Q3 2020 Kinsale Capital Group Inc Earnings Call
Before we get started let me remind everyone that through the course of the teleconference can sales management may mix.
Since that reflect their intentions beliefs and expectations for the future as always these forward looking statements are subject to certain risk factors, which could cause actual results to differ materially.
These risk factors are listed in the Companys, various FCC filings, including the third quarter Twentytwenty quarterly report on form 10-Q, and the 2019 annual report on form 10-K.
Which should be reviewed carefully the car.
He has furnished a form 8-K with the Securities and Exchange Commission that contains the press release announcing its third quarter results.
Can't sales management May also reference certain non-GAAP financial measures in the call today <unk>.
A reconciliation of GAAP to these measures can be found in the press release, which is available at the company's website at Www Dot Kinsale capital group Dot com.
I would now like to turn the conference over to Ken sales, President and CEO Mr. Michael Keyhole. Please go ahead Sir.
Thank you operator, and good morning, everyone. Thank you for joining us on the call today.
As usual, Brian Petra Sally can sales Chief financial Officer is here as is Brian Haiti.
Chief operating officer.
I'm going to begin our presentation and then.
Brian Petra Sally will step in to cover the financial performance for the quarter and following that Brian He will provide some color on the market and our underwriting operation.
Last night can sell reported operating earnings of 42 cents per diluted share for the third quarter of 2020 down 26.3% compared to the third quarter 2019 gross.
Gross written premium was up 48% for the quarter.
The company posted a 97.3% combined ratio.
On a 13% annualized operating return on equity.
For the nine months ending on September 32020.
The quarterly profitability was negatively impacted by multiple catastrophes, principally hurricanes, Laura and Sally on the Gulf Coast.
The glass wildfire in Napa Valley, California, and even one loss from the duration windstorm in Iowa.
As a reminder, we do write catastrophe exposed property through both our commercial property and personal personal insurance divisions.
Although the margins on property cat can be compelling we are also mindful of the volatility.
Associated with that business, and we limit that volatility in a conservative fashion.
Obviously can't eliminate it completely.
Each of these events individually resulted in a manageable was well within expectations the.
The combination of multiple events in the same quarter is what drove the outsized kind of loss.
[laughter] beyond the cat activity can sales business continues to perform at a high level the combination of disciplined and highly controlled underwriting combined with technology driven low cost.
Our focus on the N.S. marcon.
Is propelling our profitability and growth and we believe we'll continue to do so over the long term.
Sales growth rate at the moment.
It's being enhanced by continued dislocation within the PNC market.
Some competitors are reacting to substandard results by restructuring books of business canceling programs in withdrawing capacity there.
This behavior is causing can sales new business submissions and premium to grow at strong double digit rates and we continue to expect this extraordinary growth to continue through 2021.
At some point thereafter, we expect a level of dislocation in the broader market to abate and our growth rate to normalize perhaps in the low double digit range.
Beyond the accelerated growth industry dislocation is also allowing can sell to raise rates and in some cases restrict coverage to further expand our profit margins.
Ryan Hany will provide some additional commentary on this topic here in a moment.
Our position on the COVID-19 virus hasn't changed from earlier in the year because of the mix of business and the coverage limitations in our book, we don't expect the virus to materially impact can sales and profitability or growth and now I'll turn the call over to Brian That's yourself, thanks, Mike as Mike.
I just noticed that the Q3 cat activity had a significant impact.
On our results for the quarter net income and operating income included $13.2 million on after tax cat losses.
Keeping in mind. These losses were offset somewhat by lower <unk> lower variable compensation increases in investment income and Oh and by the continued growth in the business.
We reported net income of $14.9 million for the third quarter of 2020, representing an increase of almost 15% when compared to $13 million last year.
His opening from approximately an 8 million dollar increase in investment returns all set by the cat losses during the quarter.
Operating earnings, which excludes the volatility from equity investment gains and losses.
Were $9.6 million down from $12.6 million in the third quarter of last year.
And lower primarily due to the cat losses.
Company generated underwriting income of $2.9 million and a combined ratio of 97.3% compared to $9.5 million and 87% last year.
The combined ratio for the third quarter and 2020 included 2.8 points from net favorable prior year loss reserve development compared to less than a point last year.
Our effective income tax for the first nine months of 2020 was 12.8% compared to 16.6% last year.
And lower primarily to larger discrete tax benefits related to stock options exercised during the period.
Annualized operating return on equity was 7.8% for the quarter and 13% for the year, so far both impacted by the cat losses combined with.
A higher average equity balance, resulting from the $57 million in net proceeds we received from our August equity offering first.
Gross written premiums were $145 million, representing 48% increase over last year for all the reasons, Mike previously mentioned.
On the investment side netting.
Net investment income increased by 33% over the third quarter last year up to $7 million from $5 million last year I was ER as a result of continued growth in the investment portfolio.
Annualized gross investment returns, excluding cash and cash equivalents was 3% for both the first nine months of this year and last.
Diluted operating earnings per share was 42 cents per share for the quarter compared to 57 cents per share last year.
Important to note and to give some perspective on the performance of the company's underlying business and adjusting for the impact of the cat activity, including the losses themselves reinstatement premiums paid to reinsurers and adjustments related to variable compensation. The company's quarterly combined ratio would have been approximately 84%.
Quarterly net operating earnings would have been approximately $21.3 million and annualized operating return on equity would have been approximately 17%.
Diluted earnings per share would have been approximately 93 cents per share for the quarter.
And with that I'll pass it over to Brian Thanks, Brian.
As mentioned earlier premium grew 48% in the quarter, we are seeing growth across the board our life Sciences and environmental businesses in particular are up significantly in part because of the pandemic.
The overall economy, however, still being affected by credit related restrictions I expect and opponents of time those restrictions to be less and we should see the release, some pent up additional economic activity, which should have a positive impact on our business opportunity.
The market continues to harden and as Mike mentioned, we expect that to continue through 2021 one.
One recent example to illustrate what we see going on and.
Admitted to ensure a recently canceled on lawyers in that program, which caused a number of accounts we shop. Some of those accounts will go to other admitted carriers, but many will end up in the surplus lines market, which creates more opportunity for us.
Two things really help us when the market turns out of that is now doing first our rates, which would tend to be higher than our competitors are tougher to sell in a soft market, but when competitors adjust their rights to correct problems in their books of business our rates become easier to sell.
Similarly, we focus on a narrow tailored coverage correct, which doesn't sell as well in a soft market and this hardening market. We are seeing competitors become more restricted with coverage. So we are finding our forms and coverage a bit easier to sell and affect the market is coming to us.
One example of this would be are you use of pathogen or virus related exclusions.
He property insurers have long had virus exclusion, but not many of our competitors put such exclusions on casualty business. We did we.
We implemented does well prior to cover that when it was a tougher sell now that competitors have started adopting our approach. We find there is a lot more interest in our products.
We do have a few new products, we either recently launched or about to launch. Among these are new aviation segment. The product recall segment and a commercial auto segment. These are incremental expansions to our product line, but keep in mind, we are still falling the essential kinsale business model on hard to place surplus lines business.
Submission growth was 25% in the quarter and basically unchanged from last quarter.
As for rates, we are still pushing them up in response to market conditions. As a reminder, we had a very bad Rogers book of business, which complicates, reducing all the rate movement to one single number but that all being said, we'd say, we see rates being up 10% to 12% in the aggregate during the quarter, even beyond getting pure rate. We are further tightening terms and conditions, which.
Contribute even more to the bottom line and with that I'll turn it back over to Mike. Thanks, Brian.
Operator, we're now ready for Q and a.
Thank you at this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
If you would like to withdraw your question press the pound key.
Your first question comes from the line of Matt Carletti with JMP Securities.
Thanks, Good morning.
Good morning, Matt.
A couple of questions I wanted to start with just the pricing environment, and specifically kind of if you comment a little bit about how you're seeing.
Rate versus trend you know the accident year loss ratio has been quite stable.
You're getting a lot of pricing how should we think about that going forward are you are you seeing indications that there might be kind of building margin and you're just kind of waiting to see how it plays out or are there other mix changes and things like that taking place that that may be part of the picture a little.
Yeah. So I would say you know rates like I said are up 10, 12%, we see trends probably being in that 3% to 4% range, obviously that would imply a higher margin. Our reserving process is very conservative so that implied increase in margin doesn't immediately show up.
But okay that's number one.
Got you, yes, that's it.
Wanted to that.
Just going to say just as a reminder, this is Mike.
You know our goal is always to build reserves that are much more likely to develop to develop favorably to an unfavorable.
And so I think you know.
The dynamic that Brian just spoke to.
Uh huh.
That's what's driving that that conservatism.
Okay great.
And then I wanted to touch on the cats real quick.
And I think with the understanding that broadly across the sector. It was a pretty historic frequency of activity during the quarter. I think we have to go back a long ways before we find such frequency does this kind of a loss in the quarter cause you to think about the aggregation there in any way different than you did before or is it some.
Thing, where you you very well understood that that was the potential and given how infrequently that sort of thing happens that you're you're you're fine with the result, and and are willing to take that that volatility about risk.
Yeah, I would say you know we do like the Cat business, you know even more today than in the past several years the margins are pretty compelling.
We're also mindful of the volatility and I think we've really actually have a very conservative approach in terms of.
Not just a quality underwriting approach, but it's fairly.
Fairly strict.
Limits on the concentration of business in any one area and then overlaying that is the fact that we you know we actually buy a lot of reinsurance to protect against that volatility as well and I think if you kind of just aggregate the 15 percentage points on our combined and.
And look at the individual events.
You know they were all very manageable.
[noise] outcomes, given you know the kind of the risk reward that we see in that business. So.
You know it's unusual that you would have that that amount of activity in a quarter, but it's certainly not unprecedented and it's certainly a risk that were.
Trouble us.
Okay, Great and one last numbers question probably for Brian.
The expense ratio is quite good in the quarter can you can you unpack that a little bit I mean, I imagine. There's obviously you are growing quickly you're getting some scale, maybe that's not the big piece of that but also with everything going on pandemic and otherwise I'd imagine there are some some travel and those sorts of savings as well. So just just trying to get a feel for how much of that is found at a sustained.
Well level and how much of that is that is somewhat more temporary yes.
Yes, sure, yes, certainly theres been production and travel, but it really doesn't it doesn't really have much of an impact.
It's small dollars anyway.
Really what's driving or its two things one the variable comp accrual for the quarter was depressed because of the cat losses.
Okay, and then beyond that we're hiring continuing to hire folks in our underwriting claims and Ikea is primarily but we're not.
Those costs are increasing at the rate that earned premium. So we are getting some accommodating economies of scale scale. There I would say, it's about half and half between those two buckets.
Okay, great very helpful. Thanks for all the color on that back on board.
Thanks, Matt.
Your next question comes from the line of Mark Hughes with truly.
Thank you good morning.
Good morning, Mark.
You mentioned the reinstatement premiums.
How much was that and then what reinsurance.
Agreement could that impact was there one of these events that was the substantial enough to hit the reinsurers.
Yes.
Mark the reinstatement premium for the quarter was $1.9 million.
And.
Not really related to.
The wildfires that'll fell under our per risk policy.
The.
The reinsurance itself.
On the personal insurance book is subject to our quota share reinsurance agreement that we entered into in June whereby we're seeding 50% of that all and so if you look at the hurricane losses.
50% of that was seen at all on the wildfires we did have.
Some EPS seeded all part of the purpose policy.
What's worthy a wildfire wildfire losses to set a curiosity roughly.
Well all the all the individual cats were in that $4 million to $6 million range.
[noise] go to you mentioned a commercial auto.
Mike I heard you talked about commercial auto pricing in the past that it was a.
Quite volatile and are not adequate but I think the last time I heard you comment on it could you give us an update on what the.
Attractive at this point.
Yeah I mean.
We've we've been writing commercial auto ever since we went into business 11 years ago. It's just that we've done it very cautiously because of the challenges in that market.
I think everybody understands that that market's been in shambles for a number of years now.
Which obviously creates opportunities and I think that's what Brian annual speaking to just a little bit more focused underwriting approach.
Where we see some opportunity for incremental expansion.
Brian.
Hany I think you.
Head.
Mentioned that good market continues to harden when you look at your rates I think the 10% to 12% probably similar to last quarter.
I think I've heard you maybe suggest that we're on our way to a more of a traditional hard market and just sort of curious yeah.
To get your sense of.
The rate of hardening at this point, how you saw the progressed through the quarter.
It would be helpful.
Yeah, I mean, I would say, it's it's hardening at the same overall rate I mean keep in mind some of the hardening shows up an artist getting more business opportunities. Some of that is just accounts, we wouldn't say accounts. It used to because he admitted space now are in our space or accounts that you see with programs are now not what programs anymore.
I do expect rates to it.
The industry to accelerate.
Expect Arsenal along with it.
I don't think we're done I don't think that Pete.
Yes.
Peaked in terms of the rate of increase suits still accelerating I don't think the I don't think either the industry or can sale has reached the hard market peak of rate increases yet I think thats, probably going to happen in 2021 or later.
And then the ceded premium if I'm looking at it properly was just a little bit higher this quarter was a little more mix of property or excess what input.
Influence there.
Yes, I think it's a combination of one the reinstatement premium mark.
Mark and then okay.
And then your mix of business and our growth in the <unk> and the commercial property business and our excess casualty book.
So did that reinstatement premium.
The show up as the ceded premium.
Under earned ceded earned yeah.
Yes, okay.
Very good anything about the kind of loss development social inflation X.
Actually claim frequency.
In the in the.
Corridor any thoughts on those topics.
You know.
We've talked about social inflation in the past, we we don't really see that impacting our book, we're obviously mindful of loss cost trend and we adjust our rates every year to stay ahead of that in terms of frequency.
There has been and I think this is noted across the industry. He a drop off in claim frequency.
Associated with the Covance virus, the shutdown of parts of the economy.
And.
That's clearly impacted can sales well I would say that.
That slowdown in frequency.
Has not shown up in our.
Our income statements our balance sheets.
You know we're.
Reserving has been there is no slowdown.
Because I don't think it's too early to tell whether these claims that haven't come and are going to come.
Theres going to be a quick catch up period in the future or is this a permanent.
You know.
Hey advantage for the company and that had a certain number of accidents, just didnt take place so.
So we're reserving.
Taking the more conservative path in terms of reserving and kind of wait and see what what the future holds in terms of frequency.
Thank you very much.
You bet.
Your next question comes from the line of Jeff Smith with William Blair.
Hi, good morning.
Just Uh huh.
Just a follow up on that [laughter] accident year loss ratio ex cat.
A couple of hundred basis points, but maybe more like a 100 year to date.
And just thinking about that rates are obviously quite a bit above loss cost trends is the thought too and it seems like your position now maybe for a favorable development to move from this sort of new 3% maybe go back to the historical 678.
Is that sort of the thought here on on that.
Well this is Mike I would say.
No.
Again, we're our goal is to post reserves that were.
No.
You can never say, 100% sure, but very confident that those reserves are going to develop favourably overtime.
And I think when you compare year over year or quarter over quarter there.
There is also going to be just some natural variability in the experience I mean, there is some.
Volatility in our business beyond property cat and so.
I think the where the accident year loss ratio is for the quarter.
I think it was pretty is pretty spot on with the second quarter of 2020 and.
And yeah, we would expect that to develop downward over time.
We just don't want to be too quick to recognize you know that kind of good news.
Okay, but no specific plan to sort of I mean, it's sort of it is where it is whatever shakes out.
Yeah.
And then just on the expense ratio I think you said you know about half the decline was due to the lower variable comp.
That kind of implies that the run rate is maybe more.
More like 23% instead of 24% in the first half is that a safe assumption in sort of a better run rate.
Going forward.
Yeah, I would say.
Got a base I think we commented on this in the past that you know.
Yes, somewhere in that 23, and a half 24% range is.
What we'd expect we are continuing to invest in technology.
But again, you know that the growth in the business is certainly no they're much more quicker than than our stand.
Okay and.
And then just what.
What type of growth and rate are you getting a in.
In the spare a in the personal lines book.
10 to 12 overall, it's probably higher and this anything thats cat expose yeah, I wouldn't I don't have the exact figures and had to be what I've said something like 15 to 20 years.
Okay, great. Thanks for the answers.
Thanks, Jeff.
Your next question comes from the line of Mark well with RBC capital markets.
Hey, good morning, I think Jeff Jeff snack most of my questions, but I got a couple of more left.
One question just is.
Is there been any notable shift in the overall mix of the business.
I mean, obviously, it's still mostly casualty, but just within any other classes anything that would contribute to you know any different way of thinking about accident year reserves and likewise, how long that will take to the tail will develop like et cetera.
You know I mean, the different divisions that we divide our underwriting team into I mean, they're they're always going to be.
EPS theres always going to be some variability in growth rates I think the last year or two I think our excess casualty unit has grown at a pretty brisk pace the commercial property book.
I think Brian touched on the fact that during the pandemic the life science in the environmental divisions have experienced a little bit outsized growth I think thats, starting to abate a little bit of late but.
In general we are seeing the strong double digit growth growth rate across the portfolio. So I'd say.
You know this.
I can't think of anything other than what I just highlighted.
And then similarly, any any real change in the average premium size, that's coming your way I mean, I know you always opportunistically kind of taking whatever whatever cross play.
But is there has there been any increase in relatively larger account business.
You know it lifts that average premium in any notable way.
I would say overall now there's probably some areas that are seeing some more larger accounts, but then there's also growth in sort of smaller account business like the small business or personal germs to that is yes. It's one of the nice things about a tightening market is we do get some opportunities and some some larger transactions, but our day to day strike.
Zone is still that.
Small to medium sized policy.
If you look at things by policy Count almost everything we write is 50000 and under.
But on a.
Premium count, it's going be a little bit more significant 50, an up but.
Our bread and butter still that that that smaller transaction and we're kind of in that 10 to $11000 range. If you exclude the personal insurance if.
If you include the personal insurance and the mix those are obviously smaller policies.
I think that gets us under 10000 per policy.
On average.
All right.
Oh My other question was just.
Any any any further changes anything you're thinking about from an investment standpoint, any changes in mix or anything you're doing differently. There recently the yield environment has remained a dismal at best.
Mark This is Brian I'd say nothing materially change.
Change in there.
Mark you know we are quite conservative on the investment side and as Brian said, yes that will continue.
Okay. Thanks, very much for the answers.
Thanks Mark.
Your next question comes from the line of Collin due to army with Sterling capital.
Hi, good morning, Thanks for taking the question a quick one because most of my previous questions have been answered quick one for Brian Petruzzelli, If I if I may the reserve release can you give us any color by division.
Where you're seeing strength with releases, they're not looking again for a roll call here, but just trying to get some additional color.
Excellent. Thanks for the question I know.
Yes, we don't disclose things down it at that at the line of business level, but I would just say that generally speaking our our reserves are developing.
Favorably across most lines of our business. Okay. So just a fair characterization I guess from our standpoint would be broad race strength there from a reserve.
Yes, good point, okay. Thanks.
And then maybe for Mike or Brian Handy in terms of again, just looking at the divisions as we think about the portfolio you talked about some of the rate acceleration, we're certainly hearing that from peers.
Again, not looking for a division by division disclosure here, but just for some color in terms of standouts or any call outs, which divisions are you seeing.
Strength here going forward in the next few quarters, you called out life Sciences and environment understandably during the pandemic, perhaps that's cooling off now, but just trying to kind of level set as we roll forward in the next half to two to 12 months.
I'll start and then I'll hand, it to Brian I was going to say if you if you look at where the the.
The growth is most pronounced now it's pronounced across the whole portfolio, which kind of speaks to the fact that hey, this is a pretty favorable market, but hey, the fact that commercial properties growing even faster than the average indicates we're probably getting outsized rate there, Brian Yes, I would say no.
Outliers definitely commercial property personal insurance are gonna be outliers.
And certainly given what has happened in the quarter not just us, but the industry I would expect that to continue or accelerate.
Some of the professional lines probably had been.
They've been so stable and profitable for most of our church for most of our competitors for a long time that they were lagging at a certain point and the rest of the industry in terms of rate increases, but I think they are starting to catch up to it. So we are running.
We're pretty much seeing across the board is just the rate increases. This is a question of like how.
How intense worsen.
Got it Okay. That's helpful and then final kind of.
Fought fear in terms of just strategy and attacking markets going forward.
You know the largest deal you Ines player has been through a multiyear restructuring process as we all know theres been some shared ownership there can sale among others has benefitted we've now gotten a pretty significant announcement from the number two player also restructuring.
Happening there perhaps for Mike if you could just give us a history lesson in terms of.
Anticipated opportunities with scenarios like that it really seems like there's a large chunk of the pie. If you will which is potentially creating conditions for some jump balls and I'm just trying to compare compare notes to see if that's the way you are also viewing those opportunities.
Yeah, Colin I look at it two ways. One I think can sale has a little bit of a unique business model. If you consider the fact that most companies that write small accounts do so by delegating underwriting authority to outside.
Outside parties typically program managers or EMG days.
To quote bind issue underwrite that business on behalf of the risk fair.
Our model is hey, we think we can do a better job by managing that.
With our own underwriters.
And we.
We think we can drive a better result.
We can also drive a much broader risk appetite, if you're gonna delegate underwriting authority to your brokers almost by definition you have to introduce some rigidity to your underwriting guidelines and.
And so.
By controlling the underwriting we can offer and we think we can underwrite to a better loss ratio and offer more flexibility to our brokers and then we're combining that with again, our kind of we call. It. This technology driven cost advantage right, we're able to do some things with technology that a lot of our CFO.
Editors haven't or maybe at the moment aren't able to do.
And that allows us yes to drive down costs, but it also allows us to drive up service levels and there's a there's an absolute correlation between the quality of the service that you provide your brokers.
And your propensity to bind to given piece of business. So we think our model has got some some real advantages and we think they have some durability to them.
Separate and apart from that you've got other competitors restructuring.
And that's what's.
I think driven our growth rate from I'll call. It low double digits up into the you know the 40% to 48% we experience for the quarter.
Extraordinary growth, we expect to continue certainly through 2021.
We don't really know definitively, but obviously at some point it will abate as new capital comes into the industry and the like but.
Even beyond this hard market that we're experiencing we think we've got a business model, that's a little bit differentiated from the competitors around.
Cost and.
Controlling the underwriting et cetera that.
It makes us an interesting longer term plus.
Absolutely definitely differentiated and then final question drilling down on one of the previous questions from the other analysts you called out new opportunities in commercial auto and aviation.
Those have delicately put been potholes quite frankly for several peers, who have attempted to grow share you talked a little bit about the history. You can fill already has with commercial auto but given the differentiation that you just highlighted again, just trying to drill into how perhaps differently, you're intending to attack those space.
Cases, as you preserve kind of the underwriting profitability and avoid some of those potholes, we've seen from from from some other peers. Thanks.
Colin This is Mike I'm going to start going to get it to Brian, but I would just say that hey, we've been writing commercial auto for all the 11 years, we've been in business.
We've obviously done it very carefully. One example is when trucking rates got down to ridiculous low levels, we didn't write any trucking business. Okay. So hey, all we're talking about here is a.
Kind of a.
Organization of our underwriting teams to have a little bit more focus on this area. Yeah. I would just say I think about our business model as we write generally smaller accounts and.
So if you think aviation I think commercial under your mine naturally gravitates towards things like <unk>.
Ensuring delta Airlines.
That is the exact opposite of what we're doing there is a lot of business in and around the aviation space that are smaller accounts and it could be.
Things like Hey, contractors, working near airports or manufacturers relates in May.
Deviation space.
We think there's a great opportunity there I think our approach works really well and it's probably less volatile and again just keep mind, it's incremental expansion of what we're doing so we're not calling the market were not try and we're not focused on market share and trying to grab market share. We're just trying to sort of fill in the gaps in our product offering.
Yeah.
In general if something is written on an EPS basis, and we think we can right now.
Money doing it we'd like to do it.
Thanks.
Your next question comes from the line of Casey Alexander with Compass point.
Hi, good morning, and thank you for taking my questions.
The discussion.
Discussion that you gave the bassi admitted carrier that is shutting down a particular part of their business and creating opportunity could you broaden that discussion just a little bit so that so that I have a little better understanding of what you're talking about.
Yes so.
I think that this lag the typical commercial insurance buyer.
Goes to retail agent and they want to go too.
Huh.
It preferred admitted company and they have been company wants a preferred.
Risk and so a lot of times.
These companies will get the pan out to brokers to find those preferred risks, but then things don't go well. So then they can't get those deals anymore. They can't get that the preferred price the preferred coverage they can't go through it.
He had contract but.
Well theres still going have to buy insurance next year. So when they cancel that program at renewal their agent is going to be scrambling to find somewhere to place them. There are a lot of times, we have to get a wholesale broker which is that the majority of the brokers, we do business with and they're going after count come to a company like us.
So basically if you think about it this way business that.
Isn't the admitted market going through a program.
We never say until it that programs no longer available for them because they would much rather the buyer would much rather get the cheap price and the broad coverage. So that's why you see in our submissions shoot up in a hard market because all these submissions, which we had never seen now we start to see now its not we don't buy and all of them.
But is it becomes more business for us to take a take a swing at.
And I think it's the type of thing you're seeing Casey going on across the industry.
Carriers are re underwriting books of business and in this case. It was a lawyers program, obviously wasn't working for somebody and so that was discontinued but it's happening all over the place sometimes carriers just cut capacity.
There's a standard company they used to put up $10 million excess policies and they've reduced that to 2 million.
For the buyer they didn't need to go out and find $8 million of additional limits from a new carrier.
It's.
It's happening all over the industry standard companies are kind of a tree housing books of business.
Even non standard companies are doing and so.
The nice thing about can sale as we maintained a lot of underwriting discipline over the course of the soft side.
Cycle, and we're not discontinuing anything our business has thrown off very attractive margins.
And as a consequence, we are focused on growing at this point as opposed to fixing underperforming launch.
Okay, well, thank you for that and that was my misunderstanding because I thought you were talking about a specific carrier and you're talking more about a broader industry trends. So.
I get that secondly on the.
Wildfires have continued and there have been some more idio can sing Cradic storm activity in the fourth quarter have you guys seen any further continuing a cat claims coming in I know, it's early in the quarter, but you know from the standpoint of expectations.
It would probably be helpful for the market to understand what you're saying.
In terms of the California, wildfires I would say, we don't write personal lines business outlook.
Out west So we don't really have a.
Considerable exposure out there now that being said Hey, we did have some commercial business that was impacted in Napa valley, but.
In General I would say you know.
Maybe that's the best way to characterize it we just don't have a really a pronounced wildfire exposure not that we couldn't get hit but we wouldn't expect that to happen frequently.
And I.
I don't think we're ready to announce anything but I would say our expectations for the fourth quarter is to be quite a bit more favorable to can sales in the third quarter, how about that right.
All right. Thanks I appreciate your taking my questions. Thank you very much.
Okay. Thanks, guys.
Thank you you have a follow up question.
From the line of Mark Hughes with Truest.
Thank you that was actually my question was there anything in the fourth quarter that you would highlight.
You just answered that so I'm good. Thank you all right. Thanks Mark.
Operator are there any any more calls.
Heather Your line is open.
Hi, guys I'm wondering your other question good morning.
Yeah.
[laughter] view on what a more normalized cat ratio would have been four this quarter. I mean this quarter is frequency or severity was unusually high for cats gives a view of what that ratio would have been in a more typical quarter.
Heather This is Mike.
I would say that if you you know the big challenge with the Cat business is its volatility right, it's not a consistent.
Number and as I said earlier, we do a lot of things to limit volatility.
You know quality underwriting approach charging adequate prices.
Buying a lot of reinsurance limiting the concentration of business in any one area all those things give us a lot more certain day, but that being said.
Mode.
Most quarters, its either zero or a de minimis amount.
You know this was one of the higher quarters I guess in our company history in terms of impact on our combined ratio I think our mine Harvey a couple of years ago in Florida, and Texas those storms hit in the same quarter.
We were had a slightly larger impact from those storms.
So 15, 17% somewhere in that neighborhood would be really.
Really not the high end and zero being the low and we've got a lot of quarters with really no cat activity.
So we don't really have a target per se, but hopefully that gives you a little bit of guidance.
Got it.
Another question.
Talk about your business retention ratios, so I'm not talking about a retention versus the reinsurers, but the year over year business retention.
Yes, and what the trends.
Yeah, I would say a healthy way to think of it in dollars.
Generally speaking, it's going to be a name.
Around 65% of the dollars running.
Right $100 of new business. The next that business would have $65 renewal the next year and that's pretty consistent from renewal over now and that's also consistent across CNS industry broadly.
Oh man I stood there.
So there haven't been any changes in that ratio has gone up but nothing material.
Okay.
Got it and then last question did you talk about what you're buying to quote ratio is and have there been any changes in huh.
Bind to quote is somewhere between 10, and 15% and then really hasn't changed much.
Thank God.
That's it those are all my questions. Thank you. Thanks.
Thanks Heather.
At this time there are no further questions I would like to turn the call back over to Mr. Kato.
Thank you operator, and thanks, everybody for joining us on the call today and we.
We look forward to speaking with you again here in a couple of months.
Ladies and gentlemen that does conclude today's conference. We thank you for your participating and we ask that you now disconnect.
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