Q4 2020 ProAssurance Corp Earnings Call

Good morning, everyone and welcome to Pro Assurance says conference call to discuss the company's fourth quarter and year end 'twenty and 'twenty results. These results were reported in a news release issued on February 22nd 2021. Please review that document.

Management expects to make statements on this call dealing with projections estimates and expectations and explicitly identifies these as forward looking statements within the meaning of the U S Federal securities laws and subject to Apple applicable safe Harbor protect protections.

The content of this call is accurate only two on February 23rd 2021, and except as required by law or regulation publisher and <unk> will not undertake and expressly disclaims any obligation to update or alter information disclosed as part of these forward looking statements. The management team of pro assurance also expects to reference.

Non-GAAP items during today's call. The company's recent news release provides a reconciliation of these non-GAAP numbers to their GAAP counterparts, now as I turn the call over to Mr. Ken Mcewen I would like to remind you that this call is being recorded and there will be a time for questions. After the conclusion of prepared remarks, Mr. <unk>.

You and please go ahead.

Thank you Tom and good morning, everyone on our call.

Today, we have net brand president and CEO, Dana Hendricks, Chief Financial Officer, Mike Bogusky, President of our specialty property and casualty lines and Kevin shook President of our workers' compensation insurance operation.

And I'll turn it over to you.

Thanks, Ken.

There had been and countless attempts to summarize all of that was 2020 and.

Don't add to those efforts here.

Suffice it to say 'twenty and 'twenty was a year, we are all glad to put behind us.

However, it was not one we should hurry to forget.

For all the challenges 'twenty and 'twenty brought it ought to be defined instead by our response to those challenges.

And our determination and taking the steps needed to accomplish our objectives.

None of this could have been accomplished without and the dedicated and remarkable work and all of the employees approach parents.

And I went and thank them for all they have done.

The organizational and strategic changes, we've made beginning in 2019 and throughout 'twenty and 'twenty have had a meaningful impact on our operations and.

And are having a positive effect on our performance.

And you'll hear something from the details of those improvements momentarily and.

And one obvious impact of those efforts has been to our topline.

Our top line contracted in 'twenty and 'twenty as we took a hard look at some of the business we'd written in recent years.

However, this does not mean, we don't intend to grow we.

And we do intend to grow we just wanted to make sure we're doing it profitably.

The recent dip and our topline as a result of that strategy.

No the loss environment is challenging at this stage of the cycle, we're not hunkering down to weather the storm.

Rather we are taking a moment to consult the map before moving through it.

Now I'll turn the call over to Dana to take us through the results of the quarter and year Dana.

Thanks Ned.

For the fourth quarter, we reported non-GAAP operating income of $3 $3 million or six cents per share.

This reflects higher equity and earnings and unconsolidated subsidiaries and a meaningful quarter over quarter improvement and our underwriting result.

While we have more to do before we say we're satisfied with our results this quarter starved as evidenced that the changes we've made over the past year and a half or having a strong beneficial impact to our operating performance.

For the full year, we reported a non-GAAP operating loss of $27 $7 million attributable to the pretax net underwriting loss of $45 $7 million associated with the tail policy issued to a large national healthcare accounts and a pretax 10 million dollar I B and our reserve.

Related to the pandemic, both of which were recorded in the second quarter.

For the fourth quarter, our consolidated net loss ratio was 74, 9% a significant quarter over quarter decrease primarily due to the effects of the large national health care account and the year ago quarter, but most.

<unk> also reflected our re underwriting and rate strengthening efforts over the last 12 months.

For the year. The net loss ratio was 83, 4% or 5.6 percentage point decrease primarily due to favorable reserve development and a reduction to the current accident year and net loss ratio driven by improvements made and our specialty P&C segment.

However, this improvement was largely masked by the second quarter tail policy and pandemic I B and our reserve.

Our consolidated underwriting expense ratios for the quarter and for the year on.

39% and 30% respectively were relatively unaffected by our contract a topline revenue from our re underwriting efforts, which demonstrates that the strategic initiatives to improve our underlying expense structure have taken hold.

For the year the expense ratio also reflected one time expenses related to restructuring as well as transaction related costs associated with our planned acquisition of norcal, partially offset by reduced travel related expenses day to the pandemic.

From an investment perspective, our consolidated net investment result increased quarter over quarter to $26 $3 million, driven by $10 $1 million and income from our unconsolidated subsidiaries, we invest and various L. P and L. L CS and the results and it does investments are typically reported.

On a one quarter lag.

Accordingly, the earnings from unconsolidated subsidiaries and the current quarter represent the recovery and value of our L. P and L. L sees in the third quarter.

Consolidated net investment income was $16 $1 million and the quarter down from the year ago period, primarily due to a decrease and our equity allocation to equities and lower yields from our short term investments and corporate debt securities given the actions taken by the federal reserve to reduce interest rates.

And response to COVID-19.

Net investment income was also lower for the year due to these same factors.

Mike.

Thank you Dana the specialty property and casualty segment continues to execute a comprehensive business strategy to address our operating and underwriting results.

Although we recorded an underwriting loss in the quarter and year, we continue to be encouraged.

With the improvement in both the expense and net loss ratios.

Exclusive of the underwriting loss associated with the large national health care accounts.

Both 2019 and 2020.

As a result of the aggressive restructuring re underwriting and expense reductions executed throughout 2019 and.

And 2020.

We are confident that we have established a strong foundation for the future and positive momentum.

As expected gross premiums written and contracted in the quarter and full year.

Reflecting our re underwriting and rate strengthening efforts and to convert competitive environment across our operating territories.

However, however, gross premiums written were relatively consistent year over year, and our medical technology liability business and.

In addition, gross premiums written and the quarter.

Reflected renewal timing differences of $4 $6 million and our specialty business.

And the non renewal of a $2 8 million dollar policy and our standard physicians business.

We will continue to focus on underwriting discipline and.

And achievement of our long term profit objectives, managing the segment's top line it was necessary to improve our bottom line.

Premium retention improved to 83% quarter over quarter, driven largely by improvement and our specialty business.

Retention for the full year was 79% and reflects the re underwriting and specialty and.

And rate strengthening efforts and standard positions over the past 12 months.

Premium retention results and our small business unit and medical technology liability business were relatively consistent with historical trends.

In addition to higher premium retention and the quarter, we achieve renewal price increases of 8% and the segment.

Driven by price increases and both our standard position and specialty business of 10%.

For the full year, we achieved renewal price increases of 9%.

Attributable to increases and the specialty and standard positions business up 15% and 11% respectively.

In addition to the pricing increases and specialty we also significantly strength in rate adequacy through our improvement of product structure terms and conditions.

New business writings were $5 $3 million and the quarter compared to $4 6 million and the fourth quarter of 2019 due.

Driven by our medical technology liability business year.

Year, and new business writings were $23 million compared to 43.002 million 19.

Which reflects careful risk selection disciplined underwriting evaluation.

And the impact of slower submission activity due to market disruptions from the pandemic.

The current accident year, and net loss ratio decreased six three percentage points year over year.

Exclusive of the impact of the large national health care account and 2019 and 2020 and.

And posting of the Covid, I, B and a reserve and the second quarter.

This decrease primarily reflects the improvement from our re underwriting efforts that began in the third quarter of 2019.

Both in the quarter and full year.

We continue to observe a significant reduction and our claims frequency.

As compared to the same periods of 2019, and some of which is likely associated with the pandemic.

We have remain cautious and recognizing these favorable frequency trends and our current accident year loss pick do the long tailed nature of our lines of business and the uncertainty brought on by COVID-19.

Just a brief update on COVID-19 business impact during the year.

We established a pretax $10 million of IV, and a reserve and the second quarter related to reported incidence.

As of year end 2020, we have not seen the emergence of additional suits from the incidents reported.

Five suits have been filed as of year end 2020.

Therefore, after careful review of the pandemic related claim activity no additional IV and our reserves have been book since the second quarter.

There have been minimal changes and premium deferrals or discounts since the third quarter.

Despite the challenges of the current loss environment.

Recognized net favorable development, and a $6 $8 million and $27.5 million in the fourth quarter and full year respectively.

This result is a significant improvement from the comparable periods of 2019.

The specialty property and casualty segment.

Reported <unk> expense ratios of 23, 8% and 23% and the fourth quarter and full year, respectively and.

Incremental improvements of one four and one one percentage points as compared to the same periods of 2019.

This result was achieved despite lower net earned premiums and $4 million of one time charges during the year related to restructuring.

As a result of organizational structure and enhancements office consolidations.

And reductions in staff.

We achieved expense savings of approximately $12 million and.

In 2020.

The current reinsurance market continues to firm as a result of social inflation and severity claim trends.

We had a successful October renewal of our reinsurance treaty and mitigate a potential significant cost increases by increasing our retention from $1 million to $2 million for our health care professional liability and medical technology liability businesses.

I'll conclude with a brief update on the norcal transaction.

As disclosed in our release last week, the California Department of insurance completed its review of Norcal conversion documents.

And nor Cal will now begin soliciting policyholders to vote on the plan to convert from a mutual company to a stock company.

As part of that process policyholders will have the option to take their ownership share of the company in the form of nor Cal stock.

Each pro assurance will often dubai through it through our tender offer.

We expect materials to be mailed to eligible policyholders by the end of February.

This is an important step towards closing the transaction.

Which remains subject to a number of prerequisites prerequisites as detailed in our prior disclosures.

Assuming all of these prerequisites are met we now expect to close the transaction and the second quarter of 2021.

We remain excited about the combination of the companies.

And the strategic value presented by this transaction and.

And are excited to work with nor count towards the next phase of this process.

And I'd like to banked and norcal team for their enthusiasm and hard work and helping us get to helping us to get to this point.

I'd like to conclude by thanking all of our valued employees.

Agency and strategic business partners and customers for their tremendous support throughout 2020.

We look forward to continued progress on our business plan and 2021.

Ken.

Thank you Mike Congratulations to you and your team for getting US this far and the process.

And I would like to pivot to the results from the workers' compensation insurance segregated portfolio cell reinsurance segments, Kevin what can you tell us about the quarter and year.

Thank you Ken the Workers' compensation insurance segment produced income of $6 million and a combined ratio of 97, 8% for 2020, including income of $2 $1 million and a combined ratio of 96, 3% for the fourth quarter during.

During the quarter and full year, the segment booked $47 million and $247 million of gross premiums written respectively, representing decreases of 13, 6% and 11, 4% compared to the same periods in 2019.

Renewal pricing in 2020 decreased 4% for both the quarter and full year, reflecting the continued competitive pressures and our underwriting territories. Despite COVID-19, and the associated economic conditions.

Premium renewal retention was 82% for the 2020 quarter and 84% for the year, both improvements compared to 76% and 83% for the same periods in 2019, as we continue to see stronger premium retention and lower new business during the pandemic.

Nick.

New business writings decreased quarter over quarter to $4 $4 million, and 2020 compared to $5 $5 million and 2019 and for the full year were $27 $4 million and 2020 compared to $38 million in 2019.

Audit premium for the fourth quarter of 2020 resulted in additional premium to the company of approximately $700000 compared to $2 $2 million for 2019 and for the year was additional premium up $700000 compared to $5 seven.

And 2019.

The decreases and audit premiums reflect the economic impact of COVID-19 on policyholder payrolls.

We continue to expect downward pressure in future quarters on premium, resulting from changes and payroll estimates.

The calendar year net loss ratio increased and both the fourth quarter and for the year, reflecting the continuation of soft market conditions and workers compensation, and resulting renewal rate decreases and additionally, the reduction and audit premium and lower net favorable reserve development, partially offset.

Set by favorable 2020 accident year claim results.

The 2020 accident year loss ratio was 69% for the year compared to 68, 4% and 2019.

Net favorable loss reserve development for the quarter was $2 million and 2020 compared to $4 $4 million and 2019 and for the full year was $7 million versus $7 $8 million and 2019.

We continue to reserve for all claims as if injured workers were receiving medical treatment as they would have prior to the pandemic.

Reported claim frequency for non Covid claims decreased 35% during the pandemic with only $2 $2 million of gross undeveloped incurred losses at the end of 2020 from the currently reported 1375 Covid claims.

Further through the end of January 2021, we closed 87% of the 2020 reported Covid claims received to date indicative of the shorter tailed nature of workers' compensation insurance compared to health care professional liability.

However, management and remains cautious and its evaluation of the 2020 accident year loss ratio considering the many uncertainties surrounding the pandemic. Our claims professionals continue to function effectively while working remotely closing, 61% of 2019 and prior claims.

During 2020, consistent with historical claim closing rates.

Many legislative enactments or proposals to broaden coverage for workers' compensation claims expired at December 31st However, new legislative sessions that commenced in January may revive efforts in this regard.

Turning to expenses, the underwriting expense ratio and the quarter was 32, 7% compared to 29, 8% in 2019, reflecting the decrease in net premiums earned.

The underwriting expense ratio decreased two five percentage points from the third quarter of 2020 due to our restructuring efforts discussed on our November earnings call and to a lesser extent the associated onetime expense of $900000 included in the third quarter.

For the 2020 year the expense ratio was 32, 9% compared to 34% in 2019.

Turning now to the segregated portfolio cell reinsurance segment, we reported income of $1 $6 million for the quarter and $4 $4 million for all of 2020 per.

Premium trends and the SPC reinsurance segment were largely consistent with those and the workers' compensation insurance segment, we renewed all of the alternative market programs that were available for renewal during the current quarter and for the year and wrote one new program and 2020.

The SPC re segment recorded favorable development of $9 million in the fourth quarter of 2020 compared to $2 $3 million and 2019 and for the full year was $16 6 million versus $10 $1 million and 2019 as of <unk>.

Remember 31, 2020, we had 1090 reported Covid claims for this segment with $1 million of gross undeveloped incurred losses Ken.

Thanks, Kevin and.

Turning to our Lloyd's Syndicate segment now I'd like to ask net to take us through the results from the syndicates and some of the developments from the quarter net.

Thanks, Ken.

And as expected we saw on natural catastrophe losses, and the fourth quarter related to Hurricanes, Laura and Sally and the wind storms that swept through the Midwest and August.

Our participation and the results of Syndicate, 2017, and 29, and 61 and 31 led us to record a loss of just under $1 million and the quarter.

The fourth quarter loss combined with our reduced participation in syndicate 17, and 29 for the 'twenty and 'twenty underwriting year.

<unk> and overall lower income of approximately $2 $1 million for the year.

Losses on these storms and other natural catastrophes and the last three months of 2021.

And we just do expect the segment loss and our first quarter of approximately $2 $5 million.

Regarding the development as Ken mentioned, and it's been a year of change for us at Lloyds and the fourth quarter proved to be no exception.

For the 'twenty and 'twenty, one underwriting year, we have further reduced our participation and syndicate 2017, and 29 from 29% to 5%.

Additionally, we reduced our participation on syndicate 61, and 31 from 100 per cent to 50% for the 'twenty and 'twenty one underwriting year.

During the quarter lag these changes will be reflected on our results beginning in the second quarter of 'twenty and 'twenty one.

Our decision to further reduce our participation and the syndicates is driven by our desire to support and grow our core insurance operations.

And to reduce volatility and our underlying performance.

Duncan Dale and his team and Dale underwriting partners have been and will continue to be valued partners to pro assurance and it is a testament to the quality of their work the syndicates were able to secure participate and capital to replace our own without difficulty.

Before we open the call to questions I'll note that the meaningful improvements we've made in the past 12 months go a long way towards our goals of operational excellence and sustainable profitability.

As we seek to build on this momentum and 2021.

I want to thank this leadership team and again the employees, we serve for their flexibility and dedication to our mission.

And I also want to thank our customers, particularly the health care professionals, who are risking their lives. So that ours may be made safer and a year when protecting others took on new depth of meaning.

Ken.

Thank you Ed Tom that concludes our prepared remarks, and we are ready for questions.

Great. We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

And if you were using a speakerphone please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two.

At this time, we will pause momentarily to assemble our roster.

And the first question comes from Greg Peters with Raymond James. Please go ahead.

Good morning, everyone.

And I wanted to.

Just a focus and for a second on norcal.

And I know you've commented a little bit about it and your prepared scripts, but could you tell us a little bit how their results look like they'll measure out for the year.

And you know what you you've kind of put a budget in place for what you expect out of your operations can you give us any sense of what how you're feeling about the outlook from norcal.

Hey, Greg Thanks, Thanks for those questions.

So norcal has not yet released publicly it's 'twenty and 'twenty results they'll be filing their statutory statements I think along with everybody else towards towards the end of the Montana and he may have some updates though is there anything you can provide.

And net.

No no that's right they'll they'll be filing ahead of the March one deadline.

So, Greg Roth and better better information and at.

And for you at that time, Okay, that's fine and I understand.

In the press release, and I know you use it as part of your standard sort of rhetoric about closing the transaction are made subject to the affirmative vote of policies and blah Blah Blah Blah Blah, and then you say and and the press release, you say and satisfaction of conditions described and the accent acquisition agreement between the companies and <unk>.

Also made reference to this and your your prepared remarks is there is there any issue in any of the conditions described and the purchase agreement that are outstanding or would you say at this point.

And then.

Okay.

And next quarter that everything there they're meeting all of the conditions and the in the purchase agreement.

I'm just trying to figure out.

Do you understand what I'm getting on yeah, no I, absolutely do I mean, that's kind of a.

Broad sweeping statement and we've got Jeff wouldn't be available who can can help fill on where I perhaps.

Don't don't give clarity.

So a couple of things one is the regulatory approval and that's been received is too.

For for Norcal to go ahead, and send out and the solicitation to its policyholders.

There is still to be held a hearing by the department of insurance.

And before they make their final approval of the transaction and and I believe that's anticipated that hearing is anticipated to be late March early April and so that is one of those conditions and it's kind of the final approval post hearing from the department of insurance.

And then I would tell you that the the other things that remain open and are just those kind of typical due diligence bring down and sort of items that would be and any any agreement.

There are there are conditions and governed by the California de Mutualization.

Regulations on the number of respondents and and a positive response to the sale to pro assurance and those sorts of things as well.

But I don't think there's anything that's kind of out of the ordinary.

And I'm on those conditions, Jeff is there anything that I've left off.

Yes, net and there are a couple of conditions that relate to how norcal policyholders choose to be paid and the conversion.

And.

Without getting into too much detail they can take stock and the converted company.

They can take a discounted cash option.

Or they can take a contribution certificate, which is sort of a debt instrument for 10 years and.

And the agreement includes a condition that no more than $200 million and aggregate value will be and the foremost contribution certificates.

And for those policyholders, who take stock.

At least 80% of the shares must then be tendered to pro assurance pursuant to our tender offer.

That's helpful clarification, Jeff Thank you.

Yes, thanks for that detailed can I, just pivot using staying on that theme, but to the broader perspective.

You know I know at the time and the announcement you talked about the company's cash your capital position you talked about their capital position and you talked about reserves.

Here, we are your 2000, twenty's and the box and you know.

Thank God, that's in the rearview mirror and but how do you you know as you think about your modeling out for capital for 2021, and the context of this pending merger and the context of your topline that's declining every segment almost down double digits down double digits every cycle.

It's down double digits from a topline perspective for the year what can.

Can you.

Can you just give us an update on the capital position of the company and where do you stand.

Okay, and Greg day, and I do want to take that.

Yeah, I'll be glad to thank you.

Yeah. It's a good question. So at the end of the fourth quarter, we held cash and liquid investments of approximately 260 million.

Outside of our insurance subsidiaries that are available for use without regulatory approval or restriction.

And of course, we have an additional two.

$250 million and permitted borrowings available under our revolving credit agreement and and as of now we have now no borrowings outstanding under that revolving credit agreement.

And that that's just a high level recap for you Greg.

And and when you merge that with the pending.

Pending acquisition and.

What changes if anything.

And I think Greg I think you said.

And you think about the transaction.

And as a structured essentially around a book value transaction for pro assurance.

And and so as such and doesn't eat up any of our capital.

What day, what it will do is allow the capital that we hold as an organization to be better Levered on when you think about a premium to capital writing ratio.

But importantly, it doesn't eat up and in capital.

As far as the creation of any substantial and intangible assets.

I got it and I'll take the rest offline thanks for the answers.

The next question comes from Mark Hughes with Truest. Please go ahead.

Yeah. Thank you very much good morning.

I Wonder if you can learn and mark to talk about.

Morning, I Wonder if you could talk about the competitive environment and we think about this quarter.

Your.

Premiums were.

Still declining double digit down a little bit faster.

At the same time the.

You know the pricing increases relatively steady how do you see the competitive environment now versus six months ago.

Or are you going to get the opportunity to kind of pivot to our topline growth and <unk>.

And in 'twenty one.

Yeah, Mark great questions, and I'm going to I'm going to kind of let Mike and Kevin and turn respond to their kind of their segments and Mike do you mind, taking that first.

No happy to do so.

Yes.

Just to start the the decrease and the topline is really re underwriting.

For the most part Mark and and that was important to us to move towards the the profitability that we want to from a competitive environment.

And I think there's kind of two worlds that we're looking at today.

Standard physicians market continues to continues to be.

Relatively competitive across our operating.

Territory state by state.

And we continue to compete against some pretty tough competition, there what we've done and that segment. As you know we have our core stage continued to perform well we've had some volatility and what I would call non core or some smaller states. So we're really trying to get after that from an underwriting standpoint and make.

Sure the deck that is profitable going forward.

The specialty market has been pretty interesting.

And it's been pretty firm across all the different components of that when you look at hospitals and facilities Correctional care senior care.

So as you can see by a year and results.

We had about 15 points of rate.

We're starting to see more consistent growth and that segment due to the firming market.

And more importantly, the product.

The product structure terms and conditions have really improved and that market.

So I just think the underwriting environments is when you look at that compared to six months or a year ago is much more attractive as we re underwrite that book of business.

And then mark its Kevin on the workers comp side quickly for 2020 down about 11%.

Four percentage points of that is rate.

And we talked about the reduction and audit premium, which is COVID-19 driven about $4 million on midterm endorsements, which is also COVID-19 driven interestingly for the month of January of 'twenty. One we were down about 5% so solid improvement there and just in terms of competition.

It's still very competitive and workers' comp. Despite COVID-19, but we are starting to see signs like accident year combined ratios of 100 versus calendar years larger Packer package players anecdotally are looking for rate and loss cost are starting to.

Starting to minimize.

So we are starting to see some positive signs that things may be taken a turn for the for the better later in 2021.

Hello, and thank you for that how do we think about the frequency.

You talked about the COVID-19, having some impact on frequency and what else could it be and <unk>.

And any specifics on how much frequency was down in 'twenty and 'twenty.

And.

Not to pile on too much but the.

And we're making it too complicated, but the you know you're.

Current accident year loss pick was up a little bit sequentially and the specialty business.

What are the.

Prospects for frequency or.

I guess the courts are opening up now out of that.

Mixed with all of this.

Just curious your thoughts on.

Frequency as we go into 'twenty, and 'twenty, one and maybe I'll summarize and Mark and I.

You're talking mainly about the specialty P&C business, but I'll make maybe some overall comments and and let Mike My gut feel and I think you are the one that and in a conversation with you referred to Covid as it impacts kind of the insurance business is a fog of war.

And I think theres, some truth to that and so you know while we've seen declines in frequency.

We don't yet know how to interpret those declines in frequency and we don't yet know all of the drivers of those declines and frequency and so.

And we've been very cautious and giving any credence to those declines and frequency as we've established loss reserves for the 'twenty and 'twenty accident year and the specialty P&C segment.

And so I think that kind of is is the reality of the situation and and once that fog of war Clearers and we have we have better clarity.

And to the types of claims that have come in and and maybe better said the claims that didn't come in.

We will have a better sense of what that decline and frequency ultimately means and I think it's gonna take isn't as it usually does and the long tail lines of business like empty out 12 months to 24 months before we have that kind of hindsight certainly the CT systems opening up will begin to help one of the things I think we don't know as an industry is if there is a backlog of claims.

And just waiting on the court systems to open back up I, you know I think offsetting that potential as the number of immunity measures that have been enacted.

Either through executive order or through Lettish legislative measures and and a lot of states and which we do business and.

And one thing I would point out and.

Kevin made this point in his comments is that the the work comp business for us is a shorter tailed lines of business and.

Kevin said I think that you know 87 per cent of their COVID-19 claims being close we've been able to react a little more to the reduction and claim frequency within the work comp line and so you do see some improvements there because we've got a little more incredible data as to that impact on.

Mike what have I left off there.

And that was great and Ed.

I would just add a couple of points as we looked at that accident year.

Reduction it was primarily related to the to the re underwriting efforts and.

We took a cautious view as you're as you're aware on the on the reduction and frequency.

Mark you had asked a question about the quarter over quarter increase and the third quarter, we had a large retro premium adjustment, which.

Which which reduced.

The quarterly action and the quarterly accident year loss ratio down by almost two points and the third quarter. So that was just the cash.

And of an aberration the loss pick is really been and established pretty consistently throughout the year. So I just wanted you to be aware of that.

Thank you for that I appreciate it yes, absolutely.

The next question comes from Paul Newsome with Piper Sandler. Please go ahead.

Good morning.

Kind of a follow up on the whole.

On the low accident year picks for the Premier if I'm looking at the from loss ratio and not so much on a quarterly basis, but maybe on the.

Annual basis.

It used to be quite a bit.

<unk> and that sort of a need and call it 82 per cent level.

And.

Some of the what you would have with a long tail business, but obviously the last couple of years, it's popped up.

Debt.

Is it is it fair to say that these kind of.

The day count issues and stuff would have not affected that loss pick and just sort.

Interpretation on getting and.

And so that debt.

And general loss pick and we've seen in the past is about the same prospectively or reaction.

Those in general and so think of the loss pick.

Higher and.

Obviously not on this.

Is affected by that.

The business mix has changed over time as well.

Any comments, they come and get us there.

And again I'm not looking per quarter myself, I'm really thinking annually and perspective.

And broadly we're that lost too.

Should should end up being and.

Sure.

Yeah.

Paul It's a good question and I think I I think I understand it and so what Mike and I will try to answer it together I think I would say that.

Certainly over the last number of years kind of that underlying what's the loss ratio on the overall book of business kind of ex some of the noise.

We have seen trend up.

And then as Mike alluded to with the re underwriting efforts that we're undertaking over the last 18 to 20 months, we've begun to see.

Trend back down as we take some of that into account.

But there's definitely the increases are not only because of some of the larger items as I would say that the attritional loss ratio has gone up.

As well, Mike what would you add.

Yeah, I would just say since 2016, both both at pro Assurant and the industry.

The specialty area.

And it has not met expectations with the loss pick and it's and it's it's.

Clearly higher than the core physicians business.

And.

And and clearly over the last 18 months, we've been more aggressive.

And the underwriting actions there because it's been more volatile and I think we're moving it down materially over the last 18 months and we will have.

And that in line with the core physicians as we move out and.

Into the future, but there was no question that as the market.

Kind of went after as the health care consolidated and the market went after the.

And the facilities hospitals larger regional hospitals that pricing was pretty aggressive and the the the loss picks were elevated.

We have a terrific specialty team that we've brought in.

And to oversee those books of business, they're doing a fantastic job and we expect it to be a smaller but successful part of our business going forward.

Right.

Apologize if it just means it's confused but could you help us just kind of simplify what you're doing and the boyd's business no longer.

Huge business, but.

In terms of how the premium waterfall will book given the different changes that you've made in the Retentions and.

I think I have an idea and essentially.

Sounds like sort of second quarter 2021, we're at some sort of run rate, but am I wrong there.

How does that all work and so we have that premium run rate awesome.

Yeah right.

That's.

Good question, Paul and one that's a bit challenging just because of the way the premiums comes on from accident years, two calendar years within within Lloyds and given the fact that there is.

A good bit of reinsurance and other things and that's kind of the written and earned patterns are somewhat different.

So you will begin to see the reduction and the participation and our second quarter on their first quarter of 'twenty and 'twenty, one, but it won't just be like falling off a cliff from 29% to 5%.

There is still business coming on from that prior year.

And thats on a written basis.

That will will mute that some on the business plan for the syndicate also increased.

For 2021, so and.

And they moved from 29% to 5%.

It is not linear and Theres also this increase and business that's going on although overall would be a much much smaller participation for pro assurance and and that's.

And then kind of a pattern that's going on and so I think and you will see kind of a steady decline and premium over time, but it will take 12 to 24 months before you really begin to see the full.

And impact of that reduction down to five per cent.

So and does that mean, if I'm thinking about this as debt.

And we will see the reduction of the changes and the second quarter because the.

And you wanted to get some lag and then.

Full run rate will end up being in the second quarter were 22.

Yeah, I guess, that's probably.

Not precise, but it's probably the best way to think about it.

And the rates and then is the idea to hold on to the 5%.

Well you know as.

As I said, we really we have a we have a lot of confidence and what Duncan and his team are doing and.

And view them as a valuable partners to approach Orange book, and we'll continue to have discussions with them and and evaluations with them as we move forward, but we're very comfortable with where we are right now with them.

And that's that's understandable.

I appreciate the call and careful and answers there.

The next question comes from Gary Ransom with Dowling and partners. Please go ahead.

Good morning, you mentioned, a couple of times and the Oh long away and the remarks about our product structure and terms and conditions and I was wondering if you could give us. Some example, or some sense of how how important and there are and what kind of changes are being made there.

Yeah, Great Gary.

Mike do you mind, taking that.

Absolutely.

Good morning, Gary.

It's actually a pretty significant and and.

It's equal really until what you see on the premiums side as far as <unk>.

Prove and the rate adequacy and Thats why.

We're working really hard to move move move the loss ratios down with product term and conditions, but it's a combination of raising of retentions raising of deductibles.

Repricing of the business.

Different products, whether we move it to a captive structure with with less risk.

Lowering of limits all of those component parts are really really important to the overall profile.

And that we look at from a rate adequacy standpoint.

We brought in a really talented senior VP of actuary that sits on our large accounts team as well.

And we have a lot of really good interaction between actuarially.

The actuary team and.

And underwriting to look at that look at the pricing and the terms product structure and those things so it's pretty substantially and it's as important as the as the 15 points of rate for the year.

And and important to what Mike just said and for everyone to understand is it the.

On the structural changes of product changes terms and condition changes or not and peered at end of that rate increase and so when you're thinking about the change and the business on the specialty P&C side, you've got the impact of the rate increase and then and in addition to that you had the impact of the change in terms and conditions.

Yeah, and I would just add a few other points from the re underwriting perspective, we've reduced our senior care exposure.

About 80% year over year.

We've reduced some exposure and the and the.

Correctional care side of our business so.

The thing that's not being talked about and I think we should should communicate a little bit more here is just the reduction and the volatility of the.

The non renewal of a large some large accounts.

And the aggressive actions and both senior care Correctional care and other areas of that specialty book and the team has just done a fantastic job.

Would it be possible to generalize and a way of saying you know the retentions of.

Have doubled over the past year or is there a trended and some to some extent that's quantifiable.

Yeah at this point, it's really a very visual.

Individual account underwriting and Theres. So many variables, it's really hard to comment on that.

Yeah, Okay, that's fine.

Just on on another subject Theres a couple of times, where you talk about claims closing patterns I mean, it's mostly on the segregated cell business, but I think you mentioned it on the call and the workers' comp piece of it.

It wasn't changing and maybe I heard that wrong, but can you talk about what you're seeing and that whole and the claims closing and workers comp.

Sure Gary it's Kevin.

The point I was trying to make is that we are seeing consistent claim closing patterns. So getting an injured worker back to wellness during the pandemic and.

Getting that claim closed we're having the same success rates.

The pandemic debt, we had pre pandemic and then the other item that I did mention is that for all of the 2020 reported Covid claims as of the end of January 31 of 21% to 87% of those are already closed.

So net referred to this a couple of minutes ago.

Workers comp is a long tail business, but more a shorter tailed writer and just wanted to all of you folks to know that claim closings remain consistent both during the pandemic compared to pre pandemic and we've had great success and getting the Covid claims closed.

Because of our wonderful claims professionals.

So that's a little clearer yeah, it's clear on the workers comp what what is it that was going on with the comment and the press release on.

Changes and settlements or claim closing patterns and the segregated portfolio cell.

The old business.

The only comment I believe that was made and often.

And look on our press release is that we.

We had significant claim closing success and segregated portfolio sales that resulted in an unusually large amount of favorable development in the quarter compared to the fourth quarter of 2019, So I would characterize it by saying the workers comp business was status quo very.

Very successful and the segregated portfolio cell had and even better quarter during the pandemic they needed and the fourth quarter of 2019.

Alright. Thank you and then can I just go back to the.

And.

To the health care side food and specialty P&C.

<unk>.

What are you seeing on the claims patterns there. It's it feels like a little bit of a mix because you have lower frequency. So maybe you can spend more time on them thinking about them and you have to courts aren't open.

And on the other hand, maybe there's some older claims that you could've worked on and sort of things get accelerated debt that and when I think of all the music moving parts, it's not entirely clear.

Exactly what you might have.

What you expect to see and then how you translate that into whatever your loss pick might be do you have any comments on what you're seeing there.

Yeah I would just this is Mike.

I would just say obviously, it's just a total slow down the court systems are closed.

To some degree Mediations are closed down.

So.

And the claims are going to remain open longer.

And in that context.

Where we have the ability to to work on settlements, we've we've been able to do that successfully.

I just kind of look at it overall.

Is it just kind of roll the whole thing forward as a result of the pandemic delays and we just got to continue to monitor and evolve that.

It's going to be and evolve evolving situation, we have not.

Changed our accident year loss picks as we stated earlier as a result of.

And any.

Changes and those patterns, we've been conservative on that side, but I think it's yet too to evolve.

Alright, that's helpful. Thank you very much mhm.

The next question comes from Matt <unk> with JMP. Please go ahead.

Okay, Thanks, and good morning.

Just to follow up on Gary's question, there actually I know it would be anecdotal, but have you seen anything and.

Cases that maybe have gone to trial or worked with.

Slated to go to trial have you seen anything with regard to jewelry behavior.

And maybe changing with regard to health care workers and kind of the you know the public do you have and being heroes and so forth.

And it might be it might be too early I understand you wouldn't reflect on our numbers, but even anecdotally have you seen any of that.

Hey, Matt its not and Michael commentary, but yeah, Yeah, I think you've gotta have jerry's and order to be able to judge Jerry behavior, and and the reality is that while the court systems are very slowly opening up.

There have been very very few jury trials and and so not anything that you could on.

Based on any sort of even anecdotal.

Do you on I don't think.

Yes.

Very fair.

And then the only other one is a follow up on.

Back in the beginning of Greg's question on what do you. If that's what norcal I was just wondering if there's any kind of update you can give us there just in terms of whats going on with their business, whether it would be and term is it anything and we think about your kind of standards and physicians business.

Is it a similar kind of did their 2020 look similar to what we saw and York standard positions business, whether it be in terms of.

On topline pattern loss ratio and patterns pricing and so forth or is there anything kind of specific to norcal debt, which we should keep in mind as we think about blending it and with your numbers are mid year.

Hello, and I'll, let Mike speak to the specific because I think one thing that's probably a little different is that their top line and probably remain a little stronger you know you've got the de Mutualization pending.

Pending and and that won't cause often policyholders to stick around to wait on that day mutualization. So so you know there are retention patterns, probably a bit different than ours.

Mike do you went out and you want to comment on anything else, Yeah, I think the team there.

Continued to do some re underwriting of the physicians book consistent with ours.

I think new business was probably a bit better and the physician.

Space and.

And then and what we saw and.

And 2020.

And as net stated that the topline held held up.

Better on a year over year basis, that's basically what we've seen.

From the Norcal team.

Okay, great. Thank you appreciate it.

Oh.

As a reminder, if you have a question. Please press star then one to be joined into the queue.

The next question comes again from Mark Hughes with Truest. Please go ahead.

Yeah. Thank you.

Mike did I remember properly that you had maybe alluded to some timing differences and the first half from 'twenty one around the.

Renewals and the specialty business.

And any either tailwind or headwinds on that.

Yes, there was a timing difference this quarter mark from a.

A large renewal and there was one large non renewal.

I'm thinking the first half day, Q1, and anything like that and to think about yeah.

What we should the only thing I'd say.

Put out there.

Mark is for Q1 is that we've had just a handful.

Two year renewals and our specialty area and there's still a couple of large accounts.

And that we have not we were not able to re underwrite and 2020.

That we will still review those carefully and 2021.

No.

There can be some potential impact on the top line from those isolated situations, we have as you're well aware and then you know really re underwriting since the third quarter of 2019.

There are those isolated isolated.

Situations.

That will probably see throughout 2021.

Okay and.

And then.

On the premium at Lloyds I don't know if its possible.

Look at it this way, but if you took all of these changes that you're anticipating with the book at Lloyd's and you looked at their current premiums in force.

How much of that drops to your bottom line once you get to where you're going.

All other things being equal what kind of premium run rate as the.

And again, just based on air and book based on the way you are.

Adjusting your participation.

Yeah, Mark I don't I don't know that we've got that at our fingertips and that's something that we can try and put together.

Yeah.

Okay.

And then the.

And the change and the reinsurance the increasing and the retention from 1 million to $2 million.

Does that.

Does that have much significance did that potentially.

Impact the.

The loss ratio, if you're seeding off more earned if you're retaining more of the low.

The lower losses.

How does that impact the P&L on a go forward basis.

I'll take that it's okay.

Marty.

We were and are pretty good position.

With a lower retention for a number of years, we had really competitive terms the market's firmed.

I think a lot of health care players or at that $2 million and $3 million retention as you look at it with our evaluation was it was really simple from.

And from the standpoint, we did a very we did and actuarial analysis of the million exit of millions and layer.

And we looked at the reduction and the ceded premium as a result of taking the increase and it was a substantial cost.

<unk> decrease relative to staying with the million dollar retention.

So.

And.

It'll increase our our reinsurance premiums maybe a couple of percentage points, but it's not material. So we were really pleased with the outcome I think that's the way to look at it.

Okay.

And then Dana and since the debt equity and unconsolidated subs and so on a one quarter lag any.

Our early indication about how <unk> is going to impact <unk> here.

Yeah.

Mark I don't I don't have and early indications for <unk> and my my sort of best advice on that is too.

Sort of look at fourth quarter.

Market overall.

And we might expect to see something equivalent come through on.

And our and our first quarter, but I don't have any true early indications for Ya.

Okay. Thank you very much.

Yeah.

This concludes our question and answer session I would now like to turn the conference back over to Ken Mcewen for any closing remarks.

Thank you Tom and thank you to everyone that joined US today, please stay safe and healthy and we look forward to speaking with you again in May.

The conference has now concluded.

Thank you for attending today's presentation you may now disconnect.

Yeah.

Yeah.

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