Q1 2022 CNA Financial Corp Earnings Call
Good morning, and welcome to Cna's discussion of its 2022 first quarter financial results Cna's first quarter earnings release presentation and financial supplement were released this morning and are available via its website www CNA dotcom speaking today will be Dino Robusto speed.
As chairman and Chief Executive Officer, and Scott Linquist C N as Chief Financial Officer. Following their prepared remarks, we will be opening the line for questions.
Today's call May include forward looking statements are references to non-GAAP financial measures any forward looking statements involve risks and uncertainties that may cause actual results to differ materially.
From the statements made during the call.
Information concerning those risks is contained in the earnings release and Cna's. Most recent SEC filings. In addition, the forward looking statements speak only as of today Monday may the second 2022.
CNA expressly disclaims any obligation to update or revise any forward looking statements made during the call.
Regarding non-GAAP measures reconciliations to the most comparable GAAP measures and other information have been provided in the financial supplement.
The call is being recorded and webcast. During the next week the call may be accessed on Cna's website. If you are reading a transcript of this call. Please note that the transcript may not be reviewed for accuracy. Thus it may contain transcription errors that could materially alter the intent of meeting of the statements with that I'll now turn the conference over to <unk>.
As chairman and CEO Dino Robusto. Please go ahead Sir.
Thank you Cecilia and good morning all.
We started off the year strong.
With increased underlying P&C profitability.
Our catastrophe losses and good production results.
But before we begin with the details.
I wanted to acknowledge.
The unconscionable loss of life and devastation in Ukraine.
Our hearts reach out to the displaced and suffering.
Turning back to the quarter.
Core income was up 20%.
The $316 million.
Despite lower investment income from Lps and common stock.
In the first quarter. The all in combined ratio was 91, 9% six two points lower.
In the first quarter of 2021.
And our best quarterly all in combined ratio, it's the <unk>.
Third quarter of 2016.
Pre tax catastrophe losses were only $19 million or one point of the combined ratio.
The P&C underlying combined ratio was 91, 4%.
A half point improvement over the first quarter of 2021.
The expense ratio of 31% was lower by a half point and the underlying loss ratio of 61% was the same as the prior year quarter.
But as I've mentioned in prior quarters, the property quota share treaty that we purchased in June of last year.
Lower the premium mix between property business and our other classes.
And since our property business has a lower underlying loss ratio.
This mix effect increased overall P&C underlying loss ratio.
In the first quarter this mix effect on P&C overall was four three points.
So we actually recognized a 0.3 points of margin improvement in the quarter after adjusting for the mix.
There was margin improvement in specialty and international.
And accounting for the mix effect, which where commercial is 0.7 points the underlying loss ratio in commercial was consistent with the prior year's quarter.
For P&C overall prior period development was favorable by.
My 0.5 points on the combined ratio similar to the first quarter of 2021.
Now turning to production.
Gross written premium excluding our captive business grew by 8% in the first quarter and net written premium grew by 4%.
Excluding currency fluctuations the growth was 9% and 5% respectively.
The impact.
The property reinsurance structure change from June of last year also had the effect of widening the spread between gross and net written premium growth.
New business.
Grew by 14% this quarter $451 million retention was 83% this quarter and was up two full points in each of specialty and commercial compared to last quarter.
Exposure change was plus 2% this quarter.
The overall written rate increase was 7% this quarter down one point from last quarter.
While generally showing a moderating trend in aggregate the movement was buried in different parts of our portfolio.
Our commercial rate increase at plus 5%.
The same as it was in the fourth quarter of 2021.
Excluding workers' compensation, the commercial rate increase was plus 7%.
Also consistent with the last quarter.
Specialty achieved rate increases of 9% in the quarter.
This is down two points from the fourth quarter.
But about a half of this decline is due to the seasonality mix of business as our affinity professionally and all programs are a larger percentage of specialty renewal premiums in the first quarter.
Baird to the remainder of the year.
And these profitable programs have low single digit rate increases.
International rate increase of 9% model.
Moderated from the double digit highs, but remains strong and will continue to fuel the earned rate.
Which in the quarter was plus 13% for international.
Overall earned rate for P&C in total was plus 9% this quarter and still represents.
A meaningful gap above our loss cost trends, which now.
Between five and a half and 6% in aggregate.
Recall that during the third quarter of last year.
We spoke to you about how we raised our long run loss cost trend assumptions and property.
In response to the economic inflation, we were seeing at the time.
That put our overall loss cost trends assumptions at about 5%.
In the last six months the rate of economic inflation in the U S has accelerated.
And as the courts have started to reopen and slowly cleared the backlog and their dockets with it.
Carol inflation.
Which we consistently contended was merely obfuscated by the pandemic rather than extinguished.
<unk> remains an inflationary factor.
With three to three five point gap between nine points of earned rate and our lost cost trends.
We have continued to reflect the small portion of this implied margin. This quarter, we did so a 0.3 points.
For the full year of 2021, we recognized about six points of margin improvement in the underlying loss ratio, excluding the impacts of COVID-19 in the prior year.
We continue to remain prudent and reacting to margin improvement in our portfolio, because economic and social inflationary pressures may continue to increase or persist longer than anticipated making.
Making it difficult to know at this time, all actual margin will materialize overtime.
And if we have been too conservative we will benefit from the margin later on all else being equal.
Now, let me provide a little more detail on our three business units.
The all in combined ratio for specialty was 88, 7% in the first quarter, which is the seventh consecutive quarter below 90%.
The underlying combined ratio was 90% consistent with last year.
The underlying loss ratio improved by half a point to $58 nine as earned rates are exceeding loss cost trends.
The expense ratio of 39 is up slightly from the first quarter of 2021.
Gross written premiums ex captives grew by 8% in the first quarter and net written premium growth was 4%.
Specialty growth was negatively impacted by approximately three points this quarter.
The continuation of Nonrenewals in parts of our health care portfolio.
That I previously discussed.
Despite that retention still improved.
Two points this quarter, 85% and new business was up 41%.
Turning to commercial the all in combined ratio was 94, 5% in the quarter, including one eight points of Cat. This is the lowest all in quarterly combined ratio since 2008.
The underlying combined ratio was 92, 7%.
Underlying loss ratio of 61.5 is 0.7 points higher than the prior year quarter. However, as I mentioned earlier.
It is consistent year over year adjusting for the mixed impact of the property reinsurance program, we purchased last June .
The expense ratio improved by <unk> seven points to 37% in the first quarter.
Commercial gross written premium ex captives grew by 9% this quarter and net written premium growth was 4%.
Earned rates for commercial continue to remain strong at plus 7% in the quarter and plus 9% excluding workers' comp.
And based on the moderation of written rates, we've been experiencing commercial earned rates ex work comp, we believe would remain at or above loss cost trends for the remainder of 2022.
Additionally, some portion of the exposure increase which for commercial was 3% in the quarter good.
Good afternoon parable benefit to margin as rate increases do.
Even if we assume only a quarter of the exposure increased access rate.
Or roughly half of a point it is still quite meaningful in offsetting some of the long run loss cost trend increases this quarter.
We are experiencing mid single digit exposure changes in lines of insurance with inflation sensitive exposure bases like work comp and general liability.
We are also seeing exposure increases in property more consistently.
With insurance to value adjustments to reflect the current inflationary environment.
Commercial retention was up two points this quarter at 85% and was higher than any quarter since prior to the pandemic.
For international the all in combined ratio was 92, 4% this quarter.
This is the best all in combined ratio since 2016.
The underlying combined ratio was 91, 2%.
Reflecting two eight points of improvement from the prior year quarter.
The underlying loss ratio was 58.6%, including a full point of margin improvement.
Compared to last year and the expense ratio of 32, 6% is down almost two points.
In terms of the Russia, Ukraine wore our insurance exposure in Ukraine, and Russia is small and any impacts to our portfolio are expected to be de minimis.
International gross written premiums grew 6% or 9% excluding currency fluctuation.
Net written premiums grew 7% or 11%.
Excluding currency effects.
Retention of 73% for international this quarter.
It was lower due to some targeted non renewals in January where we couldnt secure a proper appropriate terms and conditions in the market.
Retention quickly improved to 80% for February and March.
Now as I mentioned last quarter, Scott linguist joined CNA early this year and formally transitioned into the CFO role in February .
Larry <unk> is also with us for his last call and he will be available for the Q&A portion of our call today with that.
I will turn it over to Scott.
Thanks, Dino and good morning, everyone.
Based on our 20% increase in core income or core R. O E of 10, 3% is up from eight 8% in the first quarter a year ago our.
Our P&C operations produced core income of $321 million, which is a 22% increase as compared to Q1 2021.
A key contributor to the strong result was our pretax underlying underwriting income of $165 million.
In addition, our catastrophe losses were relatively modest at $19 million pre tax.
Compared to $125 million pre tax last year first quarter.
Our Q1 expense ratio of 31% is in line with expectations that we set out in last quarter's call and as one half point lower than Q1 2021.
While we continue to make investments in technology analytics and talent.
And we are beginning to incur more <unk> as we emerge from the pandemic.
Lower acquisition costs, and commercial and the higher effect the effect of higher net earned premiums have more than offset the effect of these higher costs.
I will note there will be a certain amount of variability quarter to quarter. However.
However, we continue to believe in expense ratio of 31% is a reasonable run rate.
Yeah.
For the first quarter overall P&C net prior period development impact on the combined ratio was 0.5 points favorable compared to 0.6 points favorable in the prior year quarter.
Favorable development in our specialty segment was driven by surety and warranty for more recent accident years.
Somewhat offset by medical malpractice.
Our corporate and other segment produced a core loss of $28 million in the first quarter, which compares to a $36 million core loss in Q1 2021.
Prior quarter results include $12 million after tax loss on a loss portfolio transfer of certain legacy excess workers' compensation reserves.
For our licensed group, we had core income of $23 million for Q1 2022.
Which was $13 million lower than last year's Q1, primarily from lower investment income and higher expenses.
While we're on the topic of license group I'd like to comment on the approaching change in GAAP accounting methodology related to long duration targeted improvements.
That will apply to our long term care business, which we have set forth on pages 17, and 18 of our earnings presentation.
We will adopt this new accounting guidance effective January one 2023.
And we will apply it as of January one 2021.
Two years of adjusted financial results will therefore be included in our 2023 financial statements.
As we noted in last quarter's call. This change in accounting has no impact to the underlying economics with Cna's business.
This change in accounting requires entities to update discount rate assumptions on a quarterly basis, using an upper medium grade fixed income instrument yield.
New accounting also requires cash flow assumptions, which includes morbidity and persistency.
<unk> reviewed.
And if there is a change updated on at least an annual basis.
The effective changes in discount rate assumptions will be recorded in the other comprehensive income component of stockholders equity.
While the effect of changes in cash flow assumptions.
We will be recorded in the Companys results of operations.
The most significant impact at the transition date will be the effect of updating the discount rate assumptions to reflect a single a yield.
Rather than using the expected yield from our investment strategy.
This adjustment will be partially offset by the de recognition of shadow adjustments associated with long term care reserves.
As you can see on page 18 of the earnings presentation. We estimate the net impact of these changes will be a 2.2 to $2 5 billion dollar decrease of stockholders' equity as of the transition date of January one 2021.
As I mentioned, we will be adjusting our quarterly results from Q1 2021 through Q4 2022.
2022, when we implement the accounting change in 2023.
In a rising interest rate environment like we have seen over the past 15 months.
As the corporate single a rates increase the impact of the adoption decreases.
As an example, assuming March 31, 2022 interest rates were in place on January one 2021, we estimate the transition impact would have been significantly lower two a decrease of 121 $3 billion to stock.
Holders equity.
Corporate single a rates are substantially higher at March 31, 2022, then at January one 2021.
I do want to emphasize that this accounting pronouncement applies only to GAAP basis financial statements and has zero impact to the underlying economics of CNS business.
This change has no impact on statutory earnings capital or risk based capital metrics and has no impact on the dividend on the dividend capacity of our insurance underwriting subsidiaries.
As such this accounting change is viewed by us and the industry as non economic as none of the underlying fundamentals of the business or changed by it.
Turning to investments total pre tax net investment income was $448 million in the first quarter compared to $504 million in the prior year quarter.
The decrease was driven by our limited partnership and common stock returns, which generated $8 million of income in the current quarter compared to $61 million in the prior year quarter.
As a reminder.
<unk> equity funds, which represent about 70% of our LP portfolio.
Primarily report to us on a three month or greater lag.
So our results this quarter are primarily reflective of performance from Q4 2021.
Hedge funds were down for the quarter Directionally in line with markets and reflect mixed results for managers.
Hedge funds, which now represent about 30% of our LP portfolio predominantly report results on a real time basis.
Our fixed income portfolio continues to provide consistent net investment income slightly higher than the last few quarters in the prior year quarter.
We continue to benefit from higher invested asset base driven by strong operating cash flows.
As a point of reference our average book value has increased $1.4 billion.
From the prior quarter.
And while our average portfolio yields are lower relative to the prior year quarter.
I am pleased to note that in this current rising interest rate environment. We are now achieving significantly higher yields on reinvestment relative to the last several years.
In fact as of last week reinvestment rates are in average 50 basis points higher when compared to those we achieved this past first quarter just ended.
And we will take advantage of this as our bond portfolio matures.
Which is roughly on average 7% each year.
And as we put a significant portion of operating cash flows to work.
While the rising rate environment positively impacts the outlook for investment income from a balance sheet perspective. It has reduced our net unrealized investment gain position to $1 billion at quarter end. This.
This is down from $4 $4 billion at the end of the fourth quarter 2021.
I would like to note that interest rate driven fluctuations in market values do not impact how we manage our investment portfolio as we generally hold our fixed income securities to maturity.
Notwithstanding the decrease in our net unrealized gain position our balance sheet continues to be very solid.
At quarter end stockholders' equity excluding accumulated other comprehensive income was $12 $1 billion or $44 67 per share.
An increase of 2% from year and adjusting for dividends.
Stockholders equity, including a OCI, which reflects the reduction in net unrealized investment gains during the quarter was $10 $8 billion or $39 87 per share.
We continue to maintain a conservative capital structure, our leverage ratio of 20%.
<unk> continued to sustained capital above target levels in support of our ratings.
Yeah.
First quarter operating cash flow was strong once again at $645 million in.
And it was a result of solid underwriting and investment results.
In addition to strong operating cash flow, we continue to maintain liquidity liquidity in the form of cash and.
And short term investments and together they provide ample liquidity to meet obligations and withstand significant business variability.
Finally, we are pleased to announce our regular quarterly dividend of <unk> 40 per share, which will be payable on June <unk> to shareholders of record on may 16th.
With that I will turn it back to Dino Thanks, Scott.
Before opening the call to the Q&A session I have a few additional comments.
We are bullish about 2022.
Market conditions are excellent when you consider that rates are up plus 30% on accumulative basis.
Since the beginning of 2019 and we are benefiting.
From the compounding impacts of progressively better terms and conditions.
At that same time period from things like higher deductibles.
Coverage restrictions unlimited re profiling.
And our new business pricing as well as terms and conditions.
Track similar to renewals or new business rates are up substantially on a cumulative basis as well.
We believe these favorable conditions afford us the opportunity to continue to grow our portfolio through new business and strong retention.
A lot of the rate increases.
They hit their peak in the fourth quarter of 2020.
And have moderated at a measured pace of about one point per quarter to 7%.
In the first quarter of 2022.
With written rate increases still in excess of long run loss cost trends and earned rates at 9%.
This should portend positive margin persisting through 2022.
Of course, there could be further upward pressure on loss cost trends, but the market has behaved rationally the prior increases in loss cost trends.
That have either accelerated precipitously or persisted at elevated levels for a protracted period of time and we would anticipate.
The market pricing behavior would continue to react accordingly, if loss cost trends.
Accelerate further and with that we'll be happy to take your questions.
Thank you if you wish to ask a question at this time. Please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signature reach our equipment.
Star one to ask a question we will now take our first question from Josh Shanker from Bank of America. Please go ahead.
Yeah. Thank you for taking my question.
I appreciate the color on the on the alternative investment performance and about the hedge funds are.
A couple of questions. One is when we break it up into limited partnerships in hedge funds I mean limited partnerships for peers.
Fairly good return for Q.
Does that portend that the hedge fund performance in.
<unk> was.
Robin continues to be so.
Do we need to be concerned because in <unk>, we're going to see obviously the off.
Good morning, Hugh marks for limited partnerships do you have any sort of a color on how we should be anticipating that in one quarter had.
Hey, Josh its Scott Thanks for the question.
So if you take a look at our limited partnerships again, 70% or private equity.
This quarter results really reflect had fourth quarter overall market performance. So, yes, I would expect the second quarter.
Private equity lag limited partnerships to reflect the first quarter overall equity performance and of course, the hedge funds that those are real time flow right through earnings real time, and then I would note a $200 million of common stock Mark to market is within those results to that of course is real time also.
Okay and have you.
Real time, maybe have you seen any recovery on the hedge front side from the <unk> marks.
I don't know if I can really comment on that right at this point in time.
Okay, that's totally fair.
And.
I realized you had a huge influence on combined ratios.
The rate and loss cost trend don't really explain the whole story and you did explain that.
You know in the prepared remarks.
But I'd also say that the right next to last conference I think it's been the main story in P&C over last three years when I look at the commercial segments underlying 60 Q2 loss ratio. It's a very good number but it's also the highest since 2019 and it's really higher than the annual averages from 2016 to 2020.
I'm scratching my head a little.
You know what you think about maybe it would be worthwhile. If you talk about when you came in in 2015, what the business mix looks like in commercial what it looks like today and how that's been affecting the loss ratio. Despite the fact that you've been getting a lot of rate index loss costs.
Yeah.
Okay, Josh I mean I think.
No. We're we're comfortable today with the portfolio we've made a.
A lot of different re underwriting changes that we've talked about.
On many calls whether it is some of our cat exposure some of our.
Uh huh.
Property exposure here in the United States et cetera. So we're you know we're comfortable with the book.
The portfolio I think.
When you take a look at the calendar year commercial loss ratio and combined ratio as indicated I think you know it's been.
It is amongst the best that we've seen since 2008 the underlying.
Commercial.
Our loss ratio is consistent.
With the fourth quarter when you adjust for the property mix property mix did have the effect you know from the reinsurance.
To put.
Pressure on the AR on the loss ratio on the underlying loss ratio because you know we seeded more property premium OE, but again you know one of the reasons we purchased.
The reinsurance treaty, having also reduced a lot of our cat exposure was to be able to balance the book a little bit going forward you know it represented about 20%.
In commercial you know, 20% is property in our P&C overall, 80% as all the other sort of casualty lines.
And in fact, it's interesting if you were to take a look at the first quarter property growth.
We still had some re underwriting going on from cat exposed property, but if you take that aside which is coming to the tail end property was up actually above most of the other lines from a growth standpoint, and so I think we start to take advantage of that reinsurance treaty.
That impacted it sort of adversely so look I mean at the end of the day.
We're pleased with our our commercial portfolio, we're pleased with how our P&L to premium ratios.
Have improved.
So we see it.
You know benefiting from an underlying standpoint and from a calendar standpoint, and then the margin conversation.
It is what it is Josh you know, we're gonna well, we've been prudent and and we're going to stay that way and if it's been a little too prudent than maybe it will benefit from it all else equal you know later on.
Yeah.
I appreciate it.
Thank you Paul.
Awesome.
We will now take our next question from Gary Ransom from Dowling and partners. Please go ahead.
Yes, good morning, I wanted to ask a little bit more about inflation and clearly it's affected many of the short tail lines. The economic inflation that we've seen over the last year.
But how do you think about how that might seep into the social inflation that might affect the long tail lines can you share your thoughts on that.
I mean.
Look I think.
You could see it.
You could see it impact.
Some of the social inflation and some of the correlation that.
Bob.
We see from some of the inflationary pressure.
Pressures I think it's all from honestly from a.
Our social inflation standpoint.
What we're looking at is as the of course open up Gary and the dockets.
Get cleared up a little bit it'll be interesting to see.
Is that.
Accelerate I think our early read is we're clearly starting to see a little bit more attorney attorney representation on certain claims a little bit more pressure, but that.
It's really where we think.
Social inflation.
It's got some pressure points and what we're watching.
Very closely.
Alright.
Yeah.
Have the dockets actually cleared very much I mean is that they realize its opening.
Early it's still early it's still early.
So that's why when we think about.
Being prudent we just need you know, we just need some some additional time, they're really see what is going on.
With the sort of social legal towards sort of inflation.
And so it's still early.
Right.
I have always contended right. It's it's you know.
It was just obfuscated by.
Pandemic.
I'd rather than extinguished.
Another thing you mentioned in the comments in the press releases that the rates remain robust where they're needed the most and so I assume there's some.
Pockets, where there's still.
Where profitability is not quite back to where it needs to be can you.
Tell us what some of those places are and maybe the same as they've always been but I just wanted to.
Yeah, Yeah, quite frankly, Gary to a large extent, but look I mean.
Our commercial auto you know what.
We're getting about nine points of rate.
Good slightly above loss cost trend, but it's going to have to sustain itself and 9% for a longer period of time right before we see that that that line of business are getting into what we sort of consider of form of of rate adequacy on the health care, we're still seeing in parts of our health care portfolio.
We've got double digit.
Our rate increases and there too.
That's required.
International you know in the quarter still a UK Europe .
Double digit Canada, it's a little bit.
Less but it.
It's a lot more profitable and then obviously you know that work comp.
Is is is down slightly ciber.
Not a big portion of the overall portfolio.
Deteriorated quickly with ransomware claims and you know, we're still in and around almost triple digit.
Rate increases so those are the lines that you.
We would expect.
Alright.
And then I just told US that Ukraine was de minimus, but are do you have do you write any of those categories have lines that might be exposed to me over there.
In the international book, whether it's credit risk or.
I was just trying to get a sense of the mix over there.
That's fine.
You May you may recall, Gary one of.
The run off lines.
Several years back when we started to re underwrite our Lloyds syndicate was a political risk and trade credit and so that's all been in run off and we don't anticipate whatever might be a tail on that.
Tom.
To be any form of of.
Of an issue and.
It's a small.
Small portion.
Small portion netted down on political violence.
That.
I'll have through the syndicate, which we don't.
Expect it is going to amount to anything based on all of our analysis. So no we're not a big one.
Litter of lives that are obviously getting affected many of the way many of which you know you on your analyst colleagues of all written about and we don't play in those lines.
Great. Thank you very much for that.
Okay.
As a reminder to ask a question. Please press star one we will now take our next question from Meyer Shields from Kv definitely please go ahead.
Great. Thanks, good morning.
Can we get a little more color on the non renewals in international in January that particular line of business that you find it less attractive.
Oh sure.
So it's really.
It's two things.
There's a little bit of.
Health care portfolio.
Since we had been in healthcare you know in.
In the U S for a long period of time, we had a little bit of exposure and.
No.
Under the same scrutiny.
<unk>.
In the U S and unless we can get really substantially large rate increases.
Then you know, we we walked away from that and then as you know my our Gen. One Europe is tested renewal season, you get a lot of part of your portfolio.
That renewal is there and for a lot of carriers Jan Jan one sometimes can be a feeding frenzy.
And so.
There's some business that we could see were not going to get.
The terms and conditions that we wanted and so you know we walk away from it right look our international portfolio has come a long way is generating.
Strong profitability and.
We're going to work to make sure that does not go.
Back to where it was.
Okay. Thank you that's helpful.
The second question and this is I guess more broad you talked about how.
So far relatively little of the gap between earned rate increases in loss trends is hitting the bottom line is that yes.
Yes.
I'm trying to think of the right word for it.
Office to reserve development in other words are there indicated reserve releases that you're just not comfortable booking at this point in time.
Yeah.
No.
Look on.
Okay.
Hi.
I've always contended right social social inflationary pressures.
Affect your current accident years, but they can also affect prior.
Accident years that play out.
And settled in occurring in a current period, but but every quarter, we do our.
Reserve.
Our reviews and we feel comfortable.
Where those are it has to do with and again, maybe at the risk of <unk>.
Of of sounding a little bit like a broken record if you you know.
I look back over the several decades of my career the last several years are quite unique.
Relative to the inflationary pressures.
That had been escalating loss cost trends.
First it was social inflation it emerged over these last five years and went up pretty significantly then we had the economic inflation.
And you know we've been discussing with you how it it's all gone up the economic inflation in the third quarter. We then put that caused our overall loss cost trends to go to five and now in the last six months both economic.
Inflation has increased.
And as I said, we'll wait to see right. It's court opened up for the Doc it's clear.
Youre still dealing with an inflationary pressure so you know.
The way I think about it is in terms of you know.
How to trigger what would be maybe a little bit more it's sort of.
Uptake in margin I think we need to see some stability in the rate of acceleration of those loss cost trends and and it could settle at a higher level, but like settle and be more stable and and until we're faced with that.
A trigger where just gone up.
We will remain prudent.
Okay, perfect that makes a lot of that funnel.
A final question if I can.
Asking this because we've gotten somewhat different.
Descriptions of these.
Are you planning workers' compensation rate pressure to be a little worse in the first quarter of this year and the fourth quarter of last year.
Uh huh.
If I just make sure I heard.
Are you referring to the rates on work comp and how they moved from first quarter to fourth quarter, if that if that's it no. If you actually look at.
Our rate movement on work on work comp over the course of the last four or five quarters. It's been there's been a little bit of fluctuation up and down but relatively the same.
Ah at about low single digit.
And we haven't seen any sort of trend back then you recall my rights and I didn't see an inflection point and it's just still playing out at the low single digit.
Right.
Okay fantastic. Thank you very much.
We will now take a follow up question from Josh Shanker from Bank of America. Please go ahead.
Yes. Thank you I was just looking for a little education on the fronting business with I guess the cellphone. Obviously growth continues to look good can you talk a little about I mean about your arrangements. There are the relationships you have how sticky they are in.
Whether as are the five.
<unk> Revolution takes place that youre going to be there at the forefront of providing that service.
Okay.
So on the warranty business, there's as you know.
Josh we have two components, we have the the.
The electronics and in particular, the cell phones for which that is.
<unk> done through the captive and reinsured back bonds a percent, which is why we always give you the growth ex captives and and and we do have a longer term arrangement and and you know it is a function of how that that sort of business grows then theres a little.
Other.
Electronics business that we also go out there and then of course.
There's our auto warranty and all in all the warranty business continues to be in.
All its aspects of focus for us and and.
And on the issue.
The <unk> Revolution, I'm going to leave it to those that are considerably more intelligent than I am on the technology [laughter], yes.
But the important thing that I want to clarify you are your relationships have are locked in for the next three years.
Yeah, well there are.
They are longer term and and I don't know when the exact sort of it.
It's coming up but yes, there they're multi year.
Deals and have been for a long time, and we have excellent relationships.
Oh with them.
That's all I needed. Thank you.
Okay.
As there are no further questions at this time I would like to turn the call back to your speakers for any additional or closing remarks.
Well that's great. Thank you Cynthia and thank you all talk to you next quarter.
Okay.
Thank you that will conclude today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.
Okay.