Q4 2021 Employers Holdings Inc Earnings Call
Good day, and thank you for standing by and welcome to the Q4 2021 Employers Holdings, Inc Earnings Conference call at.
At this time all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session to ask a question during that session you will need to press star one telephone.
Please be advised that today's conference is being recorded and if you require any assistance during the call. Please press star zero.
I would now like to handle conference over to your speak today, Ms. Lori Brown General Counsel Ms. Brown the floor is yours.
Thank you Chris.
And welcome everyone to the fourth quarter 2021 earnings call for employers today's call is being recorded and webcast from the investors section of our website, where a replay will be available following the call presenting today on the call will be Kathy <unk>, our chief Executive Officer, and Mike Paquette, Our Chief Financial Officer.
Statements made during this conference call that are not based on historical facts are considered forward looking statements.
Statements are made in reliance on the safe Harbor provision of the private Securities Litigation Reform Act of 1095, although we believe the expectations expressed in our forward looking statements are reasonable risks and uncertainties could cause actual results to be materially different from our expectations, including the risks set forth in our <unk>.
Fillings with the Securities and Exchange Commission.
All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments.
The company also uses its website as a means of disclosing material nonpublic information and for complying with disclosure obligations under SEC's regulation FD such disclosures will be included in the investors section of the company's website accordingly investors should monitor that portion of the company's website.
In addition to following the company's press releases SEC filings.
<unk> conference call and webcast.
In our earnings press release, and in our remarks or responses to questions. We may use non-GAAP financial metrics reconciliations of these non-GAAP metrics to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation and any other material.
<unk> available in the investors section on our website now I will turn the call over to Kathy.
Thank you Laurie and thanks to everyone for joining us today.
On today's call, Mike and I will outline our financial results for the fourth quarter of 2021 and discuss our observations of the current workers' compensation market.
2021 was a very successful year for employers and I want to take this opportunity to acknowledge and thank our employees and business partners, who have continued to deliver through difficult and rapidly changing times.
It is their hard work and persistence that has gotten us to this point and allowed us to emerge stronger and more resilient.
As I mentioned at the beginning of the year as the new CEO . My primary goal for the company in 2021 was to fully capitalize on the upcoming labor market improvement, while continuing to maintain underwriting discipline and actively manage our expenses.
I am happy to report that we achieved that goal.
In terms of capitalizing on improving conditions, our gross written premiums in 2021 were up 2% versus those of a year ago, while pandemic related shutdowns negatively impacted our premium writings during the first half of the year, we turned a corner during the second half of 2021.
Our gross written premiums were up 15% year over year.
This strong rebound primarily resulted from improved labor market conditions, and our appetite expansion into new markets still within our established low hazard groups.
Those included landscaping residential janitorial and several artisan contracting classes.
We ended the year, providing coverage to a record number of in force policies. The significant growth in policy count we experience positions us well for premium growth as wages rise and employment levels improve.
These dual forces are expected to bring further improvement to our topline.
And supported this expectation we remain committed to providing a seamless customer experience for our independent and digital agent.
Throughout the year, we continued our underwriting discipline and observed consistent declines in frequency for lost time claims.
As a result, we maintained our current accident year loss and LAE ratio on voluntary business at 63, 5% down from 64, 3% for all of 2020.
We also reduced our loss reserves for prior accident years by $24 million this quarter, which related to nearly every accident year prior to 2018.
In addition, I am pleased to report that our commitment to actively managing our expenses resulted in a 10% year over year reduction in fourth quarter expenses.
This meaningful decrease was primarily a result of targeted fixed expense savings employee reductions in departures and a reduction in assessments.
And finally as a result of the growth in written premium and reduction in expenses that we have achieved in recent quarters. We began 2022 with a significantly lower expense ratio.
With that Mike will now provide a further discussion of our financial results and then I'll return to provide my closing remarks, Mike.
Thank you Kathy.
During the fourth quarter, we delivered a nine 5% annualized return on adjusted equity and a combined ratio of 82, 4% within our largest operating segment employers.
For the quarter, our net premiums earned were $156 million.
Versus the $152 million a year ago. This marks the second consecutive quarter in which our earned premium increased year over year.
Our strong premium writings during the second half of the year were due to appetite expansion efforts continued strong new business writings, particularly in California, and further audit premium recognition.
Our losses and loss adjustment expenses were $71 million.
Versus $48 million a year ago.
The increase was primarily the result of less loss reserve development recognized during the current period.
During the fourth quarter of 2021, we reduced our prior year loss reserves by $24 million, while during the fourth quarter of 2020, we reduced our current and prior year loss reserves by $46 million.
Commission expenses were $21 million versus $19 million a year ago.
The increase was the result of increased commissions on new business writings, and a greater amount of earned premium.
Underwriting and general administrative expenses were $39 million.
Versus $43 million a year ago. The decrease resulted from targeted targeted expense savings employee.
Reductions in departures, which reduced our fixed expenses, such as compensation and professional fees as well as a reduction in assessments.
From a reporting segment perspective, our employer segment had underwriting income of $28 million for the quarter versus $45 million a year ago and its combined ratios were 82, 4% and 72% respectively.
Our <unk> segment had an underwriting loss of $3 2 million for the quarter.
Down from an underwriting loss of $4 6 million a year ago.
We remain very enthusiastic about <unk> premium writings, which have consistently increased over the past several months and also into 2022 to date.
Turning to investments our net investment income was $18 million for the quarter consistent with that of the fourth quarter of last year and our average book yield was 3% at year end.
Also at year end, our fixed maturities had a duration of three four and an average credit quality of a plus and our equity securities and other investments represented 14% of our total investment portfolio.
Our net income this quarter was favorably impacted by $25 million of net after tax unrealized gains from equity securities and other investments, which are reflected on our income statement and our stockholders equity and book value per share. This quarter were each unfavorably impacted by $22 million of after tax unrealized losses from.
Fixed maturity securities, which are reflected on our balance sheet.
During the quarter, we repurchased $8 $9 million of our common stock at an average price per share of $39 63, and since year end, we bought a further $3 4 million of stock at an average price of $38 33 per share.
Our remaining share repurchase authorization currently stands at $24 5 million.
And yesterday, our board of directors declared a first quarter 2022 dividend of <unk> 25 per share, which is payable on March 15th to shareholders of record on March 1st.
Now I'll turn it back to Cathy.
Thanks, Mike.
My primary goal for the company in 2022 is to achieve greater economies of scale by growing the top line for both employers and CRT, while maintaining the underwriting and expense discipline, we achieved in 2021.
Our balance sheet and capital position are very strong and are highly supportive of these key initiatives.
As a specialist in small business workers' compensation, we are well positioned to react to the favorable trends, we're seeing and remain confident in our continued success.
And with that operator, we will now take questions.
Thank you.
As a reminder to ask a question you will need to press star one on your <unk>.
Telephone to withdraw your question. Please press the pound key standby.
Standby as we compile the Q&A Sir.
First question comes from Matt <unk> of JMP. Your line is open.
Hi, Thanks, good morning.
Good morning, Matthew.
Hey, good morning.
I was hoping you might be able to.
To help us better understand the composition of the topline growth.
I know, California kind of reopened.
On the latter part of the year, so I'd assume a bit of that attached to that but more specifically like how should we think about that kind of 14%, 15% and what's kind of new policies and new business kind of what is existing customers adding.
Adding employees are ours.
Are you seeing anything in terms of just straight wage inflation, yet and of course, making the assumption that it's not yet pricing, but if it is deal. Please correct me.
Okay. Yeah sure. So you mentioned, California, California remains at 45% of our book So while we are seeing growth in California. We're also seeing growth in other states to an extent that we're maintaining.
That balance as California is.
Book.
As in total so.
I think I have mentioned in the past, we reduced rates in California effective February one.
And so that combination of lower rates and appetite expansion and as you mentioned the lower restrictions on business.
<unk> increased our California submissions quotes and bonds.
And that led to a pretty significant increase in Q4, California, new business premium relative to Q4 of 2020.
Yeah.
As far as.
What we're seeing from.
Other sources of premium growth, we did increase our audit accrual.
In the fourth quarter, we had increased it to $4 $7 million from zero in the third quarter and.
In the fourth quarter, we brought that up to $12 $3 million. So that is also some of the growth that youre seeing there.
We're continuing to see a favorable shift that I had mentioned.
The third quarter earnings call the shift from audit returns to audit pick ups.
So to give you a sort of an indication of how audit trends have changed.
For the third quarter, we had about $4 million of audit returns, but for the fourth quarter. There was about 1 million and a half of audit pick up.
Okay. That's helpful.
Great and then just one other question. This one more around kind of the current labor market.
It seems to be a tight labor market and a lot of places.
What are you seeing or do you have I guess the question is are you seeing anything or do you have any concern around.
You are insured hiring people that are unqualified for up for skilled position.
Or are we at that kind of that point of a tight labor market are you not seeing that or not concerned about that.
We're not seeing anything as of yet in terms of unskilled hires at increasing or having an impact on our frequency or severity.
We really believe that the upward shift in employment levels and wages should impact our policies.
With our focus in restaurant and hospitality.
Really to a greater than average extent as the economy continues to improve.
Just as we were impacted to a greater extent when the economy deteriorated. So so we feel like we will be seeing that upward shift.
The January jobs report was really favorable and there was a material revision to November and December job numbers and so the signals are that the recovery may have been a little bit steadier than the fourth quarter then.
Experts had originally believed and.
That sort of dovetails with what we're seeing.
And what I was just mentioning as far as what we're seeing with audit pickups as opposed to audit returns.
So not seeing anything at this point from an economic standpoint are or hiring of unskilled labor that would be impacting our frequency or severity.
Okay, great well, thank you for the color and congrats on a nice end of the year.
Thank you.
Thank you.
Our next question comes from Mark Hughes of Truth. Your line is open.
Yes. Thank you good morning.
Good morning.
Kathy.
I'm not sure whether you touched on the state of competition or if you could elaborate a little bit kind of what are you seeing in the competitive environment now versus the.
Three six months ago.
Yes.
Yeah. So you know from a pricing standpoint, we would continue to characterize the environment as fairly competitive.
And I mentioned last quarter, there is some irrational competitive behavior in the market from a few actors and that is continuing into the fourth quarter.
Again, some of the market surveys are reporting that the fourth third quarter pricing was kind of flat maybe very very.
Low small decreases like less than 1%.
But our average pricing across our renewal book.
In the fourth quarter showed an overall rate decrease of about 5% for the three months ended December 31.
Okay.
Okay and then.
I think you had mentioned in the release of January was strong you mentioned on the call as well.
It sounds like a good chunk of your growth in the fourth quarter came from the audit.
What.
How do you think Q1 is shaping up maybe I'll ask.
How has new business grew.
Looking in January .
Q1 going to be another double digit quarter.
That's very little too far, but I'm just trying to.
See what you might be able to share.
Yeah. So we do feel like we had a strong January we're continuing to see some of the trends that we have that we saw in the fourth quarter in terms of favorable audit pickups, and so forth and the market reopening seems to be.
Showing some favorable results from new business written premium.
Okay, and then what's your sense of.
When we think about in CCI loss costs.
How do you think those will progress.
Year goes forward.
Yeah, It's an interesting question.
When we look back over the last 12 months or so that the impact of Europe changes for the industries.
A decrease of about what I was saying we have seen in our pricing, which was about five 5%.
Those filings are reflecting the decrease in frequency and that would be long long history of a decrease in frequency I have to assume that adjustments are being made for.
The most recent points, where we saw a significant decrease in frequency.
During 2020 and that continued into 2021.
But it's hard for me to say what the filings are going to look like this year I'm certain that they will take that into consideration now.
And then relative to 2021.
The frequency with that down from 2020 or was that down from $20 million.
When you say that is down.
Yeah, so win win.
When looking at frequency for 2021, we've been comparing our accident year 'twenty, one numbers to accident year 2019, because we wanted to remove any distortions of Covid and 2020.
We've been seeing frequency relative to payroll down more than 20% in relative to premium down about 15%, but those numbers are over two years. So they are not annualized.
A two year change.
Yes.
And I'm sorry, what was the number you just gave us again.
For our book, we've seen frequency to payroll down about 20% over two years and to premium about 15.
Yeah.
Yes.
Okay, and then theyre not annualized so thats over a two year change.
So pretty substantial than severity I think.
Moderately can you throw any numbers.
<unk>.
Yeah.
Don't really have any numbers to share, but I mean, what I can say is that on the severity side we.
We're not really seeing anything to suggest severity concerns in our California book.
Non California, we are watching a little bit closer because it's showing some some upward movement, but at this point, we really don't feel like we have enough information to call. It a trend.
But rather something that we're just keeping an eye on.
If I'm thinking about it properly.
Frequency.
Premium was down 15%.
I assume that's why you're leaning into the market.
Getting a good growth is that fair way to look at them.
I'm, sorry can you repeat that.
Yes. Thank you.
If you are.
The currency to premium was down 15%.
Your severity is moderate.
It sounds like a pretty good environment.
And I'm, assuming that is contributing to your growth outlook.
The growth you've seen lately.
Yes, absolutely yes.
Okay.
Maybe.
Competition that youre seeing.
Even if it's a little aggressive may be rational with frequency, but I guess.
Who knows how frequency.
Turn out this year.
No.
Yes, I mean, I would have to assume at some point frequency will return to normal normal levels, but those normal levels have been.
A decrease in frequency for quite.
Some time now.
Yes, yes, okay, alright, thank you very much.
Thank you.
Thank you.
Again to ask a question you will need to press star one on your telephone.
Question. Please press the pound.
Our next question comes from Bob Farnam.
Of Boenning <unk> Scattergood.
Your line is open.
Thanks, and good morning.
Mike I know you've been working on lowering expenses for the last couple of years I'm, just curious and you've provided kind of.
Our trajectory going forward.
I'm curious kind of what you expect in 2022 in terms of expenses I don't know if youre, mostly the way through where the expense savings or if there's still more to come.
So Bob we did we did kind of give you a little bit of guidance last year.
The guidance was basically that the first quarter of last year was going to be a high watermark and that turned out to be correct second third and fourth quarters were pretty stable and.
Right now we're watching our fixed expenses very carefully.
Our goal is to try to maintain or reduce those in light of the additional premium writings that we have now of course variable expenses are things that we can't reasonably control those are premium taxes assessments bad debts.
Policyholder dividends. So as we go into 2022 as Kathy mentioned, we've got a much lower base of fixed expenses.
We're going to do our best to maintain that or even reduce it.
And what Youre going to see in terms of the expense ratio for 2022 is going to be largely dependent on the increase in earned premium and Thats I think where you'll see the majority of the decrease for next year for this year right. So.
Thinking of in terms of the expense ratio. If your fixed expenses are going to be seeing consistent and you're growing the top line and you would think that the expense ratio can still tick down a bit.
Yes, we're in a position right now where we think we will start to benefit from economies of scale associated with that increase in earned premium.
Right, Okay, and second question I know I, probably ask every quarter, but Saturday.
Still.
Three and a half $3 3 million of expenses it seems flat with the third quarter.
Is there are there continued expense savings there or could you kind of got it.
Where you want it to be so curious how far you think it's going to go before you can actually turn a profit there.
Well, we're not going to get into deter.
Determining when we breakeven in that regard that's a complicated exercise and it's a little early to declare that but and.
In terms of expenses, we are integrating Saturday a bit more into into the employers world for cost savings.
And that's been a big driver in terms of that reduction in expenses that you are seeing in terms of what youre going to see for 2022, I think you can expect similar or the same with one exception and that is going to be advertising.
Depending on how we do in terms of our satisfaction with our advertising budget for this year, we may very well choose to spend more or less then than what we've done in prior years, but if we do spend more than our expenses become higher in 2022, then 'twenty one for Saturday we.
Believe that we will do that discretionary and we will do that only upon seeing value.
Okay.
I'm, assuming that your advertising thus far has been one of the reasons why you're seeing the growth there.
We we specifically went a little heavier with advertising than plan in the first half of last year and based on the success that we saw we kept that going in.
That amount, which was a significant reduction in terms of <unk> expenses from 2020 to 2021 did include a higher advertising budget and spend and we're watching that we've been very successful in January and February to date and again, what's nice about the advertising is discretionary and we will.
Only spend it to the extent we see value.
Okay.
You mentioned securities Youre, the platforms of kind of sharing some sort of resources here can you just give us an idea of what synergies you are getting between charity and employers and kind of what you expect going forward.
I'm, not really going to get into what to expect going forward, but.
We are looking.
Looking at their technology is kind of a ahead of ours and we are now in the process of reevaluating our technology in light of what we're seeing there.
Things like premium audit and other areas. We can we can do centralized.
It's really just taking a look at what we can do as a group as opposed to doing something similar or separately for direct versus versus agency business.
It's really back office and platform related.
Okay, great. Thanks for the answers.
Thank you.
And I'm seeing no further questions in the queue.
Ill turn the call back to Kathy Antonello for closing remarks.
Okay, well. Thank you all for joining us this morning, and I look forward to meeting with you again in April .
Okay.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
Okay.
Yes.
Yes.
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Yes.
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Yes.
Good day, and thank you for standing by and welcome to the Q4 2021 Employers Holdings, Inc Earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during that session you will need to press star one telephone.
Please be advised that today's conference is being recorded and if you require any assistance during the call. Please press star zero.
I would now like to hand, the conference over to your speak today.
Lori Brown General Counsel Ms Brown the floor is yours.
Thank you Chris.
Morning, and welcome everyone to the fourth quarter 2021 earnings call for employers today's call is being recorded and webcast from the investors section of our website, where a replay will be available following the call.
Presenting today on the call will be Kathy Antonello, our Chief Executive Officer, and Mike Paquette, Our Chief Financial Officer statements made during this conference call that are not based on historical facts are considered forward looking statements. These statements are made in reliance on the safe Harbor provision of the private Securities Litigation Reform Act.
1995, although we believe the expectations expressed in our forward looking statements are reasonable risks and uncertainties could cause actual results to be materially different from our expectations, including the risks set forth in our filings with the Securities and Exchange Commission.
All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments.
The company also uses its website as a means of disclosing material nonpublic information and for complying with disclosure obligations under SEC's regulation FD such disclosures will be included in the investors section of the company's website accordingly investors should monitor that portion of the company's website.
In addition to following the company's press releases and SEC filings.
<unk> conference call and webcast.
In our earnings press release, and in our remarks or responses to questions. We may use non-GAAP financial metrics.
Conciliation of these non-GAAP metrics to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation and any other materials available in the investors section on our website now I will turn the call over to Kathy.
Thank you Laurie and thanks to everyone for joining us today.
On today's call, Mike and I will outline our financial results for the fourth quarter of 2021 and discuss our observations of the current workers' compensation market.
2021 was a very successful year for employers and I want to take this opportunity to acknowledge and thank our employees and business partners, who have continued to deliver through difficult and rapidly changing times.
It is their hard work and persistence that has gotten us to this point and allowed us to emerge stronger and more resilient.
As I mentioned at the beginning of the year as the new CEO . My primary goal for the company in 2021 was to fully capitalize on the upcoming labor market improvement, while continuing to maintain underwriting discipline and actively manage our expenses.
I am happy to report that we achieved that goal.
In terms of capitalizing on improving conditions, our gross written premiums in 2021 were up 2% versus those of a year ago, while pandemic related shutdowns negatively impacted our premium writings during the first half of the year, we turned a corner during the second half of 2021.
Our gross written premiums were up 15% year over year.
This strong rebound primarily resulted from improved labor market conditions, and our appetite expansion into new markets still within our established low hazard groups.
Those included landscaping residential janitorial and several artisan contracting classes.
We ended the year, providing coverage to a record number of enforced policies. The significant growth in policy count we experience positions us well for premium growth as wages rise and employment levels improve.
These dual forces are expected to bring further improvement to our top line and.
And supported this expectation we remain committed to providing a seamless customer experience for our independent and digital agents.
Throughout the year, we continued our underwriting discipline and observed consistent declines in frequency for lost time claims.
As a result, we maintained our current accident year loss and LAE ratio on voluntary business at 63, 5% down from 64, 3% for all of 2020.
We also reduced our loss reserves for prior accident years by $24 million this quarter, which related to nearly every accident year prior to 2018.
In addition, I am pleased to report that our commitment to actively managing our expenses resulted in a 10% year over year reduction in fourth quarter expenses.
This meaningful decrease was primarily a result of targeted fixed expense savings employee reductions in departures and a reduction in assessments.
And finally as a result of the growth in written premium and reduction in expenses that we have achieved in recent quarters. We began 2022 with a significantly lower expense ratio.
With that Mike will now provide a further discussion of our financial results and then I'll return to provide my closing remarks, Mike.
Thank you Kathy.
During the fourth quarter, we delivered a nine 5% annualized return on adjusted equity and a combined ratio of 82, 4% within our largest operating segment employers.
For the quarter, our net premiums earned were $156 million.
Versus $152 million a year ago. This marked the second consecutive quarter in which our earned premium increased year over year.
Our strong premium writings during the second half of the year were due to appetite expansion efforts continued strong new business writings, particularly in California, and further audit premium recognition.
Our losses and loss adjustment expenses were $71 million versus $48 million a year ago.
The increase was primarily the result of less loss reserve development recognized during the current period.
During the fourth quarter of 2021, we reduced our prior year loss reserves by $24 million, while during the fourth quarter of 2020, we reduced our current and prior year loss reserves by $46 million.
Commission expenses were $21 million versus $19 million a year ago.
The increase was the result of increased commissions on new business writings, and a greater amount of earned premium.
Underwriting and general administrative expenses were $39 million.
Versus $43 million a year ago. The decrease resulted from targeting targeted expense savings employee.
Reductions in departures, which reduced our fixed expenses, such as compensation and professional fees as well as a reduction in assessments.
Yes.
From a reporting segment perspective, our employer segment had underwriting income of $28 million for the quarter versus $45 million a year ago and its combined ratios were 82, 4% and 72% respectively.
Our surety segment had an underwriting loss of $3 2 million for the quarter.
Down from an underwriting loss of $4 6 million a year ago, we remained.
Very enthusiastic about <unk> premium writings, which have consistently increased over the past several months and also into 2022 to date.
Turning to investments our net investment income was $18 million for the quarter consistent with that of the fourth quarter of last year and our average book yield was 3% at year end.
Also at year end, our fixed maturities had a duration of three four and an average credit quality of a plus and our equity securities and other investments represented 14% of our total investment portfolio.
Our net income this quarter was favorably impacted by $25 million of net after tax unrealized gains from equity securities and other investments, which are reflected on our income statement and our stockholders equity and book value per share. This quarter were each unfavorably impacted by $22 million of after tax unrealized losses from <unk>.
Maturity Securities, which are reflected on our balance sheet.
During the quarter, we repurchased $8 9 million of our common stock at an average price per share of $39 63.
And since year end, we bought a further $3 4 million of stock at an average price of $38 33 per share.
Our remaining share repurchase authorization currently stands at $24 5 million.
And yesterday, our board of directors declared a first quarter 2022 dividend of <unk> 25 per share, which is payable on March 15th to shareholders of record on March 1st I'd now I'll turn it back to Cathy.
Thanks, Mike.
My primary goal for the company in 2022 is to achieve greater economies of scale by growing the top line for both employers and CRT, while maintaining the underwriting and expense discipline, we achieved in 2021.
Our balance sheet and capital position are very strong and are highly supportive of these key initiatives.
As a specialist in small business workers' compensation, we are well positioned to react to the favorable trends, we're seeing and remain confident in our continued success.
And with that operator, we will now take questions.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound key.
Standby as we compile the Q&A Sir.
First question comes from Matt <unk> JMP Your line is open.
Hi, Thanks, good morning.
Good morning, Matthew.
Hey, good morning.
I was hoping you might be able to.
To help us better understand the composition of the topline growth.
I know, California kind of reopened.
On the latter part of the year, so I'd assume a bit of that attached to that but more specifically like how should we think about that kind of $14, 15% and what's kind of new policies or new business kind of what is existing customers.
Adding employees of ours are.
Are you seeing anything in terms of just straight wage inflation yet.
And of course, making the assumption that it's not yet pricing.
But if it is deal please correct me.
Okay, Yes, sure. So you mentioned, California, California remains at 45% of our book So while we are seeing growth in California. We're also seeing growth in other states to an extent that we're maintaining.
That balance as California is.
In our book as.
In total.
<unk>.
I think I have mentioned in the past, we reduced rates in California effective February 1st.
And so that combination of lower rates and appetite expansion and as you mentioned the lower restrictions on business.
Has increased our California submissions quotes and bonds.
And that led to a pretty significant increase in Q4, California, new business premium relative to Q4 of 2020.
As far as.
What we're seeing from.
Other sources of premium growth, we did increase our audit accrual.
In the fourth quarter, we had increased it to $4 $7 million from zero in the third quarter.
In the fourth quarter, we brought that up to $12 $3 million. So that is also some of the growth that youre seeing there.
We're continuing to see a favorable shift that I had mentioned.
The third quarter earnings call the shift from audit returns to audit pick ups.
So to give you sort of an indication of how audit trends have changed.
For the third quarter, we had about $4 million of audit returns, but for the fourth quarter, there was about $1 million and half of audit pickup.
Yes.
Okay. That's helpful.
Great and then just one other question. This one more around kind of the current labor market.
Yes.
Seems to be a tight labor market and a lot of places.
What are you seeing or do you have I guess the question is are you seeing anything or do you have any concern around.
Your insureds hiring people that are unqualified for skilled position.
Are we at that kind of that point of a tight labor market are you not seeing that or not concerned about that.
We're not seeing anything as of yet in terms of unskilled hires increasing or having an impact on our frequency or severity.
We really believe that the upward shift in employment levels and wages.
Should impact our policies.
With our focus in restaurant and hospitality.
Really to a greater than average extent as the economy continues to improve.
Just as we were impacted to a greater extent when the economy deteriorated. So so we feel like we will be seeing that upward shift.
The January jobs report was really favorable and there was a material revision.
Remember in December job numbers, and so the signals are that the recovery may have been a little bit steadier than the fourth quarter then.
Experts had originally believed and that sort of dovetails with what we're seeing.
And what I was just mentioning as far as what we're seeing with audit pickups as opposed to audit returns.
So not seeing anything at this point from an economic standpoint are or hiring event skilled labor that would be impacting our frequency or severity.
Okay, great well, thank you for the color and congrats on a nice end of the year.
Thank you.
Yes.
Thank you.
Our next question comes from Mark Hughes of Truest. Your line is open.
Yes. Thank you good morning.
Good morning.
Kathy.
Could you I am not sure whether you touched on the state of competition or if you could elaborate a little bit kind of what are you seeing in the competitive environment now versus the.
Three six months ago.
Yes.
Yeah, so from a pricing standpoint, we would continue to characterize the environment as fairly competitive.
And I mentioned last quarter, there are some irrational competitive behavior in the market from a few actors and that is continuing into the fourth quarter.
Again, some of the market surveys are reporting that the fourth third quarter pricing was kind of flat maybe very very.
Low small decreases like less than 1%.
But our average pricing across our renewal book.
In the fourth quarter showed an overall rate decrease of about 5% for the three months ended December 31.
Okay and then.
I think you had mentioned in the release of January was strong you mentioned on the call as well.
So it sounds like a good chunk of your growth in the fourth quarter came from the audit.
What.
How do you think Q1 is shaping up maybe I'll ask.
How has new business grew.
Looking in January .
Q1 is going to be another double digit quarter.
That's a little too far, but I'm just trying to.
See what you might be able to share.
Yes, so we do feel like we had a strong January we're continuing to see some of the trends that we had that we saw in the fourth quarter.
In terms of favorable audit pickups, and so forth and the market reopening seems to be.
Showing some favorable results from new business written premium.
Okay.
What's your sense of.
When we think about in CCI loss costs.
How do you think those will progress.
Year goes forward.
Yeah, It's an interesting question.
When we look back over the last 12 months or so the impact of Europe changes for the industries and it's been a decrease of about what I was saying we have seen in our pricing, which was about five 5%.
Those filings are reflecting the decrease in frequency and that would be long long history of a decrease in frequency I have to assume that adjustments are being made for.
The most recent points, where we saw a significant decrease in frequency.
During 2020 and that continued into 2021.
But it's hard for me to say what the filings were going to look like this year I'm certain that they will take that into consideration now.
And then relative to 2021.
Frequency was that down from 2020 or was that down from $20 million.
When you say it is down.
Yeah, so when when looking at frequency for 2021, we've been comparing our accident year 'twenty, one numbers to accident year 2019, because we wanted to.
Remove any distortions of Covid and 2020.
We've been seeing frequency relative to payroll down more than 20% in relative to premium down about 15%, but those numbers are over two years. So they are not annualized.
A two year change.
And I'm sorry, what was the number you just gave again.
For our book, we've seen frequency to payroll down about 20% over two years and to premium about 15.
Yes.
Okay, and those are not annualized so thats over a two year change.
So pretty substantial than severity I think.
Up moderately can you throw any numbers the severity.
Yeah, I don't really have any numbers to share, but I mean, what I can say is that on the severity side.
We're not really seeing anything to suggest.
Severity concerns in our California book.
Non California, we are watching a little bit closer because it's showing some some upward movement, but at this point, we really don't feel like we have enough information to call. It a trend.
But rather something that we're just keeping an eye on.
Okay.
If I'm thinking about it properly.
And frequency.
Premium is down 15%.
I assume that's why you're leaning into the market.
Getting a good growth is that fair way to look at them.
I'm, sorry can you repeat that.
Yes.
If you are.
Frequency to premium was down 15%.
Your severity is moderate.
It sounds like a pretty good environment.
And I'm, assuming that is contributing to your more.
More growth outlook.
<unk>.
The growth you've seen lately.
Yes, absolutely yes.
Okay.
So maybe the competition that youre seeing maybe.
Even if it's a little aggressive may be rational with frequency, but I guess.
How frequently will turn out this year.
So.
Yes, I mean, I would have to assume at some point frequency will return to normal normal levels.
Those normal levels have been.
A decrease in frequency for quite.
Some time now.
Yes, yes, okay, alright, thank you very much.
Thank you.
Thank you.
Again to ask a question Youll need to press star one on your telephone to withdraw your question. Please press the pound.
Our next question comes from Bob Farnam of.
Boenning Scattergood.
Your line is open.
Thanks, and good morning.
Mike I know you've been working on lowering expenses for the last couple of years I'm, just curious and you've provided kind of.
Our trajectory going forward.
I'm curious kind of what you expect in 2022 in terms of expenses I don't know if youre, mostly the way through where the expense savings or if there's still more to come.
So Bob we did we did kind of give you a little bit of guidance last year.
The guidance was basically that the first quarter of last year was going to be our high watermark and that turned out to be correct second third and fourth quarters were pretty stable and.
Right now we're watching our fixed expenses very carefully.
Our goal is to try to maintain or reduce those in light of the additional premium writings that we have now of course variable expenses are things that we can't reasonably control those are premium taxes assessments bad debts.
Policyholder dividends. So as we go into 2022 as Kathy mentioned, we've got a much lower base of fixed expenses.
We're going to do our best to maintain that or even reduce it.
And what Youre going to see in terms of the expense ratio for 2022 was going to be largely dependent on the increase in earned premium and Thats I think where youll see the majority of the decrease for next year or for this year right. So.
Thinking of in terms of the expense ratio. If your fixed expenses are going to be seeing consistent and youre growing the topline and you would think that the expense ratio can still ticked down a bit.
Yes, we're in a position right now where we think we will start to benefit from economies of scale associated with that increase in earned premium.
Alright, Okay, and second question I know I, probably ask every quarter, but Saturday.
It's still <unk>.
Three and a half $3 3 million of expenses it seems flat with the third quarter.
Is there are there continued expense savings there or could you kind of got it.
And where you want it to be and I'm just curious how far you think it's going to go before you can actually turn a profit there.
Well, we're not going to get into <unk>.
Determining when we breakeven in that regard that's a complicated exercise and it's a little early to declare that but and.
In terms of expenses, we are integrating Saturday a bit more into into the employers world for cost savings.
And that's been a big driver in terms of that reduction in expenses that youre seeing in terms of what youre going to see for 2022, I think you can expect similar or the same with one exception and that is going to be advertising.
Depending on how we do in terms of our satisfaction with our advertising budget for this year, we may very well choose to spend more or less then than what we've done in prior years, but if we do spend more than our expenses become higher in 2022, then 'twenty one for Saturday we.
Believe that we'll do that in discretionary and we will do that only upon seen value.
Okay.
Assuming that your advertising thus far has been one of the reasons why you're seeing the growth there.
We we specifically went a little heavier with advertising than plan in the first half of last year and based on the success that we saw we kept that going and that.
That amount, which was a significant reduction in terms of <unk> expenses from 2020 to 2021 did include a higher advertising budget and spend and we're watching that we've been very successful in January and February to date and again, what's nice about the advertising is discretionary and we will only spend it.
To the extent, we see value.
Okay.
You mentioned securities.
The platforms of kind of sharing some sort of resources here can you just give us an idea of what synergies you are getting between charity and employers and kind of what you expect going forward.
I'm not really going to get into what to expect going forward, but we are we are looking at their technology is kind of a ahead of ours and we are now in the process of reevaluating our technology in light of what we're seeing there.
Like premium audit and other areas. We can we can do centralized it's really just taking a look at what we can do as a group as opposed to doing something similar or separately for direct versus versus agency businesses.
It's really back office and platform related.
Okay, great. Thanks for the answers.
Thank you.
And I'm seeing no further questions in the queue.
On the call back to Kathy Antonello for closing remarks.
Okay, well. Thank you all for joining us this morning, and I look forward to meeting with you again in April .
Okay.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.