Q4 2021 American Financial Group Inc Earnings Call
Good day, and thank you for standing by and welcome to the American Financial Group 2021 fourth quarter and full year results conference call at.
Speaker 1: Good day and thank you for standing by. Welcome to the American Financial Group 2021 fourth quarter and full year results conference call. At this time, all participants are on a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you would need to press star one on your telephone.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
Speaker 1: Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
Speaker 1: I would now like to hand the conference over to your first speaker today, to Diane Widener, Vice President, Investor Relations. Please go ahead.
I would now like to hand, the conference over to your first speaker today to Diane Weidner, Vice President Investor Relations. Please go ahead.
Speaker 2: Thank you. Good morning and welcome to American Financial Group's fourth quarter 2021 earnings results conference call.
Thank you good morning, and welcome to American Financial group's fourth quarter 2021 earnings results Conference call. We released our 2021 fourth quarter and full year results yesterday afternoon, Our press release Investor supplement and webcast presentation are posted on Afg's website under the Investor Relations section.
Speaker 2: We released our 2021 fourth quarter and full year 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 today's call.
Materials will be referenced during portions of today's call.
Speaker 2: I'm joined this morning by Carl Lindner III and Craig Lindner, Co-CEOs of American Financial Group and Brian Hertzman, AFG CFO .
I'm joined this morning by Carl Lindner, the third and Craig Lindner Co Ceos of American Financial Group, and Brian Huntsman Afg's CFO .
Speaker 2: Before I turn the discussion over to Carl, I would like to draw your attention to the notes on slide two 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 conditions to differ materially from these statements.
Before I turn the discussion over to Carl I would like to draw your attention to the notes on slide two 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 financial condition to differ materially from these statements.
Speaker 2: A detailed description of these risks and uncertainties can be found in 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, a 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 is included in our earnings release.
A detailed description of these risks and uncertainties can be found in 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 a 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.
<unk> is included in our earnings release.
Speaker 2: If you are reading a transcript of this call, please note that it may not be authorized or reviewed for accuracy, and as a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statement. Now I'm pleased to turn the call over to Carl Lindner III to discuss our results.
If you are reading a transcript of this call. Please note that it may not be authorized or reviewed for accuracy and as a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statements now im pleased to turn the call over to Carl Lindner, the third to discuss our results.
Speaker 3: Good morning. We're pleased to share highlights of AFG's 2021 fourth quarter and full year results, after which Craig, Brian and I will be glad to respond to your questions.
Good morning, we're pleased to share highlights of Afg's 2021, fourth quarter and full year results, after which Craig Brian and I will be glad to respond to your questions.
Speaker 3: AFG's financial performance during the fourth quarter was exceptional and a strong finish to an outstanding year.
Afg's financial performance during the fourth quarter was exceptional and a strong finish to an outstanding year.
Speaker 3: We're very pleased with the underwriting margins produced by our specialty property and casualty businesses and returns in our portfolio of alternative investments that continue to exceed our expectations.
We're very pleased with the underwriting margins produced by our specialty property and casualty businesses and returns in our portfolio of alternative investments that continue to exceed our expectations.
Speaker 3: AFG's total shareholder return in 2021, representing the change in share price plus dividends, was a very impressive 89%.
Afg's total shareholder return in 2021, representing the change in share price plus dividends was a very impressive 89%.
Speaker 3: Our diversified portfolio of specialty insurance operations and entrepreneurial culture and disciplined operating philosophy have positioned us well in a hard P&C market and an improving economy.
Our diversified portfolio of specialty insurance operations, and entrepreneurial culture, and disciplined operating philosophy have positioned us well.
Our P&C market and an improving economy.
Speaker 3: Craig and I thank God, our talented management team, and our employees for helping us to achieve these exceptionally strong results.
Craig and I, Thank God, our talented management team and our employees for helping us to achieve these exceptionally strong results at.
Speaker 3: And I'll turn the discussion over to Craig to walk us through AFG's fourth quarter and full year results, investment performance, and our overall financial position at December 31st.
I'll now turn the discussion over to Craig to walk us through Afg's fourth quarter and full year results investment performance and our overall financial position at December 31.
Thank you Carl.
Speaker 3: As you will see on slide three, AFG's core net operating earnings were a record $11.59 per share for the full year of 2021, generating a core operating return on equity of 18.6%.
As Youll see on slide three Afg's core net operating earnings were a record $11 59 per share for the full year of 2021 generating a core operating return on equity of 18, 6%.
Speaker 3: Earnings from AFG's discontinued annuity operations, the significant gain on the sale of this business, and other non-core items contributed meaningfully to full-year net earnings per share of $23.30 per share.
Earnings from Afg's discontinued annuity operations the significant gain on the sale of this business and other noncore items contributed meaningfully to full year net earnings per share of $23 30 per share.
Speaker 3: AFG's net return on equity was a very strong 37.5% in 2021.
Afg's net return on equity was a very strong 37, 5% in 2021.
Speaker 3: We're very pleased to have achieved evaluation of approximately 140% of adjusted gap book value on the sale of AFG's annuity business.
We're very pleased to have achieved a valuation of approximately 140% of adjusted GAAP book value on the sale of Afg's annuity business.
Speaker 3: This calculation includes proceeds from the sale and dividends paid to AFG in conjunction with the sale. See slide 4 for additional details.
This calculation includes proceeds from the sale and dividends paid to AFG in conjunction with the sale.
See slide four for additional details.
Capital management is one of our highest priorities.
Speaker 3: Returning capital to our shareholders is an important component of our capital management strategy and reflects our strong financial position and our confidence in AFG's financial future.
Returning capital to our shareholders is an important component of our capital management strategy and reflects our strong financial position and our confidence in Afg's financial future.
Speaker 3: The successful sale of our annuity business provided a unique opportunity for us to return $2.7 billion to shareholders during the year.
The successful sale of our annuity business provided a unique opportunity for us to return $2 $7 billion to shareholders during the year.
Speaker 3: We paid $2.4 billion in dividends during the year, including $2.2 billion in special dividends and $176 million in regular common stock dividends and made share repurchases totaling $319 million.
We paid $2 4 billion in dividends during the year, including $2 2 billion in special dividends and $176 million in regular common stock dividends and made share repurchases totaling $319 million.
Speaker 3: Our quarterly dividend was increased by 12% to an annual rate of $2.24 per share beginning in October of 2021.
Our quarterly dividend was increased by 12% to an annual rate of $2 24 per share beginning in October of 2021.
Speaker 3: Growth at adjusted book value plus dividends was an impressive 34.4%.
Growth in adjusted book value plus dividends was an impressive 34, 4%.
Speaker 3: Turning to slides five and six, you'll see that the fourth quarter 2021 core net operating earnings per share of $4.12 were more than double those in a prior period, producing an annualized fourth quarter core return on equity of 28.1%.
Turning to slides five and six you'll see that the fourth quarter 2021 core net operating earnings per share of <unk>.
<unk> $4 12 since were more than double those in a prior period, producing an annualized fourth quarter core return on equity of 28, 1%.
Speaker 3: Net earnings per share of $4.18 included after-tax, non-core realized gains on securities of $0.06 per share, which include fair value changes on securities that we continued to hold at the end of the quarter.
Net earnings per share of $4 18 included after tax noncore realized gains on securities of six cents per share which include fair value changes on securities that we continued to hold at the end of the quarter.
Speaker 3: Now I'd like to turn to an overview of AFG's investment performance, financial position, and share a few comments about AFG's capital and liquidity.
Now I'd like to turn to an overview of Afg's investment performance financial position and share a few comments about afg's capital and liquidity.
Speaker 3: The details surrounding our $15.7 billion investment portfolio are presented on slides 7 and 8.
The details surrounding our $15 7 billion investment portfolio are presented on slides seven and eight.
Speaker 3: Pre-tax unrealized gains on AFG's fixed maturity portfolio were $173 million at the end of the fourth quarter.
Pretax unrealized gains on Afg's fixed maturity portfolio were $173 million at the end of the fourth quarter.
For the 12 months ended December 31 2021.
Speaker 3: For the 12 months ended December 31, 2021, PNC net investment income was approximately 64% higher than the comparable 2020 period and included significantly higher earnings from alternative investments.
<unk> net investment income was approximately 64% higher than the comparable 2020 period and included significantly higher earnings from alternative investments.
Speaker 3: We're especially pleased with the performance of our alternative investments during the quarter.
We're especially pleased with the performance of our alternative investments during the quarter.
Speaker 3: Earnings from these 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.
Earnings from these investments may vary from quarter to quarter.
Just on the reported results and valuation of the underlying investments and generally are reported on a quarter lag.
Speaker 3: The annualized return on alternative investments reported in core operating earnings in the fourth quarter of 2021 was a very strong 26.3 percent and was 24 percent
The annualized return on alternative investments reported in core operating earnings in the fourth quarter of 2021 was a very strong 26, 3%.
And was 24% for the full year.
Speaker 3: incorporating the exceptional performance in 2021, the average annual return on these investments over the past five calendar years was 13 percent.
Incorporating the exceptional performance in 2021, the average annual return on these investments over the past five calendar years was 13%.
Speaker 3: As we look forward to 2022, our guidance for the year reflects an assumed return of 10% on our portfolio of our alternative investments. However, in the first quarter, we expect our alternative investment portfolio to exceed an annualized 10% return due to the sale of several multifamily real estate investments at favorable valuations.
As we look forward to 2022, our guidance for the year reflects an assumed return of 10% on our portfolio of our alternative investments.
However, in the first quarter, we expect our alternative investment portfolio to exceed an annualized 10% return due to the sale of several multifamily real estate investments at favorable valuations.
Speaker 3: Alternative investments with underlying real estate exposures have been a key contributor to the performance of this portfolio and helped to differentiate our portfolio of alternative investments from our peers. We view our investments in real estate and real estate related entities as a core competency.
Alternative investments with underlying real estate exposures have been a key contributor to the performance of this portfolio and help to differentiate differentiate our portfolio of alternative investments from our peers.
We view our investments in real estate and real estate related entities as a core competency.
Speaker 3: As I've noted in previous calls, we've found great success in investing in multifamily properties in desirable communities where we continue to achieve high occupancy rates and very strong rent increases.
As I've noted in previous calls we found great success and investing in multifamily properties and desirable communities, where we continue to achieve high occupancy rates and very strong rent increases.
Speaker 3: These properties represent just over half of our alternative investment portfolio at December 31, 2021.
These properties represent just over half of our alternative investment portfolio.
At December 31, 2021.
Speaker 3: Excluding the impact of alternative investments, PNC net investment income for the 12 months into December 31, 2021 decreased 6% year-over-year, reflecting lower market interest rates.
Excluding the impact of alternative investments.
<unk> net investment income for the 12 months ended December 31, 2021 decreased 6% year over year, reflecting lower market interest rates.
Speaker 3: As you can see on slide 8, our investment portfolio continues to be high quality with 88% of our fixed maturity portfolio rated investment grade and 98% of our P&C group fixed maturities portfolio with an NAIC designation of one or two, its highest two categories.
As you can see on slide eight our investment portfolio continues to be high quality with 88% of our fixed maturity portfolio rated investment grade and 98% of our P&C group fixed maturities portfolio within NTIC designation of one or two its highest two.
Categories.
Speaker 3: We've remained patient and disciplined in this prolonged low interest rate environment, and we're well positioned as interest rates begin to rise.
We have remained patient and disciplined in this prolonged low interest rate environment, and we're well positioned as interest rates begin to rise.
Speaker 3: As of December 31st, 2021, our PNC company fixed maturity duration was approximately two years, the lowest in recent history.
As of December 31, 2021, our P&C company fixed maturity duration was approximately two years the lowest in recent history.
Speaker 3: More specifically, cash and floating rate securities of $3.8 billion account for 27% of our insurance company's investment portfolio.
More specifically cash and floating rate securities of $3 $8 billion account for 27% of our insurance company's investment portfolio.
Speaker 3: If indications of future interest rate increases come to fruition, these higher rates will produce investment income that contributes to profitability in a meaningful way.
Indications of future interest rate increases come to fruition. These higher rates will produce investment income that contributes to profitability in a meaningful way.
Speaker 3: Assumptions embedded in our 2022 earnings guidance include four 25 basis point increases and a benchmark federal funds rate over the course of 2022.
Assumptions embedded in our 2022 earnings guidance include for 25 basis point increases in the benchmark federal funds rate over the course of 2022.
Speaker 3: Please turn to slide 9, where you'll find a summary of AFG's financial position at December 31, 2021.
Please turn to slide nine where you'll find a summary of Afg's financial position at December 31, 2021.
Speaker 3: Our excess capital was approximately $2.1 billion at 12-31-2021. This number included parent company cash and investments of approximately $1.9 billion.
Our excess capital was approximately $2 1 billion at 12 31 2021. This number included parent company cash and investments of approximately $1 9 billion.
Speaker 3: Our excess capital affords us the financial flexibility to make opportunistic repurchases, pay additional special dividends, grow our specialty property and casualty business organically and through acquisitions and startups that meet our target return thresholds.
Our excess capital affords us the financial flexibility to make opportunistic repurchases pay additional special dividends grow our specialty property and casualty business organically and through acquisitions and startups that meet our target return thresholds.
Speaker 3: While all AFG's excess capital is available for internal growth and acquisitions, based on assumptions underlying AFG's current guidance, approximately $750 million of excess capital can be used for share repurchases and special dividends by year-end 2022 while staying within our most restrictive debt-to-capital guidelines.
While all Afg's excess capital is available for internal growth and acquisitions based on assumptions underlying afg's current guidance approximately $750 million of excess capital can be used for share repurchases and special dividends by year end 2022.
While staying within our most restrictive debt to capital guidelines.
Speaker 3: Last month, we announced AFG's acquisition of Verakai in December 2021 for $120 million in cash.
Last month, we announced Afg's acquisition of <unk> in December of 2021 for $120 million in cash.
Speaker 3: We believe that artificial intelligence and machine learning will continue to have a significant impact on the insurance industry and see VeriKi as a thoughtful and effective leader in the use of these technologies.
We believe that artificial intelligence and machine learning will continue to have a significant impact on the insurance industry and <unk> is a thoughtful and effective leader and the use of these technologies.
Speaker 3: We've been very selective and intentional with our investments in the insurtech space and have enjoyed great success with several strategic relationships.
We've been very selective and intentional and intentional with our investments in the insure tech space and have joined great enjoyed great success with several strategic relationships.
Speaker 3: Although we don't often invest directly in insure-tech entities, we found VeriKi to be an outstanding opportunity.
Although we don't often invest directly and insure tech entities, we found <unk> to be an outstanding opportunity.
Speaker 3: VeriKai will continue to operate as a stand-alone company to serve its insurance clients.
<unk> will continue to operate as a standalone company to serve its insurance clients.
Speaker 3: Book value per share, excluding unrealized gains related to fixed maturities, was $57.42 at December 31, 2021, compared to $63.61 per share at the end of 2020, and reflects $26 per share in special dividends paid in 2021.
Book value per share, excluding unrealized gains related to fixed maturities was $57 42.
At December 31, 2021, compared to $63 61 per share at the end of 2020 and reflects $26 per share in special dividends paid in 2021.
Speaker 3: I'll now turn the call back over to Carl to discuss the results of our PNC operations and discuss our expectations for 2022.
I'll now turn the call back over to Carl to discuss the results of our P&C operations and discuss our expectations for 2022.
Speaker 3: I'd like to begin by congratulating Gary Gruber on his upcoming retirement as Great American's President and Chief Operating Officer.
I'd like to begin by congratulating, Gary Gruber on his upcoming retirement as great American's, President and Chief operating officer.
Speaker 3: Gary's played a significant role in the tremendous growth and success of our property and casualty business over the course of his nearly 45-year career with the company.
Gary has played a significant role in the tremendous growth and success of our property and casualty business over the course of his nearly 45 year career with a company.
Speaker 3: Gary's a treasured colleague and a longtime friend to me and many others. It's been an honor to work alongside him.
Gary is a treasured colleague and a longtime friend to me and many others. It's been an honor to work alongside them.
Speaker 3: And I wish him many years of health and happiness in retirement. Gary, thank you for your contributions and service to great American and AFG.
And I wish and many years of health and happiness in retirement, Gary. Thank you for your contributions and service to Great American and AFG.
Speaker 3: With Gary's retirement, David Thompson has succeeded him as President and Chief Operating Officer of Great Americans Property and Casualty Group, effective February 1.
But gary's retirement, David Thomson has succeeded him as president and Chief operating officer of Great American's property and casualty group effective February one.
Speaker 3: David is the 18th president in Great American's 150-year history. His executive leadership experience overseeing numerous Great American specialty property and casualty operations positions us well for growth and success.
David is the 18th President and Great Americans 150 year history as.
His executive leadership experience overseeing numerous great American specialty property and casualty operations positions us well for growth and success.
Now turning to a review of the quarter.
Speaker 3: Results in our Specialty Property and Casualty Group were outstanding, as you'll see on the overview on slide 10. Fourth quarter pre-tax core operating earnings in AFG's P&C insurance segment established another record for the fourth time this year at $485 million.
Results in our specialty property and casualty group were outstanding as Youll see on the overview on slide 10.
Fourth quarter pre tax core operating earnings in Afg's P&C insurance segment established another record for the fourth time this year.
At $485 million.
Speaker 3: specialty property and casualty insurance operations generated an underwriting profit of $281 million in the 2021 fourth quarter, an impressive 57% increase year over year, driven primarily by higher year over year underwriting profitability in our specialty casualty and property and transportation groups.
Specialty property and casualty insurance operations generated an underwriting profit of $281 million in 2021 fourth quarter, an impressive 57% increase year over year.
Driven primarily by higher year over year underwriting profitability in our specialty casualty and property and transportation groups.
Speaker 3: Despite the impact of devastating tornadoes in Kentucky and fire-related losses in Colorado, our catastrophe losses were a very manageable $25 million.
Despite the.
The impact of devastating tornadoes in Kentucky and fire related losses in Colorado.
<unk> losses were a very manageable $25 million.
Speaker 3: Underwriting margins across our portfolio of businesses were excellent, and our overall specialty, property, and casualty combined ratio was an exceptionally strong 80.7 percent, improving 5.5 points from the prior year period.
Underwriting margins across our portfolio of businesses were excellent and our overall specialty property and casualty combined ratio was an exceptionally strong 87% improving.
Improving five five points from the prior year period.
Speaker 3: fourth quarter 2021 combined ratio included 1.8 points in catastrophe losses and five points of favorable prior year reserve development.
The fourth quarter 2021, combined ratio included one eight points in catastrophe losses, and five points of favorable prior year Reserve development.
Speaker 3: Each of our specialty property and casualty sub-segments produce combined ratios in the mid-80s or lower during the quarter, the strongest we've reported in 15 years.
Each of our specialty property and casualty sub segments produced combined ratios in the mid <unk> or lower during the quarter.
Strongest we have reported in 15 years.
Speaker 3: Gross and net written premiums increased 14% and 12% respectively for the full year in 2021 and established new records for premium production.
Gross and net written premiums increased 14% and 12% respectively for the full year in 2021 and established new records for premium production.
Speaker 3: Premiums reported in the fourth quarter were significantly impacted by timing differences in the recording of premiums in our property and transportation group.
<unk> reported in the fourth quarter were significantly impacted by timing differences in the recording of premiums in our property and transportation group.
Speaker 3: When you adjust for those items, gross and net written premiums were up 12% and 9%, respectively, for the fourth quarter of 2021 when compared to the same period last year.
When you adjust for those items gross and net written premiums were up 12% and 9% respectively for the fourth quarter of 2021, when compared to the same period last year.
Speaker 3: With consideration to those adjustments, each of our specialty property and casualty groups reported healthy growth as a result of an improving economy, new business opportunities, and a continued strong renewal rate environment.
With consideration to those adjustments each of our specialty property and casualty groups reported healthy growth as a result of an improving economy, new business opportunities and a continued strong renewal rate environment.
Speaker 3: Turning to pricing, renewal rate momentum continues. We achieved meaningful broad-based pricing increases across the vast majority of our businesses, with strong renewal pricing in our longer-tailed liability businesses outside of workers' comps.
Turning to pricing renewal rate momentum continues.
We achieved meaningful broad based pricing increases across the vast majority of our businesses with strong renewal pricing in our longer tailed liability businesses outside of workers' comp.
Speaker 3: Average renewal pricing across the entire property and casualty group was up approximately seven percent for the quarter. And excluding workers' comp.
Average renewal pricing across the entire property and casualty group was up approximately 7% for the quarter and excluding workers' comp.
Speaker 3: average renewal rates were up approximately 8% in the quarter.
Average renewal rates were up approximately 8% in the quarter.
Speaker 3: We achieved a 9% overall rate increase for the year and excluding workers comp renewal rates were up 12% overall in 2021.
We achieved a 9% overall rate increase for the year.
And excluding workers' comp renewal rates were up 12% overall in 2021.
Speaker 3: These rates are on top of increases of 11% overall and 15% excluding workers comp that were achieved in 2020.
These rates are on top of increases of 11% overall and 15% excluding workers' comp that were achieved in 2020.
Speaker 3: Renewal rate increases continue to be meaningfully in excess of estimated prospective loss ratio trends.
Renewal rate increases continue to be meaningfully in excess of estimated perspective loss ratio trends.
Speaker 3: which are approximately 3% for specialty, property, and casualty businesses overall and approximately 5% excluding workers' compensation.
Which are approximately 3%.
Specialty property and casualty businesses overall.
And approximately 5% excluding workers' compensation.
Speaker 3: Now, the drivers of growth vary considerably across our portfolio of specialty P&C businesses in the aggregate.
Now the drivers of growth vary considerably across our portfolio of specialty P&C businesses in the aggregate.
Speaker 3: year-over-year growth and gross written premium for the full year in 2021, excluding crop.
Year over year growth in gross written premium for the full year in 2021, excluding crop.
Speaker 3: was about 60% attributed to growth and change in exposures, and about 40% attributable to rate increase.
Was about 60% attributed to growth and change and change in exposures and about 40% attributable to rate increase.
Now if you turn to slide 11, I'd like to review a few highlights from each of our specialty property and casualty business groups.
Speaker 3: Property and Transportation Group reported an underwriting profit of $116 million in the fourth quarter of 2021 compared to $74 million in the fourth quarter of 2020. Higher year-over-year underwriting profit in our crop operations more than offset lower underwriting profit in our transportation business.
Property and transportation group reported an underwriting profit of $116 million in the fourth quarter of 2021 compared to $74 million in the fourth quarter of 2020.
Higher year over year underwriting profit in our crop operations more than offset lower underwriting profit in our transportation businesses.
Speaker 3: Catastrophe losses in this group, net of reinsurance and inclusive of reinstatement premiums, were $15 million in the fourth quarter of 2021 compared to $6 million in the comparable 2020 period.
Catastrophe losses in this group net of reinsurance and inclusive of reinstatement premiums were $15 million in the fourth quarter of 2021 compared to $6 million in the comparable 2020 period.
Speaker 3: The businesses in the property and transportation group achieved an excellent 80.5% calendar year combined ratio overall in the fourth quarter, an improvement of 5.3 points from the comparable period in 2020.
The businesses in the property and transportation group achieved an excellent 85% calendar year combined ratio overall in the fourth quarter, an improvement of five three points from the comparable period in 2020.
Speaker 3: Fourth quarter 2021 gross and net written premiums in this group were down 14 percent and five percent respectively when compared to last year's fourth quarter. Both gross and net written premiums were impacted by the timing of premium recognition in our crop business and the timing and renewal of a large account in our transportation businesses.
Fourth quarter 2021, gross and net written premiums in this group were down, 14% and 5%, respectively, when compared to last year's fourth quarter.
Both gross and net written premiums were impacted by the timing of premium recognition in our crop business and the timing and renewal of a large account in our transportation businesses.
Speaker 3: Excluding the impact of these items, fourth quarter, gross and net written premiums in this group grew 13 percent and 7 percent year over year, respectively.
Excluding the impact of these items fourth quarter gross and net written premiums in this group grew 13% and 7% year over year, respectively.
Speaker 3: These premiums are expected to be recognized in the first quarter of 2022.
These premiums are expected to be recognized in the first quarter of 2022.
Speaker 3: Overall, renewal rates in this group increased 6% on average for the fourth quarter of 2021, accelerating slightly from the 5% rate increase reported in the third quarter. And for the full year, this group's pricing was up 6% overall.
Overall renewal rates in this group increased 6% on average for the fourth quarter of.
2021, accelerating slightly from the 5% rate increase reported in the third quarter and for the <unk>.
Four.
The full year this group's pricing was up 6% overall.
Spring discovery pricings underway in our crop insurance business.
Speaker 3: Current commodity futures pricing is significantly above last year's levels with just looking the other day with average corn and soybean futures up 26 percent and 18 percent respectively in the first seven days of the month.
Current commodity futures pricing is significantly above last year's levels with.
Just looking the other day with average corn and soybean futures.
Up 26% and 18% respectively in the first seven days in the month.
Speaker 3: It's still obviously early in the discovery period, and volatility factors aren't yet calculated until the last five days of the month. However, if the commodity prices and pricing continues at this rate for the remainder of the discovery period, we expect to have a double-digit growth in net written premiums in our crop business again this year.
It's still obviously early in the discovery period and volatility factors arent yet calculated in total last five days of the month.
However, if the commodity prices and pricing continues at this rate for the remainder of the discovery period.
We expect to have a double digit growth in net written premiums in our crop business again this year.
Speaker 3: The Specialty Casualty Group reported an underwriting profit of $140 million in the 2021 fourth quarter compared to $91 million in the comparable 2020 period. Higher year-over-year underwriting profit in our workers' compensation, excess liability, excess and surplus lines, target markets, and executive liability businesses were the driver of these results.
The specialty casualty group reported an underwriting profit of $140 million in the 2021 fourth quarter compared to $91 million in the comparable 2020 period higher year over year underwriting profit in our workers compensation excess liability excess and surplus lines target markets and <unk>.
<unk> liability businesses, where the driver of these results.
Speaker 3: Underwriting profitability in our workers' compensation businesses overall continues to be excellent.
Underwriting profitability in our workers compensation businesses overall continues to be excellent.
Speaker 3: The businesses in this specialty casualty group achieved an exceptionally strong 78% calendar year combined ratio over on the fourth quarter, an improvement of six points from the comparable period in 2020. Fourth quarter 2021 gross and net written premiums increased 12 and 11% respectively when compared to the same prior year period.
The businesses in this specialty.
Casualty group achieved an exceptionally strong.
78% calendar year combined ratio overall in the fourth quarter, an improvement of six points from the comparable period in 2020.
Fourth quarter 2021, gross and net written premiums increased 12, and 11% respectively when compared to the same prior year period.
Speaker 3: Nearly all the businesses in this group achieved strong renewal pricing and reported premium growth during the fourth quarter.
Nearly all the businesses in this group achieved strong renewal pricing reported premium growth during the fourth quarter.
Speaker 3: Continued strong renewal rates and increased exposures contributed to higher premiums in our excess liability and excess and surplus lines businesses. In our mergers and acquisitions liability and executive liability businesses also contributed meaningfully to the year-over-year growth.
Continued strong renewal rates and increased exposures contributed to higher premiums in our excess liability and excess and surplus lines businesses, and our mergers and acquisitions liability and executive liability businesses also contributed meaningfully to the year over year growth.
Speaker 3: Renewal pricing for this group was up 7% in the fourth quarter, and excluding our workers' comp business, renewal rates in this group were up 11%.
Renewal pricing for this group was up 7% in the fourth quarter and excluding our workers' comp business renewal rates in this group were up 11%.
Speaker 3: Looking at pricing for the full year for this group, pricing was up 11% overall and 17% excluding workers' comp.
Looking at pricing for the full year of this for this group pricing was up 11% overall, 17% excluding workers' comp.
Speaker 3: Underwriting profitability in our workers' compensation businesses overall continues to be excellent. We have three stand-alone workers' compensation businesses with varying appetites and different niche focus areas. This strategy has served us very well in achieving strong results in our workers' comp book.
Underwriting profitability in our workers compensation businesses overall continues to be excellent. We have three standalone worker's compensation businesses with bearing appetites and different niche focus areas. This strategy has served us very well and achieving strong results in our workers' comp book.
Speaker 3: We are pleased that Great American Insurance Group will benefit from VeriKi's predictive risk tool and unique marketplace solution as it enters the medical stop-loss business.
We are pleased that great American insurance group will benefit from <unk> predicted risk tool and unique marketplace solution as it enters the medical stop loss business with a primary focus on small and underserved risks, we don't expect very meaningful premium earnings impact from this business in <unk>.
Speaker 3: with a primary focus on small and underserved risks. We don't expect a very meaningful premium or earnings impact from this business in 2022, but we are pleased to add another compelling product offering to our portfolio of specialty insurance solutions.
2022, but we are pleased to add another compelling product offering to our portfolio of specialty insurance solutions.
Speaker 3: Specialty Financial Group reported an underrunning profit of $24 million in the fourth quarter of 2021 compared to an underrunning profit of $20 million in the fourth quarter.
Specialty financial group reported an underwriting profit of $24 million in the fourth quarter of 2021 compared to an underwriting profit of $20 million.
In the fourth quarter of 2020.
Speaker 3: Higher underwriting profit and our trade credit, surety, and fidelity in crime businesses contributed to these results.
Higher underwriting profit in our trade credit surety and fidelity and crime businesses contributed to these results.
Speaker 3: And the group, this group continued to achieve excellent underwriting margins and reported an 85.5% combined ratio for the fourth quarter of 2021.
And the group. This group continued to achieve excellent underwriting margins and reported an 85, 5% combined ratio for the fourth quarter of 2021.
Speaker 3: Gross and net written premiums increased by 8 and 6% respectively in the 2021 fourth quarter when compared to the same 2020 period due primarily to the favorable impact of economic recovery on our surety business and strong rate increases and new business opportunities in our fidelity and crime business.
Gross and net written premiums increased by 8% and 6% respectively. In the 2021 fourth quarter when compared to the same 2020 period due primarily to the favorable impact of economic recovery on our surety business and strong rate increases and new business opportunities in our fidelity and crime business.
Speaker 3: Renewal pricing in this group was up 70% in both the fourth quarter and full year 2021.
Renewal pricing in this group was up 7% in both the fourth quarter and full year 2021.
Speaker 3: Now if you turn to slide 12, you'll see a full page summary of our initial guidance for 2022.
Now if you turn to slide 12.
Youll see a full page summary of our initial guidance for 2022.
Speaker 3: Overall, we expect to see an ongoing hard property and casualty market with opportunities for growth arising from both continued rate increase and exposure growth, as well as margin expansion as compounded rates earn through.
Overall, we expect to see an ongoing hard property and casualty market with opportunities for growth arising from both continued rate increase and exposure growth as well as margin expansion is compounded rates earned through.
Speaker 3: We expect AFG's core net operating earnings in 2022 to be in the range of $9.75 to $10.75. This guidance reflects an assumed annualized return of approximately 10% on alternative investments and an average crop year, both of which were areas of strong outperformance for the company in 2021.
We expect Afg's core net operating earnings in 2022 to be in the range of $9 75 to $10 75.
This guidance reflects an assumed annualized return of approximately 10% on alternative investments and an average crop year, both of which were areas of strong outperformance for the company in 2021.
Speaker 3: As we consider the outlook for our specialty, property, and casualty operations, we expect a 20-22 combined ratio for the specialty, property, and casualty group overall between 85 and 87 percent.
As we consider the outlook for our specialty property and casualty operations. We expect the 2022 combined ratio for the specialty property and casualty group overall between 85% 87%.
Speaker 3: Net written premiums for 2022 are expected to be 8-12% higher than the $5.6 billion reported in 2021.
Net written premiums for 2022 are expected to be 8% to 12% higher than the $5 6 billion reported in 2021.
Speaker 3: Now looking at each sub-segment, we expect property and transportation supply ratio to be in the range of 87 to 91 percent.
Now looking at each sub segment, we expect property and transportation supply ratio to be in the range of 87% to 91%.
Speaker 3: Our guidance assumes, again, an average crop earnings for the year. We estimate growth in net written premiums for this group to be in the range of 8 to 12 percent.
Our guidance assumes again, an average crop earnings for the year.
We estimate growth in net written premiums for this group to be in the range of 8% to 12%.
Speaker 3: Our specialty casualty group is expected to produce a combined ratio in the range of 80 to 84 percent.
Our specialty casualty group is expected to produce a combined ratio in the range of 80% to 84%.
Speaker 3: Our guidance assumes continued strong renewal pricing in our E&S, excess liability, and several of our other longer-tail liability businesses, and continued county-year profitability in our workers' compensation businesses overall. We're estimating growth in net written premiums in the range of 6 to 10 percent.
Our guidance assumes continued strong renewal pricing in our E&S excess liability and several of our other longer tail liability businesses and continued calendar year profitability in our workers' compensation businesses overall rest.
We're estimating growth in net written premiums in the range of 6% to 10%.
Speaker 3: Premium growth will be tempered by rate decreases in our workers' compensation book, which are the result of favorable loss experience in this line of business.
Premium growth will be tempered by rate decreases in our workers' compensation book, which are the result of favorable loss experience in this line of business.
Speaker 3: Excluding workers' comp, we expect 2022 premiums in this group to grow in the range of 7 to 11 percent in 2022.
Excluding workers' comp, we expect 2022 premiums in this group to grow in the range of 7% to 11% in 2022.
Speaker 3: We expect the specialty financial group combined ratio to be in the range of 84 to 88 percent. And we expect growth in net written premiums for this group to be between 8 and 12 percent based on projected growth in all the businesses across the group.
We expect the specialty financial group combined ratio to be in the range of 84% to 88% and we expect growth in net written premiums for this group to be between 8% and 12% based.
Based on projected growth in all the businesses across the group.
And we expect.
Speaker 3: Renewal rates overall to increase between 5 and 7 percent in 2022 and excluding workers comp, we expect renewal rate increases to be in the range of 6 to 8 percent.
Renewal rates overall to increase between five and 7% in 2022, and excluding workers' comp, we expect renewal rate increases to be in the range of 6% to 8%.
Speaker 3: Craig and I are very pleased to report these exceptionally strong results for the fourth quarter and full year, and we're proud of our proven track record of long-term value creation. We believe that our entrepreneurial, opportunistic culture, combined with our strong balance sheet and financial flexibility, position us very well as we begin 2022. Now we'll open the lines for the Q&A portion of today's call, and Craig and Brian and I would be happy to respond to your questions. Thank you.
As Craig and I are very pleased to report these exceptionally strong results for the fourth quarter and full year and we're proud of our proven track record of long term value creation, we believe that our entrepreneurial opportunistic culture combined with our strong balance sheet and financial flexibility position us very well as we begin to.
<unk> thousand 22 now.
Now we will open the lines for the.
The Q&A portion of today's call and Craig and Brian I would be happy to respond to your questions. Thank you.
Thank you Sir.
Speaker 1: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the pound key. Please stand by while we...
As a reminder to ask a question you would need to first star one on your telephone to withdraw your question. Please press the pound key.
Please standby, while we compile the Q&A roster.
Speaker 1: I show our first question. It comes from the line of Mike Zaremski from Wolf Research. Please go ahead.
I show. Our first question comes from the line of Mike Zaremski from Wolfe Research. Please go ahead.
Speaker 4: Hi, guys. This is Charlie. And for Mike, thanks for taking our question. On Craig's comment on the $750 million of returnable capital, what is driving the increase relative to your last update? Is that based on income that you expect to generate during the year, or how should we think about that?
Hi, guys. This is Charlie on for Mike Thanks for taking our question.
Craigs comment on the $750 million of returnable capital.
What is driving the increase relative to your last update that based on income that you expect to generate during the year or how should we think about that.
Speaker 1: Yeah, the $750 million is based on the assumptions in our model, that's what we expect to generate during the year. So if things go as planned, we would have $750 million of additional available just from the excess capital that we generate.
$750 million.
Based on the assumptions in our model, that's what we expect to generate during the year. So if we if things go as planned we would have $750 million of additional available just from the the excess capital that we generate.
Speaker 4: Got it. Okay, that makes sense. And then just on the net investment income upside that Craig spoke to, is that more from the floating rate debt that you guys hold or would you potentially extend the duration of your portfolio?
Got it okay that makes sense and then just.
On the net investment income upside that Craig spoke to.
Is that more from the floating rate debt that you guys holder or would you.
Isolate extended duration of your portfolio.
Speaker 3: Yeah, so we actually have started to put some money to work with the significant increase in
Yes, so we actually have started to put some money to work with the significant increase in <unk>.
Speaker 5: in REACH, but we will benefit meaningfully what we put in our model.
And rates, but.
The I mean, we're going to we will benefit meaningfully we put in our model was an assumption of four fed rate increases.
Speaker 5: was an assumption of four Fed rate increases kind of spread throughout the year.
Spread throughout the year.
Speaker 5: and uh... we did not assume that we were going to lengthen duration uh... significantly so i'm gonna preach continue to climb and and we do like them duration uh... that certainly would be a a positive to net investment income
And.
We did not assume that we were going to lengthen duration significantly. So I mean, if rates continue to climb and we do lengthen duration.
That certainly would be a positive to net investment income.
Got it okay. Thank you.
Speaker 1: Thank you. I show our next question comes from the line of Derek Han from KBW.
Thank you I show. Our next question comes from the line of Derek <unk> from <unk>. Please go ahead.
Speaker 3: Good morning. Thanks for taking my question. I just wanted to dive into the 2020 outlook a little bit. What would kind of get you to the higher end of the combined ratio ranges for property and transportation and the specialty financial segments, given that you're still seeing very good pricing and growth? So I just kind of wanted to understand what the risks are to put you at the higher end of the combined ratio guidance.
Good morning, Thanks for taking my question just wanted to dive into the 2000.
A little bit.
What would kind of get you to the high end of the combined ratio ranges for property and transportation and specialty financial segment. Given that you are still seeing very good pricing and growth.
Just kind of wanted to understand what the risks are to put you at the higher end of the combined ratio guidance.
Speaker 3: Well, I think, you know, probably our crop business, for instance, you know, probably is a line that has the most variability depending on what type of year you have. You can go from a drought year where you don't make anything to, you know, great years where you make a lot.
Well I think probably the our crop business for instance, probably is a line that has.
The most variability depending on what type of year. You have you can you can go from a drought year, where you don't make anything to <unk>.
Great years, where you make a lot.
Speaker 3: That's a business, you know, over time that we've earned very high returns on and, you know, have done well on average, I think, in a good part because of the broad mix of business that we have in, you know, the heartland for corn and soybeans and
That's a business over time that we earn very high returns on and have done well on average I think in a good part because of.
The broad mix of business that we have been in the heartland for corn and soybeans and.
Speaker 3: uh... and lower exposures uh... you know in places like texas
And lower exposures.
In places like Texas.
Speaker 3: some of those types of, you know, states and that. So, I mean, that would, you know, when you're focused on the property and transportation. The other thing would be...
Some of those types of <unk>.
States are now so I mean that when you're focused on the property and transportation. The other thing would be.
Speaker 3: you know, we factor in kind of an average year of catastrophes. If you had, you know, a more major catastrophe, naturally, you know, that could impact you to the higher, you know, end of a range as well, as well as the industry. Now, the good news in our case is, is generally we have a much lower relative exposure on the catastrophe side. So
We factor in kind of an average year of catastrophes, if you had.
A more major catastrophe naturally that could impact.
You too to the higher end of our range as well as for Jose industry now the good news in our cases is generally we have a much lower relative exposure on the catastrophe side. So.
<unk>.
Speaker 3: you know, that that's really helped us, you know, over time have more predictable combined ratios in that.
That's really helped us.
Over time have more predictable combined ratios.
Speaker 3: On the specialty financial side, our lender-placed property business also has catastrophe exposure and that. So, you know, things like wildfires or hurricanes or those types of events.
And that.
On the specialty financial side.
Our lender place property business also.
Has <unk>.
Tastic exposure.
So.
Things like wildfires.
Or hurricanes or those types of events.
Speaker 3: it would probably be those kinds of things that, you know, could push the specialty financial combined ratio, you know, to the higher end.
It would probably be those kinds of things that.
Could push the specialty financial combined ratio.
To the higher end.
Got it that's helpful.
Sorry go ahead.
Speaker 3: Yeah, I think, you know, those would be the main things that would come to mind.
Yes, I think those would be the main things that would come to mind.
Speaker 3: Okay, that's helpful. And then I just wanted to ask about the loss trend. You had said that it was 2.7 percent last quarter. Is that still holding for 2022? And then within the social exposed lines like DNO, are you seeing any acceleration in social inflation that makes the loss trends higher?
Okay. That's helpful. And then I just wanted to ask about the loss trend.
That made a two 7% last quarter.
Is that still holding for 'twenty, two and then within the social expose lines like D&O or are you seeing any acceleration in social inflation.
It makes the loss trends higher.
Yes.
I think.
Speaker 3: I kind of round it up a little bit. I consider our perspective loss ratio trend as we would be about 3% overall today. If you exclude workers' comp, which has had some really very favorable trends, our overall perspective loss trend as we've adjusted is more like 5%.
I kind of rounded up a little bit of prop I consider our perspective, our perspective loss ratio trend.
As we would be about 3%.
Overall today.
If you exclude workers' comp, which has had some really very favorable trends.
Our overall perspective loss trend.
We've adjusted as more like 5%.
Speaker 3: So, you know, the 5% compares to the 12%.
So the 5% compares to the 12%.
Speaker 3: you know, excluding comp rate that we got this year. Our guy, I think we just I just talked about our guidance, excluding comp on pricing was six to eight percent, if that gives you kind of a, you know, a feel for things. And then, you know, overall.
Excluding comp rate that we got this year.
I think we just I just talked about our guidance excluding comp on pricing was 6% to 8% if that gives you kind of.
Our feel for things and then overall.
Speaker 3: uh... compared to the three percent you know we achieved about nine percent in price in twenty one and and our guidance is for five to seven percent uh... and that i hope that gives you a little color
Compared to the 3%, we achieved about 9% and price in 'twenty, one and our guidance is for 5% to 7%.
So I hope that gives you a little color.
Speaker 3: Yeah, that's really helpful. And then the last question for me, are you seeing any impact from wage inflation or are you kind of insulated from that given that you have the unique profit sharing plan in place?
Yes, that's really helpful. And then last question from me are you seeing any impact from wage inflation or are you kind of insulated from that given that you have the unique profit sharing plan in place.
Speaker 3: You mean within our own employees or are you saying impact, we are seeing positive wage inflation impact in businesses like workers compensation, which actually, you know, works to be a favorable.
You mean within our own employees or are you seeing impact we are seeing positive wage inflation impact in businesses like workers' compensation, which actually works to be a favorable.
Speaker 3: You know, as we look at our loss ratio trend, we've always been a little different than the industry in talking about loss cost trends. We talk loss ratio trend, which includes, you know, which offsets loss cost trend by favorable types of things like wage inflation. And particularly in workers' comp, you know, we would have probably a couple points of favorable wage inflation that is probably helping our results.
As we look at our loss ratio trend are we.
We've always been a little different than the industry and talking about loss cost trends, we talk loss ratio trend which includes.
You know, which offsets the loss cost trend by favorable types of things like wage inflation and particularly in workers comp, we would have probably a couple of points of favorable.
Wage inflation that is probably helping our results.
Speaker 3: Um, are you, are you speaking to, uh, internally to AFJ?
Are you.
Are you speaking to internally to AFG.
Speaker 3: Yeah, I was more curious about your employee base, whether you kind of have to pay up for talent or maybe pay up more to retain talent.
Yes. It was more curious about your employee base, whether you kind of have to pay up for talent.
Maybe two.
More to retain talent.
Speaker 3: I think certainly everybody probably is had to, you know, from the last couple of years is probably are increasing their, you know, their wage.
Hi.
Certainly everybody probably is.
Had to from the last couple of years is probably are increasing there.
Their wage.
Speaker 3: their overall average wage increase, you know, at, you know, kind of in response to inflation. I think we're very, we're very blessed in that when we look at our turnover.
Overall average wage increase.
<unk>.
Kind of in response to inflation.
I think we're very we're very blessed and that when we look at our turnover.
Speaker 3: You know, really, things haven't really moved. You know, it's very stable, so.
No.
Hi.
Really things Havent really move is very stable so.
Speaker 3: But I think in response to just our employees facing more inflation, you know, we have made some we have made some adjustments to reflect that. But that's that's all built in guidance.
But I think in response to just our employees facing more inflation. We have made some that we have made some adjustments to our.
Reflect that.
But that's that's all built in guidance.
Speaker 1: I think it's important to remember, too, we have a sticky long-term compensation plans where our business units are based on accident years as they develop out, so there's a good long-term alignment there and a great work culture here at Great American as well that helps keep our leaders happy and stable here at the company.
It's important to remember too we have we have.
The sticky long term compensation plans were business units are kind of accident years as they develop out. So there is there is a good long term alignment there and great work culture here at Great America as well it helps keep our leaders are happy and stable here at the company.
Okay. Thank you very much.
<unk>.
Thank you.
Speaker 1: Our next question comes from the line of Greg Peters from Raymond James, please go ahead.
I show. Our next question comes from the line of Greg Peters from Raymond James. Please go ahead.
Speaker 3: Good morning, this is actually Sid Schultz calling on behalf of Greg. Just one question and it pertains to commercial transportation. When just looking at the industry, it seems that, you know, we're seeing higher litigated claims and larger settlements. And I'm hoping maybe you guys can just provide your perspective on these trends or expectations or what you guys are seeing moving forward.
Good morning, this is actually <unk>, calling on behalf of Greg.
Just one question as it pertains to commercial transportation.
When just looking at the industry. It seems that the higher litigated claims and larger settlements and Im hoping maybe you guys can just provide your perspective on these trends or expectations or what you guys are seeing moving forward.
Speaker 3: Yeah, I think we identified probably 8 or 9 years ago, we were probably one of the first companies to identify those, you know, the severity trends, you know, in the commercial auto liability side, and they definitely are continuing, and I think that's one reason why
Yes, I think we had we identified probably eight or nine years ago, we were probably one of the first companies to identify those severity trends.
And in our commercial auto liability side.
They definitely are continuing and I think that's one reason why even after eight nine years of taking rate.
Speaker 3: Even after eight, nine years of taking great, I think in the fourth quarter we still took an 8% rate increase in the commercial auto liability portion of our business.
I think in the fourth quarter, we still took an 8% rate increase in the commercial auto liability portion of our business.
Speaker 3: Yeah, it's definitely real. And I, I think also what now, you know, as the economy's coming out of the pandemic, you know, there's more, more miles.
Yes, it's definitely real.
I think also what now.
The economy's coming out of the pandemic.
We're more miles.
Speaker 3: being driven, you know, out there, more vehicles, more miles, and I think that also has an impact on things.
Being driven out there more vehicles more miles.
I think that also has an impact on things.
Speaker 3: That's why, again, we think, you know, as we look this year, we're continuing to take rate and
That's why.
We think as we folk we look this year, we're continuing to take rate and we.
Speaker 3: We want to be very careful, even though our commercial auto business is performing very well, achieving for the year and the last couple of years, achieving our combined ratio and return on equity objectives.
We want to be very careful even though even though our commercial auto business.
It's performing very well achieving.
For the year in the last couple of years, achieving our combined ratio and return on equity objectives.
Speaker 3: You know, we still feel that in the commercial auto liability side in particular that we need to.
We still feel that the commercial auto liability side in particular that we need to.
Speaker 3: continue to take great. And even even on the physical damage side. Yeah, with labor shortages and, you know, used vehicle parts prices going up. That does impact commercial auto the same as it does, you know, impact private passenger auto. In some ways, maybe even more with respects to, you know, if you have specialized vehicles like
<unk> to take rate and even even on the physical damage side.
Yes, with labor shortages and.
Used vehicle parts prices going up.
That does impact the commercial auto the same as it does.
Packed private passenger auto and.
In some ways maybe.
Even more.
With respect to if you have specialized vehicles like.
Speaker 3: You know, moving vans or moving trucks, they may be harder to replace or to fix than, you know, the average, you know, passenger van or something. So...
Moving vans are moving trucks, they may be harder to replace or to fix than the average.
Passenger van or something so.
Speaker 3: We're still going to take rate on the physical damage part of our business this year also.
We're still going to take rate.
On the physical damage part of our business. This year also.
Got it thank you.
Thank you.
Speaker 1: I show our next question comes from the line of Mike Zaremsky from Wolf Research. Please go ahead.
Our next question comes from the line of Mike Zaremski from Wolfe Research. Please go ahead.
Speaker 6: Hey, great. I was on another call, so thanks for taking our follow-ups right now. I guess back, sticking to the question on lost trend.
Hey, great.
I was on another call. So thanks for taking our follow ups right now.
Guess back sticking to the question of on loss trend.
Speaker 6: You know, a number of companies have been, and we're seeing data points too, pointing to kind of frequency trends on the casualty side being better than expected.
A number of companies have been and we're seeing data points to pointing to kind of frequency trends on the casualty side being better than expected.
Speaker 6: due to potentially a number of reasons, including the courts being still not fully reopened. But some firms are also kind of – and the data points are pointing to severity.
Due to potentially in a number of reasons, including.
The courts being still not fully reopen but.
Some firms are also kind of in the data points are pointing to severity.
Speaker 6: still being higher than expected, and some firms have kind of taken up their perspective loss picks. And I know you haven't taken up your perspective view of inflation, but, you know, is this a – you know, maybe you can bifurcate. Is frequency kind of the good guy still, and is severity trending higher, or still kind of severity is kind of in line with what you guys have been expecting?
Still still being higher than expected.
Some firms have kind of taken up their perspective loss picks and I know you haven't taken up your perspective of inflation, but.
Is this.
Maybe you can bifurcate as frequency kind of the good guys still as severity, it's trending higher or still kind of severity is kind of in line with what you guys have been expecting.
Speaker 3: Gosh, yeah, that's that's an impossible question to answer, you know, where we have 35, you know, different specialty businesses, you know, it would vary, you know, business by business.
Yes, yes.
As an impossible question to answer.
We have 35 different specialty businesses.
It would vary.
Business by business.
Speaker 3: You know, when we take a look at our perspective loss ratio picks for
When we take a look at our perspective loss ratio picks for.
Speaker 3: You know, businesses like D&O and public D&O, it would reflect our, you know, which is on our overall D&O business, it would be like a 7% perspective.
Businesses like D&O and public D&O it would reflect our which is on our overall <unk> business would be like 7% prospect of loss trend and are probably be a bit higher if we just took the public D&O part of that so that.
Speaker 3: and it would probably be a bit higher if we just took the public DNO part of that. So, you know, that reflects.
That reflects.
Speaker 3: our quarterly actuarial work where we review, you know, where we think things are going and our own trends and that and that. So, you know, the same thing applies, for instance, on
Our quarterly actuarial work, where we review, where we think things are going in our own trends and that in.
And that so.
The same the same thing applies for instance on.
Speaker 3: Specialty Human Services, which is our non-profit part of our business. Our perspective loss ratio trend pick is around 8% on that business, just with
Specialty human services, which is our nonprofit part of our business are prospective loss ratio trend pick is around 8% on that business just with.
Speaker 3: you know, the trends that we see on that. Our business is doing fine and is, you know, earning targeted returns in that, but, you know, based off of what we see out there and with
The trends that we see that our business is doing fine and as earning targeted returns in that but.
Based off of what we see out there and.
With.
Speaker 3: You know, the severity on claims and that whole sector, you know, we're just being we think we're being prudent and how we're looking at that. So each business is a little bit different in that, you know, you go to a business like workers comp.
The severity.
On claims in that whole sector.
Just being we think we're being prudent in how we're looking at that so each business has a little bit different.
And that you go to a business like.
Workers' comp.
Speaker 3: in that. And, you know, in our workers' comp business, for instance, you know, the frequency is actually down.
And that.
And.
Our our workers' comp business for instance.
The frequency is actually down.
Speaker 3: And the severity is normalizing now in that. But when you take a look at the positive impact, I think, that I just mentioned from exposure change, wage inflation, and that.
And the severity is normalizing now.
On that but when you when you take a look at the positive impact I think that I just mentioned from exposure change wage inflation in that.
Speaker 3: The overall loss ratio
The overall loss ratio.
Speaker 3: loss ratio trend, you know, there is pretty stable.
Loss ratio trend.
There is.
Pretty stable.
Speaker 6: And Carla, I appreciate it, and the colors helpfully, and you have also a unique commercial auto business, but maybe you can touch on commercial auto since there's some increasing chatter about some pressures there in terms of finding qualified drivers and then some changes in ages and the ability for drivers to, younger age drivers, to move interest rates.
Carla I appreciate it.
Colors hopefully.
You have also unique commercial auto business, but maybe you can touch on commercial auto.
There is some increasing chatter about.
Some pressures there in terms of finding.
Qualified.
Drivers and then some changes in ages and the ability for.
For drivers to.
Younger age drivers kit.
To move interest rate.
Speaker 3: Yes, I guess I, you know, I think in the previous questions and that my, you know, elevated severity continues to be a factor, as I mentioned, and we're continuing to, you know,
Yes.
And I think in the previous questions in that.
Elevated severity continues to be a factor as I mentioned and we're continuing to.
Speaker 3: take rate. I mentioned also because of the, you know, on the physical damage side, too, because of the cost of labor and and parts, you know, we're continuing to take rate there. So those those are the trends we're seeing on the severity side. Claims frequency has returned, you know, some, but still a slightly less than pre-pandemic levels. You know, if we go back to before the pandemic hit, though, about, you know, every
Take rate I mentioned also because of the on the <unk>.
Physical damage side too because of the cost of labor and parts.
We're continuing to take rate there. So those those are the trends we're seeing on the severity side claims frequency has returned.
But still a slightly less than pre pandemic levels. If we go back to before the pandemic hit.
So about every every month.
Speaker 3: Starting in about the second quarter of last year, the frequency has kind of ticked up higher than the year prior, and it seems like it's been on an upward trend.
Starting in about the second quarter of last year.
The frequency is kind of ticked up higher than the year prior and it seems like it's been on an upward trend.
Speaker 3: So even though we're making, we're meeting our, or beating our targeted returns in commercial auto, we're very, you know, very careful about, you know, continuing to take rate because, you know, on the frequency and severity side, you know, we're seeing the trends that require additional rate. So that's our perspective on that.
Even though we're making we're meeting or beating our targeted returns in commercial auto.
Very clear.
Very careful about.
<unk> to take rate because.
The frequency and severity side, we're seeing the trends that require additional rate so.
That's our perspective on that.
Speaker 6: Okay, great. And maybe one follow-up on capital, since this is another area we get a lot of questions on. In terms of the overall excess capital position of, I believe now, still over $2 billion, so a sizable amount.
Okay, Great and maybe one follow up on capital. Since this is another area, we get a lot of questions on in terms of the overall excess capital position of I believe now is still over $2 billion. So a sizable amount.
It is.
Speaker 6: is a good portion of it effectively trapped due to leveraged governors, and I'm appreciative of your guidance and there still will be plenty of capital return. But in thinking about the larger two-plus-billion-dollar number over the, you know, in the New York state, and I'm appreciative of your guidance and there still will be plenty of capital return.
A good portion of it effectively trapped due to leverage governors.
Appreciative of your guidance and there'll still be plenty of capital return.
Thinking about the larger two plus billion dollars number over that in the near term.
Speaker 5: Yeah, this is Craig. I wouldn't say that it's trapped permanently. There are levers we could pull to untrap it. I mean, main one being redeeming the debt issue that matures in 2026. So we said today that per our model that
Yes. This is Craig.
Wouldn't say that it's trapped.
Permanently there are levers we can pull to.
To untracked.
Main one being <unk>.
Redeeming the debt issue that matures in 2026.
So.
We said today that.
Per our.
Model that.
Speaker 5: Throughout 2022, by the end of 2022, we would have around $750 million to use to pay special dividends or repurchase shares.
Throughout 2022 by the end of 2022, we would have around $750 million to use to pay special dividends or repurchase shares.
If we would call the.
2026 debt issue and I'm, not saying that we're looking.
Looking to do that but if we had a great use for excess capital to repurchase shares pay special dividends or whatever.
It is callable.
But the $760 million would go to $1 billion seven at.
At the end of the year.
Speaker 3: so that the bulk of it would be unlocked if we would make a decision to to uh... i don't know what you think where rates are going you know if rates move up as everybody thinks uh... you know there could be better and better opportunities to repurchase you know some debt
So the bulk of it would be unlocked if we would make a decision to.
Two depending on where rates are going if rates move up as everybody. Thanks.
There could be better and better opportunities to repurchase.
Some debt.
Yes.
Speaker 6: And maybe lastly, and maybe if you discussed this already and I missed it, then you can let me know, but in terms of uses of excess capital, you know, you
And maybe lastly.
Maybe if you discussed this already and I missed it.
You can let me know, but in terms of uses of excess capital that you.
Speaker 6: There was an M&A deal you entered into recently, I think that was more technology, had more of a technology type of focus, and I believe there's a good deal of goodwill associated with that acquisition, but maybe you can kind of touch on that acquisition, what excites you about it, and whether, you know,
There was a.
M&A deal you entered into recently I think that was more technology.
I had more of a technology type of focus and I believe theres a good deal of goodwill associated with that acquisition, but maybe you can kind of touch on that acquisition.
What excites you about it and weather.
Speaker 6: There's other kind of maybe similar acquisitions that you're looking at that have more of a technology infrastructure lean to them.
There is others to kind of maybe similar.
Acquisitions that youre looking at that have more of a technology infrastructure lean to them.
Sure I mean.
Speaker 3: I don't think it's a, I wouldn't say that it's a important strategic
I don't think it's a I wouldn't say that I'd say.
Important strategic position of the company to be out there trying to buy insurer tax.
Speaker 3: position of the company to be out there trying to buy insure techs. And, you know, that's a significant component of our M&A. But when we see something that's, you know, when we believe in something like machine learning and artificial intelligence and, and the future of something like that, and also potentially
That's a significant component.
Of our M&A, but when we see something that's.
When we believe in something like machine learning and artificial intelligence and.
And the future of something like that and also potentially.
Speaker 3: Through that lens, the potential impact and improvement in our own business and the use of that across maybe 35 businesses, that part excites us. I think the other aspect.
Through that lens, the potential impact and improvement in our own business and the use of that across maybe 30 35 businesses.
That part excites us I think the other the other aspect.
Speaker 3: The other aspect of that is because of the VeriKai acquisition, we have the opportunity to start a new business unit, which is focused on the medical stop loss insurance business.
The other aspect of that is.
Because of.
The <unk> acquisition.
We have the opportunity to start a new business.
Unit, which is focused on the medical stop loss insurance business.
Speaker 3: Probably more of a focus on small and underserved risks. You know, when you look at the marketplace as a whole, but we would be using VeriKai's Predictive Risk Tool.
More of a focus on small and underserved risk when you look at.
The marketplace as a whole, but we would be using <unk> predictive risk tool.
Speaker 3: We began quoting and learning, you know, the business some in the fourth quarter.
We began quoting and learning.
The business some in the fourth quarter.
Speaker 3: The business is being done through a relationship with an MGU called Radian, which we have a minority investment, and we'll provide the paper for the business and we'll share risk 50-50.
The business is being done through a relationship with an MCU called Radian, which we have a minority investment and will provide the paper for the business and we'll share share risk 50 50.
Speaker 3: So in this case, I think we have the ability using VeriKai's technology and predictive risk tool to start a new business, which we think is good.
So in.
In this case I think we had the ability using <unk> technology and predictive risk tool to to start a new business, which.
We think is.
Speaker 3: in a potentially underserved market, and I think we may have the ability to...
In AG potentially underserved.
Market.
And I think we.
We may have the ability to.
Speaker 3: approach that market in a way that's, you know, a little bit different and would provide a competitive advantage long-term. Again, we'll be in a learning phase and there won't be much impact, you know, from the medical stop-loss business in 2022.
Approach that market in a way that's.
A little bit different and would provide a competitive advantage long term.
Again.
We will be in a learning phase and there won't be much impact.
From the medical stop loss business.
In 2022.
Speaker 3: I think, you know, 23 probably would be, you know, more, more meaningful to us. So I'm very excited about VeriChi will run on, you know, they'll run as an independent entity serving the, you know, the industry.
I think 23, probably would be.
More meaningful to us so very excited about <unk> will run on the run as an independent entity serving.
I think in the.
The industry and.
Speaker 3: We're excited about starting a medical stop-loss business. So we thought that, you know, it was kind of a unique opportunity from that standpoint. As far as, you know, opportunities, we're always, you know, looking at things to acquire.
We're excited about starting a medical stop loss business. So.
We thought that was kind of a unique opportunity.
From that standpoint as.
As far as.
Opportunities were always.
Looking at things.
So to acquire.
Speaker 3: We seem to be more successful over time in kind of the twenty to half a billion dollar you know kind of uh... category where they're not big auctions and that you know we think we consider ourselves very disciplined we we want to uh... invest in entities that can earn double-digit returns over time uh... and that so
We seem to be more successful over time in kind of the 'twenty to have a 1 billion dollar kind of category, where they're not big auctions and that in.
We think we consider ourselves very disciplined we want to invest in entities that can earn double digit returns over time.
So.
Speaker 3: You know, we have a high-quality portfolio of businesses already. I want to be careful right now, distracting our management team too much when...
We have a high quality portfolio of businesses already I want to be careful right now.
Distracting our management team too much wind.
Speaker 3: You know, there's a there's a bird in the hand with the market the way it is and the opportunity in a very broad based way for businesses to grow organically in that.
There's a there's a bird in hand.
With the market the way it is and the opportunity in a very broad based way for our businesses to grow organically.
And that.
Speaker 3: And, you know, when also with respects to our own stock, to the extent there's any any weakness in the market and opportunities.
And.
Also with respect to our own stock to.
To the extent, there's any any weakness in the market and opportunities.
Speaker 3: You know, I could argue that it's better to, you know, buy our equity at a...
I could argue that it's better to.
Bye bye.
Our equity.
At Ah.
Speaker 3: ten you know ten percent return including you know not considering the cash and all that versus going out and uh... taking the risk on buying you know some major entity uh... that you don't know very well and
10, 10% return, including.
Not considering the cash and all of that versus going out and taking the risk on buying.
Some major entity that you don't know very well.
Speaker 3: uh... you know where the return may not even be that uh... initially those are things that we we think about and consider and certainly you can see last year we've been very aggressive on returning capital to shareholders through special dividends where that makes sense
Where the return may not even be that.
Initially so those are things that we think about and consider and certainly you can see last year, we've been very aggressive on returning capital to shareholders through special dividends.
Where that makes sense.
Very helpful. Thank you.
Speaker 1: Thank you. I'm showing no further questions in the queue. At this time, I'd like to turn the call back over to Ms. Diane Widener for any closing...
Thank you.
Im showing no further questions in the queue at this time I would like to turn the call back over to Diane Weidner for any closing remarks.
Speaker 2: Thank you, Delham, and thanks to all of you on the call for your time today. We look forward to talking with you again next quarter when we share our first quarter 2020-2022 results. Thank you so much, and have a great day, everyone.
Thank you Dan and thanks to all of you on the call for your time today, we look forward to talking with you again next quarter when we share our first quarter 2000, 22022 readouts. Thank you so much and have a great day everyone.
Speaker 1: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker 7: Thank you for watching.
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Paul.
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