Q3 2020 Conifer Holdings Inc Earnings Call

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Event is being recorded.

I like to turn the conference over to Mr. Adam Prior. Please go ahead.

Thank you and good morning, everyone confer issued its 2023rd quarter financial results. After the close of market yesterday on the company's website IR Dot C. N F. R. H Dot com you can find copies of the earnings release.

As well as the slide presentation that accompanies managements discussion today, which is available that viewer download via webcast or from the investor relation portion accounted for its web site.

Before we get started the company has asked that I note that except with respect to historical information statements made in this conference call may constitute forward looking statements within.

We're leaning of the federal securities laws, including statements relating to trends, the company's operations and financial results and the business and the products of the company and its subsidiaries.

Actual results from conifer may differ materially from the results anticipated in these forward looking statements as a result of various risks and uncertainties underlying our forward looking statements including.

Let me send uncertainties associated with code at 19, and its impact on the economy and on our business as well as those risks described from time to time at conifer's filings with the SEC, including our latest form 10-K and subsequent reports.

Conifer, specifically disclaims any obligation to update or revise any forward looking statements, whether as a result of new information future development.

Events or otherwise.

In addition, a replay of this call will be provided through a link on the Investor Relations section of our website.

During this call. We'll also discuss non-GAAP financial measures as defined by SEC regulation G. Rick.

A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures are included when possible and our.

Vince release in historic well actually see five statutory accounting data is prepared in accordance with statutory accounting rules and therefore not reconciled to GAAP.

We will conduct a Q and a session. After managements prepared remarks this morning.

With that.

I'll turn the call over to Mr., Jim Petkoff, Chairman and Chief Executive Officer. Please go ahead.

Thanks, Adam Good morning, everyone on the call with me today is Nick Harold Andy and Brian.

Im going to provide a brief overview of Nick will discuss our underwriting results in greater detail and then Harold will cover the financials.

Beginning with our top line, we reported solid growth in our core lines gross written premiums increased.

Just over 10% in the quarter to just under $30 million.

We reported profitable operations during the quarter largely due to higher realized gains from investments leading the company to posted earnings per share on a GAAP basis of six cents during the quarter.

We feel very good about our current business mix.

With the emphasis on select commercial accounts, all performing largely as we expected.

This along with our personal lines low valued dwelling business, which has contributed meaningfully to the bottom line all year long.

Given the heavy cat impact of our peers in most in the industry as well, we're especially pleased to post these personal line.

Results in light of the.

Highly unusual cat activity.

However, we have continued to see increased claims activity activity from select older years, 2018, and prior and our hospitality business largely focused in the quick service restaurant area.

That required additional reserve strengthening.

These reserves moves muted and otherwise solid quarter for the company in a positively developing rate environment overall.

As a reminder, conifer has been transitioning transitioning our book of business away from personal lines coastal wind exposure and toward our specially core commercial.

So business.

This plan move away from the cat exposed areas into markets, where we have a distinct.

Value proposition over our competitors.

Was a way of de risking our portfolio from volatility perspective, and achieve sustainable profitability in markets, where we can be a leader overtime.

Yes.

We believe the transition away from cat exposed premium.

Is largely complete as our business split is 90% specialty commercial and 10% personal lines with the latter largely coming from our low value dwelling products.

During our transition we reiterate our belief in a balanced book.

Covering both commercial and personal.

And long tail versus short tail business.

Moreover, within our underwriting we value the ability to evaluate in place risks has either admitted business or in the excess and surplus lines company.

That ability to pivot between commercial and personal long tail and admitted.

I'd like to sales short admitted in the in house is an advantage we have over our peers and we believe this will generate greater underwriting selection overall and improved profitability over time.

This balance or the company very well during the third quarter as our specific market niche in low value dwelling products generated exceptional.

All results both in terms of 24% topline growth in gross written premiums and even more impressively generating a 68% personal lines combined ratio.

Geographically moving in a personal lines markets, we know him well, while avoiding the coastal exposure has helped us to outperform our peers. In addition.

We are seeing lower instances of overall claim activity.

Which we attribute to an increased propensity for individuals and families to be at home during the current pandemic conditions.

In commercial lines, one of our distinguishing factors is that we cultivate relationships with agents and ensures that specialize in our area of expertise.

And they meet our selective underwriting criteria.

This strategy is starting to produce the results we have anticipated as our commercial lines premiums grew by over 9% in the quarter.

This growth is even better when compared to the reduced how hospitality premiums.

During the period.

We are pleased to be maintaining high overall premium retention levels as well.

And we can continue to see favorable rate dynamics in our commercial lines in general as we move into 2021.

Over the last two quarters, we spoke extensively about COVID-19 and its impact on our markets.

Ladies and the economy in general.

We have taken a cautious and deliberate approach to the impact of the virus. Our principal focus is on the safety of our employees as we continue to provide exceptional service to our agents and their insurance.

Overall, we continue to closely monitor performance across our book and the.

Once we focus specifically in hospitality markets.

As discussed in previous calls the majority of our writings in this regard premium wise have not been impacted as greatly as we prepared for earlier in the year.

And as positive in this difficult time overall claims volumes continue to be down significantly.

Secondly, specifically in our liability lines versus earlier in the year and versus last year as well.

We have shifted the majority of our premiums in our core commercial lines with favorable facts and loss ratios and are continuing to improve.

We also believe that our expense ratio, though we'll start.

To tick down as growth filters through our book of business and we continue to optimize costs.

With that let me turn it over to Nick for some more color on our specific lines of business Nick.

Thank you Jen last night, we reported solid growth in all of our key operating segment.

Our strategy of focusing on it.

Or market, coupled with a favorable rate environment has led to our company by adding more of the business that we ultimately want to retain and with pricing that fits our selective underwriting criteria.

As we discussed in detail over the past few quarters. It has taken time to properly transition the book and likewise, our growing topline will take time to work its way into earned premium.

But in the meantime, we're very encouraged by the breadth and depth of our developing premium base.

It was an excellent quarter for the topline.

More importantly, our overall operations have drive to the continuing coven environment.

As we effectively manage our underwriting and claims operation largely on how we've been able to utilize our previous six.

Our investments in technology, the transition seamlessly to continued remote operations.

As of now roughly 95% of our employees are working remotely and our business is operating at an extremely high level.

In addition to select new business, we are seeing retention rates running at or higher than historical norms in the quarter over time.

Pension rates were running at just over 90% maintaining high levels exhibited in the second quarter as well.

On our top line, the 10% plus increase in quarterly gross written premium came through a mix of rate and new business in both commercial and personal lines.

The mentioned growth continued to trend higher throughout the course of 2020 and we are growing.

Market share in many of our key geography.

Our home state of Michigan is still our largest premium state and we have room to grow there.

Our business mix shift to specialty commercial line has been a well thought out well executed plan emphasized the overall continued enterprise risk management.

Lastly, I getting lines there were negatively exhibiting card.

Results, while growing our core specialty commercial accounts that we feel exhibit much higher profitability.

For example, we reported strong growth in our small business segment, which specializes in niche markets, where we can offer tailored solutions for contractors small commercial insured and thought commercial auto client among other classes of business.

These markets have historically performed well for us and continue to do so today.

In addition, we have a strong market position in the hospitality segment, which include policies, mainly for restaurants bars, and taverns and quick service restaurants.

Speaking on our hospitality business I'd like to discuss the performance that led to a greater strengthening of reserves.

For the period.

Over the past year, we have get greater pondering older accident year claims activity in certain hospitality business, most notably select geographic markets.

Typically these losses are generally slip and falls on the light was that atypical is the higher severity totals we have experienced the geography, such as Pennsylvania month.

And Florida.

It's important to note that the majority of this development is no rate related to this year's pandemic FX and then we're seeing particularly positive results in the current accident year.

Over the past year, we began to see higher claims volumes in certain hospitality lines, mainly geographically specific for example, due to the change.

Tanzania liquor liability laws in 2015 or the uptick in claims volumes for Montana reliability as well in addition, southeast Florida General liability has had its challenges.

We believe we have taken the necessary underwriting steps to help mitigate the negative FX impact would be select market and the impact of the geographical challenges.

On our results.

What have we done first and foremost we tightened our underwriting criteria overall, we have reduced exposure to underperforming geographies and added agents and targeted state and let go of underperforming accounts.

For example, we have exited Pennsylvania liquor liability altogether effective 2019.

We have reduced.

Reduce liquor liability limit and total premium exposure in Montana and significantly reduced our overall exposure to southeast, Florida General liability. These.

These three areas represent a significant premium and claims concentration impacting our recent hospitality results.

Additionally, we have reduced quick service restaurant premiums and board.

By over 90% from a high watermark of roughly $5 million in 2018.

As a result, we have seen improving dynamics in these line, especially as additional rate has begun to filter through the book.

In fact, the impact of the pandemic have generated significant improvement in overall claims activity for many of our hospitality insured.

For example, many restaurants and other quick service accounts are focusing on drive up phone app delivery delivery or other takeout options significantly reducing our general liability exposure.

Through the third quarter, we began to see reduce claim count each month since the last guidance beyond.

See tangible improvements in.

The frequency and severity of.

For the second quarter, we noted that total plan for down 40% and this has continued to evolve throughout the third quarter with liability claims counts down almost 50% year to date.

Moving briefly to personal line, we reported exceptional results in our low value going line of business.

We've had us.

Both to get reduction in wind exposed premium largely as a result of the transition of our business away from these markets over the last few years.

The reduction of wind exposed premium has directly correlated to improve personal line performance.

As we had focused away from cat exposed business overall and firmly on low value growing business in sub.

We are very pleased.

Just by the overall personal lines results, especially 68% combined in the quarter and expect to continue to grow our topline contribution within our defined niches supporting these markets.

Outside of the state of development, we produced a quarter very consistent with the positive trends, we noted in previous in the previous quarter.

With improving loss ratio.

Sales in commercial line growing topline premium exceptional personalized performance and stable investment returns, we feel very strongly about conifer today.

Our goal as a management team is to ensure that the company is well positioned to generate sustainable operating profit for years to come with.

With that I'll hand, it over to compel the loss for a discussion of the financials.

Thank you Nick I'll provide a quick review of the results and I also encourage investors to review our filings and presentation on the company's website for greater detail.

In the third quarter gross written premiums increased 10% to $29.8 million with.

Jim and Nic, having detailed breakout in premiums will focus on our underwriting results.

Conifer's combined ratio was 111% in the third quarter compared to 109% in the prior year period.

The loss ratio was 65%, which was flat compared to the same period last year as noted earlier, we reported adverse development in certain commercial liability lines, which contributed significantly.

This quarters loss ratio.

Moving to our expense ratio, we have achieved some absolute dollar expense reductions, which were offset by some higher ceded premium rates occur.

Accordingly, our expense ratio remained flat at roughly 45% this quarter and for the Saint compared with and the same period last year.

Overall, we expect to see the expense ratio reduce as we scale up our net earned premiums and can you continue to implement cost cutting measures.

We have a short term goal of reporting and expense ratio at or under 40% and as premiums continue to grow we feel confident that this ratio will improve.

Net investment Inc.

Income was $776000 during the third quarter compared to $1.2 million in the prior year period, and net realized gains increased substantially to $3.3 million compared to $390000.

Our investments are conservatively manage with the majority in fixed income securities.

With an average credit quality had double a. on average duration of just under four years and the tax equivalent yield of 2.1%.

Yeah.

As a result of the above conifer returned to profitability reporting net income of $541000 or 66 cents per share compared.

Care to a net loss of $1.2 million or 13 cents per share in the prior year.

This quarter conifer reported an adjusted operating loss of $2.4 million or 24 cents per share compared to $1.8 million or 18 cents per share for the same period in 2019.

This was largely due to the adverse development that.

That Jim and Nic covered earlier.

Moving to the balance sheet.

Total assets were $260 million at quarter end compared.

Compared to $247 million at year end.

Cash and total investments were $188 million at quarter end compared to $177 million at year end.

Finally, we.

Book value at quarter end of $4.40 per share.

We have a valuation allowance against the company's deferred tax assets of $1.42 per share that was not reflected in book value.

And with that I'd like to turn it back over to Jim for closing remarks.

In short we are pleased to grow our top line by writing almost $30 million premium in the quarter. We see this as a meaningful toward growing our earned premium base overall, helping reduce our expense ratio and driving or operating profit.

And now we are ready to take your questions operator.

That was actually Nick because I have my phone.

On on mute I apologize.

[laughter].

Go ahead steady question, we'll now begin the question and answer session to ask a question. You May proceed Star then one on your thoughts Tom fall.

We are using a speakerphone please pick up your handset before pressing the keys.

Withdraw your question. Please press Star then too.

This time, we'll pause momentarily to assemble the roster.

First question comes from Marcos Atlanta, Raymond James Please go ahead.

Hey, good morning, guys. Thanks for taking my question I'm, calling in for Greg This morning.

And let me just say this Nick you Fooled me so good job.

[laughter].

My first question and maybe maybe just give us some more color on the on the reserves. This quarter, obviously not improving is there is there any statute of limitation that we should be looking for 21, or just give us give us a sense of how and why.

When should we expect this.

Just to to show an improving trend.

Nick I'll, let you answer that.

Yeah, I mean, it's definitely not.

Part of the equation that that these are running and we'll be running in 2021.

On on.

In particular, Pennsylvania.

Florida is a little bit longer statute of limitation, so on and maybe more in 2022, but on.

The development that we saw was really a function of the two area Southeast, Florida General liability pence.

Pennsylvania liquor liability.

I'd on being the two large it.

Our 2017 and prior year claims have come down significantly part of that than co that impact as well as we've been able to close out older claims on given the the.

The impact of covert to the court system and the impact on.

Plaintiffs attorneys so we've seen some good traction there.

We thought 2018, we did have lingering impact of that Pennsylvania liquor in 2018, and Thats, South East, Florida, GL, which is why we strengthened the reserves for that year, we did see a little bit of an impact on our security Guard line in 18.

We don't see that as a trend that seems to be an anomaly versus the other years.

But certainly as we get further away from from 2018 will see statues run on some of those and.

Certainly, we really isolated the areas, where we're seeing the development and we feel like we've gotten a better handle on it certainly is there.

In the quarter versus prior quarters as I know, Jim if there's anything you wanted to add to that.

I do and and what I wanted to say when Nick closed Permian minute ago is.

These lines of business in the book of business, we have today.

It had in 2019 and having 2020.

So those.

Books of business and lines of business have perform profitably in the geographic areas were in and those two years.

The specific areas that are causing development, we started to get out of it started to make changes in 16, 17 18, and we are realizing the benefits of those in 19 and 20, we're very bullish.

On our current book of business, and how it's performing and where we're going with it we've made significant changes we're very confident in that.

And there is some every every company in the in the country as having development at GL.

I just think we're.

Very proactively going after trying to aggressively.

Go after and settle those things so.

Can I tell you exactly that it's over and.

David it's going to be no probably bleed in but we're very positive on our book of business now and where we.

Were going.

Got it that's good color I guess my second question is around your claim inventory maybe give us an update how you how you manage that through code that considering the core systems were largely close and maybe give us an update on how many claims you still have.

For the Florida homeowners business.

I don't have those numbers I don't know Nick do you have those numbers available.

Yeah, I don't have the exact number on the Florida homeowners claimed I'd say less than 65 arm and there may be some cat claims and included in that number.

Well, so that's really come down pretty significantly.

The majority of the claims last outstanding AR are more related claims that are R&D ceded to reinsurers.

Obviously, we're trying to close those out and and definitely there's been a lag due to the the court system.

[music].

Yes on the remaining claims that we have outstanding certainly as we mentioned.

The cobot impact to the legal system has dragged things on but I think in some ways that that a positive for us because we are seeing movement on settlement that may be.

The plaintiffs attorneys and plant and equipment they have been more aggressive in the past knowing that courts are basically grinding to a halt and have been for almost nine months now that's pushed out all litigation significantly where you're not seeing things getting to trial probably into 2020.

Three perhaps even later on so it was certainly one of the benefits is our claims cost come down and they are down our open claim counts down I think almost 20% since the beginning of the year on that allows adjusters to spend more time on each file.

And certainly it really dig into.

Turning to those open claims and put pressure on the other side too.

It has to come down from from their demands and settle things better.

At a beneficial more fair level from our perspective.

I think just to jump in I think total total claim counts I think are down almost 40%, yes claims reported or down claims reported or down 40.

80% anyway, and that's true your outstanding inventories are coming down to your closing ratio is above 100 and its been for some time. So we're eating into inventories across the board and I want to say that for 2017 and prior there is roughly 200 or less claims are still outstanding.

Got it great.

And my last question.

Expense ratio.

The quarter largely flat right, it's the higher ceding commissions, while year to date, it's still it's still increasing maybe just give us a sense of.

What has been challenging there and perhaps when do you expect to achieve your below 40 target.

[music].

Well I'm going to give this over to Harold but I'm going to start by saying.

With the.

Florida It from a claims coming to an end in September you had a big.

Increase in those and those were on.

Uh huh.

They're all.

Your cat, but we still have reinstatement premiums, which has been lowering our our earned premium that's been kind of skewing.

The.

I'll now were ceding to reinsurers lowering our net earned premium actually increasing our expenses.

So at year end last year, our reinsurance rates.

Not significantly but.

But we also lowered our retentions, so we de risk our portfolio, but we had an increase in reinsurance costs were hoping that those two things change in 2021 as our reinsurance comes up 121.

And as the earned premium continues to increase and were actually lowering our overall.

Administration expenses, we expect.

See significant improvement in the expense ratio. So now that I saw said all that I'll give it to Harold to see if he has anything else to say.

I think you did.

Good job there Jim.

The absolute dollar reduction in expenses is noticeable.

We had to sort of net operating expenses of about $5 million in the first quarter and I expect them to be down to about 4.3 in the fourth quarter with where they're trending consistently lower.

Each quarter now you can take that to the bank every time, because theres theres fluctuations, usually the first quarter slightly higher than some of the other quarters just the way the expenses roll in over the course of the year, but in general it does lead to.

A good clear indication that on an absolute dollar basis, we are reduced.

Using.

Our administrative costs.

And I think I'd I'd jump in there as well so I mean, we're trying to attack the expense ratio from both sides of the ratio. So as to Harolds point were trying to reduce absolute expenses. It's been a continued thing we've been doing all along if you look at our overall headcount.

Where we were at year end the head count is down versus where we are year to date, we're obviously trying to retain the Boston and go forward relative to absolute expenses, but as Jim talked about you also have to look at the denominator too and so earned premium so we take a lot of.

Based in seeing us achieve appropriate scale.

Well I mean, if you go back to what you don't want to write premium for premium sake, you just don't want to throw a bunch of premium out there, especially in a cobot world. So you've seen it over the last couple of years and Nick talked about it in his comments there was a planned well thought out execution of how we were execute a coming out of our wind exposed business and moving Laurie.

Finally into the small commercial space. So I think as you see that earned premium base grow that's going to work. The denominator is you reduce your absolute absolute expenses that hits, the numerator and I really think you get expense ratio compression from hitting both.

Got it thank you for your guys.

Thank you next call question is from Paul Newsome of Piper sales. Please go ahead.

Good morning, Thanks for the call folks.

Just to follow up to that expense discussion.

The the acquisition costs.

Running without I guess 27 ish percent of premium.

For quite some time.

That sounds like a fair amount of commission for this.

The commercial business is there any chance of that might.

We reduced in the future.

I would hope so, but it's 20 per 7%.

Net.

Basis after you take the the letter.

Net earned premium versus.

The gross the gun a gross basis, I believe and Harold to give you the exact number throughout 20.

The businesses. We're in that are have producing exceptionally good loss ratios, Michigan et cetera, we are paying 50.

Less than 20% and there is some hope.

All sales we have out there that are have been profitable for us in other geographic locations that are getting an excess of 20%.

So we're not paying anybody, 27%, but where else it on a go ahead.

Direct premium basis.

Nick.

Nick is that correct on the commission side.

Yeah, no you're right on a gross basis, our commercial commission generally are between 15 and 20% on it.

A couple of things to keep in mind acquisition costs include front end costs as well on a couple of our.

Key market.

And so that obviously at the bank ball as well, which is not going be agent thats going to our front end partners.

Yes, typically were 15, 15% to 20% on commercial lines Commission is a couple of select wholesalers like you mentioned that a long track record.

The profitability that are just above that 20% range. So on the 27% numbers not whats going to the agent per se that's.

And I believe that includes some of our underwriting cost as well that go very good code into our acquisition costs, Yes, I would say a couple percentage points of that volume if you look at.

If we try to eliminate.

The impact of seeding premiums when we look at gross earned compared to total acquisition costs were at about 25%.

And included in that number are some front end fees for some of our lines of business.

A little bit maybe a percent and a half.

Math is relating to internal variable costs.

Some premium taxes on some of the business or.

Our other underwriting reports that also are included in that and I would say on a real net net basis, when you get down to just one.

What are the commissions its about 21%.

Great.

Front end fees.

Yes.

Yes.

If the investment cooperate and give us an a minus we could save quite a few percent in our expense ratio would look a lot better.

[laughter] [laughter] Oh.

We'll keep our fingers crossed.

I won.

See if you have any thoughts about your current rate levels versus what you think is the underlying.

Claims inflation for you if you book overall, and maybe just give us a sense of kind of where you think.

Yes.

In general.

Making progress with the sort of underlying margins.

One.

I guess, Nick would you should handle the.

We are.

Great question I think on the claims inflation, that's a tough one.

For us to kind of figure out, but there is no question that it's geographically focused sung ji.

Agra fees that claims inflation is just incredible all of which hopefully we've been getting out of the ones that have been impacting us, but Nick you want to deal with the premium.

Yes, I think thats a good point I mean, there are some geographies, where we don't think that we can get the right.

I needed to keep up with the claims inflation either from a social inflation.

Or whatever the drivers are we've gotten out of those areas.

Where where we think that was the K, Pennsylvania liquor, obviously being one of those in certain areas in Florida as well.

And when you look at.

Pretty were off about a little over 7%.

Rating increase.

This this year.

Yes, Gail is a little bit lower but it's probably low single digit commercial auto it high single digits that we feel good I'd say about the property and GE.

Our commercial auto was a little bit trickier, I think everyone kind of grappling with with what that number needs to be to keep up with claims inflation, we've been taking rate increases on.

For four years now on and although they are not as high of a level as they were maybe in.

17, 18, we're still seeing high single digit rate increases on on that book as well. So we feel good about that number and we're certainly seeing based on again on geography, some improvement in the claims inflation on that book.

[music].

And then I'd say work comp is sort of.

I would say that pretty much looks like it's bottomed out at this point in terms of rate and you're starting to see maybe even a little bit of a momentum the positive. It's obviously a smaller piece of our club.

But the claims trends there still seem to be pretty fast.

Favorable.

And then.

Final question.

[music].

The pandemic has had all sorts of.

The impacts on the insurance industry.

Well the ones that we've heard on.

It's been some positive impacts on things like slip and falls.

Losses and.

Really frequency not severely.

Have you seen that in your book or have you not.

Well I'll start, but yes, it's.

The quick service restaurants, as Nick noted in his comments.

We have gone from in in dining room experience to carry out or.

Drive through.

And that's our claim counts on and that bind the GL side of that and our GL, Nick said is down 50%.

I would suggest you that on the quick.

Service restaurants, and maybe even a little bit in excess of that.

As a claim count goes so we've seen energy elbow a significant reduction in a numbers of claims and in severity. If you think about the bars that are have not been open.

And.

When they did open they had less capacity.

While we're seeing a lot fewer firefights that kind of stuff and we're seeing a lot less.

Claims on the a lot less frequency on the NGL side or the property has been pretty consistent and.

Quick we've been fortunate to be dodging all of these hurricanes and the cats that have been going on.

Because we have not I don't think we've ever come close to our retention on our cat in any one of these cabinets and our property continues to perform fairly well.

[music].

Well I kinda coincided it it's a very.

Very bad situation the code, it's terrible and I know that but from the claims side, we've seen significant improvement on the general liability frequency.

Nick or Andy do you want to add anything to that.

No I think you covered and commercial auto we did see some.

Anything significant improvement.

On claims frequency and severity.

Really in April May June and we've seen that kind of normalize here I really towards the end of the third quarter on so I think that has probably normalize the pre IPO blood levels for hot on are pretty cost.

But certainly that as Jim mentioned.

The impact on pretty dramatic on the general liability and liquor liability frequency and severity.

I mean isn't that lovely only have one.

One more thing.

[music].

Go ahead Jim.

I was going to say on the security book.

Frequency has gone down it you know historically some of our.

Our more difficult.

Venues for security Guards, our concerts.

And are those.

Those types of things none of those have been happening now the security guards.

The book itself has actually grown because you have vacant buildings you have all these other things going on where are they need people and in buildings to check temperatures et cetera. So the cure security guard business has.

Been positively impacts from a business standpoint.

And it's also been positive impact on our side by being in the last volatile.

[music].

Types of security Guard businesses would you agree with that Nick.

Yeah, no absolutely that that's sort of large groupings of people typically that's a tougher exposure for our six.

Security Guard business, and that's obviously gone down significantly and another point on on the hospitality side on even though we're seeing are needed capacity and obviously, we had the locked down.

A lot of the restaurant ads and really persistent here pretty well through the the pandemic.

With the word Ashton and take out and things like that maybe we've seen a small uptick in frequency of food related on claim but those are by and large are much less severe than your typical flippant ball. So it's still a net overall positive for the the book.

Great. Thank you folks appreciate the help.

Thanks, Paul Thanks Bill.

And if you have a question. Please press Star then one.

Next question is from bump arm and spending that Scattergood. Please go ahead.

Yes, hi, there good morning, a few questions here.

Yeah.

You were talking about the cat losses, just my put my first question is as simple as these do you have the accumulation of cat losses that we can consider for the quarter Nope nope okay.

I figured that was the simple one.

Now I'll get into more complex, one so going kind of touching on Paul's discussion about the the loss.

Loss trend to benefit from coated I'm trying to quantify how much of an improvement you got from the in the combined ratio the accident year combined ratio for that I'm looking at 91 for the nine months of this year and looking at a 92 from third quarter and 87 for the second quarter, just kind of curious how much do you think.

Is that those benefited in terms of points.

Due to the cold environment.

Rather than a a quote unquote normal environment.

I don't I don't know that I have the specific percentages.

I would tell you that we were expecting significant.

An improvement in the loss ratio anyway, and Cove It has quicken that.

With the way the Lockdowns have gone and stuff and you know in liability you may get claims next year I will tell you that one of the weird things is we're not getting a lot of claims.

From older years.

18, 17, 16, those types of things have really slowed down and I don't know so what cogut has had to do with that but.

As far as late reporting that hasn't really been shown in the things there are locked away. So for this accident year.

There.

Was significantly impacted by Kroger at however, we were expecting a fairly significant improved loss ratio anyway, just because of the make up of the book of business.

Nick or Andy here, Brian or whatever do you guys have any idea of percentages I mean.

I think I know what percentage.

Yeah, I mean, I think it's difficult now I'll you know.

It's over to Harold to meet you may have a better answer, but I think it's difficult to isolate how much is specifically due to covance versus improvement in the book of business like Jim Matt.

And then when we get expected improved loss ratios in the current accident year, just given the makeup of the business on.

Certainly we saw that even in the personal line side. So thats, obviously not cobot related so I think it's tough to isolate just because of it impact on with Harold.

Any updated thoughts on that I mean, just to recognize.

I don't know, we both for the quarter and year to date have a 44% accident year loss ratio.

I would say that we have maybe if we our normal run rate and this is literally a guess so.

Would it be normally be at 55, or 60 or something like that so.

As you know maybe half of half of it is due to covance.

No. Okay, I figured that would be a difficult question to answer but I was just trying to get maybe get some color around to kind of what we should expect going forward.

We go back to a normal environment, how much of what the what those accident year loss ratios could be.

I.

The next question I have is you talked a lot about changes you've made so you've had a lot of lot of the reserve drilling from 18 in prior.

How has the 2019 reserves how have they held up thus far in 2020.

Hi, Dave.

Yes, well.

Uh huh.

I don't know Nick do you have any other comments on that.

No I mean, I think today, it's held up within our expectation and I think it.

The progress that we made from you know 15 16 17 continue to.

Held up into 18, albeit maybe not as much as we had hoped obviously strengthening that that accident year.

This quarter, but 19 that continued improvement in the business mix and borne itself out. So I think at this point we feel.

Feel good about the 2019 exit here.

Yes generally.

Go ahead I was going.

Sales in general I don't think we've seen as much overall claims activity in 20.

Specific to 19 as you might normally expect kind of under the normal course, so I think that thats kind of speaking to improved results from 19 in particular.

Yeah, I'm, just trying to get a flavor for getting the kind of the has the has the adverse development kind of subsided in the more recent years still is hopefully as we see that the continued to mature nodes and that remains the case.

And last thing for me you know, we don't talk about it a whole lot, but can you can you go.

I went to the Sycamore the wholesale agency operations kind of what you're seeing in terms of revenue flow there and what your expectations are for the near future.

Andy.

On the Sycamore side.

The first intent was really to have.

Platform for our retail agents to write surplus lines business around the country and we continue to do that and we help them by thing by one hand, holding license into paying the taxes and fees for them. So that you know as we continue to increase our surplus lines business that portion of it continues to increase we.

Add come across a couple of retail agencies.

That have made sense and fit within our book of business and write a lot of business with our insurance carriers and so that does continue to expand.

Although slowly it does continue to expand and probably slower than we would have expected due to co bit.

We had is one area where co bid has impacted us on the agency side lately, but as we continue to grow we continue to see additional fee income there and we see additional premiums placed with our insurance carriers through that Avenue as well.

All right sorry, I'm looking in the presentation looks like you're expecting maybe 7 million.

Some revenue this year I'm just kind of curious you. So based on your expectations for growth you'd expect that to increase going forward.

Yes, we expect that to increase slightly as we go forward.

Okay.

That's it for me thanks.

This concludes our question.

The first session I would like to turn the conference back over to management for any closing remarks.

Thank you.

I just want to thank everybody for being on the call today patients. In these times is really appreciate it I will tell you that from an operational level.

We have.

Have not missed a beat as far as servicing our agents are being able to handle claims in this kogan time, and that's a real true.

Tribute to our high tea staff in our management in general being able to.

Coordinate the working from home and to.

Really not Miss a beat we've been very successful, Jason R.I.T. Guy and Nick got together early and January and we're thinking that something might happen. So there were well prepared for this eventuality and.

As we as we work from home I think that.

Our.

The way, we do business in the future is going to be a little bit different and more people will.

We'll have opportunities to work from home. However, I do think this.

Working from home hurts in.

The collaboration of ideas and.

The ability.

You bet.

Learn from each other so we're not going to be a total work from home environment.

But it has not hurt us today I'm very hopeful you know, there's vaccines out there and everything else, but it sure looks like we're in for another six to nine months to them through a mid.

Your next year so.

That's just I guess my analysis of where we are as a company, but thank you for being on the call today. Thanks for the great questions and look forward to talking to you guys next quarter.

Thanks, everybody.

Conference is now concluded thank you for.

For attending todays presentation, you may now disconnect.