Q1 2020 Earnings Call
Ladies and gentlemen, thank people standing by and welcome to the Q1 2020 employers holdings earnings call.
At this time, all participants on I listen only mode.
After the speakers presentation, they would be a question and answer session.
Asked the question doing this section you will need to press Star then one on your telephone.
Please be advised that today's conference is being recorded.
If you acquire any further assistance. Please press Star then zero I would now like to have the conference over to your speaker for today Laurie Brown you may begin.
Thank you Towanda.
Good morning, and welcome everyone to the first quarter 2020 earnings call for employers today's call is being recorded in webcast from the Investor section of our website, where a replay will be available following the call.
Presenting today on the call well be Doug Dirks, our Chief Executive Officer, Mike The Cats, our Chief Financial Officer, and Steve Festa, Our Chief operating officer.
Shipments made during this conference call that are not based on historical fact are considered forward looking statements. These statements are made and reliance on the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
Although we believe the expectations expressed in our forward looking statements are reasonable risks and uncertainties could cause actual results to be materially different from our expectation.
Including the risks set forth in our filings with the Securities and Exchange Commission.
Oh remarks made during the call our current at the time of the call and will not be updated to reflect subsequent developments.
And our earnings press release, and then our remarks or responses to questions. We may use non-GAAP financial metrics reconciliations of these non-GAAP metrics to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation and any other material.
He also available in the Investor section on our website now I will turn the call over to Doug.
[noise]. Thank you Laurie and thank you all for joining us today.
On today's call my Stephen I will outline our financial results for the first quarter of 20 to 20.
And we'll discuss or observing in the market today.
Before we begin our thoughts are with each of you as we navigate together the challenges presented by the coal with 19 outbreak.
Our company is invested significantly over the last several years in an operating model that drives superior customer experiences.
And in hand deficiencies.
Not only are those investments been meeting our goals.
The other day critical resiliency to our business.
Our company has been fully functional since we closed all of our offices to employees and the general public on March 20th of this year.
We have taken necessary precautions to protect the safety and well being of our employees and their families.
While continuing to provide uninterrupted service to our policyholders and claim it.
We were able to successfully transition 99% to borrow employees.
What do you work from home environment over five days in mid March without any business interruption.
We are currently operating under our work from home protocol and have been for the last six weeks.
We are successfully leveraging and utilizing technology to maintain and ensure continuity without disruption.
We feel that employers isn't a strong position to weather the challenges created by the pandemic.
With a strong financial position.
And operational procedures in place that allow us to provide superior servers to our insured without disruption.
No I would like to move to the premium impacts we are currently observing.
As they workers compensation ensure we continue we adjust policyholder premium.
To reflect changes in their expected and actual payrolls.
These changes can reflect the boat seasonality and then current economic conditions.
Approximately 25% of payroll reported to us comes through our pay as you go products.
Which reflect near real time business activity, a burn shirts, and consequently, our self correcting to changes.
The majority of our policyholders pay premium based on an annual estimate total payroll.
And for those policies payroll related premium adjustments are made periodically through the life of the policy through mid term endorsements and or premium on it.
As a result of the covert 19 pandemic, we received and have completed a significant amount of payroll related mid term endorsement requests.
These endorsements processed in March this year reduced to policyholder premiums by $5.3 million.
Well endorsements processed in April through April 17.
Reduce policyholder premiums by another $6 million.
We expect downward pressure in the second quarter. This year in both gross and net written premiums because of changes in payroll estimates.
And we expect this heightened endorsement activity to continue foreign indeterminable period of time.
We have also been impacted by regulatory orders, which either mandate for request that we suspend cancellations of policies for non payment of premium.
For a variety of time periods, depending on each jurisdiction.
Although we expect this likely will increase uncollectable premium and bad debt and we have considered that in our first quarter result.
It is too early to estimate the ultimate cost, resulting from these orders.
Just as every recession is different so is every recovery.
The link and depth so the impending pandemic related recession is unknowable, but.
But we have taken some actions in anticipation of those uncertainties.
We chose to maintain our current year loss provision rate at the same level, we observed last year.
We believe that Didnt near term, we are likely to see a decline both in frequency and severity of losses.
But we also believe that maintaining our pre pandemic level of loss.
Provision was the most prudent action given the high level of uncertainty.
If we are correct in our view on frequency and severity, we have no way of estimating whether it will be short lived or what will follow.
Also many states through their insurance commissioners legislative bodies, and governors have changed or are considering changes the definitions of compensable LTE and presumptions related to virus exposure.
These changes will have a negative impact on ultimate losses for the workers compensation industry.
Although we believe our exposure to additional losses from currently enacted changes are likely immaterial given the classes of business we right.
This is how whatever a very fluid situation that could change at any time.
We're working directly and indirectly.
Through our trade association and through other industry trade associations to help shape of the public policy response.
Relative to the than prior periods. Despite a series of strong reserve releases going back several years.
We chose to recognize observed reserve redundancies only for those years that we believe have low exposure to recessionary impacts.
In this quarter those years were 2010 and prior.
For years 2011, and after we chose to leave reserve.
Loss reserves at year end levels.
Without regard to observed loss development since year end.
This decision reflects our view that there is a higher degree of uncertainty in the loss reserves because of the impending recession. Then there was previously.
Before I close I'd like to give an update on Saturday, our direct to consumer product offering.
We're pleased to announce that Saturday is now approved to write business in California, the largest workers compensation market in the country.
And now offers direct to customer workers' compensation insurance, and 38 states and the district of Columbia.
Our goal is to provide small businesses the optionality to obtain workers compensation insurance across America through whatever means they deem most efficient.
Although Saturday is still very much in its infancy. We continue to believe that the addition of this digital product solution is very important to positioning employers for success in a rapidly changing marketplace.
We suspect that many small business owners of today and those coming in the future have recently become much more comfortable transacting business digitally.
For those businesses, we have a project that responds to their needs.
With that Mike will now provide a further discussion of our financial results. Steve will then discuss some of the current trends and then I'll return for a few brief closing remarks, Mike.
Thank you Doug.
During the first quarter, we delivered a 3.7% annualized return on adjusted equity, which a satisfying given the chaos and disruption currently being experienced throughout the world attributable to the pandemic.
Our underwriting results were solid for the majority of the first quarter, reflecting the strength of our business model, but our financial results were adversely impacted by unrealized net investment losses.
Our net premiums earned $168 million, a decrease of 4% year over year. Since premiums earned are primarily a function of the amount and timing of net written premiums I'll, let Steve described the decrease in premium writings this quarter in his remarks.
Our losses and loss adjustment expenses were $104 million, an increase of 18%.
The company recognized $3 million a favorable prior year loss reserve development during the current period, which related to accident years 2010 in prior versus $22 million a favorable prior year loss reserve development a year ago.
Our current accident year loss and loss adjustment expense ratio was 65.6%, which is literally unchanged from the full year ratio that we recorded for 2019.
[noise] Commission expenses were $21 million a decrease of 3%. The decrease was primarily due to the decrease in earned premium.
Underwriting in general administrative expenses were $47 million a decrease of 2%. The decrease was largely the result of lower premium taxes and assessments, partially offset by higher information technology and bad debt expenses.
From a reporting segment perspective, our employer segment had underwriting income of $1 million for the quarter versus $22 million a year ago and its combined ratios were 99.5% and 87.2% during those periods respectively.
Our Thirtyth segment had an underwriting loss of $4 million for the quarter, which was consistent with its underwriting loss of a year ago.
Turning to investments net investment income was $20 million for the quarter down 9%.
The decrease was primarily due to a sharp increase in the amortization of bond premiums associated with our residential mortgage backed securities which was caused by a recent distortion of mortgage loan prepayment speed assumptions.
At quarter end, our fixed maturities had a duration of 3.1 and an average credit quality, they plus and our equity securities and other investments represented 9% of the total investment portfolio.
We were unfavorably impacted by $43 million of net after tax unrealized losses from equity securities and other investments, which are reflected on our income statement and $29 million of after tax unrealized losses from fixed maturity securities, which are reflected on our balance sheet.
These unrealized investment losses were the primary driver of our 5% decrease in book value per share, including the deferred gain year to date.
Finally during the quarter, we repurchased $43 million of our common stock at an average price of $37.17 per share and our remaining share repurchase authority currently stands at just under $36 million.
And now I'll turn the call over to Steve.
Thank you, Mike and good morning.
Net written premiums for the quarter of $183 million were down 25 million or 12.1% from the first quarter of 2019. The primary drivers for this decrease where new business premium and mid term premium adjustments.
Through the ended the quarter, we had the most policies in force and new business submissions in the company's history, which reflects the strength of our new business production and strong renewal rates new business bound policies for the quarter were up 3.2% driven by increased submission.
Yes, which were up 5.1% and quotes which were up 15.9%.
Our in force policy Count grew 8% over the first quarter of 2019.
However, despite this increase in production new business premium decreased by $18.5 million.
This decrease was driven by factors such as continued rate decreases in the states, we do business and as well as competitive pressures on middle market accounts, which continue to be very strong during the quarter.
Also as expected we had a decrease in new business writings in California, due to our increased rates, which went into effect as of July one 2019.
In addition, we were impacted during the month of March in particular, the second half of the month by a slowing of new business submissions and bound policies due to agents in our distribution channel transitioning to work from home and having less opportunity to market accounts at renewal.
Mid term premium adjustments exhibited a decrease year over year of $5 million driven by endorsements in March related to payroll reductions.
These reductions are directly related to the impact of the shuttering of non essential businesses that we ensure as well as reduced payroll in businesses that remained open.
With respect to renewal business for the quarter, we continue to see high policy unit retention rates for the quarter. This rate was 93.9%.
This was offset to some degree by continued rate decreases renewal premium was flat on a year over year basis.
New claim volume continues to decline on a year over year basis, we have experienced decreases in last time claims of 15% in March and 50% so far in a bunch of April.
Whereas we don't know if this will be a continuing trend. It is what we are currently seeing.
We believe this decline is driven by less exposure because businesses are being shuttered as well as lower head count and hours worked in businesses that remain open.
Customer service remains our priority throughout this period of uncertainty with a focused on long term retention and satisfaction of our customer base.
And now I will turn the call back to Doug for his final remarks.
Thank you Stephen Mike.
As you have heard in our comments, we believe that the covert 19 outbreak is more likely to be a premium event than either a capital or a claims event for workers compensation.
As incredibly tragic as the public health consequences of the Cobot 19 pandemic have Ben.
Public policy response to the pandemic is likely to have a much longer term impact our business and those businesses we ensure.
We remain confident that we were well prepared to weather the storm.
And we expect to emerged successfully into a very different world.
Our company turned 107 years old last month.
Meaning this isn't the first pandemic it is experiencing likely won't be the last.
We have always recognize that the rare pandemics aren't expected part of our business.
And consequently, we have routinely considered them as a part of our business continuity and disaster recovery plans.
The Buzz word for the last several years and spend resilience and we will now find out whether that was lip service we're real.
I can assure you that for us it was real.
Overall, we have taken a very cautious approach in assessing our sure short term operating results.
Given the uncertainty across the economy.
However, we have been proactive and ensuring that our operations and communications have been first rate.
Thus far our agents and Insureds have provided favorable feedback.
Which we believe over the long run will help strengthen our relationships.
Finally, my thanks to our 700 employees for their on wavering dedication flexibility in patients.
As we continue to seamlessly operator business.
And execute our strategy despite being in a work from home status.
Throughout our 107 years, our company has been in the hands of many.
But I believe and I hope you do as well that this could company couldn't be in better hands today and with that operator, we'll take questions.
Thank you, ladies and gentlemen, as a reminder to ask the question you will need to press Star then one on your telephone.
To withdraw your question press the pound cake.
Again next I want to ask the question. Please standby, while we compile the culinary roster.
First question comes from the line of Matt Carletti with JMP Securities. Your line is open.
Thanks, Good morning.
Yes.
Steve I was hoping I could go back to your comments on you touched on new business and retention and things like that I was hoping you could give us a little more color on.
Even as we've gotten the April kind of bad the agents have you know maybe gotten comfortable working from home and transition you know what you've seen I now I'd imagine in this environment, the new business falloff in retention tick up.
But just curious if you can give us any color on kind of the last several weeks.
Sure and I want to broad maybe Matt the discussion beyond even just the distribution channel to to the insurance as well from from our vantage point, what we're seeing is that a lot of the insurance are particularly the smaller businesses are struggling to stay afloat frankly.
And as a result of that.
Looking at their insurance needs in work comp in particular.
Is not there number one priority.
Some of them are focused on other insurance products business continuity continues to come up in discussions we here with our agents. So I think part of the equation here is just.
How much and insured at this point is is focused on.
On putting their business out to bid on but from an agent standpoint clearly.
As with any other.
Business the moved from work from home as some residual impacts some of them have skeleton crews that are operating right now.
And one of the things that we consistently are hearing from our agent distribution channel lose some of the investments that we've made and talked about on these calls in the past year or so.
Our lending themselves to a greater efficiency that would've been in place prior to those changes. So an example of that would be.
The ability today for an agent that they didnt have a year and a half ago to put through self service capabilities. On these endorsements that are reducing payroll in the past they would have been required to to call into our company and have our company do all that work. So I think one of the things that we're hearing from the.
Agents consistently no matter what part of the country you're talking about is these investments that we've made or paying dividends in particular in a time like this but I can't tell you today, Matt how long, it's going to take for things to get back to normal in terms of.
Of.
New business production.
I think we will see.
Some of the benefits in terms of retention in particular on smaller accounts I quoted earlier on the call. We still continue to see very very strong retention rates at renewal I would expect that to continue.
But my Crystal ball well at this point is not very clear on.
How long will be dealing with some of these new business impacts.
That makes sense.
And then maybe just shifting quickly I think I think is in your opening comments, Doug you talked about the some of the presumptive coverage efforts I mean have the California have been out there, but others too.
And yes, it makes sense that kind of the the kind of Sci one classes you guys just don't have a lot of.
I have a couple questions. There one is can you.
On the E. Two classes kind of not the health care and up the first responders with the other essential businesses.
I'm going to level of exposure there and then secondly, just the W. CRB has been very opened with their kind of publishing their thoughts on it and I'm. Just curious kind of what you think of that analysis and then as you look at some of the specifics in there in terms of.
The mix of what the hospitalization I see you otherwise cost of those claims if that.
Not related to cobot is generally speaking.
If you versus otherwise it thats consistent with what you see in your book or the industry data is substantially different than what you might junior box.
So let me begin by addressing somewhat.
How how reviewing this and again I.
I commented.
Earlier that this is a very fluid situation.
We literally are reacting to proposals.
Orders suggestions daily.
We've.
Weve internally had this described as a bit of whack a mole because it literally occurs across the country.
Every day and and so it's something we're very much on top of but it's very difficult to to predict.
We don't have a lot of exposure to.
Kind of those.
First responder classes of business.
There there is some but it's relatively small and our book of business as that description of.
Who is in the essential versus non essential and whether or not they're going to be entitled to any type of presumptive.
Workers' compensation coverage. It there's just so much variability that we're uncomfortable predicting that I won't comment on the WCS Arby's analysis, obviously, we're well aware that we have digested it internally.
But it's their data based on the entire industry.
It's a very wide range and when you see that wide range of potential outcomes.
I think that tells you the degree of uncertainty associated with putting any number out there I mean, I think I would describe it as ranging anything from not a problem to a very serious problem and everything in between so there's simply no way to know.
We are doing everything we tend to be actively involved in the public policy discussions when they occur.
All over the country and we'll continue to say on top of it.
Great and then that's really helpful done. Thank you and then one last question, though on we'd like out of the just on the numbers as we think about expense ratio.
And obviously with some premium headwind can you just walk us through in rough numbers kind of how to think about that I mean, it's kind of leaving commissions out the and the rest and the operating expense ratio, what and how much did that its fixed how much is variable I'm going to the extent. There is variable you know how much of that would be kind of take action on your guidance.
Part to to reduce you know versus maybe you don't want to do that because you view. This is more of a shorter term impact and maybe that wouldn't be wise, so long run.
I'll take that that question, Matt I'm sure. When you think about the variable elements of other underwriting expense.
Two largest ones there are premium taxes, and assessments and bad debt and typically those run four and a half five and a half point.
To five and a half maybe up to six depending on what happens.
With the bad debt provision.
So those are fully variable if you. If you think of bad debt is being in a normal environment those are pretty much of variable to premium.
The next level I would point to our R&D.
Semi variable costs.
You know in that category and it's our largest operating expenses salaries and benefits. This is still a business. Despite the investments. We've made in technology that is very dependent on on human capital and and that is a semi variable costs certainly something that that we have some.
Control over.
At this point, we've taken no actions there because from our perspective, we are fully open for business and continue to transact business.
What's left are things like projects and initiatives and.
Brent occupancy costs, those things are all fixed and they represent.
Think of those is probably something.
Binder, probably 10 points or so.
Okay perfect very helpful. Thank you for all the answer and the best of luck on board.
Thank you.
Thank you.
Our next question comes from Milan, Mark Hughes Suntrust. Your line is open.
Yeah. Thank you.
Steve you had.
Talking about the high retention.
Matt was asking about.
What you see in April.
Are you still seeing very high policy holder retention in April.
Are you a are you seeing some attrition in your.
Your customer base.
Mark No we still are seeing high retention rates through April.
Obviously with the with some of the issues that are going on in the economy from a payroll standpoint, where we'll see an impact in the future even though the unit retention rates are strong.
With a lower payroll base that will have implications in terms of the the renewal rate itself, but the unit retention rate.
At this point continues to be strong.
And when you look at those ones that are renewing say in the last few we.
Do you have a read on kind of the.
Presumably they're giving you updated outlooks on payroll.
What are you a.
What do you see in those numbers.
We're definitely seeing we called out some of these numbers a little bit earlier in terms of some of the endorsements we see through the endorsement process, we see through the renewal process in the future, we'll see through final audit.
These payroll reductions, which as we said earlier remark.
Escalated in March and and at a higher rate so far in April.
Yeah, I I hear you, but or maybe I'll ask this question is set up you are at the end of the first quarter Youre premium in or.
Do you have that or at least.
Number for that maybe year end.
The premium enforce through March was the number we called out early I don't have anything through April at this point.
And I'm, sorry, what was that number.
Eight.
I believe was up 8%.
Oh and thinking you know absolute dollars.
I think.
At year end, maybe the 600 million 650, though like that I'm just thinking.
You mean and for us.
[noise] Mark I've got to.
In our 10-Q draft I've got it at 643 million as of March Thirtyth.
Right and then.
The endorsement you know the 5 million in March or or so 6 million in April.
Yeah, those are a percent each.
So that.
Collectively 2%.
I'm just trying to.
Get some sense you know there because there is that 2% and then you talk about in April the claim down 50%, 50%, but.
I would assume that's not based on the payroll down 50%.
Typically down substantially if somebody is looking to see whether there's any newer data of the policies renewing in April you know what.
Those business owners think their payroll changes going to be.
[music].
I think.
Yes, yes, hopefully the that makes sense.
I will jump in there Mark and one of the challenge is is there is a little bit of a lag.
To renewal activity, we pre renewal a large number of our accounts.
And some of them ultimately convert to a renewed policy some of them don't take that renewal and there's a bit of a lag on that is not an extreme like we're getting to the point. We're just now getting to the point, where we're going to start having some data there that's meaningful I'm not trying to Dodge that question. Obviously, we're asking the same question I look.
And they're looking for the same things in our data I.
I think relative to endorsement that's probably the better area to focus what I would expect we're going to see is that.
Businesses are going to try to stay afloat as long as they can which means they're going to endorse their pay payrolls down maybe to zero until they reopen and then when they reopen their policy will still be enough in effect, they may or may not endorsed their payroll backup.
They start having a payroll again, so I think we're going to be dealing with this issue.
For the another for another 12 to 15 months because a year from now assuming that these businesses reopen have payroll again, but don't endorsed their policy back up will be collecting audit premium on those policies a year from now and I think thats the way.
Hey, these pieces are going to move together over the next 12 to 18 months.
But it's it's so volatile right now that that were reluctant to twos to declare much of a trend here, we have much better information around new business submissions, we can see that in real time.
As Steve indicated that is down.
It seems to be settling in at the moment.
I'll put a number out there at the moment.
It appears to be down about a third year over year, both in terms of premium and units.
That could be a function of a lot of different things that could be backlogs in agents offices. It could be fewer fewer new business start ups, there could be any number of reasons for that.
And that's why we're reluctant to say you should model anything based on that number but that is what we're observing right now.
That's the that's helpful.
How about.
We think about the reserve development I I understand your your caution at this moment is there really material risks the.
Say something from the 2017 accident year going to.
Going to get you at this point how long of a.
Ill or lag you have on claims.
In the.
The recession.
Were there late reported claims that were.
234 years old.
In emerge.
So mark I'll I'll take that question as well so I made a reference in my comments about every recession in every recovery being different.
They are our caution is informed by what happened in the last recession, and particularly what happened in California. We did have meaningful late reported claims.
Associated with repetitive motion cumulative trauma.
Injuries.
Hi, I'm not predicting that that happens again, I think a lot of that was unique to that recession.
And what was unique to or was there was a very long period of unemployment.
As you recall the unemployment rate stayed high for a very long period of time, there was not a the recovery there was not a you recovery there was the hockey stick recovery.
And.
Our caution right now is theres nothing to say that that couldn't happen again, and we were seeing those claims in 2011, 12, and 13 coming out of the 2008 recession and that's informing our caution right now I'm not predicting that.
But we think that is a potentiality in it adds to the uncertainty and in setting loss reserves for years, even as old as 2017 in earlier.
Understood, but did those claims come from say 2005 in 2006 or are they more.
2008 in 2009.
Accident years. So the reason, we decided to take the observed.
Favorable development on some of those earlier years as we think at some point those claims become.
Almost immune to recessionary impacts.
Certainly when you're thinking about later years, you referenced 2017 2018 in 2019.
Those because of the number of claims that are still low can.
And the relative immaturity of those claims there's still some potential exposure to recessionary impacts.
So we exercised a high degree of caution.
This quarter.
Until we get a better sense on how we think this.
Recession will unfold.
Understood in California, I don't know if it's possible at this point to a to say what the level of activity or new sales in California compared to what it was prior to your rate hike in July, but how much had California.
You've been running down.
And.
With that a fairly abrupt change once you raise the pricing and so that may be a lap come a this summer that maybe overwhelmed by other factors, but I'm just sort of curious.
How much of an impact that has been on your business the rate increase in California.
Im quite a bit on the new business side I reference to the 18 of the half million dollar decrease in.
In new business about 85% of that came from California. So clearly, it's having a a significant impact.
Which we expect it.
Right, so that 8 million.
Might have had a little bit of the.
Virus impact, but was probably more of the California.
Yes, I think a differential yes.
I would wait more of that on on the the price hikes that we took in July of last year.
But California was also impacted the disproportionately because that's the largest state for us on this covert 18 impact that we saw in the second half a march as well.
[noise] Oh, that's got one more Doug would you expected more mid term endorsement.
It seems like we've been.
At this for a while it's been weak.
But you've only a.
2% issue so far.
I I think that's interesting data, but it strikes me as I wonder why it the.
The if there is meaningful decline in payroll among your customer base why more of them or not taking action on the.
On the workers comp trends.
Yeah Mark its.
It's somewhat of an unknown for us because we've never experienced this phenomenon before.
Then I'm very visible in terms of communicating with our.
Agents and our ensures that this mechanism is available to them if their businesses are struggling and they don't have payroll.
We're doing that to be responsive to our customers were also going that to be responsive to the regulators.
So theres Theres a couple of objectives there.
Another thing I suspect different from us as we have a very large number of very small policies.
That.
Pay a full years premium at the inception of the policy or have relatively small installments over the course of the year.
It may be a function of our business mix that thats, all we've observed to date.
Versus perhaps somebody else's book of business that has much larger accounts that would be.
More benefited by mid term endorsements.
You know we look at it think it's an eye popping number only because it's so much larger than it's ever been before but to your point, it's still a relatively small amount of our total premium.
I expect that at some point as things settle in.
This will plateau, and then start to fall off but Theres, just simply no way to know.
Understood.
Thank you.
Thank you.
As a reminder, ladies and gentlemen that star one to ask the question.
Our next question comes from Milan, Bob Farnam, with Boenning and Scattergood. Your line is open.
Hi, there yes.
Morning.
So.
From your comments, Doug it sounds like.
To assume that you're gonna be cautious with the reserves at least for now until you have a better clear understanding what the recession you could look like.
I would answer that a couple of ways. Yes, we will continue to be cautious on until things unfold, we get a little bit more visibility into what we think the recession exposure is.
That being said if we continue to observe very strong favorable development in prior years that we don't believe have significant exposure to recessionary impacts were going to react to those this isn't just scrolling away.
Reserves. So we can sleep better at night, we are going to be responsive to what we're observing and to the extent that we can get comfortable that some of those.
Many years, our immune to recessionary impacts and we're observing favorable development will take it.
Right.
If I heard your comments right. It sounds like the current business with the drop in frequency and drop in severity, you're almost going to be baking in some conservatism there because you're not really changing the loss ratio does that also fair to say.
I would say that possible.
I don't think Thats, an unreasonable scenario again, we kept to the current year provision, where we thought at the end of the year. We do think there is going to be this reduction.
And.
And premium or in in frequency and severity on the loss side, it's not a dollar for dollar matched to premium which is why this is a little challenging in the very short run.
But there's certainly a potential.
That if we see a sustained period of reduced frequency and severity our current year provision might be more than adequate.
Okay.
I wanted I wanted to talk about kind of like Youre youre the types of risk that you're right and obviously restaurants is a big category for you or they are restaurants, feeling the pressure more so than other risks that other other segments that you're right or is that.
Is that kind of across borders who is going to pain.
So Bob this is Steve I'll answer that question about.
For the March and April a endorsement so that we referenced earlier about 40% of that volume is coming from the rest for restaurant in hospitality classes. So.
You know a lot of them have shut down.
Some of them that have stayed open or.
Our with a smaller staff and they're doing curbside delivery or delivery now some of the delivery that they're doing is outsourced.
And some of them are doing delivery with the within how staff.
But that's the that is the class of business that is showing the greatest impact.
And at a higher rate than they make up our in force book as well.
Right.
So ah so that they are definitely impacted.
And it sounds like the restaurants, probably smaller risk so they're not really on the page. It go format.
The annual policies and that's why they're falling endorsements.
Well some some of them some of the more on pay as you go generally it's the smaller.
Businesses that are on pay as you go. So so it will the other thing I would call out is that when I look at the endorsement volume.
It's not disproportionate in one premium band versus another so it's not like we're seeing the small business with a higher percentage than we see in our in force book.
Versus the larger accounts, it's pretty.
Spread across equally across all sizes of business in terms of these endorsement requests, but generally most of the pay as you go policies are on the smaller side.
Okay. Thanks, Steve.
One last question for me.
Waiting period, so I thought that we like working capital is is that waiting period that.
Last for a bit so if if if people are catching nicole good virus in there and they're better by the end of the waiting period.
I mean, you're off the hook [laughter].
Yes, each state has their own the their own requirement in terms of the waiting period, but keep in mind.
If someone is.
Diagnosed with a positive test even if it's a not a severe claim they're going to be required to self quarantine and generally those quarantine periods would extend beyond the waiting periods. So.
So you got to factor that into the equation as well.
Okay, and so and so the with the states that are changing that presumption of good visibility.
Have they made any investments the waiting periods or is that.
Is that still up near no that they don't seem to be focused on the waiting periods, they're focused on the presumptive issue.
Yep Okay.
Thanks, that's it for me.
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Thank you.
Our next question comes from align the Ron Bobman with capital return your line is open.
Hi, Thanks, a lot.
I.
I have they a handful of questions I hope will be patient with me.
In no particular order.
How do you underwrite new business in this environment with the water being so murky as far as sort of the recession is concerned.
Well one of the things run that we've done is we've taken a look at the classes of business in the healthcare space.
We right and we don't have a high percentage of a business into healthcare space to the largest class that we have our physicians and a lot of the physician offices today are.
Our frankly, becoming virtual office is they're doing a teladoc or tell the rehab im so that exposure today is much lower than.
Then it would have been earlier on in this pandemic.
But some other classes of business that we have a small amount of enforce premium it and I'll call out a couple of them.
Home health care and nursing homes.
We've actually placed a moratorium on writing new business for a period of time and those classes because we just feel like the exposure in those classes of business is still there.
It doesn't mean that it's a permanent moratorium at all but we've taken some underwriting decisions with respect to those classes of business and we don't right first responders. So we don't really don't have any exposure. There. So when we're looking at certain classes of business that have a a greater presumptive liability.
Okay.
We're making those decisions and those are just a couple of examples that we made decisions on.
What about employing.
Credits in Debits and have you made sort of underwriting pricing decisions with with respect to sort of the Permissibility you are the implementation of a.
Credits and sort of in effect.
Moved rates further than the trajectory that you had been.
Effecting 60, 60, plus days ago any changes so theres still we have.
We have a we had we've historically had a threshold on when credit is part of the underwriting decision.
Resulted this we've we've lowered that threshold, but the majority of our policies are are straight through quoted and not even touched by an underwriter. We don't have a a credit component to that.
Okay.
Somewhat related Lee sort of on that and you have you've made a tremendous investment in customer service digitization et cetera straight through processing like you just mentioned.
But I would imagine that the industry sort of for the most part Ladd you in that regard or are there any signs of competitors, just not being able to renew.
Business effect endorsements.
Hello, and buying new policies and that there.
It's sort of evident to you that there is.
Orphan business.
Insureds in distressed by virtue of have not getting carrier reactions.
I'm not I'm, not seeing Ron or anything that that they're being limited, but what I am hearing very clearly from our distribution channel is that some of these investments that we've made in the last 18 months in particular, whether Apiay technology investments some of the self service.
Abilities that we have the can allow for a quicker turnaround time on certain requests that we do stand out compared to some of our competitors no question about that.
Did you discuss the reinsurance program your reinsurance protection.
And the.
[noise] applicability of them.
Or not in the context of one you know a worsening recession to weather. The pandemic is is considered a cat whether that is important at all in the context of your reinsurance protections. Thanks.
The Ron I'll take that.
It's easier to describe the pandemic aspect, we are covered under our current churn reinsurance program for a pandemic always have been the issue is that we have a an hours clause and that means that we have to have an aggregation of cases within that ours.
Laws that has to exceed $10 million for that coverage to kick in and if we do collect under that scenario. There's a there's a rig additional reinsurance premium associated with that as well. So based on what we know today, we don't believe that we will trigger recovery.
Under our current reinsurance program for the pandemic, although it is a coverable event.
Okay. Thanks.
Did you buying stock back in April a sorry, if I missed this in the prepared remarks or if in the disclosures, but did you buy any stock back in April and what's your attitude.
I did hear about the remaining authorization you were quite active in the first.
The first quarter.
But what about looking forward.
So so Ron we did buy a little bit of stock in April.
Because of the volume.
Our tenbfive filled very quickly in in April as a result of our big amounts of transactions in March. So I believe that we had less than a million five of repurchases in April and I mentioned that our share repurchase authorization was about 36.
So take that down by about $1 million.
Right now we have Oh, we have an appetite to continue our share repurchase program. When we have the opportunity to do though to do so the issue really is just the liquidity at the parent company and it's not that we are tight in terms of liquidity. Its just that are.
Dividends from our subsidiaries are lumpy and they come at certain times of the year and it's very difficult to accelerate those so we try to match our.
Our appetite with the cash flows coming up from the subsidiaries, but we have an interest in repurchasing shares today for sure.
So how much.
So how much liquidity do you have at the holding company.
Now over as of April one could you sort of mentioned that is the real governor.
The lead governor.
Right, now, where probably less than $10 million, but we do have a subsidiary dividends coming on the horizon of $22 million and just a few days if that helps.
Okay.
My last question the.
I think it's called the families first Corona virus.
Act and it's obviously relates to sort of sick pay leave paid leave.
What are the implications of that I know you called benefit or.
On.
Employees going on work comp or not going on work comp.
[noise] run I don't think we have a view on that whether or not it would have any meaningful impact in the event of the.
Claim being filed or not.
Okay.
Thanks, a lot for your patience and help appreciate it.
Thank you.
Thank you.
We have a follow up question from a lot of Mark Hughes Suntrust. Your line is open.
If there is a death claim related to a who bid.
Case, what is one of the parameters for how much would be paid out under workers comp.
Once again, it almost sounds like it broke a record but it does depend on the state, but but I will tell you that generally most states.
Death benefits include among other things.
The payments for dependence of the deceased individual which is generally where the higher dollar amounts to come in.
And so it just wouldn't be treated any differently than.
Any other workers compensation, claiming terms of what the benefits would be.
You know the benefits usually a magnitude of the payout to the dependent.
The.
But the idea it's not like life insurance policies, yes, the need to know dependent so so thats part of the claims investigation is our their dependence and if there are that includes that's generally.
Other than the medical costs, which in some cases, depending upon the cause of death can be can be a large but generally the dependent pay.
This has some significant dollars attached to it depending on number of dependence.
The et cetera.
And what would a.
Round numbers typical payout be what's the range.
That's really going up that's really mark going to vary depending upon number of dependence.
So thats.
That's a hard number to come up with just in generic terms.
Understood what I think you've got a good relationship or close relationship with the California Restaurant Association.
What do they saying about all of the they put a.
Projections out about what it means for payroll it and I'm also curious any feedback you might have gotten from brokers that are just the what do they see out in the marketplace.
So we've had numerous.
Instances of dialogue with not only the California Restaurant Association the National Restaurant Association.
We have a relationship with Illinois restaurant Association as well some other states and and we've got a very collaborative.
Discussion with them in fact with respect to one of those associations I won't call them out on the call, but one of those associations we've had some.
Very good dialogue, where they're actually lobbying they're state government.
Against moving forward with these presumptive.
Scenarios for work comp for their specific industry because of the costs that would be associated with that long term. So.
A substantial amount of dialogue is taking place with all of our restaurant Association partners.
She already as you mentioned is our largest but.
We've worked hand in glove with them in terms of the impact that this is having on them.
And what we can do to assist them, including some of the lobbying efforts that they are undertaking at this point.
Thank you.
Thank you.
I'm showing no further questions I would now like to turn the call over to Doug Dirks for closing remarks.
Thank you operator, thank you everyone for your participation today we.
Our endeavoring to be as transparent as we can be I caution that a lot of the comments. We made today are things were observing in real time, and we simply can't forecast what's coming next.
Most ins instances, but thank you very much we appreciate your support and and your time today.
Please all be well unsafe and we'll talk to you again next quarter.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.
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