Q3 2020 ProAssurance Corp Earnings Call
Good morning, everyone welcome to Proassurance conference call to discuss the company's third quarter 2020 result.
These results were reported in the news release issued on November <unk> 2020, and in the company's quarterly report on form 10-Q, which was also filed on November 5th 2020.
Included in these documents are cautionary statements about the significant risks uncertainties and other factors that are out of the company's control and could cause proassurance business and alter expected results. Please review the statements.
Management expects to make statements on this call dealing with projections estimates and expectations explicitly identifies these as forward looking statements within the meaning of the U.S. federal security laws and subject to applicable Safe Harbor <unk> protection the.
The content of this call is accurate only on November six 2020, and except as required by law or regulation Proassurance will not undertake and expressly disclaim any obligation to update or alter information disclosed as part of these forward looking statements.
The management team approach <unk> also expects to reference non-GAAP items during today's call.
Companys recent news release provides a reconciliation of these non-GAAP numbers to their GAAP counterparts.
Now as I turn the call over to Mr. candid with you and I would like to remind you that this call is being recorded and that there will be time for questions at the conclusion of prepared remarks Mr. Mcewen. Please go ahead.
Thank you go ahead.
On our call today, we have Ned Rand President CEO, Dana Hendricks, Chief Financial Officer, Mike Boguski preserve our specialty property and casualty lines and Kevin Schuck President of our workers compensation insurance operations.
There's a lot to impact this quarter when you started off.
Sure Ken.
In the third quarter, we continued to see improvement in our underlying operations. It's a beneficial results from our re underwriting and restructuring efforts begin to manifest as lower recurring operating expenses.
And improved loss experience in each of our operating segments.
It's one time incurred charges related to these efforts are put behind us.
Anticipate a continued favorable trajectory into the fourth quarter and the 2021.
Aside from our regular operating results, we continue to learn more about the COVID-19 virus as each day passes and.
And we gain insight into the impact it has on our business and those of our customers.
There's still much to learn about the disease.
And while we have seen some favorable claims trends that are likely to or is likely the result of the pandemic.
Weve remained cautious and recognizing these trends and our results given the uncertainty surrounding the length and severity of the pandemic.
Unfortunately, the continued market volatility caused by COVID-19, and sustained depression of our stock price is overshadowed the improvements we've made this year.
Dan to expand on the goodwill impairment charge, we announced in yesterday's release.
But I want to note that the charge has no effect on our liquidity our statutory entities.
And it's strictly an accounting transaction.
As I mentioned in yesterday's release.
I remain confident that our solid foundation and the strategic initiatives, we have undertaken in the past 16 months.
<unk>, well reward our customers shareholders and employees in the quarters and years to calm down.
Dana.
Thanks, Dan Oh.
I'll start with the goodwill impairment charge recognized in the quarter as it had the largest impact to our net result.
We routinely review our goodwill for potential impairment annually on October 1st.
Because of continued market volatility caused by COVID-19, and the sustained depression of our stock price, we performed interim quantitative impairment cats in the third quarter.
More detail is available in our filed form 10-Q, but to summarize we determined that while no impairment was necessary for our workers compensation or segregated portfolio cell reinsurance reporting unit a full impairment of goodwill was indicated for the specialty PNC reporting unit.
Consequently, we recorded a noncash pretax goodwill impairment charge of $161.1 million, which drove a net loss in the third quarter of approximately $150 million or $2.78 per share.
Importantly, we reported non-GAAP operating income of $2.6 million in the third quarter or five cents per share.
This excludes the effects of certain items, primarily the goodwill impairment and realized investment gains.
This result reflects lower consolidated net premium earned largely offset by lower current accident year net losses and loss adjustment expenses and lower operating expenses.
Each of these components will be discussed in more detail in the segment specific portions of our call, but I think it's important to note here that they are all primarily related to the intentional restructuring and re underwriting efforts completed over the past year.
Consolidated net investment income decreased quarter over quarter to $16.9 million.
This was primarily attributable to our lower allocation to equity securities coupled with lower yields on our short term investments in corporate debt securities given actions taken by the federal reserve to reduce interest rates in response to Kevin Knight team.
However, we reported $4.9 million in income from our unconsolidated subsidiaries.
We invest in various Lps and LLC and the results of those investments are typically reported on a one quarter lag accordingly, the earnings from unconsolidated subsidiaries in the current quarter represents the recovery in value of our Lps in L.L. sees in the second quarter of 2020.
For the third quarter, our consolidated current accident year net loss ratio was 80.7%.
Decrease of 1.6 percentage points quarter over quarter as the early results of our strategic underwriting efforts of the past year or beginning to manifest in our specialty PNC business.
The decrease was also driven by continued favorable loss trends in our workers compensation business.
Each of our segments contributed to the $11.5 million at net favorable development, we recognized in the third quarter well.
While lower than the year ago period, we want to emphasize that we continue to exercise caution given the current loss environment.
Our consolidated underwriting expense ratio was 30.5% in the quarter, an increase of 1.8 percentage points from the year ago period.
The increase is attributable in part to lower earned premium, but what is most important to know is that expenses in the current quarter included $3.2 million in one time charges associated with the restructuring. It resulted in 78 position elimination through a combination of early retirement.
Job eliminations reassignment and promotion expand our entire organization.
This restructuring is expected to result in annual savings of approximately $7.4 million. In addition to other expense saving initiatives earlier this year.
The take away is that we have taken specific and permanent action to improve our underlying expense structure without sacrificing excellence in survey.
More details about the restructuring will be provided in mikes and Kevin's remarks later.
This leads us to a consolidated combined ratio of 105.3% for the third quarter.
In summary, we continue to see incremental improvements in our operating results is the strategic initiatives in the past 16 months gain traction.
We also anticipate expenses will normalize for the remainder of the year furthering the gains we've seen to date now.
Now I'd like to ask Mike to start our segment specific portion of the call with the specialty PNC segment Mike.
Thank you Dana.
The specialty PNC segment recorded third quarter loss of $12.5 million.
Well, we're not satisfied with the result, it does reflect an improvement from the first and second quarters of 2020.
And there are a number of encouraging aspects of the quarter, which I'll expand upon throughout my comments.
Gross premiums written were $158.3 million, a decrease of 4.1 percentage per cent.
Quarter over quarter, reflecting our re underwriting efforts in health care professional liability.
And timing differences in the regular renewal cycle of 24 month policies.
Notably.
Within our specialty book, we have reduced gross premiums written in our senior care line by almost 70, 882% quarter over quarter.
Further the timing differences related to the 24 month policies in our standard physician line contributed $3.9 million to the reduction.
We have begun the process of converting all 24 month policies to 12 month policies, which we anticipate.
We'll be completed early in the second <unk> second quarter of 2021.
As we've discussed in recent quarters. The re underwriting efforts began in the third quarter last year.
Following the new executive hires in our health care professional liability underwriting operation during the previous quarter.
As of the end of the third quarter 2020. These targeted re underwriting efforts enraged TPL business or substantially complete.
We expect to benefit from the re underwriting efforts in future quarters.
We continue to focus on underwriting discipline and achieve minute about other long term profit objectives.
Taking this segment's top line if necessary to improve our bottom line.
In relation to these strategic underwriting efforts premium retention in the segment was 81% for the quarter.
Driven largely by 55% retention in our specialty lines.
Primarily related to the senior care line of business and.
And includes a non renewal of a $5.6 million policy in that line during the quarter.
The other standards position line retention was 85%.
Lower by two percentage points quarter over quarter, reflecting our state specific pricing adjustments and challenging venues and competitive market conditions.
However, we continued to deliver strong premium retention results in our medical technology liability business and small business units.
Which were 85% and 92% respectively.
The segment's lower premium retention was largely offset by renewal premium increases of 14% in specialty.
10% and standard positions.
In addition to the rate increases in specialty we have also significantly strengthened rate adequacy adequacy through our improvement of product structure terms and conditions.
New business writings in the segment were $8.7 million in the quarter compared to $9 million a year ago.
This week. This result reflects careful risk selection disciplined underwriting evaluation.
And to a lesser degree the impact of slower submission activity.
Due to market disruptions from COVID-19.
New business writings in our medical technology liability business increased to $2 million compared to 1.3 million in the third quarter last year.
As demand for pandemic related products in the medical technology space continues to rise.
The current accident year net loss ratio was 89.8% in the quarter.
A 4.7% percentage point improvement from the year ago period attributable to underwriting efforts and price trend thing.
Furthermore.
The current accident year net loss ratio for the first nine months of 2020, excluding the large national health care account tail policy.
And the $10 million over reserved is approximately six and a half percentage points lower than the full year ratio for 2019.
In the quarter, we continued to observe is a significant reduction in our claims frequency as compared to the same quarter in 2019 like.
Likely associated with COVID-19, however, we remain cautious in recognizing these favorable frequency trends in our current accident year reserves.
The possibility of delays in reporting and uncertainties surrounding the length and severity of the pandemic.
We have not booked any additional IB in our reserves related to the pandemic during the quarter.
After carefully reviewing the Irish related claim activity.
Despite the current loss environment, we recognized net favorable favorable prior year development of $2.9 million of which 2.5 million is attributable to our medical technology liability line.
As previously stated we remain conservative in our views of prior year loss development as a result of that as a result of the current loss environment.
The specialty PMT segment reported an expense ratio of 28, 23.8% in the quarter essentially flat from the same quarter last year.
The expense ratio reflects improvements in our <unk> expense model made during the past year offset by related onetime restructuring expenses of $1.8 million.
And lower net earned premium.
This restructuring is expected to result in annual savings of $3.6 million. In addition to other expense savings measures with please just disclosed previously.
As a result of our prior organizational structure enhancements restructuring field offices and staff reductions we.
We anticipate quarterly run rate expense savings.
$3 million in the segment were $12 million annually.
We continued to build an operating model that positions us well to be successful throughout the various insurance and economic cycles.
I'll conclude with a brief update on the nor Cal transaction.
We continue to proceed through the regulatory and integration planning process.
However, once we receive preliminary regulatory approval of nor Cal has proposed plan of conversion.
There will be a 60 to 90 day solicitation period before the deal can close and.
We anticipate the deal will close in the first quarter of 2021.
The Norco group its employees agents and customers represent an exciting expansion in the standard physician marketplace upon.
Upon completion of the transaction approximately 75% of our health care professional liability business will be written in the standard positions line a marketplace in which we have deep expertise.
And a successful history of profitability.
We remain excited about the combination of the companies.
And our future together and we'll continue to work together with the nor Cal team to complete this transaction.
Thank you Mike.
Now I'll turn it over to Kevin <unk> comments about the results of the workers compensation insurance and segregated portfolio cell reinsurance segments Kevin.
Thank you Ken the workers compensation insurance segment produced income of $1.5 million and a combined ratio of 97.4% for the third quarter of 2020.
During the quarter the segment booked $63 million of gross premiums written a decrease of 10% quarter over quarter.
Renewal price decreases were 3% for the quarter representative of the continued competitive pressures in our underwriting territories, despite COVID-19 and the associated economic conditions.
Premium renewal retention was 86% for the 2020 quarter compared to 84% in 2019, as we continue to see stronger premium retention each month during the pandemic.
New business writings decreased quarter over quarter to $7.4 million in 2020 compared to $11.3 million in 2019.
Audit premium for the third quarter of 2020 resulted in return premium to policy holders of $1.6 million compared to additional premium to the company of $1.8 million for 2019, a quarter over quarter decrease attributable to the economic impact of coal.
Slide 19 on policyholder payrolls we.
We continue to expect downward pressure in future quarters on direct net written premium resulting from changes in payroll estimates.
The calendar year net loss ratio decreased 3.2 percentage points to 62.2% in the third quarter due to a decrease in the current accident year loss ratio and higher prior year net favorable reserve development of $2 million in 2020 compared to 1.4 million.
In dollars and 2019.
Reduction in the 2020 accident year loss ratio from 70.4% at June Thirtyth, 2020% to 69.2% at September Thirtyth 2020, what's driven by our recognition of favorable claim trends in the 2020 accident year, which I'll describe in more detail.
Momentarily.
As this reduction was fully recognized in the current quarter. The result is a third quarter current accident year loss ratio of 66.9%.
The 2020 accident year loss ratio of 69.2% at September compares to 68.2% for the same period in 2019 and reflects the impact of renewal rate decreases and negative audit premium partially offset by the favorable claim trends in 2020.
We've seen a 36.5% decrease in reported claims frequency during the pandemic with only $1.3 million on gross undeveloped incurred losses from the currently reported 447 Kobin claims however management remains cautious.
As in its evaluation of the 2020 accident year loss ratio considering the many uncertainties surrounding the pandemic.
Our claims professionals remain highly effective while working remotely closing, 47% of 2019 and prior claims during 2020 consistent with historical claim closing rates.
Legislative attempts to broaden coverage for workers compensation claims seem to have lost traction in certain states as their economies attempt to remain open and legislators focused on elections recently, we can only conjecture better second wave or the continuation of increased reported cases.
In May we revive efforts in this regard turn.
Turning now to expenses the underwriting expense ratio in the quarter was 35.2% compared to 30.1% in 2019, reflecting the decrease in net premiums earned and a onetime severance charge of $923000 related to our restructuring which I.
I will describe in more detail shortly.
Underwriting and operating expenses were $15 million for the third quarter of 2020, essentially flat from 2019. Despite the included severance charge.
Turning to the segregated portfolio cell reinsurance segment income was approximately $1.2 million for the quarter, which represents our share of the net underwriting profit and investment results of the captive programs in which we participate.
Premium and loss trends and the SPC reinsurance segment were consistent with those in workers compensation.
We renewed all the alternative market programs available for renewal during the current quarter and year to date.
We'll wrap up by discussing recent restructuring initiatives and our workers compensation business.
19 continues to present challenges for all in the insurance marketplace.
Let's see holders agency partners and insurance carriers are conducting business in ways previously unimaginable and in some cases, representing a new normal giving these challenges we have used the past seven months to thoroughly review the impacts of Covidien and the external environment on our business.
Agency partners operations and valued customer base with the ultimate goal of enhancing our service platform to meet the ever changing needs of the marketplace and those presented most recently our detailed strategic review led us to make permanent organizational adjustments to our business model we will.
Leave the structural enhancements will allow us to grow our business profitably, while strengthening our industry leading products and services.
These changes include repositioning from from five regions to three or four more effective and efficient management of the underwriting risk management and claims processes, improving the consistent application of our business model, while maintaining our local service teams, we integrated small business and.
Underwriting support functions into one unit for each with dedicated leadership, which will allow us better turnaround time on policy submissions, while continuing our individual account underwriting philosophy that has been a resounding part of our success in workers compensation.
Lastly, we realigned our previously Standalone captive team into our regional structure to improve accountability and we streamlined our marketing operations to extend more agency management responsibilities to the decision makers in the underwriting process. These changes resulted in some early reads.
Tyerman job eliminations, reassignments and promotions striving for continuous improvement and proactive enhancements to business models are imperative as circumstances economic trends and changing insurance markets present themselves and importantly, before the full operational and find.
Actual impacts our realized consistent with our history of evolving to meet the demands of the changing environments in which we operate these structural enhancements will strengthen our workers compensation business further and were applauded by our agency partners and customers the restructuring implementation commenced.
Tempur first and is expected to result in an annual savings of approximately $3 million. In addition to other expense management measures Ken.
Thank you Kevin Ned before we get to your closing comments I would like to turn to the Lloyd's syndicates segment for a moment is there anything you want to tell us about the results from London.
Thanks, Ken and yes, there were some notable changes to our results at Lloyds from the prior year quarter.
First our results in the quarter were income of $3.7 million.
One of the best quarters, we've had since we invested in the syndicates.
Our combined ratio improved to 10.5 percentage points to 89.6%.
As both net losses and underwriting expenses were reduced by over 20%.
In addition, as a result of our reduced participation in the third quarter. We received a return of approximately $32 million from our funds at Lloyds.
Lastly, syndicate 61, 31 entered into a quota share reinsurance arrangement.
With an unaffiliated insurer effectively reducing our net participation in the syndicate by half.
The agreement is effective July one 2020.
So it will not be reflected in our results until the fourth quarter of 2020 due to the quarter lag.
We continue to work closely with Dale underwriting partners to monitor the global legislative situation pertaining to Covance.
Thankfully contractual policy language has largely held against attempts to expand coverage were no coverage was intended.
Particularly in the United States and our loss estimates to date have held up.
Speaking of loss estimates given the number of natural catastrophes that occurred during the quarter I want to note that to date our exposure to these events has been within our cat expectations for the fourth quarter.
Before we open the call to questions I want to return to reiterate that the changes we have implemented in the quarter and over the past 16 months.
Have been important.
The changes are focused on both achieving our long term profitability goals and enhancing the excellent products and services, we provide to our customers.
As a company we have always operated with the understanding that the long cycles inherent in our industry will challenge us and troughs and reward us and peaks.
Our role as a specialist is to be the absolute best possible choice for our customers regardless of the stage of the cycle in which we find ourselves.
To that end I want to quantify our actions taken to date.
You heard and Dan his remarks and throughout the call about our initiatives in each of our segments and related onetime charges, but I think it would be helpful to consolidate that information for the big picture.
As a result of our strategic initiatives in 2020, we anticipate $17 million in annual expense savings.
This is on top of initiatives taken in 2019 that reduced annual cost by $5 million. This.
This brings us to estimated cumulative annual cost reductions of approximately $22 million. Since this leadership team was put in place over 16 months ago.
Which includes an overall reduction in our workforce of approximately 13%.
Thus far in 2020, we recognized a little over $5 million in one time charges, primarily related to early retirements and job eliminations.
These changes, though painful are necessary as we create the next generation of Proassurance and position the company for success.
As we head into the final quarter of 2020.
I look forward to an exciting 2021.
Thank you Ned.
Coal that concludes our prepared remarks, we are ready for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
And our first question today will come from Greg Peters with Raymond James. Please go ahead.
Good morning.
So much.
Go back to nor Cal.
Everything's going on track can you.
Since this is going to be a pretty major acquisition can you talk about.
How their results.
Trended on a year to date basis, and if they are deploying any re underwriting initiatives et cetera. Just so we can have a sense of how the two organizations might look when their combined.
Mike do you want to take that.
Sure sure good morning, Greg.
As far as the nor Cal reserve results through nine months there.
There are certainly.
Executing on.
And underwriting plan with the rate achievement and.
And looking at their specialty book of business is similar to ours. So.
We're pleased with that.
There certainly booking higher.
Higher.
Accident year loss ratios I believe it's hot high Ninetys and kind of a.
A combined ratio roughly in the the kind of the 120 range.
Yes, three through 930.
The other thing I'd say, just overall is theyre seeing the same things we are with.
Less clear.
Claims frequency in their their accident year 2020 accident year book of business as a result of that.
Uncertainty of the of the pandemic and yes, I think as you look at the combination of the company's Greg There's there's about $20 million.
But.
Other expense synergies and we will proceed with the a very consistent underwriting model and strategy when we combine the companies together.
So and I think the other thing to keep in mind on the transaction just from a strategic standpoint.
Is we're combining.
Our roughly $250 million of physician standard physician business with theirs.
And that's been the more profitable segment of the market, there's represents roughly $250 million to $275 million.
And as we put them together, we will certainly take advantage of that.
The geographic diversification and and all the expense synergies and.
Combined our underwriting strategies and and I'll, just say that it's been.
A more profitable piece of the MPL business over the cycle.
And they also have a smaller.
Specialty book of business relative to ours. So the game to game plan is to read too.
To to integrate.
Build a attractive national platform with scale on a regional basis.
And continue to.
Work hard to bring the organizations together to produce a profit for shareholders.
So just one follow up on the nor Cal.
Look at your specialty PCC business and you guys provided detail allowed wide.
Toplines mugu down is.
Is it fair to assume that their topline their gross premium written in their net written premium on a year to date basis is also down between five and 10% like yours.
Greg I I'd have to check my notes on that but the the first year in specialty I think the standard physician book has been much more stable for them.
Got it all right.
And I think important to that is the specialty book at at nor Cal is very small I mean, it is it is 90 plus percent.
Just physician business. So when you guys will have just doesn't have the impact that it would have like it does on our book So let's let's just be clear you said, it's running around 120%.
Precise combined ratio year to date, that's our total business correct.
That's correct.
Okay.
I want to I mean, I may have a capital question before I get to that I just.
Net investment income.
So just look at the consolidated numbers, you know and I know you provided some detail on why certain things are down but on a year to date basis is down 20% down 28% just talk from page one of your press release and.
The third quarter.
Understand.
There is a lot of moving pieces.
Yes, the volatile markets et cetera.
Hey.
We're sitting here on the outside looking at and what kind of guide calls can you put you know around our investment income assumptions and lets keep nor Cal aside when we think about 2021 2022 is a is it going to stabilize at this new run rate is it going to go up.
Can you help us.
Ill put something together.
Dan you want to respond to that yes, yeah, I'd be happy to Ned.
Yeah I agree it's a good question so when you're looking at our current quarter results, let's say or or on a year to date basis, and you're comparing that to the prior year.
Probably the one in a significant factors that are.
Impacting those numbers in fact that since that time over the course of say the second half of 2019 and early in 2020.
We were de risking our investment portfolios. So you're seeing the results now of a lower allocation the impact of a lower allocation to our equity investments.
And of course, it Additionally, you're saying they impact.
Impact of just the lower yields overall.
In the remainder of the portfolio. So as as you look at the sort of I think what we've got here.
In the current quarter is a good basis for go forward.
So yeah. So just to clarify you know I'm looking at your total portfolio, you know of 3.33 or 3.366 billion.
You are saying that the the <unk> on a consolidated basis 50 $556 million quarterly number.
Off that asset base is sort of a good run rate to assume going forward again ex nor Cal because obviously when you bring north Carolina is going to be an adjustment.
Yes, so in the in the current quarter, where Ed about 17 16 million.
Yes, so in that 60, you know in that.
60 ranges.
Is where you can sort of start off of that consolidated view of our net investment income and go forward from there because the.
The <unk>.
We are not reallocating at this point any portion of the portfolio significantly got it yes, but keep in mind, our Greg that we're probably reinvesting at lower rates than what's maturing off the portfolio right given where rates are right now right, but I mean, you've done. Thank you very much for that that that does help us sort.
To set expectations at least on a you know as we think about next year I'm right I guess the final question I'm sure. This I'll answer the last question would be just wrong capital.
I you know.
The goodwill charge, obviously doesn't necessarily affect capital, but does your book value per share did take a hit so.
Where do you think the company is in terms of excess capital today, and I guess more importantly, once nor Cal is Don where do you think the company will be on a pro forma basis in terms of excess capital once on the close of nor Cal.
Gregg said, it's a good question.
Yes.
One of the challenges I think of the environment that we that we are in right now and all the uncertainty that that comes along with it.
As a need in a desirable to hold more capital and being more conservative in your capital base.
So.
You know I think that certainly is what we think from a from kind of a liquidity standpoint.
That's really where we're focused and funding for the nor Cal transaction and we've got I think a very solid plan.
On on how we're going to approach that.
What we think will close in the first quarter of next year.
The book that transaction with nor Cal is a book value transaction the way, it's structured and so it it it.
It doesn't erode any capital in the organization and then allows us on an operational basis to operate.
At a slightly higher leverage ratio, but one that we think is very sustainable for the organization.
So.
I'm not sure if that's entirely responsive to your question, but thats kind of our view of things.
And while it did it isn't really but I understand that you there I understand parts of that.
Yes.
I'll take the rest offline. Thank you for your answers.
And our next question will come from Mark Hughes with Truth. Please go ahead.
Yes. Thank you good morning.
Oh, we think about the the fourth quarter, you're through with your re underwriting program, you've been putting rate increases in place.
This quarter your specialty in the written premium was down mid single digits.
If you're an inflection point in the fourth quarter I know you don't provide guidance.
But I'm just trying to think about.
You may now that you're rude Vicki you sales.
Lot of the debt.
The profile of the business Monday morning specialty PNC.
But look in the fourth quarter and into next year.
I, maybe I'll take kind of inflection point question, then I'll, let Mike talk more specifically about the specialty bucket.
Because we write a very long tail line of business and.
Compounded by.
The uncertainty that pandemic brings.
If there is an inflection point, that's going to come it's not going to come in the fourth quarter.
It's somewhere down the road.
When we have greater clarity about the ultimate impact of the pandemic and the ultimate impact of all the measures that we've taken we're very positive.
And very bullish on everything we're doing.
But it's going to take time for the confidence to come through especially in the actuarial analysis of those measures.
And we're going to be cautious netted it yeah, and if I might.
I was thinking a little more top line.
Clearly with you on the data.
Yes, Okay, I'm, sorry, I misunderstood you.
Your question, Yeah. So Mike can talk more about the about the kind of inflection point on the topline or lack thereof. So Mike why don't you handle that.
Sure Ned.
Good morning, Mark.
[music].
Just to kind of look at the overall specialty PNC segment, we're kind of seeing it at our medical technology business.
Relatively flat trends, but some pretty good new business opportunities as a result of the pandemic and.
And certainly our access product in our small business unit is too which is roughly a $100 million book.
We're kind of looking at that and and.
That's we're seeing strong retentions.
Some rate coming through that starting to come through the book and hoping hopeful to see that grow a little bit more on the new business side.
With that in the fourth quarter and then as we as we move forward out into 2021.
I think in a healthcare professional liability when you look at the top line.
Specialty has been re underwrite underwritten pretty aggressively over the last year as you can tell by the retentions over the last several quarters.
We're still substantially through that we do have marked some two year policies that were written in 2019 that will come up you know it kind of in the first quarter that our larger that could provide us with potential liability.
Volatility, but I will say this that we're substantially through that process we're expecting.
Retentions to stable out stabilized throughout 2021 in the specialty area.
In this in the.
Standard physician business.
Again, we are pleased with the 85% retention this quarter.
We still expect a there's a lot of competition in that market I think the specialty market.
Certainly has firmed much more and we have the ability to achieve.
Additional rate product structure terms and condition improvement.
But we still see a particularly on a state by state basis, they stand or physician market being pretty competitive.
So we're keeping an eye on that as far as retention rates going forward, but as far as the major components of the re underwriting effort.
You know weve really been been through them as we proceed into the fourth quarter.
Like I said with a couple of larger accounts in 2021 in specialty that.
Could provide some some volatility.
Thank you for that the.
The impairment.
Dan I think you could get it didn't impact the workers comp business, if it's a function of kind of the broader stock price, what's the distinction between the.
The you know the old there.
Med Mal acquisitions versus the workers comp acquisition.
Hey, Mark.
I think it's really where the volatility in our business has been.
That is.
As the distinction so when you when you look at the the volatility of our operating results.
There emanating from the specialty PNC side of things and the results in the work comp side have been much more stable.
Then when you mentioned the Lloyd the outlook for the losses from the recent weather you say that.
It's within expectation is that to say it will be a tough quarter.
Yeah, I'm not out.
Out of line went bad quarters in the past, it's still a tougher quarter.
So yeah, I think it will be a tough quarter there.
We're still gathering data.
And.
As always with the with the storms and other cat events. It takes a little while before you have that kind of totality of things.
He said it we kind of expect that within our expected cat load.
But it.
It certainly won't will put some pressure on the quarter I don't know Dan if you if weve got any more insight since we've gotten a quarter lag weve got any more insight at this point into.
What we think that might look like.
No I think youve accurately reflected what what we know at this point.
Yes, I think.
We're likely to to post a loss for the quarter, but not a not a tremendously sizable loss something under a couple of million dollars.
Okay understood. Thank you.
And once again, if youd like to ask a question. Please press Star then one.
Our next question will come from Paul Newsome with Piper Sandler. Please go ahead.
I'm sorry, you hit most of my questions, but.
Like to beat the Lloyds thing just a little bit longer.
Just so I know.
So the reduced the impact of the reduced participation that's because of the lag is going to happen.
Isn't going to be reported next quarter. It will be in the first quarter rights is that.
We've got it right or not.
So a couple of things there Paul just to make sure sorry, if we weren't clear.
The.
The reduced participation on syndicate, 61, 31, which is a small special purpose syndicate that that.
That we participate in that reinsurance was effective July one.
So it will be and our fourth quarter their third quarter.
The reduced participation in the <unk> and the Syndicate 17 29 started.
In the first quarter of this year for them and so did have been our second quarter, but recognize that.
Because a lot of the business. They write is reinsurance that earns out over 24 months as opposed to 12 months that it doesn't manifest itself quite as quickly as it would if everything were just earn out over 12 months.
Okay, I think I got the apologize it's that you I'm sure. It's me that I'm sure I'm sure. It's me Paul Thanks.
And then.
Any sort of broader thoughts on the competitive environment.
Especially business obviously.
Obviously, you talked about a little bit already but.
I guess I'm little bit surprised to see it.
You commented about continued competition and.
I guess is that.
Because other folks who not seeing the results you are or is it. Some other things that you think may be going on.
Competitive environment.
Yes, I'll, let Mike.
Respond initially into that Mike you want to talk about what you guys are seeing in the specialty fancy market yeah.
Yeah. Thanks.
Thanks, Ned and good morning, Paul.
Just a couple.
No observations.
It is clearly bid.
More competitive in the standard physicians market, but it state by state.
And the more challenging venues and as you could see with our results through the third quarter with double digit rate increases.
There are areas, where the standard physician market Mark.
Market is firming up and that's more of a state by state basis. There are some other states that they.
They are highly highly competitive and you're not able to achieve the rate objectives and and.
Secure as much new business, if you want in those targeted stage.
The specialty.
Which includes just the the hospital market.
Senior senior care market.
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It has been pretty from all all year I mean, we've been really pleased.
Both on new business.
And.
The renewal terms that we've been able to secure in that market.
Has been really helpful to turn that book around.
And I'm talking about.
The rates the product the product structure changes terms conditions.
Reduced limits, all those add up to a much more.
Profitable book on the renewals that we've handled in and a selective new business that we've written there.
And then the other thing that I'd say just in general is new business.
Opportunities.
Definitely been.
Down a bit in across the age CPL market as a result of the disruptions from COVID-19 as far as.
Submission activity so we're.
We're hoping that we'll we'll pick up as we go through the fourth quarter.
And in into 2021, we.
We did see some nice cadence in new business in the fourth quarter and we're hoping that continues we wrote 8.7 million.
Just slightly less than that the the the.
2019 quarter of nine.
So we're we're we're hopeful to have a more consistent new business year in 2020 as some of the issues with the pandemic hopefully reside.
You know just kind of.
Get a little bit more easier for us to deal with in the marketplace.
And I just want to clarify Mike I think you said fourth quarter for that that 8.79, I was our third quarter new business number yes. Thank you.
Yes.
Great. Thank you and I think I heard someone knock on wood about improved.
Jewish and so I would do the same appreciate it.
And our next question is a follow up from Mark Hughes with Trust. Please go ahead.
Yes. Thank you I think you might have touched on this but as you look at the how older claims are developing in the current environment clearly new claims are down so I'm curious whether the.
Current circumstances have affected your ability to close the claims any maybe administrative disruption anything like that or alternatively, whether there's been more motivation to close claims just be interested to hear you talk about what's going on on the back book So to speak.
Yeah, Mark Thanks, and I'll, let Mike chime in as well, but you know one.
One of the one of the bigger issues, especially early on in the pandemic isn't the court systems largely shut down.
And as an organization that goes to bat for its insurance.
Not having the the courts opened for those trials certainly has slowed things down on that end.
And then I think it's probably a mixed bag on what the ultimate.
Impact of that as I think for some people it is probably driving toward settlement sooner and for others, they're happy to to ride out kind of the the administrative delays we are beginning to see the court systems opened up some.
Yeah, maybe not fully but in certain jurisdictions. They are working toward trials and certainly things like depositions and other parts of the process have have opened back up.
Much more significant significantly.
So.
Alright, sorry, guys I got some statistics from from Rob Francis We have only had four trials since February over that same timeframe last year, we had 74 trials.
So that gives you a sense of what's going on with the with the court system, Mike I'm not sure what you might add to that.
No no no I don't have anything additional to add.
So four trials since February.
And this may be too narrow gauge.
To to be relevant to you.
Favorable development was a little lower this quarter is that just the.
Not.
Possible to get resolution and so therefore, the reserves are kind of frozen in place if you fully.
Your trial versus 70, there last year, that's a pretty good.
Yeah again, we talked about the uncertainty that comes along with the company brings and this is one of those areas and so it is as I said, it's a mixed bag on kind of the impact is having on on closures I think it is slowing down claim closures.
And you know what.
What the actuaries, hey, more than anything is and consistency and data right and so when you when you have these disruptions and.
Patterns it becomes a greater challenge to analyze and I think when that happens you approach that with a lot of caution as to what it means which is and what we're doing.
And now I.
And one other question I had again a lot of this has been touched on but I was just doing kind of the simple approach of.
The trend in pricing versus the trend and losses have a loss costs.
Inflation versus pricing trends, how would you characterize that in the.
Healthcare professional liability space.
Mike you want to say.
Yes, I will.
Just on.
Just from a standpoint of frequency.
It's been it's been relatively flat except for this cobot impact that we've been talking about.
The severity trend it's it it's so theres such over.
A variation by state we have some states that have.
You know pretty benign severity trends there that are have there's others that are high single digit, but you know just can't be good.
What we're tending to see is severity trend in that kind of three to 3.5% to 4% range you know did.
Depending on the state.
And and then obviously, we're taking our our rate actions offer that kind of trend as we move forward and I'm just.
Yes, we are getting nice margin over our loss cost trends as we look out throughout 2020 for sure.
And I guess the other thing that I'd say is this you can see that in the kind of accident year loss ratio.
Reductions since the year end 2019, it's roughly six and a half points.
Exclusive of Kobin exclusive of the large national health care tail. So we're.
We're seeing some positive trends.
And again, the six and a half point and I'm, sorry, if I.
I missed the point, but youre.
That number is if you exclude coal, but if you exclude the large national accounts within the specialty PNC the.
Improvement of six and a half point.
Yeah, that's a that's a number relative to year end 2019, and it's an accident year number.
Yeah Okay.
And then Dave the income from the equity.
On a consolidated.
Subsidiary.
The 5 million this quarter I think it was a much more road downdraft last quarter.
Do you have any early view on how that's going to shake out in the.
In the fourth quarter I think that that another one that's on a one quarter lag that we had visibility for that.
So within the Echo.
Equity in earnings.
El Pais and Ll sales tend to follow the broader equity market. It's just that we will be reporting them on a quarter lag site.
That's how you see it come through our financial statement. So that that's probably the best guidance I can give you.
Around equity in earnings.
Yes, yes, okay.
Alright, Thank you very much.
And again, if youd like to ask a question. Please press Star then one.
And this will conclude our question and answer session with a company like to make any closing remarks.
Oh no. Thank you cole.
Just want to thank everybody that joined US today and again, please stay safe and healthy and we look forward to speaking with you again in February.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Your lines at this time and have a great day.
Thank you you too.
Yeah.
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