Q3 2020 W. R. Berkley Corp Earnings Call
[music].
Good day, and welcome to W.R. Berkley Corporation.
Hi, good ones.
This conference call.
Today's conference call.
Pardon.
The speakers remarks may contain forward looking statements.
The forward looking statement.
Maybe identified by the use of coal.
Mhm without limitation believes expects or estimates.
We caution you that such forward looking statements should not be regarded as a representation by us future plans estimates or expectations contemplated.
Yes, well back kitchen.
Please refer to our annual report on form 10-K for the year ended December 31st 2019, and our other filings made with the FCC or.
For a description of the business environment in which we operate and the important factors that may materially affect on sales.
Yes, our Berkley Corporation under any obligation and expressly disclaims any such obligation to update or alter its forward looking statements whether as a result, <unk> promotion, you treat them or otherwise.
I would now like to turn the call over to Mr. Rob Berkley. Please.
Please go ahead Sir.
David Thank you very much and thank you all for dialing into our third quarter call.
Similar to the past, we also have Bill Berkeley executive Chairman on the call on our end as well as rich fail, a CFO and executive Vice President we're going to.
We're going to follow a similar agenda to what we've done in the past it we're going to ask rich to start off with some of his thoughts and highlights from the quarter and then I will follow with a few comments and then we will be opening it up for Q and a.
Rich if you could please.
Thanks, Rob good either.
Good evening everyone.
The company reported a strong quarter, despite the ongoing complexities arising from the global pandemic and the heightened natural catastrophes facing the industry.
Our underwriting results improved both on a calendar year basis, and even more so on a current accident year basis, excluding catastrophes net.
Net income for the quarter was $152 million or 81 cents per share, resulting in an annualized return on equity of 10%.
Drilling down into the key drivers for the quarter I'll start with our top line.
Gross premiums written grew by 8.1% in the quarter, Despite limited economic growth net pre.
Net premiums written grew 7.4% to approximately $1.9 billion in the quarter.
The insurance segment increased 6.5% to more than $1.6 billion, primarily driven by most lines of business with the exception of workers compensation.
The growth in the quarter was led by professional liability of 20.7% followed by 17% in commercial automobile, 9.6% and other liability and 8% in short tail line three.
The reinsurance in mind, a line access segment grew by 13.7% to $251 million in the quarter due to an improving market as evidenced by an increase in property reinsurance of 26.6% minor line excess of 18.9% and casualty reinsurance of 7.9%.
Pre tax underwriting income of $111 million improved 3.7% despite increased natural catastrophe losses in the quarter there.
There were a lot of above average number of windstorms named Hurricanes, making landfall in west coast wildfires in the quarter, resulting in approximately $73 million or 4.2 loss ratio points impacting our underwriting results. This compares with last year's catastrophe losses of approximately $31 million.
The 1.9 loss ratio points the repo.
The reported loss ratio was 63.7% in the current quarter compared with 62.1% in 2019.
Our year loss reserves developed favorably by $5 million or 0.3 loss ratio points in the current quarter.
Accordingly, our current accident year loss ratio, excluding catastrophes was 59.8% compared with 60.4% a year ago.
The improvement is driven by lower claims frequency and non cat property losses, as well as a change in business mix.
The expense ratio was 30%, reflecting a decrease of 1.5% compared with the year ago improvement any.
The improvement in the expense ratio is attributable to the gross and net premiums earned a 4.3% and the reduction in underwriting expenses of 1%.
We've already talked about the contributors to the growth the top line, which will continue to earn through our income statement.
The lower underwriting expenses is primarily due to the reduction in travel and entertainment costs due to the global pandemic, which represents a little more than 50 basis points of favorable impact on the expense ratio.
The accident year combined ratio, excluding catastrophes for the quarter was 89.8% compared with 91.9% for the prior year.
Pre tax underwriting income on a current accident year basis, excluding catastrophes improved approximately 32.5% to $179 million.
On the investment front net investment income for the quarter was approximately $143 million, primarily reflecting a decline in our fixed maturity portfolio offset by favorable market value movements in our arbitrage trading account that.
The decline in fixed maturity portfolio is due to a larger cash and cash equivalent position, which we discussed on our second quarter earnings call cash and cash equivalents or more than $2.7 billion or approximately 13% of invested assets and finally income from investment funds in the quarter returned to a more normalized.
Awful.
We believe the investment fund managers will be cautious to increase market values in their respective portfolios due to the potential market volatility and uncertainty surrounding the global pandemic.
Pre tax net investment gains in the quarter of $39 million is primarily attributable to an increase in unrealized gains on equity securities and an improvement in the allowance for expected credit losses much of the reduction in this allowance was attributable to foreign governments securities that were sold at a realized loss in the quarter.
Effectively creating an offsetting result.
Turning to the balance sheet.
Fixed maturity investment portfolio maintained a high credit quality of doubling minus and reported additional growth in our after tax unrealized gains from the second quarter. In addition, the U.S. dollar weakened relative to several foreign currencies, resulting in an improvement in our currency translation adjustment, which is a component of stock.
Holders equity.
Stockholders equity was approximately $6 billion at the end of the quarter, reflecting an increase of approximately $200 million from the second quarter after dividends and share repurchases of $34 million booked.
Book value per share grew 3.7% in the quarter before dividends and share repurchases.
The company had strong cash flow from operations in the quarter or $557 million.
The liquidity remains strong at the holding company with more than $1.6 billion in cash and liquid investments.
During the quarter, we further managed our capital position through to record low financing transactions for Berkeley, first $170 million, 3.1% effective interest rate.
30 year senior note and second a 40 year subordinated hybrid debt offering of $250 million at a coupon of 4.25% do you.
The use of proceeds in large part has been and will be used to redeem 350 million of our five and five eight subordinated hybrid debt in October occurred.
Accordingly, two things for you to consider in your future modeling that will impact our financial statements.
The reduced annual pre tax interest expense of about $3 million and the nonrecurring debt extinguishment cost in the fourth quarter of approximately eight and a half million dollars pretax.
With that I'll turn it back to Rob. Thank you.
Rich. Thank you very much obviously, a lot there and we can get into that in the culinary more detail people so desire.
A couple of thoughts for me.
First off for I think it goes without saying, but I'll say that anyways.
2020, clearly either the world the industry and all of US will will not forget any time soon and additionally in many respects a year that hopefully will not be repeated.
It's called the 19 wasn't enough then a frequency of severity around cat activity I, certainly think is really testing a society.
If there is any silver lining in this from my perspective, perhaps it provides an opportunity for the insurance industry to demonstrate the value that it brings to society.
And I would just finish.
But I say that certainly our focus.
We are very much with all of those that are directly and indirectly impacted by these circumstances.
Turning to a couple of comments about the marketplace are clearly remains in a time of transition I would suggest that it is accelerating.
Every day.
I would also suggest that it would appear as though there is a significant amount of runway in front of us.
We can see this in a variety of different data points that we monitor we can see it in our submission flow, particularly in our specialty businesses and the extreme would be in RMS businesses and that flow continues to build significant momentum.
In addition, additionally, oh, we can see it in the rates that we are achieving.
As referenced in the release X workers comp, we got 14, and a half points of rate increase on our renewal book.
They give you a couple of historical data points that we've shared with you in the past, but no sales and having to go back and dig them up if you go back to Q3 2016, we got 70 basis points of rate increase if you go.
If you go to Q3 2017, you got 1.8% rate increase.
If you go to Q3 18, we've got 4.1 points of rate increase.
Q3, 19, 6.6, and then again as mentioned a moment ago in in our release 14, and a half in Q3 of 20.
When we look at what is driving this what is driving the firming of the marketplace with the exception of workers compensation.
Those catalysts from our perspective, if anything are becoming more acute.
As far as workers compensation goes as Weve discussed over the past few quarters. It is our expectation that marketplace is more likely than not to begin to firm as we make our way into the 2020 Warner I would suggest some time next year.
Turning to some of the underwriting activities for the group during the period.
Clearly lots of moving pieces.
You covered them all in some detail and we can take the conversation wherever folks would like to image urinary I would just flag, but the big driver here is the growth in our premium and if you looked at our net written.
There is good reason to believe that that momentum will build.
Hopefully the world will open up and you will see the short term benefit that we're getting on the TV front that will return to a more normalized number but again that momentum on the expenses stemming from higher earned premium.
Expect to still have more opportunity as we remain focused on our controllable expenses.
Rich gave you a good background on the loss ratio just a couple of points that I would add on there number one.
Is.
Clearly there is an impact stemming from Cove is 19, and the shutdown and what that has meant for frequency.
It is unclear.
To what extent that impact is just temporary and we will see a surge in claims at a catch up.
Or whether that is a permanent shift, though we expect things will ultimately return to a more normal level for <unk>.
For purposes of our income statement, we have not assumed.
Anything other than we continue to carry things by and large at the loss ratio we used at the beginning of the year.
To that end point number two that I would like to flag.
The loss ratios that we selected at the beginning of the year.
I assume that we would not be outpacing loss cost trend.
By the level that we are.
The rate increases that we have been getting throughout the year.
By and large are above and beyond what we had anticipated, but again given the uncertainty around loss cost trend.
And specifically social inflation, we have deliberately decided to take a wait and see attitude.
Switching over to the investment front.
As we have discussed in the past, it's no different than what we do on the underwriting side, we start with a view towards risk adjusted return.
As rich mentioned, our duration is relatively short at 2.3 years and that is a conscious decision.
That decision clearly comes at a cost, but we think it is a appropriate and manageable cost.
It is our view at some point in the not too distant future, though not tomorrow you will.
You will see likely interest rates begin to move up.
And at that moment in time, those that reach too far out on the yield curve you will likely see.
The reduction in book value.
Because of the leverage it.
That exists in the slight movement in interest rates moving up on the back.
On the value of those bonds.
No different than what we've done with the alternative portfolio. There are certain investments that we have made that have not given us great investment returns from an operating perspective.
But it is our view that we are focused on total risk adjusted return for shareholders.
And because of our long term view, we are willing to forego some ordinary regular investment income in order to create additional value.
When we looked out at the market place again from our perspective.
There is a lot of runway once again in front of us.
We are encouraged by where the market is and even more so weird is going.
And from our perspective, the circumstance that we see today and expect tomorrow will only benefit more was a recovering economy, which we anticipate will.
We'll hopefully be the case over the coming quarters.
So let me pause there.
And David if we could please open it up for questions.
So in order to.
In order to ask a question the press star one on your telephone.
Withdraw your question press the pound is hash key question Press Star one on your telephone to ask a question. Please stand by while we compile the human lumps.
Thank you.
First question comes from the line of Mike Salinsky with Credit Suisse. Your line.
Mike Good afternoon, thanks for calling in.
Of course the afternoon.
I guess.
First question is going to be an expense ratio issue, which I know I think sometimes I speak investors I think it's kind of boring, but I was kind of look back at the last year or so at underwriting income and versus consensus expectations and it. It seems like most of the B a good amount of the B has been on the expense ratio, especially this quarter.
You know how much of the improvement you feel is this kind of structural structural directionally and kind of more sustainable versus somewhat cyclical and could have kind of ebb and flow. During the next off market whenever that is probably not for a while clearly.
You know Directionally do you think that you can build upon.
The current below.
Below the 30% threshold I guess I'm trying to figure out.
Well. It is certainly is our goal to be able to push through 30, but I think that the big opportunity. There is yes efficiency, but even more so scale.
One of the things that you need to remember it.
Is that or keep in mind is that the vast majority of the businesses. In this group are businesses that started from scratch and often times because they operate with such outstanding underwriting discipline.
Once they get started they may not be able to achieve scale.
But as you come into a market conditions that allow you to scale.
That allows you to leverage those fixed expenses so.
So long story short I think the improvements that we're seeing on the expense ratio putting aside.
Those that are related to co bid on the TNT front I think those are real.
And we are very focused on not just maintaining them, but continuing to build upon them.
Okay.
I guess next question.
Rod I think Q last quarter and this quarter, you talked about there being some benefit as Bruce.
As a result of slowdown I believe and in the claims activity. During cold. There you know I think you keep reminding us you're not you're short tail lines, we've taken some of the credit, but but not for the long tail lines any any quantification or color are you willing to kind of give us and try to think about how much of the loss.
This ratio improvement might be driven by temporary.
Factors and understanding that you know there might be more benefit if you are being conservative if you're.
Your assumptions prove conservative.
Well I think the position that we're taking is that it would be pretty mature to reach a conclusion there.
There may be you know if you look at our mix of business. The vast majority of what we do has some tail to it. So again, it's a very modest amount of our.
Our short tail business very short tail business that we would be willing to reach a conclusion on.
So from our perspective, we need.
We need to take a wait and see attitude to make sure that this is not just a temporary phenomenon where things will swing back and then some.
And as we've been talking about even pre covert we're sensitive to social inflation.
So I think we're being thoughtful and measured.
And I think over time, we will get more clarity and obviously once that becomes available that will be shared with you and others.
Okay.
Okay. Great last question is on.
Is on investment income now you've been clear that you know.
You know you're willing to take some pain and the expectation of it.
Interest rates eventually.
Moving higher Berkeley, clearly has one of the best track records the entire industry from an investment income perspective. So I'm. Just curious is this is this a stance you've taken in the past in terms it seems kinda, but somewhat of a bold that or is there are you know is there a kind of a line in the sand where you know you can only take.
Take so much of a bat in terms of rates moving higher yield bancshares on to to put some more money to work so.
So just curious what is causing the you know our estimates to kind of move lower pretty materially as fellow industry is but more so on the investment income front.
Yes, I mean, we share the observation and I would tell you that it is a deliberate decision. We do have a view as to what the threshold is of short term pain that we're prepared to live with in order to make sure that we preserve the the long term optionality.
And at this stage, it's something that we grapple with every day.
But from our perspective, if you think about specifically the fixed income portfolio.
The price that we are paying to maintain the position. We're in is not inconsequential.
But it pales in comparison to the cost if you see rates move up a relatively modest sum.
And what that would mean for book value.
And as a follow up is there any do you feel that there is more opportunities are better harvesting or is it a tougher environment on the alternative side, maybe there's things falling on the alternative side that we should be thinking about in terms of here your view.
In the current situation wherein I think.
I think the world is awash in capital and there's a lot of money chasing a certain number of opportunities.
And I think you see that in virtually every asset class Fortunately for us as an organization. We have some very capable people that manage the investment portfolio.
And in spite of how challenging the environment as we continue to find opportunities for the shareholders.
That having been said, sometimes its lumpy and that having been said some terms, maybe you look a little bit foolish today, but maybe you don't look so foolish down the road and.
And that is the reality that we've had to accept both on the underwriting side and we're prepared to accept on the investment side of the business too.
Again, we are focused on risk adjusted return and we do not run the business just for the next quarter.
Thank you.
Thank you.
Next question comes from the line of hearing Kim with Goldman Sachs. Your line is open.
Hi, good afternoon. Good afternoon, everybody. Thanks for taking my questions I guess.
I guess my first question goes to your comment about has seen great smile on excess of loss trends today, but so again cautious view on <unk>.
The timing of the release just.
Just given the uncertainty in the landscape.
Hi, I guess my question has to some degree there is always some uncertainty out there and I realize that today, there may be elevated uncertainty, but can maybe talk through.
Your your thoughts or what.
What level of uncertainty as acceptable at what point you feel more confident in the leasing.
This week hopefully trend.
As opposed to where we are today not that I'm looking for a specific date, but just wondering conceptually understand what level of uncertainty is comfortable.
So you know I don't have a scale are appropriate barometer to to be able to to point you towards what I can tell you is that we.
We look at a very granular level by operating unit in a group of byproduct line by year on a very regular basis, and we think about the risks we think about the visibility.
And we think about how.
How we view the margins so I would tell you that with every passing day, we have more visibility.
And but we are not going to declare victory prematurely.
We still need to see these things season out.
The average duration of our reserves is give or take around four years.
And there's a lot of distance between the time that you.
The policy.
And the time, where you have clarity around the outcome. So.
So in addition to that there's a lot of uncertainty as.
You pointed out and I agree with in the World.
And again, we are just taking it one step at a time at the same time as I suggested.
Thank you picked up on if things play out as they would appear to Flirs first blush at this stage.
It is there is a possibility that there's more margin in the business that is coming through in our financial statements at this time.
But again there is a lot of distance between here and when we have clarity.
But every day, we have a bit more.
Okay and with this.
Slow increasing clarity over time.
Should one think of the release of that pent up margin has a slow release as you get more and more comfortable or do you think that one day you cross a certain threshold and we just see a step down in plastics no. I don't think you should expect that one day there all of a sudden be a dam that breaks.
We respond to the information incrementally as it becomes available.
So from my perspective.
There is a growing amount of evidence that you will see our picks coming down both in the prior year and the current year, possibly in the future, but again, we're not going to go too early.
Okay.
And then my second question.
Colin can you maybe talk about any puts and takes that you saw in the loss ratio.
Quarter, whether good or bad.
Yes generally speaking.
The number that we put up for Covidien, we remain comfortable with but just as a reminder, we.
Contemplated that things would be getting resolved.
Give or take by the end of the year to the extent that things are not getting resolved and then we'll have to see what actions we may need to take along those lines.
But as far as.
Specifics.
There are certain pockets, where things have proven to be more challenging and there are certain pockets, where they have proven to be less challenging.
Okay. Thank you.
You're welcome Thank you for calling in.
Next question comes from the line of loan.
Autonomous your line.
Your line.
Hey, Thanks want to go back to 400 words thing about mix so.
Clearly loss ratios are improving year over year on what happens with past couple of quarters I get you being conservative.
Is there a mix. So I mean, you mentioned the mix was one of the contributors there.
Would there have been much margin expansion, if we weren't talking about mix.
Well I think that we have a view that we are not in the business issue insurance policies as my boss says we're in business to make money.
And you can see.
Enriches comments with which highlighted.
The byline growth or not.
For certain parts of the portfolio better growing and grown considerably and there is one part of the portfolio that being workers compensation that is shrinking notably.
No we look to deploy capital, where we think the margins are and we are prepared to shrink the business, where we think we can't make an appropriate risk adjusted return so workers compensation rates have been coming down for a few years and at some point they get to a level, where we say we're done.
And as you can see our workers comp product line has been shrinking considerably both for the quarter and year to date.
So and there are other parts of the business, where we like the margins a lot.
And we are benefiting from the available rate increases in the marketplace.
And we are growing that part of the business considerably and I think you should expect.
To continue to do that and if the economy opens up a bit you're going to see the growth rate go from high single digits is something considerably above that.
Understood.
And just an observation about Berkeley, and just what are your thoughts Rob.
I mean relative to the other underwriters.
Consensus is assuming relatively flat accident year loss ratio is 2021 versus 21.
What would your view what would need to go wrong, what would need to happen for that consensus view that turned out to be correct more margin improvement next year.
Look I think if it turns out that we'd grossly miss assessed our loss costs.
Then you know it would prove that they do we have an issue but.
But as I suggested from my perspective, and again I don't have perfect clarity.
But the data points that I look at would suggest that there's good reason to believe given the rates that we are achieving that margins are improving.
And we'll continue to.
Because you got to remember the rate increases that are coming through on an earned basis.
Continue to trail.
The higher rate increases that we are getting in on a written basis.
And I think.
By anyone's measure.
The rate increases that we are and have been getting for an extended period of time.
In all likelihood will prove to outpace.
Almost anyone's assumption of loss cost trend.
Understood and then the last one I wanted to ask about wise.
I saw the press report on the London building and I know you guys on a lot of building supply can you give us some sense of where that.
Got properties held on the books and.
If there's potentially a broader strategy you guys are considering in terms of monetizing some of those real estate assets held for so long.
So as far as the value that we carry that if you want to give carrying a richer call. They can point towards our statutory statements and where that is public information.
As far as.
Just our view about.
Real any particular piece of real estate, the real estate portfolio in general the alternative portfolio or portfolio overall, we have a.
Pretty good size investment portfolio and the vast vast majority of whats in it is something that is available to be purchased if the price is right.
So again from from our perspective.
Thats really how we think about all of the assets that belong to the shareholders.
What do you what do you think that real estate portfolio might be worse.
A lot I know you guys have talked about this in the past so it's more like 2.2 billion.
Yes.
I think as we've commented in the past we think the groups.
Stated book value.
Is understated.
If you and a lot of that weekend, thank the accounting.
For but the fact of the matter is that.
Have you is that we have a lot of assets that are on the books that are worth more than the carry that and just generally speaking you know we don't get into specific conversations about a specific asset.
As to what its worth or anything else around it.
Thanks for the answers.
Your next question comes from the line of Meyer Shields with key.
Right.
Your line is open.
Great. Thanks, so that two small questions first if I can and then a bigger picture thought.
Ken.
I guess the question for rich talked about the tax rate in the quarter either on net pre tax were operating.
Sure, Yes, I am absolutely.
So the effective tax rate is the elevated from where we have seen that done historically in the quarter was about little.
Little over 26%.
And that really was attributable to where the losses are emerging with regards to cope with 19 and to that extent on our ability to utilize the losses, some currently or not.
And at this point in time, we've taken a conservative position with regards to not recognizing a tax benefit with regards to those losses in the <unk>.
The foreign jurisdiction, but we do plan on.
To recognize those at some point, even if we need to put in place and planning strategies.
Okay, that's very helpful.
I was hoping you could talk through the I guess negative test the losses in the reinsurance my light Exa second sorry, what.
Sorry, what was can you repeat that huh, yeah, I'm sorry, the knowing your my phone the negative catastrophe losses reported in that model in excess and reinsurance.
Rich do you want to cover Russia, absolutely. So when we on the established our COVID-19 reserves on we.
We had established IDR as you can imagine and anticipated where we thought that type in our way to merge.
As a result of further information coming through in the third quarter. We concluded that some of the IB and our that we had allocated to the reinsurance in Monterrey line access segment would need to be reclassified to the insurance segment and as a result of that Thats whats, giving rise to a small amount.
Negative catastrophe losses in the third quarter.
Okay, Perfect and then I know.
If I can do that so.
Sorry, just to add on to Rich's comments or.
Or just to highlight it so they are.
So the aggregate number didnt change at this stage it we just shifted from one bucket to another.
Correct no that's helpful.
We've talked a lot about the accident year 2020 picks in light of lower claim frequency can you talk about the application of trend to prior years in other words do we see the same directional conservatism into reserve reviews that are ongoing now is there any change in the observed development path.
Your losses.
From our perspective, we are seeing.
From our perspective, we are taking a wait and see attitude both on the current year and the the prior years as well by and large.
Okay, Yes understood here, we're very sensitive to the as we've discussed social inflation and the legal environment.
And we think that there is a lot of certainty around that.
Okay. That's it seems like the White Hall.
So the more recent past that we've seen these rate increases that are significantly outpacing loss cost trends and our.
Great. Thank you very much thank you.
Thank you.
The next question comes from the line of pellets to bomb Debone Your line.
Yes. Thanks, good afternoon, there's a.
There's been a clear focus on the pricing side of the house and the impact so the underlying margins I guess can you refresh us on your your.
Outlook for loss cost has this changed over the past three 612 months.
Understood, there's a level of conservatism in this and not trying to take forward the the frequency or the you know the pricing momentum weve seen as of late.
Has anything in the loss cost tea leaves changed.
Not from our perspective, I think for many quarters at this stage it.
We think it is more likely than not that we are outpacing loss cost trend by several hundred basis points.
Okay that is right.
We can't prove it yeah, no understood understood and when I look like as a line like commercial auto I mean, clearly it feels like theres been an inflection in the appetite for this business.
And you had talked about it earlier question about workers compensation and benefits and its falling below the line I mean is there a line in the sand where the big these businesses are viewed as profitably or unprofitably that you'd be you ratchet up.
Or ratchet down significantly.
Lower or is there a trend that you think about the slowing the business or growing the business as you approach that line.
So the answer is both an.
And what I mean by that is we have a view as to what is an acceptable loss ratio, which really stems from an acceptable risk adjusted return.
And obviously that that the market doesn't just flip to another overnight, it's a gradual erosion or gradual acceleration typically, though sometimes faster than others.
So the.
Look when we looked at the workers comp market Weve observer that getting more and more competitive for not for some number of quarters a few years now.
And at some point that reaches the point that you.
That you say I'm not willing to put play anymore.
Same thing is happening with other product lines. There was a moment in time or thing just going back a couple of years, where we took that position with commercial auto.
And again, that's why you see comp.
Shrinking the way it has been this year I expect that it is likely and.
And certainly hoping that next year, you will start to see the workers comp market generally speaking.
Bottom out.
And start to move back in the other direction.
So one of the things that has changed at least over the time that I've been working in the industry is once upon a time by and large at least in the commercial line space.
The marketplace across product lines March somewhat in lockstep.
I think the fundamentals of a cyclical business is still alive, and well and the commercial lines marketplace.
Major product lines do not March and locks that anymore, and I would suggest that workers comp would be perhaps an example of that today.
Okay, and the last one and I don't want to get into a political conversation, but any thoughts around the potential for a change in the corporate tax rate the U.S. and.
The extent to which maybe that it serves as a you know another boost to pricing or at least the competitive impacts that might have for you.
Well the good news is that our our leave political expertise in the group is on the call as well so I'm going to.
Turn it over to him for that.
You know when you get.
When you get old enough. The turn you over to politics, we could see that is the candidate.
But.
I think that.
The the reality of tax rate clearly on top.
Actually triggered a change.
If we have a democratic president and Democratic Legislature.
All right very good.
Just for our portable devices.
No difference there were likely to see.
See some inflation and higher interest rates.
Which has both benefits and that's because it's all right.
All right and the year to support this winter we have to adjust to it.
Fortunately, we do our best.
We look at our risk adjusted return to keep as much flexibility there.
It will be you will hear more municipal bonds room other kinds of securities to try to optimize it.
Optimizer returns.
Given those two.
So is there anything else.
I mean, if you would like to ask a question press star one on telephone.
Your next question comes from the line of Brian Meredith.
Your line is open.
Hi, Brian EBITDA.
Afternoon.
A couple of quick ones here for first just a quick one any impact.
FX on top line in this quarter.
Ricky do you have that.
But yes, I do it was a little over 1% impact.
So net positive.
No.
Now was a negative step that gives us dollar we yes, the U.S. dollar weekend on a relative basis to a number of currencies in the quarter.
Got you Okay, Great and then second question I'm, just I'm just curious.
If I take a look at your insurance written premium growth in the quarter and lets strip out workers comp.
Given the implied rate that you're you're getting right now would it appear that you're either cutting back on business still or exposures are still a headwind is that true and by how much is that happening right now not hurting gross.
So clearly.
We continue to be impacted by the broader economic circumstance, both we faced domestically as well as outside of the U.S.
So I would tell you it's.
The third quarter was a lot easier than the second quarter by by quite a margin.
Policy Count is less where the story is and it's more about.
Insurance businesses, just to either have it having shrunk and we can see that in the initial premium estimates as.
As well as the audit premiums. So is there an impact on policy count Yep, but it's very very modest it's more just about the scale and as a reminder, that we're putting comp aside on the payrolls a lot of what we ensure is off of receipts or revenue.
Yeah.
Okay, great. So that's that's a potential other kind of tailwind here, we could see going into next year's economy here absolutely. I mean, my expectation is you know assuming that the economy is able to open up even at a gradual pace you are going to see that.
Had a meaningful impact on our top line.
Okay, Great and then my last one I know, we kind of Brlthree touched upon it in the beginning on the expense side, but I'm just curious with this reduction a teeny are you finding that some of this could be kind of permitting I mean I heard from other companies that productivity is actually up quite a bit without somebody teeny, that's going on right now.
How much of this do you think is potentially sustainable how you thinking about that.
So the answer is that we are actively discussing it internally.
And our colleagues that run the operating units are very focused on it.
And at the same time from our perspective, while we're pleased with the savings over the 50 to 60 basis points.
In the scheme of how we are going to.
Capitalize on the opportunities in front of us.
We care about that but thats not where the leverage is.
Makes sense. Thank you appreciate it thanks.
Thank you.
Next question comes from the line Johnson with Bank of America.
Thank you on that one.
Yes.
Yes.
Hi, Thanks for taking my question sure.
I'd like to talk about the states in two regards one is can you talk about how you're not willing to take up too much rate cuts in workers comp before comes on attractive you talk about how it's different depending on which state you're in and the regulatory regimes and whether or not are you have flexibility to.
Dictate your own future in some states, while other states the regulatory ER.
Regime makes it harder for you to want to stick around.
Well look you know clearly each state has its own.
Rating Bureau by and large.
And in some cases you have ensure.
Insurance commissioners that are more involved in other states.
Parents commissioners that are that are less involved from.
From our perspective, you know the workers comp market place is not sort of one in the same to your point a share the view that it varies quite a bit.
Quite a bit by region.
And undoubtedly there are certain parts of the market, where we've gotten to the point, where we're not satisfied with the margins and we are prepared to let the business go away.
And there are other parts of the marketplace or other territories, where in spite of the reduction in rate, we still think that the margins are acceptable.
But clearly.
It does to your point vary by territory and even within a certain territory it varies by exposure within that territory.
And so if you could stick around some states in other states you might leave depending on what the rate environment is I guess.
We don't leave any any states just to be clear, Josh I'm, sorry, I should have been more clear before.
We are in the market every day at a rate that we think is appropriate for the risk that we're taking on.
And the market moves away from us and sometimes not sometimes and then often times.
As you know people choose.
People change their appetite the market will move back to us.
The cyclical nature of the business, but I wouldn't want you to think for a second that we withdraw from markets. We actually are focused on being responsible. So we can offer continuity to the marketplace as opposed to being irresponsible.
And then having to respond in a.
The rational manner.
Appreciate it and then the chief political scientist I made a comment.
A comment about 10.
Tax rates and a willingness to buy more munis amounts of helping the task condition of the company.
When you talk a little bit about you know the federal budget for lack of sort of progress on eye on.
I am not an aid for the states and whether or not we need to be concerned about municipal budgets for pensions and whatnot in the purchasing units.
Well, we're working in loss that advisors still here and I think he has strong views on the topic, so I'm not going to get in the way of that.
I think anything we do.
Politics. Moreover, this.
Highly uncertain and unpredictable but.
The most part.
The vast majority of government.
Hey, responsibly is.
Municipal bonds and I think there certainly are some states that wouldn't be concerned about.
For the most part municipal bonds the proved to be good investments line.
The line.
But that's not the world you really you know so we look at.
Every day its nuclear and you look at your merger.
Uh huh.
Trying to be careful in the UK.
We've been cautious investor we're excited.
[music].
Okay. Thank you for the answers appreciate it.
Thank you.
Any further questions at this time I will turn the call back over to Mr. Robert.
Okay. David Thank you very much for hosting us and thank you all for calling in.
Hopefully you come away from the call recognizing.
At least what we were suggesting that when we.
When we look out had a it was very encouraging we think there is opportunity for margins to improve from here, we think there's opportunity for growth and I think theres a clear line from where we are.
To that happening. So thank you again, and we will talk to you in 90 days.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
[noise].
[noise] I.
Yeah.
Yes.
[music].