Elliott. Fourth quarter 2022 gross and net premiums in this group were up 8% and 1%, respectively, when compared to the 2021 fourth quarter, primarily due to higher winter wheat commodity prices and new business opportunities attributed to crop products with higher sessions. Overall renewal rates in this group increased 7% on average for the fourth quarter of 2022, accelerating from the 5% rate increase reported in the third quarter. Pricing for the full year for this group was up 6% overall. Now in our specialty Casualty Group, higher year-over-year underwriting profits in our excess and surplus lines and excess liability businesses were more than offset by lower underwriting profitability in our workers' comp businesses. Though the underwriting profitability in our workers' comp businesses continued overall to be excellent. The businesses in the Specialty Casualty Group achieved an outstanding 81.3% calendar year combined ratio overall in the fourth quarter, 3.3 points higher than the exceptionally strong 78% achieved in the comparable prior year period. In the fourth quarter of 2022, gross and net written premiums both increased 4% when compared to the same prior year period, with the vast majority of businesses in this group reported growth during the quarter. Factors contributing to year-over-year premium growth included new accounts and strong account retention in our social services business, increased exposures from payroll growth and new business in our workers' comp businesses, and additional business opportunities in our E&S operations. The growth was partially offset by lower premiums in our mergers and acquisitions liability and executive liability businesses. Majority of the businesses in this group achieved strong renewal pricing during the fourth quarter. Renewal pricing for this group, excluding workers' comp was up 6% in the fourth quarter and was up 4% overall with both measures down about 1% from the renewal pricing in the previous quarter. Average renewal rates in this group for the full year, excluding comp, were up 7% and up 5% overall. The Specialty Financial Group maintained strong underwriting margins, reporting an 83.1% combined ratio for the fourth quarter of 2022, which is a 2.4 point improvement from the same period last year. The increase in year-over-year underwriting profit was mainly due to the positive effects on underwriting results from lower-than-expected reinstatement premiums linked to Hurricane Ian. Catastrophe losses for this group, after reinsurance and factoring in the adjusted reinstatement premiums from Ian, resulted in a beneficial impact of $3 million in the fourth quarter, compared to losses of $6 million in the previous year’s quarter. For the fourth quarter of 2022, gross and net written premiums rose by 12% and 15%, respectively, compared to the prior year, primarily driven by growth in our financial institutions and commercial equipment leasing sectors. Additionally, the lower-than-anticipated reinstatement premiums from Hurricane Ian aided in boosting year-over-year net written premiums. Renewal pricing for this group increased by 4% in the fourth quarter, aligning with rate hikes from the previous quarter, and saw a 5% rise for the entire year of 2022. Now if you'd please turn to Slide 11, where you'll see a full-page summary of our initial guidance for 2023. Overall, we continue to expect an ongoing favorable property and casualty market with opportunities for growth arising from both continued rate increases and exposure growth. We expect AFG's core net operating earnings in 2023 to be in the range of $11 to $12 per share, which produces a core return on equity of over 20% at the midpoint. Our guidance reflects an average crop year and the expectations and assumptions regarding investment income including an estimated return on alternative investments of 7% in 2023 compared to 13.2% achieved last year. Core net operating earnings at the midpoint of our 2023 guidance, excluding income from alternative investments would increase 10% year-over-year from 2022's results on a similar measure. As we consider the outlook for our Specialty Property and Casualty operations, we expect a 2023 combined ratio for the Specialty Property and Casualty Group overall between 86% and 88%. Net written premiums for 2023 are expected to be 3% to 5% higher than the $6.2 billion reported in 2022, and excluding crop, we expect growth in the range of 4% to 6% in what we expect to be a more challenging economic environment. Looking at each subsegment, we expect Property and Transportation Group combined ratio to be in the range of 89% to 93%. Again, our guidance assumes average crop earnings for the year. We estimate growth in net written premiums for this group to be in the range of 1% to 3%. Our premium growth guidance factors in the impact of commodity futures pricing and volatility on crop premiums, which at current levels would negatively impact premiums and related exposure year-over-year in our crop business. Based on current commodities futures pricing, we expect net written premiums in our crop insurance business to be down 3% year-over-year. Excluding crop, growth in net written premiums in this group is expected to be in the range of 3% to 5%. Specialty Casualty Group is expected to produce a combined ratio in the range of 80% to 84%. Our guidance assumes continued calendar year profitability in our workers' comp businesses overall, and we're estimating growth in net written premiums in a range of 4% to 8%. Premium growth will be tempered by rate decreases in our workers' comp book, which are the result of favorable loss experience in this line of business. So excluding workers' comp, we expect premiums in this group to grow in the range of 6% to 10%. Now we expect the Specialty Financial Group's combined ratio to be in the range of 83% to 87%, with all businesses in this group projected to produce strong underwriting margins, and we expect growth in net written premiums for this group to be in the range of 4% to 8% based on projected growth in nearly all of the businesses across this group. We expect renewal rates overall to increase between 2% and 4% in our Specialty Property and Casualty operations overall and excluding comp, we expect renewal rate increases to be in the range of 3% to 5%. Craig and I are very pleased to report these exceptionally strong results for the fourth quarter and full year, and we're proud of our proven track record of long-term value creation. Our insurance and investment professionals have executed well in a dynamic insurance industry and uncertain economic environment, but their work positions us very well as we begin 2023. I will now open the lines for the Q&A portion of today's call. And Craig, Brian, and I would be happy to respond to your questions.

Operator, Operator

Our first question comes from Paul Newsome from Piper Sandler.

Jon Newsome, Analyst

Congratulations on the year. I was hoping you could just kind of reassess a little bit the competitive environment for the variety of your specialty businesses. It felt like it got a little bit more competitive in 2022. I don't know if that's a fair thing as the year went by, and it maybe seems like it's not really tailing off despite some of the volatility inflation and the higher reinsurance prices. Is that a fair assessment? Or am I obviously probably oversimplifying it?

Carl Lindner III, Co-CEO

We have around 30 specialty businesses, and I would say we have observed increased competition in certain areas, particularly in California's workers' compensation and higher excess layers on national excess liability risks, as well as in the public D&O sector. There seems to be a larger number of competitors in these areas, making them more competitive. In most of our other businesses, competition is relatively stable, with perhaps a slight increase in competitiveness. However, factors such as social inflation, rising property catastrophe pricing, and a slowing economy have contributed to maintaining a reasonably competitive environment for the majority of our operations.

Jon Newsome, Analyst

Makes sense. Maybe a few thoughts on sort of the talent pool as you're trying to grow it. It doesn't seem like you added a ton of new teams or new segments in a while, other than maybe a couple here and there. Is this just a sign of how competitive it is in the environment? Or is it philosophically you're trying to be more careful and more conservative in how you think about new products and new businesses?

Carl Lindner III, Co-CEO

Last year, we experienced growth of 11%. During and after COVID, the talent market was challenging across many industries, and we were no exception. However, I believe our HR team did an excellent job attracting the talent needed for our growth. Therefore, I didn't perceive talent as a significant barrier. We are a successful company with a culture, values, and incentives that people appreciate, and we have built a strong reputation in our industry. Consequently, I don't view talent as an obstacle to our growth or our objectives. We continuously seek opportunities to expand geographically across all our businesses and in specific niches. However, finding the right opportunities for growth or suitable acquisitions, which must also guarantee double-digit returns on equity over time, is always more complicated. While being accretive is easier given the current low-interest rates, our focus remains on adding businesses and investing capital with the expectation of earning those double-digit returns.

Operator, Operator

Our next question comes from the line of Michael Zaremski of BMO.

Michael Zaremski, Analyst

First question on the outlook in terms of the decel in average renewal rates outlook, 2 to 4 year-over-year. I think hearing some of the color in the prepared remarks, some of it might be coming from workers' comp, but maybe you can kind of elaborate if there's any other lines of business you'd like to call out, maybe even moving some higher, some moving lower in terms of expectations?

Carl Lindner III, Co-CEO

Yes, Mike, that’s a great question. In workers' compensation, we are seeing some rate reductions tied to positive outcomes. It's a bit of a mixed situation. The previous year was excellent for both the industry and us, generally performing better over the last couple of years than expected. That certainly factors in. However, I believe some of our workers' comp sectors will continue to grow, and overall, our comp businesses are achieving strong results. Our pricing guidance outside of comp is between 3% to 5%, and the prospective loss ratio trends, excluding comp, are around 5%. We are not fully meeting our desired rate increases in certain lines, especially in Public Directors and Officers insurance, which is more competitive than it should be, and higher excess liability business among Fortune 1000 companies. As a business, we probably won't reach the anticipated loss ratio trend. That said, I want to be cautious here because we have seen really strong cumulative increases over several years in our portfolio, and we are operating at an 87% combined ratio this year. Some of our businesses are above that threshold, while others perform better. We evaluate each business and determine the appropriate strategy for each. So that's my perspective on the situation.

Michael Zaremski, Analyst

Okay. That's helpful. I admit I'll have to reread the transcript a bit on the good reinsurance renewal color. But I think I heard that retention went up materially. And if that is correct, should we be just thinking about anything in our models in terms of seasonality now or cat load or something?

Carl Lindner III, Co-CEO

I believe we make a concerted effort each year to incorporate everything into our guidance, and I think we've done a good job reflecting that. Specifically, regarding retention, it increased from 20 to 50, but we probably should have already been at 50. Considering the online rate and the premiums we were paying for that lower layer, it could be argued that we should have maintained it. So, it's not an additional $30 million of exposure; it's more like we likely paid around $15 million. Thus, it's not the full amount of retention that really affects us, if that makes sense.

Michael Zaremski, Analyst

Okay. Yes, now that helps put it in context. Okay. And maybe I appreciate that there's lots of different lines of business, but there's been a lot of discussion on some of your competitors' calls about loss trend maybe creeping up a bit for some, particularly not just on the property side, but a bit on the casualty side. Some have talked about the transportation segment that you guys have one of the most profitable transportation segments of publicly traded insurers. But any changes that you'd like to call out you're seeing on the margins on loss trends?

Carl Lindner III, Co-CEO

I don't think so. In previous calls, I mentioned that when we analyze prospective loss ratio trends and the numbers we're using, we have been fairly conservative and aligned with the current trends. I've noted that commercial auto liability isn't performing as well as we would like, likely hovering around breakeven underwriting profit. We implemented about a 9% rate increase and our estimated loss ratio trend for that stands at approximately 7%, which we believe is satisfactory. I also mentioned before that in some segments of our excess liability business, we are observing prospective loss ratio trends nearing 14% as we determine our pricing and consider our reserving. Overall, I don’t believe this has significantly changed, and we have maintained this approach for most of the year.

Michael Zaremski, Analyst

Okay. Lastly, regarding the investment portfolio, I wanted to ask about the alternative guide of 7%. Does that suggest a weaker first quarter of 2023? Or is it simply that we’ve been on a good run and are factoring in potentially lower returns due to the current macro environment, even though interest rates have increased? I’m just looking for clarity on how to interpret this.

Craig Lindner, Co-CEO

This is Craig. I'll explain how we reached the 7% figure. Approximately 60% of our alternatives are in multifamily, and we've experienced remarkable returns in this sector over the past couple of years, around 20%. We've successfully increased renewal rates significantly and made some property sales. Now, we believe we have returned to a more typical environment. Though we still value this asset class and our position in it, the days of double-digit rental rate increases are over. We anticipate this year will see rental rate increases ranging from 3% to 5%, which will affect the NOI. We consider our portfolio valuations to be reasonably conservative, with the average cap rate at year-end market value close to 5%. In the strong growth markets we're involved in, transactions aren't exceeding a 5% cap rate, so we feel positive about our position. We don't foresee substantial mark-to-market increases or property sales like in previous years. We're expecting a high single-digit return from the multifamily segment, which makes up about 60% of our portfolio. The remaining 40%, which consists of more traditional private equity, is considerably more challenging to value. Last year we significantly outperformed the market; while the S&P dropped about 18%, our private equity increased by approximately 6%. As is standard, private equity valuations typically lag, so we remain cautious about our outlook on that traditional private equity segment. It's the part that's most difficult for us to assess. Given the strong market conditions earlier this year, I hope the returns from that segment will exceed our expectations. That's the basis for the 7% figure regarding the $2.1 billion in alternatives.

Operator, Operator

Our next question comes from Meyer Shields of KBW.

Meyer Shields, Analyst

A quick question, I guess, to start with. I think it's more of a modeling question than a reality question. But the other specialty segment had some adverse reserve development in every quarter in 2022. And I was hoping you could talk about what's going through that.

Brian Hertzman, CFO

Sure. This is Brian. The other specialty primarily refers to our internal reinsurance facility, where we handle more corporate business than in the individual business units. We're noticing adverse development in some lines affected by social inflation, particularly in excess liability, where we've been involved in reinsurance beyond the business unit level. Social inflation is influencing the current figures. As you know, we are conservative in our reserving practices, so we believe we're in a solid position now. However, this is what accounts for the $13 million this quarter and the $40 million for the year as adverse development arising from social inflation exposed businesses that are part of our Specialty Casualty segment going into that reinsurance facility.

Meyer Shields, Analyst

Okay. That's helpful. And then one other question. Can you give us a sense as to the macroeconomic growth that underpins your net written premium growth expectations for 2023?

Carl Lindner III, Co-CEO

I'm not sure we really have a solid basis for comparing our performance against a specific GDP figure because each of our businesses operates in different economic environments. For instance, we see variations in areas like equine mortality and workers' comp. However, we have adjusted our premium guidance to reflect a slowing economy. This slowdown can affect payroll, sales, and the factors that premiums are based on across our various businesses, and that certainly has an impact.

Meyer Shields, Analyst

Okay. Understood. Like the third question is if that the delta between pricing and premium growth is 1%, which seems fairly conservative.

Carl Lindner III, Co-CEO

As I mentioned before, we are projecting that the crop business will be down 3%. We won't know for sure until we see the average future prices for soybean and corn in February, so we'll have more clarity at the end of that month. I believe this will have an impact. Additionally, I noted earlier on the call some competition that seems illogical, particularly in areas like public D&O and high excess liability, where new entrants are trying to establish a foothold. This could cause issues for us in the future, especially since those two businesses are susceptible to social inflation. I am confident of that.

Operator, Operator

Thank you. I'm showing no further questions at this time. I will just turn the call back over to Diane Weidner for any closing remarks.

Diane Weidner, Vice President of Investor Relations

Thank you all for joining us this morning. This concludes our prepared remarks and Q&A session, and we look forward to talking with you all again next quarter. Thank you.

Operator, Operator

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.