On to the next speaker. Up next, we have Selective Insurance. We're very pleased to have John Marchioni, Selective's President and COO, and Mark Wilcox, the company's CFO. John has held the current role since 2013. He's been with the company for over 20 years, right? Mark joined Selective in 2017? From RenaissanceRe, where he was Controller and Chief Accounting Officer, right? We've been hosting this conference now, I think, for about 20 years. I think I say the same thing every time. I think you've been here almost every single one. I could basically use the same introduction every single time, which speaks to the consistency of the underlying message and the focus on the agency channel and everything they do. At the same time, the company has evolved with the marketplace, notably.
With that introduction, let me turn the floor over to you to tell us how you do it.
Thank you, Allison. I'm John Marchioni, Selective's President and Chief Operating Officer. I'll start and then turn it over to Mark. We're going to try to move through this quickly so we can leave some time for questions at the end. I appreciate Allison's opening. I think it really does talk a lot about who we are as a company. We're a company that's had a very consistent strategy for a long time now. Our set of competitive advantages has been very consistent. We've also tried to evolve as a company and position ourselves for the future. While we're proud of the results that we've delivered and our consistent operating performance, we also think we are extremely well-positioned for the future. I'm going to spend a good part of my time taking you through those different pieces.
Let me just start with a little bit about who we are as an organization. Selective is a regional property casualty insurance company. Currently, at the end of 2017, as we don't have the full industry data yet for 2018, we're the 35th largest writer of property casualty insurance in the country. We now have a 27-state footprint. We've recently expanded from 22 to 27 states for our core Standard Commercial Lines business. I'll talk a little bit more about that in a second. Market cap of just under $4 billion at 3.8. A long, long history of success as an organization of profitable growth and 90-plus year history as an organization. Finished 2018 at about $2.5 billion of net premiums written, a very strong combined ratio of 95, delivering a 12.5% return on equity.
We had very strong results in 2018, but I think what you'll see is that our track record has been long and consistent. That's 5 consecutive years now of double-digit returns on equity and continuing to grow the organization at a solid clip relative to the industry growth rates. We're very proud of that performance and also got a very strong contribution from net investment income. You can see $160 million of net investment income after tax. Mark will talk a little bit more about portfolio positioning and how we've maximized performance without really changing the risk profile of our investment portfolio in the process. I mentioned our competitive advantages, our sustainable competitive advantages, and these three are the ones I would highlight. They have consistently been the core of what we're all about, and this has been the focus of our execution.
Number one is we do have a true franchise value model. What do we mean by that? We have fewer agency relationships than most companies our size. We've got about 1,300 relationships across 27 states. That averages out to about 50 per state. Our view is we're going to put out fewer contracts. There's going to be more value in it for the agency by knowing that they're not going to have the agency around the corner in the same town being able to show up at a potential customer and bring a Selective product to the table. That's a big advantage for them. Franchise value with who we believe to be the best agents in the business. It also presents significant opportunity for growth for us as a company.
At about a $2 billion Commercial Lines footprint right now, we're only at about a 1.5 market share in our 27 states. We think based on how we do business and what our underwriting appetite is and our distribution model, we could get to a 3% share over time, which is an additional $2 billion, in excess of $2 billion of premium opportunity for Commercial Lines. Can do that with agency partners we know and in jurisdictions we know, and with an underwriting appetite and a pricing philosophy that we've developed over the years and developed a strong track record on. That continues to be one of our key sustainable competitive advantages. Number two that we'll highlight is a very unique operating model.
We like to describe ourselves as a regional company in terms of how we do business with agents, but we also think that we have the capabilities of any national competitor we compete against in terms of technology, in terms of underwriting and pricing sophistication. The ability to combine those two aspects in one company is what makes us different. The uniqueness of our operating model is the ability to have field underwriting resources that manage agency relationships. You think about those 1,300 agency relationships. We have about 110 agency management specialists that live in the territories that they serve, and they represent anywhere from 5 to 15 agency relationships, depending on the makeup of their territory. But most importantly, from the agent's perspective, they have the authority to underwrite new Commercial Lines business. They're in the agent's office with the ability to solve problems.
That's a big advantage from the agency's perspective. From our perspective, it also gives us big advantage in that we have somebody who knows the jurisdiction, knows the locality in which they're underwriting business, and knows the producer on the other side of that transaction, which we think leads to better underwriting decisions. The third competitive advantage that we continue to highlight is around customer experience. Now, probably every company in our business or any other business is going to say that they're great at customer experience. We've got a demonstrated track record when you look at what our customers and what our agencies say in terms of what we deliver in terms of experience. I think historically, that's been about what our people have done.
Over the last several years, we have had a very strong focus on delivering what we call a superior omnichannel customer experience. In other words, saying to customers, we're going to give you multiple options in terms of how you interact with us and your agency partner, how you access information, how you initiate basic transactions, post-acquisition. We're going to deliver in those different communication channels at the same high level and allow customers to seamlessly navigate across any one of those communication channels. For the customer who wants the fully digital experience after they've been acquired by one of our agents, we've got the ability to do that. That's really been the focus going forward. I'm not going to spend a lot of time here in terms of our footprint. The core business for us, Standard Commercial Lines, as I said, 27 states.
We recently opened up five additional states in the last two years. New Hampshire rounded out our existing Northeast territory. The most significant expansion for us was to open up the Southwest region of the country. We opened up a four-state region based out of a regional office in Scottsdale, Arizona, servicing Arizona, New Mexico, Utah, and Colorado for commercial lines. In our view, these are jurisdictions that are good regulatory environments, have a strong track record of profitability, provide us diversification in terms of catastrophe exposure, and have economic growth opportunities that are better than what we see in our traditional footprint. We continue to add to our footprint. There's a couple of other states we intend on opening up over the next few years.
Longer term, we intend on having our product available in the majority of the 48 contiguous states in order to handle accounts that are written in our current footprint but might have ancillary exposures that fall out of our existing footprint, which allows us to drive our market share higher and our share of wallet higher with our agency partners. We write personal lines in now 15 of those 27 states. Again, have avoided jurisdictions that have difficult regulatory environments or unique catastrophe exposures that we're not comfortable with. That's a complementary business for us, as is E&S, a small Excess & Surplus Lines business that we write on an all 50-state basis. Just a little bit more in terms of performance. 2018 was another great year for us in terms of combined ratio, return on equity.
You can see what we highlight in terms of the track record on both an underlying and an all-in combined ratio. With and without catastrophe losses, our performance continues to be extremely strong. We've set a target that currently is around a 12% return on equity. You can see we hit that in 2018 and have been fairly close to that target for five years in a row now. Our guidance for 2019 is for an underlying combined ratio of 92% and an assumption of three and a half points of catastrophe losses. A lot of the hard work in terms of managing our pricing on our renewal inventory, making good underwriting and pricing decisions on new business, taking advantage of a rising rate environment in terms of the investment portfolio, really positions us well to continue strong performance into 2019.
Just a little bit more in terms of the individual segments. Standard Commercial Lines continues to be what fuels our economic engine. It's just under 80% of our business. Results have been extremely strong there across the board. We continue to work on addressing some of the pockets of unprofitability, Commercial Auto continues to be the biggest one, and we can certainly handle questions on that later, but that's been a big focus on our quarterly earnings calls. It's been a big focus in terms of improving performance, but that's been more than offset by outstanding performance in the workers' comp and GL lines to deliver a great result overall for commercial. Personal Lines continues to deliver strong performance as well. Growth is a little bit lower there. Commercial grew 6% in 2018. Personal Lines grew about 4% in 2018, produced a combined ratio of 95.8%.
Good solid performance in Personal Lines, a little bit lower on the growth. This is a complementary business for us. Those 1,300 agency relationships I mentioned earlier write a fair amount of Personal Lines. We compete in that space for the consultative buyer. We're not playing in a commodity game. It's that segment of the customer base that continues to value what an agency brings to the table, continues to view the product as something more than a commodity, and that's our segment of the business. We continue to be a significant player under the Write Your Own Federal Flood Program. We're the fifth largest company that writes that business. We don't bear the risk. That's fully reinsured by the federal government, but that's a nice revenue source for us and not a capital-intensive business.
E&S is our newest segment, just under 10%, it's actually 9% of our premium volume. Write that on a 50-state basis. Our E&S profile is smaller, casualty-based, lower limits profile, restaurants, bars, taverns, small contractors, sort of E&S light. We've had good solid growth, and we're starting to see profitability improve. We did report a combined ratio just at 100% in 2018. We expect to continue to improve, as we've said recently, expect to hit our target returns for that segment by the end of next year. That's another good complementary business for us that we've added to the portfolio over the last few years and presents a nice growth opportunity for us. In terms of how we're going to continue to generate strong performance, let me just highlight four specific areas that are really positioning us well for the future.
Number one is continuing to manage our pricing relative to expected claims inflation. Our track record on this is extremely good, and we'll talk a little bit about how we've done that and how we think about that going forward. The second one is to continue to maximize our profitable growth. We're not a company that's going to grow in an undisciplined manner, but there's great opportunity for us to continue to grow at a solid clip relative to the industry. Strong customer experience, as I mentioned, we'll talk a little bit more about that specifically. What we're doing relative to geographic expansions. Let me just talk about pricing for a couple of minutes here. What you see on this slide is our pricing that is shown here in these blue towers relative to the CLPP pricing survey, which we think is the most reliable industry pricing survey.
What you see is we've done extremely well relative to the industry-wide numbers from a pricing perspective. You ask, well, how have you done that? We've done that at the same time we've seen retentions actually increase and remain relatively strong, which is hard to do both. The reason we think we were able to do that is, number one, I mentioned earlier, franchise value. Every insurance company that distributes to independent agents is going to tell you they've got great relationships. If you want to look for evidence of great relationships, look at the performance of rate and retention together, because if you don't have great relationships and you try to push renewal pricing, you're going to see your retention slip. Our ability to do both is, in fact, a reflection of our strong relationships.
That's number one. Number two, in terms of how we've been able to do this, is we think we are very strong, not just at building predictive models and advanced analytics, but effectively deploying them. The ability to understand in your renewal portfolio at an individual risk level what the expected performance is going forward, and then set pricing targets accordingly. That granularity, combined with our distribution relationships, allows us to execute at this level. Let me just give you a little bit more specifics with regard to the granularity. This is information we report on every quarter, very transparent around this.
What you see here on the graph on the right is our entire renewal portfolio for the year broken into different tranches. On the far left of that chart, and it's just about half of our business, is business we would characterize as above average desired retention. That's business that our projected loss ratios on are much lower than average, we believe to be the most profitable business on a go-forward basis. You give that guidance to underwriters. Their goal on this business is to maximize retention, which means in many cases, they're going to generate a little bit less rate in order to maximize retention. That's exactly what you see in terms of the actual performance. We generated three and a half points of renewal pricing in 2018 overall.
Our best business got pricing of just over 2%, but more importantly, it retained at over 90%. You take that to the right side of this chart and look at the accounts that are in the low and very low desired retention level buckets. It's just over 10% of our business, so a much smaller segmentation. What you want to see there is that you're maximizing rate on that segmentation, and you're going to see lower retention rates, and that's exactly what you see here. The combination of this is when you think about how do you drive loss ratio improvement beyond just rate over loss trend, this is how you get mixed improvement.
You're retaining business that's expected to perform better at a higher rate, and you're retaining at lower rates business you expect to have a higher combined ratio or a higher loss ratio in the future. This is a big part of how we drive that success. Let me just talk about growth. If you look at our history as an organization, we've had a strong track record of growth. There are times and there are markets where we're not going to push on growth as aggressively as we are when markets are good. You see that back in the 2008 to 2010 timeframe. That was not a time to be aggressively growing as an insurance company. We've also made sure as the markets have improved and the opportunities were provided to us, we did in fact maximize growth.
When we think about growth, we think about it in terms of the most risky way to grow and the least risky way to grow. The growth with the greatest risk is through acquisition. Not that we wouldn't do an acquisition if it made sense for us and it added to our product portfolio or allowed us to advance one of our other initiatives, we would look to do something on the acquisition front. We think that creates the highest risk. The lowest risk growth way for us, and the one we've been focused most on, is growing in our current footprint with our current agency plant or growing in our current footprint with newly appointed agents. That's why you hear us talk about our desire to get to 3% market share is driven by us pushing on two levers.
Number one is what percentage of the market in a given state do your appointed agents control? We intend on getting to about 25% in every one of our states of agency-controlled market share. Right now, across the entire footprint, we're about 18%, so there's a lot of headroom there. The other lever we push on is what we call share of wallet. Of every dollar of premium that our appointed agencies write, what percentage of that do they write with us? Share of wallet. Our target is to get to a 12% there. Right now, if you look at all of our agents, it's about eight. Got a lot of agents that are well above that, some are below.
By pushing on those two levers with our current underwriting appetite, there's a great amount of headroom for us to grow in a way that doesn't present a lot of additional risk. Slightly more risky, but in a very controlled fashion, is our ability to continue to expand geographically. As we said earlier, we've just recently opened five additional states. Let me focus on customer experience a little bit more specifically. We really focused over the last three or four years on making sure we deliver a superior omnichannel experience. When you think about what customers are now demanding, customers no longer compare their experience with us to another insurance company or to their agent to another agent. They're comparing their experience with us to every other product and service they buy.
Whether it's their Google experience or Uber experience or Amazon experience, that's what the bar is. What we've said is, after a customer has been acquired, we still think independent agents will control commercial lines acquisition For the long term. Post-acquisition customers want the kind of service experience and the kind of digital service experience that they get with other products, and that's really been our focus. We built out and offered our customers a self-service platform several years ago. That self-service platform continues to increase in terms of take-up. We've got more than a third of our commercial lines clients are registered users of our self-service platform. We continue to add functionality. We deliver it through a mobile application.
We're doing more and more to make sure we offer our customers a fully digital experience, and they're taking us up on that in increasing levels. That's our way of making sure that we're evolving to meet customer expectations in the business that we're in. Finally, on the geographic expansion side, as I mentioned previously, we just opened up five new states. There's probably three others that will open up as fully operational, but we want to make sure that over time, we're going to continue to build out our footprint for those states that we're not going to be fully operational in, but states that we can handle ancillary exposures coming out of our existing footprint. We're making great progress on this front. I'm going to turn it over to Mark and let him take you through the financial overview.
Great. Thank you, John, good afternoon, everybody. I've got a handful of slides to cover. I'll move through relatively quickly. Hopefully, I can get through them all. If I don't, the slides are on the website available for your reading pleasure. We'd like to leave a couple of minutes at the end of the presentation for some Q&A. Starting on the first slide, we have a lower risk profile and strong financial strength. When you look at the chart on the right-hand side of the slide there, it all starts with the bullseye in the middle of the target, which really describes our underwriting risk appetite. Which is to accumulate a portfolio of insurance risks that we believe is low to medium hazard from a risk perspective. We back that up with a very conservative approach to managing the balance sheet.
We have a very conservative investment portfolio. We buy an awful lot of reinsurance, a very prudent reinsurance program, and we're very disciplined from a reserving perspective. Where do we take risks with that conservative business and balance sheet profile? It's on the leverage side. From a leverage perspective, our net premiums written to surplus ratio is about twice the industry average. We write from a premium to surplus perspective at 1.4 to one versus the industry at about 0.7 to one. What that means for Selective, what we believe is a competitive advantage for us is that our underwriting portfolio works a little bit harder than the industry as a whole. For us, each point of combined ratio or each point of underwriting margin equates to about 110 basis points of ROE, just over a point of ROE, which is very beneficial.
That strong leverage has resulted in strong cash flow. Over time, we've generated very good investment leverage on the balance sheet as well. We have about $3.33 of invested assets for every dollar of shareholders' equity. Similar to the underwriting side, the investment portfolio works harder for us than the industry as a whole. For us, a point of pre-tax book yield on the overall investment portfolio equates to 273 basis points of ROE. In a low interest rate environment where rates have moved up but are still relatively low, we're generating a very strong profitability from the investment portfolio. On the bottom of the page, you can see the financial strength ratings for the major rating agencies, which are strong. Switching to the investment portfolio, just a little bit more color, we have a $6 billion portfolio over a $1.8 billion equity base.
You can see that the allocation for fixed income and short term versus risk assets, it's a 94% allocation to fixed income and short-term investments. Very high credit quality with a double A minus average rating and a relatively modest duration of 3.6 years. We do have an allocation to what we consider risk assets, so that includes public equity, high yield, as well as alternatives, which is a mix of private equity, private credit, and real assets. Our target allocation for risk assets is up to 10%. We've been a little bit underweight from a risk asset perspective over the last couple of years and actually trimmed that back a little bit in 2018.
Dialing back a little bit on the edges in high yield and public equities given valuations. Took the risk asset allocation down from about 8% at the end of 2017 to 7.2% at the end of 2018. Over time, given market conditions, we'll look to ramp that up a little bit. Going into just a little bit more detail on the investment portfolio. Again, the core is the fixed income portfolio. We've worked really hard to improve the overall book yield on the investment portfolio. Clearly, we've had some tailwinds in 2018, including an elevated or rising interest rate environment, as well as tax reform that's had a benefit to after-tax net investment income.
As you can see on the chart on the left-hand side, starting in the latter part of 2016, we took a much more active approach to portfolio management and security selection, trading the portfolio on a more regular basis, and we've been able to drive up that after-tax book yield. We've done it through the portfolio management. We have the strong operating cash flow that's helped build up the asset base, and we've also had a slightly overweight allocation to the front end of the curve to floating rate securities than on target, and that paid off very well for us in 2018 as the yield curve shifted up. It also flattened, and a lot of that product resets quarterly based on 90-day LIBOR, which was up 111 basis points in 2018.
Shifting to cat losses, it's clearly been a tough couple of years in the industry from a cat perspective. You can see the line in orange is the industry cat loss activity. That's the percentage points on the combined ratio are very elevated in 2017 and 2018. The SIGI line is below. We had cat losses equivalent to 3.6 points on the combined ratio in 2018, and 2.9 points on the combined ratio in 2017. Largely able to avoid those significant industry cat losses. You can get lucky in any given year, but over a longer time period from a cat perspective, that luck sort of evens itself out. On the top left of that chart, you can see over the last 16 years that we've highlighted here, our cat loss ratio at 2.9 points versus 5.1 for the industry as a whole.
Significant outperformance and less volatility in our combined ratio than the industry. We've done it through a number of catastrophe loss mitigation initiatives, including strict guidelines, staying away from some of the coastal exposures. Where we deploy our capacity in terms of staying away from some of the higher cat exposed states like Texas and Florida and California. We also are big buyers of reinsurance. Shifting to reinsurance, we rolled our cat program over at one-one, had a very successful renewal season, kept the program largely intact. We buy $735 million of limit in excess of a very modest retention of $40 million. We collateralize the top end of the program. To the extent we have a mega event, the Irma that could have been, that wasn't, and there's some credit risk in the tail as it relates to the ratings of our major reinsurers.
The money's in a lockbox, so to speak. It's either in a trust fund or it's supported by a highly rated bank in the form of letter of credit. A big focus for us is enterprise risk management, and that's one of the outcomes there, being concerned about credit risk and collateralizing the top end of the program. Outside of the core cat program for our expansion states, the five states that John highlighted, as well as our E&S states, which includes states like California, like Texas and Florida, which are big states from an E&S perspective. We dropped the retention down with an additional $35 million layer, and the retention goes down to $5 million.
When you're staring down a big catastrophe like an Irma, like a Harvey, like the California wildfires, where we don't write a significant amount of exposure in those states, it's nice to have a relatively low retention of $5 million. In addition to the core cat programs that we have, we also cap individual losses from a property and a casualty perspective at $2 million, and that takes out some of the risk of, in any given quarter, some of the earnings volatility from an aggregation of individually large individual risk losses. From a reserving track record perspective, we have a very good track record. We're predominantly a casualty writer. Reserve risk is an inherent risk within our business profile. We have an excellent team of actuaries. We do quarterly ground-up reviews by line of business.
From a reserving perspective, we also have a big four firm that comes in twice a year and does an independent review of the reserves. They're actually on the hook or have a little bit of skin in the game in so much as they provide and sign the statutory reserve opinions at the end of the year. We don't rely on them per se, but it's nice to have a second check on our reserve inventory. Over the last 13 years, while we don't obviously expect to have development, we book to our best estimate. We have had 13 consecutive years of favorable reserve development come through the results. That's not to say we haven't had some adverse development.
The last couple of years, we've seen some adverse development in Commercial Auto, where we've been hit by high levels of frequency and to a lesser extent, severity, as well as within our E&S segment, we've had a little bit of reserve development come through the books there. Net-net, with a strong runoff, the better-than-expected claims emergence in Workers' Comp and General Liability, net-net, the reserve development has been favorable. From a guidance perspective, looking ahead to 2019. John highlighted 2018. We had a very strong year from a combined ratio perspective. Came in at 95% all in on a calendar year basis, including cats.
If you back out the cats, you take out the benefit of the favorable reserve development, which is about 1.7 points on the combined ratio, the underlying accident year ex-cat combined ratio was 93.1 in 2018, and our forecast or guidance for 2019 is for a 92 combined ratio on an ex-cat basis. Cats, we're assuming three and a half points, for an all in 95.5 for 2019. You can see the component parts there, the drivers of the 110 basis points of combined ratio improvement, margin improvement. In 2019, we have earn rate ahead of loss trend. Those numbers are net, that's the impact on the combined ratio, the actual earn rate, and the actual loss trend is more significant than that.
When you think about variable acquisition expenses that hit the earned premium and the fact that the loss trend only impacts the loss ratio, the loss trend that we have embedded in those assumptions is 3.8%. From a capital and liquidity perspective, we go into 2019 in the strongest position that we've been in from a capital and liquidity perspective, a very manageable debt to capital capitalization ratio at 19.7%. Our target's around 25%, we have a little bit of dry powder from that perspective. We're keeping the premiums to surplus ratio at 1.4%. We have what we call a sustainable growth rate of 9%, and that's really a function of our forward ROE and our dividend payout ratio, it's the growth rate that we can grow at by allowing us to keep the premium to surplus ratio the same. For us, that's 9%.
Our growth rate has been a little bit below that in the last couple of years, that allows us to ramp up a little bit if market conditions allow us to. We find at this point in time, the best opportunity for our retained earnings is to put it back into the business at the attractive returns that we've enjoyed. From an expense perspective, we've made excellent progress on the expense ratio over the last two years. The expense ratio is down 2.3% from the high at the end of 2016, and as you saw in the waterfall chart, a little bit of uplift in the expense ratio into 2019 as we have some profit-based expense benefit in 2018 that we expect to reverse a little bit in 2019. Over time, our expectation is to continue to drive the expense ratio down.
We've also made excellent improvement in the corporate expense line item, driving that number down by close to $11 million in 2018, to $25 million from a $35 million-$36 million run rate the prior two years. Just moving very quickly through the last couple slides. I know we're getting a little bit tight on time. We have a strong history of generating strong non-GAAP operating ROEs. That's a good proxy for growth in book value per share. We believe if we continue to generate the strong ROEs, we're good stewards of the company's capital from a capital management perspective, we'll drive total shareholder return over the long run. Over the last five years, as John highlighted, we've had double-digit ROEs, 12.5% in 2018.
Our target return for 2019, it's not guidance per se, it's the return we have internally set as a target based on an estimate of our weighted average cost of capital, an appropriate spread over that, the current interest rate environment and market conditions is a 12% ROE. That strong performance has been recognized by our shareholders. They've enjoyed very strong TSR over the time series. Last year, we were up 5.1% versus the S&P and the P&C Index being down. If you go back over a five-year period, the average annual TSR has been 20%, almost double the S&P 500 and the P&C Index. If you go back a little bit further than that, the results were a little bit choppier, and the TSR is closer to the S&P 500 as well as the P&C Index.
Putting it all together, I'll skip the points on this slide. I'll let you read them yourself. I think at this point, we have about a minute left. We can maybe handle one or two quick questions if anybody has any.
If there's one question, we can probably take it. Over there. Are there any states that you don't want to go into, ultimately? Great question. There's a couple that we would not want to be significant players in based on the regulatory environment and catastrophe exposure. I'd rather focus on the ones we think are likely candidates to go in, which I would put Oregon and Washington and Vermont as the three that are on the shortlist for fully operational expansion. California and Florida are states that from an ancillary exposure perspective, we're going to need to be able to handle those, but we don't have intentions of being in either one of those two states in a significant way based on the regulatory judicial environments and the exposure to catastrophe.
That would not be part of the plan in the near term for our Standard Commercial Lines operations. Fantastic. Guys, thank you very much. Great presentation as usual.