Q4 2023 RLI Corp Earnings Call
Before we get started let me remind everyone that through the course of the teleconference. RLI management may make comments that reflect their intention beliefs and expectations for the future.
As always these forward looking statements are subject to certain factors and uncertainties, which could cause actual results to differ materially.
Please refer to the risk factors described in the company's various SEC filings, including in the annual report on Form 10-K as supplemented in forms 10-Q, all of which should be reviewed carefully.
The company has filed a form 8-K with the Securities and Exchange Commission that contains the press release announcing third quarter results.
During the call RLI management may refer to operating earnings and earnings per share from operations, which are non-GAAP measures of financial results.
RLI management: Our allies operating earnings and earnings per share from operations consist of metal earnings after the elimination of after tax realized gains or losses, and after tax unrealized gains or losses on equity securities.
RLI management: Additionally, equity in earnings of Maui, Jim and the related taxes were excluded from operating earnings and operating EPS for 2022 due to the sale of our realized investment in the third quarter of 2022.
Good morning, and welcome to the RLI Corp, fourth quarter earnings teleconference.
RLI management: <unk> management believes these measures are useful in gauging core operating performance across reporting periods, but may not be comparable to other companies' definitions of operating earnings.
After managements prepared remarks, well open the conference up for questions and answers.
Before we get started let me remind everyone that through the course of the teleconference.
RLI management: The form 8-K contains a reconciliation between operating earnings and net earnings.
Management may make comments that reflect their intention beliefs and expectations for the future.
RLI management: <unk> 8-K, and press release are available at the Companys website at Www Dot RLI Corp Dotcom.
As always these forward looking statements are subject to certain factors and uncertainties, which could cause actual results to differ materially.
I will now turn the conference over to Rli's, Chief Investment Officer, and Treasurer, Mr. R&D from Carla. Please go ahead.
Please refer to the risk factors described in the company's various SEC filings, including in the annual report on Form 10-K as supplemented in forms 10-Q, all of which should be reviewed carefully.
RLI management: Thanks.
Craig <unk>: Good morning from borrowing Peoria welcome to <unk> fourth quarter earnings call for 2023, joining us are Craig <unk>, President and CEO.
The company has filed a form 8-K with the Securities and Exchange Commission that contains the press release announcing third quarter results.
Speaker Change: Ken <unk>, Chief operating officer, and Tod, Brian Chief Financial Officer.
Nicole RLI management may refer to operating earnings and earnings per share from operations, which are non-GAAP measures of financial results.
As usual Craig will start with some preliminary highlights.
Speaker Change: Todd will run down our financials in general offer commentary on current market conditions and our product portfolio.
Alright.
Breaking earnings and earnings per share from operations consist of metal running after the elimination of after tax realized gains or losses, and after tax unrealized gains or losses on equity securities.
Speaker Change: Whether you will then open the line for questions and Craig.
Speaker Change: Close with some final thoughts right.
Speaker Change: Erin and good morning, everyone. We ended this quarter and year with profitable growth across all segments, notably it is our 20 <unk> consecutive year of underwriting profit we've.
<unk> equity in earnings of Maui, Jim and they relate to taxes were excluded from operating earnings and operating EPS for 2022 due to the sale of all a lot of investment in the third quarter of 2022.
Speaker Change: We've been able to grow our top line at a double digit pace for the last three years, resulting in a doubling of the size of our company over the last six.
Nicole RLI: <unk> management believes these measures are useful in gauging core operating performance across reporting periods, but may not be comparable to other companies' definitions of operating earnings.
Speaker Change: We believe disciplined underwriting is a core competency of our company, which is proven out and the consistency of our financial results, which we have delivered over time.
Nicole RLI: The form 8-K contains a reconciliation between operating earnings and net earnings.
Nicole RLI: Form 8-K, and press release are available at the Companys website at Www Dot alright, like all dotcom.
Erin: Remaining profitable enables us to provide a stable and secure market to our customers and partners for the long haul.
R&D caller: I'll now turn the conference over to Rli's, Chief Investment Officer, and Treasurer, Mr. R&D caller. Please go ahead.
Erin: All in we completed another successful year and are enthusiastic about our opportunities going forward.
Speaker Change: I will let Todd and Jen go into more detail on the financials and the market in general Todd So all yours. Thanks, Greg Good morning, everyone.
R&D caller: Thanks.
Nicole RLI: Good morning from Balmy Peoria welcome to <unk> fourth quarter earnings call for 2023, joining us are critically permit president and CEO.
Todd: Yesterday, we reported fourth quarter operating earnings of $1 54 per share.
Ken <unk>: Ken <unk>, Chief operating Officer, and Todd Bryant, Chief Financial Officer.
Jim: Aided by both positive underwriting and investment income overall, we posted a combined ratio of 82 seven for the quarter and grew top line, 13%, which Jim will discuss further.
Ken <unk>: As usual Craig will start with some preliminary highlights.
Todd Wayne Bryant: Todd will run down the financials in general offer commentary on current market conditions and our product portfolio.
Jim Smith: On a full year basis gross premiums written increased 15% and we manage the 86 six combined ratio, marking our 28 consecutive year of underwriting profitability.
Todd Wayne Bryant: Whether you will then open the line for questions and Craig we'll claw.
Craig William Kliethermes: Close with some final thoughts right.
Todd: Thank you Erin and good morning, everyone. We ended this quarter and year with profitable growth across all segments.
Jim Smith: Investment income advanced 40% on the year as improved reinvestment rates on a larger invested asset base and then it free.
Craig William Kliethermes: Notably it is our 20 <unk> consecutive year of underwriting profit.
Craig William Kliethermes: Been able to grow our top line at a double digit pace for the last three years, resulting in doubling the size of our company over the last six.
Jim Smith: Operating cash flow remained strong at $464 million for the year and continue to support growth in invested assets.
Nicole RLI: We believe disciplined underwriting is a core competency of our company, which is proven out and the consistency of our financial results, which we have delivered over time.
Jim Smith: Net earnings per share were $2 49 for the quarter and $6 61 for the year.
Jim Smith: The full year result is down from last year, which was heavily influenced by the realized gain achieved on the sale of our stake in Maui, Jim in the third quarter of 2020.
Nicole RLI: Remaining profitable enables us to provide a stable and secure market to our customers and partners for the long haul.
Jim Smith: Fluctuating levels of unrealized gains and losses on the equity portfolio also impact the comparison of net earnings between the periods.
Nicole RLI: All in we completed another successful year and are enthusiastic about our opportunities going forward.
Speaker Change: I will let Todd and Jen go into more detail on the financials and the market in general.
Jim Smith: From an underwriting income perspective, the quarters 82, seven combined ratio compares to $82 one reported last year.
Speaker Change: It's all yours.
Speaker Change: Good morning, everyone, yes.
Speaker Change: Yesterday, we reported fourth quarter operating earnings of $1 54 per share.
Jim Smith: Both periods benefited from relatively benign catastrophe activity and reductions in losses from prior period events.
Jim: Aided by both positive underwriting and investment income overall, we posted a combined ratio of 82 seven for the quarter and grew top line, 13%, which Jim will discuss further on.
Jim Smith: Overall, our loss ratio was up half a point.
Jim Smith: Our expense ratio advanced 0.1 points, which we will discuss further.
Jim Smith: In property, we recorded $4 million in losses from current year storms and maintain a low loss ratio on non catastrophe events.
Jim Smith: On a full year basis gross premiums written increased 15% and we manage the 86 six combined ratio, marking our 28 consecutive year of underwriting profitability.
Jim Smith: With respect to prior period events, we reduced loss reserves, a total of $3 million on prior year's catastrophes.
Jim Smith: Investment income advanced 40% on the year as improved reimbursement rates and a larger invested asset base and then at Cree.
Jim Smith: And $2 million on other claims.
Jim Smith: In addition, based on currently available information, we reduced our net estimate of Maui wildfires the $61 million.
Jim Smith: Operating cash flow remained strong at $464 million for the year and continue to do so.
From the $66 million reported in the third quarter.
Jim Smith: The $5 million reduction is evenly split between losses and reinstatement premiums.
Jim Smith: Overall this segment's loss ratio was 19, 5% in the quarter.
Jim Smith: 42, nine on a year to date basis.
Jim Smith: In 2023, net catastrophe losses were notably higher influenced in part by higher first dollar retention on our reinsurance treaties.
Despite this.
The segment recorded a combined ratio of $78 five on a year to date basis as.
Jim Smith: As earned premium growth from rates achieved over the trailing four quarters continue to moderate the net impact of storm losses.
Jim Smith: From a prior year's reserves perspective casualty drove the majority of the overall benefit recorded.
Jim Smith: Casualty posted 9 million of favorable loss emergence.
Speaker Change: Across a number of products.
Speaker Change: We continue to remain cautious on both current and prior years, particularly for auto related exposures.
Speaker Change: For surety favorable reserve development was just under $1 million driven by the commercial sector.
Jim Smith: Turning to expenses compared to last year, our expense ratio increased <unk>, one points for the quarter and 0.4 points on a year to date basis closing the year at $39 nine.
Jim Smith: As discussed on our third quarter call reinsurance reinstatement premiums related to the Maui wildfires impact the comparison.
Jim Smith: These premiums are fully earned as recorded and resulted in lower net premiums earned from a trend perspective.
Jim Smith: These elevated ceded premiums earned were adversely impact the expense ratio comparisons and account for 0.3 points of the increase on a year to date basis for.
Jim Smith: For the quarter, we recorded just over $2 million of nonrecurring expense in our surety division that is notable on a comparative basis to last year's fourth quarter.
Jim Smith: In addition, all three segments include increased bonus and profit sharing amount for the quarter.
Jim Smith: Amounts achieved are driven by continued strength of operating results and notable growth in comprehensive earnings and book value during the quarter.
Jim Smith: Overall, we continue to increase investments in people and technology to support them.
Jim Smith: Prove the customer experience and drive long term efficiencies.
Jim Smith: Moving to investment results headwinds experienced in Q3 terms of tailwind in the fourth quarter.
Jim Smith: Stocks and bonds and tire driving positive total portfolio returns of six 4%.
Jim Smith: Purchase activity remains in line with prior quarters.
Jim Smith: And focused on high grade bonds, but we continue to find opportunities to support investment income.
Jim Smith: Yields averaged over 5% during the quarter at a higher balance of cash equivalents offers flexibility without impacting income potential.
Jim Smith: Away from a traditional investment portfolio is that the earnings were down in the quarter as 2023 reflects only program for.
Jim Smith: While last year included a final true up of earnings from Maui, Jim, which as I mentioned was sold in the third quarter.
Jim Smith: As referenced in our press release, we had excluded Maui Jim's impact on operating earnings which offers a better comparison.
Jim Smith: From a balance sheet perspective that leveraging remains well below historic levels as we pay down debt in the third quarter, and we will await a more favorable environment to contemplate issuance.
Jim Smith: Strong year to date comprehensive earnings drove book value per share up 31% when adjusting for dividends.
Jim Smith: Nearly $31 per share or.
Our capital management strategy again included a special dividend of $2 per share paid in the fourth quarter. In addition to our ordinary 2007 quarterly dividend.
Jim Smith: Consistent financial performance and Conservative capital stewardship is about ROI to return over $1 4 billion to our shareholders in the last 10 years.
Jim Smith: All in all a very good quarter and strong finish to the year and with that I'll turn the call over to Jim. Thank you Scott.
Jim Smith: Right into our segment results.
Jim Smith: In the property segment grew 24% for the quarter on a 55 combined ratio consistent with prior periods. Our E&S property group led the way with 29% growth, including a rate increase of 31%.
Jim Smith: Following the quiet hurricane season, the market is starting to loosen with competitors increasing their limits.
Jim Smith: As rates continue to decline, we have allowed our hurricane exposure to decline a bit while the competition picks up a.
Jim Smith: It's a bit early to provide inside our market behavior based on reinsurance renewals as those changes can take a while to filter down to the underwriters desk at some companies.
We are allowing more flexibility for our underwriting, especially on renewals. So they can continue to navigate the market effectively and capitalize on this generation on the price level.
Jim Smith: Our Marine book grew by 15% led by implementing the division posted a 6% rate increase in the quarter. The team has achieved consistent profitable growth and providing solutions when our producers come across unique risks and titanium rate over time, we appreciate the team's commitment to our customers and their contribution to our bottom line.
Jim Smith: Our Hawaii book through the top line, 13% in the fourth quarter. The team continued to focus on supporting our insurers and our producers who were impacted by the amount of wildfires.
Jim Smith: Finally in response to their NDA has once again strengthen relationships and differentiated our team in the market.
Jim Smith: The property segments improvement from the fourth quarter and a year ago, driven by increased rates total rate increase for the segment was 24%.
Jim Smith: Earned premium for them with outpaced expenses, which caused a notable decline in expense ratio. We believe the market will continue to provide opportunities in each of our property businesses in the near term.
Jim Smith: Surety premiums grew 11% in the quarter on an 85 combined ratio.
Jim Smith: All surety product contributed to the growth.
Jim Smith: We've added a number of underwriters and support staff to the division over the last couple of years, we have added to our underwriting and customer support capabilities to ensure we provide excellent service to our producers and principles at the same time, we have transitioned awesome several accounts, where the principle financial condition has deteriorated.
Jim Smith: We are growing at a slower pace the industry industry. We believe that it is a prudent strategy. During this period of inconsistent economic conditions and increased competition.
Jim Smith: The segments combined ratio increased from the fourth quarter of 2020 due to new to the expense ratio. We continue to invest in this business through people and technology to support long term growth, we believe slow and steady growth is the right strategy at this time in the cycle for our surety business.
Jim Smith: Casualty segment premiums grew by 8% on a 99 combined ratio for the quarter.
Jim Smith: This was led by personal umbrella with premium up 32%. This includes a 7% rate increase for the quarter.
Jim Smith: We have received regulatory approvals that we expect will accelerate rate increases into 2024.
Jim Smith: As loss frequency for this product has returned we are managing growth through updates to select underwriting guidelines.
Jim Smith: Our transportation product group also grew premium by 20%, including an 11% rate increase.
Jim Smith: This is a diverse portfolio and we added several small products last year that contributed to the top line.
Jim Smith: This group has been a challenging market with plenty of competition consolidation of its shares in the public space and pressure on rates are competitive. Despite the fact that there is plenty of loss activity. It should cause rational underwriters to take pause.
Jim Smith: As we have in the past, we will continue to push on rate to cover loss trend and walk away from business that is underpriced.
Jim Smith: Within the casualty segment, we have two areas where premium decrease.
Jim Smith: Our executive products with premium declined by 5%, which included a 5% rate decrease.
Jim Smith: We continue to push for notable rate decreases on public D&O in particular, we try to be accommodated, but we will not support business at inadequate rates, which have become more frequent during the softening market.
Jim Smith: Finally energy casualty nonrenewed $3 million of premium in the quarter.
Jim Smith: The growth of this business in July of 2023 during the full calendar year, we wrote $2 2 million of premiums, which creates a small gap in the topline for 2024.
Jim Smith: The segments combined ratio increase from last year's fourth quarter due to the loss ratio. This is a function of the change in mix of business as well as our continued prudent stance on loss estimates.
Jim Smith: Although we have achieved increased rates, we recognize loss trends are still relatively high.
Investments in claims and underwriting talent and relationships with producers should provide continued growth opportunities for this segment and the near term.
Jim Smith: Lastly, I'll make a few comments on reinsurance renewals.
Jim Smith: As has been widely discussed we found the reinsurance market much more orderly this year.
Jim Smith: We renew about 60% of our reinsurance treaties effective January one.
Jim Smith: Although there was a lot of posturing from reinsurers seeking material rate increases on casualty business, our risk adjusted rate increases on casualty coverages were 5% to 10% on largely the same structures and placement percentages.
Jim Smith: On property coverages, we eliminated minor 19 currencies that had been introduced last year.
Jim Smith: Estimated risk adjusted rate change on property coverages was flat to a slight decrease.
Jim Smith: We maintain retention structures and inspiring.
Jim Smith: We were able to take more of our catastrophe later, while we marginally increased co participations on our working property chemistry.
Jim Smith: With all of the chamber to retention over the last two renewables for property, we expect to retain a little bit more property segment premiums in 2024 compared with 2023.
Jim Smith: The broad support from the reinsurance community demonstrate confidence in our approach to underwriting our business. While we are constantly working on improvements from our products and processes, we have a healthy diverse product portfolio.
Jim Smith: Inevitably there will be challenges that will arise in 2024, but like the Kansas City Chiefs. They have to check out we might get tackled bounce right back up and keep them kudos to our employee owners for serving our customers well, especially during this recent broke period.
Jim Smith: We're producing a financial result that continues to make our life a stable insurance partners in the market now.
Lisa: Now I'll turn the call back to Lisa for questions.
Lisa Jones: Thank you.
Lisa Jones: The question and answer session will begin at this time.
Lisa Jones: We are using a speakerphone please pick up the handset before pressing any number should you have a question. Please press star one on your telephone.
Lisa Jones: If you wish to withdraw your question. Please press star followed by.
Lisa Jones: Your questions will be taken any orders that proceed. Please stand by for your first question.
Gregory <unk>: Our first question today comes from Gregory <unk> of Raymond James Your line is open. Please go ahead.
Hello, Good morning, everyone I'm going to start sort of based on some comments that were made and the.
Gregory <unk>: Presentation first on reinsurance.
Gregory <unk>: I think in.
Gregory <unk>: You mentioned that you are getting more property coverage.
Lisa Jones: With this renewal than you had last year, maybe you could give us some perspective is that just more in the risk remote areas or what did you mean by that comment.
Lisa Jones: So our catastrophe structure, we actually had purchased more reinsurance July or June 1st excuse me of 2023.
Lisa Jones: And that's why we do have a little bit higher ceded property premiums in the second half of the year, but at this renewal at January one.
Lisa Jones: We did purchase a similar structure and.
Lisa Jones: And we were just able to place a little bit more of those layers. So we tend to take co participations in layers, where we might place as an example, like placed 90% of <unk> 10, a that's.
Lisa Jones: That's just an example, this year, we were able to place a little bit more of that percentage and so that just bought a little bit more coverage on the.
Lisa Jones: Lower to review the property per risk, we actually received a little bit more of those say a similar example, those same layers. We retained a couple more points of of those coverages.
Lisa Jones: So overall.
Lisa Jones: We're kind of where we were before.
Lisa Jones: Given the increase in May and June of 'twenty three.
Lisa Jones: Okay. Thanks for that clarification, and then just sticking on the property count.
Lisa Jones: <unk> business is.
Speaker Change: As a collector segment.
Speaker Change: I guess when I.
Speaker Change: Look at that.
Speaker Change: The results for the fourth quarter, you had a great year, but I guess, it probably coming in a little bit below what I thought you might be able to grow at and maybe at this juncture, it's mostly rate and you're not getting a lot of policy count growth or growth in CIB, but maybe you could give us some perspective on.
Lisa Jones: Some additional perspective that is on what's going inside of property as you think about the outlook for 'twenty four.
Lisa Jones: Sure I'd be happy too. So if you look at the fourth quarter.
Lisa Jones: And if we consider what's going on in the marketplace. We do have competition starting to creep in in the fourth quarter I think it's going to accelerate into 2024. So what has happened. Most recently is that as we look at the opportunity in the marketplace. We're balancing a lot of factors here. So we have a risk tolerance I think there's a lot of different metrics and how we measure our exposure whether its policy.
Lisa Jones: Limits model losses, or even number of policies that could translate into the number of claims we can handle any given event and so it is a balance of those different features are recognizing we had grown a fair amount in 2022 and into 2023 in terms of exposure.
Jim Smith: More recently, we're balancing the growth in property with the rest of our portfolio. You know we have a very diverse portfolio between property surety and casually and that diversity and pay it off in the past in terms of allowing us to achieve an overall underwriting profit, but it doesn't need to maintain balance. So we don't want property to grow too much relative to the other segments, Although we do.
Jim Smith: Want to take advantage of the market.
Lisa Jones: Addition to that you know our view of risk evolve overtime, particularly with regard to cat. So whether it's the cap model updates what is litigation trends legislation that changes are lessons that we learned from claims and so we take all that into account to kind of develop what our appetite is.
Jim Smith: At this point in the market, we're still able to achieve rate which is great.
Jim Smith: But we are allowing their exposure to go down a bit as we look to see how the market is going to react to the 2020 for reinsurance renewal I can tell you that MGA is in this space are acting a lot differently than carriers and there being a lot more aggressive it seems that some of the discipline that was introduced a couple of years ago is leading the market with Rick.
Lisa Jones: Got into Mg since they were going to have to contemplate that.
Lisa Jones: Going into this year, but we are in an aftermarket the benefit that we have is that most of that business is on E&S paper, which means we can change what renewing pretty quickly. We've got a flat organization with a lot of reporting that goes out on a regular basis and so we adjust what we're doing a pretty quickly. So we will continue to be a bit reactive to the market but.
Lisa Jones: And see how that plays out into this year, but we do think that the marketplace continues to be attractive and I don't mean to ignore and marine or Hawaii those are both.
Very strong growing and profitable books of business for US obviously, we have the valley wildfire event in 'twenty three but overall that book continues to be very attractive to us as well.
Patrick: Patrick interesting comment on the MGA side of the equation I guess my last question Todd in your comments you started going through the prior period Reserve development and you called out I think $9 million in casualty rates are favorable development one.
Patrick Smith: If you could just unpack the development, whether it's casualty or property just on an accident year basis. That's that's my last question.
Patrick Smith: Sure Yes.
Todd: Yes, it was $9 million I mentioned was on casualty with spreads.
Todd: There are some on the GL.
Todd: Side I mean, it was the commercial excess <unk> it really spread out obviously, a $9 million nothing large from any one particular line.
But it did cross over a number of accident years, two I mean, it was a little bit in 16.
Todd: Luminous 17 on deal again smaller amounts, but it's spread out through some some in 2021 and 'twenty. Two so it was pretty broad as far as accident years ago, but certainly on a quarter over basis.
Todd: <unk>.
Todd: At $9 million.
Todd: Correct, Okay. Thanks for the answers.
Todd: Okay.
Todd: Government group.
Todd: Yeah.
Todd: Our next question comes from Andrew Anderson of Jefferies. Please go ahead. Your line is open.
Andrew Anderson: Hey, good morning, looking at the underlying loss ratio in the casualty segment that increased a few points year over year can you kind of help us think about the drivers here I know you've called out mix shift, but perhaps also just a change in loss trend or maybe some non cat weather here.
Andrew Anderson: Yeah, I'll speak to that at this time.
Andrew Anderson: You see on the casualty about little over 300 basis point increase in the fourth quarter on the current accident year to your point underlying.
Andrew Anderson: Jim talked a bit about that.
Jim Smith: Frequency up a bit and the personal umbrella, we have seen a little bit.
Jim Smith: Increase in severity on transportation and and so we did.
Jim Smith: As we looked at the accident year and thought about those trends.
Jim Smith: We just thought it would be prudent on real phase two at a bit of IV and all are about 6 million $6 5 million in the fourth quarter on a current accident year and just see I mean, I think we tend to to react rather quickly if we're seeing things that may be signs.
Jim Smith: So that was action we took in the fourth quarter it didn't move the full year.
Jim Smith: Casualty loss ratio up about a point.
Jim Smith: And we'll see if it turns out as time moves on here.
Jim Smith: That actually wasn't necessary, obviously, we don't move too quickly on from a good news perspective, but we just thought it made it made sense to add to the current accident year.
Jim Smith: Okay, and with the increased frequency and severity that you called out are you incorporating a higher casualty loss trend in 24, then how maybe you were thinking about it previously.
Lisa Jones: I think we have moved our casually trimmed up maybe about a point.
Lisa Jones: I mean, we're going to look at the actuaries are going to look at.
Lisa Jones: Both trend, they're going to take a do they need to extend the tail at all those.
Lisa Jones: Those things are all going to be under consideration certainly.
John: Okay, Great and then maybe one more John you kind of talked about still these rate increases that are coming through and still an opportunity near term for growth in the casualty segment. If I look at second half and maybe making some adjustments for the run off of this energy book about like 8% gross growth.
John: That kind of a good indicator, where we could see maybe the first half of 'twenty four.
John: Oh, we don't really look forward and do topline budgeting our underwriting teams are compensated on the bottom line. So a week like kind of ignore the budgeting process within the business units, having said that we do see a lot of opportunities and got momentum from the investments we've made and so you know.
John: Lot of our businesses individually underwritten and we'll have to see how the competition behaves as well.
John: So I think we have room for growth, but I'm not going to put a number on it.
John: Got it thank you.
John: As a reminder, if you'd like to ask a question today is star followed by one on your telephone keypad.
John: Our next question comes from Meyer Shields of <unk>.
John: Please go ahead.
John: Okay.
John: Yeah.
John: Great. Thanks, so much so that I think you touched on this but I'm not sure I fully understand it.
John: And that within property there was a lot of ceded premiums in the third quarter because of the reinsurance reinstatement.
John: But I'm not sure I understand why the ratio of net to gross premiums in the fourth quarter was lower than in the first half of the year.
John: Yeah. So if you recall on June one of 'twenty, three we purchased an additional $150 million.
Lisa Jones: Cat Treaty covers.
Lisa Jones: And so there's obviously a cost to that as well as we filled out a little bit more of our first layer count, which is a $50 million $50 million layer again as of June one and 23. So the first five months if I'm doing the math right first nine months of 'twenty three had a lower ASP.
Lisa Jones: Seating premium number versus the last seven months and you see that then our net retention went down a little bit in the second half of the year for them as well.
Lisa Jones: Okay perfect. That's helpful and one other question on casualty reserves and in nowhere, probably overthinking. This but were there any increases to recent accident years laughter.
Lisa Jones: And there it's Todd I think in the totality of it outside we've talked specifically.
Lisa Jones: About the 2023 here.
Totality there.
Todd: <unk> increases on current other more recent accident years I think if you were to look at commercial auto you may see a little bit.
Todd: And even the 15 16 17 years, but not a lot and in total those accident years are still.
Todd: I mean, we did have the leases.
Todd: Okay.
Todd: Okay. So I'd have to give at least collect listen if I can.
Todd: Is there any upward trend in I guess commercial auto or maybe physically transportation in terms of pricing that you're saying.
Todd: Yeah, So I can jump in on that.
Todd: Transportation rate change for the fourth quarter was 11% and it was 8% for the year now that business can be chunky, we have some large accounts in there that can skew quarterly a result, so and all of that business pretty much is individually underwritten too. So you have to look at what is our starting point.
Todd: We think we're at in terms of rate adequacy, and then individually underwriting each account and seeing what we need going forward. However, the team was saying yeah, if I can.
Lisa Jones: Loss trends continue where they are in an environment, where the competitors are not throwing out to 2020 accident year, they're not throwing out to 2020. One so our people in that marketplace for some reason are giving us credit for that as a loss ratio of accounts and we recognize that the exposure of our balance sheet. So we try to properly right that busy.
Lisa Jones: And we need adequate rates because there are in fact claims all the time in that business. So I think the rate environment, there should be positive going forward, but we're going to continue to look at it really on an individual basis.
Lisa Jones: Okay perfect. Thank you so much.
Lisa Jones: Yeah.
Lisa Jones: Our final question in the queue is from Scott Helane, yet of RBC capital markets. Please go ahead.
Lisa Jones: Yes, good morning.
Scott Helane: A question on retention is too but on the casualty side. The net written premium to gross written premium retention that's been on up a lot in 2023, just wondering if you expect that trend to continue into 2024 and then also just just on while we're talking about casually.
Scott Helane: Any areas you are pulling back from that are worth calling out in casualty, where I know you mentioned a little bit of increased competition, but can.
Scott Helane: Can you can you comment a little bit on both of those things that retention in the.
Lisa Jones: Growth opportunity for casually.
Sure. So the casually retention I would say in 2023, knowing that we were going into the year with an additional retention on the property side. We also increased our co participation on our casualty more main casualty treaty so sharing in that exposure on the side of our tower with our reinsurance partners and that is why our retention.
Lisa Jones: In 'twenty, three and 'twenty four now.
Lisa Jones: So a little bit bigger than fire.
Lisa Jones: But outside of that you know change there's really nothing I can point to that would say that the retention is probably a mix of business issue in some way.
Lisa Jones: In terms of business that we're a little more wary of you know obviously the D&O market gets talked about a lot. So we're being very careful in that space I would say that the auto market is tough Ah, yeah, and I don't quite understand that because losses are up.
Lisa Jones: Frequency has returned there is real activity there, but the marketplace is very competitive so we're going to do the right thing and if that means we moved a little bit of business and that then so be it.
Lisa Jones: But we're going to try to be a stable market long term and some people will know that we're there I wouldn't want to come back to us.
Lisa Jones: And other than that you know our portfolio is in pretty good shape. So we have minor tweaks going on all the time in different places, but nothing material to point to.
Lisa Jones: Okay. That's good color question too is just the expense ratio you mentioned.
Lisa Jones: A couple of impacts.
Lisa Jones: Commissions and compensation and investments in technology.
Lisa Jones: Do you see that trending up in 2024 versus 2023.
Lisa Jones: But I don't know if that would take.
Lisa Jones: Those comments to mean that but is there anything you can you can comment specifically on the on where that might trend.
Lisa Jones: I think you know when you look at how to support this growth.
Lisa Jones: Not just underwriting things, let's say for operational staff to take everybody who has.
Lisa Jones: I have to touch our business because we are committed to.
Lisa Jones: Underwritings, which means people are using data and technology and make decisions that will become bounces underwriting decisions claim decisions that are required in our experienced and talented people. So we will look at what the growth opportunities are and be there to support that growth, we don't want to get behind it and you understand because we tend to win on service. So we've got to be there for our customers on this.
Lisa Jones: Technology, we have we're trying to modernize like everybody else and so we always have things going on you lock in a certain amount of depreciation.
Lisa Jones: It goes in the future were not I mean, I would say we have ramped up in the last couple of years a couple of projects. We're working on but I don't I don't see us ramping up further than that we're going to continue what we're working on trying not to sign on to too. Many additional things at this point I'm trying to work our way through our portfolio and make sure that each of our products.
Lisa Jones: Sustainable modern platform that will.
Lisa Jones: It helps support the capabilities, we need for our customers.
Lisa Jones: Yes, I think if you look at to Jim's point on the technology side, we probably have.
50, plus percent in the last couple of years, what we're investing there, which which is which is a positive as you look forward. It certainly is a drag currently but one thing I would think to not lose sight of too is is the talk a lot about the incentive structure to ROI and Jeanette.
Jeanette: <unk> mentioned the impact.
Jeanette: Does that have on our expense ratio and I think thats, one thing that would lower our expense ratios that we weren't as successful.
Jeanette: We're not looking for that.
Jeanette: But it is it is.
Jeanette: About six points of expense ratio points this quarter.
Jeanette: On that on that expense ratio that incentive stuff and it'll vary I've said before but you know from two to six points.
Jeanette: But that means we have a very low loss ratio. So I mean, it's been a trade.
Jeanette: We've been we've been willing to make for quite a while.
Jeanette: Yep.
Jeanette: It's probably worth it to have a higher expense ratio. If you have a lower loss ratio can can make up for it but I was just curious.
Jeanette: Helpful comments on that thanks.
Jeanette: As a final reminder, please press star followed by one to ask a question.
Jeanette: Okay.
Jeanette: We have nice other questions. So I'll now turn the conference say the cheap Mr. Craig Keith on each for some closing remarks.
Craig Keith: Well, thank you all for joining today.
Craig Keith: Kansas City Chiefs are pulling in their sixth consecutive AFC Championship game. This weekend.
Craig Keith: Sustained success is demanding and requires discipline and commitment and has proven somewhat elusive in our industry.
Craig Keith: <unk> been able to reward shareholders with 28 consecutive years of underwriting success. This achievement doesn't come easy and it doesn't come without a high level of engagement from the ROIC team.
Craig Keith: We focused on three things, serving our customers as a financially secure and stable market, creating a community and culture of ownership and underwriting discipline.
Craig Keith: And continuously improving and adapting to the market environment, where we are narrow and deep expertise and have chosen to compete these.
Craig Keith: These principles have not changed since we were founded some 59 years ago and have allowed us to outperform through all market cycles.
Craig Keith: I'd like to thank our 1100 ROI associate owners for their past current and future contributions to our shared success I asked him to keep being different because theyre difference works.
Craig Keith: You all next quarter.
Best of luck to the chiefs.
Craig Keith: Ladies and gentlemen, if you wish to access the replay for this call you may do so by dialing one eight.
Craig Keith: 8139403, with 19 number of course have been full at 93.
Craig Keith: This concludes our conference for today, Thank you participating and have a great day.
Craig Keith: Okay.