Q2 2021 American Financial Group Inc Earnings Call
Good day, and thank you for standing by and welcome to the American Financial Group 2021 second quarter results Conference call. At this time, all participants are in a listen only mode.
For the speaker's presentation, there will be a question and answer session. You asked the question. During the session you will need to press star 1 on your telephone. Please be advised the today's conference is being recorded if you require any further assistance. Please press star zero on 1.
Not like day on the conference over to your Speaker of today, Diane Weidner, Vice President Investor Relations. Please go ahead.
Good morning, and welcome to American Financial Group second quarter 2021earnings results Conference call. We released our 2021 second quarter results yesterday afternoon, our press release Investor supplement and webcast presentation are posted on Afg's website under the Investor Relations section. These materials will be referenced during portions of <unk>.
Today's call.
I'm joined this morning by Carl Lindner of the third and Craig Lindner Co Ceos of American Financial Group, and Brian Hurts men Afg's CFO before I turn the discussion over to Carl I would like to draw your attention to the notes on slide 2 of our webcast. Some.
Of the matters to be discussed today are forward looking these forward looking statements involve certain risks and uncertainties that could cause actual results and or financial condition to differ materially from these statements.
A detailed description of these risks and uncertainties can be found on Afg's filings with the Securities and Exchange Commission, which are also available on our website. We may include references to core net operating earnings of non-GAAP financial measure in our remarks or in responses to questions. A reconciliation of net earnings attributable to shareholders to core net operating earnings.
Included in our earnings release.
And finally, if you are reading a transcript of this call. Please note that it may not be authorized or reviewed for accuracy and at the resolve it may contain factual or transcription errors that could materially alter the intent or meaning of our statements.
Now I'm pleased to turn the call over to Carl Lindner, the third to discuss our results.
Good morning, and we're pleased to share highlights a day of cheese 2021 second quarter results and respond to your questions.
I'd like to turn to an overview of our second quarter results on slide 3 of the webcast.
AFG reported core net operating earnings of $2.39 per share an impressive 257, 7% increase year over year the.
Increase was due to substantially higher underwriting profit in our specialty property and casualty insurance operations and higher property and casualty net investment income.
Proved results from the company's $1.6 billion of alternative to the investments were partially offset by lower other property and casualty net investment income primarily due to lower short term interest rates Andrew.
Annualized core operating return on equity in the second quarter was the strong 14, 7%.
Turning to slide 4.
You'll see that the second quarter 2021 net earnings per share of of $11. <unk> 70 cents included after tax non core items totaling $9.31 per share. These non core items included earnings from our discontinued annuity operations inclusive of an after tax.
On the sale.
Of $8.14 per share share.
Second quarter 2021 noncore items also included 40 cents per share on after tax non core net realized gains on securities.
Craig and I, Thank God, our talented management team.
And our great employees for helping us to achieve these exceptionally strong results and position our business for continued success.
Based on results.
Through the first half of the year, we now expect Afg's core net operating earnings in 2021 to be in the range of $8 from 40 cents to $9.20 up from our previous range of $7 for 8 hours per share an increase of $1.30 per share at the midpoint of our guidance.
As you'll see on slide 5 this guidance range continues to assume zero earnings on Afg's $2.2 billion from parent company cash as.
As we continue to consider alternatives for deployment of the remaining proceeds from the sale of the annuity business.
We're pleased to.
The increase our 2021 core earnings per share guidance in such a meaningful way.
This guidance also excludes other non core items, such as realized gains and losses and other significant items that are not able to be estimated with reasonable precision for that may not be indicative of ongoing operations. Furthermore, the above guidance reflects a normal crop year.
And an annualized return of approximately 8% on alternative investments over the remaining 2 quarters of 'twenty 'twenty 1.
Craig and I will discuss our guidance for each segment of our business in more detail later on the call.
Now I'd like to turn our focus to our property and casualty operations. Please.
Go to slide 6 of the webcast for an overview.
Results during the quarter for excellent.
Pre tax core operating earnings in the Afg's property and casualty insurance segment were a record $288 million in the second quarter of 2021 an increase of $172 million from the comparable prior year period.
I'm very pleased that all 3 of our property and casualty groups reported strong double digit growth of net written premiums.
Which was primarily the result of the economic recovery.
New business opportunities and healthy renewal pricing.
The underwriting margins across our portfolio of businesses were excellent with.
With each property and casualty group reporting a combined ratio in the eighties.
The specialty property and casualty insurance operations generated an underwriting profit of $153 million in the second quarter compared to $54 million in the second quarter of 2020, an increase of 183%.
Each of our specialty property and casualty groups produced higher year over year underwriting profit.
The second quarter 2021 combined ratio was a very strong 87.9% improving 7.3 points from the 95.2% reported in the comparable prior year period.
Second quarter 2021results included 0.9 points.
And catastrophe losses, and 5.4 points of favorable prior year Reserve development.
Catastrophe losses, net of reinsurance and including reinstatement premiums for $11 million in the second quarter of 2021 compared to $26 million in the prior year period.
Results for the 2021 second quarter include 0.2 points and COVID-19 related losses compared to 7.6 points in the 'twenty 'twenty second quarter.
We continue to carefully monitor claims and loss trends related to the COVID-19 pandemic.
<unk> legislative and regulatory actions as well as the specifics of each claim contribute to a highly fluid evolving situation.
AFG recorded $2 million in losses related to COVID-19 in the second quarter 2021 primarily related to the economic slowdown impacting our trade credit business.
We recorded favorable reserve development of approximately 4 million of hours related to accident year of 'twenty 'twenty COVID-19 reserves based on loss experience.
Given the uncertainty surrounding the ultimate number and scope of claims relating to the pandemic approximately 66% of the $96 million in Afg's cumulative of COVID-19 related losses are held as incurred but not reported reserves at June 30 of 'twenty 'twenty 1.
Our claims professionals and those who support them are working tirelessly to review claims with the care and attention each deserves.
Now turning to pricing.
We continue to see strong renewal rate momentum and achieve broad based pricing increases in the quarter with exceptionally strong renewal pricing in our longer tailed liability businesses outside of workers' comp.
Average renewal pricing across our entire property and casualty group, including Com was up approximately 9% for the quarter.
Excluding our workers' comp business renewal pricing was up approximately 12% in the second quarter.
With the exception of Workers' comp, we're continuing to achieve strong renewal rate increases in the vast majority of our businesses. In fact this quarter marked our 20th consecutive quarter of overall specialty property and casualty rate increases, which continue to be meaningfully in excess of prospective estimated.
The loss ratio trends.
Gross and net written premiums for the second quarter of 2021 were up 26% and 22% respectively, when compared to the second quarter of 2020 excuse.
Excluding workers comp gross and net and net written premiums grew by 30% and 26% respectively year over year.
The drivers of growth vary considerably across the portfolio of our specialty property and casualty businesses.
In the aggregate year over year of growth and gross written premium during the first 6 months of 'twenty 1 <unk>.
Excluding crop was fairly evenly split with just over half of the overall growth attributable for rate and about half attributable to net growth on change in exposures.
Market conditions continue to be very favorable and are among the best I recall in my 40 plus years in the business.
Now I'd like to turn to slide 7 to review a few highlights from each of our specialty property and casualty business groups.
Property and transportation group reported an underwriting profit of $62 million in the second quarter compared to $33 million from the second quarter of last year.
Higher underwriting profit in our crop property and inland Marine transportation businesses were the drivers of the year over year increase.
The businesses on the property and transportation group achieved a very strong 86.6% calendar year combined ratio overall in the second quarter, an improvement of 5.1 points from the comparable period in 2020.
Quatre catastrophe losses in this group net of reinsurance and inclusive of reinstatement premiums for $7 million in the second quarter of 2021 compared to $15 million from the comparable 'twenty period.
Second quarter 2021 gross and net written premiums in this group.
We're at 39% and 32% higher respectively than the comparable prior year period with growth reported in all of the businesses in this group.
The growth came primarily from our transportation businesses, primarily the result of new accounts combined with strong renewals and increased exposures in our alternative risk transfer of business and our crop insurance business, primarily the result of higher commodity futures pricing and timing different differences in the writing of premiums.
Overall renewal rates in this group increased 7% on average for the second quarter consistent with the results from the first quarter. This year I'm pleased to see this continued rate momentum.
As far as crop, we expect the normal crop year.
<unk> futures for corn, and soybeans are approximately 20% and 12% higher respectively than spring discovery prices are as I was looking at my monitor today.
The crop conditions vary by geography with industry reports of 62% of corn and 60% of soybean crops in good to excellent condition.
Generate crops on the eastern corn belt are generally in good shape and crop conditions in the central and southern Plains and southeast are above average.
It's the crop conditions in the Pacific northwest through the Dakotas debt or below average right now due to extreme drought conditions.
And corn and soybean national yield estimates are currently at or near their respective trend yields.
So year seems to be shaping up are fine.
Specialty casualty group reported an underwriting profit of $71 million in the 2021 second quarter compared to $27 million in the comparable 2020 period.
Higher profitability in our excess and surplus winds excess liability targeted markets and executive liability businesses were the key drivers.
Catastrophe losses for this group were approximately $2 million in the second quarter of 2021 compared to 6 million in the comparable prior year period.
Results from the second quarter of last year included $52 million of COVID-19 related losses, primarily in workers' comp and executive liability businesses.
This group reported a very strong 87.9% combined ratio for the second quarter, an improvement of 7 points from the comparable period in 2020 underwriting profitability in our workers comp businesses overall continues to be excellent.
Gross and net written premiums increased 19% and 16% respectively when compared to the same prior year period, and excluding com gross and net written premiums grew by 26% and 25% respectively year over year nearly all of the businesses in this group achieved strong renewal.
Pricing and strong premium growth during the second quarter.
Significant removal rate rid of increases in new business opportunities contributed to higher premiums in our excess liability businesses, which have higher sessions than other businesses in the group.
Higher renewal rates and increased exposures contributed to the premium growth in our excess and surplus lines business.
And our executive liability and mergers and acquisition liability businesses also contributed meaningfully to the year over year growth.
Renewal pricing in this group was up 11% for the second quarter and.
And excluding workers' comp renewal rates in this group were up a very strong 17%.
Specialty financial group reported an underwriting profit of $21 million in the second quarter of 2021 compared to an underwriting loss of less than $1 million in last year's second quarter.
Improved results in our trade credit business contributed to the higher year over year underwriting profitability.
And results last year are included.
COVID-19 related losses of $30 million, primarily related to trade credit insurance. This group continued to achieve excellent underwriting margins and reported an 86, 4% combined ratio for the second quarter of 2021.
And gross and net written premiums increased by 7% and 14% respectively. In the 2021 second quarter when compared to the prior year period, new business opportunities within our lender services surety and fidelity and crime businesses contributed to the increase in the quarter.
Renewal pricing in this group was up 8% for the quarter consistent with results in the first quarter of 2021.
Now please turn to slide 8.
For a summary view of our 2021 outlook for the specialty property and casualty operations.
Based on the results through the first 6 months, we have strengthened our guidance across the board.
Indicating higher expected 2021 net written premiums and stronger underwriting profit.
We now expect the 2021 combined ratio for the specialty property and casualty group overall between 88 and 90%.
Net written premiums are now expected to be 10% to 13% higher.
And then the $5 billion reported in 2020, which is an increase of 3 percentage points from the midpoint of our previous estimate.
Gross and net written premiums excluding workers' comp is now expected to be in the range of 12% to 16% an increase from the range of 9% to 12% estimated previously.
And looking at each segment.
Now expect the property and transportation group combined ratio to be in the range of 87% to 90% our guidance assumes a normal level of crop earnings for the year.
We now expect growth of net written premiums for this group to be in the range of 15% to 19%.
And our net written premium guidance is based on projected strong growth in our crop operations as a result of higher screen commodity futures pricing and assumes double digit growth on our transportation businesses during the year.
Our specialty casualty group is now expected to produce a combined ratio in the range of 87% to 90%.
Our guidance assumes continued strong renewal pricing in our E&S excess liability and server of or other longer tail liability businesses. We've raised our projection for growth in net written premiums to a range of 5 to 9.9% higher than 2020 results the change from the previous estimate of.
The 2% to 5%.
Premium growth will be tempered by rate decreases in our workers' comp book, which are a result of favorable experience in this line.
Excluding workers' comp, we now expect 2021premiums in this group to grow in the range of 10% to 14% an increase of 5% from the midpoint of our previous guidance.
And we now expect the specialty financial group combined ratio.
To be 84% to 87%.
We now expect growth of net written premiums for this group to be between 10, and 14%, reflecting stronger underwriting results for the first half of the year and projected premium growth in our fidelity and crime and surety businesses.
Based on the results through the end of June.
We expect overall property and casualty renewal pricing in 2021 to be up 9% to 11% an improvement from the range of 8% to 10% estimated previously.
And excluding com.
We expect renewal rate increases to be in the range of 11% to 13% as indicated by the continued pricing momentum we saw through the first half of 'twenty 'twenty 1.
And now I'll turn the discussion over to Craig to review Afg's investment performance and the successful completion of the sale of our annuity business. Thank you.
Thank you Carl.
The details surrounding our $16.1 billion dollar of investment portfolio are presented on slides 9 and 10.
On a F. G recorded second quarter 2000 of 21 net realized gains on securities of $34 million after tax.
Approximately $29 million of the after tax realized gains pertained to equity securities that AFG continued to 1 at June 32021.
Pretax unrealized gains on Afg's fixed maturity portfolio were $260 million at the end of the second quarter.
We're especially pleased with the performance of our alternative investments during the quarter.
Earnings from alternative investments may vary from quarter to quarter based on the reported results and valuation of the underlying investments and generally are reported on a quarter lag.
The annualized return on alternative investments reported in core operating earnings in the second quarter of 2021 was 21, 1%.
The average annual return on these investments over the past 5 calendar years was approximately 10%.
We view our investments in real estate and real estate related entities as Cork is a core competency.
In addition to our portfolio of directly owned properties in mortgage loans are real estate related investments include real estate funds and real estate partnerships accounted for by the equity method.
We found great success, and investing in multifamily properties and desirable communities, where we continue to achieve very strong occupancy and collection rates. These properties represented approximately 55% of our alternative investment portfolio at June 32021.
Non.
As you can see on slide 10, our investment portfolio continues to be high quality with 88% of our fixed maturity portfolio of rated investment grade and 98% of our P&C group fixed maturities portfolio with an anti IC designation for.
2 its 2 highest categories.
On May 28, 2021, AFG completed the sale of our annuity businesses to mass mutual the highlights of which are included on slide 11.
Initial cash proceeds from the sale based on the preliminary closing balance sheet were $3.5 billion.
AFG recognized an after tax non core gain on the sale of 600 of $97 million or $8.14 per afg's share upon closing.
With the proceeds and the gain or subject to post closing adjustments.
Prior to the completion of the transaction Afg's property and casualty group acquired approximately $480 million and real estate related partnerships and a F. G parent acquired approximately $100 million on directly owned real estate from Great American life from life insurance come.
<unk>.
Carl and I are extremely proud of the contributions of the annuity segment made the AFG over the years.
Over the last 10 years this business generated an internal rate of return of approximately 16% as shown on slide 12.
And the industry were reported net earnings often are significantly less than reported core operating earnings were proud of the fact that our annuity businesses produced strong net earnings the demonstrate the discipline with which we operated this business and helped to generate strong overall returns for AFG.
As Youll see on slide 13 for the 10 year period ended December 31.2020.
Afg's annuity segment net earnings were 108, 8% of annuity core operating earnings compared to only 74% for the life insurance industry overall.
When we include the 5 months of annuity earnings during 2021 of annuity net earnings as a percent of annuity core operating earnings improved to 110% demonstrating the quality of our earnings relative to the industry.
I am very grateful to our annuity segment management team and associates for their efforts to bring this transaction due of successful close and wish them. The best as they continue their careers with mass mutual.
The disposition of our annuity business sharpens, our focus exclusively on the specialty P&C market and generated substantial cash and excess capital for AFG.
In connection with the closing of this transaction the company declared a special onetime cash dividend of $14 per share totaling $1.2 billion, which was paid in mid June.
Earlier this week, we paid an additional $170 million in connection with an additional $2 per share special dividend declared in July.
Our excess capital remains at a significant level, which affords us the financial flexibility to make opportunistic repurchases of your additional special dividends grow our specialty P&C niche businesses organically and through acquisitions and startups that meet our target return.
Woods.
I'll now turn to a discussion over to Brian who will discuss afg's financial position and share a few comments about afg's capital and liquidity.
Thank you Craig Please turn to slide 14, where you will find the summary of Afg's financial position at June 30 of 2021.
We repurchased $114 million of AFG common stock during the quarter and average price per share of $116.13 when.
When you adjusted for the special dividend share repurchases, especially when executed of attractive valuations are an important and effect of component of our capital management strategy.
During the quarter. In addition to the share repurchases and the special dividend that Craig mentioned earlier, we returned of $42 million to our shareholders for the payment of our regular <unk> 50 per share quarterly dividend, returning excess capital to shareholders in the form of dividends and the key component of the Afg's capital management strategy and reflects our strong financial position and.
Our confidence on the company's financial future.
With the gain on the annuity sales annualized growth.
And adjusted book value per share plus dividends was a strong 47% in the first 6 months of 2021.
Our excess capital was approximately $3.2 billion at the end of June. This number included parent company cash of investments of approximately $3 billion as of June 30th AFG parent had invested approximately $500 million of the proceeds from the annuity sale in high quality fixed maturity investments with an average life of less than <unk>.
Half of the year and a yield of approximately 1.2%.
As a reminder, we define excess capital as the sum of holding company cash of investments excess capital within our insurance subsidiaries and borrowing capacity up to a debt to total adjusted capital ratio of insurers, we maintain our commitments to rating agencies.
While all of the Afg's excess capital is available for internal growth or acquisitions over $700 million of that excess capital can be used for share repurchases and special dividends above and beyond the nearly $1.5 billion distributed to shareholders for the $14 per share special dividend paid in June the $2 special dividend paid Monday of this week.
And the $114 million in second quarter share repurchase while still staying within our most restrictive debt to capital guideline.
We expect to continue to have significant excess capital and liquidity throughout 2021 and beyond specifically, our P&C insurance subsidiaries are projected to have capital in excess of the levels of expected by rating agencies in order to maintain their high current ratings and we have no debt maturities before 2026, we will now open the lines for <unk>.
Any questions.
As a reminder, task of question you will need to press star 1 on your telephone.
With all of your question Brett.
Please standby, while we compile.
The Q&A roster.
Our first question comes from the line of Derrick from <unk>.
The VW your line is now open.
Good morning. Thanks.
About the property and transportation segment, it looks like the core loss ratio of 65, 6% was up year over year on sequentially.
Should we expect that to continue just given the normalizing frequency environment or were there some 1 off items in there.
I think there is some aberrations between the second quarter of last year, where.
You probably had abnormally lower frequency on that and back to a more normal.
Year from a economic standpoint this year.
I think our.
Our guidance, we try to bake in.
Every all of our knowledge.
And that from actuarial reviews to prospect of loss cost trends and Ah.
And that and so you know I think our guidance.
Reflects our feelings.
Again, we're probably 1 of the few companies that gives detailed guidance like this and we try to be very thoughtful so I.
I would suggest you look to our guidance I think that answers your question.
Got it that's helpful and then shifting gears a little bit had a question about the strong expense ratio improvement that you had of 1.
<unk> hundred 90 bps.
Another strong quarter can you just talk about.
Others.
Much of the structural versus temporary.
I know last quarter, you talked about kind of the benefits from seeding commissions in there. If you had any of this quarter too.
Yes, we do this is Brian a couple of things are going on day, 1 is with the strong growth in our in our written premium some of that is coming through earned premium and of course of portion of our underwriting expenses are fixed and so we're benefiting from from growth there and in some of the businesses that are growing we also.
We do receive ceding commission on some of which are volume based on some of which are our profitability base, but we're seeing that across the business as well higher ceding commissions this year versus last year. So it's the combination of growth and on.
On the fixed expenses and the.
The ceding commissions.
Got it and if I could just squeezing 1 more question. So you lowered the combined ratio guide by 1% how much of that is driven by the expense ratio improvement.
The overall and we're looking at it we were seeing.
Growth being a big part of being a big part of that so that is contributing. We're also are are very pleased with our loss ratios.
Okay. Thank you for all of the answers.
Thank you. Our next question comes from the line of Greg Peters from Raymond James Your line is now open.
Good afternoon.
So.
The first question I have.
And I know you won't comment on specific competitors.
<unk> of just hosted an investor call, just a little bit of Dol.
And 1 of the.
Strategic points, they were making the highlighted their acquisition of protective.
Going in the trucking business and the outlook for further growth and so.
I Wonder if you could just step back on that comment on 1 of the vessels, but just give us a sense given the strong profitability.
You see the various competitive forces working through that business site.
<unk> reported strong growth, so youre doing fine, but maybe you can give us some perspective there.
Yeah, I mean, you know.
I can't be happier about.
How our commercial auto business is performing I would just start with that and that's 11% of our.
Our direct written premium last year in.
We're achieving our combined ratio on return on equity targets ROI been achieving them for years.
And we're continuing to get rate there and.
I still feel of a source of the overall market you know market is still in correction mode.
Particularly on the larger accounts and commercial auto.
And that and.
I think that that's continuing to offer opportunities for both the price increases is there you know there continues to be disruption in the market.
As well as.
Strong strong growth, we had a very strong second quarter growth in commercial auto after a slow start in the first quarter and as I mentioned earlier.
Projecting double digit growth Inc.
In commercial auto of Nap.
As far as progressive the years.
Years ago, we used to be the second largest shareholder and progressive. So we think very highly progressive as a as a competitor.
I probably.
It would be more I think progressive probably.
We'll do better than the insurer tax.
My perspective is.
And the whole market and I think as far as the protective.
Transaction.
I don't believe that debt transactions going to have an adverse impact on our ability to grow in the commercial auto marketplace. You know the marketplaces, we serve and I see it as kind of a neutral or or as they're trying to correct. Some of the problems of protective.
Had maybe even possibly in the short term it could be positive.
To the marketplace.
And to us.
That would be my perspective.
I agree with your perspective on progressive versus on short tops.
Lots of much better to be of domain expert.
The technology.
<unk>.
With the substantial capital excess capital on your balance sheet and cash.
Hi.
Can you just spend a minute and just talk to us about the M&A market, specifically, what youre seeing in property casualty as it is at a fairly robust pipeline. The looking at would you characterize it as less robust would you characterize it you haven't done anything so maybe the terms out in the market or just well in excess of what you guys are willing to consider but.
Just give us some flavor there thank you.
Sure.
I think it's pretty normal.
At this point.
And that we see a steady treme of steady stream of opportunities to acquire things as you know, we're pretty picky and we like to buy things that are not only it can be accretive that can have double digit returns long term on that.
And we get a steady look at starting businesses. So I think that's that's a normal state right.
Right now.
We're enthusiastic about our opportunities to both start business businesses and and make some acquisitions you know over the next.
12 to 24 months so.
Got it thanks for the answers.
Thank you. Our next question comes from the line of Paul Newsome from Piper Sandler. Your line is now open.
Good morning.
So 1 of the big themes of the quarter has been companies.
Looking at the CPI inflation.
So that's usually get the CP.
The <unk> inflation.
And then struggling to interpret debt with respect to how it impacts.
Insurance companies, particularly companies like yours.
<unk>.
Casualty component to them.
Could you.
What you think.
Do you think we should think about the inflationary trends.
And maybe.
What do you think we should do how should we should view of the sort of the outside data.
The inside the of these.
Yeah.
I think.
Clearly the.
Each company.
Addresses the social inflation or the prospect of it.
And different.
And different effectiveness is if you understand kind of mean in our case.
We have the business waiters, whose compensation is directly.
Their rewards and bonuses and long term incentives are tied to underwriting profit and.
We have regular quarterly reviews, where our actuaries are centrally located actuaries meet.
With each of the business sweater leaders and go through the the most current trends in that.
And make adjustments you know on the.
On our loss picks and projections based off of not only.
But the current loss trend is but you know.
What our perspective loss trend is.
For instance in our case.
The actual overall loss ratio trend is 1 point.
1.6%.
And 3.8% if you exclude comp.
And that.
But you know as we approach when we look at our perspective loss trend as the company instead of 1.6 that would be more like 2.5%.
And instead of almost 4% excluding comp that would look like 6% excluding comp.
And how we are how we prospectively look at things and.
And how you know.
How we manage the business of net.
Now against those numbers.
You know the.
The prospect of loss trends.
Of 2.5%.
Year to date, we're getting a 10% price increase so obviously.
Getting price that exceeds our loss costs.
And that and then when you look at excluding workers' comp.
On a prospective basis I use that 6% number.
And you know we're achieving.
<unk>, 13% price increase year to date.
Excluding comp so.
I think that each company needs to manage.
Intelligently and effectively.
Through debt I think in our case other thing other ways. We are you know mitigate our exposures or.
Looking at the potentially policy limits in terms of the policies as things change excluding some exposures you know the.
You know potentially a you would have included the different times.
The reinsurance purchasing.
Having of reinsurance purchasing strategy to help.
Helps insulate us from the impacts of social inflation.
Recognizing kind of as we did in commercial auto years ago.
I think we because we're specialist you know in the passenger transportation and in the end commercial commercial auto I think we recognized some of the severity trends quicker than others and as we talked about before.
On a word about our eighth or ninth year of rate increase.
And and that so.
I think that's that's how we address it.
As a company.
I think so far so good I think we are.
You know addressing and of effectively.
Thank you.
Maybe for a second question.
A little bit color on the competitive environment for Workers' comp I think we've talked to most of the the other bigger lines.
The American Financial Group, Inc.
Are we.
Are we close 2 of turn there finally.
What do you see from the competitive with respect.
I think you know in most states, it's a reasonable competitive environment.
You know today I think California is the 1 that you know of.
Kind of confuses me.
When you look at.
On the size of the rate declines there in that market you know overtime and.
Loss result accident year combined ratios that are creeping up for everybody.
That's probably the only place the.
I kind of question.
Competitively what's going on.
We like we like our workers' comp business would continue to you know.
All of our overall results for the second quarter and 6 months continue to be excellent.
Although our combined ratio is higher than last year as you know I've kind of been talking for the last year or 2.
But we expect good overall calendar year underwriting profit for 2021, and the higher than 2020, and probably even a small accident year underwriting profit on 'twenty 1.
I think.
You know on continue to be very enthusiastic I do think.
<unk>.
Yeah, our overall comp premiums will probably be down a.
The low single digit which might be a little bit better than the previous year and.
Pricing for the 6 months is down about 4% probably expect the same for 2021 I I have to think going forward into 'twenty 2 that you will see.
You know of.
A different scenario the net.
On pricing flattening out and potentially increasing.
Great.
Thank you.
Thank you. Our next question comes from the line of Rudy Miller from <unk> Capital. Your line is now open.
Yes, thank you operator.
I'd like to come of outstanding quarter.
Shareholder we appreciate it.
For the dividend.
Now for the shareholders.
All of them.
Clients.
On the insurance side I do have a couple of questions 1 of the.
Comment.
With over the years appreciate it.
Heartened by the approach.
Of the selective process.
At excess of cash.
Made acquisitions.
And I appreciate you getting on that today from 1 of the other.
Commentary people.
Debt you've got for the dollars here you don't need to spend it in the next 24 hours.
2 months.
Right process.
Carl and Craig of having the track record.
Making sophisticated intelligence and common sense.
<unk> of our investments and that's true.
Most of that are going to.
Little bit of the farming and some questions I have for you with climate change.
The former.
Environment in it.
In the helicopter pilot the military.
For us that we're in business.
Sure.
Comments, a little bit about the changing weather patterns from the.
The flyers to the floods.
The deal farmers that'd be affected over the near term in the long term any color to debt.
And then 1 other follow up question and I'll give you yes.
What is the percentage of your employees back from the CV 19.
A lot of companies throughout the country.
And I don't see with the employees.
How are you looking at the dollars.
The <unk> saved.
Previously last year with not having the travel compared to this year, that's about 3 buckets, but.
I, usually wait about 3 fourths of calls before I comment on just let them really.
I'm very pleased with results of the stock.
The dividends.
The debt.
The street appears to see.
Starting to recognize which you've been doing for a long time.
I wish I was on X. This is Carl I wish I was an expert on climate change bed.
I would admit I'm not so.
Not be the best person to ask with regards to.
You know that whole arena.
I think with regards to.
You know the western drought.
In particular, I think you know.
From a from a crop insurance standpoint, we have the ability within the government modal apparel program to choose up how much risk we want to take a state by state each year. So inherent in the program we have the ability as there are changes.
Within with respect to.
Climate for drought.
And you know what our anticipation is as we can take more or less risk.
Within within the choices, we can make within the program.
I think with and generally you know, where we were lighter than our western or western exposure in crop hail for instance.
Then we are in the eastern corn belt.
And some of the Central States net.
As far as the wildfire goes the.
Those.
You know I think that and in our case.
We kind of think debt wildfires are going to be more of a.
Continual you know type of an event you know versus.
Sporadic event, maybe in the past.
I think we've been adjusting on the in the other parts of our business, whether it be things like nonprofit business or property and in the marine.
We've adjusted our appetite or our pricing or terms to reflect you know an increased exposure there as.
As far as.
Related to flood.
As it relates to major storms or hurricanes on that as a company.
Right or wrong or otherwise, we've chosen up over 20 years to have a lower catastrophe volatility.
Than our peers.
And that we just don't think you can adequately price.
The coastal property you know from of Hurricane exposure standpoint overtime.
Over time, you know, we're as Christian as you know we believe the guide can do whatever he wants wherever he wants however, much he wants and that's a hard thing to estimate of price on over time. So just as a company we have of lower.
Catastrophe volatility than most we do we do write coastal exposures, but we do that carefully.
So I hope that gives you some insight in how we look at things.
Very helpful.
How about you.
GAAP of attorney.
Corona virus.
You guys fully back loaded at the office.
You still have more people out on a.
Yes.
How is your cost ratio.
Going forward.
And what have you learned through the pandemic.
I mean, what are you worried about your operations.
No I know you've got the hill.
Yes.
But.
I think 1 thing.
Yes, I mean, 1 thing that we've learned is as a technology technology driven business.
With people as our most important assets we.
We did a lot of good planning over the last 5 years, a disaster recovery planning to allow our people to a seamless way and really effectively manage our business with you know.
Very few people in the office over the past 18 months, so I have to give our and I have to give of the leadership on our and HR and our information technology folks you now have the law them a lot of I think we did a good job preparing for such a such an event and.
Our people are have had the technology on the resources that they needed to effectively run the business.
From the expense from the from.
On the expense perspective.
We've learned that zoom meetings and conference calls can be an effective way to communicate with stakeholders.
There's a lot of things that you cant replace face to face with but I think going forward, we'll take a pause on looking at travel and make sure that it's something that has to occur versus something that could occur over a zoom meeting or something like that so we'll be mindful of our of our travel expenses knowing that we have been says the acceptance for the past 18 months with with remote.
As far as return to work as we start of the stage return to work back in mid May and the current plan is throughout welcome all of our employees back to the office after labor day, so while at the stage of returning now we'd look to being more normally staffed after labor day, but with.
That we're also going to offer most of our employees the opportunity to work of hybrid work schedule, including in office and at home schedules when they come back. So it will be 1 while we wonder if 1 of our employees to reconnect and collaborate versa and we also see the importance of offering flexible working arrangements that empower employees to succeed.
Ultimately the safety and wellbeing of our employees remain our top priority. So some things could change with our return to work schedule.
And really I think we've been so successful so far it's not it's not of must have but really something we just think will be good for us going forward, especially from a from a.
On a training perspective and.
Working with our employees and maintaining our very strong corporate culture at the moment about.
Half the people could be on the office on any day, but it will be after labor day before we have really of full staff back on.
Brian.
Thank you.
Great job.
Thank you.
No.
Yes.
Thank you.
Thank you at this time I'm showing no further questions I would like to turn the call back over to Diane Weidner for closing remarks.
Thank you and thanks for all of you for joining US. This morning, as we share a recap of our second quarter results. We look forward to speaking with you again next quarter hope everyone have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
And the.
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