Q2 2020 ProAssurance Corp Earnings Call
Good morning, everyone welcome to Proassurances coking coal to discuss the company's second quarter 2021.
These results were reported in the news for weeks issued on August 2021 of the company's quarterly report on form 10-Q.
Also filed on August 20 Twond.
And those documents what cautionary statements about the scene.
Uncertainties and other factors.
The company's control.
Proassurances business and alter expected, it's all <unk>.
Ladies where do those things.
That's been expects to make statements on this call projections estimates.
Patients.
What we identified these forward looking statements.
I mean, the U.S. federal securities laws, and subject to applicable safe Harbor projections protection excuse me.
The content on this call is accurate only on August 11, 2020, except as required by law or regulation proassurance well not undertake expressly disclaims any obligation to update or alter information disclosed as part of these forward looking statements.
Management team Proassurance also expects to <unk> to reference non-GAAP items during today's call.
The company's recent news release provides a reconciliation of these non-GAAP numbers through their cap.
Sure.
No I turn the call over to Mr., Ken mature I would like to remind you that the calls being recorded and there'll be a time for questions. After the conclusion of prepared remarks Mr. MCU. Please go ahead.
Thank you Greg.
That's precautionary measure and as part of our ongoing pandemic plant the participants in our call today are joining us remotely from their respective offices, we have Ned Rand President and CEO, Dan Hendrix, Chief Financial Officer, Mike Boguski, President or specialty property and casualty lines and Kevin Chuck President of our workers compensation insurance operations that we laid.
It's off.
Thanks, Ken.
It's hard to believe it's been a full quarter. Since we started meeting this way we did you miss on our own offices.
And harder stone and believe it might not be the last time, we do so.
Well the curve at 19 pandemic continues to shape everything from how we interact with each other on a daily basis to the global economy.
It absolutely does not impair our mission to protect others.
If anything a pandemic reinforces our resolve to protect our customers.
It's truly brave individuals who worked tirelessly to protect us.
All in turn.
I continue to be impressed by and grateful for the response, our health care professionals in first responders or brought to the front lines.
And every one of proassurance, thanks to them for their selfless courage.
I want to thank our employees as well for their continued flexibility and perseverance in the face of what has been a tremendously disruptive period and both our professional and personal lives.
The results of the second quarter were affected by a few significant items that we will discuss shortly.
However, as this conference call marks the first anniversary of my tenure as CEO.
And installation of the executive leadership team.
We formed.
I want to recognize the accomplishments the team has spearheaded in the past year.
When Mike Boguski moved over from eastern to lead the specialty property casualty unit.
I asked them to employees exceptional operational skills to fostering results oriented culture of accountability.
He used to Levered as expected.
For treating a comprehensive review at the specialty property casualty segment.
An undertaking a full re underwriting of our specialty healthcare bucket business.
Thanks to his work and that of his team we implemented a streamline specialty property casualty organizational structure.
Secured rate above loss trends.
Gained operational efficiencies.
And proactively reduced expenses.
And are well positioned to succeed as the market continues to harden.
And eastern Kevin shock and his team have led the company confidently and profitably through one of the most challenging periods and workers compensation insurance history facing intense competition and with the onset it's covered 19 and because of it 19 virus in subsequent shuttering of the national workforce unprecedented uncertainty.
Our rural underwriting strategy and efficient claims handling have brought success in a market that constantly test its participating writers.
Dan Hendrix like the Treasury accounting and I teach games through the implementation of new General Ledger and accounts payable solution.
Which reduced reliance on manual processes implemented a common chart of accounts across the company store accounting locations and improved overall system performance.
This was an important step in furthering our goal is becoming a more efficient and effective organization further unifying the proassurance family of companies.
Our human resource team led by North and dish art.
Worked tirelessly to shape and execute the remote work plan that allowed 95% of our employees to work from home.
Almost immediately she then turned around and began putting together the returned to office plan.
The key considerations are both plans, we're ensuring we are we're flexible to accommodate the varying work working needs for our employees.
While remaining cohesive to serve our customers.
All the while making sure Proassurance continues to be a great place to work.
And then all these efforts the nor Cal transaction was being finalized in the last half of 29 and announced in Q1 of 2020.
And today continues to proceed through the required state and federal regulatory approvals.
Perhaps more than any other initiatives. This acquisition represents the combined efforts of the executive leadership team and those are the whole company.
Even though segments are departments without a direct hand in the transaction assisting the effort through their contributions to the capital position of the company or their support a critical functions without which there could be no deal at all.
In particular I want to thank Jeff mentioned, B and the legal and compliance teams for their exceptional guidance through the regulatory channels required to advance this transaction.
And for their continued efforts as we work towards closing the deal.
We look forward to working with the exceptional people like nor Cal, adding profitable business an attractive territories.
And achieving strategic gains in scope and scale.
That are ever more important as the healthcare professional liability market continues to evolve.
Oh that to say it has been a very busy year in much the executive team in each member of the company as much to be proud of.
I'm tremendously tremendously grateful for the opportunity and experience of serving though and I look forward with excitement and enthusiasm the next year and knows that follow.
Now I'll turn the call over to Dana for her remarks on the results for the quarter Dana.
Thanks, NAD sort of second quarter, we reported a net loss of $18.1 million or a loss of 34 cents per share and an operating loss of $32.4 million or 60 cents per share.
As Ned mentioned and as we described in Yesterdays release, there are two items of particular note that affected our second quarter results.
Those will be discussed in the segments discussions momentarily.
Naturally these items over shadow certain improved metrics, which we will get to throughout our prepared remarks.
Similar to last quarter, the Cabot 19 pandemic and its influence on our investments featured prominently in the quarters result.
So I'd like to provides an expanded details for each component.
The biggest impact came from higher losses from our unconsolidated subsidiaries.
We invest in various Lps and LLC phase and the result of those investments are typically reported on a one quarter lag.
Accordingly, the 18.6 million dollar loss in the current quarter from our Lps and LLC is a result of the impact of the disruption in global financial markets. During the first quarter due to Cabot 19.
We expect a recovery in value of those investments in the third quarter comparable to the recovery in the broader market this past quarter.
Which leads us to a bride or not we recorded consolidated net realized investment gains of $20 million in the second quarter.
This was driven by increases in the fair value of our equity portfolio and convertible securities as financial markets began to stabilize following the initial shock of the pandemic, representing a recovery and fair value of approximately 40% since the first quarter.
Lastly, consolidated net investment income decreased quarter over quarter, primarily attributable to a lower allocation to equity securities impartial reinvestment in fixed maturity, coupled with lower yields on our short term investments due to the recent aggressive action taken by the federal reserve to reduce intra.
Right.
Given the uncertainty presented by the pandemic, we allowed cashed to build to ensure support business operations and our customers Accordingly, we're being patient and evaluating investment opportunities and the economy in general to determine how best to allocate capital.
For the second quarter, our consolidated current accident year net loss ratio was 110% up 21.8 percentage points quarter over quarter.
And entirely due to the unusual items discussed in yesterday's press release.
Excluding the impacts of these items the consolidated current accident year net loss ratio decreased 1.5 percentage points, driven by our specialty property and casualty and Lloyd Syndicate segment.
Partially offset by higher current accident year net loss ratio in our workers compensation insurance segment.
We recognized $17.1 million net favorable prior accident year development stemming from all of our segments other than the Lloyd segment.
I can Kevin will address this more specifically in their remarks later as a part of the segment discussion.
Our consolidated underwriting expense ratio was 28.3% in the second quarter.
Decrease of 1.7 percentage points from a year ago period, driven by the effect of the tail premium earned associated with the large national health care account.
Excluding that earn detailed premium our expense ratio was relatively flat quarter over quarter.
As the incremental improvements we have made it becoming a more efficient and effective organization over the past year, along with the expense savings related to Cabot 19 have mitigated the upward pressure on our expense ratio due to the lower aren't premium as we continue to re underwrite our specialty book.
This leads us to a combined ratio of 130.1% for the second quarter.
In all the financial market fluctuations associated with the pandemic and the effects of the large national health care account make it difficult to see the incremental improvements were achieving in our underlying businesses.
But rest assured we are making progress.
Turning over to Mike for more details about these improvements and the results of the specialty property and casualty segment.
Okay.
Thank you Dana, especially property and casualty segment recorded a second quarter loss.
$56.6 million, primarily due to a tail policy issue to a large national health care account.
We recognize well we assume will be a full limits lost for this tail policy.
Which resulted in a $45.7 million net underwriting loss in the quarter.
The establishment of a $10 million reserve related to covert 19 also contributed to the operating loss, which I will expand upon shortly.
Gross premiums written we're one of those $7.1 million, a decrease of 16.3% quarter over quarter.
The lower topline revenue reflects our strategy to strengthen rate levels in our standard physician business.
Execution on state strategy initiatives.
Recognition of pandemic related premiums credits.
We continued re underwriting efforts in our specialty business, which includes national accounts excess and surplus lines hospitals and health care facilities.
The specialty re underwriting efforts began in the third quarter of 2019.
Followed by the new executive hires and our healthcare professional liability underwriting operation during the previous caller.
We're pleased with our progress to date.
First year re underwriting and our specialty business will be completed by the end of the third quarter of 2020.
We expect to see the benefits of this effort continue in future quarters.
We continue to focus on underwriting discipline and achievement of our long term profit objectives shrinking our topline if necessary to to improve our bottom line.
In relation to these strategic underwriting efforts premium retention in the segment was 71% for the quarter.
Primarily driven by a 29% retention in our specialty lines.
The lower specialty retention was driven by the loss of two large accounts representing premium writings of $11.8 million, which includes the aforementioned large national account.
In addition, the nonrenewal of certain risk profiles within the senior care business had a significant impact on special specialty premium retention in the quarter.
Notably the premium level for this book of business has been reduced by 75% in the past year.
Well this reduction lower premium retention in the segment. It also reduced our exposure to the claim activity associated with the pandemic in the senior care space.
In our standard physicians line retention was 82%.
Primarily impacted by our state strategy pricing adjustments in challenging venues and competitive market conditions.
The lower premium retention was offset by renewal premium increases of 20% in specialty and 12% in physicians.
In addition to the rate increases in specialty also significant significantly strengthened rate at USC adequacy through improvement a product structure terms and conditions.
We're pleased to report strong premium retention results.
And our medical technology liability business, and small business unit, which were 88%.
And 91% respectively.
New business writings in the specialty property casualty segment were $4.6 million in the quarter compared to 8.1 million in the second quarter 2019.
This result reflects careful risk selection disciplined underwriting evaluation competitive market conditions and the impact of slower submission activity due to market disruptions from cobot 19.
New business running <unk> medical technology business increased to $2 million compared to 1.3 million in the second quarter of 2019.
This was driven by increased demand for pandemic related products in the medical technology space.
We are proud to support our long term and new medical technology clients that are working to turn the tide against this pandemic.
[noise] the current accident year net loss ratio was 137.7% in the second quarter.
A 43.7 percentage point increase from the year go period.
Primarily attributable tribute to both to the large national account tails tail policy written in the quarter.
To a lesser extent the increase also reflects the $10 million reserve related to covert 19.
Overall, the accident year net loss ratio reflects recognition of higher claim severity trends.
And last volatility in certain states.
And a higher loss pick within our specialty business.
Excluding.
The Kobin reserve and the impact of the National Health.
Help account the current accident year net loss ratio was 93%.
In the second quarter.
We observed significant reductions in our claim frequency as compared to the same quarter in 2019.
This reduction is likely associated with cobot 19, However, we have remained cautious.
Recognizing these favorable frequency trends in our current accident year reserves due to the possibility of delays are reporting and uncertainty surrounding the land length and severity of the pandemic.
We recognized net favorable prior year development or $15.4 million compared to 12.4 million in the prior year quarter.
The net favorable development was equally equally distributed across our healthcare professional.
Oh, Yeah, Patrick and medical technology liability businesses.
The specialty property and casualty segment reported an expense ratio of 19.9% in the second quarter.
3.8 percentage point decrease from the same quarter in 2019.
The decrease was primarily related to the onetime impact of the full we earned large national account tail premium and to a lesser extent.
Decrease in travel expenses in cost savings associated with remote work related to go the 19.
We anticipate these pandemic related expense reductions will continue for the remainder of the year.
The reduction in the expense ratio also reflects the incremental improvements during the past year due to organizational structure enhancements improved operating efficiency.
And expense reductions.
Offset by 0.4 percentage points of onetime charges related to restructuring costs.
We continued to build an operating models that will position us well to be successful throughout the various insurance and economic cycles.
Just a quick update on the nor Cal transaction.
We continue to proceed through the regulatory and integration planning process.
We remain excited about the combination of the companies and continue to work together with the nor Cal team to complete this transaction.
We still aim to close the deal by year end 2020.
Thanks, Mike So what details can you give us about the viruses effects to our premiums or claims.
The pandemic continues to impact our business, including premium to premium and exposure reductions.
New business disruption.
Jerry trial delays and cash flow implications from deferred premiums.
To be more specific.
Processed approximately $3.7 million, a premium reductions and $5.3 million a premium deferrals during the quarter.
We have collected the vast majority of the outstanding deferrals early in the third quarter.
The revenue reduction related to premium credits was partially offset by the aforementioned increase and Newbridge business writings in our mix medical technology business.
There are only three reported Cove and 19 claims with limited exposure during the quarter and our health care professional liability business.
As previously mentioned, we established a $10 million Cobiz loss reserve.
This was related to reported incidents and our senior care business, primarily from non renewed accounts.
This reserve represents our best estimate on ultimate claims related expenses based on current information reported incidents.
The vast majority of the states in which we write senior care business.
If enacted immunity legislation.
We continue to monitor such lizard legislation on the state by state basis, and other regulatory trends.
I'd like to conclude by thanking our valued employees distribution partners.
Customers and strategic business partners for their tremendous support.
As we navigated these unchartered waters together.
During this past quarter.
Then.
Thanks, Mike.
Turning to Kevin shook her comments about the results of the workers compensation insurance and segregated portfolio cell reinsurance segments Kevin.
Thank you Ken the workers compensation insurance certain segment produced operating income of $1 million and a combined ratio of 98.7% for the second quarter of 2020.
During the quarter the segment booked $57.2 million of gross premiums written a decrease of 10.9% quarter over quarter.
No price decreases were 4% for the quarter and are representative of the continued competitive pressures in our underwriting territories. Despite covert 19 and the associated economic conditions.
Premium renewal retention was 87% for the for the 2020 quarter compared to 81% in 2019, as we continue to see stronger premium retention each month during the pandemic.
New business writings were relatively flat quarter over quarter at $6.5 million in 2020 compared to $6.6 million in 2019 audit premium for the second quarter of 2020 was approximately $200000 compared to $1.2 million for 2009.
Team.
Calendar year loss ratio was consistent quarter over quarter, reflecting an increase in the current accident year loss ratio from 68.2% in 2019% to 70.6% in 2020.
Offset by higher prior year net favorable development of $1.5 million in 2020 compared to $1.1 million in 2019.
The increase in the current accident year loss ratio, primarily reflects the impact of renewal rate decreases.
Despite a 39% decrease in reported claim frequency during the pandemic. We concluded that it was prudent to continue recording a higher accident year loss ratio given the many uncertainties surrounding covert 19.
As part of our normal actuarial process, we will reevaluate the current accident year loss ratio and the third and fourth quarters of 2020 as more information becomes available regarding the pandemic and its potential impacts on our claim results.
Our claims operation closed almost 35% of 2019 and prior claims during 2020, which is consistent with historical claim closing rates. Our claims professionals remain highly effective while working remotely during the pandemic.
Our short tailed claim closing business model results in fewer open claims, which will assist us through the pandemic with a manageable in prior years open claims inventory.
The underwriting expense ratio in the quarter was 31.7% an increase of slightly less than one percentage point from the same quarter in 2019, primarily due to the decrease in net premiums earned partially offset by a decrease in general expenses, we continue to carefully monitor all Jay.
Census, and anticipation of a decline in premium from reduced payroll associated with a pandemic.
Moving to the segregated portfolio cell reinsurance segment operating income was approximately $1.6 million for the quarter, which represents our share of the net underwriting profit and investment results of the segregated portfolio cell captive programs, and which we participate to varying degrees.
Gross written premium and the SPC reinsurance segment decreased to $15 million for 2020 from $17 million. In 2019. This reflects premium renewal retention in 2020 of 87% new business writings of $741000.
And renewal rate decreases a 5%.
Excluding the effect of the 2019, you know policy discussed on previous calls the SPC reinsurance 2020 calendar year loss ratio decreased from 52% in 2019% to 45.9% in 2020, the result of a deal.
Greece, and the current accident year loss ratio offset by slightly lower net favorable reserve development of $1.9 million in the quarter. The decrease in the current accident year loss ratio in 2020 is primarily due to a decrease in large claim activity.
Now I want to provide you with some additional color on the covert 19 pandemic and its current impact on our workers compensation business.
With respect to premiums despite proactive communications to do so we continue to observe minimal activity on the part of policyholders to submit updated payroll information and endorsed their premium mid term.
From mid March to the end of July we have endorsed 992 policies mid term for a total premium reduction of $2.6 million.
We have processed 224 policy cancellations, resulting from business closures, which reduced our premiums by less than $1 million through the under July.
We continue to offer policy cancellation suspensions and deferred premium payments for customers on a case by case basis I substantially all policyholders use installment plans to date, we have received less than 250 request to deferred premium installment payments on a policy holder base of more.
Than 13700, we believe our rural underwriting strategy and diverse book of business has assisted us and managing the pandemic to date.
We continue to monitor closely Copa demographics, and our 19 core states that represent 99% of our enforced book of business.
According to data from the center for disease control as of the end of July the combined number of cases reported from the largest county and each of our 19 corestates represents approximately 17% of total Kobe cases reported while the number of.
Cases reported from our largest county and the same 19 states is less than 8% of the total we believe this is attributable to our rural underwriting focus whereby the counties in which we primarily operate currently report on average fewer cases spend larger metro areas. This.
Our higher premium allocation to the healthcare sector.
The current lengthened severity of the pandemic and its ultimate impact on premium is difficult to predict.
We continue to expect downward pressure in future quarters on direct and net written premium resulting from changes in payroll estimates.
Regarding claims since around mid March through the end of July we continue to observe a decline in reported claim activity as I previously mentioned.
As businesses reopened and employees returned to work, we expect reported claim activity to increase.
Our workers compensation insurance segment, we have 271 Koby cases reported as of July 31st within undeveloped gross incurred value of approximately $1.3 million. Sadly, we had a claim reported to us where the injured worker passed away from coded but.
Total incurred on this claim represents approximately $550000 of the $1.3 million.
And our segregated portfolio cell reinsurance segment, which contains more than half of our long term care exposure. There are 236 Cove in cases, where reported through July within undeveloped gross incurred a $400000.
Of the four senior care programs in this segment, we have an ownership interest in just one and not ownership is 25%.
Similar to the premium side, there was much uncertainty with respect to covert claims and the ultimate outcome will depend on the length and severity of the pandemic and the result of legislative attempts to broaden coverage for workers compensation claims.
While legislative attempts to expand compensable already and reduce burden of proof related to acquiring the virus at work seem to have lost traction in certain states as they attempt to reopen we can only conjecture better second wave or the continuation of increase reported cases may revive efforts and.
With regard Ken.
Thanks, Kevin Great detail, so net how are things developing at Lloyds with the virus.
Ken there developing about how we would expect because we typically report our Lloyd's results on a one quarter lag.
We're seeing most of the initial response to the pandemic showing up in our Lloyd's syndicates results this quarter.
The projections, we disclosed in our Q1 release of held.
And we booked approximately $1.5 million related to the virus in the second quarter net of reinsurance.
We estimate we will recognize an additional $1.4 million net of reinsurance in the third quarter of this year.
We continue to work closely with their underwriting partners to monitor our the global legislative situation.
And thankfully contractual policy language has largely how it against attempts to expand coverage or no coverage was intended.
We will continue to be is forthcoming and transparent as we can given the multitude of evolving variables.
A few remarks on Lloyds outside of the pandemic.
This was the first quarter in which our reduce participation and syndicate 17 29 came through our results.
Change that brought down gross premiums written in the segment, but also one we expect will bring down volatility going forward.
Because of this reduced participation we expect to receive a return of approximately $33 million of our funds at Lloyds during the third quarter of 2020.
Meanwhile, we are seeing encouraging signs of hardening in every line of business in which we participate.
Particularly in the reinsurance segments, where rate increases and withdrawing capacity of traded opportunity for those that continue to right in the space Ken.
Thanks, Matt any final comments for us.
Just to reiterate what I said in the beginning.
The previous four quarters have been unquestionably challenging.
What I'm proud of the work we've accomplished in that time.
Our goal is becoming a more efficient and effective organization is one of continuous improvement.
One that will never call finished at one towards which I think great progress has been made.
As the benefits of these efforts began to show themselves in our underlying results I want to thank our employees for their incredible work.
They've done and the work they will continue to do.
Great. Thank you.
Grant that concludes our prepared remarks, we are ready for questions.
We will now begin the question answer session asked the question that press Star then one of their Touchtone phone. If you are using speakerphone. Please pick up your handset before passing the keys.
Withdraw your question. Please press Star then too.
At this time, we'll pause momentarily to assemble a roster.
Our first question will come from Mark Hughes Trust. Please go ahead.
Yes. Thank you very much good morning.
I want to Mark.
The favorable development in the quarter, especially in.
Especially in specialty tea in the could you talk about that was that.
Actual.
Development on specifically in the or.
Did you take a perhaps the different philosophy around the reserving given given what you're seeing in the broader environment.
Mike do you want to take that I can maybe made off and just say we didn't we haven't changed anything in there and the reserving process on its the emergence of.
Kind of trends better than estimates and older years I'm looking back two three years and beyond.
Mike probably have some more specifics on that.
Sure Thanks, Ned and good morning, Mark.
The prior year development was equally distributed across to our or our life sciences or medical technology business, our pediatric liability in our healthcare professional liability. So as you look that $15 million it was roughly $5 million in each of those areas.
What weve, what we've seen is that the medical technology business continues to four performed very well.
Claim performance has been strong and we're seeing some of the same trends in our small business.
Pediatric liability business. So they were recognized in the quarter.
Well, certainly being a little bit more conservative in the healthcare professional liability world. When you look we'll look at the claim severity trends some of the volatility in some some of our stage and the.
Higher.
Specialty loss pick, but we did take 5 million in the quarter based on.
<unk> favorite trends in prior years that made sense.
And then the.
You talked about your exposure in the senior care business.
Could you talk about.
What the magnitude of that might be you've mentioned the incident that were reported are those actually claims or just the incident and then you mentioned, maybe some legislative efforts around immunity.
Curious the few more thoughts on what your exposure might be there.
That's it's a really good question.
Yeah.
Persistent to take a bigger picture view of it we.
We've been Ria re underwriting the senior care book for about a year now and Oh.
With a different evaluation of kind of the risk profile netbook and we've reduced our premium.
Level by about 75% our books under $10 million now.
Compared to where it was.
We also reduced our exposure about 80, 80% in that segment of the business.
The.
From an incident perspective, there were roughly as of June 30, roughly 300 incidence. These were not claims we only had three.
Claims reported in the in the quarter. These these were just.
Incidents related to the Pandemics. So I think the best way to look at that Mark is that it's an IP in our reserve at this point until you have more information.
So where we think we positioned ourselves very well going forward with the exposure reduction.
In the senior senior care business and the other thing I'd say about our senior care business, which is Kevin mentioned this earlier.
Is we have a significant exposure in our captive business, where one of the customers is is an owner of that exposure and we only have a 25%.
Interest and the other customer and also some of the other customers that we write a have ESI ours.
And Retentions and deductibles in that space on the immunity for.
Nine of the 12.
States that we write the senior care business had a have immunity legislation.
And again that will be helpful. As we look at our exposure there so.
We think we you know this is obviously early in the game because these are just incidents but.
We've made our best estimate based on all that information in the overlay of legislation and the <unk> product structures of that business as well as the exposure reduction.
And Mark just so just to clarify for everybody kind of the difference between an incident unemployment incidents are definitely just self reporting on the part of uninsured.
So if they know they have a covered positive resident as an example.
They may report that claim is where a third party has typically brought suit against that insured and we've been notified of that suit.
So that so the answer to answer just kind of self reporting given the fact that the vast majority of the business. We write as on a claims made basis, there's always a.
On an effort on the part of insurance or to report incidents to kind of get things in the proper policy periods.
Understood then the final question, Mike on the physician.
Liability business health care liability business.
Can you talk about the state of competition.
How are your.
Mutual competitors acting the way they.
Yes, yes first of all there's still a lot of capital in that space. So it is highly competitive.
And in its state by state, we see some some states, where we have what I'd call. It may be more challenging venues where.
Were securing more.
More rate for the renewal book there are other states that are just highly highly competitive have a lot of aggressive cmet competitors in the mutual space. So.
It's region by region state by state.
There's no question Mark that the specialty area of our business is firming.
I had a greater degree than what we see a in the in the core physician business, but that said.
Really delighted with the the the 12 points of rate that we secured in the quarter.
As I think thatll be helpful. As we go into the future on on the profit side.
Thank you.
You're welcome.
I've done in a star then one star then one to ask the question.
Our next question will come from Paul Newsome with Piper Sandler. Please go ahead.
Good morning, Thank you very much for the call.
I wanted to sort of expand upon marks first question about reserving process.
Because obviously, new wise took a look at the.
Book.
Our year ago that has had a material effect on.
The.
Your arms.
And as well as the accident year ex.
But as we think out.
Wondering if there is and.
You that.
The same philosophy on accident year picks worsens.
They were passed or if you're going to try to shoot the accident you picked it was.
Closer to what you actually.
Best guesses.
Ultimately result, so I think historically.
Before Mr. noted they wanted to shoot borough.
Well.
Generally so substantial level of ongoing favorable reserve development.
Soon.
View that there is volatility the business.
So you kind of give us instead, well I'm not really talking about next school really thinking about sort of 2021 beyond.
How that.
Look at tool.
We should be expecting.
Similar levels to favorable reviews.
So on past.
Last season change.
[noise], maybe maybe I'll start piling and Mike and.
China.
The line of business continues to be one that that has a tremendous amount of uncertainty.
And how claims I want to follow up and certainly coated.
Only adds to that uncertainty and and as we've talked in the past kind of that existence of that uncertainty.
Has caused us to be very cautious and how we've reserved.
That book of business and we still remain.
Very focused on that uncertainty.
That exists in the line I don't think that really that has changed.
Much at all.
You know as to kind of a you know what we've said historically is that we were looking to the price 10 points or reserve 10 points above our pricing.
I think given kind of the tremendous amount of uncertainty we wouldn't make that specific statement. Today. We would just say that were where reserving very very cautiously, but Mike you want to fill in some details on that.
Yeah, I would just say that when when you look at a just just how are you know first of all we haven't changed our reserve philosophy or how we set reserves any of that which is net Ned mentioned earlier, but no. We're just evaluating when we when we set the net accident years.
Loss ratio were really kind of evaluating the frequency trends.
And you know interestingly there was significant.
Frequency reductions this quarter that we did not recognize because we weren't sure as Ned said, there's some uncertainty and pandemic or whether that's real or not or just a court delays and later reporting.
We've kept the very close eye on severity trend in pricing to that to that severity trend.
And that's state by state. We you know we see some states in our in our core physician book that up to the.
It's relatively slot flat severity trend, we see others with.
67 points so.
Average it tends to be in that kind of three to 433 to half percent range on the severity side. So you know we're pricing for for that we're certainly not.
Not recognizing all that immediately we're looking at we're watching this earn out over the next.
Quarters, but you know we continue to just evaluate all those pieces as we set our net accident year loss ratio reserve and I and I think net hit it on the head with respect to just the uncertainty of covered the uncertainty Oh severity. So we're we're working.
In that mines as well.
You sort of well begin what was going to me My second question and answer you My second question, which is.
No you outside workers comp and Moise senior medical malpractice professionalism.
Are you getting enough rate at this point, the new think you're going to get substantial.
Underlying margin expansion or is it still just very uncertain that.
Given the numbers I think if I.
Multiply the low end of your range it looks pretty good if I multiply the high end, what you talked about severity in.
Can you can see not so much where do you think we shake out.
Yeah, I think first of all I'm really pleased I mean, we.
We started as the new team came together the second half of.
2019, we had.
High single digit rate increases ER and that continued and ended the first two quarters of 2020, where it became double digits. So.
And as you know this poor about 12 points and in our physician and 20%.
And our specialty side of that and I as Ned stated in his is is a opening these are given the frequency being flat and some of the trends, we're seeing that have gone down in the second quarter.
That.
We are pricing above this the frequency and frequency in severity trend, which should bring more margin in the business and.
The which state that is if you look at year end 2019.
Compared to to this quarter, we actually had about a 5.2 point improvement.
And our accident year loss ratio compared to year end as a result of the re underwriting efforts and and the rate trends. So.
Yeah, we're really really pleased with that and I think the other thing that that is really important.
The point out is.
The specialty team is doing what they're doing a tremendous job beyond rate.
As we look at the hospital facilities directional care book large accounts.
Were securing terms condition and product structure.
That add additional rate adequacy to the book of business. So we're also looking at it outside outside of just pure rate to.
As compared to frequency and severity because we're seeing some significant improvements there as well.
So yeah, we're really encouraged as we go out into future quarters.
Just to reiterate that five and I think it's important as anybody tries to model.
Our business is there they're really three things that that you need to you need to think about.
I'm in the change in the book and it's not just about that rate that rates tremendously important as Mike said.
And we feel we're getting ready on trend.
But equally or perhaps even more important is the re underwriting of the book and the business that we've we've walked away from because as you know we priced ourselves out of better we've chosen.
Not to renew it and then the restructuring and it's just an easy way to think about the restructuring as the addition of a deductible.
So if you add a 200000 dollar deductible or increase it deductible by $200000, but the rate stays the same.
And that ran analysis, you've seen our change but their underlying profitability in the business are definitely goes up and so all three of those factors have to have to be considered.
The one that's the hardest to give insight into is the restructuring, obviously, but it's where a lot of the efforts, especially on a specialty book our AMD.
Great. Thank you very much.
Our next question will come from Bob Farnam, with Boenning and Scattergood. Please go ahead.
Yes, just to complete that last thought so when you're saying the change in the terms and conditions. That's largely means you applied to different types of deductibles to these policies is that is that the majority of what you mean by changes in terms and conditions.
Yes.
Deductibles sonesta hours are probably to the most prominent change where there are there other structural changes, but can be as well co participation.
Thanks for that nature, Mike what would you add to that list.
Hi, just the other thing I'd add is just Bob as as we use our and know the.
Captive structures those the ownership piece of that so if you have customers that are owning that underwriting result were where more of a fee based.
Player on that.
Actually that obviously that takes some volatility out of your results as well, but no. That's primarily retentions aggregates say ours at all and all those terms that that are prevalent in the specialty sector.
Okay Yeah.
Obviously that that's hard for us the bottle, but up that's obviously that seems like there's a lot of things going on there. So it's it's probably important to know.
And one quick question on that large national health care account I mean, it sounds like you booked kind of a limit losses there.
Art is that the last we're going to see if any negative financial results and there are there any scenarios, where you might see additional losses there.
Now I'll take it okay.
Sure sure where are we strengthen the reserves at year end and and we booked it at a high confidence level.
For this exposure and you're spot on the tail exposure was booked assuming a full limits maximum exposure. So theres no additional exposure the tail. So based on these facts. There's you know there's just a high confidence level that this exposure is behind us and obviously, we're very pleased with that.
Right. Okay. That's it for me thanks.
Yeah. Thank you Bob.
I'm showing no more questions. Currently so this will conclude our question and answer session I.
I would like to turn the conference back over to tenant here in for any closing.
Thank you grant <unk>. Thank you to everyone that joined US today, please stay safe and healthy and we look forward speaking with you again in November.
No I thought it.
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