Q1 2020 Earnings Call
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Ladies and gentlemen, today's conference is scheduled to begin momentarily until that time. Your line is what can be placed on musical. Thank you.
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Ladies and gentlemen, thank you for standing by welcome to the first quarter 2020 earnings Conference call.
All lines are currently on the listen only mode. After the speaker's remarks, there will be a question and answer session.
He would like to ask the question at that time simply press star and the number one on your telephone keypad to withdraw your question at any time press the pound King.
A reminder, today's conference is being recorded I didn't know my pleasure to hit the conference over to Mr., Dennis Mcdaniel Investor Relations Officer for Cincinnati financial.
Hello, This is Dennis Mcdaniel at Cincinnati financial.
Thank you for joining us for first quarter 2020, <unk> earnings Conference call.
We know people everywhere face many challenges during this period of turbulence and we sincerely hope that the things are important to year improve over time.
Late yesterday, we issued a news release auto results, along with our supplemental financial package.
Including our quarter end investment portfolio.
Fine copies of any of these documents please visit our investor website, San Phan Dot Com slash investors.
The shortest route to the affirmation is the quarterly results like navigation menu on the far left.
I'll just call your first hear from Steve Johnston, President and Chief Executive Officer, and then from Chief Financial Officer, Mike. So.
After their prepared remarks investors participating on the call me ask questions.
At that time, some responses paid and maybe made by others in a room with us, including Chief investment Officer, Marty Hollenbeck and stuff that I assurances cheap insurance officer, Steve spray Chief claims officer, Marty Mullen, and senior Vice President Corporate Finance Teresa Hopper.
First please note that some of that matters to be discussed today are forward looking.
These forward looking statements involve certain risks and uncertainties.
With respect to these risks and uncertainties, we direct your attention to our news release Ventura various filings with the FCC.
Also a reconciliation of non-GAAP measures was provided what the news release.
That's Troy accounting data is prepared in accordance with statutory accounting rules and therefore not reconciled to GAAP.
Now I'll turn the call over to Steve.
Thank you Dennis.
Good morning, Thank you for joining US today do you hear more about our first quarter results.
As I reflect on the past quarter I find myself feeling thankful.
I applaud the efforts of our health care industry to stand on the front lines of the pandemic.
Working tirelessly to protect us all.
I think our associates for their dedication and creativity to keep our business moving forward.
And I appreciate working with the best independent agents in the business.
This pandemic has illuminated.
The leadership and professionalism they deliver to their clients guiding them through much uncertainty.
I'm thankful to be a part of this noble industry.
Spring storms didn't are left in the face of the pandemic and we stood ready to respond helping policyholders rebuild what was lost.
I'm not deterred by the recent volatility we've experienced in the stock market.
Even though that volatility led to negative total revenues and a net loss for us in the first quarter.
Since 2018 accounting rules require us to report the increase or decrease in the level of appreciated value of stocks. We continue to hold her portfolio through our income statement.
Mike will provide additional thoughts on this rule change during his remarks.
The stock portfolio still has a nice net gain over its cost basis, even more than the quarter end total of $2.5 billion.
The dividend yield to cost is 5.9% in the portfolio has strong potential to appreciate in value over the long term reasons why we believe a significant portion of our investment portfolio in stocks is superior to a bond only portfolio as we work to increase shareholder value overtime.
Well weather related catastrophe losses were roughly double a typical first quarter, our operating performance otherwise was good.
And we continue to profitably grow our insurance business and investment income.
We remain confident in our agency centered strategy in our investment approach as well as our abilities to execute on our plans.
Non-GAAP operating income decreased 20% or $35 million from last year's first quarter, reflecting a 41 million dollar unfavorable effect from higher catastrophe losses.
Our 98.5% combined rate property casualty combined ratio was 5.5 percentage points higher than a year ago.
Elevated catastrophe losses represented 3.3 points of the increase.
The current accident year loss and loss expense ratio before catastrophe loss effects improved by 2.1 percentage points.
Overall reserve development on prior accident years, we're still favorable at a satisfactory level, but it was not as strong as the first quarter of last year, which was the second highest quarterly ratio in the past 16 quarters.
The benefit of efforts to diversify risk by product line and geography, plus our ongoing segmentation of risks continue to benefit operating results.
Our underwriters worked diligently to segment opportunities on a policy by policy basis, retaining more profitable accounts and improving pricing on less profitable business.
That reinforces confidence to decline new business or renewals, we determine profit margins our own satisfactory.
Outstanding Independent insurance agents, representing the company also help operating performance they work with us to communicate the value of our superior claim service and industry, leading financial strength to their clients.
They continue to produce more premium revenues for us as we earn a larger share of their business.
Our consolidated property casualty net written premiums rose, 10%, including renewal price increases generally at higher levels than in 2018 and growth in each insurance segment.
We continue to believe our overall strong growth in new business written premiums is healthy.
The pace of agent submissions for us to quote new business rose for the first quarter in total however in the past few weeks, we've seen submission counts declined due to effects of the pandemic.
For renewal business in our commercial lines segment first quarter 2020 estimated average price increases were near the high end of the low single digit percent range higher than in any quarter during 2019.
Because many of our renewals or process well in advance of the policy expiration date, it's too soon to assess pandemic effects on renewal premiums.
The combined ratio for commercial lines Rose 11.7 percentage points compared with first quarter, a year ago as catastrophe losses tripled well net written premiums grew 8%.
Well, the Nashville, Tennessee area has grown profitably over time for our agents and US. The recent tornado losses represented three fourths of total commercial catastrophe losses in the first quarter or 7.4 points of the segments combined ratio.
Our personal line segment also continued to experience rate increases, including homeowners average pricing there was higher than in 2019.
The combined ratio for personal lines continued to improve with the first quarter 2020 combined ratio below 95%.
Our excess and surplus line segment grew net written premiums by 20% and had a combined ratio below 90%.
About 90% of our E. N S premium premiums are for casualty risks and we've been carefully monitoring defense and cost containment ratios for N.S. and our standard market commercial casualty line of business.
Each had a full year 2019 paid defense in cost containment ratio similar to 2018.
First quarter 2020 ratio was a little lower than a year ago for our standard commercial casualty business.
For E.N.S. casualty business it rose by half a point so we prudently increase the N.S. segment reserves for defense and cost containment expenses, resulting in its first quarter 2020, net unfavorable reserve development. Despite loss experience that was similar to a year ago.
Cincinnati re continued to perform well with the combined ratio below 90% and net written premium growth of 25%.
Cincinnati Global also had another five quarter, including the combined ratio just below 80%.
Our life insurance subsidiary again grew earned premiums with term life insurance up 4%.
We impaired several bonds in this portfolio, mostly for the energy sector, resulting in a net loss, although income rose 9% on an operating basis.
Finally regarding future loss experience effects of the covered 19 pandemic for our insurance segments. We don't have enough information yet to determine meaningful trends for future loss experience other than seen a reduction in personal auto reported claims as a result, a reduced stuck driving in March in early April.
Now our Chief Financial Officer, Mike So we'll comment on other important areas of our financial results.
Thank you, Steve and thanks for all of you joining us today.
Some reviewing our result, maybe startled by our net loss a negative total revenues.
Reporting negative total revenues is quite unusual, but it's been possible since 2018, when new accounting rules from the Fas be required changes in the fair value of equity securities to be reported through the income statement, resulting an unnecessary variability.
The fair value is equity securities. We continue to hold at March 31st decreased during the first quarter by $1.6 billion before taxes.
That offset revenues from premiums and investment income, which grew 9% in 5% respectively from a year ago.
On an after tax basis, the equity portfolio decrease had a negative income effect of nearly $1.3 billion and offset all of the income generated by our operations.
It's interesting to compare.
To the first quarter of last year, when a strong stock market boosted net income by $515 million in similar to last year's fourth quarter with a positive effect a $420 million.
The volatility like this in revenues and net income does not seem to give a clear picture to investors trying to understand the business of operations of insurance.
Changes in fair value of equity Securities still held our better reported and other comprehensive income consistent with fixed maturity securities, where it's still affects book value and investors can see it more clearly.
Hopefully fas be we'll revisit this in the near future.
Turning to more customary topics investment income continued to grow up 5% for the first quarter of 2020, including 15% growth for dividend income.
Net purchases of stocks during the quarter totaled $125 million.
Interest income from our bond portfolio rose, 1% compared with the same quarter a year ago.
Pre tax average yield was 4.04% down 11 basis points from the first quarter of last year.
Well, we continue to invest in bonds, we reported first quarter net sales of $6 million as many bonds. We purchased near the ended the quarter had not settled as of March 31st.
As we reported in our 10-Q, the average pretax yield for the total a purchase taxable and tax exempt bond was roughly 74 basis points lower than the same period in 2019 further pressuring interest income.
Investment portfolio valuation changes for the first quarter of 2020 were unfavorable for both our bond and stock portfolios.
The overall net decrease was just over $2 billion before tax effects, including $324 million for bond portfolio.
We ended the quarter with net appreciated value of nearly $2.8 billion, including $2.5 billion in our equity portfolio.
Cash flow continue to help grow investment income.
Cash flow from operating activities generated $167 million for the first three months of 2020, although it was down 17% from a year ago.
Balancing strategic investments in our business with expense containment initiatives continues to be a priority.
The first quarter 2020 property casualty underwriting expense ratio was 0.9 percentage points higher than last year's first quarter.
The majority of that increase was due to higher employee related expenses in premium taxes, plus the full effect of since I global.
Regarding lost reserves, we aim for a consistent approach by targeting net amounts in the upper half of the Actuarially estimated range of net loss and loss expense reserves.
During the first quarter of 2020, we experience a satisfactory Mount a property casualty net favorable development on prior accident years.
Favorable reserve development for the quarter benefit our combined ratio by 2.4 percentage points.
We consider new information such as paid losses, and estimated ultimate losses by accident year in light of business every quarter.
This quarter most of the revised estimates were for the shorter tail lines and our personal line segment.
The first quarter of last year longer tail lines in our commercial line segment experienced more revisions.
As we obtain more data through the year, we'll update estimates as needed.
On an all lines basis by accident year net reserve development included 91% for accident year, 2019, and 9% for 2018 in prior accident years.
Next I'll comment on capital management, we believe our financial strength remains excellent and we have ample financial flexibility.
Our debt to total capital remains relatively low.
The fair value of our bond portfolio exceed at quarter end reserve insurance reserves by 25%.
While the equity market declined during March drove the 23% decrease since year end in the parent company cash and marketable securities. The March 30 for the March 31st balance was more than $2.5 billion.
Rating agencies rate, our financial strength very high.
Fitch ratings recently reviewed our position considering their beliefs about the impact of the pandemic on the insurance industry and since they financial and affirmed their rating earlier this month.
Repurchasing shares to help offset offset grandson incentive compensation continues to be one of our capital management objectives and during the first quarter, we repurchased a total of 2.5 million shares at an average price per share of $102.62.
All in my prepared remarks, and typical fashion, a summary of the first quarter contributions to book value per share. They represent the main drivers of our value creation ratio.
Property casualty underwriting increased book value by 12 cents.
Life insurance operations added eight cents [noise].
Investment income other than life insurance or reduced by Noninsurance items decreased book value per share by five cents.
Net investment gains and losses for the fixed income portfolio decreased book value per share by $1.96 cents.
Net investment gains and losses for the equity portfolio decreased book value.
$8.12.
And we declared 60 cents per share in dividends to shareholders. The net effect was a book value decrease of $10. A 53 cents during the first quarter $250.02 per share.
And now I'll turn the call back over to Steve.
Thanks, Mike.
There is another point about future loss experience uncertainty that I want to emphasize and we've heard investors ask related questions on other calls.
[noise] virtually all of our commercial property policies do not provide coverage for business interruption claims unless there is direct physical damage or loss to property.
Because the virus does not produce direct physical damage or lost a property no coverage exists for this peril rendering an exclusion unnecessary.
This reason most of our standard market commercial property policies in states, where we actively write business do not contain a specific exclusion for coated 19.
Well, we will evaluate each claim based on the specific facts and circumstances involved our commercial property policies do not provide coverage for business interruption claims unless there is directors nickel damage or loss to property.
Throughout our company 70 year history, we've weathered many storms and we have the technology the Russian risk management expertise in the financial strength to whether that's one.
The best people in the industry together, we will take care of our Cincinnati family protecting the health of our associates, serving agents and policyholders and emerging as an organization with new strengths to carries forward.
As a reminder, with Mike and me today are Steve spray.
Already Mone, Marty Hollenbeck, Theresa Hoffer and Ken Stecher.
Please open the call for questions.
At this time, if you'd like to ask in audio question. We may do so by pressing star and the number one on your telephone keypad again that is star one well pause for just a moment.
Our first question will come from the line on my experience working with credit Suisse.
Hey, good good morning, gentlemen.
Good morning, Mike.
First question is and that the on on business interruption.
I guess the stock market investors kind of appeared to be taking yeah language Sheila you offered us about.
Policies, most of them and not having a us specific virus exclusion.
I think you know everyone does appreciate that.
The policies and need to be yeah, our triggered by property damage and and called that doesn't constitute property damage.
But you know given if if I'm correct in interpreting language.
That most your policies don't have the virus exclusion are you are your customers.
Filing.
This disruption claims trying to kind of stating that the policies don't don't have the virus exclusion and I'm basically do is there is there more risk of potential litigation.
Because of that.
Like I think like every you know every other insurance company, we expect a we're going to receive our fair share of Cove at 19 claims I think you know that's just just natural but we feel strong in our position with our coverage language.
Okay understood.
Switching gears to the stock I back and I might have missed that in the prepared remarks are you continuing to to buy back stock in a second quarter or you kind of taking a pause given the.
More uncertain business environment or for all right, albeit in the industry.
Yeah that this is Mike Seoul, and we will likely not or we will not be buying the rest of the year.
We've always said or I've always said Steve's always said that we have a maintenance.
Hi back philosophy, and so we've done that again, so far this year, so even though it is little higher that we bought back here in the first quarter it.
Two and a half a million shares when you look at it over time.
We've been running about a million shares.
That is kind of really required and I was looking back the maintenance that we did this year actually got us back to the same level of shares that we were about 10 years ago. So we've we've achieved what we've done and I, probably do not see or any other buybacks through the remainder of the year as.
Part of our maintenance program.
Okay understood in one on last fall and if I may going back to business interruption I'm, giving you stated that there are no. There are some claims coming through and you know Dominic I expect to pay them now and I'd be one and then just are there your peers. You're also seeing those as claims happy being attempted to be made.
Should we at least expect some type of confusion and later in the year she account for.
Some types of adjustment costs is or potential legal costs are we just should we just kind of assume this is not a month trialed Vance.
Near term.
I think as we're still in the middle of this storm and I think is more facts and circumstances come out here in the second quarter third quarter, we will provide that information to the extent it.
Material.
Okay, and just maybe lastly, if you're able to answer this is there a general rule Tom in terms of what percentage of property policies have that I'd be a business interruption in endorsements. If you can't ask that answer that thanks.
Yes, it's about half Mike.
Mike Thank you.
Mike This is Steve spray in Steve's right, it's about half of our policies where are the policyholder increases their limit our standard property form.
Like many others includes a sublimit automatically for business income of 25000.
Thank you.
Yes.
Our next question will come from the line of Ron Bobman with capital Maritime [noise].
Hi, Thanks, a lot hi, Steve I team.
Hi, good question on the property Cat reinsurance treaty.
What.
The 800 million top 800 million dollar tower, what perils.
Our covered by that treaty.
Well I would say that there's not a virus exclusion in there.
Oh.
So I'm sorry, Joe I understand so is it eating covers all pearls.
Is generally a property, it's a property catastrophe risk policy [noise].
And they called they follow our fortunes in we don't have a virus exclusion in there.
And now the one other sort of strange twist will be.
If it ever becomes relevant which I think it's low much but.
What do the implication to the hours clause.
On that treaty and whether the pandemic and losses from it would be considered a single event mode, where multiple events or somewhere in between.
Yeah that would be determined.
If we ever got to that point the hours cost for us as 120 hours.
But our expectation.
Is that you know that we wouldn't be in that position.
Okay, and any thoughts or plans to modify a policy wordings.
On the on the B. I subject.
I don't think so at this point, but that's something again as a second quarter third quarter here evolved we'll we'll keep an eye on things and we feel strong in our wording, we see we feel that an exclusion.
To those policies would just be belts and suspenders and you know we feel that the policies do require physical damage or.
Loss to the property.
Okay. Thanks, a lot best of luck with this.
Okay. Thank you.
Our next question will come from the line I'm like really with RBC.
Yeah. Good morning, first I wanted to follow up on the comments, Steve spray made just a minute or two ago about sub limits related to a b I endorsements could you just go through that again.
Sure.
Mark.
This is Steve Sprite, we are a commercial standard property policies automatically include a sub limit in them up $25000 of business income.
And then obviously like many other coverages policyholders can.
Elect to increase that limit based on their exposure.
So it's not uncommon for for property policies to include automatically sublimit for business income across the industry and ours just happens to be 25000, but again, even for that 25000, you still need to have the direct physical damage or loss.
In the ensuring agreement to trigger coverage.
Sure just to make sure I I'm following the full flows information. So you'd said initially that then it's around 50% of the typical.
Policies, how a b. I endorsement and then within knows the Sublimit would start at 25000, and then to the extent somebody bought adopt it would be to whatever level. They.
<unk> incremental premium to to get to a higher limits.
That's correct.
Got it.
Okay. That's helpful.
<unk> changing gears a little bit.
In the quarter. There was some continued reserve pressure related to your commercial auto there was also.
First time, it on a while a little bit a second quarter in row, rather some pressure in the U.S. segment.
On reserving can you just comment a little bit what we're seeing there and how the how the reserves are faring.
Ah, Yes, Weve, obviously feel good in our reserve position overall, it's you know we've developed.
Favorably for 30 years now and we look at each line as it stands on its own we.
Do our best to make our best estimate we think with the commercial auto given that the the the way it's been over the past several years given what we saw with some of the paid trends that it was appropriate to do what we did with the commercial auto.
In terms of the D.N.S.
Again, we feel strong in terms of our best estimate there we did take a look at what was going on with defense and cost containment and we looked at that just across the casual it casualty lines for the standard and DNS no for the the standard we actually solves some favorable movements and paid loss.
Uh huh.
For the.
Excess and surplus lines, we saw that go up by.
About a half a percent and so we just felt it appropriate to take the prudent action there, but we do feel good with the the best estimate we've gotten place.
What are the rate increases look like and each of those segments commercial auto and E N S in general.
Yeah for the commercial auto we've been getting into the mid single digits. This.
Past quarter, I think with the E N S.
I would describe that has been more the lower single digits overtime, but we have increased that quarter after quarter month. After month for years now it's just a nice.
Steady.
Keeping up if not you know exceeding inflation.
Legendary transient trends in producing excellent combined ratios over that long periods of time, it's just been a very steady approach there.
Okay, and then I know you spend a lot of time in the in the sales offices and with the two field underwriting staff and whatnot.
Just give us a sense you know of your customers and.
What they're doing how they're changing policies.
Your own just anecdotal compression as you know how many people and what proportion or are struggling to pay and so forth just trying to get you know kind of get a mosaic of what you're seeing on the ground amongst your you know small and mid market customer base.
Yeah sure. It's kinda, it's all over the board there Mark on.
You know where and we're being extremely flexible as you would expect with our policyholders in that.
You know so many of our liability policies are based on payroll and sales were working with.
Our customers to reduce those exposures here mid terms, so that will reduce their premium their contacting us.
With some concerns on being able to pay we've instituted.
We're putting a moratorium on cancellations for non payment a premium up until may 31st or later at the state mandates it.
The key here as we want to help our policyholders are agents.
Through this and anything we can do.
Help that we will I would say, it's probably still a little too early to understand.
Or have a full picture on.
Premium collections over the long pool, so far things have been good.
He most to your underwriting is not really in areas that has been particularly hard hit by virus outbreak itself.
I mean do you.
Mm 100, or how to best asked the question, but I mean are you seeing regional differences or is what you're seeing just generally kind of across the base.
I mean as far as.
The collections.
Collections.
Pressure on wanting to change business change policy terms, and so forth I guess I'm trying to get out is the you know if you're seeing any regional variation that you know is notable or or.
Exceptional.
Yeah I think this is pretty broad based you know were.
We're not as so on the commercial line side, which would be most impacted here. You know we are we're newer to the northeast, which would be would certainly be more impacted by coated.
But I would say as far as the collections and individuals wanting to.
Put lay up credits on their fleets or reduce their exposures on their liability for payroll and sales I'd say, that's pretty much across the board.
Okay.
Thank you for all the answers and silicone for it. Thanks sure. Thank you. Thank you.
The next question will come from the line of near Shields KBW.
Great. Thanks, Good morning, Mike I think in your comments, you mentioned that personal auto driving with down and.
Accordingly, so we claim frequency can you give an update in terms of what you're seeing with commercial auto.
Yeah. This is Steve spray I would say.
We are seeing it a little reduced frequency in commercial auto, but it's still too early to tell on that that's something that will probably have to report back to you at a later date something we're watching closely I do think that commercial auto and personal auto or an apples and oranges here because.
So many businesses are still up and running.
I think everyone knows it almost 40% of barge yell premium is in a contractor classes construction a knock on wood, so far has been able to.
Continue for the most part across the country. So those vehicles are still.
Our operating.
You know a one of the a other areas that we're helping our policy holders on as many.
Restaurants, or other retail businesses have moved to a delivery.
To help their communities and we are extending that coverage, it's adding exposure to us, but it's something that we feel is the right thing to do and so our exposures are going up on the higher non owned.
Commercial auto from delivery standpoint that that we didnt.
Anticipate at the beginning of the policy period.
Okay no that's it.
Can you give us your sort of long term historical perspective on the influence of declining unemployment on workers compensation frequency.
Yeah, there's a couple ways to look at that mayor you know, especially coming out of the financial crisis, there could be the the thought it.
You know before somebody gets laid off they get injured you know and that there could be an increase in frequency there I'm on the offsetting that there could be with <unk>.
Employers as they determine which employees they keep the they tend to keep the more experienced ones that would be safer.
I think also with the with you know another consideration would be what we're seeing with unemployment insurance and some of the.
You know increases in the payments for unemployment insurance I think would have a mitigating effect there too. So I think it's too early really tell but in terms of as you ask a long term perspective, those would be some of the considerations that we would be looking at.
Okay. Thank you very much.
Thank you.
Our next question will come from the line of cells to Beano with Deutsche Bank.
Yes. Thank you. Good morning went up to talk about premium volumes and the way it feels like it's been message, but by some peers is that.
You will get a short term shocking written premiums and second quarter third quarter may have some pressures, but I was just hoping you could kinda talk about it from what you're seeing I don't know.
The extended the distribution is a little more reliant on face to face contact with agents you know to the extent to shelter in place may go longer than been some are expecting.
Do you feel about the business trajectory I mean, you know retention likely to go up at new business is likely to say you know maybe qualitatively you can just help us think about directionally, what this might be.
Yeah, I think for the long term, Phil our model working extremely well, Steve spray likes to say, it's built for a situation like this and now I'll, let him have a chance to comment but I think you know, we're just naturally going to see submissions.
Go down as an economy is in the shape that it's in what we are seeing though is we see is that pie shrinks, we seem to be getting a bigger piece of the pie and I think as we come out of this all the work that we're doing with our agency facing model with the great relationships and our.
Ill people all if every disciplined working in the communities with the agencies and.
So forth I think we'll come out with that bigger piece of the pie is the pie grows so I feel for the long pole. We're in good shape I would invite Steve to add anything if he would I think I think that's perfect I I I spent 10 years in that.
Field, Phil and I do say that.
If any company is built for this it's Cincinnati insurance company, having has few agencies as we do having that limited franchise I think helps us we have fewer relationships to manage we have deep.
Relationships with each of them our field strategy, taking the company out into the communities, where our for our agents and policyholders are 1900 of our 5200 associates worked from their homes in the communities where agents are then they have since 1950, so it sets us up well.
Well there in the community deep relationships.
Able to handle claims just like we you know literally are out handling storm claims as we sit here and speak today.
It is delivering on that promise so I.
I agree with Steve I think that submission counts, although they have they have dipped they have they flattened in that in that dipped to hit ratio has gone up a bit and I think like Steve said I think our shot at a bigger piece of the pie.
Because of those deep relationships and being local with our agents is key.
Yeah.
Understood. Thank you I mean, the revisions to the workers compensation conversation just for a minute I mean, it's aligned that clearly on pricing pressure.
We've seen favorable development slowed down.
Just given some of the maybe regulatory changes that are happening workers compensation.
So for for increasing loss caused it doesn't feel like good dacogen and maybe something that the changes that she's after this line of business.
Yes, I think I think it would and I think we're in a pretty good position here with workers comp only being about 5% of our premiums our largest state here, Ohio is a.
Monopolistic State fund, we really don't have any California workers comp to speak of its it's very small and we've been disciplined I feel.
In terms of as we've seen the pricing soften we haven't done crazy things with commissions, we've done our best too.
As I mentioned in the opening comments to really segmented book.
Make sure that we're getting rate on the ones that need it and that we're retaining the ones that have the highest profit potential and I do think that.
I would expect it there would be some firming, giving given the.
Points that you made as we go forward.
Got it okay.
Last one I'll ask.
And I'm not quite sure to how to afterwards I apologize if that's come down awkward, but it feels like the messaging is our our primary policies.
I do not have an explicit virus exclusion.
But it's not something to worry about.
It's not notable but our reinsurance program doesn't have any virus exclusion and that's that is something that's notable like I said you know did you spend I want to play Devil's advocate in like there might be <unk> can you help.
Yes, and I'm very glad that you brought it up actually because I think maybe.
You know, we I was thinking when somebody was asking there when I talk about reinsurance program I was talking about what we see two our reinsurers.
Not what we would assume.
What we would see to our reinsurer. So it's basically that they are following the fortune.
With us in terms of we are aligned with our policy provisions with the reinsurers that we see do.
Okay, So one way or another so go to the primary policy so great the reinsurance.
Session.
Yes.
Understood. Okay that makes sense. Thank you Sir.
Thank you.
The next question will come from the line, Paul Newsome, what I personally.
Hi, good morning hoax.
I wanted to ask a little bit more about.
What might be happening with Retentions and seals my sense from other conference calls is that at least in last couple of weeks of marching maybe into April.
Agents in general are just not so much and they're also not owned business from other carriers as well. So I think there's the presumption that we'll see.
Tensions go up.
And and museums go down.
You know is that kind of what you're seeing on the margin here we're not.
Paul I think that's very astute and I think is still probably a bit early but I think your take on it is is what we're hearing in the marketplace as well I can tell you, though that we're still active trying to write new business, where maybe other carriers.
Able to maybe meet the needs of the age of the policyholder or that we feel that we can or right at risk.
On a risk adjusted basis and make margin.
But I think Youre general sense is right and something we're gonna have to watch going forward, but that's kind of the feedback we're getting from the from the agents as well, it's just that the with the new business has slowed a bit but retentions are real solid.
Outside of business interruption and.
[noise] I'm I'm curious, if you're seeing very heavy anticipation of.
Increased liability claims in things like general liability and.
You know.
You know Ics cetera, Lou I know you had very small, but let us now.
I'm thinking in lawsuits are nursing homes hospitals and doctors.
Factories that needed.
Take their workers enough there any sense. It so that may be happening just it's just too early.
I think it's too early I think that you know, we're just an unprecedented times here and I think some of that will will play out here over the next quarters, but from what we're seeing now we're not really seeing that.
Paul This is Steve temporary I would just I would add I would add to what Steve was talking about early on the workers compensation is being only 5% of our premiums.
And on top of that is we don't have a you know a large account number or large policy number of municipalities.
Or hospitals, where we write the workers compensation or on the small book of skilled healthcare facilities that we do have it would be rare that we would write the workers compensation. So exposure to first responders for us I think is going to be minimal as well.
Great. Thanks.
Appreciate it.
Thanks, Paul.
As a reminder, in order to ask an audio question you may do so by pressing star and the number one on your telephone keypad again star one.
The next question will come from lineup, Larry Greenberg Janney Montgomery South Carolina.
Good morning.
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We're not morrill airline, but that but that's okay [laughter] free our Larry [laughter].
Yes so.
I think I think that Steve mentioned on business and interruption or was that most of your standard market policies don't have the virus exclusion I'm just curious where.
Your policies would have a virus exclusion.
Yeah, Larry steep sprague that would typically be in states, where we are in active and where we have filed straight ISO so we'll be don't have agents on the ground. We don't have a associates there. So we're where we would right.
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Secondary coverages outside of our active state so inactive state, where we file straight ISO.
We would have some six.
And also on our excess and surplus lines company on C. issue, they have that as well as the binders, we right out of the Lloyds.
Okay, great. Thanks, and then just just an accounting question.
How you're going to treat the ER the stay at home premium credits I'm coming up whether whether that's going to be a premium off said or will you account for it in the ER and the losses line.
Yeah. This is Mike so it will be in the expense or expense line as of right now yeah. We understand there might be a group see any I see and others that might be looking at that issue, but has a right now it will be an expense.
Great. Thank you very much.
Thank you Larry.
Next question will come from line or might that he was crazy.
Hey, Thanks for Oh sitting back in just a follow up on.
On reinsurance you know can you remind us to the extent you know for some reason some business interruption policies or or just covert related claims were required to be paid out.
How do we think about where the reinsurance program, let's start.
Assisting in those payments.
Our program attaches at 100 million, which is why you know we feel confident that we we won't get there, but it's nice to know if there would be.
Some legislative action or something that's just dentist and anticipated that we have the program and that we're in the falls the fortune.
Situation.
Okay perfect. That's something that's all I had thank you gentlemen.
Thank you Mike.
With no further audio questions. So I'll hand, it back for closing remark.
Okay. Thank you very much Nicole and take thanks to all of you for joining us today Hook. Some of you will join us for our first ever virtual shareholder meeting on Saturday may the second.
930 am eastern while we intend to resume in person needs and 2021, we felt moving the meeting online was the best way to keep shareholders and associated safe during the pandemic. Please visit www dot since then dot com for details on how to register for the meeting.
Can't make the meeting we look forward to speaking you.
Speaking with you again on our second quarter call. Thank you all very much and have a great there.
This does conclude today's conference call. Thank you for your participation velocity. Please disconnect your lines.
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