Q2 2023 Intact Financial Corporation Earnings Call
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Following the presentation, we will conduct a question and answer session.
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This call is being recorded on August 3rd 2023.
I'd now like to turn the conference over to Szuba Kohn, Vice President Investor Relations. Please go ahead.
Thank you Michele good morning, everyone and thank you for joining the call to discuss our second quarter 2023 financial results a link to our live webcast and materials for this call have been posted on our website at <unk> dot com under the investors tab.
Before we start please refer to slide two for cautionary language regarding the use of forward looking statements, which form part of this morning's remarks.
On slide three for a note on the use of non-GAAP financial measures and important notes on adjustments terms and definitions used in this presentation.
To discuss our second quarter results today I have with me our CEO Charles been Tomorrow, our CFO Lee musket Pink bubble executive Vice President and Chief Operating Officer, Darren Godfrey Executive Vice President Global specialty lines, Human Lemme Senior Vice president of personal lines.
And Ken Anderson Executive Vice President and CFO, you can die.
We will begin with prepared remarks, followed by Q&A with that I'll turn the call over to Charles.
Thanks Sheila.
Good morning, everyone and thanks for joining us this morning.
In the face.
Severe weather events across Canada this quarter.
Our teams who are often first on the ground in affected communities to get customers back on track.
It's in those moments that impact takes all its meat.
With the strength of our people deep supply chains across the land.
We're in a unique position to help society be resilient in bad times.
Though the operating environment proved challenging due to the number of fire flood and freezer events, we delivered an operating ROE of 13%.
This is also what we mean by resilient.
Yesterday evening, we announced net operating income per share of $2 30 for the quarter down 30% largely due to cats.
Topline growth stood at 7% excluding strategic exits.
Reflecting higher rates across all lines of business as well as improving unit.
In personal auto.
Our undiscovered combined ratio was 96, 3% in the quarter despite eight points.
Cat losses.
Underlying performance was strong in all geographies now.
Now, let me provide a bit of color by line of business.
Starting with Canada.
In personal auto premiums grew 6%.
A one point improvement compared with the preceding quarter and up seven points over the last three quarters.
As anticipated.
Topline momentum is a function of bulk rate actions.
We're improving competitive positions as competitors move to catch up with inflation.
Retention levels remain strong and we see positive signs in new business volumes.
The combined ratio landed at 91, 2% in the quarter.
Largely in line with our expectations.
Given seasonality.
Claims frequency remains below pre pandemic levels and.
And inflation pressures that continued to abate with the increase in severity slowing to 8% in Q2.
From a peak up 13% in Q3 last year and 9% in Q1.
The drop in the quarter was primarily due to decrease in the market value of cars and stable repair costs.
The expansion of our supply chain continues to support our ability to absorb inflation.
Meanwhile, written rates and values increased by close to nine points in aggregate during the quarter.
Earned premium increases accelerated to 7% and are expected to catch up with Britain levels by Q3.
Our balance sheet continues to show real strength as demonstrated by the favorable development from prior years.
We look at both current and prior years together as we're continuing to build strength in the current year as well.
Overall, we remain confident in our sub 95 guidance for personal auto.
Moving now to personal prop premium growth was 5%, mostly driven by our rate actions and supportive market conditions.
The combined ratio of 119 included 27 points of cats.
An increase in severity driven by large losses in inflation also weighed on results by close to five points.
Rates in insured values will likely reach low teens by year end.
While I expect onsite to contribute to our performance as well.
The personal property business in Canada is positioned to generate sub 95 combined ratio even in bad times as demonstrated in the past 12 months.
Given our track record in the upper <unk> over the past 10 years.
I am confident we will make the most of this environment in this segment.
And commercialized topline growth up 6% was driven by our rate actions and hard market conditions.
Partially offset by targeted actions to optimize the portfolio.
Despite seven points of cats, the combined ratio was 89, 5%, primarily driven by our profitability actions over time.
This business remains very well positioned to deliver sustainable low ninety's or better performance.
Moving now to our <unk> business I'm pleased to see a solid combined ratio of 94, 1% in the quarter.
In personal lines premiums grew 6% after adjusting for the impact of our exit from the UK motor market.
We took rate actions amid a clearly firming UK personal lines market.
The combined ratio of 98 was in line with our near term expectations.
Upper Ninety's performance.
With initiatives to improve performance well underway, we aim to achieve a mid <unk> combined ratio in this line by the end of 'twenty four.
In commercial lines after adjusting for strategic exits premium growth was 6% in the quarter, we continued to benefit from hard market conditions.
Which support mid to upper single digit rate increases.
The combined ratio was 92, 1% despite nine points of cats.
This reflects the strength of our platform and prevailing market conditions in the UK.
We expect to continue operating this business in the low <unk> over the next 12 months.
In the U S. Our business grew 19% in Q2, driven by the Highland acquisition last year.
Loan growth and high performing businesses.
As well as rate increases.
Despite an elevated five points of cats, the combined ratio was 91, 3%.
Reflecting our profitability actions over time.
We expect hard market conditions to persist in most lines supported by higher reinsurance costs.
We expect hard market conditions to persist in most lines supported by higher reinsurance costs.
Elevated cat losses and inflation.
Against this backdrop, we remain very well positioned to continue delivering low ninety's performance or better in the U S.
While the quarter put a strain on our claims operations.
We remain focused on advancing our strategic agenda to continue to strengthen our moat and solidify our outperformance.
True to extending our leadership position in Canada.
We built on owning the two top brands in the P&C sector, and recently announced the rebranding of Anthony insurance and Johnson insurance to better direct.
This further bolsters the strength of our direct brand across the country.
I was also pleased to see that broker link remained very focused on consolidating distribution.
<unk> successfully reaching agreements in 17 transactions so far this year.
Looking at our global specialty lines business overall, we are well on our way to build the most respected specialty lines insurer.
Premiums grew 12%, while the combined ratio was 85, 2% for the quarter.
We've made important advances in deploying predictive models in this business and through our continuous focus on profitable growth and supportive market conditions.
We expect to reach a sustainable sub 90 combined ratio over time and outperform everywhere we operate.
And our UK operations much progress is being made in deploying machine learning and pricing and adding to our sophistication in commercial lines and thats combined with bolstering our broker value proposition in the regions and commercial lines.
Our commercial platform in the UK is outperforming and growth momentum is building.
At the halfway Mark of 23, we remain very much on track from a financial and strategic perspective.
The operating environment explained to our strengths.
<unk> growth is in the mid.
High single digit zone, the outlook for both investment and distribution income continues to be favorable and were on course once again to deliver mid teens operating ROE this year with.
With that I'll turn the call over to our CFO through we marker.
Thanks, Charles and good morning, everyone. While Q2 was an active quarter for severe weather events I am pleased that we were able to deliver solid underlying results cat.
Cat losses in the quarter were $421 million, driven by wildfires floods and storms in Canada as well as non weather commercial line losses in the U S and UK ni.
No single event met the threshold for reinsurance under architecture for treating.
Although cat losses were double the expected level in the quarter, we have seen similar or higher levels of cats as a percentage of net earned premium four times over the past 10 years as.
As usual, we will review our cat loss guidance at the same time as we release, our Q4 earnings.
Favorable prior year development was healthy at four 7% for the quarter and remained at the higher end of our midterm guidance of 2% to 4% overall for IFC.
This is consistent with our prudent approach to reserving and was particularly evident in personal auto where we are still not fully recognizing the benefit of lower frequency and locked her losses, our guidance remains valid and the mid term.
The consolidated expense ratio for IFC was 34, 3% in Q2.
One four points higher than last year.
The increase was led by Canada, driven by higher investments in technology marketing and customer service.
Going forward, we continue to expect the Canada expense ratio in the 32% to 33% range.
In the UK and I, we expect the expense ratio to be largely consistent with Q2 levels.
And in the U S. There is some seasonality in the expenses and I expect the annual expense ratio to be consistent with prior years between 38% and 39% overall.
Overall, IC IFC lending at a sub 34% expense ratio for 2023.
Operating net investment income increased by 55% in the quarter, driven by higher portfolio turnover and rising rates.
12 points of the increase was attributable to a special dividend on one of our investments.
For the full year, we now expect investment income to be close to one 3 billion.
Distribution income was $137 million in the quarter. The decrease of 4% reflects lower variable commissions as well as lower contribution from onside compared to last year's elevated level.
Underlying profitability is solid and the pipeline for acquisitions remains healthy.
We expect double digit growth in the second half of the year, representing distribution earnings growth around 10% for the full year.
Finance cost and other operating expenses amounted to $103 million in the quarter up 11% year over year as a result of higher interest rates on our recent financing and on short term debt.
Other operating expenses were largely unchanged from the prior year and in line with expectations.
Overall net operating income per share of $2 30 was down $1 from last year about <unk> of which was driven by higher cat losses.
Meanwhile earnings per share of $1 30 were significantly lower than in the prior period, which had benefited from the $423 million gain on the sale of our stake in <unk>, Denmark.
As well as nearly $500 million of investment gains driven by our equity portfolio.
Operating ROE of 12, 8% was solid despite higher than expected cat losses over the last 12 months.
Which had an adverse impact of approximately one two points.
If I normalize for excess cats, and the impact of the pension de risking transaction completed in the UK earlier this year.
Our operating ROE in.
In the 15% range.
In Q2, we marked the second anniversary of the RSA acquisition.
Policy conversion and all of the specialty lines in our Johnson the affinity business.
Is substantially complete and retention levels remained high.
We expect policy conversions to be largely completed in 2024 with claims conversion and systems decommissioning still on plan to be completed in 2025.
Value creation from the acquisition has exceeded our expectations, we estimate that annual RSA synergies hit a run rate of $315 million in the quarter.
We remain well on track to achieve our target of at least $350 million and approximately 20%.
Net operating income per share accretion by mid 'twenty four.
The estimated IRR is still north of 20%.
Book value per share was down 2% in the quarter quarter over quarter as our earnings were tempered by cats, and our fixed income portfolio was impacted by rising yields.
The accumulated unrealized losses in our fair value through OCI fixed income portfolio accounted for 84 dollar drag on book value per share at the end of Q2.
And the amount we expect will unwind over time, if we hold these securities to maturity.
Our financial position continues to be strong with a total capital margin of $2 5 billion. Despite the elevated cat losses in the quarter.
We closed the quarter with an adjusted debt to total capital ratio of 22, 5% and we remain on track to take back towards 20% over the next few quarters overall, we remain well positioned to capture growth opportunities organic or inorganic.
Overall, the resilience of the platform was particularly evident this quarter as we delivered solid results, while tackling inflation and shouldering elevated cat losses.
Given the quality of our people the strength of our platforms, our underwriting discipline and guided by a clear strategic roadmap I am confident we can continue to grow net operating income per share by 10% overtime and outperform the industry Roe.
By at least 500 basis points with that I will give it back to sugar.
Thank you Louie in order to give everyone a chance to participate in the Q&A. We would ask you to kind of limit yourselves to two questions per person you can certainly re queue for follow ups and we will do our best to accommodate if there's time at the end.
So Michelle we are ready to take questions now.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.
You will hear three Tom prompt acknowledging your request.
Should you wish to remove yourself from the queue. Please press star followed by the two.
Youre using a speaker phone please lift the handset before pressing any Keith.
One moment. Please for your first question.
The first question comes from Paul Holden of CIBC. Please go ahead.
Thank you good morning.
I wanted to drill down a little bit on the U K personal property and get a good sense of where youre at in terms of.
Current rate increases, where you expect that to trend to.
And how it compares to your key competitive competitors in that market.
Thanks, Paul Ken you want to share your perspective, yes sure. Thanks Paul.
In terms of the markets overall, I would say market conditions continued to be competitive in the UK, but we certainly are seeing evidence of firming, particularly in the home markets.
A few points of reference in Q2, I would say new business rates at a market level are up mid teens and for the larger peer SaaS and the top five.
That's north of 20%. So so there is rate movement occurring in that those certainly show the market is firming, we still believe that the industry is behind though.
On rate adequacy, and we continue to raise rates in that zone.
Well.
So we expect that upper 90 performance as those rates start to earn through in the second half of the year.
That should be dealing with inflation on keeping updated dash upper nineties.
And I think Paul there is rates and then there is sophistication so theres a fair bit of re segmentation going on in the UK as well as a number of new models being deployed.
Set of new variables being introduced in pricing.
September so lots of them to go and I expect the performance there too to improve get into mid nineties.
Next year.
Okay, that's great.
And then on Canada personal auto I mean, my read on the results.
Your commentary as it seems very much on track with expectations, you've laid out over the last couple of quarters.
Is there anything there thats deviating from expectations, whether it's on severity frequency.
Ability to earn or is it very much what you would've expected sort of at the beginning of the year.
Do you want to share your perspective.
Yes, so I would say it's exactly in line with what we're expecting.
So far this year was 94, one for the first half of the year.
Yes.
Mirror seasonality between Q1 unfavorable in Q2.
For both so 91 two is also exactly they're free.
Quincy going as planned.
I think severity is coming down as planned and.
And we're getting the rates.
We need so.
In line with expectations.
<unk> surprise.
Really is the fact that <unk>.
Of the pieces are falling in line with what we expected as I've said before there's lots of moving pieces Thats why we remain cautious in this environment, both from a pricing and reserving point of view, but pieces are falling into place nicely.
Any additional color you want to provide.
Not much I mean, the inventories of new cars have improved in both Canada and U S.
The market values go down during the quarter. The prices of parts are been stable for a few quarters now and the availability of parts is back to pre pandemic level.
And we have the capacity and our body shops. So that continues to be a source of pressure, but it has stabilized over Q2, so no on the inflation pretty much aligned with.
We're saying it's gone yes.
I'd add that.
Some because the pieces are falling into place that our own efforts.
Two.
Improve the supply chain create capacity.
Certainly haven't slowed down we've opened a number of new fully intact branded shops in the quarter and this year and we feel that we're making really good progress on that front as well and as we've seen through the inflationary environment in which we've operated supply chain, which has an edge at impact.
Big difference.
Perfect. That's my two thank you.
Yes.
Thank you. The next question comes from John Aiken of Barclays. Please go ahead.
Good morning, I was hoping to have a bit of a discussion on Canadian personal property.
Fully understand the cat losses in the large loss events in the quarter negatively impacting the combined ratio, but presumably these factors are what's leading to the confidence in terms of the premium growth because of the hard market.
Card marketing.
Market environment, sorry, but I was wondering if you could talk about what the price increases is having in terms of your retention as well as new business volumes in the segment.
You want to share your perspective from a topline point of view.
Yes, so on top line in terms of rates we've been.
Passing and.
High single digit.
Right.
Indexation.
I'm insured.
For the past little while.
And we've been passing that this year again.
Retention is extremely strong.
New business volume are very things too to auto so we've seen.
Shopping and auto.
We also see that.
Improved.
Unit trajectory and in <unk>.
Property.
And we will be looking at benefiting from that supportive market to try to.
Put the bet more rates and so we're going to look at the increasing.
Rates by year end by two to three points.
The benefit from those those supportive market conditions, yes, so the market is very much.
Trending in the direction, we expected I think people are increasingly waking up to the reality.
The environment in which we're operating inflation cat reinsurance et cetera, you look at the unit trajectory from my perspective in Q3, we shrunk the units by 2% in Q2 and 23, we're growing by 1% that's exactly what we want to see and we will make the most.
This environment, we feel very strong about our our track record.
In personal property and.
Looking forward to grow in this environment.
That's great. Thank you and then my second question sticking with personal property, we saw prior year development.
In total remained unfavorable for the for the segment are you fully admit that this is not material but.
Can you give us any sense in terms, what the prognosis is moving forward.
Well reserves obviously.
<unk> set at the end of each.
Each quarter to be adequate.
Conservative point of view, so prospectively I think you should look at our track record.
To assess what we expect that being said, maybe you want to provide a bit of color in terms of the mild adverse development in the quarter.
Yes, so we saw about the point in that.
Adverse development in the.
Quarter.
Part of it is coming from.
Last year's cap, so we add Eric <unk> late in the year.
Also Christmas.
Storm.
On Christmas day, in Ontario, and Quebec and.
Those haven't traded development in Q1 and also in Q2, I think from a Q2 perspective like as snow melted and strength and some more damages were uncovered and that creates some of the adverse development and Theres also been some.
non-GAAP losses from late in 'twenty two.
Yes.
Adverse development in the quarter.
Yes, So I think John and I look at our 10 year track record and personal prop you see <unk> in the three 3% ish range pretty consistent last three years to seven I don't see any meaningful reasons why one should.
See the world differently prospectively.
Fantastic I'll re queue. Thank you.
Okay.
Thank you. The next question comes from Mario Mendonca of TD Securities. Please go ahead.
Good morning, Charles if you could go back go ahead.
We obviously learned a lot about this company every quarter, but I wanted to distill it down to one particular line that I that I care about and it's just the growth in book value for this company over the long term.
A good rule of thumb is just to look at the ROE of the company take off some kind of dividend amount.
The one minus the payout ratio and you get to a reasonable estimate of what the book value growth would look like we're.
We're not seeing book value growth.
And I understand there is the pension de risking.
The realized losses and elevated non operating charges, but let me ask maybe.
Maybe Charles really what is the better indicator.
<unk> creation for this company when you look at book value would you look at it excluding the other comprehensive income.
Including the other comprehensive income and then my follow up question is.
Can this company return to that sort of high single digit book value growth going forward or has something changed structurally.
I think Mario.
High level.
Two measures of financial success is ROE outperformance, which is 750 basis points in the past decade and earnings power growth as measured by net operating income per share, which has been in the 10 ish percent range, which is the objective in the past decade. This.
Where we start.
There's nothing structurally to suggests that book value per share trajectory should not be consistent with those two sort of.
Core metrics at this stage and.
And I think if you look at the sandbox in which were operating and the quality of the business.
That we're building I see no reason to change our view negatively on the contrary I think that we're operating now and amongst the best earning sources.
In the World and we have great tools to grow those earnings and therefore.
The earnings power objective that I've just laid out now maybe you want to translate that in book value per share and get into the specifics of Marios question.
Sure well I totally agree with your perspective on that Charles I think there is a bit of a.
Is it temporary.
Hits, right now, which you captured Mario.
On the pension buy in the current movement in fixed income yields which has depressed the book value. My view here as we should actually even if it's depressed a bit now consider the unrealized losses in the book value.
Because our expectation over time.
We have the equity portfolio. It is a bit below target right now, but we expect returns that will contribute to our <unk> from our entire portfolio and therefore I would capture all of the earnings into our expectations and on that will drive book value per share growth over time I think we're just in a tough situation now.
Where equity markets are struggling the fixed income yields have risen and that's putting a lot of pressure on our book value and then you have on top of that of course, this quarter cats and the.
From the buyer I think over time that will revert now and I would expect growth to come back as expected with our guidance on <unk> are we will drive.
I'll say upper single too.
Low double digit growth overtime and book value per share.
Hi.
Yes.
There is nothing structural I think there is a bit more volatility going forward.
And the earnings because we're all classifying all our equity portfolio.
As fair value to P&L, but from a book value per share.
That will in our minds.
Contribute to growth and outperformance in the future.
So a related question then when when you have to make that decision between.
Sort of like a tradeoff between.
Realizing higher yields on the investment portfolio, but the negative effect that could have.
On your book value excluding ace.
Kim in other comprehensive income because I appreciate that it's already in there.
Through fair value through other comprehensive income.
Louis perhaps.
How do you look at that trade off between generating higher NII and the effect. It can have on one way of looking at your book value or is that not a great option to.
Consider.
No no no we actually totally consider it what's going on right now as we have more bonds that are actually classified as fair value to P&L. So they are mark to market on a on a consistent basis and when we trade them to capture higher yields there is no impact on the earnings the book value was not affected here. So.
So in that respect we are a bit more option now to trade the fair value to P&L bonds capture more yields and we're leveraging that opportunity.
With regards to the other fixed income that are fair value to balance sheets OCI.
There is a compromise here and what Youre seeing is we haven't traded those bonds as much as we've traded the ones that are mark to market to P&L.
And we're trying to capture as much yield as possible on the ones that are going through.
Well right now.
Okay, that's understood and so youre, saying that.
The bonds that are mark to market through <unk> those are not the ones that you are trading more actively.
Correct.
Helpful. Thank you.
Thank you next question comes from Tom Mackinnon BMO.
BMO capital. Please go ahead.
Yes, thanks, very much and good morning.
Further questions here with respect to Canadian personal property I think Charles when you did your rundown on the lines you gave kind of outlooks with respect to them.
You said on personal property youre going to make the most out of these times and that sub 95, you've seen sub 95% in good times and in bad but.
Really didn't get any anything more specific so I was wondering if you can elaborate.
With respect to any of the profitability actions you're taking.
And how those would translate into.
What.
And two combined ratio that we should be looking at for this segment over the next say.
12 to 18 months.
So if you can provide us with any kind of more guidance. If you will with respect to that that would be great. Yes, here's what we will do well.
We will frame the track record then we will talk about some of the actions we have in personal lines from pricing and underwriting point of view, we'll talk about some of the actions we have and claims.
And in supply chain and that should give you a sense.
<unk>.
Why we feel pretty strongly about our ability to.
To be well within that guidance prospectively, so young.
Maybe your take on the long term mid term track record of the firm and tell us what youre doing from a pricing and underwriting point of view.
Yes, so track record I think speaks for itself we've been sub 90 on average over the last 10 years, even better.
Recent period 87, if youll look at five years and 85 and if you look at at three years.
That being said it is a bad quarter.
119, I think cap obviously elevated.
But like we've seen elevated.
Level of cap in the past.
This quarter it doesn't change our expectation.
Our cats.
I think this is a reminder, that theyre volatile and again swing, but we're already pricing prudently on those.
Weather events inquiries and frequency severity, but our average premium has kept pace.
Raising by more than 50%.
Over the last decade.
So that's on the cost side I think on the underlying <unk>.
You've seen a bit.
An increase in severity in the quarter on top of the large last that John alluded to earlier, so on the severity front.
A bit of pressure went from high single digit to low double in the quarter I think it is important to this language between severity and inflation.
Not suggesting inflation is up from the.
Cater that we're tracking it broadly stable we also.
Indexation of insured value and thats exiting some of that but we see more severe.
Image more expensive water claims for example.
So that's just one quarter is that a lift we're monitoring the trend.
As I said earlier, we're taking advantage of the supporting market.
Conditions.
To increase rates by two to three points to match that severity trend that we're observing.
And basically they thing taking the actions to continue to deliver on the track record that.
I think a number of actions it's important to point out that segmentation is a big ticket item.
As well in machine learning largely deployed across the board and home insurance also contributing I think to the improvement in the track record that.
<unk> highlighted maybe a point or two on the supply chain quickly just to give a bit more color why we referred to on site is one of the key advantage we have over the years, we've internalized the claims.
Process more than 99% of all of our claims are handled through our own operations. So in terms of in property. That's important because when cats hit we can leverage that capacity across the country to respond quickly.
To the demand.
When it comes to water damage in particular, the speed at which we will respond is a key to contain costs.
Add on side.
<unk> doubled the size of that business since we acquired it we have the footprint now that is across Canada.
And to give you a bit of an idea.
In normal times.
Onsite in those about half of our claims and it goes up to 66% to 5% of all of our needs and cap times. So.
That's a tool that allows us to have.
Good access to capacity in.
Improved customer service and contain costs.
And profit.
That business itself will contribute.
And grow.
Over time, as we build on side and as we use it to a greater extent and impact.
Yes.
Quick follow up there the increase in the 2% to 3% that you're implementing in pricing with respect to Canadian personal prop you had mentioned that you increased premiums by 50% over the last 10 years. So two to three doesn't sound to be as much as the 5% average you've had over the last.
Over the last 10 years, so help me interpret that.
I think some.
We.
It's incremental to what's already in the pipeline, which is in the upper single digit so.
We should be in the lower teens. This is on the back of as we've talked about before in an environment, where our units are actually increasing.
And therefore, I think contributing to margins prospectively.
Okay and quickly on onsite how does it how do you.
How does that your ownership of that company, which presumably does better in catastrophe times.
How does how does that kind of work its way through the P&L.
Louis do you want to provide your perspective on that sure. So we are.
100% of it and essentially the work we send them.
It's obviously built to US and then what we get through distribution earnings as our share of a 100% of the profit margins they generate.
From the the work they do for US so it's purely it's additive to the distribution earnings we have been collecting for for a long time. So it's been part of the growth profile of that stream of earnings over the past I will say three years now.
And Thats the distribution earnings that you just said you expect 10% for 2023.
Correct correct.
Correct.
Point.
I talked about the fact that we had less than last year, partially because the onsite.
Onsite had the surge in Q2 last year and you might remember the add a lot of work done on the BC floods, which happened a year earlier.
So that surge happened in Q2 last year, we didn't see the same surge this year still profitable still delivering earnings to our distribution stream.
But just the fact that they have to surge as.
A bit the growth year over year in Q2 that take maybe you want to share your perspective on.
Pipeline, yes speak that onsite, that's a bit of additional color to your point do we.
It's counter cyclical to underwriting, but with not not to recognize exactly at the same time.
The loss of the claims that Ben its reserve right away in our underwriting results, but the rebuild process happens in the following months and that's what when we look at Q2 despite.
The large cap the amount.
That's on side a lot of that work is in front of us in the coming months.
To the reveal.
Thanks, Tom.
Thanks.
Thank you. The next question comes from Doug Young of D. Jordan. Please go ahead.
Hi, good morning.
I wanted to just go to your expenses in Cana that don't really usually focus on expenses.
Some of the commentaries entrants came back.
Canada was up 15% can you delve a little bit further into.
What youre seeing impact from inflationary pressures on just your own expenses was there any one time items and Lori I think you talked about the ratio in Canada getting to the 32% to 33% range like what gives you confidence in this business just earned premium growth. So the absolute cost has come down, but it's more top line growth.
I'll leave it there I may have another one for expenses, but I'll leave it there.
Sure. So we saw a bit of a.
An uptick in Q2, and I assured driven essentially by our.
Our technology investments and we're investing in our back.
Back office platforms, we are investing in AI, there's there's a lot of investments in Nike going on right now and that is uptick of it in the quarter.
The other ones are marketing spend and service levels. So we're ensuring here and you hear us talk about growth, we are spending a bit more on marketing and we need to be sure that we can handle the response. So some service level improvements have been.
Impacting the expense ratio. So I think that's a sort of an inflationary driven.
Right, it's really our activities.
And our investments that we choose to.
Pursue to meet the demand and improve our business and eventually service and performance efficiency.
That's how I would bucket the Canadian one and I think it's going to revert back over time towards the 30% to 33 guidance I've just shared with you obviously topline will help.
But we're also making sure that we continued our expenses and invest in the right place. So reinvesting some productivity gains against expenses. There is inflation, we have to make sure we retain our people.
But we make sure that thats combined and offset as much as possible with as much as possible with productivity.
Tom if I tie it back to strategy and how we're running the business number one.
Yes.
Service and customer experience is really important for us.
The labor market is tight turnover is higher in particular in service areas.
And we've hired and serviced push the experience up a bit more than what we had anticipated at the start of the year. So that's number one number two.
We've noticed that Canadians have started to shop to a greater extent, our price point is becoming a bit more competitive than it was at the start of year, the sort of year, we decided to spend more to generate response capture that growth and I think when it comes to technology and AI a number of calls we have made to increase.
Our investments I don't need to right.
On the worldwide technology, and AI is an area, where we should we should double down I think that.
A bit of a blip.
In the quarter, but I'd stick to Louis' guidance, because when we make these investments in time, we'd make trade offs, obviously and that's why you've seen good performance from an expense point of view over an extended period of time and also I would point out.
That by channel, where we compete we have a meaningful expense ratio our message compared to our peers. Both in the broker channel as well as in the direct channel.
Just a follow up on expenses can you remind how the reinsurance cost gets embedded obviously reinsurance costs went up this year that doesn't seem to be what's driving the expense ratio higher like how does that get embedded here as well.
No. So the reinsurance costs are actually in ceded premiums so they would affect the premium ratio. If there are more important but.
The actual increase in the reinsurance spend is not hugely material.
But there are there are dollars attached to it but when you look at the ratio of point of view.
Significant impact so it actually is netted from the top line.
Rather than being included in expenses.
Okay.
And then just second Charles you kind of touched on something I was thinking about but you've got earned premiums like in personal auto you got earned premium growth.
Catching up and should be surpassing your loss cost growth.
At the same time, you are picking up your marketing and it stops spending it sounds like these two items are related and so yes, you said it.
It sounds like Youre comfortable hitting the gas year, given the profit pocket that you've got in personal auto in Canada really to drive growth is that the message.
Yeah, Doug I think.
It is the case, we're comfortable with what we're seeing in the environment, we're comfortable with our risk selection strategies you look at what we've actually delivered in terms of performance 94 one.
I think we are in the value creation zone and.
We are open for business, where it makes sense in most markets.
And what and this is the last one what gives you pause like obviously motto.
As we described it interesting but.
What gives you pause when you think of the personal auto market you've been through the ups and downs is it regulatory is it inflation is it something you don't know.
Yes.
Yeah.
What gives me pause would be see a province, like Alberta, where rates are frozen that gives me pause.
So to be to be very clear.
But.
In general, we're very focused on pricing adequacy.
And we're comfortable growing in this in this environment quite frankly, I want to make sure that from a service point of view the provinces, where we have the strongest growth at this stage I want to make sure that when customers reach us.
We have a good experience so it's a matter of finding the right balance between generating response, where your rates become competitive and then providing customers a good experience.
And then we're very focused on quality Doug.
As you know we have a.
Very.
<unk> advantage in terms of measuring quality of the customer level beyond pricing and we're very focused on improving the quality profile of the portfolio.
As we grow so.
I don't know if you can use the expression anymore pressing on the gas, but but certainly we're comfortable with the momentum we're seeing we remain very focused on quality.
Okay. Thank you.
Thank you. The next question comes from Brian Meredith UBS. Please go ahead.
Hey, thanks.
So I'm just curious with just all the commentary here on cat losses, and obviously it affects your stock any thoughts on trying to use reinsurance maybe to mitigate some more of this volatility.
<unk>.
Thoughts on that one.
Yes, I think that.
Volatility.
In a way is.
Is not something that keeps us at night.
<unk>.
We are rewarded for it.
And in my mind.
In property lines at the moment, whether it's personal property.
Special prep in the U S et cetera, et cetera, I do think we are rewarded for that volatility.
It's embedded in our track record so.
Passing a portion of our margin for.
For the sake of having smoother quarters.
Through reinsurance not really how we're thinking about the business I don't know.
Darin.
<unk> or anyone has a different perspective here, but I must admit.
In relative terms Brian.
We use the reinsurance less than our peers, we're focused on managing tail risks because we want to protect our capital.
And.
Our ability to grow our book value per share.
If we go on that theme, but volatility not not as much.
Frankly, because over time, you look at how companies use speculative reinsurance in various amounts of reinsurance you realize that youre ascending good margins.
And frankly.
If we're rewarded happy to keep it I don't know if anyone in the team wants to add color here.
Totally agree I think the track record also in the past and property in particular as such it.
I think we've made the right choices.
And.
Like to see the level of profitability allows us to absorb volatility.
So yes, we will take about a quarter that we can act quickly afterwards.
If there is a trend but over time. It has proven we can deliver and get better returns, but keeping the level of volatility acceptance. We have our tolerance that we have right now alright.
Alright, we've increased retention this year, Brian and I think one of the things Youre seeing in the quarter is everything is under the retention.
That's in part why.
Load is high but I think if you look at it beyond the quarter, we were uncomfortable with that.
Sort of cost.
To achieve greater stability quarter to quarter.
Got it makes sense and then just the second question I'm, just curious maybe a little bit of.
Insight into what the M&A landscape is looking at right now both on the insurance brokerage side and maybe on the.
Underwriter side.
Okay.
Well.
The M&A landscape for Us Brian.
As change meaningfully in the past five years because.
Our unfortunate tea set went from $40 billion industry to about $400 billion, if I look at the segments.
In which we operate so with that comes a fortunate these and I think that there is a broad range of opportunities quite frankly.
Where we operate.
At the moment and important for us as a firm dough.
Is that the first lens.
That one should use to decide whether an unfortunate.
What our M&A is an unfortunate few or not whether you outperform.
And I would say, we outperformed in most markets maybe not in UK personal lines at this stage, but Canada U S. UK commercial lines, we have solid outperformance in.
In place. So that's the first lens and then if I look at that environment I would say that there is there is a number of opportunities at the moment. The question is can you find the right <unk>.
<unk> at switched to maintain the sort of track record we've shown from from an M&A point of view.
Then if I go.
Towards distribution, which are smaller transaction.
We've seen a number of eye popping transaction.
That.
We don't think reflect a trend because we don't think the sort of.
<unk>, we've absorbed in larger transactions is actually sustainable.
But we're able to continue to do small to mid sized transactions in in the range, where we can generate double digit returns that we like to generate double digit returns taking into account.
Our 72010 financing structure, so I feel really good unfortunate these.
We're very focused on creating outperformance, where we operate and when we feel the outperformance is there we're prepared to deploy capital if I go back to operating income per share growth.
The beauty of that measure as a measure of success is that it captures three leavers.
One customer growth one by one.
To margin expansion and three.
How smart you are at using capital that includes capital deployment to M&A and frankly to date.
I feel that those three levers offer plenty of opportunities.
And we feel pretty good about the environment in which we operate I think you want to add some color. We'll just the other side of that balance sheet is ready we can do a transaction at any time, so strong balance sheet and I think our troops are ready as well so theres no constraints internally too.
Deploying capital.
On M&A, if something comes out so that's a good point, it's the other side there is even at 22% debt to total cap.
Would do an acquisition tomorrow morning, if something was available.
Very helpful. I appreciate it.
Thank you.
Next question comes from Jamie <unk> of National Bank Financial. Please go ahead.
Yes. Thanks.
I want to go back to personal prop real quick and just too.
To make sure I've got this.
That's all correct here.
By the sound debated does not seem like there is.
Any any concerns on your part with respect to underwriting in terms of like risk selection of our segmentation along those lines.
This really isn't anything you need to rework or go back to the drawing board in terms of how you are underwriting personal property risks in Canada, whether it's geographic or business line types of risks.
However, apparel is that fair.
Sure.
It's absolutely fair.
Jamie I would point out that.
A decade ago.
We've unbundled the home insurance product to build it as a <unk> based.
Product.
We collect data accordingly, and we price accordingly.
And as a result, as the profile by province.
How payrolls have changed over time.
Is embedded in how we're pricing in approaching the product and then a lot of work to be done or that was done in the past decade on the supply chain too.
Take advantage of the demand on the property side of things improve customer experience and maintain costs. So there is no concern with segmentation per se.
We have what we call revolutionize our pricing algorithms by using machine learning and reaping the benefits of that.
Okay, that's clear.
Next in terms of the.
The global specialty platform.
Your progress on your roadmap talked about launching.
The go forward strategy in Q2.
Tried to line that up with UK specialty lines growing double digits on the top line.
How much of the go forward strategy is baked into.
That result, and what kind of upside should we expect from <unk>.
From that rollout, maybe maybe some color on exactly what it is.
Darren maybe you want to comment on <unk>.
<unk> results, maybe in Q2, and then highlight the strategic roadmap.
Sure. Thanks, Shannon I mean, obviously as you said an 85 combined in Q2, good results and really.
I would suggest solid performance across all of our geographies.
And also our solid progress from a topline standpoint across all of our geographies as well, obviously, there's a number of pieces.
That roadmap that we highlighted at Investor Day, obviously, we think one of the big levers.
Is around pricing and risk selection and increasing sophistication they were making solid progress in the quarter. We've got a lot more activity ahead of us in the remainder of this year in 'twenty three but also moving beyond that into 'twenty four 'twenty five as well too I think as we look forward.
For the rest of this year and into next year I think the one lever that we will continue to focus on is what I like to refer to is a little bit of a global muscle and by that I mean sharing capability sharing of expertise.
Not looking too.
Broad and appetite or anything else like that but really starting to leverage some of our multinational capabilities and how do we leverage <unk>.
<unk> resources and expertise across our various different operations I think you can look to London in U S and the interaction between those two markets as well.
A muscle that we really havent flexed I would suggest at this point in time and that's something that we're looking to build out further in 'twenty three 'twenty four.
Thanks, Darrin and I think what we've laid out.
At the investors day.
Is.
We think that with the verticals in which we operate and the global capabilities that Darren has talked about that by 2030, we should be able to double your earnings power.
That business and so.
Organically, we can get a long way there and I think of our capital deployment opportunities. We will pursue those key in all of this and Darren talked about.
Risk selection and bringing science in the field that will be very important to maintain a sub 90% combined ratio throughout.
And in that segment, but.
So far so good with an 85% combined.
And just a quickly follow up on that top line.
The 12% growth in Q2.
Can you break that down between rate and unit.
Growth.
Darrin, Yes, we have if I look at <unk>.
Most of our markets and I would include.
Chinese uninsured, yes, UK and European as well, we're in that sort of 7% range from a rate standpoint, and that's relatively consistent now within our different verticals, obviously looks very different than within the vertical itself. It looks very different given the.
This significant segmentation, but we're in that 7% range on top of that we think about P&C you can think about indexation and so forth.
So again there is there is some customer growth and then obviously, let's not forget that Highland in the U S. In particular is contributing about half the growth.
Which we'll see that continue also in Q3 as well so it's a real mixture James in terms of one that MGA acquisition in the U S. But solid solid rate that rate environment has really not changed in the last few quarters and we continue to see good momentum in favorable operating market.
Cross all of our different geographies. So we very much expect that will continue and then as I said there is some customer growth in there as well.
Yes, I would.
And my surprise.
When I look at the GSL growth.
At this stage and the 12% if you take what Darren said, you probably have upper single digit of rating insured values and then you add.
Three four ish points probably of.
Ill call this customer growth.
It's important to keep in mind that there is.
Profit improvement plans.
And pretty much every jurisdictions, where we operate.
So that good growth is net of lines of business shrinking by $25, 30%, etc.
I didn't think we would be in that zone.
So given how robust the action plans are where we had profitability in the past and so as we solidify the fundamentals gives me hope that.
The earnings power trajectory there.
It's pretty good for many years to come.
Thank you.
Okay.
Thank you. The next question comes from Geoff Kwan of RBC capital markets. Please go ahead.
Hi.
My first question was just on the commercial lines.
Broadly on a global basis I was wondering if you could maybe flag.
There is certain lines that are delivering like very good <unk>.
Strong improvements in terms of.
Claims ratios and then Conversely are there certain segments that you would say maybe.
Not performing as well or maybe seeing noticeable deterioration in recent quarters.
Darren do you want to share your perspective, yes.
Yes, I think what continues to be the highlight Jeff is on the property line of business in particular in our excess property book in the states.
We saw another lift in the rate environment in Q2, even beyond the high levels of Q1, we are pushing close to 40 points of rate debt.
In that particular segment and we don't see that slowing down submission volume continues to be very very high there and it's a fantastic environment to be operating in.
And that particular line of business has delivered exceptional results.
Historically and no doubt we will continue to do so.
Whereas some of the pressures we see in the market and really this is no different to past quarters, you can think about.
Financial lines public D&O.
Not concerns for us in terms of our D&O portfolio relative to our profitability standpoint, but we're not growing that given that particular market environment. So again, when I look at all of our lines of business and business units globally. When I look at the relationship between growth and profitability.
Very very strong correlation our high margin businesses continue to have exponential growth those that are either not with great market conditions, all with profitability challenges.
Puts on the Brexit a little bit too. So we're managing improvements in margins through improvements in mix as well too and thats very much a consistent approach that we're taking across all of our franchises.
Okay.
And just my second question is isn't Canada personal lines.
What's the rough percentage of customers that are bundling their auto and property today.
How does that compare to what you would consider as normal and has the recent trend been kind.
Kind of like and do you expect that to kind of increase from here or or maybe decrease.
Do you want to take a crack at.
Home and auto combined.
So we see more bottle bundling and property. So the majority of our property customer would also have the auto.
But I'd say roughly <unk> of our Idaho customers.
Abbott property.
I think we're looking at ways to increase that level I think there's benefits from.
Our retention perspective, when the risk.
Our bundle.
So so we have strategies in place too.
Try to increase that level, but that's roughly the amount that we're seeing in had been.
Relatively stable.
Over many years.
Okay.
Having more than one product.
Yeah.
Okay, great. Thank you.
Thank you. The next question comes from Lamar Prasad of core Mark. Please go ahead.
Yes.
Thanks can you give us an update.
Inflationary personal property.
I will now.
<unk>.
Other parts of your business, I guess, where I am.
As Im wondering if theres any divergence between the.
The impact of inflation on other business lines, you guys talk.
Talked about how the pressure is abating in auto and it's easier for us to see but what are the are the trends evolving a little bit differently and property.
In personal property.
Personal property to be clear.
Good I think providing a perspective of the last year and some of the blips in the quarter, we've touched on but.
Your perspective Patrick.
I mean, the real inflation in property has been fairly stable and I would say not only in the last year, but.
That's been there for a while if I look at the severity increase overall is pretty sustained.
There was some additional inflation on material that started shortly after the pandemic and that continues but we haven't seen that.
Go up there is no real disruption in the supply chain for material.
There's been a bit of an increase in labor.
You too.
The capacity pressure overall in the market, but I wouldn't say that.
The macro economy are putting inflationary pressure on the main components of property right now but.
The damage itself in the quarter is more what would seem that it was a bit more more severe.
But.
We're not too concerned with the trajectory of the inflation deadline business.
That's where I'm going at the higher claims severity you guys are seeing.
Hey, Jeff.
I guess.
Severity trends.
Should be declining, but personal property, maybe it does remain.
Elevated because of higher labor costs.
And materials cost.
The trajectory than from where we stand today is it a little bit different.
Yes.
All of the inflation in auto has been more volatile. It's responded much more to the market value of cars when.
That supply chain was more disrupted in property, it's been fairly stable, we don't see it necessarily decline from here.
It's been fairly flat, while the availability of parts.
The market value of cars, we see the inventories of cars going up and Theres some real die.
Dynamics that is supporting the decrease in inflation in auto and property its more sustained at the same level and we don't necessarily assume that this will go down the same way going forward.
It's fair.
To yields or your comments, there's been a couple of months in the quarter, where we have seen.
Burst so to speak and severity some as large lost some of its mix. Some of it is inflation, we want to make sure we're on top of that.
And we will continue to monitor that but.
Otherwise those two environments are I.
I don't want to seem dependent completely but largely.
Okay, Perfect and then maybe for Louis.
Just coming back to this book value per share.
<unk>, how should we think about the timing.
Blind to that.
$4 unrealized losses weighing on book value per share with a reasonable proxy.
Duration of the fixed income portfolio, so I think around three five years.
Alright.
Yes, that's what I would use.
Okay perfect. That's it thanks guys.
Thanks.
Okay.
Thank you. The next question comes from Nigel D'souza of Virtus investment Research. Please go ahead.
Good afternoon, and thank you for taking my question I wanted to circle back on personal auto and the guidance for the combined ratio.
Youre guiding for sub 95, and I am wondering why the guidance was updated upgraded to a low <unk> combined ratio given the trends youre seeing youre currently a low ninety's youre expecting industry premium.
To grow at high single digit and severity is trending lower so I would expect.
Combined ratio to kind of remain stable from where it currently is and it's amazing.
I think youre not seeing that because you are.
Your opinion growth rates are going to lag or be below the industry. Since you moved early.
<unk> raised premiums or do you think that claims are going to move higher because of frequency.
Frequency.
More than offsetting the moderation in claims severity just trying to understand why the guidance implies.
Combined ratio could drift higher from here.
195.
No.
Or the guidance, we provided there's lots of moving pieces.
At this stage.
As I mentioned earlier.
It's surprising that we were right on most of the assumptions here.
And because there are many moving pieces, we wanted to make sure that we remain.
And our guidance, Jim I don't know if theres any color you want to add but.
Hi.
We have no intention of changing the guidance in the near term and we stay focused on our action plan.
As much color. Thanks, Ken I believe you pointed out to the area.
Can be uncertain from our standpoint.
And that's why we're keeping.
<unk> hundred 95, but youre right that.
Inflation and the rates are crossing.
And we're going to be in a position, where we're going to cover inflation going forward.
Yes, Okay. Okay go.
Go ahead.
Well as I pointed out I think that we were taking.
Cautious stance from a pricing point of view and we're taking a cautious stance from a reserving point of view and I think the market is gradually recognizing the inflation focus we've had now for a few years and that's why we're comfortable to grow in this environment.
As our price and value proposition becomes more competitive.
And just two specific follow ups on that are you going to continue increasing premiums at a high single digit rate in line with the industry and then the second is when I look at the claims per policy in Q2 is up somewhere around 3% to 4% year over year.
Less than the 8%.
You will re increase in claim severity. So just wondering get claims frequency was that more this quarter versus Q2 of last year.
And if so why.
Laura.
So quick claims frequency was.
Broadly in line with last year.
A bit.
I have an increase.
But I'd say, it's nicoletta.
Michael Legible.
I think it's been stable for the past few quarters.
And it's.
That's a level that is quite below.
Historical.
On the right trajectory.
We're currently close to nine point I think we're working with regulators to.
Maintain.
Thats level I think we have good data as they.
They kind of showed that path.
And I think we're confident that we're going to be able to maintain a good level of written rate.
And this is going to be.
In line with what we expect the inflation to be.
Going forward, so I think as we learn more about where inflation stabilized. We're also going to adapt our rate strategy.
And this is a regulated market and a lot of provinces. So I think thats another component.
To your question earlier about the sub 95.
And sorry last last point on this just on the claims per policy is that is that figure right is it up.
Less than the 8% yogurt, we see claims severity and if it is why like what's the factor driving.
A lower increase in your total claims policy versus.
The trends youre seeing in severity.
I think we'd need to reconcile I guess your read of claims per policy here because.
The balancing factor between frequency severity is mix can change provincial mix can change to get to this number so I'm not 100%.
Clear as to which data you're referring to.
And so my follow up afterwards.
Also on the site up without Pollak real quickly sorry, just maybe it ties into the fact that your policies in force a decrease this quarter and reversed the trend.
In prior quarters, So maybe you could touch on.
That increase in policies in force weighted towards the end of the quarter or how is that distributed because that might be the variation.
Yes.
The growth is picking up month after month so.
To the extent, that's relevant which I'm not sure but.
Clearly there is a gradual grill.
Taking place and as a result, you can assume a greater weight towards the end of the quarter, but I think we will just go back to make sure we understand which metric you're actually assuming it.
Okay I appreciate it thank you.
Thank you. The next question comes from Carter Bank of America. Please go ahead.
Hi, everyone.
Hi, Greg Hi.
Alright, if I missed this earlier, but I guess looking at the personal auto results.
<unk> in line with expectation.
That differs versus what we've seen from a lot of the larger players in the U S, which experienced an acceleration in pressure in the quarter versus expectation I was just curious if you could provide any color on whether there's something structural in that Canadian auto market versus the U S auto market that might have contributed to that gap.
Consider the gap.
A more of a result.
Absent that impact specifically has taken and I guess, how can we be confident that we won't see a similar resurgence in severity going forward. Thank you.
Yes.
Thanks <unk> for your question.
I think we've been.
Prudent early on.
To act on inflation at the expense of the top line, so that would be one.
Maybe difference second.
During the pandemic.
We have provided lots of relief to our customers primarily through one time.
Cash return as opposed to dropping rates why because when you change your rate position you need to have a clear sense of where the next 12 to 18 months will go was very hard to do independently I would say this is a second difference between a number of.
Market operators third of all.
We're in the business of getting people back on track, we repair cars, we repair homes.
We're not overly focused on cash settlement.
Which can lead to.
A different outcome over time, if you realize the repairs are much higher.
Then the cash you have received and I would say from a strategic point of view I would highlight that those are three difference between in fact in many market.
Operators, then Patrick you might want to highlight other differences that exist, but equally important what we're doing in claims and supply chain to fend off inflation and personal automobile yes. The only other significant structural difference I would point is the pressure.
On the long tail coverages that you.
<unk> seem to have been facing for now a number of quarters.
The products between.
The two countries are different not only at the different between Canada and U S, but even within the U S. They differ by state and there are some space, where there seem to be a lot of.
Development in these lines of business.
Or not really relevant for <unk>.
Markets in Canada, So that's on the other structural aspects.
From a supply chain perspective.
We've been developing our rely network.
Preferred providers, both in auto and property for a decade.
Yeah.
<unk>.
Network overall has been enrolling more than two thirds of our repairs and over the past few years. We've added to this and that's worked by having a few repair shops that we fully own operate ourselves and over the past 18 months, we've opened additional.
Dedicated shops these are.
Shops that we select the operators because of the quality of their service the quality of their processes and repairs and <unk>.
Containing costs and they're now fully dedicated to our capacity in these shops together and the 20%.
Of our repairs.
Plus the relying thats work behind it so.
We've seen the cycle time of our repairs improved by a third.
When we compare the normal repair process versus what we can achieve within these dedicated then fully operated chops.
That was all for me thank you.
Thank you.
There are no further questions I will turn the call back to <unk> for closing remarks.
Thanks, Michele thanks, everyone for joining us today following the call a telephone replay will be available for one week and the webcast will be archived on our website for one year. A transcript will also be available on our website in the financial reports and filings section. Our 2023 third quarter results are scheduled to be released after market close on Tuesday November.
Number seven with the earnings call starting at 11, a M. Eastern following day. Thank you again and this concludes our call for today.
Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again. Thank you for attending at this time, we ask that you. Please disconnect your lines.
Okay.