Good day, everyone. Welcome to Selective Insurance Group's second quarter 2021 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. Thank you. You may begin.
Thanks. Good morning, everyone. We're simulcasting this call on our website, selective.com, and the replay will be available until August 28, 2021. Our supplemental investor package, which provides GAAP reconciliations of any non-GAAP financial measures referenced today, also is available on the investor's page of our website. Today, we will discuss our results and business operations using GAAP financial measures that are also included in our annual, quarterly, and current report filed with the U.S. Securities and Exchange Commission, non-GAAP operating income and non-GAAP operating return on common equity, which we use to analyze trends in operations and believe make it easier for investors to evaluate our insurance business. Non-GAAP operating income is net income available to common stockholders, excluding the after-tax impact of net realized gains or losses on investments and unrealized gains or losses on equity securities.
Non-GAAP operating return on common equity is measured as non-GAAP operating income divided by average common stockholders' equity. We also use 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 risk and uncertainties. For a detailed discussion of these risks and uncertainties, please refer to our annual and quarterly report 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. I'll turn the call over to John.
Thank you, Rohan. Good morning. I'll make some introductory comments on the results. I'll highlight some of the higher-level themes impacting the industry and our company. Mark will discuss our financial results. I'll return to provide an update on some of our strategic initiatives that position us for sustained financial and operating outperformance. We generated excellent financial results in the second quarter, with a 17.1% annualized non-GAAP operating ROE. Both our underwriting and investment operations were strong contributors to the financial results for the quarter. For the first half of the year, our annualized non-GAAP operating ROE of 16.4% was well above our full-year operating ROE target of 11%, continuing on our strong track record of excellent results. Similar to the first quarter, favorable prior year casualty reserve development and strong alternative investment income drove the outperformance.
While underlying underwriting and investment performance are in line with our ROE target for the year. For the quarter, our solid net premiums written growth of 12% after adjusting for the prior year COVID-19 related personal and Commercial Auto credits, was driven by overall renewal pure price increases averaging 5.1%, strong new business growth, and stable retention rates. Our 89.8 combined ratio for the quarter benefited from moderate catastrophe losses and 2.3 points of favorable prior year casualty reserve development. The underlying combined ratio of 89% reflects our superior underwriting capabilities and the quality of our book of business. Net investment income after tax totaled $67 million in the quarter, benefiting from the exceptional performance from our alternative investment portfolio. While our alternative investments, particularly private equity, have generated outsized returns so far this year, we expect performance to normalize in the coming quarters.
I'd like to highlight a few key themes. First, our ability to consistently execute on our objectives around profitable growth is a testament to our strong distribution partner relationships, sophisticated and granular pricing capabilities, underwriting tools, and superior customer servicing capabilities. We have a unique franchise built on a foundation of customer centricity and operational excellence. While economic resurgence and strong market pricing are positive tailwinds that have helped our growth, our continued disciplined underwriting and focus on obtaining renewal pure price increases at or above expected loss trends have been equally important. Our sophisticated underwriting tools provide us with a deeper understanding of the profitability and risk characteristics of our book and give us confidence to generate higher growth rates when market opportunities arise.
For the first half of the year, commercial lines renewal pure price increases averaged 5.5%, new business was up 8%, and the renewal retention rate was 85%, in line with the year-ago period. For smaller commercial lines accounts, with policy premium of less than $10,000, renewal pure price increased 4.8% in the first half of the year, while larger accounts in excess of $100,000 in premium generated renewal pure price increases of 6.2%. Across all size cohorts, our highest quality accounts based on future profitability expectations, which constituted 25% of our renewal premiums for the first half of the year, produced 3.1% pure rate and point of renewal retention of 93%. Our most challenged accounts, comprising 11% of our renewal premium, generated 10% pure rate and point of renewal retention of 84%.
Our granular approach to understanding risk and administering the appropriate price has allowed us to maintain strong retention while generating loss ratio improvement through an improved mix of business. Second, the lower for longer interest rate environment is poised to result in a multi-year decline in after-tax book yields on investment portfolios, resulting in reduced contribution of investment income to ROEs. While alternative investments have been a strong contributor to overall investment performance during the equity market rally over the past decade, consistently replicating that level of performance will be difficult. Maintaining discipline to deliver higher returns from underwriting will be increasingly important. We are well-positioned to do so. From an investment allocation standpoint, we intend to remain conservative, maintaining a high-quality portfolio with adequate liquidity, with a goal towards supporting our underwriting operations and strong capital position. The third key theme is inflation.
Current inflationary pressures on the short tail lines are largely being offset by continued lower than expected loss frequencies on those same lines. To the extent these inflationary pressures persist, they will need to be reflected in forward loss trend expectations. This impact could be exacerbated by severe catastrophe losses that create additional demand surge for building materials, putting greater stress on supply chains and labor shortages. Medical CPI, a significant driver of Workers' Compensation loss trend, has remained fairly benign. As courts continue to reopen and backlogs are addressed, we expect social inflation trends to reemerge. Over the longer term, sustained higher than expected inflation would need to be factored into how companies build expected trend into their loss picks, a process for which we have always been diligent and transparent.
Our disciplined planning process, along with our 10-year track record of obtaining renewal pure price increases at or above loss trend, has us well-positioned. I'd like to highlight that Selective remains in the strongest position in our history from an operating and financial standpoint. We are executing extremely well on our plans to generate consistent and profitable growth. Our strong capital position provides us with the flexibility to invest in the most attractive opportunities. I'll come back to provide additional commentary, but now I'll turn the call over to Mark to review the results for the quarter.
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 second quarter, we reported excellent net income available to common stockholders for diluted share of $1.98, and non-GAAP operating earnings per share of $1.85. We reported an annualized ROE of 18.3% and a non-GAAP operating ROE of 17.1%, with meaningful contributions from both our insurance and investment operations. For the six months ended June 30th, our annualized non-GAAP operating ROE of 16.4% is well above our 11% target for the year. Overall, we are extremely pleased with our performance so far this year. Consolidated net premiums written for the second quarter increased 15% compared with a year ago, or 12% when adjusted for $19.7 million of COVID-19 related premium credits in the prior year period.
The primary drivers of our top-line growth was strong renewal pure price increases, solid retention rates, and very strong new business growth in our Standard Commercial Lines and E&S segments. Year to date, net premiums written have increased 19%, or 11% when adjusted for the prior year COVID-19 related premium items. We reported an extremely strong consolidated combined ratio of 89.8% for the second quarter. Included in the combined ratio are $22.6 million of catastrophe losses, or 3.1 points, and $17 million of net favorable prior year casualty reserve development, or 2.3 points. On an underlying basis, or excluding catastrophes and prior year casualty reserve development, the combined ratio was 89% in the quarter. For the first half of the year, we reported a combined ratio of 89.5% and an underlying combined ratio of 89.4%.
Our year-to-date underlying combined ratio of 89.4% compares favorably to our initial 2021 guidance of a 91% underlying combined ratio and reflects better than expected non-GAAP property losses and a lower than expected expense ratio for the first half of the year. Moving to expenses, our expense ratio was 32.7% for the second quarter, compared with 34.3% for the prior year period. The year-over-year expense ratio included 2.2 points of specific COVID-19 related items, including the provision for bad debts and the impact of the COVID-19 related auto premium accrual. Year-to-date, our expense ratio of 32.4% reflects lower than expected travel and entertainment, overhead, and general and administrative expenses. We expect some of these expenses to start reverting to more normal levels in the second half of the year, putting some upward pressure on the expense ratio.
We continue to expect ongoing improvement to our expense ratio over the next two-year period. Corporate expenses, which are principally comprised of holding company costs and long-term stock compensation, total $9.1 million in the quarter compared to $6.3 million a year ago. The increase was driven by strong performance relative to our peer group, as well as an increase in our stock price, both of which impacted the variable component of our long-term incentive-based compensation plan. Turning to our segments. For the second quarter, Standard Commercial Lines net premiums written increased 16%, or 13% when adjusted for the year ago $15.4 million of COVID-19 related Commercial Auto premium credits. Drivers of Standard Commercial Lines net premiums written growth for the second quarter included excellent new business growth of 17%, stable retention of 85%, and renewal pure price increases averaging 5.5%.
Exposure growth from revised economic activity was also a factor. For the first six months, net premiums written increased 22%, or 13% when adjusted for the prior year COVID-19 related items. The Commercial Lines combined ratio was a profitable 88.7% for the second quarter, included 1.9 points of catastrophe losses and 2.5 points of net favorable prior year casualty reserve development. The favorable prior year reserve development consisted of $5 million for Workers' Compensation and $10 million for General Liability relating to lower-than-expected claims emergence for accident years 2018 and prior. The underlying combined ratio was a profitable 89.3%. In our Personal Lines segment, we reported flat net premiums written, although premium was down 5% when adjusted for the year ago $4.3 million of COVID-19 related Personal Auto premium credits. Net premiums written trends reflect continued competitive market conditions, particularly for Personal Auto.
Renewal pure price increases averaged 1.1% for the quarter. Retention was flat relative to year ago at 84%, and new business was down 8%. The combined ratio in the quarter was a profitable 92.3%, and the underlying combined ratio was a profitable 85.5%. In our E&S segment, we reported 23% net premiums written growth for the quarter relative to a year ago. Renewal pure price increases averaged 6.9%. New business was up a strong 19%, and retention increased. The combined ratio for the segment was 96.6% in the quarter, driven by catastrophe losses equating to 9.5 points, which is partially offset by three points of net prior year casualty favorable reserve development. The underlying combined ratio was a profitable 90.1%. Moving to investments. Our investment portfolio remains well-positioned.
As of quarter end, 91% of our portfolio was invested in fixed income and short-term investments with an average credit rating of A+, an effective duration of 3.9 years, and offering a high degree of liquidity. As we have been preempting on recent calls, the decline in the average credit rating of our fixed maturity portfolio to A+ in the quarter from AA- reflects the meaningful reduction in our sector allocation to agency RMBS over the past year, as lower interest rates have accelerated prepayments as we had expected. Given the very low reinvestment rates for this asset class, we have reallocated these non-sale disposal cash flows into other high-quality fixed income sectors, including corporate bonds and other ABS sponsors that do not carry a AAA rating, but in our view, currently offer a better risk and return profile.
Risk assets, which include our high yield allocation contained within fixed income, public equities, and limited partnership investments in private equity, private credit, and real asset strategies, represent 11.6% of our investment portfolio. The increase in our risk assets to 11.6% from 10.4% at year-end was primarily driven by high evaluations. For the quarter, after-tax net investment income of $67.4 million was up $38.9 million from the year ago period, primarily driven by $24 million of after-tax alternative investment gains, compared to $13 million of after-tax alternative investment losses in the comparative quarter. As a reminder, net investment income from alternative investments is reported on a one-quarter lag. The after-tax yield on the total portfolio was 3.5% for the quarter, delivering a very strong 10.3 points of ROE contribution.
The after-tax yield on the fixed income securities portfolio was 2.6% in the second quarter, which is slightly down from 2.7% in the year ago period. The total return on the portfolio was 1.9% for the quarter, reflecting the strong alternative asset performance, as well as a slight pullback in longer-dated benchmark interest rates and a tightening of credit spreads, which increased the value of our fixed income securities. The average after-tax new money yields on fixed income purchases during the quarter was 1.8%, compared with 2.7% for the year ago period. Strong operating cash flow of $292 million for the first half of the year equated to 18% of net premiums written. Turning to capital. Our capital position remains extremely strong with $2.9 billion of GAAP equity. Book value per share increased 6% during the first half of the year to $44.78, benefiting from our strong earnings.
We have built significant financial flexibility with $505 million of cash and investments at our holding company. Our net premiums written to surplus ratio is slightly below our target range of 1.33 times. Our debt-to-capital ratio was 16% at June 30th. Given our strong capital position, we have the financial flexibility to grow at rates well above our 7%-9% sustainable growth rate for the foreseeable future if we continue to find attractive opportunities. We did not repurchase any shares during the second quarter or subsequent to the quarter end under our $100 million share repurchase program. During the first six months of the year, we repurchased approximately 53,000 shares at an average price of $64.49 for a total of $3.4 million. We still have available $96.6 million of remaining capacity under our share repurchase program, which we plan to use opportunistically.
I'll finish with some commentary on our updated outlook for 2021. We now expect a GAAP combined ratio excluding catastrophe losses of 89%. This is an improvement from our prior guidance of 90% and reflects strong profitability inclusive of net favorable casualty reserve development in the first half of the year. Our guidance assumes no additional prior accident year casualty reserve development. Our catastrophe loss assumption remains four points on the combined ratio. We are now projecting after-tax net investment income of $220 million, including $55 million in after-tax gains from our alternative investments. This is up from our prior guidance of $195 million and $31 million respectively, and principally reflects increased year-to-date as well as expected after-tax net investment income from our alternative investments.
We continue to expect an overall effective tax rate of approximately 20.5%, which includes an effective tax rate of 19% for net investment income and 21% for all other items. Weighted average shares remain 60.5 million on a diluted basis. In summary, we're off to a very strong start in 2021. We are pleased with our year-to-date growth rate of 19%, or 11% after adjusting for last year's COVID-19 items, and our 16.4% year-to-date operating ROE. While our reported results reflect some non-recurring benefits such as higher-than-expected alternative investment income, lower-than-expected CAT and favorable reserve development, our underlying results are strong. We are well-positioned to continue delivering superior financial results and strong returns to our shareholders over the long term. With that, I'll turn the call back over to John.
Thanks, Mark. We continue to execute on our objective of generating consistent and profitable growth by identifying ways to bring additional value to our customers and our distribution partners. Our long-term goal in Commercial Lines is to increase our market share to 3%, which is predicated on increasing our share of our distribution partners' overall premium to 12% and appointing new distribution partners to achieve a 25% agent market share. We seek to augment these initiatives by expanding into new states. Let me highlight some of our ongoing strategic initiatives. The rollout of our Market Max tool, which provides our distribution partners with insights into their overall portfolio and identifies target accounts to grow their business with us, continues to progress well. Market Max has currently been deployed in approximately 320 of our distribution partners and is targeted to grow to over 400 by year-end.
The tool has seen strong acceptance among our distribution partners and has been a key contributor to our strong new business growth over the past year. We are still just beginning to realize the full value of this investment. Our updated small business platform continues to roll out successfully. Our Business Owners, General Liability, automobile, umbrella, and cyber lines for eligible small business customers are now available on the new platform. We significantly streamlined the quoting and issuance process for eligible accounts and are experiencing a strong increase in small business submissions since the rollout. The Business Owners line of business, which became available to our agents in the new platform in the fourth quarter of 2020, saw new business premium increase from that line by more than 20%. In Personal Lines, we successfully launched our homeowners product changes targeting the mass affluent market at the end of June.
This customer base tends to place greater value on coverage and service, as such, is less price-sensitive. Our agents have responded favorably and have already begun submitting more of this business. Later this year, we plan to launch coverage enhancements to our auto product designed to better serve this customer segment. We saw solid growth in our E&S segment during the second quarter and expect continued strong performance moving forward as we continue to roll out our new agency automation platform that will further enhance our competitive position. Our focus within E&S remains small, lower hazard accounts. This segment continues to benefit from higher pricing and increased deal flow into the non-admitted space.
I also want to highlight our recently published environmental, social, and governance report, Driving Sustainable Impact, which lays out how ESG values are embedded in the way we do business and integral to the execution of our long-term priorities. These include understanding and attempting to mitigate the impact of climate change, providing customers with responsive claim services and risk mitigation solutions, and developing a highly engaged team of employees and leaders. Enhancing diversity, equity, and inclusion is a big part of creating an engaged culture that celebrates creativity, innovation, and idea generation. We seek to increase diversity at all levels of the organization. By acting in the interests of and providing value to all our stakeholders, we will serve the interests of our shareholders by generating sustained financial outperformance. As we look to the remainder of 2021, I'm extremely pleased with our market position and superior ability to execute.
I am confident that we can continue to build on our long-term track record of performance that meets or exceeds our ROE targets. With that, we'll open the call up for questions. Operator?
Thank you. We will now begin the question and answer session. To all participants, if you would like to ask questions, please press star followed by the number 1. Please unmute your phone and record your name and company name clearly when prompted. Your name and company name is required to introduce your question. To cancel your request, you may press star followed by the number 2. Speakers, we have two questions or three questions in queue. Our first question comes from Matt Carletti from JMP Securities. Your line is now open. You may proceed.
Thanks. Good morning.
Good morning, Matt.
John, I appreciated your comments on inflation. At least my read of it is that you have a healthy respect for it. My question is, what's your view of the industry from kind of twofold? One is, do you think others in the industry are taking the inflation that we're seeing seriously, or do you think some people are treating it more transitory? Then, the follow-on to that is, what impact do you think it'll have on the longevity of the pricing cycle?
Yeah, thanks, Matt. Great question. I always hesitate to comment too much on the industry, and certainly have read the comments and the responses to the questions from a number of peers who have reported to this point, and they all have different perspectives, and I think we'll all confidently state that they've got it factored into their loss sticks and factored into reserves. I can only speak to the discipline with which we have always managed loss trends and earned pure rate to offset loss trend in our own portfolio and the discipline we've had around that. I think the important part to understand is inflation doesn't just manifest itself in expected loss trend on a go-forward basis. Inflation will also manifest itself in some ways in your actual historical loss trend versus what you expected.
As you know, looking back over at least a decade, we've been not just disciplined around that, but highly transparent to our shareholders and the investor community in terms of how we view loss trends and our pure rate, renewal pure rate, and our loss picks. That's the first point I would make. I can't speak to whether other companies take the same approach that we do, but we maintain discipline on that. When you think about inflation and the impact on frequency and severity, I think it's important to put it in context. Clearly for everybody in the industry right now, evaluating frequency and severity trends is complicated by a few different factors. Obviously, one is social inflation. Social inflation is one that, while it'll impact your future loss trend expectations, is also going to be seen in your historical loss trends.
When you look back at those prior accident years, what is the actual change in frequency and severity versus what you thought it was? Is that manifesting itself in higher average severity? Is it manifesting itself in higher rates of litigation? How do you respond to that, and how does that influence your pick for the upcoming year? That's the first exceptional impact. Second exceptional impact, which a lot of time has been spent on, is COVID-19. I think there's clearly been a lot of focus around the drop in frequency in 2020 and how that's continued into 2021, albeit at a lower pace. Also the offsetting impact, in some cases, partially, maybe more so, of some increasing severity that has gone along with that. That is another exceptional factor that needs to be factored into how companies evaluate.
The third and more immediate is the economic inflation that everybody is seeing. Although when you break down the component parts of the CPI, you realize that it's largely driven by lumber and used cars are the big outlier. While you've seen a little bit of upward pressure in other areas. There's a number of different pieces there. I think the most immediate one, and again, from our perspective, this is always in our line of sight. It's always factored into how we evaluate loss trends and how we update loss trend assumptions. In terms of the more immediate economic inflation, I think you always want to keep that in context.
When you think about auto physical damage and the severity impact on that particular sub-line of business, severities had been on the rise in auto phys dam for the industry for a while, and previously was driven by the increased cost of repairing vehicles because of more technology in the vehicles. When you think about the impact of used cars, it's largely on total losses, and total losses are a portion and not the overwhelming portion of loss dollars in auto phys dam. You also want to think about that short-term impact to severity in the context of lower frequency. That's the first point. With regard to lumber, and my apologies for going on a little bit longer, there's the complicated answer to your question. With regard to lumber, I think it's important to also keep that in context.
Clearly that is now manifesting itself in average severity. Let me talk about home first, because in the homeowners line, lumber is going to have a bigger impact than it is in commercial lines. Lumber is just a small portion of the loss dollar. When you think about the other big piece, the big driver in CPI relative to home, it's going to be drywall. Drywall's only been up about 10% in the same time period. When you put all the pieces together for Personal, for home, let's say the construction cost index is up about 17%. Remember that about 20% of the average loss dollar is for non-building related items, extra expense and contents and those sort of things. It's in there, but it's not as bad as the headline would suggest.
At least for us, when you look at our frequency relative to non-CAT property, it continues to run a little bit lower than anticipated. There's an offset there. On a Commercial Property side, the actual construction cost index is probably closer to 5% and you've got about 40% of the loss dollars in Commercial Property that are not building related. I think that puts an important context around how the headline numbers work their way through. All that said, property is still a line in the industry that is running combined ratios well above its risk-adjusted target. That's a line that you never want to look at on an ex CAT basis. You want to look at it on a normalized CAT basis.
The other area of discipline that we have, and I can't speak to others, is with regard to insurance to value. We are constantly updating our coverage A values on the home side and our building values on the property side with an eye towards inflationary costs, and those get factored in and allow you to stay up front, at least in times of normal inflation. We're not going to prognosticate if this is transitory or not transitory and really focus more on the diligence and the process we've always had around embedding loss cost changes into our loss picks.
That's great. Thank you. Very insightful and really helpful. A quick follow-up, just some numbers answers probably for Mark. The CAT losses in Standard Commercial, do you have those by line? I think you've given them in the past between property, Commercial Auto, and BOP.
Sure, Matt. In the quarter, in Standard Commercial Lines, the catastrophe losses were $11.3 million or 1.9 percentage points on the combined ratio for Standard Commercial Lines. That's really spread across three lines of business. Within Commercial Property, it's $9.2 million. In Commercial Auto, it's about $500,000. In the BOP line, it's $1.6 million, for a total of $11.3 or again, 1.9 points on the combined ratio.
All right, great. Thank you for the answers and congrats on a really nice first year.
Thank you.
Thank you, Matt. Our next question comes from Paul Newsome from Piper Sandler. Your line is now open. You may proceed.
Good morning. Congratulations on the quarter.
You're welcome.
I want to ask you kind of a big picture question. You're getting rate above what you think the, knock on wood, the claims inflation is. What factors should we consider that might keep you from having underwriting margin expansion in 2022 versus 2021? Just maybe you could think about the pieces that we should be thinking about that might offset or change that embedded underwriting improvement.
Paul, I think it's a great question. I do think in part it ties back to the discussion we just had relative to loss trend and the impacts on loss trend. We've tried to stress this, and I know it gets complicated, but when you think about a forward loss pick, so think about 2021 into 2022, it's not just about what is the impact of expected loss trends and what is the impact of expected written rate. That certainly influences your loss pick for the upcoming year. The equal influence, at least for those of us who have a fairly disciplined and rigorous process around it, is looking back over the last five accident years and saying, okay, how with each passing quarter has my actual frequency and severity emerged? That's your historical loss trend.
When you look back and bring all those prior accident years to a fully trended basis based on actual changes in frequency and severity, then bring them to present rates, what was my earned rate in each of those years? That's your starting point. That starting point could be influenced by social inflation. To the extent social inflation hit the prior accident years and therefore your loss trend in those years is emerging a little worse than expected, either driven by frequency or severity, that is influencing up the pick for your upcoming year before you load on expected future trends and expected written rate. I think that's the one piece that we're certainly diligent about.
Fortunately for us, when we look back, the actual trends have been fairly stable with what we've embedded in there, and we've been earning rate at a very consistent basis to offset that trend. For everybody in the industry, that will be a big influence when they do their planning for 2022 on the casualty lines. I think that's the one area, and I'm not prognosticating for us or anybody else, but that is the one, I would say unknown or the information you would probably would not have from a lot of the companies when you think about rolling forward from this year to next.
Good. That's my only question. Appreciate it. Thanks.
Thank you, Paul.
Thank you, Paul. Our next question comes from Meyer Shields from KBW. Your line is now open. You may proceed.
Thank you, and good morning. I was just wondering on pricing, can you give us an idea of your outlook for, or your trajectory for, pricing on the commercial side? I know that it's 5%, 5.1%, it was 5.7% last quarter. Can you give us a sense of is that decelerating or kind of where do you see rate increases going from here?
Yeah. Obviously, if you look at our performance over the first two quarters, it's been relatively stable. While the market dynamic is an influence on how we manage pricing, we also have taken a very measured approach in terms of understanding our own pricing targets based on our starting point profitability and our expectation of trend, we're going to manage rate in that context as opposed to just trying to maximize rate in the short term because the market may or may not be conducive. I guess what I would point you to and how we think about this going forward and why we think the current pricing environment is sustainable is what's driving the pricing environment and whether those forces continue to be present when we look forward. We would argue that they are. Let me just hit the key ones.
Number one is the low interest rate environment. We all know where that is, and I think as we tried to point out in our prepared comments, while we think we've got a high-quality alternative investment portfolio and it's been generating really strong returns for us, we realize that that, to a certain extent for the entire industry, is masking the pressure on the core fixed income portfolios. When you roll forward the investment income impact from those declining yields, that is something that will put pressure on underwriting margins. The second piece is when you think about, a number of companies, not us, but other companies have continued to point to a little bit more volatility in their non-cat losses in the more recent quarters.
If you look back over the last couple of years, you've seen higher and elevated and more volatile cat and non-cat property. You've got firming reinsurance pricing, and while it may be disappointing for the reinsurers in terms of where they are relative to where they expected to be from a pricing perspective, prices are still up, and that has to be factored in. Loss trends, with or without additional inflation, continue to be a pressure point. As we pointed to, the social inflation trends that were emerging and included in our loss reserve estimates and our loss picks pre-pandemic, we fully expect to reemerge as the economy reopens. Everybody's dealing with those same drivers, and we think that props up the pricing environment.
The other, I think when you put it all together and think about it, is the starting margins for most of the industry needs improvement. I realize everybody's reporting really strong results. We tend to focus on the underlying, not ex cat, underlying with a normal cat load when you think about the starting point. When you look at that for many companies in the industry and the industry broadly, there's some loss ratio improvement still necessary. The final point I would make would be a lot of the back down in the last couple of quarters in the headline rate number for the industry have been driven by the lines that were really high in terms of rate level. So think high hazard, excess umbrella, specialty lines, D&O, EPL, management liability. That's what's bringing the overall number down.
I think you've seen a little bit more stability in Commercial Auto, General Liability, Commercial Property, and the lines that make up our portfolio.
Perfect. Just, you mentioned some, I think Mark mentioned some expense ratio improvement outside of the temporary COVID savings. Can you comment on that and sort of map out what the expense savings strategies are moving forward?
Certainly. When we went into 2021, we put forth our expectations for the full year of the combined ratio, which was a 91% underlying combined ratio. Embedded within that guidance, we talked about 40 basis points of expense ratio improvement, and that was off an adjusted 2020 expense ratio. As you know, 2020 had a number of COVID-19 items. It was 33.8 on a reported basis, but adjusted for the pluses and minuses, it was really a 33.4. Our expectation going into 2021 was for a 33 expense ratio, 80 basis points of actual improvement or 40 on an underlying basis. Year to date, we're at a 32.4, so about 60 basis points of improvement versus expectations. Really, a couple of drivers there. It really is travel and entertainment.
We had expected T&E to be a little bit lower than expected in the first half of the year than the run rate, but it's actually come in less than expected. Then we have just some overall general and overhead items that have come in below expected, and that includes things like rent, stationery, supplies, consulting fees, audit fees, and things like that's benefiting the expense ratio. We expect some of those items to perhaps revert back to more normal levels. Maybe a little bit of upward pressure on the expense ratio, getting us back to more of the expected level for the full year 2021. Going into 2022 and into 2023, we do have a plan in place, line of sight, and a path to continuing to be more efficient as a company.
That will be reflected in an expense ratio that we expect to be able to bring down. We've talked in the past about an appropriate expense ratio for our company, for our mix of business as we stand today of around a 32. We think there's a pathway to get there by the end of next year going into 2023. That's sort of how we're thinking about the overall expense ratio.
Thank you. That covers it for me.
Thank you, James. Our next question comes from Grace Carter from Bank of America. Your line is now open. You may proceed.
Hi. Thinking about the recent increases in severity in Personal Lines, I was wondering where the pricing outlook is today versus when y'all originally started thinking about the transition towards the mass affluent book. If as we kind of wait to see how these current severity trends play out, if there's any impact on your growth appetite or the expected speed of the rollout or uptake in the meantime. Thank you.
Yeah, sure. I don't know that our view has changed at all. I mean, honestly, when you look at what we're seeing in our own portfolio, and again, we've always talked about the frequency drop in auto, and it was certainly higher on the personal side than it was on the commercial side. Even the tick up in severity offsetting that was a lot more pronounced on the Commercial Auto side than it was on the Personal Auto side. We don't have anything in our data suggesting that there's been a significant shift from a severity perspective in Personal Auto. With regard to the pricing environment, I'm actually surprised that the pricing actions were as dramatic as they were in the middle of COVID.
Rather than providing the auto credits that were deemed to be appropriate, the notion of significantly adjusting your base rate on a go-forward basis, assuming some permanent shift in frequency and severity, I think is what caught some of the market participants short. We didn't do that. We kept our auto pricing relatively flat. It hurt our competitive position in the near term. I think our expectation is that the more recent results now are starting to put some upward pressure on Personal Auto pricing, and we think that'll start to make its way through the marketplace. Again, we're moving into a segment of business that we think is not as price sensitive, and certainly home is as big of a consideration in that account decision-making as auto is, and we think about it more on a package basis.
That's how we think about the market going forward.
Okay, thanks. Then I had a quick one on Standard Commercial Lines. We've heard a lot of peers talk about elevated property losses in the quarter, but if I look at y'all's non-cat property losses in Standard Commercial Lines, they don't look particularly out of line with recent quarters. I was just wondering the extent which y'all saw that as well, or if you didn't, if there's anything particular about the makeup of your book that helped you avoid that.
No, our non-cat property relative to our own expectations has been a little bit better than expected for the first half of the year. When you compare it to the prior year, last year was an exceptionally light non-cat property year. When we think about our normal run rate, we're a little bit better than expected on non-cat property. From a frequency, and it's frequency-driven. I mentioned earlier in the response to the question around inflationary impacts, some of those on the property side are impacting severity a little bit. In our portfolio, there's an offsetting frequency benefit. When you put it all together, we're a little bit better than expected on non-cat property.
Thank you.
Thank you, Grace. Our next question comes from Scott Heleniak from RBC Capital Markets. Your line is now open. You may proceed.
Yeah, good morning. Most of my questions have been answered, but I just had a couple real quick. Is there any way you can quantify what the, I'm assuming, I think you mentioned it was a benefit of premium audit exposure units. Is there any way you can quantify what kind of impact that was in the second quarter on growth versus the past few quarters? I would imagine that most of that benefit will be kind of in the second half into next year, but wondering if you are able to talk just a little more on that.
Yeah. Let me try to answer this for you. Generally speaking, from our perspective, the best way for us to think about exposure change, because there are different pieces that will move around in there that some companies consider exposure, others might not. We just look at the difference between the total premium change on a renewal book and the pure rate change. In the quarter, that was about 2.7 points, 2.7%. When you think about that in the overall portfolio, that renewal business is about 81% of the premium in the quarter. Assume a little over 2 points of the growth in the quarter would've been attributable to exposure change.
Okay. That's definitely helpful. I wanted to switch over to the share buybacks. You were active in share buybacks in Q1, and you weren't in Q2. I wonder if you could just provide just your thoughts and your appetite, how you're thinking about buybacks at current levels, and obviously the market's still attractive, and you're running a lot of business, but I'm just wondering how buybacks might be factored in and come into play as you look for the rest of the year.
Sure. Certainly, this is Mo. We put the buyback program in place back in December. As we mentioned, it's an opportunistic share buyback program. We're right now seeing very attractive opportunities to grow our business. You've seen the growth rate is significantly above where we've been for the last number of years. For us, the strong profitability we're generating, the capital that we're generating, the best use of capital is just to put it back into the business and grow our core operations because it's very attractive returns for our shareholders. When we think about the buyback program, it is going to be opportunistic. We would like to deploy it over a period of time. We'll be patient and judicious and look for an opportunity to enter the market to execute the buyback program.
We don't have a budget per se or a plan to execute it over a set number of quarters. It really is opportunistic.
Okay. I guess the last question I had was just on E&S. It sounds like you had good momentum premium there. It sounds like you have good momentum going into the second half of the year. You mentioned a new platform. Is some of this just expanding with distribution partners? If you can talk more on that in terms of, obviously, there's a lot more risk going to E&S than standard, but can you talk about how much of that is just kind of organic expansion through distribution and where you see that playing out into 2022?
Yeah, it's all organic through distribution. We occasionally will add a new distribution partner. We've just seen a lot more submission activity coming through in the E&S space. That's really driving the increase. The reference to the automation platform is. We talk a lot, and other market participants talk a lot about small business platform enhancements, which as we mentioned, we're rolling out. For E&S, we're rolling out something very similar, which is a full quote rate and bind system for the small E&S business, which we think will really enhance our competitive positioning with those wholesalers as that continues to roll out through the balance of this year and into early next year. We like the position in the market. The market's benefiting from strong rate.
As you saw, our rate level just under 7% in the quarter in E&S, but also pretty strong submission flow. The profile of the business we're writing is very similar to the profile of our book. It's that small binding authority business, casualty-driven, smaller contractors, habitational, those types of accounts.
Right. Okay. Appreciate the answers. Thanks.
Thank you.
Thank you, Scott. Speakers, we do not have any questions in queue. Once again, to all participants, if you would like to ask questions, please press star followed by the number one and record your name and company name clearly when prompted. To cancel your request, please press star followed by the number two.
Great. Well, thank you. If there's no further questions, we appreciate all your time this morning, and as always, please follow up with Rohan with any additional questions. Thank you.
Thank you.
That concludes today's conference. Thank you everyone for joining. You may now disconnect.