Q4 2019 Earnings Call
Bye and thank you for your patience.
Good day and welcome to W.R. Berkley corporations first quarter 2019 earnings Conference call. Today's conference call is being recorded the speakers remarks may contain forward looking statements somewhat the forward looking statements can be identified by the use of forward looking words, including without limitation belief.
Expects or estimate.
We caution you that.
Such forward looking statements should not be recorded I said representation by all of that the future plans estimates or expectations contemplated by all those will be inside because she's.
Please refer to our annual report on Form 10-K for the year ended December 31st 2018, and our older filings made with it it's easy for a description of the business environment in which we operate and important factors that may materially affect our results.
W.R. Berkley Corporation is not on there any obligation and expressly disclaims any such obligation to update or alter its forward looking statements, whether as a result of new information future events or otherwise.
I'd now like to turn to call over to Mr., Bob Berkeley.
Please go ahead.
Carmen. Thank you very much and good afternoon on thank you for dialing in today to or to travel that's about our fourth quarter results.
I missed some of the phone a in addition to myself again, you have the Bill Berkeley's executive Chairman enriched our Chief Financial Officer.
We're going to follow a similar agenda to what we've done in the past.
Rich has got to lead off with some some comments on the corridor and then he's gonna handed off to me I'll offer a couple of relatively brief comments and then you'll have the three of us at your disposal for any Tonight.
Rich if you were please great. Thanks Ron.
We reported net income of $119 million or 62 cents per share.
Continue to see an acceleration in the growth of our top line both from a gross and net premiums written basis.
Our underwriting results improved on a current accident year basis, excluding cat losses, while we experienced some variability on the investment side that we've alluded to during earlier earnings calls.
Focusing first on the underwriting results gross premiums written grew 10.1% and net premiums written grew 9.3% in the current quarter, bringing the full year growth to 7.3% and 6.7% respectively.
Total premiums for the group were $1.66 billion in the current quarter comprised of approximately 1.5 billion in the insurance segment, representing an increase of 8.2% over the prior year quarter.
And 176 million in the reinsurance in mono line excess segment, or an 18.9% increase quarter over quarter.
Insurance segments net premiums written grew in all lines of business with the exception of workers compensation.
The growth in the quarter was led by professional liability of 12.9% followed by 11.8% in other liability, 11% in commercial automobile and 10.2% in short tail lines.
Reinsurance and model line excess segment grew in property reinsurance by 22.5% casualty reinsurance of 19.9% and mono line excess of 8.3%.
Pre tax underwriting profits increased more than 71% to $115 million compared with $67 million a year ago.
Improvement was primarily attributable to an increase in net premiums earned of 6% and lower underwriting expenses relative to the gross and net premiums earned.
The current accident year loss ratio, excluding cats was 61.4% in the current quarter, which was slightly better than the prior year quarter comparable with the full year 2018 and 2019.
In addition, cat losses decreased from 45 million in the prior year quarter to $20 million in the current quarter, representing a reduction of 1.6 loss ratio points.
Cat losses in the current quarter were 1.2% net premiums earned.
Finally prior year loss reserves developed favorably by $2 billion, representing approximately 0.2 loss ratio to points. Accordingly, our reported loss ratio was 62.4% for the fourth quarter of 2019.
Expense ratio was 30.9% or 2% lower than the prior year quarter and improved 0.6% from the preceding consecutive quarter.
Although we continue to see an improvement in our expense ratio. The current quarter is not expected to be the ongoing run rate for 2020.
We anticipate that the full year read for 2020 is more likely to be in the range of 30, 132%.
As we've mentioned in the past please remember that our expense ratio may experience. Some variability as we continue to make investments in the business.
The current quarter benefited from the increasing net premiums earned along with reduced acquisition costs due to favorable ceding commissions and operational efficiencies we've referenced in recent past.
This brings our reported combined ratio for the fourth quarter of 2019% to 93.3% and our current accident year combined ratio, excluding cats to 92.3%.
Now focusing on our investment results.
Net investment income from our core portfolio remained flat quarter over quarter, our book yield for the quarter and full year for the fixed maturity portfolio was 3.4%.
We have maintained an average rating of double a minus and an average duration of 2.8 years for fixed maturity securities, including cash cash equivalents.
As we've mentioned in the past our investment funds do have some variability overtime. This quarter was evident in this situation. We had a couple isolated funds with unfavorable mark to market adjustments and likely see them recovery.
Even with this variability in the quarter, our full year book yields was 5.2% results within our expectations.
We believe the alternative investments will continue to produce above average long term returns.
Pre tax net realized and unrealized losses was $23 million the loss in the quarter was primarily attributable to a decline in the fair value of preferred stock and Fannie and Freddie which under the accounting rules is now reflected in the income statement rather than directly reported in stockholders' equity.
Moving the $30 million of unrealized losses due to these mark to market adjustments, we realized a pre tax gains of $7 million in the quarter.
The effective tax rate was 18.4% for the quarter, which largely benefited from a lower effective tax rate due to the partial release of our valuation allowance against deferred tax assets associated with net operating loss carry forwards in our international operations. In addition, we reflected a favorable adjustment truing up.
Our 2018 tax accrual to file tax returns.
We expect 2020 to return to a more reasonable level.
Stockholders' equity was approximately $6.1 billion $33.12 per share representing an increase of 11.7% from the beginning of the year for the full year book value per share grew 17.3% before dividends and share repurchases. We returned capital of 176.
Million dollars in the quarter and $326 million for the full year, a return on equity for the quarter on an annualized basis and to the full year was 8.8% and 12.5% respectively on net income.
We had strong cash flow from operations in the quarter of $249 million as well as approximately $1.15 billion for the full year and finally is worth reminding folks at the new accounting treatment for credit losses on financial instruments is effective in the first quarter of 2020, Accordingly, you will see a cumulative effect.
The adjustment to stockholders equity, which should not be material to our financial statements.
Importantly, this change in accounting treatment may add some additional variability to the income statement as we evaluate each reporting period, the allowance for credit losses associated with fixed maturity securities loans receivables and other financial instruments.
Thanks, Rob.
Thank you very much but wasn't there was a lot it's because there's a transcript from [laughter]. So.
When I when I read before I came down to to get on the call I was taking one last look to the earnings release and [noise].
I was looking at the head or that said, we have referencing the topline growth.
Return for the year, which I think is clearly attractive, but if it were solely left up to me, which it isn't I would have gone for a head or a tidal that's more tend to it is happening.
With a footnote that would say X workers compensation.
And what I mean by that is what we've been discussing and others have been discussing for an extended period of time as far as the challenges that the market faces. The reality is that stem from a low interest rate environment frequency of cat activity and of course, social inflation has finally gotten to the point.
There is no longer solely being talked about but it is actually being acted upon.
And this is a meaningful sea change that became very visible in our opinion in the fourth quarter and there is no sign of that slowing down.
The comment or the note about X workers comp.
The reality is that workers comp has had its moment in the sun and the clouds are beginning to build a little bit as a result of the actions that are taping taken by state rating bureaus.
Having said that I would caution people not to overreact and assume that its doom and gloom overnight. There is this thing call to negative trend, which is partially mitigating a the actions that are being taken by state rating bureaus, having said that going the other way Oh, we certainly are paying.
And close attention to severity and the workers comp line and those that are not keeping an eye on that you know that that may prove to be a challenge in the future, but putting aside comp when we look at our business every component of the commercial lines marketplace that we participate in.
To a greater or lesser extent, we are seeing rates moving up and our senses. The trend will continue and in many cases will not only continue but may very well accelerate from here.
[noise] rich did a great job talking about the quarter and putting a bit of a bow around if I'm going to piggyback on a fuel his comments and offer you a couple of observations.
Just starting out with the topline.
The growth was more than we've seen I don't know and forget about quarters I don't know how many years, but it's been a a long time riches tried to mouth may how long, it's been but I can't really tell what are you, saying, but it has been a while.
Top line up more than 10% or on the gross saumen that more than 9%.
It's worth maybe people, taking a step back appealing a a layer to back and really.
Understanding this we are seeing significant growth in submissions, particularly in our specialty businesses and even more so in our DNS operations.
Has been building for awhile, and it's really accelerating in the fourth quarter.
We are seeing as a result of that clear evidence that there's leverage on the rate side.
Our release I think we said approximately 9% to put a slight or foreign or slightly finer point on it it was 8.9% X workers compensation.
A figure that we've shared with you from time to time as our new business relativity, which is a metric that we used to try and compare on an apples to apples basis, how much we're charging for new business compared to our renewal book and our new business. We are charging 100 or excuse me 1.0 for too.
Or 4.2% more for new business.
Pair to renewal business. This is an important metric because it gives us confidence in comfort, we're not buying new business in fact, as new business in theory, one those a little bit less about than your renewal book. So you should be surcharging that.
As far as the renewal retention ratio. This continues to be pretty steady hanging in there at approaching 80%. It's a shocking to us at times have that number doesn't move but I think it's important to connect the dots that that renewal retention ratio isn't moving in spite of what we're doing with the rates.
[noise] pivoting over to a couple of comments on the last front as rich suggested it was by and large what we had the expected.
But I do want to drill down a little bit more tier and touch on I guess, what's become the topic of the day, though from our perspective should it should have been the topic of.
Our discussion for the past several years to that point, we started talking about social inflation back in 2016.
We started pushing for rate back then we have been pushing for rates since we started to see this but putting aside rate. We started taking other types of underwriting action, whether it'd be terms conditions deductibles or just pure risk selection.
The factor the matter is social inflation, while it's being more actively discussed and acted upon today. It is not a new phenomenon.
It is an example, led you do need to pay attention to it is an example that expertise make a difference.
It is an example of how you need to be not solely consumed by the rear view mirror, but you need to be looking out the front windshield as well.
[noise], we've heard from some people over the past few years when we've been talking about the type of rate increases that we've been getting the question has come up well why arent you dropping your loss picks if you're getting all of this rate.
And the simple answer is because we saw this out there in the environment and we needed that rate and the under underwriting.
Actions in order to be able to reconcile the loss pick we are using.
Having said that as we are getting approaching nine points of rate at this stage, it's very hard for us to imagine we're not comfortably outpacing loss cost trend.
But at this level.
Maybe switching over or briefly to the expense ratio and again rich touched on this I'll just put in my my two cents year briefly we do have some ITC and data data related initiatives that had been going on and we will continue to go on they are significant investments a that sir.
Only can have an impact on our expense ratio, having said that going the other way I think we're going to continue to benefit from higher earned premium as the business is growing and much of that growth is coming from higher rates. So that will help.
Mitigate the additional spend.
Rich also touched on the investments I'll offer my two cents there again as he said the the core portfolio was right in line with expectations. We did have a a little bit of noise coming out of the funds. The noise really came from a couple of isolated places we're not particularly.
The bothered by this it's just the reality is as part of our total return approach occasionally you're going to get a little bit more volatility and our senses what moved in one direction in the quarter is likely to move back into the other direction overtime. So I would caution people not to.
Me too deeply into the funds.
My senses, and I think riches sense and other people senses. It is likely to move back to what is a more historical level.
In relatively short order.
I guess last comment on the investment portfolio is something that we've discussed in the past and that has to do with gains.
And I referenced this idea around total return.
We are focused on building book value for shareholders through underwriting as well as investment activity. We are today, we take a long term view.
Part of our effort, particularly in this extended low interest rate environment has been to try and find other ways to generate return.
Our alternative portfolio investment funds included but not limited to that has proven to be as rich referenced a great source of return for our shareholders.
We have discussed in the past that give or take people should be expecting a $100 million a year or roughly $25 million a quarter and gains, but we also have reminded people that is going to be lumpy.
I believe we did a little bit more than that in 19, and while we certainly cannot promise or guarantee anything when we look out at 2020, we think that there is a good chance that we will exceed the traditional guidance.
Couple of quick comments on capital management.
We're very focused on trying to strike the appropriate amount of capital we don't want the ports too Hot we don't want to too cold we want it just right. However, let's talk about what does despite mean this rate means what we have today and in addition to that what we see our needs could potentially be tomorrow.
The business has been generating more capital than it could use for some period of time, our preferred approach has been special dividends, but as we've discussed in the past we tend to.
Award those or pay those out as we have more visibility.
I think that it is likely that special dividends will continue to be an important part of how we return excess capital to shareholders. Having said that we are not opposed to other levers such as share repurchase or debt repurchase. If we think the opportunity is there and it makes sense.
So final couple of comments for me and then we'll be turning it over to you for any questions.
Upon reflection of the quarter and putting aside our numbers just the environment overall one of my takeaways is this is the type of environment that we're moving into that this business is built for.
This is the type of environment that we are able to do disproportionately well for two reasons, one because of how were structured and we were able to respond in a more timely manner than others and too because of the type of business that we right.
Moments like this when you see not just the standard markets, but yet, but others started to re examine their appetite in many cases narrow it or curtail it and certainly at a minimum people begin to think about risk and return an adequate pricing in a different way than they have further past couple of years.
Yes.
That falls right into our strike zone. So we are excited about what we see in front of US. We were enthusiastic earlier 19, I think what we saw in the fourth quarter of 19 does built on that enthusiasm and while there are some of that would suggest that we tend to be an optimistic Oregon.
Position and I think that is a fair statement. We are an optimistic organization the data that we see in our own business and the data that we can all see in the industry I think clearly supports this optimistic view.
So Carmen let me pause there and if we could please pivot to the questions. Thank you.
Thank you and ladies and gentlemen to ask the question Youre willing to press star one on your telephone to withdraw your question press the pound key.
Please standby will we compile that Q and a roster.
And our first question is from the line of Amit Kumar with Buckingham Research.
Thank you good afternoon.
Good afternoon, and congrats on the plant.
Two quick questions. The first question is.
On.
I was hoping you can you help me too high.
I think commentary.
And the loss cost discussions.
Justice are we at a point where does translate.
Into margin expansion.
2020 versus 2019 or it just based on how long rate takes to Arne we should think about margin expansion for the back half of 2020 were says 2019.
In a a met obviously different parts of our business earned premium in the a different way.
Having having said that certainly by the second half of of 2020, you're going to see a meaningful amount of that fourth COVID-19 premium earning through that 19 fourth COVID-19 premium is going to start it's already started to to earn through and that will continue to it.
Celebrate as far as margin expansion goes at a macro level and I think as best that we not get into the weeds, but.
But when you're getting close to nine points of rate, even our what I would suggest is very measured approach to trend I you were trying to make sure that we are.
And on the side of caution it's hard to imagine that we're not outpacing trend by some number of 100 basis points.
That's that's at that point.
Second question is on the expense ratio and I wanted to clarification here I was reading.
Transcripts and.
Rob there was a common.
Made in that.
Industry presentation, you talked about.
Our goal is to push from 31 and over time, we would like to push it to 30%.
Thats correct. These comments I will just trying to think I completely agree that the E.R. is a function of higher or premiums.
However has there been any shift in the allocations towards the ramping up on T. and data analysis is that.
Also changed or maybe just help me understand what has shifted versus the discussion we had a few months ago.
Well I think what my comments were meant to be sort of intermediate and long term in nature and what I'm trying to message to you picking up on enriches point is that you know the expense ratio.
Was was good this quarter and we certainly would like to continue to to push on that but the simple reality is we're making some investments today that will enable us to get to where we want to not just on the expense ratio front, but being able to run the business efficiently and effectively we have.
I think investments on the systems front as well as the data and analytics front that we already have been making are likely to accelerate and that comes at a cross, but that's going to allow us.
Two.
It ought to continue to get where we want to go.
Got it I will stop Miranda requeue few more thanks, so much for brokers and good luck with feature.
Thank you and our next question comes from Michael Phillips wouldn't Morgan Stanley .
Good afternoon, My agreement everybody getting given even.
First question, Bob you've said.
In recent quarters that once rates get to a certain level your looked to grow more aggressively it sounds like from what you're saying today, that's where we are today, you're looking to grow more crestwood because rates might already be there I guess one is that true.
And then if so to your comment of you see no signs of slowing down I guess.
Maybe talk little bit more about that because if we're at a point where margins are going to start to expand how long does this last into 2020 or you kind of your thoughts on that.
Sure. So I think as Weve, perhaps discussed in the past, it's tricky to use a too broad of a brush share because.
Again ex comp all.
Basically all of the commercial lines spaces in some form of of hardening, where we're seeing rates go up but it's not happening in lockstep.
So we see that happening we see that accelerating there certainly are what I would define us parts of the market or products, our products and certain territories, where we're seeing a green light and we are looking to to push and push hard not just on rate, but we want to right.
We want more count if you will policy count there are other places where it's more of a of an MBR light and we're just going to focus on the rate and we're not looking to push the count, but once we get that Green light. We're we're not just going to open up the spigot, we're going to report out on the wall and we're going to let a poor and then and we'll we'll call a plumber later.
And how long is as far as how long as we're going to go forward.
Well I I asked that question the backdrop for the industry that it typically takes a long time to turn rate positive. It when it does it doesn't last very long. So yeah, I look I think you're never last as long as you would like and that's that's sort of reality at the same time from from my perspective, I think from our perspective, there's still a lot of a lot we're paying to come.
And if you look at what's driving the change its pain.
And we sort of gotten a glimpse of the tip of the iceberg, but there's a lot of iceberg that's below the sea level.
And you know, there's just more to come so from our perspective, we don't see this slowing we see it accelerating edit and at a minimum in some cases maintaining from here, but in more cases and not accelerating.
How long will it go on for you're right I think that's a that's a tricky want to speculate, but we think that theres a fair amount of runway ahead of us.
Okay No great. That's that's helpful. I think the commentary on there's more pain to comment is a great way to say it so but to my second question then on the lovely social inflation term you guys have said you've seen it since 2016 and some your earlier comments even in the past year said you saw in certain line certain segments him and maybe not an l.
It was and so I guess the question is do you see it more widespread today than you did a couple of years ago and is that part of the pain that you're talking about.
[noise], we yes, yes. It is certainly part of the pain that I think the industry is facing a we saw our early in a couple of lines in 16, and then we saw more broadly in 17. So our recognition that this was not just a one line issue, but this.
This was a broad issue with something that we were grappling with definitively in 17.
Okay rough thank you very much so thank you for calling in.
Thank you. Our next question comes from Josh Shanker with Deutsche Bank. Please go ahead.
Good evening, everyone. Thanks for taking my question to.
<unk>.
I'm sure Rich already told you in the last time you grew at this pace was up four Q Q1 4.
Okay, and and you are growing for 15 consecutive quarters through that point based on rate increases.
I started a clock backing out for Q1 0 during the last time pricing was driving up growth. It took a berkeley about two years show underlying combined ratio improvement.
Three years to show GAAP combined ratio margin improvement.
Can you sort of give a comparing contrast, a little bit between.
Oh, just sort of what's happening right now whats happening, then and whether the wagon and pricing leading to better margins is likely to repeat like it did before or will likely come faster this time around.
Well my my my two cents and Josh I haven't Oh, we can we can have an offline conversation where I can certainly examine our historical data was with greater granularity, but you know my my sense is that I wouldn't say, we're comparing apples and orange.
It is but we're kinda comparing apples and pears, if you will and so I can speak right now about the situation that we're facing.
We have a sense as to what we believe our loss costs are running at we have a sense as to what our margins are.
We have a view as to the rate that we're getting and from our perspective. When you see the type of rate increase that we got in the fourth quarter start to earn through well, we're not going to move too early.
In a vacuum one would think that that should it certainly our view that it will benefit our margins.
But you know, we're we're not going to should from the hip we're going to as we always do on day, one we try and book things in a measured way and as it seasons out then we will start to recognize it because again.
Oh, we do not want to declare victory prematurely, but at a high level. When we look at what we believe our trend is running at and we look at the rate that we're achieving we think when the dust settles that is likely that margin improvement is encouraging.
Okay, and then let me try and get it at one other way about your level of optimism.
So we're at right around 9% excluding workers comp if I look at the insurance segment worried about 8% not print reman growth up from 5% the premium previous quarter.
To what extent is exposure growing in those numbers versus just rate.
It it really it depends on the.
If you will the line of business I mean, there are parts of our of our insurance business, where the exposure growth is growing but when we talk about rate that 9% that is pure rate that's not premium if you will.
It is exposure net positive right now has it changed from the previous quarter.
Yes.
It's probably give or take flattish it would be my best guess and again, that's because from our perspective I think as we've talked in the past call or two or maybe more that for the moment, we have been more focused on rate.
But as we are seeing a the rate yet to a certain level, you're going to start to see our count growth.
Thank you for all the answers I appreciate it.
Thanks, Josh have a good evening.
Thank you. Our next question comes from Yarl keen on highway Goldman Sachs. Please go ahead.
Hi, good morning, good I'm sorry.
So I guess my my my first question just raws are more lumpy.
Loss trend itself, you've talked a bit about the acceleration and rate.
Pointed to social inflation morphine for the industry to come Mckinney can you try and quantify what you're seeing in terms of loss trends.
[noise]. So you know generally speaking you know, we don't really get into that level of granularity as far as a loss trends go from our perspective over the past few years, we think the industry has seen them accelerating with the exception of workers compensation, but what I would tell you think.
As we mentioned earlier as we think that the rate increase that we got in the fourth quarter very comfortably outpaces, our our loss cost assumptions in the aggregate.
Okay.
And then specifically maybe in the reinsurance segment, where I think if we strip out catastrophes, we did see some deterioration in the accident and the loss ratio can maybe talk about what drove that.
Uptick.
Rich if you recall.
[noise] you know I don't I'm, we don't have at our fingertips, but we'd be happy to try and give you a better answer than that if you wanted this follow up with Karen If you wouldn't mind sure yeah happy to do that.
Thank you.
Thank you all our next question comes from Mike Saran Ski with credit Suisse.
Hi, Mike Good afternoon.
Hey, Good afternoon first question in terms of the discussion around the industry experiencing more loss inflation not unexpected.
Do you have a few on whether a large portion of that.
Pain, I guess per se.
We will come from the very old accident years due to the statute of limitation changes in a number of states or assist predominantly a held last kind of five accident year.
Coming from the suffered in the last five years.
Oh look from from my perspective, or the change as far as the statute of limitations.
Around sexual abuse or probably just a another compounding factor that has added to the pain, but I think that the industry would have found itself.
In the position, it's in with that or without that it's just another pressure point if you will.
So.
I think that the industry.
Made certain assumptions, putting a aside they change in the statute of limitations on sexual abuse.
The industry has been making certain assumptions that.
This what it's been a.
For many years, a very benign loss environment.
That that would continue and I think the industry got got hooked on that and I think the industry is going to pay that price for that.
Okay, that's helpful and.
I guess, one one thing that I think.
Yeah.
I think it is a price that's the industry is going to pay I think it is going to create pain, but I also think that there is a silver lining up there.
And it's circumstances like this that serve as the catalyst.
For the industry to get a dose of reality and for it to start to operate in a more sensible way.
And while the pain is unpleasant.
It does force.
That change in behavior.
And you know that's what helps us get to a better place as an industry.
Okay. That's a that's helpful and you touched on the loss environment.
It was benign for a while on the that's probably that's that's changed on the casualty side and that's kind of seems like it dovetails to the workers comp comments, you've been making last couple of quarters. Just if you can elaborate I think you said during your prepared remarks or you're watching the severities.
Piece of the equation. So are you, saying that severity is is moving north.
What we're seeing the and I guess broader C.P.I. and is that one of the reasons you're pulling back exposure.
I I look where if you look into our business as far as the premium I think rich made mention this or it certainly was in the release were his first comp goes we're looking at the rates coming down and as we see rate adequacy, becoming less a available you're going to see us a strength that business.
Well severity is a problem are probably them even bigger driver is just the action that we're seeing state rating bureaus take and the other pieces you know we're seeing both Mama line and multi line players that are really chasing the business very hard and you know we.
Have a view as to whats adequate from a rate perspective, and we're just not going to trace it will go right up to the line of adequacy in and we're not going to trip over that and certainly we'll do our best not to.
But I think this event the severity component. This is something that people need to pay attention to I think as we've been we've commented in the past and other a lot of great things that come about as result of science and technology and the things that health care can do.
I'm not to save People's lives, but also.
Improve them you know those are wonderful things, but they come at a cost.
Okay. Lastly, thank you for that in terms of the or the kind of the plain vanilla fixed income.
Investment portfolio is there do you have a rough idea of what the gap between the your new money yields on the existing portfolio.
Yeah, I mean it.
Roughly 100 basis points.
Thank you.
Thanks.
Thank you. Our next question comes from Ryan Tunis with Autonomous research.
Hey, Thanks, Good afternoon, guys, just keeping on workers comp out a couple there.
First of all I wanted to kind of Lincoln Rob's prepared remarks, you said that you guys are assuming negative trend.
Is that true is the view in the 2020.
But the trend is negative and workers comp sneakers.
The answer is yes, but very modest very modest.
Understood.
And then I think following up on the last question clearly workers comp is a pretty significant.
Most of your topline.
Yes, I can you just talked about a little over like the potential for adoption there I'm curious how much variability.
We have another year of softer rates I mean could could we see that book shrink by 25 or 50% or something more manageable.
We see that reduction first [noise].
I don't think you're going to see it shrink that much that quickly.
That's for starters, but what I would tell you is I think the upside in the rest of the portfolio.
And the momentum that we're seeing there.
Is going to weigh out strip.
The reduction on on the comp front for us.
So even with our underwriting discipline that we will demonstrate and all lines, including in comp and the consequences that will be that portfolio may continue to shrink.
The the growth that we will see in the rest of the business.
Will significantly overshadow that.
Sorry.
[noise] and then I.
I guess going back to the discussion around.
The expectation that this quarter the rate is an excessive trend, but you know Rob you mentioned in the past few years you haven't been dropping your pick just because you know there's some margin of uncertainty out there should we take that means that if you're right. It is an excessive trend here for 2020 that.
It might be more logical that where we end up seeing that are getting paid for that as shareholders could potentially be down the road no formal saw favorable prior year development as opposed to.
In the near term or on the the accident year loss ratio on.
I think the answer is both in but you know I no one's going to know that except through through the passage of time.
When.
You know there there's a lot of moving pieces out there and that's what sort of driving or creating the circumstance that we're navigating through.
I think it's pretty clear that we're comfortably again outpacing loss cost trend.
I think that we will be in a position over time to recognize that with a greater degree of confidence, but we're not going to go.
Too early on that we're not going to declare victory prematurely. So do I think that it's going to come through yes, I do think it's going to come through do I think that as this year unfolds, we will have more and more evidence. Yes, I think we will have more evidence and do I think that you will see that.
Coming through not overtime, just in development, but will you see that coming through in the current year, Yes, I think if things unfold. The way we expect them to you will see that but again you know we we.
As we've shared with you all in.
In 2019 in Q1. These are ex Com Yeah. We got 6.3 in Q1 and Q2, we got five foreign Q3, we got seven three in Q4, we got eight nine.
You can see the momentum is building and we're going to watch that come through.
And as it comes through and as there's clarity you know we will take action, but we are.
Comfortably convinced that it is going to come through but even though we're comfortable we're not going to respond prematurely.
Understood. Thanks.
Thank you. Our next question is from mayor fields with KBW.
Great Hi, how are you.
That area. Thanks for calling a good. Thank you. Thanks for taking my call to really quick question. One is there risk of personal basin specific to workers compensation.
[noise] is there risk to social inflation as it relates to workers compensation I guess in one could come up with ways that it could apply but practically speaking at this stage benefits are clearly per scribed <unk>.
Bye and the each one of the states.
And as a result, it's pretty clear what a what that is in and how that will be awarded and what those sums would would be to the extent that states decide to adjust those benefits more aggressively yeah. That's a possibility, but you got to remember to a great extent bill.
Doesn't have comp is priced off of payrolls, that's helping you keep up with certain types of inflation as well.
That's helpful. I was also wondering about on the frequent beside whether you could just be wrapped up.
Attorney advertising or something.
Ah, Yes, you see that but generally speaking of the attorneys are not really chasing comped dollars there they're chasing a.
Auto liability general liability umbrella et cetera types of its.
Exposure or other capacity or coverage.
Okay.
Perfect and then second so you found I think very optimistic about growth prospects and I was wondering whether you could talk about.
Sure, it's purchasing I think on it as a component of that as the fundamental profitability of the.
Thanks, Ed can we expect the change should we expect to change in.
The percentage of premiums that are used for reinsurance.
Well you know obviously, we look at Reinsurances, just a another spend and we try and be thoughtful about it.
One of the benefits of our business because the vast majority of what we write are relatively modest limits that we are not captive to the reinsurance market anything approaching like some others are so there are some covers that are really important for us to buy but there are certainly.
Many covers that we buy that if we don't think they make economic sense anymore, we are not compelled to buy them.
Okay perfect. Thank you so much.
Thank you.
Thank you. Our next question is a follow up from Amit Kumar with thought and Pam research.
So just two quick cleanup questions. The first question is.
On the discussion on the growth prospects and the opportunities you're seeing and both your DNS and primary I know the pass you've talked up to a sweet spot and use that that's where you can have limits. You know you try to go for 10 million or last night.
That policy would have that I'm curious based on the flow of.
You know showing up has there been any hot process.
Tom So shifting those limits or maybe I'm thinking sort of Uh huh.
Larger account size or maybe just help me understand Oh are you led lighting all of that business pass by.
We write business that we feel like we have expertise and.
That's sort of where it starts and where it ends we generally speaking and while we have tended to focus more on on small accounts, but there are pockets of our business that will write some some larger accounts.
And you know we are an organization that is opportunistic and each one of the people that run.
The businesses in the group in their respective teams understand the goal of the exercises risk adjusted return.
So while our focus is on on smaller towns and I don't expect that you will see our mix shift dramatically.
Certainly there are components of the market better feeling more challenge than others and to the extent, we think there are opportunities to deploy capital in those areas, we will do so.
Currently we have the people with the knowledge and expertise to do that in a thoughtful in responsible way.
Got it up there.
Don't know pool is onto discussion on.
The GE a line for the industry and hard market and attached you said that you know we are.
Well, it's a 24 months away from a hard market has that timeline.
The accelerated since we last talked about just based on.
The level of issues that seem to be cropping up.
So.
I'm I don't I don't know when it was that I said 24 months I think what I was at least trying to suggest that I'm thinking from recalling correctly was that I had referenced oh, perhaps commercial auto was towards the front of the pack and how we saw a property coming along.
We are offered some commentary on professional liability DNL in particular, really accelerating and making up ground NGL being a bit behind but I think what's happened is as people are grappling with the broad circumstances that the market is facing.
They are figuring out the geo the issues that they saw an auto and the issues that they saw in other places applied a geo it's.
Hey, it's coming into focus and B to People's credit there extrapolating from the noise. They had another lines and applying it to GL. So I think that Ah well Gee l. is been a bit the caboose I think it's going to make up some ground quickly or it is making up ground quickly.
Got it yeah. So all I have thanks, so okay. Thanks summit.
Thank you and we have a question from and I know, Brian Meredith would you be yes.
Hi, good Rotten Brian .
Hey, how you doing a couple of quick questions. Your free first to Rob can you just talk about retail versus your eat Es business are you seeing the same opportunities in retail ex workers comp. Obviously, there was that market Justice firming up is the as the U.S. market in your Lloyds business.
I would tell you well first of all the vast majority of what we were right on an N.S. basis is outside of Lloyd. So I think it's important to keep that in mind, a though we do have a meaningful lloyds presence and hopefully it will be coming more meaningful overtime.
But probably the place that we're seeing the most extreme opportunity would be in the N.S. space and a bit and the facultative market.
Followed by just the general specialty market, which is both Ns and admitted.
And some of it as wholesale and some of it is retail.
Okay.
So like I'm, just thinking you're cutting out Western group is that an area that you're seeing much you know rate activity. So we're seeing opportunity there.
But I would suggest to you that.
Overall, they're not seeing the same type of opportunity or in a in the regional businesses that we're seeing in our N.S. businesses, but there it would seem as though they're catching up its accelerating.
Great. That's helpful. And then secondly, just a quick one Rob I recall, you do have some exposure down in Australia anything that we need to think about here with respect to these Australian wildfires and exposure to those.
No first of all <unk> property is not a big part of what we do down there gosh ER and number two based on what we've seen so far obviously, it's a horrific situation and our hearts go out to those that are affected on a personal level, but from a business perspective, while we may have a little bit of activity.
It would really be just.
Very modest is our expectation.
Thanks, Rob.
Thank you and I am not showing any further questions in the queue I would like to kinda called back to Rob Berkley for his final remarks.
Thank you Carl we we appreciate everyone, calling in and we certainly appreciate the questions as suggested earlier from from our perspective. This is the type of market that we are built for and we look forward to the opportunities that will continue to come our way.
We think those opportunities will be accelerating from here and we look forward to updating you in the coming quarters as to how are we all are as a team capitalizing on those opportunities have a good evening.
And with that ladies and gentlemen, we thank you for participating in today's conference call you may now disconnect.