Q1 2020 Earnings Call
Welcome to Proassurances conference call to discuss the company's first quarter 2020 results.
These results were reported a news release issued on May 7th 2020, and the company's quarterly report on form 10-Q, which was also filed on May 720 20.
Included in those documents were 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 is dealing with projections estimates and expectations and explicitly identifies fees as forward looking statements.
Within the meaning of the U.S. federal securities laws and subject to applicable Safe Harbor protection.
The content of this call is accurate only on May 2020, and except as required by law or regulation Proassurance will not undertake in expressly disclaims any obligation to update or alter information disclosed as part of these forward looking statements.
The management team approach towards also expects to reference non-GAAP items during today's call.
The company's recent news release provides a reconciliation of these non-GAAP numbers there gap counterparts.
Now I'll turn the call over to Mr., Ken Mcewen.
I would like to remind you that the call is being recorded and there will be a time for questions. After the conclusion other <unk> prepared remarks Mr. Mcewen. Please go ahead.
Thank you Jamie.
In addition to our remarks on the results for the first quarter, we're going to be covering some of our known and unknown to related to the cobot 19 pandemic and the interest of providing information to the extent reasonably possible at this time.
Precautionary measure and as a part of our ongoing pandemic plan participants in today's call are joining us remotely from their respective offices.
We have Ned Rand President and CEO.
And Hendrix, Chief Financial Officer, Mike Boguski, President of our specialty PNC lines, and Kevin Chuck President of our workers compensation operations.
There's a lot to discuss today, where would you like to start.
Thanks, Ken.
Like the starts by thanking this team and our employees across the country for their extraordinary response. The challenge is brought about by kind of at 19.
Actually mentioned.
All in separate offices for today's call.
It's just one of the precautions, we've taken to ensure our employees and our communities remain safe and healthy, but as far from the only one.
Since mid March over 95% of our workforce isn't working from home.
That's over 900 people make nice sudden and dramatic change to their daily lives.
Not to mention the disruption there already facing outside of their work for Proassurance.
I could not be more proud of their commitment.
Discipline and resourcefulness.
That's because of their efforts that the current a virus has had minimal effect on our day to day operations.
We know we're far from the only once facing change.
Businesses across the country had been forced to either adopt similar precautions or shut their doors completely.
We are extremely fortunate to be in a position where we can adopt these changes and still continue to provide for customers.
Especially the writer of healthcare professional liability and workers compensation insurance.
We interact on a daily basis, where the unsung heroes on the front line said this virus.
Care professionals in the first responders.
Business owners and their employees people, whose lives in livelihood church stake as they responded to conditions forced upon them by the virus.
I want to extend our sincere thanks for their efforts over the past too much as they labor to keep the virus from infecting our lives any further than it already has.
We are grateful for the opportunity to serve them and our communities.
Our mission is to protect others.
That has never been clear to me then during the past few months as I mean, so much more than simply paying out a claim.
It means being flexible.
It means being resources.
It means being compassionate.
It means being treated fairly.
I know investors would like to hear exactly how covered 19 will affect proassurances results for the coming quarters.
Believe me when I say nobody would like to have a definitive answer more than we would.
Unfortunately, this pandemic is not so easily quantified.
And it is simply too early to know the full extent of the crisis.
We do have some initial information that will share throughout the call. In addition to the underlying results for the quarter.
But I asked for your patience, while we navigate this global crisis.
Now I'd like that's Dana to take us through the results for the quarter and provide a little more information about the effect of the virus Dana.
Thanks, Dan for the first quarter of 2020, we reported a net loss of $22 million or a loss of 41 cents per share and an operating loss of $1.1 million or two cents per share. The net loss was driven primarily by net realized investment losses of 28.
$7 million, primarily due to the change in fair value of our equity portfolio and convertible securities attributable to the viruses disruption of the global financial markets.
Given how quickly the virus affected the economy over the last several weeks and the unknown timeframe of a return to normalcy.
Cannot estimate the potential long term effects to our portfolio.
The federal reserves interventions have and will continue to have an effect on business and consumer confidence and we will have a better understanding of how our portfolio will perform as we progress throughout the year.
That said the company proactively sold a significant portion of its equity exposure in December of 2019 as well as in late February.
As such we experienced lower losses than we might have otherwise.
In the first quarter net investment income decreased from the year ago period to $20.8 million, primarily reflecting the decrease in our allocation to equity and partial reimbursement in fixed maturity as well as lower overall investment balances as compared to the same quarter of 2019.
We do have some exposure in private equity as well as the credit markets and are monitoring these investments closely endemic timeline unfold.
We reported in overall loss from investments in unconsolidated subsidiaries of $1.6 million as the earnings generated from certain Lps and LLC did not exceed the tax deductible operating losses recorded from our tax credit partnership in bad <unk>.
The year over year decrease was due to lower earnings from two l. piece, specifically, which invests broadly in stocks and commodity.
We are allowing cashed to build so that we can support the operating business. Accordingly, we are being patient and evaluating investment opportunities and the economy in general to determine how best to allocate capital.
As a part of this assessment of capital we made the decision to reduce our dividends from 31 cents per share to five cents per share beginning with the cash dividends declared yesterday, our board of directors.
The dividend is being rightsized to reflect our current earnings profile given the challenging stage of the market cycle. We're in interface. The uncertainties introduced by the kind of in 19 pandemic.
Regarding the operating segments. The trends we have discussed in prior quarters continue to develop in our results for the first quarter or consolidated current accident year net loss ratio was 83.8% 2.1 percentage points higher than a year ago corridor.
We recognize $6 million the favorable development in our prior accident year reserves decreased quarter over quarter, primarily attributable to elevated loss severity in the broader healthcare professional liability industry, including our excess and surplus lines business.
Our decision was also influenced by uncertainties regarding how the type of 19 pandemic will impact our business, including variables such as premium volume claims frequency and severity and the legal and political environment to name a fee.
These factors brought our consolidated net loss ratio to 80.9% 4.1 percentage points higher than the first quarter of last year.
Our underwriting expense ratio was 30.4% for the quarter up from 29.5% in the prior year period.
Primarily due to lower consolidated net earned premium I.
Additionally, the increase reflected $1.4 million a onetime expenses in our specialty PNC segment, primarily related to the restructuring of our healthcare professional liability field office organization to improve our future competitive position, Mike will elaborate on this and other efforts in the specialty PNC segment.
Currently.
This brings us a combined ratio of 111.3% for the quarter.
Mike well you get a started on the results of our operating segments with some details on the specialty PNC segment.
Thank you data, especially PNC segment recorded a first quarter loss of $18.5 million.
Reflecting a challenging loss environment across the broader healthcare professional liability market.
This result was driven by a recognition of higher claim severity trends.
Loss activity in our excess and surplus lines and health care facilities business and last quarter <unk> quarter over quarter prior year favorable development.
We also experienced last volatility in certain states within our positions business, which increased the current accident year loss pick.
Given the yearend 2019 reserve strengthening severity trends and the uncertainty of the loss trend impact from Cobot 19.
Especially PNC segment recorded very limited prior year favorable development in the quarter.
In the first quarter gross premiums written were $155.4 million, a decrease of 6.6% quarter over quarter.
The decline in premium levels reflects our strategy to strengthen right out of <unk> rate levels in our positions business.
And continued re underwriting efforts in our national accounts excess and surplus lines and health care facilities business.
Premium retention was 81% in the quarter.
Hey point decrease as compared to the first quarter of 2019.
Reflects decisions not to renew certain products in RIS.
It did not meet our disciplined underwriting criteria and long term profit objectives.
Objectives, as well as highly competitive market conditions across our operating Derek doors.
The lower premium retention result was offset.
By renewal rate increases of 11% across the specialty PNC segment.
Including 13% for physicians and 20% in health care facilities.
We were also successful in strengthening rate adequacy in excess and surplus lines in our health health care facilities business beyond premium trends through significant improvements in product structure terms and conditions.
New business wrote reserve writings were $4.4 million.
In the quarter compared to 20.9 million in the first quarter of 2019.
This result reflects competitive market conditions.
Disciplined underwriting evaluation.
And to a lesser degree the impact of slower submission activity from cobot 19.
For comparison purposes, the new business results in the first quarter 2019 included two large national accounts totaling $9.4 million.
The expense ratio remained relatively flat quarter over quarter. Despite the reductions in <unk> earned premium.
In addition, and the first quarter, we incurred $1.4 million in onetime charges related to the restructuring of our health care professional liability field organization.
This includes office lease charges and severance expenses related to this structural change.
The current accident year net loss ratio was 94.
0.2% slightly higher than the first quarter of 2019.
This reflects recognition of higher claim severity trends social inflation.
Last volatility in certain states and higher loss picks within our excess and surplus lines and health care facilities business.
Before we go into the pandemic and its effect on the segment I wanted to talk about recent developments pertaining to the large national health care account.
We discussed last quarter.
As you'll recall, we increase reserve estimates for this account in the fourth quarter of 2019.
As losses exceeded the assumptions the company made when originally on underwriting this risk.
The policy term for this account expires towards the end of the second quarter of 2020.
Based on renewal discussions we believe it is more likely than not that the account will not renew on terms offered by brochures.
And the insurer will exercise its option to purchase the extended reporting endorsement we're tail coverage.
Based on preliminary projected exposure data provided to the company.
If the accounting exercised its option to purchase del coverage and that loss of up to approximately 50 million.
Could be recognized in the second quarter of 2020.
As all premium and corresponding losses.
I will be fully recognized in the same period period that tail policies written.
The coven 19 pandemic.
Outbreak is unprecedented.
Over the past 60 days.
We have navigated unchartered waters with their valued employees distribution partners and customers.
As Ned stated in his introduction, we're extremely proud of our employees response to this crisis.
The implementation of a pandemic plan and remote work strategy was very well executed.
Resulting in minimal disruption disruptions to our operations and service to customers.
Kelvin 19 is expected to have a significant short term impact on the healthcare professional liability industry.
Most health care segments are experiencing major reductions in business volume.
Billings and cancellation of elective procedures.
The impact on our business includes premium and exposure reductions.
New business disruption with distribution partners.
Jury trial delays and cash flow implications from deferred premiums.
As of May four 2020.
26, Cobot 19 claims have been filed in our health care professional liability operation.
In addition, we have processed approximately $1 million in premium credits.
For 700 physicians as of that day.
We expect increased claim frequency in our long term care business. However, this will be mitigated to some degree by a significant reduction in exposure.
And product structure structure improvements over the past nine months.
As a result of our aggressive re underwriting efforts.
Our customer base is facing extremely difficult financial challenges.
And disruptions that are practices and we will continue to accommodate their needs. During this crisis.
The health care professionals that we serve deserve our sincere thanks, an appreciation for their efforts in preventing the disease of this virus.
In treating patients in a very difficult environment.
We will continue to closely monitor cobot 19 immunity legislation on a state by state basis.
And the impact of the federal stimulus and other regulatory trends.
It is early in the game.
We will have a clear view of the effects of the pandemic. When we report on our second quarter results in August.
The specialty PNC team continues to execute a comprehensive business strategy in response to the current underwriting results claim severity trends.
And now the business impact from Cobot 19.
This includes organizational structure enhancements re underwriting efforts staffing in expense reductions in state strategy profit improvement initiatives.
During the quarter as we previously we announced we implemented our healthcare professional liability field organization of the future.
Establishing for operating regions with regional hubs.
Reducing the number of offices from 20 to 10.
Adjusting staffing levels.
And launching a remote work strategy in certain opic operating territories.
We are confident.
That's a strategic business decisions made over the past nine months.
He will lead to improved upper operational efficiency underwriting results.
Pro forma expense improvement.
And value added service to distribution partners and customers.
The transaction with the nor Cal group has proceeded to the first phase of state and federal regulatory filings, including the filing of nor cows plan of conversion.
We remain excited about the combination of the companies.
And look forward to working together with the nor Cal team to complete this transaction.
Ken.
Thanks, Mike Hi, Kevin will you. Please live through the results of the workers compensation insurance and segregated portfolio cell reinsurance segment.
Thank you Ken the workers compensation insurance segment produced operating income of $1.3 million and a combined ratio of 98.7% for the first quarter of 2020.
During the quarter the segment booked $79.2 million of gross premiums written a decrease of $10.1 million quarter over quarter that includes traditional business and alternative market business predominantly ceded to the segregated portfolio cell reinsurance segment.
Alternative market premiums accounted for $8.6 million of the overall gross written premium decline.
Renewal price decreases were 4% and premium renewal retention was 83% for the quarter and are representative of the continued competitive pressures and our underwriting territories.
New business writings were $9.1 million compared to $7.5 million and the same quarter of 2019.
The increase in the calendar year loss ratio for the quarter reflects an increase in the current accident year loss ratio from 68.2% in 2019, the 70.2% in 2020.
Partially offset by prior year net favorable development of $1.5 million in 2020 compared to $888000 in 2019.
The increase in the current accident year loss ratio reflects the impact of renewal rate decreases and an 860000 dollar reduction and the earned but unbilled audit premium estimate during the quarter.
Our claim operation closed almost 20% of 2019 in prior claims during the 2020 quarter, which is consistent with the results from the first quarter of 2019.
The 2020 underwriting expense ratio increased to 31.8% compared to 30.9% in 2019, primarily due to the decrease in net premiums earned partially offset by a decrease in policy acquisition expenses.
The 2020 underwriting expense ratio also includes approximately <unk> 0.6 percentage points related to a new integrated underwriting and claim system scheduled for full implementation by the end of 2021.
The segregated portfolio cell reinsurance segment operating income was approximately $18000 for the quarter, which represents our share of the net underwriting profit and investment results of the segregated portfolio cell captive programs, and which we participate to varying degrees.
Gross written premium and the SBC reinsurance segment decreased to $27.1 million for 2020 from $36.4 million. In 2019. This includes premium renewal retention in 2020, 78% new business writings of 1.1.
Million dollars and renewal rate decreases of 6%.
Gross written premium and renewal retention were impacted by 5.2 million dollar reduction in premium for a large health care account, that's selected a lower funding option for its captive had an over rate and which we have no ownership participation.
Quarter over quarter, the SPC reinsurance 2020 calendar year loss ratio remained flat. The result of a decrease in the current accident year loss ratio offset by slightly lower net favorable reserve development of $1.8 million in the quarter. The decrease in the current accident year loss ratio in 2000.
And in 20 is primarily due to a decrease in large claim activity.
Now, let's turn to the challenges presented by the Cobot 19, pandemic first and foremost I would like to echo. The thanks expressed thus far to the multitude of healthcare workers and first responders and all other is doing their part to fight this unimaginable pandemic.
I'm going to discuss cobot 19, and three main areas employees premiums and claims.
With respect to employees on our workers compensation business.
We have taken all necessary precautions to protect their safety.
Our valued employees remain productive renewing policies, writing quality new business managing claims.
Thing injured workers, performing virtual risk management, consultations and maintaining visibility initiatives through phone email leveraging technology and social media efforts I am proud of the way our employees have all resin to this challenge with flexibility courage and commitment.
On the premium side payroll is estimated at policy inception, and adjusted either through an audit at expiration or during the policy period via an endorsement today, we have received minimal request to endorse policies mid term.
Parallel pay our pay as you go product currently represent approximately 15% of our overall premium volume for parallel pay premium adjustments fluctuate real time with payroll changes.
We have suspended policy cancellations for 60 days and offer to defer premium payments for customers on a case by case basis as substantially all policyholder Hughes installment plans today, we have received less than 200 request deferred premium installment payments on a policy here.
After base of more than 13600.
New business submission activity continues but at slightly lower levels companion compared to the same period in 2019.
Having said all of this we do expect downward pressure in future quarters on direct and net written premium resulting from changes in payroll estimates, but with the length and severity of the pandemic currently unknown and it's too early to estimate the impact on premium regarding claims since around mid March.
We have observed a decline in reported claim activity with the most recent five weeks equaling less than half of normal volume.
Currently covered 19 claims have been filed by 41 of our policyholders with 164 reported claims.
Healthcare related risks in our workers compensation insurance segment represented approximately 20% of the enforce net written premium but today our rural underwriting strategy has mitigated exposure to cope with 19 cases and larger cities, where the more severe outbreaks are currently present.
We continue to monitor legislative attempts to broaden coverage for workers compensation claims.
With regard to the pandemic impact on the open claim inventory for pre Cobiz claims. The majority of injured workers are getting treatment for their work related injuries at hospitals and treatment facilities and our operating territories that are not currently inundated with cobot 19 cases.
Our short tailed claim closing business model results in fewer open claims, which will assist us as we navigate through the pandemic with a manageable prior years open claims inventory Ken.
Thanks, Kevin.
No I know the cobot 19 exposure in our Lloyd's syndicates represents a big question Mark for our investors will you give us some color regarding coverage exposure to the virus.
Sure Ken.
Because we typically report our Lloyd's results on a one quarter lag most of the effects of covered 19 today as they pertain to the syndicate will be included in our second quarter results.
It is simply too early to say what the end result will be.
However, based on what we know at this time, we believe we will have losses of approximately $1.5 million related to the virus reflected in the second quarter of 2020 net of reinsurance.
Furthermore, the largest risk syndicates have identified to date is related to the contingency book of business.
And we estimate that potential exposure to be approximately $2.5 million net of reinsurance again based on what we know today.
We continue to work closely with Dale underwriting partners to monitor this situation and we will be as forthcoming and transparent as we can given the multitude of evolving variables.
In any event I want to note that we do write some business interruption insurance and we share the industry's concerns regarding legislative attempts to expand coverages were no coverage was intended Ken.
Thanks, Ned any closing common tourists before we got acuity.
Yes, Ken Thank you do have a few.
Despite the broadening uncertainty introduced by the curve at 19 pandemic, our entire organization is deeply committed to the lines of business in which we specialize.
And our continued service to in support of our customers and distribution partners is unquestionable.
As I said in the release yesterday these are extraordinary times.
But we're blessed to ensure and employ extra ordinary people.
We are fast approaching the first anniversary this executive leadership team if that is currently structured.
And the strategic initiatives began over the past 12 months to physician Proassurance well to me the challenges of the evolving marketplace.
I'll take time for the benefits of these changes to be fully realized.
But I have every confidence and this leadership team and our exemplary employees.
I want to close by once again, extending our sincere gratitude to the health care professionals and first responders on the front line.
For their incredible response to this crisis in for doing everything in their power to contain and to heal the damage if the virus.
Thanks Ned.
Jamie that concludes our prepared remarks, we are ready for questions.
Ladies and gentlemen at this time, if you'd like to ask a question. Please press Star then one.
It's all your questions you made press star in too if you are using a speaker phone. We do ask you. Please pick up your handsets before pressing the numbers to ensure the best sound quality.
Once again that is star and then one Pascoe question.
Well pause momentarily to assemble the roster.
Our first question today comes from Mark Hughes from Suntrust. Please go ahead with your question.
Thank you good morning.
Well, if you could warning talk about the nature of the claims you received so far in the specialty PNC business. I think you mentioned 26 claims what if you could just sort of sketch out your exposure what you anticipate in terms of the nature of those sorts of claims.
How you defend against them what the liability is.
Leased as much as you can petchem this project.
Hey, Mark Thanks for your question I'm going to I'm going to let Mike I'll handle the bulk of that it I think one of the big challenges he'll get into the specifics right now it's just there's so many unknowns.
Especially with the legislative efforts that are.
Trying to provide some immunity to healthcare workers as they try to battle a disease that.
No one has ever seen before.
Mike you want to give some specifics to mikes remarks question.
Yes that.
We had 26.
Coven 19 claims reported.
Interestingly, we had with and then we had no claims reported in the long term care segment of our business.
And you know the likes liability exposures to date.
Talk to the team yesterday. They don't look at these claims is as high value exposures.
That we're seeing and if it basically its claims in the nature of.
Preventing this the spread the spread of the disease and those types of of issues from a liability perspective.
But.
We are really really early in the game.
Again, only 26 claims and we would expect to really see the impact.
As we look look out through the second quarter.
Maybe you can sort of question, though workers' comp side, where you receive claim so.
How do you look at those kind of the duration barely.
Okay.
Yes, how do you how do we see.
Yes, Mark.
Good question, its while Kevin do you want to tape out.
Absolutely so as I mentioned in my remarks, we have 164 claims that we've received to date.
Just to put that into perspective 51 of that is in our captive business in the SPC re and 113 of it is in our traditional book and based on what we know now.
It is a lot of it as medical paying for medicine for the injured workers.
We have not yet.
And then made known of a pay talenti.
Or at this point in time, a significant hospital stay so from a severity perspective.
It's been pretty tame so far you know our reserving philosophy Mark is number one verifying the exposure to an individual or patient who has a positive test.
Making sure that there was a positive test for the injured worker.
Verifying that theres, a greater chance an occupation and then in general public and I will tell you have those hundred 64 claims 163 of them are as you can imagine our in our healthcare book of business.
Verifying that residents patients and other employees have also tested positive. So we're doing a lot of investigation and I would characterize our approach as being a reasonable resolution.
To some of these broader based state mandates that are out there right now we've been working closely with the American property Casualty Insurance Association and believe that they're outline of how they should play out is reasonable and that's how we've been managing our client.
Okay, and then I would I'd just add to I'm, sorry, I was just that Kevin one of the thanks for your watching very closely our there's presumption efforts at the state level.
That would potentially potentially to kind of provide coverage, where perhaps coverage was was not attended and tenant and they can be pretty broad.
There there's legislation that's propose that would would say that any day Miss from work related to covered 19. One is presumed to have been contracted in the workplace and the employees should not have to take a sick pay for it right. So just broadening the coverage pretty dramatically.
As Kevin indicated there a lot of industry efforts to try and.
Combat what we think is a legislative overreach and we're working hard with industry to make sure that doesn't happen, but that is probably a bigger known that does remain out.
Well, let's go one more be a large account that you referenced did.
Thank you.
So that the tail calls to the.
Loss.
These methods 50 million well, we'd be the premium associated with that.
And then what we premium that.
Account generated in 2019.
Yeah, we've not given out specifics.
At that level of detail, partly just had a sensitivity to the to the insured.
But Mike you may have some further comments.
Yeah. Thank you Ned.
It's just just to give a little bit of the the bigger picture color on this as I said we had.
It was it account written since 2016, we.
I had the outsized underwriting loss, it's really relative to product structure severity trend.
Pricing on that.
And there's the option.
Two.
To purchase the extended reporting endorsement and later in the second quarter.
So.
When we look at just kind of the limits out there and the premium perch projected premium off of.
A price that was pretty competitive.
We came up with some potential exposures up to that 50 million dollar number I know where we're at is that there's we've been notified of the intent.
That they want to move forward, but mark there's still a a binding in a billing process and other negotiation points that.
We will happen over the next.
A couple weeks that.
So.
Which is why we presented at the way we did so that's kind of where we're at.
Just to clarify marked the the number that we've put out there is net of any premium that we would expect to receive.
Understood. Thank you.
Our next question comes from Greg Peters from Raymond James. Please go ahead with your question.
Good morning, just a follow up on the large account.
I think given you any opportunity.
Two.
To get payback on this tremendous amount of loss that you're incurring on their behalf.
I call. It you handle that one.
Okay.
Greg There is no provisions in the policy or contract that would allow that force.
I understand but you you've help them by protecting them mute your the whole concept to being treated fairly you're treating them fairly but are they treating you barely in return I mean this is this is.
So well listen I don't want to.
Lets pivot.
[music].
You you announced the dividend cut and.
Usually when you cut the dividend.
It's a measure deployed to protect liquidity. So can you talk about liquidity of the company can you talk about the capital position. The company in can you talk about the rating agency related ratios as we think about.
You know how the balance sheet looks going forward.
Yeah, Greg It's good question and we'll get down at a comment on the particulars I would say that that.
The uncertainty that curve it brings around.
Liquidity and performance.
A contributing factor. So there's just a lot of unknowns that we're trying to prepare for as well, but Dan or do you want to get more to the specifics of what Greg fast.
Sure.
Just to give a little more information around cash and liquidity.
Greg we have cash and liquid investments of about 242 million outside of the insurance subsidiaries.
Which is available to us for used without any regulatory approval or any other restrictions.
Of course. Additionally, we have 250 million in permitted borrowings available under our revolving credit agreement.
As long as the possibility of a 50 million dollar accordion feature associated with that agreement. However.
The potential for subscription as that as of now is a bit on certain of course due to the having 19.
Unrelated events, so, but that's just a little any additional color for you.
Okay.
I guess I guess two other questions just as you know I Digest.
The concept of this incredibly large loss from this one account.
That I continue to be challenged.
Just curious if you have identified any other areas. They are multiyear contracts that you have multiyear policies within your specialty med Mal business and then.
Yes.
We also use you mentioned the contingency business at Lloyds is being exposed to can you can you clarify what Matt contingency business.
Sure well take that in reverse order, Greg contingency business is largely event cancellation business.
And as we said we've we've got we believe about a million and a half that will flow through next quarter, and then potential additional exposure of the tour and a half million on the business there as well reinsured.
And that limits the exposure the syndicate faces.
But it's largely event cancellation and there's a lot of uncertainty around event cancellation right now what we're saying right now is a lot of event postponement.
And because there seems to be a lot of.
Headway and advance notice on any cancellations the the economic impacts are being minimize some bit of some are watching very closely.
Mike do you want to you want to take the second part of that question on the large account.
Sure Ned.
It just a couple of points I mentioned in our last call that we've been through the book of business, Greg and.
This was a unique national account structure, new unique structure for this national account and there are no other structures in our book of business.
That would even be close to the structure that was offered here so I'm very confident in that.
The the large account in excess surplus line space as has been.
Challenging both for the industry it for Proassurance.
And what we've done Greg let last year at this time, it's been about a year now recruited Rob Francis our SVP of underwriting.
And several underwriting specialists to look over and manage these books of business and this team is extremely Intel talented and continue has continued to aggressively re underwrite that specialty book really starting in the third quarter of 2019.
You know just as an example, the first quarter that book you know, we mentioned the 20% rate increases, but we also have.
Great strengthening beyond the premium increases due to the improved terms and conditions.
And and these these are being supported by the market. So we're extremely encouraged by our progress.
And the first we will complete conclude that first year renewal cycle.
Q2 of 2020 so.
We've really aggressively re underwritten the specialty business over the past nine months.
We will proceed.
Over the second quarter and into the early.
Early third quarter, where the new leadership team has had a full view.
That book of business, and we're really encouraged by our process and the rate improvement in terms and conditions and the performance of that team.
Okay. Thank you for your answers.
You're welcome.
Our next question comes from Ron Bobman from capital returns. Please go ahead with your question.
Hi, Thanks, a lot.
Net could you talk a little bit about the and I think you sort of touched on it sort of the good Samaritan.
Legislative.
Efforts and what that may or may not mean.
My opening question. Thanks, Yeah, Ron there's a there's a number of different components of legislation some at the national level in some at the state level and a lot of it is just still very much up in there.
So the some of the good Samaritan legislation is allowing doctors to operate across borders and and.
And kind of into areas of practice, perhaps that they normally wouldn't specialize on.
And then there's a lot at the state level to look at providing some level of immunization for doctors.
Either and the treatment of the disease and or in the diagnosis of the disease and it's really as it's a state by state effort and it's still pretty early days.
And those but what that legislation seeks to do is just recognize the merit of challenges that this disease faces with shortages on testing and the ability to to test for the disease and then just all the unknowns that have.
Been presented by the disease, but it's it's ongoing efforts and ones that were watching very closely we've really not [noise].
Today kind of factored those into our analysis.
And we want to wait and get more clarity around them before we.
Decide if they're going to have any impact.
No. It is is it thought is the thought that they're going to be.
[noise] limited to individuals and professionals and not the institutions. The the hospital companies in the facilities.
If you just said doctors I think yeah, yeah, I think it depends and on a state by state basis, I think that most of the way. The legislation is written is broader than that and would pick up to me institutions as well.
Okay could you give up you know I've heard of tell covers in the context of.
Like do you know insurance, but yeah I.
It was not familiar with it in the.
And I'm not sure if we're talking about workers comp or MPL.
As far as this this large account.
Maybe its MPL it's like.
Yeah. So.
Could you explain it a little bit for.
You know sort of the the non practitioners we included.
And what it is absolutely. So so the vast majority of the business. We write on a on an NPL basis is on a claims made basis.
And so if you've got a policy that's on a claim summit basis and you you kind of terminate that policy. Then you you potentially are left with you the insurer to potentially left with [noise].
Exposure for claims that arise.
And that occurred during the policy period, but arise after the policy period for you would report that claim later the tail policy is Mike called it as an extended reporting endorsement and so it allows for a longer period of time for you to report claims under the policy.
And so would it.
More or less than that and then people probably friends of the the real technical people more or less.
Converts at the very end to that life for that policy that policy from a from a claims made policies to one or more of an occurrence based policy.
Okay.
And then.
When it comes about because the new carrier that's picking up the risk is only picking up incurred losses from that new policies inception date is that that typically that's right. So if you. If you. If you think about kind of a first year claims made cover that somebody buys.
It is going to.
It's going to have it may have a small look back period, but it's going to basically say that its claims arising during the policy period that occurred from some date and typically is set for state.
And then if you get into second third fourth fifth year of a claim trade policy the kind of looked back period.
Goes along with that.
But yeah, that's exactly right.
It sounds like from your prepared remarks regarding nor Cal.
Transaction is the intention is very much is to proceed as as originally planned.
But nonetheless, what are the termination provisions.
From a practical perspective and or is there an explicit break up fee that is included in the in the acquisition agreement.
So there the only break up she is.
Essentially if they were to take a topping off her.
Back to us.
There are Matt clauses and the like in the agreement however.
Pandemic is excluded.
I think that's one of those things that historically has always been front end and people are going to look at very very differently going forward, but.
So you know.
There there it is a it as an agreement and as a contract. It's one that we think.
We should honor and we think its smart to honor, we think that the strategic rationale for the transaction probably.
Greater today than it was at the time that we entered into the transaction. Then so we remain very excited about the opportunity to bring the organizations together, but we also recognize the challenges of doing it in this environment.
Okay.
Thanks, a lot and best of luck. Thanks, Ron.
Our next question comes or Matt Carletti from JMP. Please go ahead with your question.
And how you get there and what I mean by that is you know that.
<unk> is that you guys looking at and taking a pretty dire frequency severity just kind of stressing the exposures. There I know, it's hard but to maximum out against reinsurance, but it is that how you're getting there is it's your geysers estimate of losses that'll come through in that tail period and you're you're.
Straining that very hard to try to.
Put this behind you for good or or is there a potential that you know even after this 50 million that there's another surprise down the road.
That's a good question might do you want to address huh.
Yeah sure no I mean, we we've done.
No detailed actuarial review and and internally.
And the.
Based on those trends, obviously, you'll you'll be getting <unk> exposure base for that tell <unk> coverage and as we looked at that.
We we we we have a high high high confidence level that the 15 million is the top end of that and so I I would not expect.
Any future exposure on that tail provision bat.
Okay. That's helpful. And then just in terms of the the mechanics that we'll see in Q. too and I know you're you can't give certain numbers, that's fine, but you know it sounds like you know assuming that account doesn't renew there'll be some presumably a fairly large number of of premium that goes away, but then if they like this option.
I think I heard you say that whatever that premium is will be fully written in Ireland in in in the quarter and then that the the 50 million loss. If you will that the losses as it would come through loss ratio would actually be larger than that and that the the 50 million added that spread between the the losses and and that brings you recognize.
That generally corrupt.
But yes, that's generally correct with the with the 50 million being the top end of that I mean, there yeah, there's the ability to really look at that.
Closer Okay, let's see what the the the actual number would be so.
Yes, that's correct.
Okay, Great just a couple other small questions one lawn M.P.L. just related a broader covert activity <unk> Morse on the premiums can you walk us through I'm thinking about a lot of your ensures that you're kind of you know <unk> elective procedures or maybe their offices are closed or they're not able to work right now.
How how does that work in terms of premium no recognition as it is pretty straightforward that if they're closed up for a month or two they're going to get premium relief for how how did the mechanics of that work I was trying to get a feel for what I would presume would be at least in some areas some specialties.
A lack of frequency because there's just not procedures happening against you know you're you're Priem collection against you know those specialties.
Yeah, the net I'll take that the.
It was really really two aspects to it one there's the the the premium side of it as you see these.
Business volume reductions in nine elective procedures being cancelled and.
The the exposure base on that can be reduced from say a full time.
Physician to a part time position <unk>, which is the premium credit number that I referred to in my opening comments. So what will be doing they're mad is just looking at those trends every quarter as we go out through the rest the the rest of the year to see what the.
Pack will be on our our book a business at the end at a day. It's just an exposure reduction and you you should see the resulting claim frequency reduction as well.
Like the <unk> the second pace.
Helping our customer base.
With premium deferrals.
And we we.
We.
We've we've differ premiums across specialty P.N.C.
Up until June 30th to help our customers then we will re evaluate at that point, whether the demand has come back into health care, a world and we can get back to a more normal situation with collection of premiums, but that those are there really the two big numbers.
Okay, and then then a quick one on kind of staying on M.P.L. just <unk> preface. This what I know, it's really early days, but we've we've heard in a few other areas of the market.
Kind of you know from claimants, a desire already seeing a desire to.
Subtle where case rather than going to court you know taking lower settlement amounts in certain places I think really just the idea of the recession hitting there being an increase need for cash in certain parts of the economy I think the courts being effectively closed probably helps aid that and you have you seen any of that I mean, even if just.
Total or or is it just just too soon.
<unk>, it's too soon not in the short run.
You know we are hopeful that <unk>.
The the healthcare heroes that we see with our positions and and they're they're professional staff to the it just kinda the jury views going out into the future will be be less less angry.
And more reasonable with respect to social inflation and claim severity. That's one kind of trend that's been kicked around with all of US I think that's kind of interesting we'll see how that plays out but you know very very early and and as you stated earlier, which is spot on I mean, we we've seen significant level of trial delays and.
Mediation delays.
Which you know kind of limits our ability to make some of these settlements.
You know and and what were more than just a caution on not on that as the the slowed down in a kind of this the jury several processes.
That it's likely to see the loss adjustment expenses go up if it takes longer to get things to trial. Just you know there's there's things extend in time, they're more likely more legal phase, we don't know what the impact that will be in but that has the potential to be.
Kind of a negative on that on that.
Kind of expectation as well.
That makes sense one last question actually shifting the workers comp you touched on you know your thoughts and some of the presumptive efforts <unk> can you give us a little picture the exposures in the book in the sense that one I think I'm going from memory here, but I think kind of a quarter or so of the book is broadly help.
Care related and if you could pick that apart a little bit and just give us an idea of what might be kind of true you know at central workers I think of those in more of like a hospital setting or things like that as opposed to you know.
And procedures or a dentist office or something that might actually be closed right now and then aside from that it to like kind of that the outside of health care. The other chunk of the book.
The the.
What is your exposure to some of the most I think expose them or revenue standpoint areas like restaurants, and retail and hospitality things like that.
Yep.
Happy to do it mattered to Kevin you know with respect to healthcare as you said, our overall book, it's 24.6%, there's there's $63.3 million a premium about 1600 policies.
You know our total book ambulance makes up 1.9%. So that's 1.9% of the 24 six doctors and dentists are 2.2 home health care Threenine hospitals is one eight.
Long term care is 8.5, but importantly in long term care 5.1 percentage points of the eight five is in captives in four kept his we have an 25% ownership interest in one of those captive and then social services is 5.7 and then we've got another category of 0.6.
Importantly on the health care side, you know, there's there's two things. These are larger health care exposures, even the ambulance business that we do are there larger accounts and the moral focus I think's. Another really really important point you know we're not in the large cities, but we're not also in a lot of the <unk> depressed areas.
So that's kind of the health care piece of it in in terms of you know some of the other more sensitive areas.
You know we have an automobile book a business that's about 6.3% of our total enforce premium unenforced premium just using round numbers is around 260 construction makes up about 14% of her overall book, but again, a big big piece of that's going to be in captives.
Hospitality and entertainment is about 4.9 per cent of our book and you know kind of looking at endorsements you know from March 20th through the end of April you know and we've been proactive about endorsements in just talking about economically sensitive bucks a business.
We had a way to 421 policies endorsed during this quote <unk> period for a reduction of $1.1 million and that's the only 0.4% of our total enforced book, but it was automobile construction hospitality restaurants in retail and then once larger staffing account and.
Interestingly during that same period, we had 140 other class codes that.
Endorsed top for about $110000 a premium so.
That's the healthcare piece, that's more accurate economically sensitive piece and just a little bit of flavor on endorsements.
Great. Thank you for it for the color really appreciate it and.
<unk>.
Oh, thank you.
Our next question comes from Paul knew something from Piper Sandler. Please you'll have with your question.
Good morning things for the call <unk> apologize I got cut off here, so I may be asking questions.
It's just.
Just cut me off but first I was hoping you can talk a little bit more about how you might think about the bad debt issues with.
<unk> hospital customers and doctors covers obviously, it's sort of an unprecedented time for them in their own financial positions and it's just is there any early read on.
How we should think about.
You know how many of these folks just will not be able to.
Pay premiums that you're extending for them.
I'm not sure <unk>, who which of you wants to go first on that.
Danny you can go ahead.
Yeah.
Yeah, I think I think that it's really just too early in the process for us to have some solid information around the data in in order to provide.
I solid response to that Paul.
Well, they probably will say something that we're watching very very closely you know Mike mentioned the differ on payments that are that we're making and.
We're we're monitoring those very very closely on it. It is is very much on our radar Mike what would you <unk> yeah. We should can add you know.
We continue to have a a disciplined.
Financial underwriting process, particularly in a in <unk>, especially for enlarge cats for this healthcare facilities business long term care business and you know we had a significant the one thing that we're pleased within this re underwriting process.
Is <unk>.
We have done a lot of that work already in this past nine months.
We did reduce our exposure in long term care as an example.
I'm about 27 million to 13 million when we talk about a sector that we've nonrenewed. So that is kind of a sector that will you know both be hit by the.
Covert 19 claim activity.
I still be certainly some distress and the financial side. So we're pleased with that exposure reduction.
And all the the I don't think there's any question that they'll be some financial.
Distress in the <unk> in the hospital market.
Will continue to be disciplined.
You know roughly a 40 million dollar a book force. The other thing I would say just about or hospital business in in general and or.
Long term care businesses, we we are not in the.
Hot spots from a geographical perspective.
As an example, or long term care business, we don't have exposure in New York, New Jersey, and with our hospital business <unk> very very similar limited exposure to what we consider.
The hot spot areas I, just just as a a subsequent comment to that marketplace.
[noise] that that really actually sits be up with my my next question I was just wondering if you have mm.
We need on the market change.
In pricing in in terms of conditions, you guys have obviously in beating it and.
Personally think we're gonna have taken the hard work it.
So I'm just wondering if you've seen reactions yet from your.
Competitors to to follow your lead.
That's yeah, that's an excellent question.
No no question in our our specialty business that we've seen.
Significant farming and in premiums terms and conditions and <unk>.
And the underwriting data really does it does show that Paul.
I think the other area of re underwriting is is as you look at state strategy.
There are certain states and and challenging jurisdictions that have driven some.
Loss activity and more volatility as both in the M.P.L. business and and in our book a business up for for our positions.
That said the the affirming <unk>.
<unk> has really been more on on this specialty side.
There are pockets of very severe cup state by state competition.
In our physician books, which makes it challenging and I think the economics will make it challenging on rage rate trend for the the the remainder of the year mean, we had an excellent first quarter in our positions results.
Well first of all I I mentioned earlier, especially P.N.C. It was up 11% you know positions were up 13, and our facilities were up 20.
So.
We've been really encourage kind of over the last <unk> last nine months, where the the the direction of where the the pricing is going and maybe a little slow down in some areas as we go through the rest of the year, but I I do think.
Those specialty areas are pretty from right now.
Great. Thank you very much.
You're welcome ball.
And our next question is a follow up from Mark used for Suntrust. Please go with your question.
Data on investment income that investment income you'd been running at a steady 23 24 million per quarter.
You have they had some pressure on that this corridor.
How much of that will be recurring <unk> do we get back to the prior runrate or their.
Floating rate securities and what have you a little meaning pressure on the go forward basis on that as well.
Yeah, I think we'll we'll go forward, we we will see some some retiring there mark but that overall, we do have a lower allocation to our equity portfolio in the coming from that that we will maybe not rage back to that completely.
Well that you're talking about that we will we will return toward that direction.
Hmm.
Thank you <unk>.
Mhm you're welcome.
Once again, if you would like to ask a question. Please press star in one.
[noise] and ladies and gentlemen at this point showing the additional questions I like to turn the comments go back over to Mr. Mccain pretty closing remarks.
Thank you Jamie and thank you to everyone, who joined US today, please stay safe and healthy and we look forward speaking you again for the second quarter.
Ladies and gentlemen, with that will conclude today's conference call with you. Thank you for joining you may know disconnect your lines.
Mm.
[noise].