Q3 2019 Earnings Call
Good morning, everyone welcome to Proassurances conference call to discuss the company's results for the third quarter of 2019.
These results were reported in a news release issued on November 15 2019.
Included in that released a cautionary statements about the significant risks uncertainties and other factors that are out of the company's control it could affect proassurances business and alter expected results. Please review the statements.
Management expects to make statements on this call dealing with projections estimates and expectations and explicitly identifies these forward looking statements within the meaning of the U.S. Federal securities laws and subject to applicable say top our protection.
The content of this call is accurate only on November six 2019, and except as required by law or regulation Proassurance will not undertake and expressly disclaims any obligation to update or ultra information disclosed as part of these forward looking statements.
The management team approach parents also expects to reference non G double A.P. items during today's call. The company's recent news release provides a reconciliation of these non GWP numbers to that GWP counterparts, Nowadays I tend to pull over to Mr., Ken Mcewen I would like to remind you that the coal is being recall.
It it and that will be a time for questions. After the conclusion of prepared remarks Mr. Mcewen. Please go ahead.
Thank you actually.
Call today, you'll hear from our President and CEO , Ned Rand, Dan Hendrix, Our Chief Financial Officer, Mike Boguski, President of our specialty PNC lines and Kevin show President of our workers compensation insurance operation that we usually starts off.
You can.
Hope everyone has had a chance to review our news release in 10-Q.
But the short of it is we continue to achieve overall profitability despite operating in very challenging market conditions.
This is especially true for the terrific performance of our workers compensation insurance and segregated portfolio cell reinsurance segments.
Which together contributed 3.7 million dollar store operating earnings this quarter.
On the other hand.
We recognize our specialty PNC segment results are not an unacceptable level.
And we're taking necessary steps to return to underwriting profitability.
Your pricing and underwriting reflect emerging loss trends.
Even as we secured another consecutive quarter of renewal rate increases in our specialty you can see lines.
And recognize favorable reserve development, our net loss ratio increased in the quarter.
Well, we have been quick to react to the increase in Perth perceived severity trends.
We're being cautious in a reflecting the impact of the steps we're taking.
Given the uncertainty in the loss environment.
The severity trends continue to influence our view of reserves and her loss assumptions.
And I assure you were being appropriately discipline in our analysis.
We're also seeing encouraging signs in our Lloyd segment business I won't be providing greater insight on each of these segments throughout the call.
I maintain what I've said in the last two calls.
We expect loss severity trends in healthcare professional liability to continue.
Affecting our reported results for the remainder of the year and end to 2020.
Now I'd like to ask Dana to provide some commentary on our consolidated results Dana.
Thanks, Dan as you mentioned this was a strong quarter for our workers compensation insurance and segregated portfolio cell reinsurance segment.
It was made significant contributions to our consolidated net income for the quarter, which was $17.2 million or 32 cents per share.
In addition, our Lloyd segment was a contributor to our overall profitability and is beginning to show encouraging sign of improvement.
Echoing his thoughts on the specialty PNC segment loss environment continues to be a challenge.
You'll hear more on that from Mike shortly.
The reality is that despite strong premium writings another consecutive quarter with renewal rate increases and solid retention. Our view of loss trends continues to to suppress these positive and resulted in an operating loss in the specialty PNC segment.
Consolidated operating income net income was approximately $16.3 million or 30 cents per share driven in part by tax benefit of $6.7 million, which included a benefit of $2 million to align our actual effective tax rate with our projected full year effective tax rate this time adjust.
Last quarter resulted in an additional tax expense of approximately $2.4 million.
We saw a reduction of just over one point in our expense ratio, primarily the result of the decrease in share based compensation and other incentive related compensation costs and a decrease in operating expenses in our Lloyd segment largely due to the startup is dedicated 60 131 in 2018.
Our consolidated current accident year net loss ratio was essentially unchanged quarter over quarter at 82.3%.
We saw a quarter over quarter reduction in the current accident year loss ratio in our workers compensation insurance segment.
With that reduction was offset by an increase in our specialty PNC loss ratio due to the continuing concern over long trend.
We do not see any change in the medical liability loss trends for the foreseeable future.
So.
We will continue to be cautious in establishing initial loss picks.
Net favorable reserve development was approximately $16 million with all operating segments contributing.
Well our reserves continue to develop favorably for accident year development was lower as compared to the prior year period, which accounted for approximately three points of the increase in the net loss ratio and was primarily due to our observation of increased loss severity trends in the broader healthcare professional liability industry.
This brings us to a consolidated combined ratio of 103.6% for the quarter up two points from the third quarter of 2018.
And our corporate segment, our equity in earnings of unconsolidated sincere subsidiaries experienced a loss of $1.3 million.
Compared to $5.2 million earnings in a year ago quarter, driven by the results from two limited partnership.
Meanwhile, net realized gains were approximately $950000 compared to approximately $11 million in the third quarter 2018, mainly due to changes in mark to market adjustments in our equity trading portfolio.
Now I'll turn the call over to Mike Boguski for his comments on the results from our specialty PNC segment Mike.
Dan.
Especially PNC segment recorded a third quarter operating loss of $10.2 million compared to the second quarter loss of 8.4 million.
This was due to decreasing prior year favorable development driven by loss volatility in our large account business.
And the continued cautious view of emerging severity trends, resulting in a higher current accident year loss ratio.
Starting with the topline trends gross written premium decreased $2.6 million.
Compared to third quarter 2018.
$265 million. This was primarily driven by a decrease of $2.8 million in health care facilities premium compared with the third quarter of last year.
And the timing of a pending 3.6 million dollar physician policy renewals that we expect will be included in premiums for the fourth quarter of 2019.
The decrease in health care facilities premium was due mostly to retention losses as we emphasize price adequacy.
And that business.
The decrease in total gross premiums written was partially offset by the acquisition of a 2.7 million dollar loss portfolio transfer account.
Written and fully earned during the period.
We continue to be please and encouraged by the solid premium retention of 86% across specialty PNC.
While achieving renewal rate increases of just over 7%.
Physicians premium retention, our largest portfolio business in the segment increased to 89% from Q2, this year and we achieved rate increases of 8%.
This result reflects the marketplace recognition.
The proassurance value proposition in a highly competitive market.
Premium retention in the facilities book was 57% largely resulting from the decision not to renew certain large accounts.
Written on an excess and surplus lines basis.
Meanwhile, we were successful in securing 12 points of positive rate during the quarter in our facilities business.
These results are consistent with our focus on underwriting discipline.
As we continue to emphasize careful risk selection rate adequacy.
And a willingness to walk away from business that does not fit our goal of achieving a long term underwriting profit.
New business written in the quarter was $9 million, which is relatively consistent with Q2 of this year.
Loss ratio trend continued as in recent quarters with higher accident year losses, and lower favorable development from prior years, the calendar year loss ratio increased to 85.9% as compared to 81.4%.
The third quarter of 2018.
This result was driven by a 1.1 point increase in the current accident year loss ratio and a 3.4 point quarter over quarter decrease in favorable prior accident year Reserve development.
Although we have not seen a significant chain in claims paid losses are payday Ali we will continue to maintain a cautious view of emerging severity trends.
The expense ratio for the period was 0.6 points higher quarter over quarter.
Primarily related to fees from a data analytics service relationship that we did not begin to incur until Q4 2018.
Since Q2 2019.
Senior leadership team has executed on several strategic business decisions designed to improve operating performance.
As we bring together all the specialty PNC product lines and operations under a unified organizational and management structure.
This includes leadership and organizational structure changes.
Restructuring healthcare professional liability underwriting into two distinct units standard positions and specialty.
Consolidation of several internal operations and evaluation in leverage of systems investments.
We also recruited new executive leadership in targeted areas.
And announced the integration of the Podiatric chiropractic dental and lawyer Caroline's into a specialized small business transaction on unit.
We are enthusiastic about the impact these changes will have in the future with a focus on improving the company's competitive position.
Operating efficiency.
Underwriting results.
And delivery of superior service to our distribution partners and healthcare customers Ken Thanks, Mike Kevin We please take us through the workers compensation insurance and segregated portfolio cell reinsurance segments.
Thank you Ken the workers compensation insurance segment produced operating income of $2.7 million for the third quarter of 2019 compared to $1.6 million in 2018.
Eastern remains committed to the consistent application of its individual account underwriting strategy in this highly competitive marketplace. We carefully assess the underlying risks of each policy, including severity exposure medical trend and the impact of new and experienced employees in the workforce.
This underwriting process and establish business model produced an increase in gross written premium of 6.6% quarter over quarter. However year to date gross written premiums are down 2%.
New business written was $11.3 million during the quarter down from $11.8 million in the third quarter of 2018.
$3.1 million of last year's New business premium was from the Great Falls renewal rights transaction. So excluding the effect of that onetime transaction, we saw higher levels of new business. This quarter, despite an increasingly competitive marketplace.
Audit premium was $1.8 million for the quarter compared to $1.2 million for the same period in 2018 continued sign of the strong economies and our operating territories.
84% premium retention for the quarter was largely inline with the 85% for the third quarter of 2018.
Renewal premium decreases during the quarter were 4%.
Solid result in this market cycle and consistent with improving loss trends.
The calendar year loss ratio increased from 64.8% to 65.4% quarter over quarter. This was driven by a decrease in favorable reserve development, partially offset by a decrease in the current accident year loss ratio from 70.7% in 2000.
Team to 68.2% in 2019.
The lower quarter over quarter current accident year loss ratio, primarily reflects a higher 2018 accident year loss ratio due to an increase in severity related claim activity in the third quarter of that year.
Net favorable reserve development recorded in the third quarter of 2019 was $1.4 million largely from the 2016 accident year and represents continued favorable claim closing trends easterns claim operation closed 12% of all too far.
Sales in an 18 and prior claims during the quarter with 51% closed year to date.
The impact of there would not be renewal rate decreases on the 2019 accident year loss ratio was offset by these favorable claim trends.
The decrease in the expense ratio for the third quarter of 2019, primarily reflects the increase in net premiums earned including the previously mentioned increase and audit premium.
Combined ratio for the 2019 quarter was 95.5% compared to 97.4% in 2018.
The segregated portfolio cell reinsurance segment produced an operating result of approximately $1 million gross written premiums in this segment increased 2.9% to $17.3 million in the quarter. This top line growth reflects the retention of all programs.
Hi eligible for renewable during the quarter and the addition of a new program as well as strong premium retention of 96% up from 87% in last year's third quarter. These favorable trends were held in check somewhat by a decrease in new business writings and renewal rate decreases a five.
Percent in the third quarter of 2019.
The FCC reinsurance segment current accident year loss ratio increased to 66.1% from 64.8% for the third quarter of 2019 due to an increase in severity and renewal rate decreases.
At the same time, we produced favorable reserve development of $3.3 million in the third quarter of 2019, as we observed claim trends and accident years 2016 through 2018 that were better than initially projected.
Expense ratio for the segment was slightly over 30% and represents the feeding commission paid to the workers compensation insurance and specialty PNC segments for underwriting claims and risk management services provided to the segregated portfolio cell customers. We continue to be pleased.
With the persistency of the SBC business and attractive underwriting margins in this model Ken.
Thanks, Kevin Ned will you please give us an update on Lloyds and provide for closing comments.
Thanks, Ken.
Remember that these results are reported on a one quarter lag and reflect results of April through June of this year.
Overall, the news in our Lloyd segment is better this quarter.
Gross premiums were up 15% as the syndicate was able to write new business with solid underwriting.
And renewal pricing was generally higher the market starts to from resulting in $1.3 million and operating earnings.
And were volume increases from existing business as well.
Net premiums earned were higher by almost 12%.
Which reflects the increases in premium volume over the past year.
What were offset somewhat by higher ceded premiums under the syndicates reinsurance arrangements.
We did see a two point increase in the current accident year net loss ratio to 58.3%.
This resulted from a quarter over quarter decrease in estimated reinsurance recoveries for catastrophe and other property related losses.
As well as the effect of an increase in ceded premiums earned.
As to the future of our Lloyd segment.
We are encouraged by the improvement in syndicates business as well as the progress being made to bring greater stability and increase discipline to the overall mortgage market.
We are reviewing the syndicates business plans for 2020.
And we continue to evaluate how we will manage our exposure going forward.
Spectrum will have greater detail to share with you when we report our fourth quarter results early next year.
Let me wrap up I underscoring, what we've been stressing for the past year on these calls.
We continue to believe the current loss environment merits caution.
And our way forward centers on our disciplined underwriting operations that have driven our long record of success.
And that our strategy to improve profitability will ensure our strength in the future.
With each policy, we right, we make a promise to our insurance and distribution partners.
Keith that promise, we must be good and careful stewards of the capital that has entrusted to us.
Create value for those who invest alongside this management team for the long term.
Thanks, Matt that concludes our prepared remarks, let's see we are ready for questions.
Thank you we will now begin the question and answer your question.
To ask a question you May Press Star then one on your touched fine fine.
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Your first question comes from Amit Kumar with Buckingham Research Group. Please go ahead.
Thanks, and good morning.
Thanks for the call a few questions maybe in reverse order.
Starting with the Lloyds business any thoughts on how we should think about.
Potential tiphone Soc side and Hagibis exposure.
For Q4, and maybe Q1.
Good morning, Internet, that's a good question.
The quite honestly the data coming in from from Japan has been pretty slow.
But based on what we know today.
We expect that.
Losses for our book stemming from those events will be within kind of expected loss loads.
For the business.
On the same can be said for the wildfires in California that are burning right. Now. So we don't see anything right now that would indicate anything otherwise, but I do caution that the data that's coming in.
In particular on the Japanese exposures has been pretty slow to comment.
Got it and on.
Its business I appreciate the comments regarding the business plans, but I was thinking about this if you step back.
The Lloyds business has changed materially over the past 12 to 24 months for the industry. If you look at the new Lloyds blueprint.
Talking about relatively meaningful step. So you can talk about the expense ratio.
I was curious is there some top process that.
Maybe now is in fact, a good time just occur on with Lloyds or how should we think about that.
Another good question and one that we do to Scott's internally.
I think kind of given.
The profitability of our core businesses right now in the challenging markets that we face in those businesses the reality of.
Of the Lloyds exposure that we have to our participation in the syndicate.
Adds more volatility than I think a lot of investors would care to see an effort to say that when I say volatility I really me on the downward side I think everyone likes volatility when it works in your favor.
So because of that we're continuing to kind of evaluate man ways to manage our exposure down but as a part of that process. We want it continues to have.
A level of participation and ownership and the syndicate and darkens operations, because we do think that over the long term there is considerable value creation there.
We just need to dampen down some of the volatility of it.
Introduces into our results.
That's a fair point and.
Final question I'll re queue going back to the discussion on pricing and loss cost trends and industry trends versus Proassurances book.
We've spent a lot of time talking about how we really havent seen some of these trends manifest in the paid data and I was curious when we as we are heading towards the year end Reserve review.
We will be 24 months since since we've had a talking about it or so.
Any thoughts on.
What do you revisit the loss picks if the data was favorable and.
Why we still havent seen any.
Any of this pressure into paid data versus the industry.
It definitely is going to be an important topic and data point as we do our year end reserve reviews.
And we're approaching it very very cautiously and there are lots of different ways, you can kind of slice and dice the paid data to try and get a sense of the trends I think we're just now getting.
Through a point, where we'll have some comfort level on inside some things a trend versus maybe a one or two quarter.
Change and now by the time, we get the year out I think will have greater confidence around that.
As to why it takes time, it's just there as a long tail on this business that we right for the resolution of the claim, especially something that results in that comes as a result of a verdict in litigation, where Theyre post trial motions, and then appellate issues and that the resolution process can can take quite a while ask.
And the trial process I mean, a number of these.
Reserves that we have established where we believe there are these severity trends, where we're putting up higher reserves haven't even made at the trial yet.
I was just takes a long time for these things to work their way through the system.
But we are as you point out it's been.
18, 24 months since we've really been observing essence I think we are beginning to get some credible paid data.
The other thing I think you have to be cautious about is that.
As with a lot of lines of businesses. The older claims as a more dangerous clients and more damaging claims and so you have to be careful about reading too much into the early claims paid data that you get.
Recognizing that a lot of the more complicated and challenging claims will take longer to resolve.
Got it that's that color is very helpful. I will stop here. Thanks for the answers and good luck for the remainder of the year.
Thanks Anna.
Thank you.
Your next question comes from Christopher Campbell with KBW. Please go ahead.
Hi, good morning, everyone.
Okay Alright.
I guess kind on my first question would be on workers comp.
You guys have that Im just trying to think about the environment right lots of rate declines you guys are growing aggressively so little bit surprising there.
So I guess I'm also a little bit surprised to see the core loss ratio in workers' comp dropped by 250 bed. Given you guys are kind of growing in a softer market. So I guess just any color you can give on this to help us like square those there's kind of thoughts together.
Sure that Christopher to its Kevin we know the where the growth was largely in the third quarter. If you look at the year to date trends were down about 2%, we individually account underwrite every policy.
And that's how we come up with what the end result is going to be I do believe that the trends that we saw in the first and second quarter from a premium perspective are more indicative of what we expect for the remainder of this year and believe that the third quarter was a little bit of an aberration.
In terms of the your second question on the core loss ratio in the third quarter of 2018, we increased our accident year loss ratio.
For the entire year in that quarter. If you look at our nine month current accident year loss ratios. The 19 is actually up a couple tenths of a point over the 18. So we are increasing that but somewhat offsetting those trends as we continue to see favorable claim trends in prior.
Two years.
We apply that to our view of the current accident year. So you really look at expected ultimate in the numerator earned exposure in the denominator for the last couple of years and you apply a factor to the current year. So the reality of it is our accident year loss ratio is up.
But the favorable claim trends that we've seen.
Our.
Driving it down a little bit.
From what we thought it was going to be initially.
Okay. Thanks, that's very helpful. And then just kind of another one on workers comp I think the press release.
Reference the the audit premiums being positive I guess, how much like how much were they up year over year in kind of what has been your trend over the last few quarters in terms of like growth of exposure is from existing clients.
Let me just give you a couple of numbers and again I want to the quarterly numbers.
For the third quarter was $1.8 million this year versus 1.2 last year again in a long tail line of business I think it's important to focus on the longer term trends.
If you go through our SEC filings in 2016 for the full year. It was 6.4 million and 17. It was 4.1 and 18. It was 5.8 and through the third quarter of 19. We're at 3.6 total so the economies remain strong in our operating territories.
We always look at the health of our insurance when we're underwriting policies and I think as a byproduct of all of those processes, we have seen positive audit premiums.
Throughout our operating territories.
Right. Okay. That's very helpful. And then just kind of one last one from that I know, we're getting into special dividend season, right. So I guess just kind of wanted to get your thoughts on you know given the given kind of the environment in each of your major line. How are you guys thinking about the potential for special dividends.
And obviously, how that factors and with all the loss cost picks, which don't sound like their worst year over year right.
Chris is that something that we.
Kind of the capital positions on that we discussed with our board on a on a quarterly basis and we will certainly.
Be discussing with our board when we meet in December .
As we've talked about and the recent past the volatility that we're seeing in the.
Specialty didn't see segment in particular.
Causes us to want to hold more capital than we otherwise would for really two reasons. One just when you kind of have a capital model volatility introduced into that model increases the capital. The model says you should hold and we think thats the prudent thing to do.
We also thanks to the volatility that we are seeing and we know others are experiencing as well.
We'll open up opportunities for us be the M&A opportunities or other strategic opportunities to grow the organization.
And that kind of causes us to want to hold more capital as well.
I think on top of that when you look at the regular quarterly dividend we are paying.
As compared to our operating earnings.
We are currently just through those ordinary dividends returning excess capital.
So those will be the factors that will be discussing with our board.
But I think high level view is we're returning excess capital already.
And there is a desire as an organization to hold more capital overall.
Okay, well thanks ad.
Helpful and thanks, all the questions best locking in fourth quarter. Thanks, Greg.
Thank you once again, if you wish to ask a question. Please press star one on your telephone and White CNMC announce your next question comes from Mark Hughes with Suntrust. Please go ahead.
Thanks, Good morning.
Good morning.
The.
The severity trends you've gone to good good detail about it I do.
Im curious due to the Hey, auditing society for human Resource Management report that the beat their benchmarks for severity in the primary layer they said.
Frequency flat severity up 2% and they made a distinction between.
The primary versus excess layers.
When you see industry data like that you think that of misguided.
You're not seeing it did in your paid.
When we think about the larger verdicts, that's more of a excess or hospital issue.
But for the primary her yet for the primary physician business is.
If it really as much risk that.
The severity inflation will pick up.
Markets, Mike just commenting on our current trends it's been.
Relatively flat.
On the frequency frequency side even.
Perhaps slightly down.
And on the severity trends side as we go through our quarterly actuarial analysis, it's been in that two to three point range for for quite some time. So thats kind of you know that's kind of our view and let Ned comment further as well yeah. So.
You said, mark not and not to anything substantial on our paid data, but what we do know from.
Past experience is that when you get in these times of.
Increasing verdicts.
That has a knock on effect and everything that we do and the settlements we made.
And the other verticals that are going to calm and our view as far as kind of what's going on with the verdicts.
And the litigation environment is the pendulum is continuing to swing up it hasn't reached its apex and that certainly not.
Swinging back down at this point in time, so we believe there is still.
Ample reason to be cautious in this environment.
Again, the paid data I think is I would not make any long term judgments right now based on paid data because I think there's still a lot.
To come out on how these all resolve and then the excess I do think obviously you look at the large verdict report that.
Treasury and others could out and there is a lot of pressure and the excess layers.
That will ultimately find its way into the pricing of the primary layers as well so that's something to fit.
And your sites as well, but I think its I don't know that it's not.
Not good data or drawing the wrong conclusion, I'd, just be very very cautious and reading too much and pay data given the long tail nature of this line and what we think Jeff become.
The only other thing I'd add in Ed's comments is the excess verdicts.
Will tend to put some pressure on reinsurance costs going forward and.
Which we've kind of had the.
The tailwinds of attractive terms over the last five six years and that's turning around a bit.
When you think about the.
Hospital or facility business. Your retention was low I think you've been.
Actively looking too.
Great up that book.
How far through that process are you is this something that we're going to see repeated.
The next two.
Two or three quarters.
Leave it at that.
Yes, we're.
We have oh.
A year process that no new leadership team statement in the second quarter of 2019 really started evaluating.
The book.
With a critical eye.
Starting in the third quarter. So I think we've got another roughly six months to get through the the overall book of business and one of the things that I'd say that I thinks is important.
There is the rate side of that but Theres also the terms and conditions. So when you looked at deductibles Retentions, just kind of deal structure and the large account in the fit facilities business. We're also seeing improvements on that side of the house. So all all will have the.
Positive impact on the future kind of accident year loss ratios.
And then when you look at the state of physician business this quarter really seemed to pick up pretty nicely on the the rate.
With that a mix issue.
Kind of wavering more in the low to mid single digit since its upper single digits what happened this quarter.
I was just.
As consistently across the board put pushing rates in particularly in states, where we felt like the need was a little bit greater.
Yes, I will say in general I think the.
This is the physicians book as a.
Doesn't have as long of a runway to go on rate as we do say the specialty large account business that has some pricing pressures on it.
Should we think of this as the.
The effect of the new management team being more aggressive on pricing or is this reflective of market dynamics.
Mark I think it's really a combination of Baird.
What the market dynamics are certainly way to put us into a.
Combined ratio well in excess of 100% for the specialty PNC book and so the management team that is there now led by Mike.
It is tasked with with driving that back to though the levels of profitability that are more acceptable and more in line with long term objectives of the organization. So.
It is definitely what this team has been task to do and what they're executing on.
And then the final question on the Lloyds when we think about the.
Growth profile, what is the appetite in the syndicate for for new business.
Early pricing is.
Getting better do do we view this as the.
Turning to grow is that the way they are seeing the.
The market.
Yes, I am going I'm going to answer that in two points Mark.
From a pure syndicate perspective.
And kind of documents view of the syndicate. There are good opportunities for growth, both driven by by rate increases and business opportunities.
And the business plan for 2020 will reflect.
Kind of.
Cautious careful growth for the syndicate.
I think it is more likely that our participation in the overall synta debt.
We'll go down.
And so the impact.
On our financials of that growth will be will be muted or reversed by a declining participation on our part.
Not in a position to say precisely where our participation will land, but the expectation is that it will be lower.
And 2020 than it was in 2019.
Thank you.
Thank you once again, if you wish to ask your question. Please press star one on your telephone and what's your name to be announce your next question comes from Greg Peters with Raymond James. Please go ahead.
Thank you good morning, everyone.
Most of my questions have been asked.
But I am going of follow your example, Rita lines from your press release, and then ask you to combat.
Towards the end of the press release, you say and it's around the tax benefit say.
While projected tax credits for 2019 are less than 2018 that continue to have a significant impact on the effective tax rate for the third quarter.
So I know you've commented on this in the past, but maybe you could just remind.
US of how we should be thinking about.
Those credits as we look out to 2020 2021.
Okay.
Hi, its data so our our projected tax credits coming from our.
Low income housing tax credit.
Have had been fairly consistent quarter over quarter, and we expect to continue to see the as into next year, I mean that sort of the short answer.
Yes.
Thanks, Greg if you look on our and our.
Slides that are out on the website.
There's a kind of projected schedule of of those tax credits. They taper off after a few years, but I think for the next couple of years.
Theres still a pretty meaningful.
Impact to the effective tax rate for the organization, yes, that's true the in 2020, it would be slightly less than what we expect in 2019 and then.
Tapers a bit more in 2021, and then significantly thereafter.
Great. Thank you for those answers.
I, just commend you guys on being a little bit more aggressive up fraud on.
Was the severity concerns it seems like it started to ripple through some of the larger insurance companies and other lines like commercial auto.
And so you know I'm sure we're going all ways through your AD Reserve Reserve review and see how your page looked out look outside.
It's certainly worth noting that you guys were among the early birds to notify discrete about these issues.
Hi, Greg Yes. Thank you Greg Thanks for that as we don't quite Joe So alone. After some of the other Q3 results that have been published.
Thank you.
Your next question is a follow up question from Amit Kumar with Buckingham Research Group. Please go ahead.
Thanks, two quick follow ups.
The first question I think goes back to one of the prior questions I was looking at the sequential pricing increases for.
Physicians business and healthcare facilities I notice that the physicians.
We went up by 500 basis points, but at the healthcare facilities pricing went down by 500 basis points and I know one quarter does not make a trend, but maybe if you could just comment on that.
Thanks, and that Mike mentioned that another important factor and looking at the facilities business business in particular.
As terms and conditions.
And I think thats the bigger driver, so where you where you tighten up terms are you put a larger deductible on.
That is a de facto price increase but it doesnt get reflected in the rate increase and I think thats. The most significant driver. There is this we're we're attacking this kind of for multiple angles.
Absolutely price being one of them, but terms and conditions being equally important.
What do you expand on that what we've been example would be what about the limits previously that the limits.
Yes, I can just kind of give you.
The General example, yes.
So, let's say you've got an account that the premiums a million dollars.
And you renew it.
With a $500000 self insured retention or deductible.
And that million dollars was based on your end kind of on your burn rate of losses. So your new premium maybe $500000 for that same account and so from a pure pricing perspective that looks like a substantial reduction in pricing.
From a kind of change in the risk profile, probably hasn't changed dramatically.
So.
Then take that same account, where you put in the 500000 dollar deductible and you get $700000 in premium well and when you analyze that's a 200000 dollar 20% increase in rate yes.
Because you put that deductible implies it doesn't get reflected in that rate comparison.
That's a fair point out that the only other question might might be for you and Ed and I know that Mike.
Alluded to this and there was a previous question on.
The changes in terms of the focus.
With you into seed versus the prior management would you be able to sort of distilled is into maybe two or three top priorities for you going forward worse is tanks, which might have been.
On differently in the prior management team. Thanks.
Okay.
I don't think.
It may quite honestly, there's anything dramatically different I do think the markets are very different and that's the biggest.
And most impactful.
Aspect of it.
So from my perspective, it's.
Yes, the new management team executing in the new environment and those go hand in hand.
I might it might just to comment on a few are the things that he's got in mind as he has taken over the specialty dance area. Yes, I think just in general when you look at.
Yeah, the past 10 years.
And then look out to the next five years in the past 10 years, you have major frequency reductions you have major reserve redundancies reduced capacity.
Little bit more pricing power and reinsurance costs were lower so.
And then I've had a lot about this we kind of feel like to win going forward, we have to be really up operationally excellent and that's the I think thats a difference in companies that will be successful going out the next five years. So.
We spent a lot of work on consolidating of operations deeper talent in some of the underwriting areas.
Leveraging of systems, just kind of regional structure type type.
Thoughts and then consolidating.
Some of the small business into one one unit. So we just kind of feel going out over the next three to five years that will benefit more from.
Operational excellence in an environment, where there is.
Frankly, just more wins in our face in there were in the past.
Got it but that's that's helpful. Then.
Also concluded by commending you on on being a phenomenal job over time in terms of creating value for the shareholders than I know the share prices. It is what it is shorter term, but I think along with from you guys have done probably a better job and most of the franchise is out there. So again congrats on that.
Thank you Matt Thank you Matt.
Thank you.
We are showing no further questions at this time and that does conclude our question and answer session I would like to teleconference, I private to Mr. Mcewen for any closing remarks.
Thank you Lexia and thank you to everyone who joined us today.
We'll talk to again in 2020.
Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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No.
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