Q1 2021 Trean Insurance Group Inc Earnings Call
Greetings and welcome to free on insurance Group's Inc. First quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
A reminder, this conference is being recorded I would now like to turn this conference over to your host Mr. Garrett Edson from ICR. Thank you Sir you may begin.
Thank you operator, good afternoon, and welcome to tree on insurance group's first quarter 2021 earnings call.
The company released its financial results for the quarter ended March 31, 2021 press release is available in the Investor Relations section of the company's website at Www Dot tree on Dot com.
Like to remind everyone that certain statements made in the course of this call are not based on historical information and May constitute forward looking statements statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward looking statements are for.
For each company's filings made with the SEC for more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today company undertakes no duty to update any forward looking statements that may be made during the course of this call.
Finally, certain non-GAAP financial measures will be discussed on this conference call. Our presentation of this information is not intended to be considered in isolation or substitute the financial information presented in accordance with GAAP.
Reconciliations of these non-GAAP financial measures for the most comparable GAAP measures prepared in accordance with GAAP can be accessed through our filings with the SEC at Www SEC Gov George.
Joining me on the call today are Andrew O'brien, the company's President and Chief Executive Officer, and Julie Darrin, The Companys Chief Financial Officer with that I'm now going to turn the call over to Andy.
Thank you Garrett and welcome to our first quarter 2021.
Earnings call. We appreciate your participation on our call and for your continued interest in <unk>.
On today's call I will walk through our higher level results and update you on the great progress, we're making with respect to our overall strategy Julie will follow and provide some detail about our first quarter results and then we'll open it up to Q&A.
Our first quarter was a great follow up food, where we left off at the end of 2020, we generated excellent year over year premium growth in the first quarter. It off assets gross written and net earned premium and continue to deliver on solid underwriting as a result, we remain well positioned to grow rapidly and profitably.
As we move through the balance of the year.
During the first quarter. We grew gross written premiums by 36 per cent year over year to a record $146 $7 million.
Another excellent performance generated through multiple sources, including a new program partners and organic growth.
Our net earned premium increased to 83% from $41 1 million compared to $22 5 million in the first quarter of 2020, our loss ratio fell within our recent historical first quarter range of between 57 to 61 per cent and we <unk>.
Proved our combined ratio on a year over year basis.
And we generated adjusted net income after excluding nonrecurring other expenses and significant non cash items of $8 million for 16 cents per diluted share producing adjusted R. O T E F $16 four per cent.
Along with our solid first quarter results, we continue to make very strong progress in terms of rapidly expanding the market share of our non workers' comp programs in the first quarter, our non workers comp liability lines grew gross written premiums by 157 per cent year over year.
Representing over 32% of our total gross written premiums for the first quarter.
Workers' comp continues to for them the majority of our premiums and we saw another quarter of double digit growth in gross written premiums in that line of business.
Beyond that we are six we are successfully executing on diversifying our business and further reducing our overall concentration risk.
In addition to a 36% growth in gross written premiums I also wanted to highlight that we generated additional gross unearned premiums of $18 million in the first quarter of 2021.
As of March 31, 2021, we had net earned premiums reflected on our balance sheet up $66 $2 million, an increase of 16 $1 million compared to December 31 2020.
Assuming our loss ratios and other operating expenses remained stable.
Difficult net unearned premium represents preferred future profit to be recognized over subsequent quarters. As these net premiums are.
We are very pleased with this kind of growth. We also continue to retain more premium on our books, which allowed us to drive our retention above 32% this past quarter.
As we noted on our prior call. We have also started to accelerate our investments in automation technology workforce additions in other areas in order to support our program partners.
Further providing superior competitive and value proposition to existing and prospective customers.
For instance, we are currently planning the implementation of a new claim system, which should optimize our processes and further ensure timely handling of claims.
In addition, our automation initiatives will benefit us by streamlining and improving systems and processes throughout the company.
Commodity create long lasting and meaningful expense babies.
Well G&A dollars will remain elevated in 2021 as a result of these investments to ensure that we will be able to expand our market share and generate sustainable and profitable growth in years to come.
Looking into the balance of 2021 our powerful business model continues to be validated and our overall strategy and ability to successfully execute remains unchanged.
We will continue pursuing organic growth within our existing markets to further increase our gross written premiums.
We will retain more quality net earned premium which should further enhance our bottom line moving forward.
And we will selectively and responsibly and do program partners in particular, those that targets specific niche programs with a clear competitive edge.
Our entire team's constant hard work and dedication continues to pay off we appreciate all of their efforts and remain very excited for our future with that I'll now turn the call over to Julie.
Thank you Andy and good afternoon to everyone on the call, let's go right into our first quarter results.
In the first quarter, our teen growth gross written premiums by 36% to record $146 7 million from parents of 107 9 million in the prior year period.
This growth was driven by the addition of 90 program partners during 2020 as well as organic growth in our existing program partner business, resulting in an increase in book workers' compensation and non workers compensation liability.
Right.
We remain strongly positioned for continued growth.
Continued gross written premium growth throughout 2021.
Gross earned premiums were $128 3 million for the first quarter of 2021 up 28 per cent compared to the prior year period due primarily to the increase in gross written premium and partially offset by the rise in gross unearned premiums due to the addition of our new program partner with premiums were largely on.
And as of the end of first quarter.
As a reminder, since we cannot control the timing of affected day policy.
In fact, it's fairly common occurrence when we onboard new program partner for.
Thus, we continue to recommend that the focus would be on gross written premium from the best proxy for the growth of our business.
Net earned premiums for the quarter were $41 1 million an increase of 83 two per cent compared to $22 5 million in the prior year period, primarily due to the growth in gross earned premiums more than offsetting a smaller increase in ceded earned premiums.
We note that the growth of unearned premiums to be recorded in the first quarter of 2021 more index indicative of what we would expect to see from this line item as we continue to grow as Andy mentioned this is a strong positive for our business as it means that we are growing more rapidly than we previously anticipated and does that mean.
Earned premiums will eventually convert into earned premiums in time.
We remain confident in our ability to onboard additional program partners and sustainably grow our gross written premiums over the longer term.
Our loss ratio for the first quarter of 2021 65 per cent compared to 57, 6% in the prior year period the.
The increase in the loss ratio during the first quarter of 2021 person for the prior year period was primarily attributable to property losses incurred in the first quarter.
Our expense ratio for the first quarter of 2021 of 28, 9% an improvement of 740 basis points from the prior year quarter, primarily due to the significant increase in net earned premium.
G&A expense was $11 9 million in the first quarter of 2021 compared to $8 1 million in the prior year quarter.
The increase was primarily due to higher salaries and benefits, resulting from acquisitions made in 2020, coupled with an expanded workforce and increase in rents and office related expenses insurance and insurance related expenses and professional services.
As Andy mentioned and we discussed previously we are going to continue to invest in the business. As a result, we expect G&A expenses will continue to remain elevated in 2021 compared to prior year periods.
All in our combined ratio for the first quarter of 2021 $89 four per cent of 450 basis point improvement compared to 93, 9% in the prior year period.
Underwriting income for the first quarter was $4 for a million or 217% increase compared to $1 4 million in the prior year period.
Net investment income for the first quarter of 2021 with $1 6 million compared to $3 3 million in the prior year period.
The prior year period included a one time 2 million realized gain related to a common stock reclassification and fair value Remeasurement for one of our investments.
The majority of our investment portfolio was comprised of fixed maturity securities of $378 1 million at March 31, 2021, five for <unk>.
It's available for sale.
We also had 139 million net cash and cash equivalents.
Our investment portfolio had an average rating of double a S. A N the quarter.
Other revenue, which consists primarily of third party administrator and brokerage fees for $4 7 million for the quarter driven by an increase in ebay revenue related to our cost per acquisition in July of 2020, and management fees, partially offset by reduced brokerage revenue, which can vary significantly significantly from quarter two.
Quarter based on the effective date for the underlying reinsurance contracts.
Net income for the first quarter of 2021 was $6 8 million or 13 cents diluted earnings per share.
When excluding intangible asset amortization noncash stock compensation and nonrecurring other expenses adjusted net income for the first quarter of 2021 was $8 million compared to $6 $3 million from the prior year period.
Adjusted diluted earnings per share for the first quarter of 2021 with 16 cents.
Return on equity for the first quarter of two what 6.6%, while adjusted ROE was seven 8%.
Adjusted return on tangible equity, which is computed as annualized adjusted net income over our average tangible equity for $16 four per cent.
He had a strong start for 2021 and remain well positioned for a strong responsible growth for the remainder of the year and over the long term.
With that I. Thank you for your time, and we'll now open up the call for Q&A operator.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is another question for you you May press Star two if he would like channel of your question from the queue for participants using speaker equipment may be necessary.
For you to pick up your handset before pressing the star key one moment, while we poll for questions.
Our first question comes from the line of Jimmy <unk> with J P. Morgan you May proceed with your question.
Hi, I had a couple of questions first just if you could quantify.
What are your property losses were in one Q and.
What they were the year ago period, so people get a better sense of.
Your loss ratio, but.
Ex sort of catastrophe events.
And then Relatedly, if you could give us the or if you could quantify any impact you had on their loss ratio from prior year development.
Jimmy This is Andy O'brien. Thank you for your questions and thanks for your participation the property losses, we had some property losses coming out of the Texas ice storms and then we had a couple of large building losses.
In Michigan.
All of these losses were heavily reinsured.
Together now.
Would that have a terribly material impact, but they did they did up our loss ratio a little bit.
We had no negative adverse development during the first quarter from prior years.
Any positive development, because you've had that consistently over time or was there no development period, we did not recognize any development Audrey.
It's very minor about $26000 for Ciber com.
Got it and then.
If you could just talk about pricing in workers' comp and I think obviously, you're more of a player in that specific niche of the market but.
A lot of companies had been hopeful that prices would start stabilizing and potentially in building at some point, but are you seeing that in the market overall.
I think that the market has stabilized.
It certainly varies by.
By geographic.
Area I would say in the South east.
And in parts of the West market has stabilized we have for the last two or three months.
<unk> had some success in getting some positive rate movement.
I'm in California, So we're happy about that.
And then just lastly on claims trends how much of the race can do you feel there is a an uptick in claims given.
The strengthening labor market and just say that if.
If you're seeing tight supply I believe.
For of workers in it that could drive an uptick in losses.
Okay.
Our insureds are not as impacted by some of the industries that are having trouble finding workers right now so far we haven't seen any we certainly haven't seen we've seen expanded payrolls, if anything and we haven't seen.
Any concerns in the claims area due to worker shortage or two.
Workers, not being explained as well as they should be.
As early as Al Jimi I see it's you know it's just that's just such a new thing that it would be much too soon for us to see something in the claims area to comment beyond that.
Okay. Thank you.
Yeah.
Our next question comes from the line of Mark <unk> with JMP Securities. You May proceed with your question.
Hey, Thanks, good afternoon.
Your first question is on the gross written premium to 36% growth in the quarter can you help us unpack that a little bit and if you can give any color around how much ballpark of that growth might have been driven by some of the newer partner additions I think Julie you mentioned the nine partners that were added during 2020 and how much of that growth might be kind of some more.
Longer standing relationships that have been there for a while.
Sure so or new programs represented about 16% of the total gross written premium in the first quarter of 2021.
Okay, and then on or so and then our organic growth on our own programs was about four 6%.
And for organic growth on our existing program partner partner since about 33 per cent.
Got it okay. Great. Thank you that's helpful. And then just a numbers question when I look at you know the net to gross retention, it's inching up as we'd expect.
Given your selective retention of more risk how should we view that 32 in the quarter or is that.
Ballpark a level that we should stabilize that in the near term or should we expect that to continue to drift up as we move forward throughout the year.
You know, Matt that it's a little hard to say.
It was a bit for the business. If we have a little more growth out of a program that we have a lower retention on our one that has a higher retention I think that's probably not a bad place to start.
Okay, great very helpful. Thanks for the color.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad for.
One moment, while we poll for questions.
Our next question comes from the line of David Miller with Evercore ISI. You May proceed with your question.
Hi, Thanks, good afternoon.
I had a question.
Just on the expenses the G&A expenses.
Understand you expect those to remain elevated throughout the course of the rest of it of course for the year should I take that to mean that we should expect them to come in and around that Yep 12.
$12 million a quarter ish type of type of level or maybe maybe if you could provide some commentary around that.
It's a good run rate as of now you know, we're like Andy and Julie said, we're going to be investing in a well, we'll temper that with.
Any actual cash outlays for expenses.
Some of that will be capitalized in the you know.
And in the areas of software development that we are starting to get involved with over the course of this year, but I think that's a good thing.
Good run rate for now.
To think about going forward until we start to see something different.
Got it thanks that's helpful.
<unk>.
And then.
Andy I guess, just sort of a higher level question.
Just on the growth and then the non comp.
Liability lines, you know, obviously, you know the market's been hardening and some of those lines.
But there's also a little bit of uncertainty there as well so I'm wondering just sort of how you how you're thinking about.
Growing in those lines I'm, assuming it's.
I think a lot of it's a general liability, but maybe you can also give us a bit more detail on what specifically it is that's driving that growth.
Sure. We have added a number of new programs outside of Workers' comp in fact, Matt most of the programs that we've seen this past quarter haven't been outside of workers comp.
Which I think is the size of that market is getting tighter.
On the workers' comp market.
We've added programs and for all.
So pretty.
And commercial auto.
Yeah.
The accident and health those are the three lines that we've added and we've.
And we've done that because for the programs have met our criteria they've been excellent programs.
Operators with proven track records.
Second.
These are people, who are really getting significant rate increases, which for Christmas is a very positive. So our approach with these programs is the same.
We've discussed previously wishes that we're taking a very low net retention at the outset I think for all of our programs, particularly those.
Of all the programs that we've added.
Over this past quarter and really the last year, we're only retaining something like 8% to 9% book that business that these partners are writing and that's pursuing with our conservative approach towards for assuming underwriting risk at the outset of a program should these programs continue.
Continue to develop well I could see us taking larger participations.
Got it that's that's helpful. Yeah. So just and then I guess just because of the low retention yeah that helps you get comfort and then I guess, we should you know relatedly.
I guess it doesn't feel like there should be a big change in sort of the loss ratio I'm just from a just from a change in the mix of business shifting away from workers' comp.
For some of these other lines, but wondering if maybe you can you can comment on that.
Yeah, I could the <unk>.
Our our risk retention is so small in these other lines of business it would be very difficult for them to have any kind of meaningful impact.
And our loss ratio and all that that business continues to grow and continues to become a larger part of our of our book then certainly that that statement would change but as of right now.
We were just.
Anticipating that these other lines are going to materially impact our loss ratio.
Got it that makes sense. Thank you.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Andy O'brien for closing remarks.
Thank you.
We had a very good quarter.
When we look at what our true North is how do we evaluate how we're performing we look at two things first our growth.
Most written premium.
And second is our loss ratio stability.
If we hit on those two items really everything else follows for our company and in this quarter. We saw the least hit on both of those so we're very pleased by what happened in this quarter and we're looking forward to continuing net through the remainder of the year. Thank you for your time and we look forward to any questions and we appreciate your support.
For it in the future.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your evening.
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