Q3 2019 Earnings Call
Please standby.
Good day.
Welcome to the CHMP limited third quarter 2019.
Today's call is.
A question answer session.
The question.
Thank you.
And now for opening remarks and introduction.
<unk>.
Vice President Investor Relations. Please go ahead.
Thank you and good morning, everyone. Welcome to job September Thirtyth 2019 third quarter earnings Conference call. All report today will contain forward looking statements, including statements relating to a company performance in growth opportunity.
As seen in business mix, and economic and market conditions, which are subject to risks and uncertainty.
And actual results may differ materially. Please see our recent FCC filings earnings release, and financial supplement which are available in a website at investors Dot shop Dot com for more information on factors that could affect these matters.
We will also refer to date to non-GAAP financial measures reconciliations of which two the most directly comparable GAAP measures and related details are provided in our earnings press release and financial supplement.
[laughter] now it's my pleasure to introduce our speakers. This morning first we have Evan Greenberg, Chairman and Chief Executive Officer, followed by still Bancroft, Our Chief Financial Officer will then take your question.
Also with us to assist you with your questions are several members of our management team.
And now I'll turn the call over to Evan.
Good morning.
We had a strong third quarter with core operating earnings up double digit excellent premium revenue growth globally.
Most benefited from a continuously improving pricing and underwriting environment, where insurance rates and terms continued to from quarter over quarter in major areas of our business.
Our gross is also benefiting from our many product customer distribution related growth initiatives around the globe, particularly in the U.S. Asia and Latin America.
Core operating income was to 70 per share up 12%.
The balance of our earnings between underwriting and investment income was very good with underwriting income of 754 million up 12.5%, an adjusted net investment income of 910 up 3%.
Global PNC underwriting income, which excludes agriculture was up 27.7%.
The combined ratio was 90.2 and benefited from lower year on year cats, offset partially by higher crop losses, another cat like like risk.
On a current accident year basis, excluding cats, the combined ratio was 89 five.
Excluding <unk> it was 83.
Up modestly like four tenths of a percent from prior year.
Book in tangible book value per share were up 2% and 3.3% respectively in the quarter.
And I were up 9.8, and 15.7% since December 31.
Driven by a combination of strong income and the mark from falling interest rates.
Well benefiting temporarily our company's book value growth prolonged low interest rates are result of overreliance on monetary policy.
Penalized savers, and led to misallocation of capital and overvaluation of assets without substantially supporting business investments and economic growth.
Annualized core operating return on equity for the quarter was nine or and a half a percent.
We'll have more to say about investment income book value cats and prior period development.
Turning to growth and the rate environment PMC premium revenue in the quarter in constant dollars was quite strong.
Net premiums grew 7.2% and then foreign exchange had a one point negative impact.
As I noted at the beginning the pricing environment continued to improve quarter on quarter with the rate of increase accelerating and spreading to more classes of business and risk type.
For perspective rate increases in both our North America commercial lines I know, our London wholesale businesses. This quarter were double those of the first quarter, 6.4% versus 3.2, and 17% versus 8% respectively.
In the U.S. rates continued to firm and major accounts, you announce wholesale specialty and the middle market.
Our international operations, we continue to observe firming conditions in the London wholesale market I don't in Australia, while rates began to increase in the UK retail market and parts of the continent, particularly for large risks.
The market is responding to the fact that rates have not kept pace with loss costs over a number of years, which has put pressure on margins and ultimately <unk> ultimately on reserves rates have gone down while loss costs have risen pretty simple math.
However, as we have been saying for some time the frequency of severity uncertain long tail in short tail classes husband worsening while at the same time in other classes. It is remains subdued we're declined.
For the sake of simplicity, let's divide long tail loss into three buckets.
General bucket, one generally speaking in the Attritional loss lawyers severity has been increasing at a relatively modest pace and frequency has been steady, though there are exceptions.
In the second bucket in excess layers. The frequency of large claims settlements has been increasing and putting pressure on radar adequacy. A consequence of so called social inflation, but also casualty attachment points not moving for years, a 1 million dollar it.
Got you midpoint for casualty excess 10 years ago is worth a fraction of the amount to [noise].
And finally, the third bucket there has been an increase in class actions large to them that got everything from securities and anti trust related to science based for example, chemical pharma and physical trauma related.
And there are casualty cat type events, such as mall with station related revive or statute legislative actions.
I have spoken about all this for sometime now.
In my judgment, given the simple math.
The risk environment at a reset of risk appetite on the part in many the current market conditions are sustainable.
Returning to the quarter overall prices increased in North America commercial on a written basis by 6.8% versus a loss cost trend of about four and a half.
Renewal price change includes both rate of 6.4 and exposure change of 0.4.
As I noted last quarter, we were also benefiting from a flight to quality, particularly in large account in specialty is more business meets our underwriting standards.
Given the choice many potential customers prefer job.
New business in North America commercial lines was up 18.5% in the quarter with major accounts in specialty up over 23% and.
And middle market in small commercial up overnight and a half percent.
[noise] retention of our customers remains very strong across all of our North America commercial and personal PNC businesses with renewal retention as measured by premium of 96.6%.
In major accounts in specialty commercial excluding agriculture premiums were up 9.5%.
Major accounts retail up about five and a half an east E.N.S. wholesale up over 18%.
Rates for major accounts were up over 8%.
With risk management up four to have excess casualty up 17 or NAV.
Property up over 29.
Public do you know rates increased over 17, and a half a percent.
In our E N S wholesale business rates were up about seven and a half with property up 17, and financial lines up eight and a half a percent.
Turning to our middle market in small commercial business premiums overall were up 5.6%.
And renewal retention in our middle market business was 92%.
Middle market pricing was up over six and excluding workers comp up about 6.5%.
Pricing for primary casualty was up 7.7.
Property up 7.3.
Ex us umbrella up 7%.
Public do you know rates up 32%.
In our North America personal lines business net premiums written in the quarter were up 2.7%.
But adjusting for the expanded reinsurance that we have discussed in the past net premiums written were up almost four.
Our best quarter of the year.
Pension remain strong at 97% on a premium basis and steady at over 90% on a policy basis.
Homeowners pricing was up 10.7% in the quarter.
Turning to our international business growth accelerated in our overseas General insurance operations with net premiums written up about 11% in constant dollar and FX, then had a negative impact of about three and a half percentage points.
Net premiums for our London market wholesale business were up 29%, while our retail division was up over 900 ahead.
With growth broadly distributed across the globe growth in our international retail business was led by Latin America, and Asia Pacific ups circa 10% and 9% respectively with UK retail in the continent up over eight and 6% of very good result.
Overall rates and our London wholesale business were up 17%.
Our razor focused international life insurance business had a strong quarter with net written premiums up over 20% in constant dollar and a contribution to earnings of 40 million up over 43% from prior year.
John Keogh, John Lupica, and Paul Krump can provide further color on the quarter, including current market conditions in pricing trends.
Closing this is a very good quarter for job.
Premium revenue growth continued to accelerate as more business met our underwriting standards, we continued to achieve greater price adequacy in an improving underwriting environment.
At the same time, we're executing on our many long term growth initiatives around the globe.
Our organization is firing on all cylinders.
I'll turn the call over to fill and then we'll come back to take your questions.
Thank you Evan.
We ended the quarter very strong overall financial position businesses and investment performance produced positive cash flow in the quarter of 2.2 billion.
Grow our assets to 175 billion.
Putting cash and invested assets of 109 billion, which generated strong investment income and we grew total capital to over 68.
Among the capital related actions in the quarter, we returned 819 million to shareholders, including 341 million and dividends and 478 million in share repurchases year to date through yesterday, we have repurchased over 1.3 billion shares.
Average price of $145.70 per share.
Our annualized core operating return on tangible equity was 15.6%.
Adjusted net investment income for the quarter.
910 million pretax was higher than our estimated range and benefited from higher private equity distributions.
These corporate bond call activities.
Net realized and unrealized gains for the quarter or 263 million after tax.
There was a gain of 5.3 million in the investment portfolio from a decline in interest rates.
Partially offset by a loss of 112 million from our variable annuity portfolio and a loss of 116 billion from FX.
Although market yields have declined significantly in recent months, we will remain conservative in our investment strategy and do not contemplate any significant shift in asset allocation.
Despite the negative impact of lower interest rates, we expect our gross and invested assets and strong cash flow will support current investment income levels.
We now expect our quarterly adjusted net of this.
Segment income run rate to be approximately 900 million.
Pretax catastrophe losses in the quarter were 232 million with about 90% from U.S. weather related events, including Hurricanes, Dorian and the balance from international events, primarily in Japan.
In addition, agriculture underwriting income was adversely impacted by weather conditions, resulting in underwriting income of 1 million compared to 79 million in the prior year.
We had favorable prior period development in the quarter of 167 billion pretax or 112 million after tax.
This included 27 million pretax adverse development related to legacy environmental exposures.
The remaining favorable development of 194 million comprises 279 million favorable development from long tail lines, principally from accident years 2015 and prior.
And adverse development of 85 billion in short tail lines, principally from non cat large losses commercial property lines.
On a constant dollar basis net loss reserves decreased 137 million, reflecting the impact of favorable prior period development and catastrophe losses.
On a reported basis the paid to incurred ratio was 103% for the quarter. After adjusting for the items I discussed the paid to a curve ratio was 96.
Our core operating effective tax rate for the quarter was 15.1%, which is in line with our annual expected range of 14% to 16%.
Through nine months, our core operating effective tax rate was 15%.
As a clarification to a point in the press release relating to North America commercial we had a two point increase in our loss ratio.
One point is property related year to date losses were higher than our selected loss ratio.
The other point is long tail related simply higher loss fix this year than last and in line with previous quarters No change.
I'll turn the call back over to care.
Thank you at this point.
Happy to take your question.
Thank you ladies and gentlemen, just a question please signal by pressing star one on your telephone keypad.
Speakerphone please.
And is turned off.
John .
Once again.
<unk>.
Well take our first question from Paul.
With Sandler O'neil. Please go ahead.
Good morning, congratulations on the quarter one.
I was hoping you could touch a little bit more on your comments on the tort environment, which I.
Very interesting.
Specifically I'm curious if the buckets and descriptions you're you're using our just attributed to the U.S. or.
Give me urinary international focus also something we can think about.
Having similar issues.
Developments in the international markets.
Yeah.
That's a good question.
Good morning, Paul the.
You know when it comes to securities related and we don't see it in general Casualty General casualty is behaving in a.
You know in a in a steady way.
We don't see the same factors that we see in the U.S. However in securities related So India no the UK.
Germany, which is.
Always been to troubled environment.
And Australia.
There you see the same trends.
In a place like Australia, it's even more acute.
But that's been for some time and I've been talking about it for a while because.
It's the same we've observed that trends for the last couple of years.
The UK is worsened over the last two years maybe three.
Australia has been slow it for it began deteriorating about four years ago.
And and accelerated and is just a stupid.
Environment now.
In Germany, given given their insured versus insured.
And the fact that they have you up to boards intercompany has some has been.
In a difficult environment for a long time.
But that's that's about yet the other markets around the world you know kind of minor.
Great and then separately.
Just more topical comment on.
The California wildfires exposure is there anything about chubb's exposures out there that would be different from the last couple of years through a pure.
From an exposure from a reinsurance perspective.
Well.
Let's see the last couple of years.
We do have a quota share that we did not have before.
That would be the.
One major difference over the last.
Year in particular.
Though it began two years ago, but really it's been the last year, we've been reshaping the portfolio.
Given the underwriting environment.
And the level of rate we can charge.
We've been.
We've aggressively pursued more rate increase so that earns into the portfolio and has a benefiting we've we've reshaped the portfolio around the margin and that continues particularly an extreme wildfires zones.
Great. Thank you congrats on the quarter.
Thanks, a lot.
Okay.
Our next question comes from screens.
Right.
Hi, good morning.
My first question on having going back also dependent care comment on inflation on North America commercial you guys. You just pointed to consolidate try and about four and a half which is in line with you know what you guys had been saying the past couple of quarters on so just given.
The whole environment and what you see out there in terms of you know class action lawsuit et cetera, picking up I mean do you view that as you know kind of the right based on notice, we think about where trying could be over the next 12 months.
Oh lease.
Our trend reflects everything we know.
And.
We have and it's the overall portfolio.
So that everything long and short tail.
We have.
Classes and long and short tail.
Where the loss cost trend is benign.
And.
And we have.
In both long and short tail classes, where it is less benign and ice specifically spiked out to talk about.
The casualty and I'm, using casualty and the broad sense, including professional lines.
The areas where.
We for some time I've been talking about that loss cost trends.
For the.
Strike loss cost trends the the loss environment.
Has been.
Worsening.
Becoming more hostile.
That's all baked into that four and a half a percent.
Our.
Selected trend factors by line reflect everything we know.
That we couldn't mathematically calculate.
His and and substantiate is in our loss picks.
Now we can't speak about the future because we don't know the future. We only know what we can observe today in the trends as we see them today, we've reflected all of that.
Okay. That's helpful. And then my second question on in terms of on North America commercial.
The prior year development slowed I believe it's all good too.
But sell pointed out in terms on the non cat losses in commercial property I.
I just wanted to clarify so to all away from just non cat property did all their lines within commercial developed favorably in the quarter. If we can discuss a little bit more color on that reserve releases within that business.
In the current accident year, you're speaking to current accident year.
No I was talking about the prior year development. So the hundred nine this year versus on that to 16 last year within North America commercial.
We had releases.
And we had we took reserve charges as we told you.
And.
When you say lines, it's the lines that we study in the quarter.
We don't study what we don't do with deep dive study on all lines every quarter.
And as we've described numerous times, we have a schedule for that and so over the line studied in the quarter those would be the long tail ones that had releases.
I'd like away, it's tiny salt life's many softlines and so some have some increases somehow decreases but the aggregate that we gave you was was a decrease.
In reserve.
Okay. Thanks for the color.
Sure.
Next question from Greg Peters with Raymond James Please.
Good morning, I have one question then a follow up.
I've been in your prepared remarks, and and I'm not trying to put words in your mouth, but I I believe you suggested that.
Assets might be overvalued due to the low interest rate environment and I'm curious how you want.
Your investors to be those comments in the context up your investment portfolio.
Yeah, what I was really relating to.
Werent anything in my mind is.
No I look good.
At the price is people are paying to buy.
Assets.
All kinds of assets.
And.
No in my mind in particular I think about.
Is.
The.
We we purchase insurance companies.
We look at those assets and I find.
The market and those to be tremendously over valued.
I look at.
Prices being paid so much private equity.
Yeah.
Hi Tech.
T related and technology related.
[noise] asset values are.
Tremendously inflated.
And really making a comment that investors are chasing hubs salute yield not risk adjusted yields.
When I come to our own investment portfolio.
Very careful.
How we invest.
Sure.
For risk adjusted return.
Not absolute yield.
That's why Phil made to combat that there won't be and you won't see.
A change in our investment.
Philosophy and strategy.
Because we're disciplined and we're not just going to chase the highest yield for example in high yield bonds, where we're active.
You know we know what are we know we think the right risk adjusted prices I'm looking at historic default trends et cetera, we're not going to chase.
And that's with my comments were related to.
Excellent. Thanks for the clarification, I want to pivot and and at the outset I just want.
You'd realize I'm not trying to get you to criticize your distribution partners.
But if I consider the stock market performance as a measure of success.
The insurance brokers have outperformed the underwriters on a one three and five year basis.
And I was wondering if you could just update us on your views about the symbiotic relationship with your insurance brokers and or if it's changed.
Yeah, you know.
That bounces around.
You know we're in the risk taking business.
Brokerages in the intermediation business only.
And and I realize it but were both in the advisory business that way.
I that they have done well.
Its not a zero sum game.
They have done well I applaud them for I reflects they've they've done a good job.
And congratulations and will run our own race.
I'm not.
Concerned with jobs ability.
Outperform.
Over reasonable periods of time, and that's particularly in comparison to those who were like us risk takers.
I'm sorry.
Secondly, how's the relationship changed which fundamentally.
The same relationship it has been for years and changes.
Based on.
You know tools and capabilities change.
But beyond that the relationship is is the foundation of it is hasn't changed and that is.
Broker is in the business of representing their client and their clients interest.
And helping them to select.
Advising them and helping them to select the right coverages right insurers and put together the right program.
They intermediates that.
And.
And you know our relationship is.
As brokerage.
And ambivalent relationship you work and partnership together.
And you also work.
You know you worked for each of your respective interest.
Thanks for your answers.
Yeah I got it thank you.
Okay.
Next question will come from Mike.
Credits.
Hey, good morning.
First question evident when Youre talking about the competitive environment in your prepared remarks, I think you used the term reset of risk appetite on the part of some competitors.
Do you feel that that reset is causing maybe pricing to move well in excess of loss trend and low interest rate pressures in certain lines and I guess I'm trying to get that is that.
Well I think we all know that Theres, a number of competitors kind of resetting and that gives us confidence you confidence that the rate environment stays stays is moving in the right direction.
I guess a lot of investors ask us whether trups margins can maybe eventually benefit more so.
Than peers, if the environment persists.
Yeah, you know look.
I I can only speak about what I know not what I don't know.
They're our lines of business.
There are numerous lines of business where.
Rate is exceeding loss cost trend.
Not is it's healing margins.
And therefore, it is naturally ameliorating.
Benefiting.
Margin.
And.
And then there are other lines and some of that it's actually improving the underwriting margin.
In some areas and needs to go further because it's not it's still not adequate to earn it under a positive underwriting margin. So it's it's all over the life.
As far as.
Chubb's margin goes I'm not going to prognosticate.
About the future.
The trends as we see them are positive they are good and all things being equal it benefits margin.
However, I can't speak to the future loss cost environment.
And future trends that way so that's why I never predict the future when it comes to that we're in the risk business.
Okay. That's that's helpful. And then lastly, I'm kind of as a follow up to one of the previous questions have been you said that broadly speaking asset values are inflated I think you alluded to also.
He M&A environment, but you can correct me if I'm wrong, so does that imply that theres, maybe less M&A opportunities.
Today that today, then then I guess wells there hasn't been much M&A for you guys.
In recent years and may be Silicon also remind us of the drag excess capital is having on on your hourly. Thanks.
Yeah.
In the environment sure you Evan.
You you've seen us quiet and.
And you observe.
The prices for assets yourselves.
I assume you come to the same conclusion I do.
So on already gone they are always some it's in a range of a 0.7% to 1%.
Thanks.
You're welcome.
Next question will come from you're wrong with Goldman Sachs.
Good morning, everybody.
Evan.
It's probably just me not at full capacity after a busy night, so I apologize in advance.
But but there is something I don't quite understand I'm sorry.
Did you drink do much.
[laughter] I drink a lot of insurance piano yeah.
I did toxic JV.
Yeah [laughter] [laughter].
So.
Overall loss trend remained stable at four and a half a percent, which incorporate flying set are deteriorating others that are benign.
But if it remains stable. So why are we seeing chubb appears increasingly vocalizing concerns over loss trend deterioration and wire rates as a whole firming.
Because.
The loss environment in those troubled lines.
You do see trends and you do see it showing up in overall loss picks that you've seen loss ratios in casualty rising.
And I'm using casualty broadly I'm using the term to include professional lines and and.
And general casualty.
And taking out workers comp.
You know it varies by line, but you've been hearing about it and seeing it in commercial auto you've been hearing about it and you've seen it didnt do you know and medical malpractice and an excess liability.
And so that has focus and attention from you know underwriters see it and the investing community sees it so theres dialogue about that and I do think that it is the the loss cost environment. There has not been benign I've been talking about.
It for a while our own loss picks in those areas have been increasing it does have an impact on or on our overall loss ratios because it gets blended in there and it has and so you know you.
You would you need to you need to be aware of it and focus on it and it is it is it is a trend right now.
It has been an is.
Hi, making okay.
Yeah, Yeah, and so it means that even if the loss trend long term loss from remains stable. There is a certain reset of a base given the recent experience.
No not not a reset of a base, but remember we're talking loss ratios and that's calendar year that can include prior period reserve.
You know that includes current accident year, so naturally you've seen.
You know very strong rate.
And and and with more benign loss years.
Releasing reserves industry releasing reserves into.
Into earnings.
When I take prior period had you know is you get to more recent years rates had been going down loss cost trends have been rising and you've seen underneath the surface of these loss cost trends. Some of these ones that I just talked about it had been talking about that are that are.
More troubling and they show up and then in the current that all then rolls forward to the current accident year loss specs were you you you you raise your expectations based on what you see today and has it has trended from the recent in past years.
Okay.
And then my follow up question as John making sense.
I might been clear for you.
I think so I may follow up offline, but but I think I got the general Jess.
And then my second question is just around you had mentioned the three buckets attritional loss ratio layers access in large to mega.
Can you offer maybe a broad distribution of.
Premiums for for Chubb by those buckets.
No.
Yeah.
Okay. Thank you.
You're welcome.
I don't have those.
The next to Michael Phillips with Morgan Stanley . Please go ahead.
Thank you good morning.
I guess.
I appreciate having your comments on you know not wanting to kind of go and predict future I guess I I would ask them when they're North America commercial <unk>, Yeah, we had 90 bips or deterioration in the core how much it and you call out the if the commercial property I mean can you say how much that 90, bips would've been without the commercial property losses.
Well, we we said the.
I'm a little wall. So the 90 Bips isn't the combined ratio that's correct ratio in North America commercial was two points. We told you a one point was year to date property, where losses outside the loss pick and we said the other one point was casualty related.
Got to casualty long tail lines, which is casualty broadly.
And that was just that and that was in line with our loss picks all year.
No change.
That's just rate and trend.
Okay, Alright, Thank you and we and then they'll gave fill gave you that.
Yep.
Thanks, and then I guess on.
On those three buckets again.
That was just asked.
Do you have any concerns on what you see in that second layer.
Kind of filtering back down into the first layer that you talked about the first bucket.
No I'm we're not.
No, we're not seeing it that way and you.
You know think about it a little bit.
The average loss has always increases by the you know when normal trend factor in the primary layer.
Frequency has been pretty steady.
So, we jittery, a little bit and the but but but steady.
The severity has risen to.
Kind of it.
A normal loss cost trend, but what it does is when attachment points and that's what I was trying to say in excess don't change.
Over years and years and years, then more losses bleed into that layer.
Do you didn't get it and that's separate from the larger.
One offs.
That large ex us losses that I talked about I I broke bucket to down into two pieces for you.
And so to answer your question no I don't see that.
It's actually works the opposite.
Thank you Evan.
You're welcome.
Well go next to Ryan Tunis with Autonomous Research. Please go ahead Sir.
Thanks, Good morning, and I wanted to go back to your comment in your prepared remarks for you said that conditions are sustainable.
I was just a little bit of confused on and what in particular sustain a most of the pricing environment is where do you view the losses.
The loss trend environment, just job, but I guess, maybe a little more specificity on that please.
Yeah, but a year over thinking it I was talking about the underwriting and pricing environment.
<unk>.
Got it so so broadly speaking.
And I just want to talking that trend, we see in in and.
Pricing and underwriting.
We see in the areas that.
This is impacting we see it continuing.
Understood.
And then I guess my follow up.
Discussion about.
It sounds like I might be wrong on this but sounds like there might be a difference between the conversation about loss trend in the conversation about loss picks.
Yeah.
Like for instance, I mentioned that.
Sorry.
Go ahead.
So first comment that.
You know because of casualty lines in North America, the actually your loss ratio deteriorated a point yeah. It's similar to the previous quarters put in previous quarters, assuming we didnt quite as much rate.
It is such that there's an uncertain enough loss environment that you're observing a certain level a trend, but maybe you are saying we should.
Abundance of conservatism just continue to set last takes a little bit higher and that's why that's perhaps staying at a point.
More simple than that and it's and I just have that wrong.
It's more simple than that I am trying to understand.
Your how you're thinking about it but remember the loss ratio is based on earned rate.
Not written rate.
And it's earned rate over.
The you know the loss pick you have earned rate goes into.
Again, you trend losses forward, we we have an overall loss trend factor for now.
We had in earned rate of whatever it was in those long tail areas.
Went into us imagining a loss pick for the year in those casualty areas of X. and that has remained steady we have not changed the loss ratios we have selected.
In park in any of our casualty area.
So more about earned rate comes in we would expect that point deterioration to moderate in the earlier than the earned premium grows then you look at the loss cost.
Trend for each line and you decide it does it remain the same or does it go up or go down.
Got it.
I'll leave it there thanks.
Okay.
That's what I can give your Ryan.
That's why I'm not prognosticating future I go back to that but I'll you know based on what I see right now I got a four and a half loss cost trend and I've got I've got you.
You know and that is a blend of all lines of business and we've got rate that exceeds loss cost trend in North America.
Yeah.
On a written basis.
Hello.
Okay.
Yes.
Yeah. Thanks.
I'm just curious.
I'm just curious.
Are you getting tightening terms and conditions and enough to maybe ameliorate. Some of this loss cost trend here going forward or should we not think about it that way.
Are we getting changes in terms and conditions, yeah tight tightening enough that maybe you can cut yeah. They just a 4.5% did you are seeing or some of the social inflation.
You know in some in some low and I don't want to over.
Stated so I don't.
You know you can bake it in the overall, but we are getting more changes and deductibles, we're getting changes in sub limits were getting changes in attachment points in casualty excess.
And those things are all oral part and or ameliorating and we put values on those.
And that's not in your when you give us your price increases that's not included in that is it.
And it's in some lines it is because where we can actually measure it.
It is an exposure adjustment and then we take them, we take rate against exposure and we we determine what we can determine mathematically that allows us that is the same thing is rate. So we do we consider it.
Great and then my follow up question, Evan just curious peachy any I know, it's been talked about a little bit there's some nice uppercase should be coming through there.
What are your kind of thoughts on that subjugation when could you potentially see some of that come through.
I'm not going to speculate on that.
But we don't we don't see a any material are substantial sabrina future subjugation opportunity for job from P.G. any.
Gotcha. Thank you.
You're welcome.
Our next question.
Well come from Ryan.
Research.
Hi, Thanks, I actually didn't have another one but I'll ask John I guess also on agriculture.
Yes last quarter on this as well.
[laughter].
No no no I don't think anyone got to it but.
Yeah, I guess or what are what are the higher lost six there.
I just first of all.
What does that incorporate how much development potentially expect on that in the fourth quarter at what do you still thinking a good combined ratio to use for that business is when you look out the 2020 or just I guess the normalized annual combined ratio for the overall crops I know.
Take that last part would be run.
We've run in the.
In the.
In the high Eightys to 90.
Historically, and we don't see a change to that and by the way looking glass and number of years, we had excellent results.
Last few years in that business it hasn't natural volatility as crops. It has both in Attritional and a cat like nature to it.
And.
This year, we're gonna hub of less than average year.
For that business and.
And let me, let me turn it over to John Lupica for a minute.
To give you a little more color on that.
Thanks.
Right.
We certainly adjusted.
The unity numbers in the quarter based on what we know today.
We still have to capture all the yield from the field.
Before we can really put a final number there nice part about the U.S prices are pretty much at these prices we finish up the October .
So.
So do the delay implanting harvest period pushed out five to six weeks. So I think by the end of year, we'll obviously have a better sense of the year.
As I've noted, we don't see any change off our expectation.
Expected.
90.
Yes.
Low ninetys combined for the fourth quarter.
Would be about where we would.
Imagine if nothing changes from what we know now but God, there's a lot of unknowns out there we have no idea right now about yields.
We just don't know.
Perfect.
I guess, one other one more.
What workers comp and obviously, there's some rate pressure.
I mean, how old so how do you see absolute levels of profitability there.
The opportunities today and there were a one by one point.
Yeah, I mean [noise].
What's the outlook right now in workers' comp.
Or chubb, that's not a growth area.
At this time.
Okay.
It has.
It has lost cost trends have been quite benign.
And and the industry has responded with.
A lot of competition.
And lowering the prices.
Some of it rational some of it to us.
Beginning to overshoot that mark.
And.
And.
You know loss the benign loss cost environment.
It's questionable whether that will remain.
And so.
We have been as rates have been coming down.
We have been exerting more disciplined in that area.
It has not been a growth area for us.
And I'm speaking about first dollar primary risk transfer business.
In our risk management business, that's a whole different book and that's where the you know its large account word self insured.
Self funded on some basis.
And we provide all kinds of services, we provide excess coverage and and there you know we're you know that's an area that.
We were quite active.
You know probably the largest writer of that in the United States and we have a law knowledge and capability.
And that's where the client skin in the game and.
So that's very different.
It makes sense. Thanks.
Welcome.
Next well go to jail.
Good morning, I know, it's early days or with regard to other catastrophe.
Loss potential in for Q, but any initial perspective on typhoon had service and the California, wildfires and and looking at that relative to.
It was a pretty heavy catastrophe loss.
A year ago in the fourth quarter on eight points of catastrophe losses on the combined ratio <unk>, how should we think about that.
Well you should think the this is the.
End of October .
So were one third through the movie.
And and I can't tell you the movie ends I didn't see it before.
So you know I don't know, we're in the risk business and we're in and part of being in the risk business, we take catastrophe exposure.
And and so you know I don't really my hands about having catastrophe losses.
I'm just concerned we measure the exposure correctly.
And do we charge a proper price for taking the risk.
Other than that I'm going to have that volatility and.
So I'm not going to my hands on home run the Japan Typhoon so far from everything we know it is not a significant events or job.
On the California wildfires the their ongoing right now the only thing we know is the tech buyer is the one that out.
On that one we didn't have any we didnt have lot, we didnt have any losses.
And on the other two I you know.
It's just very early days, and and and I'd rather not predict.
And I don't know what the outcomes will be at this moment are our losses are very minor.
Right understood and then on a separate issue I just wanted to follow up on the North America commercial the gross written premium in the third quarter was up 10% year over year was there any anything one timers in there that would have influenced that or was that was that kind of a true perspective on on the growth rate that you're now seeing.
Business, giving improving improving market conditions.
We didn't have anything mega in the in the quarter, but we write large account there and so we you know we won a number of new large accounts.
And.
That's what you know that's what it just gets baked into that but nothing in particular that that stands out to us.
So strong acceleration and Nick in the core business production has a strong growth quarter. We won a number of new large large accounts in the quarter I, but remember is lumpy business. So I can't tell Ya.
The next quarter is gonna be the same.
It bounces around a bit.
What it was very good that's great. Thank we'd like to everything we'd like everything we saw about how the market behaved and I moved towards us in terms of rate in terms.
Excellent. Thank you.
Well.
Our next question will come from David.
Evercore ISI. Please go ahead.
Hi, Good morning, just had a question and appreciate the color on the three buckets.
Just wanted to get a little bit more detail on when you really saw or have seen an acceleration in the loss trends in the last two buckets.
And specifically if you've seen any increase over the last couple of quarters that you that you'd note.
Nothing over the last couple of quarters.
I've been talking about this if you go back into shareholder letters and.
And to quarterly.
Commentaries been talking about this for two years.
Got it so no meaningful acceleration beyond beyond what you've been mentioning okay. That's that's helpful. And then just just on the Tpd in North America commercial.
[laughter] the child's victim Act, obviously went into effect this quarter I'm just wondering any early indications you got on your exposure there and if that was a was an element that led to the lower year over year.
PPD.
No.
Zero number one number two.
I think you're referring to New York, California went into effect I believe the governor signed it last week.
And and there are number.
Other states that or in the middle of passing revive or statutes now.
We have.
No way at this point divest amazing.
The exposure.
And.
And ultimate lost a job in that it's you're at the very beginning its way too early.
Okay, great. Thank you.
You're welcome.
[laughter] final question from Meyer Shields with KBW.
Great. Thanks, very much Evan I was wondering if there's any way of quantifying broadly how much of the current insurance market as adequately priced compared to year ago.
Oh, my or we have into 'em, we haven't added it up that way or thought about it that way and when you say go market I you know that's asking you know I can't.
I cannot tell you the adequacy of the ocean.
Overall so.
No.
Okay Fair enough second question.
Given the I don't know whether its external weather issues with the underlying chronological changes is there any way of assessing what.
Loss trend is for North America property lines.
There's no way for you to assess.
We can assess.
Can you tell us what you've come up very buyer admire I'm not disclosing it but it will vary we're not going into sub lines, but it'll vary you know we have a number of property portfolios. We have first dollar property that is that is admitted risk we have first dollar proper.
<unk> that is E N S and they behave differently, we have access property.
And we have other coverages that go along with that and then we have large account property and so and they all in all behaves a little bit differently.
Okay. Thank you very much.
You're welcome.
This does concludes today's question and answer session I like to turn the call back over to change because interest for any additional for closing remarks.
Thank you all for your time attention. This morning, we look forward to speaking with you again next quarter. Thank you and have a good day.
This does conclude today's call. Thank you for your participation you may now disconnect.
Oh.