Q1 2020 Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the James River grid.
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At this time well its participant like certain listen only mode. Later, we'll look in Dhaka question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference. Please press star zero and your telephone keypad.
As a reminder, because this conference is being recorded.
I'd now like to hand to conference over to your speaker today Mr., Kevin Copeland head of Investor Relations you may begin.
Thank you operator, good morning, everyone and welcome to the James for her group first quarter 2020 earnings conference call during.
During the call we will be making forward looking statements. These statements are based on current beliefs intentions expectations and assumptions that are subject to various risks and uncertainties, which may cause actual results to differ materially.
For a discussion of such risks and uncertainties. Please see the cautionary language regarding forward looking statements in yesterday's earnings release, and the risk factor section of our most recent form 10-K form 10-Q's in other reports and filings we make with the Securities and Exchange Commission you.
We do not undertake any duty to update any forward looking statements.
Now I'll turn the call over to add a neighboring chairman and Chief Executive Officer of James rigor.
Thank you Kevin good morning, everyone.
Welcome to our first quarter conference call I'm joined by Sarah Doran, Our CFO and Bob My run our President and COO.
I'm going to kick the conversation off the comments about the quarter and observations about the potential effects. The combination of kofoed 19, and the potential significant recession may have on our company.
There was going to be talking about the quarter in depth, and then Bob Sarah and I will happily address questions at the end of severance remarks.
First let me say, we were able to affect a smooth transition to remote working with very little disruption.
All of our employees have been able to maintain connectivity and to continue processing business at the same or higher rates than prior to when we closed our offices.
I believe we remain highly responsive to our producers into claimants.
Additionally, in very importantly, our internal communications remains strong and we've been able to underwrite accounts with the same thoroughness as prior to leaving our offices.
We all tip, our hat to our IP teams.
Which had been proactive efficient and creative and to our HR group.
As well, which has been very helpful and arranging and coordinating.
The dispersal of all of our people.
We are particularly grateful that it's up this moment, we know of no cobot 19 illnesses among our employees.
Of course, many friends and associates around the country and relatives of our colleagues have been affected and our hearts go out to everyone, who is suffering from the physical emotional and financial effects of the virus.
Turning now to our financial results for the quarter, we believe our results reflect the strength of our franchise as well as the early stages of disruption in the economy.
Freed from the burden of the large commercial auto active account that we had come to so that had come to so heavily influence. Our results are in this division grew 37% in core lines at rates, incorporating 13 consecutive quarters of rate increases.
In the most recent quarter the rate increase was 12.9%.
[laughter], which was the second highest of all the sequential periods.
The growth was spread across the entire Ns book with 11 of our 12 Ns underwriting divisions reporting higher gross written premiums.
Submissions in the in DNS grew 20% in the first quarter.
And while we are aware of the warning signals for the general economy, we are pleased and even a bit surprised to see that our submissions in the month of April have exceeded those from April 2019.
As have our gross written premiums and the.
This segment and rates remain very positive.
The run off of a large commercial account is going well.
We're suddenlink commercial auto claims at a rapid pace for amounts that are consistent with our held reserves one quarter removed from the cancellation of the account we still receive claims from the period. When we were on the risk. However, the pace of a rising is much reduced and during the most recent quarter.
Open claim counts fell by more than 25%.
Now, we do not expect that pace to continue and I do not anticipate updating this statistic every every quarter, but I offer. It today is a marker that we're making good progress in closing these claims.
Our specialty admitted segment reported almost exactly the same gross written premiums this quarter as in the first quarter last year. Despite the fact that our largest fronting program workers' compensation account was much reduced.
The leadership of our specialty admitted unit has added new fronting programs, which are taking up the slack.
In these fronting relationships, we tend to retain less risk and earn fees.
The income generated by the specialty admitted unit increased 12% over the same period last year.
Increasing fee income is a focus of our plan for this unit.
Our individual workers compensation don't business held steady during the quarter, though we are now feeding 70% of this premium and risk to others, we had been retaining 50% of the premium and risk.
We took this step because while the book is performing well, we see a downward trend in workers' compensation rates and anticipate that profits many come under pressure from this line of business.
Our reinsurance segment wrote more gross written premium than it did in the first quarter of last year as we added a fronted account in the second half of above last year, which renewed this quarter, we do not retain any net exposure on that front that account.
Both net written and earned premium declined as compared to last year, which was our expectation.
Nonetheless, our casualty re segment was behind our expectations for underwriting income in the month due to relatively minor adverse reserve development from prior years, which was somewhat offset by a reduction in sliding skill commissions that we would pay to others.
We earned an annualized 11.6% return on tangible equity during the quarter.
And given the yields available on investments this rate of return was satisfactory.
Our group combined ratio of 100.6% reflected a 91.9% combined ratio in Ns.
807.4% combined ratio in specialty admitted and a 99.4% combined ratio in our reinsurance segment.
The high combined ratio in the specialty admitted segment was driven by assumed losses from the NCCN pool related to calendar year 2019, as well as an accrual for ceded minimum premium for reinsurance on the fronted program.
Together.
Those two items added seven points to the combined ratio in specialty admitted.
Someone ironically the reduction in our workers compensation premium by buying a larger quota share worked against us this quarter as the assessment for the NCC I pool for 2019 was charged against the smaller amount of earned premium.
We had less earned premium as a consequence of that we had less earned premium against which to absorb the NCCN charge, which was calculated on prior year premium levels.
I would expect our combined ratio across the group to decline as the year unfolds and that's why will discuss in a moment. This will focus this will require us to have a focus on expenses.
As we prepare first I'd like to say, though and turn to covert 19 issue.
As we prepare for the balance of your three matters are front of mind.
Very few companies companies in the United States will be immune to the economic consequences of coated 19 on our economy.
And while the insurance industry is potentially materially exposed we believe our company is better positioned than many property casualty insurers.
I'm going to take the risk of getting into more detail than our listeners may one at this stage just in the interest of.
You are being able to have a deep understanding of how.
Our company is positioned in the world of Ko nine cobot 19 in the exposures that might arise.
First the majority of our premium comes from the CMS market or freedom of rate and form permit coverage to be shape to reflect the tougher in nature of the risk covered under in that surplus lines forms.
91% of earned premium in this quarter came from Ns Accountants accounts written either in our Ns segment.
For our reinsurance segment, which primarily insurers BNS liability risks.
Importantly, we do not write property rich primary property risk in our Ns or reinsurance segments.
Business interruption insurance, it's typically introduced in primary property coverage.
And our excess property book, our attachment point is usually above the business interruption limit purchased by the customer.
The majority of our excess property forms include an organic pathogen exclusion regardless of any physical loss.
Or any loss of views as an excess property right are we also benefit from in the exclusions that may be contained in the primary policy on top of which we set.
And our liability polity policy forms we also have strict exclusions for viral come to contamination and communicable diseases.
We do expect that there will be a raft of claims. This many policyholders are being advised to file claims as a matter of routine.
This is not unusual when a new cause of loss arises and it's a routine part of how the market is generally addressed a new costs of loss.
One common clean we anticipate being registered for is for general liability pump for general liability policies is for loss of income due to a business closing down we've received a handful of these claims already.
While this might be a legitimate clause of loss for a business interruption policy. It is not a basis for a claim under a standard liability forms and we do not anticipate these claims will will progress very far.
We also expect claims from patrons of insured businesses in which the claim it will maintain they were exposed to covert 19 at shirt business.
Many of these claims may be properly denied based in our absolute pollution and communicable disease exclusions and other relative relevant policy terms and conditions.
In other cases, we think it generally unlikely that a claim it could reasonably demonstrate they contracted coven 19, when they were in a particular location as opposed to on a bus or.
Front street or some other location.
Our Allied health book May have some exposures. So we only have two claims reported from the spoke at the beginning of this week, neither of which appear to be for covered it dense.
However, at 96.8% of our Allied health policies include a communicable disease exclusion.
Our workers compensation book is heavily reinsured as I've mentioned earlier.
And only two classes within the book have obvious potential exposure for coated 19.
About 2.5%, 2.5% of our workers compensation policies are written for retirement or nursing homes.
Remember, we only ensure the workers in the small facilities not the residents.
We also have a book of home health needs, where we believe we have limited exposure since our AIDS are generally visiting patients who can't leave their homes and therefore have a very limited chance of contracting contraction.
Ovid during work.
But net of reinsurance we are only to expose to $300000 per claim on our individual risk workers compensation business.
In general.
Other than claims arising from our individual workers compensation book. This described above which is currently 70% reinsured, we have little exposure from the book, where we provide front paper.
As a reminder, we generally routine about 10% of the risk in our front at book within the specific programs the risk as either low given the nature of that program and we're business interruption is at risk. The majority of those policies require a physical loss and were written with a virus exclusion.
Finally, as we are heavy users of external reinsurance we have reviewed our trees and believe me sufficiently coverups and a follow the fortunes format, meaning that we do not anticipate being without their protection to the extent, we do or may have exposure to coveted related risks.
We have one fully fronted national property program.
All policies in that program contain the virus exclusion.
We have a fully fronted program related to cannabis.
All policies require a physical loss and contain multiple virus exclusions.
We have a program through auto dealerships given closures there and the nature of that risk we think the exposure is low.
Our retention is also a minimal $100000 for property and $125000 for casualty.
Finally, our largest fronted program as the California and workers compensation program in which the dominant clashes contractors. We don't think this class has particularly heavy exposure to covert claims and the program is heavily reinsured whereby net of reinsurance our maximum exposure per claim is $110000.
As of early this week, we had received about 200 total claims associated with this scourge.
Well, we take every claim seriously and fully fully embrace our duty to pay all claims owed.
The claims received to date reinforce our belief that our approach to underwriting insulate us from the worst of this pandemic.
Turning now from direct exposure on insurance from coated 19, I'd like to turn to the broader implications of the Corona virus on the economy and our business.
One unanticipated benefit of the shelter in place orders in Slippages lowered reduced activity in lowered the number of accidents, we might usually expect to see loss reports are significantly down.
This month for example, we've received 30% fewer claims than in April a year ago in both our Ns and specialty admitted segments.
This is in spite of having a larger book of business as compared to a year ago and despite the addition of some coated related claims this year.
However, if the economy remains shutdown, we can also anticipate lower premium volume going forward.
We did not experienced that in the first quarter.
Even in March and April when shock softer in place orders were in effect across much most of the country. Our company's enjoyed strong premium growth at attractive rates.
Nevertheless, commonsense leads us to anticipate and prepare for significant decline in workers' compensation and general liability accounts as companies have less business we're fold.
About 10% of our E and F premium covers bars restaurants and the light.
One for final word about premium expectations in both our Ns and specialty admitted segments, we write accounts for small and midsize businesses.
Sadly many of these businesses may not survive a deep recession.
However, it these are the type of businesses that are the first to resume as entrepreneurs, who shutter their business and the deep recession restart those enterprises as soon as the recovery permits.
When they do risen business. These entrepreneurs coverage will fall in the E and F market and they were prior workers compensation insurance, our companies are well positioned to be early beneficiaries of a recovery. This is what we discovered in 2009 and 2010 following the financial crisis.
In the interim we recognize that a recession will challenge all companies to maintain current premium.
We recognize the challenge our expense ratio poses to our profitability and we're actively working to rein in expenses.
Over the balance of the year Consequently.
We're focused on this expense reduction and we expect our full year expense ratio to fall in the low 30% range.
With lower premiums and lower investment yields than we could have expected or would have expected six weeks ago, the need to adjust expenses more acute.
Our estimate has been operating return on average tangible equity for 2020 will likely be into high single digit to low double double digit range.
And with that I'd like to turn.
All over to Sarah.
Thanks, Adam.
Let me highlight a few of the financial claims from the quarter.
Lastly, we reported first quarter operating earnings or 50 cents per share an adjusted annualized adjusted net operating return on average tangible equity of 11.6%.
While net earned premium declined due to the October 2019 cancellation of what was formerly our large account. It grew 40 about 48% in our core MNS business as compared to the first quarter 2019, and otherwise held steady throughout the balance at the group.
Let me jump right into investment.
Unrealized losses on the portfolio drove our net loss for the quarter.
For the last 11 years, we've been invested in a diverse portfolio look externally managed senior secured bank loans.
Presenting over 120 credits.
With no individual position larger than $4 million in market value.
Our portfolio does not have any meaningful sector or credit concentration now exposure to the oil and gas sector and has provided a meaningful returns and attractive contribution to our investment portfolio.
We have approximately $10 million of common equity rashed outside of that portfolio, but in our entire investment portfolio and have chosen for take measured risk here given the attractive risk return profile.
Effective January one 2020, new accounting rules applied addressing current expected credit loss ratio otherwise known as diesel.
With these new rules, we elected to report our bank loan portfolio at fair value with changes reported through the income statement, but excluded from operating earnings.
Previously the portfolio had been accounted for at amortized cost net of an allowance for any credit losses.
Given the market volatility.
This quarter this portfolio.
Especially experienced greater volatility than it has and the 11 year, we arent that Ben invested in this asset class.
It had unrealized losses of $43.9 million per quarter.
As of Tuesday's close, though the portfolio had recovered meaningfully $6.4 million of additional value coming to at since quarter end.
Following the first quarter, we made the decision to meaningfully reduce our exposure to bank loans by selling into the rally in this asset class.
While we like the asset class and we will remain investment bank loans.
We are reducing our exposure to decline in order to Tamped down facility.
Apart from the bank loan portfolio, it's worth noting that our fixed income portfolio has also improved significantly since quarter end.
The portfolio within an unrealized gain position of $29.8 million at quarter end.
And through this Tuesday.
Unrealized gain position grew an additional $21 million.
Our investment grade portfolio does not have any material exposure to the hospitality or the oil and gas sectors.
It's where the reminder, that the overwhelming majority of our investment portfolio is reported in the quarter. It occurs.
This quarter, we earned $20.8 million and net investment income an increase of 7% from the prior year quarter.
The increase largely resolved largely resulted from the October 2019 addition of what is now $1.1 billion unrestricted cash.
It was previously held in a collateral trashed off balance sheet.
These funds are now in basket in short term security.
Given this severe decline in short term rates during the quarter. We would expect that these assets will generate less investment income in future quarters.
Also as mentioned last quarter, we continue to return balance fish to our former client on the accounting to turn into the over collateralized, which we expect to continue for the next few years as their runoff runs its course.
Finally, moving on from investment this quarter, we posted a loss ratio of 66.4% and accident year loss ratio of 65.8% declined from 73.1% accident year loss ratio in the first quarter of 2019 was also due to account they cant.
Relation of the large commercial auto account.
Had been written at a much higher loss ratio than the rest of our small account casualty focused core Ns business.
We have the clean attractive renewal rate increases in koreana each quarter for over two years now as Adam reported.
And reported losses have remained benign for multiple quarters in that book.
Koreana now makes up about 95% of gross written premium, Indiana segment as compared to about half of the segment in the first quarter of last year.
As Adam mentioned, we have received a handful of cobot related claims.
Given our policies and exclusion, which he went through in detail. We did not put up in additional indemnity estimate related to co bid for the quarter.
We did not experience any material reserve development in our commercial auto line. The run off of what was formerly our largest account is performing well within our expectations.
While we continue to receive new claims for against that events that occurred prior to December 31, 2019, when we cancel the account we are pleased with the pace of runoff.
A number of reported claims has slowed and Ashley can claims for fair value.
At the end of the first quarter open claims for all year, but the account represented three and a half percentage of the total reported claims pretty account.
I reported to you last quarter at at the end of last quarter. All claims open claims for all your shipping account then represented 5.2% of reported claims.
And as of the fourth quarter of 2018 open claims for all year should be account represented 7.2%.
Our reported claims.
So the decrease as good as we move to the runoff block.
Of our approximately 1.35 billion of total group wide net loss reserves on balance sheet at quarter end.
Approximately $350 million or fish supports the runoff block of business.
And it remains closed evenly split between taste in occurred but not reported reserves.
We had adverse development of the that $1.8 million in our casualty reinsurance book, but a portion of this was offset by sliding scale commissions, what's come through the expense ratio.
A majority of development related to treaties, we no longer right.
We also had about $1 million of favorable reserve development from our individual risk workers' compensation book.
Moving to expenses.
Expense ratio increased to 34.2% this quarter as compared to 22.6% in the first quarter of last year.
As discussed in prior quarters, the cancellation of the large commercial auto count how did impact on the accident year losses and expenses as it was written with very low Commission expenses.
Well not reflected in our first quarter results.
As Adam mentioned, we are actively reducing our expenses and expect to meaningfully reduce costs through the remainder of the year.
Lastly, I promise enormous finished I will note that we drew down most of our unsecured bank facility capacity in mid March prior to the start of the federal reserve interventions.
We did this purely from a per cautionary stance, given where we saw broader market volatility at that time in the treasury market.
The $119 million additional John capacity remains on our balance sheet as the precautionary measure late last year.
We had expanded our syndicated facility and renewed it for five years.
Our balance sheet liquidity is strong and credit metrics within the parameters rating agencies and other counterparties.
Our thoughtful debt to capital Nick utilizes a number of hybrid issuances and we do not have any maturities until 2034.
With that turn the call back to Adam.
Sarah and operator.
Let's take questions. If there are any.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then the number one possible keypad.
Your question has been answer to your wish to remove yourself from the Q. Please press the pound.
Your first question comes the line Mark Hughes from Suntrust. Your line is open.
Yes. Thank you very much good morning.
Good morning.
Adam I appreciate all the detail on your policy language.
You had mentioned the April I think you said those admissions were up in April gross written premium was up year over year and go later on you talked about strong growth in premium in March and April would you apply the strong additive to April.
Or any way to frame up.
What you're seeing in April.
I am really don't want to front run.
This too much Mark I'd I would just would say that.
You know honestly.
As you look around the economy and you think about the number of people who.
Our unemployment and really disturbingly, so just the Sarah and Bob and I were talking yesterday about thinking about airports for example, and how many people or.
Out of work there we would have anticipated a much.
We would have anticipated a much faster reversal in premium, but that's not what we've seen so far as I said and I don't want to get into too much detail about this.
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You know submissions are often and the April premium was more than last year's April premium I do not anticipate that continuing for the year. We we are thinking about the rest of year.
As having good rate and maintaining the positive rate structure that we have.
And that Weve earned.
Over time.
As if you think about the losses that may be coming into the insurance industry difficulties. Some companies are having me no with placement reinsurance.
Cetera.
Just a general capacity.
We think rates will remain good.
But we think that the economy is weak.
And so that'll be a balance and we're going to manage.
We're going to manage.
It's too with that.
And get to that.
High single digit low double digit RFP.
You can say about what you've seen so far in terms of cancellations or request not or cancellation, we have not been yes cancellations have not been a factor yet, but I would anticipate that is I would anticipate they could.
But in the industry.
But come a factor and.
We have thought about that in terms of.
And yes ourselves in terms of how we recast the rest of year.
And then in that Ian.
Yes book.
What would you anticipate further ceded premium ratio I think you've been is I understand it right.
Putting more excess casualty you see more of that premium.
Would we assume that hold steady similar to Q1.
I would think Mark I know this is a question that we had last quarter to this quarter.
Any and asked that it's always difficult with next that one of the strongest signs of growth. We had in that book with our excess casualty line, which almost which I think more than doubled from the first quarter last year.
For that an outsized effect in and pushing up the seeded ratio I would expect that.
Adam I was hoping you might able to give us a little color on just what your.
A little more on the commercial auto runoff book in and what I'm thinking is.
We've heard at least I've heard in the industry generally.
Open claims data across a number of lines workers top medical malpractice scale. So on.
That already there is some.
Impact from the recession in the sense that.
Settlement being maybe a little lower than expected.
Are there any some people have they need.
Before.
It's important to say that because.
I would not want anybody to think that we're.
Just somehow taking advantage of a situation.
Yeah.
Having said that and I did I did say this.
Good I'm not going to keep us updated on this but through Bob's leadership in dark claims Kings leadership, we've reduced the number.
For of outstanding claims from that commercial auto account by 25%.
During the period, Bob you want to comment further.
Yes, sure and good morning, Matt, Yes, we're definitely seeing.
Opportunities more opportunities to settle and some more willingness to settle on the other side.
Hi that of the some please open claims and.
Thats starts with all the court closures.
And some of which have dates.
In which they are.
May reopened in some of which do not and so some some cases that maybe were scheduled to go to trial or arbitration have been the dates have been kicked way out or there is no date.
That is coming up and so.
And as Adam said, we've we've continued to focus on working to settle claims at fair value but.
Definitely have been a lot more opportunities to to settle claims I think in the.
Given the uncertainty or.
Around when there might be.
Trials and arbitrations as well as the state of economy and all of the parties on.
The other side of the transaction.
Hi, Banbury.
I got that Wright medical and unrealized FX yep Okay.
Okay, Great. That's all I got thinking best of luck onboard.
Thanks, Matt Thank you.
Your next question comes the line of Randy Binner from B. Riley Your line is open.
Good morning Me Hey, good morning.
Good morning AG, just a couple of follow ups and I may have missed some of this I could that came in late but.
Yes, just.
Adam you said in that.
They had barn pattern risk of 10% of the book, where there are other categories you outlined that are kind of.
Our exposure to the economic shutdown.
Matt I'm, sorry, I missed the first part of your question.
Just a good ferret out for me yes.
Yes, it's Randy Binner from B. Riley.
Yeah.
Bar.
I think if.
We would expect we would anticipate.
Hey.
[music].
That the premium level that we enjoyed in the the the increase in premium level. We enjoyed in the first quarter will abate in the second third and fourth quarters. It just don't think we're going to be able to maintain.
That rate of growth.
Even though.
I'll go through all the way through margin and as I indicated.
Just out of a gentle on vacation that April was also very positive.
But we anticipate battle that will abate in abate.
Significantly and so well.
Weve recast our expenses Weve recast our forecast and we think we'll get at the end of it.
Good day to a high single digit low double digit return on tangible tangible that.
Yes.
Back into the in us.
Goals.
So.
I don't know whether this is now.
You or whatever it is we don't have we don't have.
Okay.
Crystal ball with regard to that.
[music].
But.
I think we'll we'll do find this year and if we start a recovery.
That will be a bit we will be the first two experienced positive.
Results from a recovery.
Hey, Randy I, just wanted to greater clarified.
One off the 3% figures there they share that that number is.
Of kind of open claims as a percent of all reported claims now that day, you not only that book.
Ken can there be further claims that come out of the book.
Thinking is this.
Is that open.
<unk> percent of the all reported basically only going to go down and if there is any tail left in that regard. It can you outline how that.
May be affected by less driving activity.
Sure well, it's a couple of things and then I am happy.
I would you like it.
So that we would be getting reported would be related to access that happened.
Ill just at December 30, Onest in prior so that's that's that's the first point.
You know we we.
Have it still seems some level of claim activity from.
2000 periods so to speak.
But it's really slowing down to a trickle.
Given what I just described previously so I would fully expect that that percentage of claims out outstanding relative to.
Total claims received is going to continue to drop.
That's perfect. Thanks, a lot.
Your next question comes from the line may or shields from KBW.
Thanks, Mike coming through.
How are you.
Decline has declined over $100 million during the course of the quarter.
So I would suspect that that is.
That's going to be lumpy pace, because it's going to depend on collateral these and other factors.
But we are correct.
Let me thinking that that collateral likely lines down with the runoff block over over about two years.
Okay No that's perfect that's helpful.
When we anticipate slowing premium growth.
Should we.
With that I think the best way to say that should we assume that the.
Any made policy term adjustments to exposure units.
Premium written in the first quarter will be there'll be a negative associated with that in coming quarters.
I don't.
Climb in new written policies or.
Then I think you'd you'd see a decline but the the.
Generally.
And there are there are formulas for each line of business and different than there are different arrangements, but generally we will be holding long and we'll have earned most of the premium we've reported to you.
Okay.
That is very helpful. One technical question I guess for therapy the.
Heated medium premium accrual within that.
Well the admitted was that reduction to earn premium or was that book as a lot.
Sure reduction to earn premium.
Okay perfect. Thank you so much.
Sure. Thank you.
Your next question comes on line of SAS Rosenberg from you Bts Your line is open.
Hey, guys. Thanks.
Thanks for the columns stepping in for Brian here.
I guess first is obviously the color was great on on the co good risk exposure to the see them now.
One follow up there the thanks.
Anybody who ever tells you there is no risk.
Probably.
It doesn't have a lot of experiments with me concerns business.
We are tracking this very carefully and I will tell you that.
In the states that we pay most attention too because of concentration of premium the.
Initial proposals seem to be.
Moderating pretty quickly you note that is to say there was our first suggestion of a very.
Automatic Laura very high.
Level of of very high burden on the insurance companies to assume and take these risks, but thats quickly being.
Reduced.
Those thoughts are going through the legislature others are are weighing yen.
So.
Do I do not.
Generally for example, I would say that contractors are not a highly exposed class for coven 19 at the current time.
[music].
And.
We feel comfortable with those risks the other thing I'd point out to use that for US for example in workers' comp or our retention is substantially lower today.
And it was a year ago and it's.
It was lowered in advance.
Of the Cobot 19.
Hello.
Right.
Got it okay. That's helpful.
And then.
I'm not sure stairway to phrases question, but if you decided there's a lot of those have so far have been some claims that have had commented here just clearly.
Our covered based on terms of the contract, but could you maybe give a sense what.
What is U haul, what's the cost associated with reviewing denying potentially litigated claims that are valid just on average.
Well I don't I don't think Theres, an average costs that I can quote youve for that but I will say that many of these will be reviewed look.
We for the last many years have been hand.
One thousands and thousands of claims which needed to be individually assessed.
And evaluated as for coverage and at the end it was complicated but because the coverage was different by state.
They.
We're making complex claims.
So that had to be where facts had to be investigators. So this is nothing new.
Our our point of view.
Now the very strong.
Provisions of our contracts will allow us to quickly.
For those.
Okay, that's very helpful.
So just one last one three.
Yes, I guess as we're thinking about going forward GNSS. There is helpful commentary that value.
Absolutely.
The segment is core now versus 50 year ago, but could you maybe give us.
Comparable.
And asked expense in loss ratios for.
The next the next three quarters from 19, just so we can think about the contract performance there.
Yes, I mean, I think as we mentioned on the call facets of good question, we are working to get our expense ratio down we havent.
That show up in the first quarter I think you'll see that in the next three quarters as we do that it needs to happen throughout the business and you will see had probably mostly.
And in ask just because it's our largest business.
Therefore has a large offensive expenses shale, yes, I expect the expense ratio in asked to go down.
A couple points, just because that mathematically the only way there that we get our overall expense ratio dividends delivered 30, so I.
I think thats pretty regionalize within the loss ratio is.
That that could be about where it was this quarter. So I am night.
That'll that'll shift a little bit on any given quarter due to mix.
But I am not otherwise anticipating a big delta to the expense ratio and CNS over the course of the year anticipating reduction the expense ratio.
Okay, Great that's very helpful. Thanks.
Yes.
Your next question comes from the line of Mark Hughes from Suntrust.
Yes, Thank you Sarah how much.
You think investment income will be impacted by the lower short term rates when we think about.
Thank you for instance, either with the built.
On the.
Yes, Okay. Great question, Mark I think the beginning of the year. The returns that we are getting on that portfolio, given where the treasury market wise layer.
You know.
Well in excess of.
Call. It 120, 550 basis points and now the short end of the curve is kind of sub 50 basis points. So.
Yeah, just given our balances there that's going to have an impact I talked about.
We are actively looking into two fell out of a teacher that bank loan portfolio as well, so I think thats going to have an impact.
So I expect the investment income one just given the on the face of those too hot.
I mentioned a decline over the course of the year.
I don't typically give a guidance number around eni, but those are the two pieces that I think about it.
Okay, and then when you think about the Geo pricing and you go through period here, where they are the very little revenue and some of these businesses.
Presumably geo pricing is influenced by revenue.
Makers.
Underwriting and pricing decisions in the circumstances like that you look at the former run rate how do you approach to.
NGL pricing, we certainly look at.
We certainly look at the.
Reported losses, and how the book is developing.
And then we just we just look at the rates in the opportunities and kind of price goes on into individualized basis, depending on what's coming on it.
Thank you.
I missed the part of your call I was just looking for.
Something else and I think I might've missed the first.
Part of your question, yes. They do the question was really more of the caliber policies specific level how you.
Would price general liability policies, if you're looking at the homeowners.
Not really been operating for a couple of months.
Does that influence your pricing or do you just kind of.
I assume they return to the former run rate.
So pricing.
Okay.
There are two parts to the so youre assuming someone.
And I want to make sure that I'm answering your question. So someone spun out of business, let's say this let's say they followed their business Mark I think that maybe premise to your question and now they're restarting and now they're restarting a business.
Is that right.
Okay, yes, well.
Yes, so typically they're going to fill out of new application. We certainly if we've seen them before they provide the information will be aware of what their business has has been.
Theres a minimum charge for the limit.
And then.
Question.
Let me just let me just the layer in a thought.
Mark so in all of that pricing is going to be based upon.
Some measure of unit exposure like they are expected revenues for example, right. So and we're going to have a rate for for that based upon what is in the submission for their expected revenues going forward. So I think that you know.
We may see a low lower revenue numbers from some of those insureds as these policies come in new or renewal.
But I don't think that it's going to impact.
The.
Price per unit of exposure that we're going to be charging I think that there still is positive momentum from a rate perspective in that regard and theres a few factors at work there.
But there one of the things certainly is that.
Yields on investments continue to go down I think that that is obviously a positive for insurance pricing because.
You've got to make money on underwriting because you're not going to make a lot on your investment income flow and I think another many of our still some.
Meaningful number of our divisions and classes there is a shortage of capacity in the industry certainly in.
Certainly in excess casualty certainly in Habitational risks within our general Casualty Division, we're still seeing.
Very very strong demand for our product.
And.
Because of.
Because of.
Business still coming in from the video market or.
Capital departing this area or bad underlying loss experience from the recent past.
It's all very helpful. Thank you.
If anyone wants to ask a question. Please press star one on your telephone keypad.
You have a follow up question familiar shields from KBW.
Yes, just a quick question for Adam what are the theory that we've heard is that as well companies are on board declared a business. There's an increase likelihood of Dino claims against them from other companies with who may be doing business can you talk about that as potential exposure to the decision.
No.
We have not seen I have not seen in past recessions.
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Weve insured many businesses that have gone out of business over.
Multiple years I've not seen a lot of Dino claims registered against.
You know the businesses that we.
Right GL accounts for Thats, just not been a phenomenon, but that has really.
I assume that.
Where we've seen that our average premium is $23000. This these are not.
These are not generally public companies. These are.
Privately held by enterprises.
Where the the owners in the directors are also same people.
Yes, and I just want to add you know our professional liability book is across the group is really pretty small and any ines. It's really it's really an email book for.
Smaller private.
Private companies ill lawyers architects engineers.
That type of thing and that we really haven't seen a lot of growth there. It's a it's a reasonably small book of business and so.
You may be asking more from an industry perspective about this I think our AR.
Our goal is another area that art is really really quite small.
Okay. Thank you good luck.
Thanks, showing no further questions at this time I would like to turn the conference back to Adas, Abraham Chairman and Chief Executive Officer.
Thank you operator, and thank you everybody who's joined and expresses an interesting.
In safe.
Thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating in have a wonderful day you may all disconnect.
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