Q2 2020 State Auto Financial Corp Earnings Call
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Welcome and thank you for standing by at this time, all parties are really listen only mode.
After the speaker's remarks, there will be a question and answer session.
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Thank you face them. Good morning, everyone. Welcome to our second quarter 2020 earnings Conference call today, I'm joined by our Chairman President and CEO, Mike Suralco.
Senior Vice President and CFO, Steve English senior Vice President of personal and commercial line and managing director of State Auto Lab, Kim Garland Senior Vice President of data and analytics states in Turkey.
Actuarial officer amount Rentech and Chief investment Officer, Scott them after our prepared remarks, well open the lines for questions.
Our comments today may include forward looking statement, which by their nature involved a number of risk factors and uncertainties, which may affect future financial performance.
That's risk factors may cause actual results could differ materially and those contained in our projections or forward looking statement.
These types of factors are discussed at the end of our press release as well as in our annual and quarterly filings with the Securities and Exchange Commission.
Financial schedules containing reconciliations of certain non-GAAP measures along with our other supplemental financial information are included as part of our press release and available on our website <unk> Dot com under the Investor section now I'll turn the call over the Fccs, Chairman, President and CEO, Mike Rocco.
Thanks, Matt and good morning.
You all are safe and healthy.
Well.
Oh, that's pretty much sums up close or second quarter ended the first half the year.
As we shared in our pre release, we had an unusually large amount of weather related activities in the core.
Based on our mix of business, we expect them to plan for higher amounts of cat activity in the second quarter.
But this year the amount we see was far in excess of our historical averages.
Of course that is the nature of our business as usual our team met our customers' needs. During these challenging events with fast and fair service as I've said, many times before I could not be more proud of our associates.
Of course, the excessive cat activity overshadowed what otherwise was a good quarter 111.5 statutory personal <unk> commercial combined ratio given the 26.5 points of cat losses.
Demonstrates our non cat loss performance was excellent.
In addition, we continued to see strong double digit growth of note was our 24% growth in homeowners in nearly 15% growth and commercial excluding workers compensation.
It's clear that our digital platform and rebuilt products are delivering and meeting our expectations.
Well co. Good has clearly created challenges our agent partners continue to meet the needs of customers, who even in the face of a pandemic need to predict their personal and commercial assets.
I'm going to partner like state auto with the digital platform and a team that has continued to work remotely at full capacity makes delivering for those customers seamless.
Today, the overall tactic cope it has been more limited than we originally expected.
Now there were impacts that a clearer impact was in March and April as we saw sharp reduction in miles driven.
Much more cross personal lines and commercial.
Since April there has been a continuous increase in miles driven.
And while not at pretty cold levels things are clearly heading in that direction.
Also with less economic activity in general there was a drop in claims across our commercial line.
We did receive a reasonable amount of workers compensation claims due to the virus even in the face of those claims I'm pleased with our workers compensation results more importantly, as with the Cat claims our team handled the workers comp claims with empathy speed and fairness.
The biggest doesn't know regard to cope with this business interruption clay.
That said our policies have either physical damage requirement or a physical damage requirement combined with the virus exclusion. So we're very confident in our position regarding these claims.
We're seeing some early litigation decision in matters that were not party too that we believe were positive for the industry and the seems to be able to physical damage required with precedent.
First our optimism is always tempered with caution.
As we continue to monitor the landscape for changes in precedent or public policy argument that shift our tire industry and in on desire for unintended direction.
From my Vantage point insurance carriers simply do not older claims for business interruption. When there is no physical damage.
But even so the industry is working together to try and create both funds to help small businesses and a go for government backstop should this or occur again.
Even Kim will provide more details on code within the dollar impact this quarter.
Our overall combined ratio was 11.5, just for and we own that however, it was driven by an unusually large part of CAD claims and we are proud of how this business is performing.
Finally, before I turn it to see I'd like to comment on the events for the first half of a year and how our industry has performed to date and I, what I believe we must do going forward.
I've been in this industry for almost 42 years and I can say I've never seen anything like these last six months I.
An unprecedented pandemic.
The resulting economic downturn and ongoing level of khatab catastrophic weather and social unrest following the merger of George Floyd.
In the middle of all this is our industry and while we can do better.
I'm proud of what Weve accomplishing protecting the financial security of policyholders.
Creating an environment that permit work at home flexibility so that those in the industry can stay safe, while 16 policy holders as well as tend to the needs of their families.
During cold that we've worked with our customers. During this economic hardship delaying payments writing off charges, such as in sufficient funds and providing premium credits.
We paid the claims we go based on the coverage, we provided including honoring our obligations on workers comp claims that are often paid to the brave men and women on the front line in the fight against this insidious virus.
In the face of tragic cat activity, some tornadoes hail to Hurricanes again and again the industry quickly shows up to help customers is near time of need we deliver on our promise when he needed most.
In the face of the social unrest, we handled the claims from the damage to properties.
But in this space, we could do much more.
As individual companies then as an industry, we must recognize the reality of racism in this country.
We cannot turned away from this moment.
It is critical that we have open candid and transparent dialogue about the reality of racism, which we have already done it stayed on.
These conversations with them lead to real and sustained action and all of US must have the strength to say no.
If you see or hear something say something beyond saying something we have to do more as an industry to ensure that the burst perspective lead us into the future and that we reflected diversity of our country and our customers.
This extends not only to race, but bias against and lack of inclusion related to gender sexual orientation and religious beliefs. It has no place into our country our industry or companies.
Eight auto believes that this fight is critical to our excess success as an industry and our ability to track the talent, we need to succeed more importantly, simply the right thing to do.
As an industry, we can be an easy mark it's not difficult to target insurance companies and many do.
It's time, we stand up and speak up about the good we do how we help when things are most difficult and how we can be better.
We can do more in state auto is committed to doing our part.
With that I'll turn the call over to Steve.
Thanks, Mike and good morning, everyone.
Earlier today, we reported 34.3 million up net income for the second quarter 2020.
Driven by net investment gains 59.9 million net of tax as the equity markets rebounded from the lows in March.
On an operating basis, the second quarter 2020 produced a loss per fully diluted share of 59 cents.
This compares to second quarter 2019 operating loss per share at 33 cents.
Already results as can pay compared to the same quarter a year ago.
Were impacted by significantly higher catastrophe losses, adding 26, and a half points to the GAAP combined ratio as compared to 15.4 points for the second quarter 2019.
Second quarter is typically when we experienced the greatest impact from catastrophe losses.
Caused by weather.
Our non cat loss and LAE ratio improved to 7.8 points one of the expense ratio was flat.
On a year to date basis, the 2020 fully diluted operating loss per share is 76 cents.
Compared to a one cents loss for the same period in 2019.
Atrophy losses drove the increase losses are non cat loss ratio.
And expense ratio improved year over year.
Some additional detail on a quarterly results include the following.
First the to the second quarter 2020 Cat results include six and a half million dollars estimated losses from riots during several civil unrest.
Remaining catastrophe losses were the result of wind and hail storms in the mid west and South.
Second our operations like many others have been impacted by the effect Cobot 19 has had on the country.
Fewer miles driven along with reduced exposure from reduced economic activity resulted in lower claim frequency and our other lines is small and middle market commercial and workers compensation lines respectively.
Having said that there were offsetting negative impacts as well.
Reserves of approximately $2.9 million were established for estimated defense costs associated with business interruption claim litigation.
As of yesterday, we have 15 law suits sport.
For Winter class actions, we review claims on a case by case spaces, and we have closed approximately 95%.
The business interruption claims receipt.
Approximately 20% of our workers compensation GLIC relates to nursing homes or other medical facilities, such as hospitals 'cause it 19 related losses and the quarter totaled approximately 2.8 million.
These claims.
As far as the impact on premiums are in this together plan will begin to have an impact in the third quarter as the second quarter was needed to obtain regulatory approvals from our states of operation.
At the end of the first quarter, we increased our estimate of bad debts by 1.5 million for cobot.
Throughout the second quarter, we've worked with our insurance and based upon those efforts and what we're experiencing it was not necessary to make any further material adjustments to our bad debt allowance specifically for covert considerations.
In the quarter specialty run off reserves developed adversely primarily due driven by one plane from 2016 relating to the former DNS casualty product line.
We remain confident that the specialty reserves are adequate no material respects.
The personal and commercial statutory combined ratio for the second quarter 2020 was one less than five <unk>.
Compared to one on 9.9 in the second quarter a year ago.
Catastrophe losses were 12.1 points greater in Q2 of this year.
And for personal and commercial than non cat losses, Eylea ratio improved 10.6 point well the expense ratio was flat year.
Year to date trends are somewhere.
Reserve development in the quarter for personal and commercial was over all favorable but less than Q2 2019.
Personal auto was the primary product line contributing to less overall favorable development.
As it developed adversely Q2 2020.
As compared to Q2 2019.
Severities for bodily injury frequency of property damage claims primarily related to 2019 accident year the driving factors.
In Garland will provide additional product details in his prepared remarks.
Yes. It results in the quarter of course included a rebound in the equity markets as I previously mentioned.
Net investment income was negatively impacted the quarter driven by our physician and tips.
Last quarter, we disclosed our intention to phase out the MLP asset class as of June 30, 2020 $37 million remains in our portfolio.
And finally, we did recently renew our property catastrophe reinsurance treaty for the state out a group and our casualty reinsurance treaties and most significant change was to our retention and limit on the cat Treaty.
We raised the group retention to 90 million for 75 million and we raised the top end of our Atlanta to 270 million from 200 million as a result at the continued growth in our homeowner commercial property businesses.
And with that I'll turn the call over to Ken.
Thanks, Steve and good morning, everyone.
Our overall personal lines in commercial lines result for the following.
The second quarter 20 statutory combined ratio was 111.5 compared to 109.91st second quarter 19, the second quarter 20 year to date combined ratio is 109.4 compared to 104.9% through second quarter 2019 year to date.
Written premium growth was 11.9% second quarter 20 versus second quarter, 19, and 12.6% year to date 2020 compared to year to date 2019.
For the quarter commercial lines had a combined ratio of 104, and a written premium growth of 14.7% and personal lines had a combined ratio of 116.5 and written premium growth of 10%.
The two major events for the quarter were catastrophes and co bid the impact where the following but varied by product line.
Catastrophes and non cat weather had negative loss ratio impacts.
And the cobot had both positive and negative impacts to the loss ratio and our new business volumes.
The catastrophe impact on our second quarter 20 results was the following the commercialize catastrophe loss ratio was eight points higher than our five year historical average the personal lines catastrophe loss ratio was 16 points higher than our five year historical average.
Starting with our personal lines business, our personal auto results for the quarter, our combined ratio of 94.1% written premium declined 5.2% policies in force declined 6.8%.
5.3%, excluding a decline, excluding our Georgia, and Michigan legacy books, which we decided to close.
New business counts declined, 20% and if we ever retention level of 67.7%.
Year to date personal auto produced.
98.6% combined ratio compared to 97.7 in 2019 with a year to date written premium decline of 4%.
We like other personal auto carriers saw miles driven dramatically drop in March and April around a 40% drop and then gradually trend back up in May and June to where they are now just below pre covered levels. This reduction in miles driven resulted in a reduction of personal auto claims around a 50% drop in collision claims at the low point.
In May and June personal auto claims increased as miles driven increased and our most recent data shows personal auto collision claims around 20% below pre covert levels.
We responded to this reduction in personal auto claims volume with our in this together program, which provides a 5% discount for the policyholders entire next policy term.
The earliest effective date in a state of this renewal discount is July 13. So the in this together program did not have an impact on our second quarter 20 financial results.
Recall in the fourth quarter of 19, I shared with you our action plans to address our issues and personal auto here's an update on the progress of these actions.
We have implemented our updated personal auto pricing model personal auto conduct version two dot one in 14 states with new business effective dates June thirtyth or prior connect version two dot one lowers rates for ultra preferred and preferred risks and increases rates were risks at the higher end of the risk spectrum.
Early results are promising as we're seeing improved closure ratios on the more preferred risks and the new business Miss mix has shifted more preferred also.
In early March in the states, where connect version two dot one had not been implemented we introduced filters and the comparative raters to limit quoting non standard business under our old pricing model. The implementation of these filters reduced our non standard new business by about 50%. These filters are being removed as the new connect version.
Two dot one model launches in the state.
As I discussed in previous quarters, we began implementing operational changes to reduce premium leakage like double down pay and 100% verification of prior carrier information.
We are seeing immediate benefit from these changes and recognize that these types of operational changes could have a faster impact them rate changes on our personal auto results.
Our telematics program until first quarter 20 had only offered a plug and dongle option in the first quarter 20, we implemented a smartphone plus tag as a second option early adoption of the second option has been encouraging as now 70% of our new telematics customers are selecting the smartphone plus tag option.
Our homeowners results for the quarter or a combined ratio of 141.1% written premium growth rate of 24.1% of policies in force growth rate of 13.6%, a new business count growth rate of 4.4% and a retention level of 76.4% year today.
Combined ratio was 120.2% combine compared to 117.6 in 2019 with year to date written premium growth of 25.2%.
Catastrophe is where the story of the second quarter 20 for homeowners with a cat loss in LAE ratio of 62.3%, which is 27.5 points higher than our five year historical average.
Last quarter I shared that in 2019, Texas represented a disproportionate amount of state autos total homeowners book of business, we implemented a 15% rate change in may in the Dallas Fort Worth counties. This rate change in combination with our December 2019 rate change in Dallas Fort worth has reduced our homeowners new business in the Dallas Fort worth it.
Counties by 50%.
At the same time, our homeowners new business in non Texas dates have been increasing so we are starting to make progress reducing the percentage of our homeowners business in Texas.
The impact of cobot on our personal auto and homeowners co volume and new business levels has been negligible.
For commercial lines, our middle market results for the quarter, our combined ratio of 106.6% and a total written premium growth rate of 13.1%, a new business premium decline of 7.8% and a premium retention level of 89.2% the year to date combined ratio is 139.6.
Compared to a 110.7 in 2019.
Catastrophes were the story of the quarter for middle market with a cat loss and LAE ratio, 17.6%, which is higher than our historical average our second quarter 20, non cat loss in LAE ratio of 48.1% was better than anticipated.
The biggest impact of co bid on our middle market businesses that we have seen about 20% decline in middle market submissions during coated which has resulted in our second quarter 20, new business premium volumes being down about 10% over second quarter 19.
As a reminder, we're rolling out CPP connect throughout 2027 additional states were launched during the second quarter of 20 for a total of eight states on the connect platform early results are as we expect.
Our small commercial results for the quarter, our combined ratio of 123.5, a total written premium growth rate of 3.2%, a new business premium growth rate of 27.6% and a premium retention level of 86.8, 86.6% the year to date combined ratio is 111.6 compared to.
97 in 2019 year to date growth is 3.9%.
Again catastrophes were the story of the quarter for small commercial with a cat loss and LAE ratio of 38.4%, which is 23.8 points higher than our five year historical average our second quarter 20, non cat loss and LAE ratio of 43.6% was better than anticipated.
The biggest impact of co bid on our small commercial business is that we have seen about a 10% decline in small commercial submissions during coated which has resulted in our second quarter 20, new business premium volumes being down about 6% over first quarter 20, but still up about 25% over second quarter 19.
We continue to believe that Theres still a lot of untapped upside in our small commercial business.
Our commercial auto results this quarter, our combined ratio of 87.5% a total written premium growth rate of 39.4%, a new business premium growth rate of 60.1% and a premium retention level of 85, our year to date combined ratio is 92.6% compared to 103.
26% in 2019 year to date growth is 44.9%.
For commercial auto the miles driven impact from coded was different than we saw for personal auto the total miles driven by our commercial auto risks dropped in March and April only 20% versus the personal auto miles driven drop of around 40% and we saw significant variation in the miles driven impact by industry and state.
Commercial auto miles driven trended back up in May and June is now a pre cobot levels. This reduction in miles driven combined with less overall congestion on the road from personal auto miles driven drop resulted in a reduction of commercial auto claims around a 50% drop in collision claims at the low point.
In May and June commercial auto claims increased as miles driven increased and our most recent data shows commercial auto collision claims have increased to pre coded levels.
Our workers compensation results for the quarter, our combined ratio of 101.7% a total written premium decline of 15.6%, a new business premium declined to 50.5% and a premium retention level of 61% year to date, the combined ratio of 103.2 compared to 96.9 in.
2019 year to date print written premium growth is minus 8.9%.
The impact of Cove it on our workers compensation business has been the most complicated of all of our product lines. There has been a negative impact from cove. It on the loss ratio in that it has created additional claims that otherwise may not have occurred.
There has been a positive impact from Covidien the loss ratio in them that there has been less business activity overall, which has resulted in fewer noncovered claimed.
The combination of these two impacts has generally been a wash on our workers compensation loss ratio, our 2020 workers compensation loss and LAE ratio of 46.3% improved 3.4 points compared to second quarter 19.
I hope it has also impacted our workers comp new business volume as our second quarter 20 workers comp new business was down about 50% over second quarter 19.
We continue to be on schedule with our workers comp connect core systems build and the first workers comp connect state is scheduled to be launched in fourth quarter point.
Our farm and ranch results for the quarter, our combined ratio of 124.5%.
Total written premium growth rate of 28.7%, a new business premium growth rate of 241.3% and a retention level of 91.1% year to date combined ratio is 104 compared to 106.7 in 2019 year to date written premium growth is 24.2.
Percent.
Again, catastrophes, where the story of the quarter for our farm and ranch business with a cat loss and LAE ratio of 33.4%, which is 16.3 points higher than our five year historical average our second quarter 20, non cat loss in LAE ratio of 43.2% was better than anticipated.
Farm and ranch connect has now been launched in 20 states the impact of state expansion farm and ranch connect and our new farm and ranch sales team has resulted in a tripling of our farm and ranch new business premium volume just a terrific result, and with that we'll open the line for questions.
I will start with movement was good question I was reminded. Please press Star then one number one on newly telephone keypad. If you would like to withdraw your question first the Duncan.
Your first question comes from the line of Paul Newsome from Hi, Brian Your line is open.
Good morning, and hopefully all you are all wells as we are here.
I wanted to ask about the.
The competitive brave men in auto.
Thank you and we're seeing some press release.
Reports of the competitors decreasing pricing I think I actually read something were.
There was.
Your next year will reprice, the little bit hi ill.
You can you talk about suitable the.
Basically just give us it since the competitive environment and how you guys are reacting to it.
Exactly.
Yes, Thanks, Paul I'm going to let Kim start until we have a couple of comments afterwards Kim.
Okay.
Thanks, Paul and Oh, probably.
Touch on.
A couple things and in some ways. Some of the actions. We are planning to take are going to end up being pretty fortunate for us. So I think we like.
Many or most other carriers.
Sort of good we access information that allows us to sort of gauge our relative competitive position in the market and sort of within that we kind of gets a general sense of what others are are doing around rates.
We are sort of seeing.
You know some some carriers become more competitive lower rates some.
You know I don't think we've seen Ed dramatic like market moving stuff at least in our channel yet.
I think the thing if you want to ask like what our response is.
You know when when I speak about the connect to Dot one version of the pricing model for personal auto you know we sort of.
Intentionally and based on loss cost tilted the curve. So that we became more competitive in the ultra preferred and preferred segments less compare.
Sort of increase rates on sort of the non standard and of the risks spectrum and so.
This sort of like leaning in are becoming more competitive in preferred ultra preferred is sort of helping us sort of stay.
Either as competitive as we were actually in a number of cases improve our rate competitiveness on the preferred ultra prefer to end of the spectrum.
We are also seeing that we are becoming less competitive on sort of that that non standard dish and which is both we're fine with and was intentional. So that's sort of what we're seeing.
So thanks, Ken moment.
Just tag on a little bit I mean, just had a very high level. You know our focus is always going to be process for so where people go really negative into a place where we don't feel we can make money, it's not going to go there. So certainly that we're not going to chase business.
Having said that so there's lots of times over the last 42 years, it's a very efficient market. So when you do hear about.
Rate activity I think right now you're seen state farm make a lot of noise about rate drops and so on and so forth.
There's still a lot.
Sure so much and efficiency, meaning that you could get 10 quotes and get quite a range of response so.
Companies like stay firms still are battling the exclusive agency side of it I know they don't have a ton of advertising, but I can kind of continue to believe they're going to struggle in there.
Situation, where theyre getting caught so I know there be little overly aggressive I still see the better competitors using common sense and.
The thing that I think as most interested in your question is that showed good has created an environment, where we're getting the benefit of less miles driven and pricing. During this time is extraordinarily difficult and better companies, who better price are going to have the ban it because you've got to kind of figure out how much.
This is sustainable what is going to be the post close world what is going to look like.
And the other thing that I think gets to that and Tim talked about our continued investment in telematics will mean that is a very critical piece of how we're responding to all this.
Go into a mobile phone with the tag and then ultimately probably taken that technology even further.
In the coming weeks and months I think it's going to create a real opportunity for US and then the final thing I'll say is that because it is an efficient a lot of this comes to your distribution and we have ranges of traditional and independent agents through more network gauges through agencies, our platform or digital rebate.
Stage and sees so we cover a wide spectrum of opportunity to get the business and the way you. When there is certainly price first them no question about that but again our platform is demonstrated through right through co bid entered becomes much much more critical.
Companies have already invested in digital and we have are going to happen advantage coming out of this change I mean, it's pretty obvious thing that say, but while we don't know what the rules going look like post cope with the one thing we know for sure is digital it's going to play a bigger part and it was combination or have been good decisions, maybe a little bit.
On block that we made those investments.
Heavily over the last five years and I think that differentiation is also how we're going to combat the ongoing competitive so the auto market appreciate the question.
That makes sense.
Yes, and second question can you help us a little bit on the appropriate level or either.
Range and that cat load.
Looking at it sort of the cat load to tap into over the last five years in it is amazing.
Variable number.
Even by the standards and the other insurers.
And then there's mix has changed quite a bit over that same period time. So.
He is the historic number here that we threw the historic average.
And looking is on an annual basis on a quarterly basis.
Does that have any that useful as it is it.
Which is going up is it going down.
Any help that would be great.
Yes, Steve you want to take that once.
Sure Hey, Paul.
I would I would say it is trending up because of mix of business homeowners is becoming.
A greater portion of the total company.
And then make that statement in regards to just standard in the standard lines personal and commercial so taking.
Depending on how far back you go.
Stripping out anything from the old specialty segment, that's discontinued but.
You know anything that seven eight.
Percent range I think.
Two years ago, it probably would have been more like five to six but I think but the product mix shift it's definitely trending up for that so doubly important for us to price that.
Products correctly, so we get the appropriate non cat results to differ on that.
Great. Thank you very much appreciate it.
Thanks, Paul.
Okay.
Once again, if you would those who has been coking coal stolen well number one onwards telephone Keystone. Your next question comes from along all Sean Mcmillan KBW. Your line is open.
Oh I was hoping you guys could tell us how you guys thought about incorporating lower frequency into accident year picks for commercial casualty line.
Sure, Kevin you want to speak to them.
So.
And all I'll start and I don't know, if Steve or or Matt may want to clean up because I I think this is a reserving question.
So you know.
As part of our process occurring.
We we estimated.
Sort of what we thought a normal quarter would be if there were no.
You know sort of no co bid.
I think then we sort of looked at sort of the combination of.
Is there sort of the frequencies that we got or the difference in the frequencies versus.
What we sort of would have expected in a regular second quarter at these volumes and then.
Sort of tried to adjust the accident year Pic based on that.
And then may be added a smidge of conservativeness in that because of just sort of uncertainty of this environment, but Steve or Matt I did not know if I did [laughter] damage to that declination.
No no that was there was there was pretty good.
We as Kevin said, certainly frequency was a big factor in assessing the loss pick.
But we also looked at it not just on a quarter to quarter basis, how it emerged throughout the quarter incoming Darren final pick I was just tag on to that that.
On the severity side, we haven't yet seeing I don't think getting tremendous.
Types of the impact on severities. So our pick was more influenced by frequency and severity and Matt Rosy could you want to add something from your share is.
Well ahead of reserving please do.
Thanks, Steve if you only additional comment would be that.
Kansas Steve's description.
Applied to the year to date.
That's how we look at current accident year as we go through the third quarter and it's that the year to date through 930, we would be looking at whatever is going to happen. In Q3. So are we were focused on the year to date.
Q3 will just be the reaction to either continued decline or or low volume of business activity.
Where a return to more normal level.
And the only thing I'll tag on this question the on site for one because of I talked about this a little bit in auto in both pricing and reserving as you think through the challenges Cove is in its impact on claiming behavior.
Thank you I think it's very important that companies I mean, we try to take a consistently appropriately conservative approach to the to both of these functions, but when it comes to reserving I think.
It probably does call for little bit more conservatism through this because there was a lot of on down and I think that.
Your question is important as we try to navigate through.
What's going to how short term what type of short term impacts were getting versus potentially longer term majors. So thanks for the question.
Yeah, absolutely. That's very helpful. Second question is it looked like a handful of lines had a.
Higher you L.A. E year over year and is there anything specific specific that drove that.
Tim or anything.
Yes, I mean.
No I.
I can't think of they put caillier.
Issue.
It comes to my mind other there.
That's how the estimates work down.
Matt.
I guess I would also has met rosy get t. can recall anything in particular.
Right.
Just to some extent that number is going to vary with the loss and a case specific expenses. So to the extent that we had higher catastrophe losses and higher this year than history that would put some upward pressure on that.
Allocated expense.
Yeah.
Okay. Thank you very much.
Okay. Thanks, Sean.
Your next question comes from the line of Marla Backer comes to the other one is open.
Thank you.
Achieve would you be able to provide some color on that's not necessarily detailed numbers, but just some directional sense on what percent of auto policyholders are currently using the digital in car tools now.
Are you sorry speaking first of all welcome to help at all.
Thank you please.
Typically the telematics.
Yes.
Okay, Tim can you talk to that a little bit yes, I think.
If you look at our are.
Entire enforce personal auto book, it's around nine or 10% of the total vehicles are on telematics.
We.
Right now our personal auto book is still we have whats called connect or policies that are on our new system. We still have policies that are on our old legacy system.
We do not have a telematics option for the legacy book. So if you just look at the connect book, it's about 17% of the vehicles.
On connect have telematics.
Great. Thank you.
Obviously, one drivers.
GAAP or adopt the telematics if there are driving record Warren said I'm sure that they know they obtain economic incentives are you, providing any kind of incentives upfront in order for them to just take the telematics to begin with.
Have you May go Mike.
Yes.
So that's a great question then I'll.
We tried give this commercial because we really want almost we want everybody to adopt telematics. So how we do it in.
In personal lines, we give a 10% participation discount add new business. So if you just if you buy a policy and you just choose telematics you get 10%.
Off of your first policy term.
And what we do is you know at renewal, we will use the scoring to give you a discount or surcharge at year end for your next policy terms.
The discounts can go all the way up to a 50% discount and we do have a slice of policyholders, who do qualify for that and the surcharges can go up to 25% and we do have policyholders, who do get back.
And interesting sort of general.
Back that we see is on the average.
Policy holders at their first renewal qualify for on average in the range of about a 15% Rick discount at their first renewal. So it's sort of validates the use of that sort of participation discount because there's still some sort of self selection.
Safer drivers tend to take telematics.
Okay. That's very helpful. Thank you and then one last question, which is on the business interruption.
Clos, So you talked a little bit in your prepared remarks about how you're saying you know your view you are seeing positive.
Factors right now in terms of upholding the no statistical nature that causes the business interruption.
Obviously still early days.
Are you seeing anything on the horizon.
Yeah.
Might provide another test of that's the stuff specific element of the business interruption costs.
I think that this is Mike.
Since prime and actually there's good.
There are specific ones.
Not that I could mention but there's going to be there's going to be a number of more cases coming to decisions and so this is going to be.
That should in my comments were still being very prudent about.
Our approach to this still watching cases carefully.
On port on the board of Governors for a PCIA the industry group with the majority of our company is part of that and we watch it carefully through that organization as well so we get access to kind of everything that capacity.
Across the industries across the country. So we see a number.
At first strong litigation that are ones that we are keeping our eyes off we are already bought everything so I look at that soften and have concerned about it but there is not like a specific events that I believe this is happening that is more significant to me that many of the other.
Issues and challenges that we see in the states.
Steve you are having on at all.
No I don't think.
All right good that means like 70 led so if the question [laughter]. Thank you very much.
I think he said and welcome.
[laughter].
There are no further questions at this time much of a pullback division for closing comments.
Thanks, everyone for your question for participating in our conference call and for your continued into interest then and support on State Auto Financial Corporation third Ford speaking with you again on our third quarter earnings call, which is currently scheduled for Thursday November 5th Tony Tony. Thank you and have a wonderful day.
Thank you that concludes today's second quarter 2020 earnings conference call. Thank you to participate disconnect at this time.
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