Q4 2023 CNA Financial Corp Earnings Call
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Operator: Ladies and gentlemen, good day and welcome to the CNA fourth quarter 2023 Earnings Conference Call. All participants will be in listen-only mode.
Speaker Change: Ladies and gentlemen, good day and welcome to the Cna's fourth quarter.
Speaker Change: 20th twenty-three earnings conference call.
Speaker Change: All participants will be in listen only mode.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. If you'd like to ask a question at the conclusion of your prepared remarks, you may press star then the one on your telephone keypad. To answer your question, please press star then two.
Speaker Change: Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: If you'd like to ask a question at the conclusion of our prepared remarks.
Speaker Change: For starters in the one on your telephone keypad.
So I'm sorry. Your question. Please press Star then two.
Operator: As a reminder, today's conference is being recorded. I would now like to turn the call over to Reliza Todorova, Vice President of Investor Relations and Rating Agencies, for opening remarks and introduction of today's speakers. Please go ahead.
Speaker Change: As a reminder, today's conference is being recorded.
Rob: I would now like to turn the call over it. So really it's just sort of Robo, Vice president of Investor Relations and rating agencies for opening remarks and introduction of today's speakers. Please go ahead.
Reliza Todorova: Thank you, Rocco. Good morning, and welcome to CNA's discussion of our fourth quarter and full year 2023 financial results. Our fourth-quarter earnings press release, presentation, and financial supplement were released this morning and are available on the Investor Relations section of our website, www.cna.com. Speaking today will be Dino Robusto, Chairman and Chief Executive Officer, and Scott Lindquist, Chief Financial Officer. Following their prepared remarks, we will open the line for questions.
Thank you Rocco good morning, and welcome to Cna's discussion of our fourth quarter and full year 2023 financial results.
Speaker Change: Our fourth quarter earnings press release presentation and financial supplement were released this morning and are available on the Investor Relations section of our website Www Dot C N a dotcom.
Speaker Change: Making today will be Dino Robusto, Chairman, and Chief Executive Officer, and Scotland Quest Chief Financial Officer.
Speaker Change: Following their prepared remarks, we'll open the line for questions.
Reliza Todorova: Today's call may include forward-looking statements and references to non-GAAP financial measures. Any forward-looking statements involve risks and uncertainties that might cause actual results to differ materially from those made during the call. Information concerning those risks is contained in the earnings press release and in CNA's most recent SEC filings. In addition, these forward-looking statements speak only as of today, Monday, February 5, 2024. CNA expressly disclaims any obligation to update or revise any forward-looking statements made during this call. Regarding non-GAAP measures, reconciliations to the most comparable GAAP measures and other information have been provided in our earnings press release, financial supplement, and other filings with the SEC. This call is being recorded and webcast.
Speaker Change: Today's call May include forward looking statements and references to non-GAAP financial measures any forward looking statements involve risks and uncertainties that may cause actual results to differ materially from the statements made during the call.
Information concerning those risks is contained in the earnings press release and in Cna's. Most recent SEC filings. In addition to the forward looking statements speak only as of today Monday February 5th 2024.
Speaker Change: CNA expressly disclaims any obligation to update or revise any forward looking statements made during this call.
Speaker Change: Regarding non-GAAP measures reconciliations to the most comparable GAAP measures and other information have been provided in our earnings press release financial supplement and other filings with the SEC.
Speaker Change: This call is being recorded and webcast a replay of the call may be accessed on our website. If you are reading a transcript of this call. Please note that the transcript may not be reviewed for accuracy. Thus it may contain transcription errors that could materially alter the intent or meaning of the statements.
Dino E. Robusto: A replay of the call may be accessed on our website. If you are reading a transcript of this call, please note that the transcript may not be reviewed for accuracy. Thus, it may contain transcription errors that could materially alter the intent or meaning of the statement. With that, I will turn the call over to our Chairman and CEO, Dino Robusto. Thank you, Rulica, and good morning, all.
Speaker Change: With that I will turn the call over to our chairman and CEO Dino Robusto. Thank.
Dino E. Robusto: Thank you Alicia and good morning all.
Dino E. Robusto: In the fourth quarter, we produced very strong results capping off another great year of excellent underwriting performance and robust investment income.
Dino E. Robusto: In the fourth quarter, we produced very strong results, capping off another great year of excellent underwriting performance and robust investment income. Growth written premium, ex-captive growth, was double-digit for the quarter and for the full year, representing our third consecutive year of double-digit growth. We achieved a 39% increase in underwriting gain for the quarter, which included modest catastrophe losses. And we achieved record underlying and all-in underwriting gains for the full year. Net investment income before tax increased to 21% and 25% for the quarter and full year, respectively. And importantly, in the lines of business with elevated lost cost trends due to social inflation impacts that we've commented on over the last several quarters, renewal pricing continues to keep pace with lost cost trends, and we expect that to continue as we move into 2024. I will focus on the fourth quarter, but I will also provide key highlights associated with our full year results. Core income increased by $97 million in the fourth quarter to a record $362 million.
Dino E. Robusto: Gross written premium ex captive growth was double digit for the quarter and.
Dino E. Robusto: For the full year, representing our third consecutive year of double digit growth.
Dino E. Robusto: We achieved a 39% increase in underwriting gain for the quarter, which included modest catastrophe losses and.
Dino E. Robusto: And we achieved record underlying and all in underwriting gains for the full year.
Dino E. Robusto: Net investment income before tax increased to 21% and 25% for the quarter and full year respectively.
Dino E. Robusto: And importantly in the lines of business, what elevated loss cost trends due to social inflation impacts that we've commented on over the last several quarters renewal pricing continues to keep pace with loss cost trends and we expect that to continue as we move into 2024.
Dino E. Robusto: I will focus on the fourth quarter, but I will also provide key highlights associated with our full year results.
Dino E. Robusto: Core income increased by 97 million in the fourth quarter to a record 362 million.
Dino E. Robusto: Net investment income was $611 million pre-tax, up $108 million over the prior year's fourth quarter, with our alternative portfolio and our fixed income portfolio contributing almost equally to the increased income. Our P&T operations produced a core income of $434 million, up $92 million in the fourth quarter. The All-in Combined Ratio improved to 92.1%, a decrease of 1.6 points compared to the prior year quarter, reflecting relatively benign pre-tax catastrophe losses of $22 million, or 1 point of the combined ratio, and favorable prior period development of 0.3 points. The PNC underlying combined ratio was 91.4% in the quarter and represents the 12th consecutive quarter it has been below 92%.
Dino E. Robusto: Net investment income was 611 million pretax.
Dino E. Robusto: 108 million over the prior year's fourth quarter with our alternatives portfolio and our fixed income portfolio contributing almost equally to the increased income.
Dino E. Robusto: Our P&C operations produced core income of 434 million.
Dino E. Robusto: Up 92 million in the fourth quarter.
Dino E. Robusto: The all in combined ratio improved to 92, 1% a decrease of 1.6 points compared to the prior year quarter, reflecting relatively benign pretax catastrophe losses of 22 million or one point of the combined ratio and favorable prior.
Dino E. Robusto: Period development of 0.3 points.
Dino E. Robusto: The P&C underlying combined ratio was 91, 4% in the quarter.
Dino E. Robusto: And represents the 12th consecutive quarter it has been below 92%.
Dino E. Robusto: The underlying loss ratio in the fourth quarter of 2023.
Dino E. Robusto: The underlying loss ratio in the fourth quarter of 2023 was 59.9%, consistent with the fourth quarter of 2022. The expense ratio of 31.2% was up slightly from last year. As usual, Scott will provide more details on expenses.
Dino E. Robusto: It was 59.9% consistent with the fourth quarter of 2022.
Dino E. Robusto: The expense ratio of 31.2% was up slightly from last year as usual.
Dino E. Robusto: We will provide more details on expenses.
Dino E. Robusto: In the quarter, we continued to achieve strong production performance with 10% growth in both gross written premium ex-captives and net written premium. Renewal premium change was 5% in the quarter, down a point from the prior quarter. Earned rate and the portion of exposure change that acts like rate was largely consistent with our estimate of long-run loss cost trends, which was unchanged this quarter. Let me add some additional color on the pricing environment as the individual lines within PNC are at varying stages of their unique cycle dynamics, given their respective loss cost pressures, different starting points in terms of profitability, and the cumulative rate level changes achieved in recent years for each line. Lines of business that have been impacted by social inflation have seen rate increases accelerate over the course of the year; it is up double digits in the fourth quarter compared to mid-single digits in the first quarter of 2023. Similarly, commercial auto pricing continues to accelerate, with prices increasing 14% in the quarter, up five points since the first quarter.
In the quarter, we continued to achieve strong production performance with 10% growth in both gross written premium ex captives and net written premium.
Dino E. Robusto: Renewal premium change was 5% in the quarter down a point from the prior quarter.
Dino E. Robusto: Earned rate and a portion of exposure change that acts like rate was largely consistent with our estimate of long run loss cost trends, which was unchanged this quarter.
Speaker Change: Let me add some additional color on the pricing environment as the individual lines within PNC are at varying stages of their unique cycle dynamics.
Speaker Change: Given their respective loss cost pressures.
Speaker Change: Different starting points in terms of profitability and the cumulative rate level changes achieved in recent years for each line.
Speaker Change: Lines of business that have been impacted by social inflation.
Speaker Change: I've seen rate increases accelerate over the course of the year like excess casualty where rate was up double digits in the fourth quarter compared to mid single digits in the first quarter of 2023.
Speaker Change: Similarly, commercial auto pricing continues to accelerate with prices, increasing 14% in the quarter up five points since the first quarter.
Speaker Change: Workers' comp rate change was low single digit negative given the continued strong profitability.
Dino E. Robusto: Workers' comp rate change was a low single-digit negative given the continued strong profitability. Importantly, we are benefiting from six points of exposure change in the quarter for Work Comp, and a good portion of that exposure increase is acting like a rate. In our property line and the national account segment, we saw a deceleration in rate increases in the quarter, but they were still at positive mid-teen levels. And when you consider that rates in national accounts are up cumulatively about 140% compared to five years ago. The moderation and increases in the reinsurance and primary market still reflect a very favorable environment for property.
Speaker Change: Importantly.
Speaker Change: We are benefiting from six points of exposure change in the quarter for work comp and a good portion of that exposure increases acting like rate.
Speaker Change: In our property line and the National accounts segment, we saw a deceleration in rate increases in the quarter.
Speaker Change: But they were still at positive mid teen levels and when you consider that rates in national accounts property are up cumulatively about 140% compared to five years ago.
Speaker Change: A moderation and increases in the reinsurance and primary market still reflect a very favorable environment in property.
Dino E. Robusto: Within management liability, our DNO lines continue to experience rate decreases in the fourth quarter, but we're less negative than any other quarter in 2023. We are hopeful that this portends some further moderation to avoid eroding the hard-fought cumulative gains in D&L pricing since 2019 that we believe need to persist. To date, cumulative rates for DNO overall are still up over 50% from 2019 rates. And for public DNO specifically...
Speaker Change: Within management liability or D&O lines continue to experience rate decreases in the fourth quarter.
Speaker Change: Were less negative than any other quarter in 2023.
Speaker Change: We are hopeful that this portends some further moderation to avoid eroding the hard fought cumulative gains in D&O pricing since 2019 that we believe need to persist.
Speaker Change: To date accumulator of rates for D&O overall are still up over 50% from 2019 rate levels and for public D&O specifically.
Dino E. Robusto: They are up roughly 75%. All told, I see the competitive environment as largely rational, and I would expect that to continue heading into 2024. In the quarter, new business growth was 16%, which was the highest it's been all year, and was driven by commercial, where we capitalized on strong pricing and an excellent pipeline of new business opportunities. Retention remained high at 85% this quarter, up a point compared to last quarter, with strong retentions in each of our business units as we continue to lock in favorable rates, as well as terms and conditions across the portfolio. Turning to our three business units, the all-in combined ratio for specialty was 90.8% in the fourth quarter. The underlying combined ratio was 91.4%, up two points driven by the expense ratio, which was 1.7 points higher compared to the prior year's quarter, with a mix driving higher acquisition costs as well as some additional employee-related costs.
Speaker Change: They are up roughly 75%.
Speaker Change: All told I see the competitive environment as largely rational.
Speaker Change: And I would expect that to continue heading into 'twenty 'twenty four.
Speaker Change: In the quarter, New business growth was 16%, which was the highest it's been all year.
Speaker Change: And it was driven by commercial where we capitalized on strong pricing and an excellent pipeline of new business opportunities.
Speaker Change: Retention remained high at 85% this quarter.
Speaker Change: Up a point compared to last quarter with strong retentions in each of our business units as we continue to lock in favorable rates.
Speaker Change: As well as terms and conditions across the portfolio.
Speaker Change: Turning to our three business units the all in combined ratio for specialty was 98% in the fourth quarter.
Speaker Change: The underlying combined ratio was 91, 4% up two points driven by the expense ratio, which was one seven points higher compared to the prior year's quarter with mix driving higher acquisition costs as well as some additional employee related costs.
Dino E. Robusto: The strong, underlying loss ratio of 58.6% in specialty has been stable for the last three quarters. Gross written premiums, ex capita growth for specialty was plus 1% this quarter, and net written premium growth was up plus 3%. Growth continues to be impacted by fewer new opportunities that we have commented on in previous calls, and we are remaining prudent on new business and the management liability lines until the competitive environment improves further. Our profitable affinities and healthcare businesses continue to produce mid-single-digit and high-single-digit rate increases, respectively, staying ahead of loss-cost trends for those classes. Insurity continues to produce very strong, profitable growth. Retention was very strong at 89% for the quarter, with each business area and specialty achieving high retention levels. Turning to a commercial.
Speaker Change: The strong underlying loss ratio of 58, 6% in specialty has been stable for the last three quarters.
Speaker Change: Gross written premiums ex captive growth for specialty was plus 1% this quarter and net written premium growth was up plus 3%.
Speaker Change: Growth continues to be impacted by fewer new opportunities that we have commented on in previous calls and we are remaining prudent on new business in the management liability lines until the competitive environment improves further.
Speaker Change: Our profitable affinity and health care businesses continue to produce mid single digit and high single digit rate increases were respectively. Staying ahead of loss cost trends for those classes.
Speaker Change: And surety continues to produce very strong profitable growth.
Speaker Change: Retention was very strong at 89% for the quarter.
Speaker Change: With each business area and specialty achieving high retention levels.
Speaker Change: Turning to commercial.
Dino E. Robusto: The all-in combined ratio was 92.9%, the lowest in 15 years. The underlying and all-in underwriting gains were the best on record, capped losses of $17 million added 1.4 points to the combined ratio, and the underlying combined ratio was 91.6%, a 1.1 point improvement over last year. Gross written premiums, ex-captives, grew 20% in the quarter, and net written premium growth was 18%. New business grew 38% and was broad-based across the commercial sector.
Speaker Change: All in combined ratio was 92, 9% the lowest in 15 years.
Speaker Change: The underlying in all in underwriting gains were the best on record.
Speaker Change: Losses of 17 million added 1.4 points to the combined ratio and the underlying combined ratio was 91, 6% a 1.1 point improvement over last year.
Speaker Change: Gross written premiums ex captives grew 20% in the quarter and net written premium growth was 18%.
Speaker Change: New business grew 38% and was broad based across the commercial segments.
Speaker Change: And our retention was 83% in the quarter consistent with the last quarter.
Dino E. Robusto: And retention was 83% in the quarter, consistent with the last quarter. Renewal premium change was 9%, consistent with the last quarter, with the rate up 7%. Renewal premium change excluding work comp was 11% in the fourth quarter, continuing to readily exceed loss cost trends. For international, the all-in combined ratio was 93% in the quarter with about a point higher for catastrophe losses, but that represents only 5 million in cap losses in the quarter. The underlying combined ratio was 91.8%, with an underlying loss ratio of 57.7%, which is down 0.4 points year over year. And the expense ratio of 34.1% was higher by about a point due to higher employee-related costs. International gross written premiums and net written premiums were each flat in the quarter.
Speaker Change: Renewal premium change was 9% consistent with last quarter with the rate up 7%.
Speaker Change: Renewal premium change excluding work comp was 11% in the fourth quarter continually continuing to readily exceed lost cost trends.
Speaker Change: For international.
Speaker Change: The all in combined ratio was 93% in the quarter with about a point higher of catastrophe losses, but that represents only 5 million of cat losses in the quarter.
Speaker Change: The underlying combined ratio was 91, 8%.
Speaker Change: With an underlying loss ratio of 57, 7%.
Speaker Change: Which is down 0.4 points year over year.
Speaker Change: The expense ratio of 34.1% was higher by about a point due to higher employee related costs.
Speaker Change: International gross written premiums and net written premiums were each flat in the quarter.
Dino E. Robusto: The international rate in aggregate was 2%, consistent with the prior quarter, and retention stayed consistent with the three prior quarters and a strong 83%. Now, let me provide some perspectives on our full year results. For the full year, we achieved record core income of almost $1.3 billion, or $4.71 per share, up 54% year over year. The increase in core income was driven by a significant increase in limited partnership and common stock returns, as well as fixed income securities.
Speaker Change: International rate in aggregate was 2% consistent with the prior quarter and retention stayed consistent with the three prior quarters and a strong 83%.
Speaker Change: Now, let me provide some perspectives on our full year results.
Speaker Change: For the full year, we achieved record core income would almost 1.3 billion or $4 71 per share up 54% year over year.
Speaker Change: The increase in core income was driven by a significant increase in limited partnership in common stock returns as well as fixed income securities.
Dino E. Robusto: Poor income also benefited from a record high PNC underwriting gain this year and from a neutral impact on the Life and Group Annual Reserve Review compared to a loss in 2022. Our P&C operations produced a core income of $1.5 billion for the year, up 21% over the prior year. Retaxed underwriting gain was $585 million, and underlying underwriting gain was $818 million, both a record high. The P&T All-in Combined Ratio was 93.5%, with a record low underlying combined ratio of 90.9% for the year.
Speaker Change: Core income also benefited from a record high P&C underwriting gain this year.
Speaker Change: And from a neutral impact on the life and group annual Reserve review compared to a loss in 2022.
Speaker Change: Our P&C operations produced core income of 1.5 billion for the year.
Speaker Change: 21% over the prior year.
Speaker Change: Pretax underwriting gain was $585 million and underlying underwriting gain was 818 million each a record high.
Speaker Change: The P N T. All in combined ratio was 93, 5% with a record low underlying combined ratio of 99% for the year and this marks the seventh straight year of improvement in the underlying combined ratio.
Dino E. Robusto: And this marks the seventh straight year of improvement in the underlying combined ratio. The underlying loss ratio was 59.9%, consistent with 2022. The expense ratio improved by 0.2 points to 30.7%, the lowest in the last 15 years.
Speaker Change: The underlying.
Speaker Change: The loss ratio was 59, 9% consistent with 2020 to the expense ratio improved by <unk> two points to 37%.
Speaker Change: The lowest in the last 15 years.
Speaker Change: All three operating segments produced very strong all in and underlying combined ratios again in 2023.
Dino E. Robusto: All three operating segments produced very strong all-in and underlying combined ratios again in 2023. For specialty, the all-in combined ratio was 90.4% for the year, and the underlying combined ratio was 90.7%. Commercial produced an all-in combined ratio of 96% and an underlying combined ratio of 91.6%, both the lowest on record. For international, the all-in combined ratio was 92.6 percent, and the underlying combined ratio was 89 percent.
Speaker Change: Our specialty and the all in combined ratio was 94% for the year and the underlying combined ratio was 97%.
Speaker Change: Commercial produced an all in combined ratio of 96%.
Speaker Change: And then underlying combined ratio of 91, 6% both the lowest on record.
Speaker Change: For international the all in combined ratio was 92, 6% and the underlying combined ratio was 89%.
Dino E. Robusto: Turning to production for the year, gross written premium growth, ex-captives, was 10% this year, and net written premiums were up 9%. New business grew by 11% to a record high of a little over $2 billion, and retention was very strong at 85%. Rates for the year were up 5%, and the renewal premium change was 7%, with exposures increasing 2%. Before I turn it over to Scott... I wanted to provide a little additional color on two items.
Turning to production for the year gross written premium growth ex captives was 10% this year and net written premiums were up 9%.
Speaker Change: New business grew by 11% to a record high of a little over $2 billion.
Speaker Change: Retention was very strong at 85%.
Speaker Change: Rates for the year were up 5% and renewal premium change was 7%.
Speaker Change: With exposures increasing 2%.
Speaker Change: Before I turn it over to Scott.
Scott: I wanted to provide a.
Scott: A little additional color on two items first on the social inflation impacted lines of business N V. Adverse development accident years of 2015 through 2019 and second I also wanted to provide a little detail on the January one reinsurance.
Dino E. Robusto: First, on the Social Inflation-Impacted Lines of Business and the Adverse Development Accident Years of 2015-2019, and second, and I also wanted to provide a little detail, the January 1 reinsurance renewal. The impact of prior period development was slightly favorable for the year for PNC overall, with puts and takes by line of business and accidents. In terms of the accident year period of 2015 to 2019, that has generated adverse development quite broadly for the industry, and Commercial, our general liability line, saw some continued strengthening for that period, but was more than offset by favorable development in work comp. Commercial auto, another line heavily impacted by social inflation, had only slight unfavorable development for those prior accident years in specialty.
Scott: <unk>.
Scott: The impact of prior period development was slightly favorable for the year for P&C overall, what puts and takes by line of business and accident here.
Scott: In terms of the accident year period of 2015 to 2019 that has generated adverse development quite broadly for the industry.
Scott: In commercial our general liability line.
Scott: Saw.
Scott: Some continued strengthening for that period, but was more than offset by favorable development in work comp.
Scott: Commercial auto another line heavily impacted by social inflation.
Scott: The only slight unfavorable development for those prior accident years.
Scott: In specialty.
Dino E. Robusto: Medical Professional Liability, which has also had its share of reserve strengthening in the past few years, and we have spoken about this on prior calls, had a relatively smaller amount of adverse development for those older accident years, which was more than offset by favorable development insurance. So overall, in 2023, the impact from this adverse period was diminished for commercial auto and medical professional liability, and that is encouraging. For general liability, we had additional adverse developments as the court backlogs began to clear and new claim information emerged.
Scott: Medical professional liability, which has also had its share of reserve strengthening in the past few years and we have spoken about this on prior calls.
Scott: I had a relatively smaller amount of adverse development for those older accident years.
Scott: It's more than offset by favorable development in surety.
Scott: So overall in 2023 the impact from this adverse period was diminished for commercial auto and medical professional liability and that is encouraging for general liability. We had additional adverse development as the court backlogs began to clear a new claim information emerge.
Scott: <unk>.
Scott: And more time is needed given the longer tail duration on general liability before we know for certain if they all those years are completely behind us at.
Dino E. Robusto: More time is needed, given the longer tail duration on general liability, before we know for certain if those years are completely behind us. At the same time, other long-tailed lines, like Work Comp and Surety, continue to play out more favorably than expected. In terms of the more recent accident years, the loss ratios are holding up well. As we have highlighted consistently, we took a conservative approach during the pandemic years where we suspected that social inflation was merely obfuscated and retained most of the implied margin of earned rates in excess of lost cost trends for accident years 2020 through 2022 for the Social Inflation Impacted Lines of Commercial Auto General Liability and Medical Professional Liability. In the aggregate, there has been little change to the initial accident year selection.
Scott: At the same time.
Scott: Other long tail lines like work comp and surety continue to play out more favorably than expected.
Scott: In terms of the more recent accident years, the loss ratios are holding up well.
Scott: As we have highlighted consistently we took a conservative approach during the pandemic years, where we suspected that social inflation was merely obfuscated and retain the most of the implied margin of earned rates in excess of loss cost trends.
Scott: For accident years, 'twenty 'twenty through 2022.
Scott: The social inflation impacted lines of commercial auto general liability and medical professional liability in the aggregate there has been little change to the initial accident year selections.
Scott: Bottom line, our bias continues to be to react quickly to bad news and we continue to take a measured approach.
Dino E. Robusto: Bottom line, our bias continues to be to react quickly to bad news, and we continue to take a measured approach, reacting to any favorable indicators in the more recent accident years. Turning to reinsurance renewals, as you know, our property treaties do not renew until June 1, but a number of our third-party treaties did come up for renewal in the quarter. All of the renewals went well.
Scott: Reacting to any favorable indicators in the more recent accident years.
Scott: Turning to reinsurance renewals as you know our property treaties do not renew until June one.
But a number of our third party treaties did come up for renewal in the quarter.
Scott: All of the renewals went well.
Dino E. Robusto: There was some minor movement in the seating commission on a few of the treaties, and most treaties renewed with comparable or slightly higher capacity. The economics of our reinsurance coverage and seeding commission remain very favorable on these lines of business, and with that, I'll turn it over to Scott. Thank you, Dino, and good morning, everyone.
Scott: There was some minor movement in ceding commission on a few of the treaties and most treaties renewed with comparable or slightly higher capacity.
Scott: The economics of our reinsurance coverage and ceding commission to remain very favorable on these lines of business.
Scott: And with that I'll turn it over to Scott.
Scott: Thank you Dino and good morning, everyone I will provide some additional information on our results as Gino indicated.
Scott Lindquist: I will provide some additional information on our results. As Dino indicated, core income of $362 million is up 37% compared to the fourth quarter of last year, leading to a core return on equity of 11.6% and reflects a 21% increase in net investment income and a 39% increase in PNC underwriting gain. Our PNC expense ratio for the fourth quarter was 31.2%, which is about flat with last year's fourth quarter. Overall, a higher net earned premium was offset by higher employee-related costs, including Incentive Compensation and Legacy Pension Plan costs.
Scott: Core income of $362 million is up 37% compared to the fourth quarter of last year, leading to a core return on equity of 11, 6% and reflects a 21% increase in net investment income and a 39% increase in P&C underwriting gain.
Scott: Our P&C expense ratio for the fourth quarter was 31, 2%, which is about flat with last year's fourth quarter.
Scott: Overall higher net earned premium was offset by higher employee related costs.
Including incentive compensation and legacy pension plan costs.
Scott: As a as I have noted in prior calls there will be a certain amount of variability quarter to quarter. However, we continue to believe in expense ratio of 31% is a reasonable run rate for 2024.
Scott Lindquist: As I've noted in prior calls, there will be a certain amount of variability quarter to quarter. However, we continue to believe an expense ratio of 31% is a reasonable run rate for 2024. The PNC net prior period development impact on the combined ratio was 0.3 points favorable in the current quarter. Favorable development in the specialty segment was driven by surety and was offset by management and professional liability. In the commercial segment, favorable development and workers' compensation were partially offset by unfavorable development and general liability in commercial auto.
Scott: The P&C net prior period development impact on the combined ratio was 0.3 points favorable in the current quarter.
Scott: Favorable development in the specialty segment was driven by surety and was offset by management and professional liability.
Scott: In the commercial segment favorable development in Workers' compensation was partially offset by unfavorable development in general liability and commercial auto.
Scott: The paid to incurred ratio was 0.72 for the fourth quarter and 0.8 for the full year 2023, which is about flat with 2022 and in fact, it's been relatively stable since the beginning of the pandemic.
Scott Lindquist: The paid-to-incurred ratio is 0.72 for the fourth quarter and 0.8 for the full year 2023, which is about flat with 2022 and, in fact, has been relatively stable since the beginning of the pandemic. However, we do see some fluctuation quarter-to-quarter, so we tend to take a longer view of this metric. A corporate segment produced a core loss of $76 million in the fourth quarter compared to a $52 million loss in the fourth quarter of 2022. The loss this quarter includes the results of our Annual Asbestos and Environmental Reserve Review.
Scott: We do see some fluctuation quarter to quarter. So we tend to take a longer view of this metrics.
Scott: Our corporate segment produced a core loss of $76 million in the fourth quarter compared to a $52 million loss in the fourth quarter of 2022.
Scott: The loss this quarter includes the results of our annual asbestos environment and Environmental Reserve review.
Scott Lindquist: The results of this review included a non-economic after-tax charge of $24 million driven by the strengthening of reserves associated with higher defense and indemnity costs on existing claims as well as lower expected seeded recoveries prior to the application of our lost portfolio transfer cover that we entered into in 2010. Following this review, our cumulative incurred losses of $3.6 billion remain within the $4 billion LPG limit, while cumulative paid losses are $2.5 billion. You will recall from the previous year's reviews that there is a timing difference with respect to recognizing the benefit of the cover relative to incurred losses, as we can only do so in proportion to the paid losses recovered under the treaty.
Scott: Results of this review included a non economic after tax charge of $24 million driven by the strengthening of reserves associated with higher defense and indemnity costs on existing claims as well as lower expected seated recoveries prior to the application of our loss portfolio transfer cover that we entered into.
Scott: In 2010.
Scott: Following this review our cumulative incurred losses of $3 $6 billion remains within the 4 billion dollar L. P. G limit well cumulative paid losses are to $5 billion.
Scott: You will recall from the previous year's reviews that there is a timing difference with respect to recognizing the benefit because the cover relative relative to incurred losses as we can only do so in proportion to the paid losses for coverage under the treaty.
Scott Lindquist: As such, holding all else constant, the loss recognized today will be recaptured over time through the amortization of a deferred accounting gain, as paid losses ultimately catch up with incurred losses. As of year-end 2023, we have $417 million of deferred gain on our balance sheet that will be recaptured over time. This quarter's results also include a $12 million after-tax charge related to unfavorable developments for legacy mass tort abuse claims. As we have noted in prior calls, we perform our annual review of asbestos and environmental reserves during the fourth quarter and all other corporate segment reserves during the second quarter, although we will adjust such reserves between these annual reviews as facts and circumstances warrant. Finally, the corporate segment was impacted by a $19 million after-tax charge related to office consolidation we mentioned in our third quarter earnings call.
Scott: As such holding all else constant for loss recognized today will be recaptured over time through the amortization of a deferred accounting gain as paid losses, ultimately catch up with incurred losses.
Scott: As of year end 2023, we have $417 million of deferred gain on a balance sheet that will be recaptured over time.
Scott: [laughter].
Scott: This quarter's results also include a $12 million after tax charge related to unfavorable development for legacy mass tort abuse claims.
Scott: Yeah.
Scott: As we've noted in prior calls we perform our annual review of this fastest and environmental reserves during the fourth quarter and all other corporate segment reserves during the second quarter, Although we will adjust such reserves in between these annual annual reviews.
Scott: Facts and circumstances warrant.
Scott: Finally, the corporate segment was impacted by a $19 million after tax charge related to office consolidation, we mentioned in our third quarter earnings call.
Scott Lindquist: We expect additional office consolidation activities in 2024, where we currently anticipate a corporate segment charge totaling about $16 million pre-tax that will be spread across the first three quarters of 2024. For life and group, we had core income of $4 million for the fourth quarter, which was a $29 million improvement from last year's fourth quarter loss of $25 million. The results this quarter reflect a $33 million pre-tax increase in investment income, primarily from higher earnings from limited partners. As we have noted in prior calls this year, our active enforcement of management risk mitigation activities continue, including rate filings, benefit reduction offers, and policy buyouts. The current quarter results include a $4 million pre-tax loss related to $33 million in cash policy buyout. Full year results include a $33 million pre-tax loss related to $193 million in cash buyouts of over 6,600 policies.
Scott: We expect additional office consolidation activities in 2024, where we currently anticipate a corporate segment charge totaling about $16 million pretax.
Scott: That will be spread across the first three quarters of 2024.
Scott: For life and group, we had core income of $4 million for the fourth quarter, which was a $29 million improvement from last year's fourth quarter loss of $25 million.
Scott: The results this quarter reflect a $33 million pretax decrease in investment increase in investment income primarily from higher earnings from limited partnerships.
Scott: As we have noted in prior calls this year, our active enforce management risk mitigation activities continue.
Scott: Great filings benefit reduction offers and policy buyouts.
The current quarter results include a $4 million pre tax loss related to $33 million of cash policy buyouts.
Scott: Full year results include a $33 million pre tax loss related to $193 million in cash buyouts of over 6600 policies.
Scott Lindquist: We expect to continue offering buyouts in 2024, and the impact of gap earnings will vary quarter to quarter depending on timing in the mix of buyout elections. Turning to investments, total pre-tax net investment income was $611 million in the fourth quarter compared to $503 million in the prior year quarter.
Scott: We expect to continue offering buyouts in 2024, and the impact of GAAP earnings will vary quarter to quarter, depending on timing and mix of buyout elections.
Scott: Turning to investments total pre tax net investment income was $611 million in the fourth quarter compared to $503 million in the prior year quarter.
Scott: The increase was driven almost equally by our limited partnership and common stock results.
Scott Lindquist: The increase was driven almost equally by our limited partnership and common stock results and our fixed income and other investors. Limited partnerships and common stocks returned a $78 million gain in the current quarter compared to a $20 million gain in the prior year quarter. Fixed income and other investments generated $533 million of income, up $50 million compared to the prior year quarter.
Scott: And our fixed income and other investments.
Scott: Limited partnerships and common stocks returned a $78 million gain in the current quarter compared to a $20 million gain in the prior year quarter.
Scott: Yeah.
Fixed income and other investments generated $533 million of income up $50 million compared to the prior year quarter.
Scott Lindquist: Our fixed income portfolio continues to produce consistent income, which has been increasing as a result of favorable reinvestment rates and strong Cash Flow from Operations. The effective income yield of our consolidated portfolio was 4.7% in the fourth quarter compared to 4.5% in the prior year quarter. As of the end of the fourth quarter, reinvestment rates continue to be well above our PNC effective income yield and about flat to our licensed group portfolio effective income yield, which is a longer duration portfolio with embedded yields more comparable to today's interest rate environment. Pre-tax net investment income for the full year 2023 was $2.3 billion compared to $1.8 billion in 2022. Similar to the quarterly results, the increase was equally driven by our limited partnership in Limited Partnerships and Common Stocks returned a $202 million gain in the current year, compared to a $31 million loss in the prior year.
Scott: Our fixed income portfolio continues to produce consistent income, which has been increasing as a result of favorable reinvestment rates and.
And strong cash flow from operations.
Scott: The effective income yields of our consolidated portfolio was four 7% in the fourth quarter compared to four 5% in the prior year quarter.
Scott: As of the end of the fourth quarter reinvestment rates continue to be well above our P&C effective income yield.
Scott: And about flat to our life and group portfolio effective income yield, which is a longer duration portfolio with embedded yields more comparable to today's interest rate environment.
Scott: Yeah.
Scott: Pretax net investment income for the full year 2023.
Scott: It was $2 $3 billion compared to $1 $8 billion in 2022.
Scott: Similar to the quarterly results the increase was equally driven by our limited partnership and common stock results.
Scott: And our fixed income and other investments.
Scott: Limited partnerships and common stocks returned a $202 million gain in the current year compared to a $31 million loss in the prior year.
Scott: For the full year, our limited partnership and common stock portfolio returned nine 4%.
Scott Lindquist: For the full year, our limited partnership and common stock portfolio returned 9.4%. Income from fixed income and other investments for the year was $2,062,000,000, or $226,000,000 favorable to 2022. Looking ahead to 2024, we expect this trend to continue, albeit at a slower pace. We currently expect income from fixed income and other investments to be about $2,150,000,000 for 2024.
Scott: Income from fixed income and other investments for the year was $2.062 billion or $226 million favorable to 2022.
Scott: Looking ahead to 2024, we expect this trend to continue, albeit at a slower pace.
Scott: We currently expect income from fixed income and other investments to be about $2 billion $150 million for 2024.
Scott Lindquist: And we expect first quarter 2024 to be about $530 million, which is about flat compared to the fourth quarter 2023 result, given limited anticipated reinvestment activity. At quarter end, our balance sheet continues to be very solid, with stockholders' equity excluding AOCI of $12.6 billion, for $46.39 per share, an increase of 10% from year-end 2022, adjusting for dividends. Stockholders' equity, including AOCI, was $9.9 billion, or $36.52 per share.
Scott: Andrew We expect first quarter 2024 to be about $530 million, which is about flat compared to the fourth quarter 2023 result.
Scott: Given limited anticipated reinvestment activity.
Scott: At quarter end, our balance sheet continues to be very solid with stockholders equity, excluding a OCI of $12 $6 billion.
Scott: Or $46 39 per share an increase of 10% from year end 2022 adjusting for dividends.
Scott: Stockholders equity, including a O C I was $9 $9 billion or $36.52 per share.
Scott: With the sharp decline in interest rates during the fourth quarter. The net unrealized investment loss in our fixed income portfolio fell to just under $2 billion as of yearend a significant improvement for both the quarter and the ear.
Scott Lindquist: With the sharp decline in interest rates during the fourth quarter, the net unrealized investment loss in our fixed income portfolio fell to just under $2 billion as of year-end, a significant improvement for both the quarter and the year. Finally, we ended 2023 with statutory capital and surplus in the combined continental casualty companies of over $10.9 billion, which is up from $10.6 billion at the end of 2022. We continue to maintain a conservative capital structure with a low leverage ratio and a well-balanced debt maturity schedule. In early 2023, we issued $500 million of senior notes. The portion of which served to fund the maturity of $243 million of debentures in the fourth quarter.
Scott: Finally, we ended 2023 with statutory capital and surplus in the combined continental casualty companies of over $10.9 billion, which is up from $10 $6 billion at the end of 2022.
Scott: We continue to maintain a conservative capital structure with a low leverage ratio and a well balanced debt maturity schedule.
Scott: Earlier in 2023, we issued $500 million of senior notes.
Scott: A portion of which served to fund the maturity of $243 million of debentures in the fourth quarter.
Scott: Okay.
Scott Lindquist: Operating cash flow was strong once again at $520 million for the quarter and $2.3 billion for the year, despite $193 million in long-term care cash policy buyouts during the year, reflecting both strong underwriting results and higher earnings from our fixed income portfolio. Turning to taxes, the effective tax rate on core income for the fourth quarter was 20.3% and reflects a tax-exempt interest benefit, somewhat offset by state income tax.
Scott: Operating cash flow was strong once again at $520 million for the quarter and $2 $3 billion for the year, Despite $193 million in long term care cash policy buyouts during the year.
Scott: Reflecting both strong underwriting results and higher earnings from our fixed income portfolio.
Speaker Change: Turning to taxes.
Speaker Change: The effective tax rate on core income for the fourth quarter was 23% and reflects tax exempt interest benefit somewhat offset by state income taxes.
Scott Lindquist: Looking forward, we expect our full year 2024 effective tax rate to be about 21%, with a certain amount of variability quarter to quarter. Finally, given the company's strong underwriting and investment performance, we are pleased to announce we are increasing our regular quarterly dividend 5% from $0.42 per share to $0.44 per share.
Speaker Change: Looking forward, we expect our full year 2024 effective tax rate to be about 21% with a certain amount of variability quarter to quarter.
Speaker Change: Finally, given the company's strong underwriting and investment performance. We are pleased to announce we are increasing our regular quarterly dividend, 5% from 42 cents per share to 44 cents per share.
Scott Lindquist: In addition, we are declaring a special dividend of $2 per share, both to be paid on March 7th, 2024. The shareholders of record on February 20th, 2024. Using this past Friday's closing price, CNA shares have a very attractive dividend yield of 8.7%, inclusive of the $2 special dividend. With that, I will turn it back to Dino.
Speaker Change: In addition, we are declaring a special dividend of $2 per share.
Speaker Change: Both to be paid on March seven 2024.
Speaker Change: Shareholders of record on February 20th 2024.
Speaker Change: Using this past Friday's closing price CNA shares has a very attractive dividend yield of eight 7% inclusive of the $2 special dividend.
Speaker Change: With that I will turn it back to Dino.
Dino E. Robusto: Thanks, Scott. This was a terrific year for CNA, with record levels of core and net income. Our PNC operations continue to produce strong results, with record levels of underwriting and underlying underwriting gain. We achieved double-digit growth in gross written premiums, ex-captives, and record volumes of new business. The market is experiencing varying cycle dynamics by class of business, and we have navigated that environment very well, and expect to continue to leverage profitable growth opportunities in 2024. Earned rate and the portion of exposure that acts like earned rate continue to cover our lost cost trends overall, and the rate is strongest where we need it most. And in those lines, particularly plagued by social inflation, we would expect price increases to stay higher for longer, as well as continued robust property prices in 2024.
Dino E. Robusto: Thanks, Scott This was a terrific year for CNA with record levels of core and net income.
Dino E. Robusto: Our P&C operations continue to produce strong results with <unk>.
Record levels of underwriting and underlying underwriting gain.
We achieved double digit growth in gross written premiums ex captives and record volumes of new business.
The market is experiencing varying cycle dynamics by class of business and we have navigated that environment very well.
Dino E. Robusto: And expect to continue to leverage profitable growth opportunities in 2024.
Dino E. Robusto: Earned rate in the portion of exposure that acts like rate continues to cover our lost cost trends overall and.
Dino E. Robusto: And right is strongest where we need it most and in those lines, particularly plagued by social inflation, we would expect price increases to stay higher for longer as.
Dino E. Robusto: As well as continued robust property pricing in 2024.
Speaker Change: And with that we'd be happy to take your questions.
Operator: And with that, we'd be happy to take your questions. Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the key.
Speaker Change: Thank you.
Speaker Change: To ask a question. Please first star then one on your telephone keypad.
Speaker Change: If you are using a speaker phone and we ask you. Please go ahead. So we're pressing the keys.
Operator: To withdraw your question, please press stars 1 and 2. Today's first question comes from Josh Shanker with Bank of America. Please go ahead. Yeah, thank you. Good morning, everybody.
Speaker Change: The majority of your question. Please press Star then two.
Speaker Change: Today's first question comes from Josh Shanker with Bank of America. Please go ahead.
Josh D. Shanker: Yeah. Thank you good morning, everybody.
Josh D. Shanker: Morning.
Josh D. Shanker: Do you know I did take it up.
Josh D. Shanker: Dino, I take it that the last statement about lost cost inflation, to be absolutely correct in your numbers, we have much more simple numbers. I think if we go back to 2020-2021, you talked about moving the inflationary compounding effect in aggregate from about 5% to 6.5% over those two years. Right now, in aggregate, the rate is up about 4% with another 100 basis points of exposure acting as the rate. Those are pretty cumbersome numbers, but can you... We're talking about how we should feel confident that the current rate environment is covering the lost cost if the numbers maybe don't seem to... I guess you should factor in a number above six and a half.
Josh D. Shanker: The last statement about loss cost inflation, you have to correct me your numbers, we have much more simple numbers I think if we go back to 2000 22021, you had talked about moving the inflationary.
Josh D. Shanker: Inflationary compounding effect enact it from about 5% six 5% over those two years and right now are in aggregate rate is up about 4% with another 100 basis points of exposure acting as rate.
Speaker Change: Those are pretty cumbersome numbers, but can you can.
Speaker Change: Can you talk about how we should feel confident that our current rate environment is covering loss cost with the numbers, maybe you don't seem to I.
Speaker Change: I guess factor in a number above six 5%.
Dino E. Robusto: Yeah, so thanks, Josh. You know, our lost cost trends are running somewhere between 6% and 6.5%. You know, they had gone up, as you pointed out, and at the time, you know, I thought, okay, maybe 6.5%, but they're somewhere in and around 6% and 6.5%. And, you know, I commented on the earned rate. Obviously, the earned portion of the rate is higher, and so are the exposure gains. And, you know, exposure gains, about half of it acting as a rate. It's different at different points.
Speaker Change: Yeah. So thanks, Josh so.
Speaker Change: Our loss cost trends are running somewhere between six and 6.5% you know they had gone up as you pointed out and at the time.
Speaker Change: You know I thought, okay, maybe six 5%, but theres somewhere in and around six and six and a half and you know I commented on earned rate. Obviously the earned portion of the rate is higher and and B exposure gains and you know exposure gains about half of Iraq thing is right it's different in different point.
Speaker Change: The work comp, it's probably a little bit more than half and it was up 6%. The exposure. So I think you know what else splitting hairs that that you're you know you're covering the long run loss cost trends and I think in constantly Josh is why I tried to add a little bit more information on where I see the social.
Dino E. Robusto: The work comp is probably a little bit more than half, and it was up 6% in exposure. So, I think, you know, what I'm splitting here is that, you know, you're covering the long-run lost cost trends. And I think, unfortunately, Josh, is why I tried to add a little bit more information on where I see the social inflation impacted lines, because those were the ones that had the moving target, that increased the rate, that indeed was increasing it from 4.5% to 5%.
Speaker Change: Inflation impacted lines, because those were the ones that had the moving target that increased was that and indeed, what was increasing yet from the 4.5% to 5% and we're starting to see you know continued acceleration in those lines. So you know we feel very good going into 'twenty two.
Dino E. Robusto: And we're starting to see, you know, continued acceleration in those lines. So, you know, we feel very good going into 2024 that we should be able to continue to cover the lost cost trends. Can you give us a little granularity about workers' comp versus commercial auto?
Speaker Change: For that we should be able to continue to cover the loss cost trends.
Speaker Change: Yeah.
Speaker Change: Can you give us a little granularity about workers' comp versus commercial auto obviously workers' comp is helping the numbers.
Josh D. Shanker: Obviously, workers' comp is helping the numbers, the loss rates are much better than anticipated, and commercial auto is going in the opposite direction. How much of a weight do your numbers as a commercial auto insurer have on them, how much of a lift do your numbers have on workers' comp, and given where the rate environment in each is, what do you expect the trend will be for next year? Yeah, so let me try to parse it out this way. So commercial auto loss cost trends, as we indicated, are above the average. And in fact, they're probably at, you know, high single-digit loss cost trends now. And we noticed that moving up at the beginning of the year, which is why, at the beginning of the year, we had about nine points of rate on commercial auto. But now it's 14 points because we just made the decision to look, we've got to push harder.
Speaker Change: These losses are much better than anticipated and there are commercial autos are going the opposite direction, how much of a weight on your numbers as commercial auto how much of a lift on your numbers is a workers' comp and and given where the rate environment and each is what do you expect the trend will be for next year.
Speaker Change: Yeah, So let me let.
Speaker Change: Let me, let me try to parse it out this way so commercial auto loss cost trends as we indicated you know they are above the average and in fact, they're probably at it and you know high single digit loss cost trends now and and we noticed a you know that moving up at the <unk>.
Speaker Change: Beginning of the year, which is why you know at the beginning of the year, we had about nine points of rate on commercial auto, but now it's 14 points because we just made the decision well well got to push harder Oh, we're not going to get to the other end of this thing on commercial auto and I think you know, it's gone up from 9% to 11%.
Dino E. Robusto: We're not going to get to the other end of this thing on commercial auto. And I think, you know, it's gone up from nine to 11 to 14. And it's early in January, but it's still looking very strong.
Speaker Change: 2014, and and and it's early in January but still looking very strong comp on the other hand, even with medical inflation up a little bit still the long run loss cost trends are below our the overall average clearly below our long term assumptions and and.
Josh D. Shanker: Comp, on the other hand, even with medical inflation up a little bit, the long-run loss cost trends are still below the overall average, clearly below our long-term assumptions. And rate, even though slightly negative, with very strong exposure growth, we think that dynamic continues, or the combination of the two continues to be quite, you know, favorable for us going forward. Thank you. I hope that that helps. One more philosophically, it's been a very long time since workers comp has been poor, and it's been a very long time since commercial auto has been good. Is there anything to think about these two lines, that something has permanently changed in them, or just unusual factors that have made each of those cycles more extreme than they should have been?
Speaker Change: And rate, even though slightly negative with the very strong.
Speaker Change: Exposure growth, we think that dynamic continues or the combination.
Speaker Change: Combination of the two continues to be quite favorable for us going forward.
Speaker Change: I hope that helps and if I can add.
One more philosophically, it's been a very long time since workers' comp has been poor and it's been a very long time commercial auto has been good is there anything to think about these two lines that something has permanently changed in them.
Speaker Change: Just unusual.
Speaker Change: Unusual factors that have made each of those cycles more extreme than they should have been.
Dino E. Robusto: Yeah, and so first of all, Josh, just to emphasize your point about each of their cycles, right, they are each unique cycles. And I do think we need to think about our business going forward in terms of unique cycles rather than the classic, oh, the hard market, now it's going to go soft. And what I would just say, you know, on comp, obviously, different dynamics because of the regulatory impact, and many of the changes that happened over 10 years have really stuck. And that's fantastic, and I think it will continue. Commercial auto, clearly, it appears, you know, that a lot more rate was needed even earlier, and maybe, in general, a little slow to respond. The only thing I would say there is, because commercial auto, to a large extent, gets packaged with other very profitable lines of business. You're selling it with your package policy, which your work comps are very profitable. And so you put it all together, and you might be a little bit more tolerant. However, you cannot treat auto insurance as a commercial loss leader.
Speaker Change: Yeah, and and so so first of all just to emphasize your point about each of their cycles right. They are each unique cycles and I do think we need to think about our business going forward as unique cycles, rather than the classic Oh, the hard market now, it's gonna go soft and and what I would just say you know on comp.
Speaker Change: Obviously, a different dynamics because of the regulatory impact in many of the changes that have happened over 10 years, you know have really stuck and and and that's fantastic and I think continues commercial auto.
Speaker Change: Clearly it appears you know that a lot more rate was needed even earlier and maybe in general a little slow to respond the only thing I would say there is because commercial auto to a large extent gets packaged ah.
Speaker Change: With other very profitable lines of business, you've you know you're selling it with your your your your package policy, which your work comp, it's a very profitable and so you put it all together and you might be a little bit more tolerant. However, you cannot treat auto as a commercial loss leader and I think there is an awareness for that and I do it.
Dino E. Robusto: And I think there is an awareness of that. And I do expect that the pressure, the upward pressure on pricing, is going to continue. Because, you know, and this is part of my comment on the rational pricing environment, I do think we're looking at it all in separate cycles and going after each one of them. And so that's probably what I could add. Thank you very much. I appreciate it.
Speaker Change: Spect that the pressure the upward pressure on pricing is going to continue as it because you know and it's part of my comment on rational you know rational pricing environment I do think we're looking at it all in separate cycles and going after.
Speaker Change: Each one of them and so that is probably what I could add.
Speaker Change: But it's very much appreciated.
Speaker Change: [noise].
Operator: And as a reminder, if you would like to ask a question, please press start 1 on your telephone keypad. Our next question comes from Meyers Shields at KBW. Please go ahead. Great, thanks so much. Most of my questions are really smaller.
Speaker Change: And as a reminder, if you'd like to.
Speaker Change: To ask a question. Please first star one on your telephone keypad.
Speaker Change: Our next question comes from Meyer Shields VW. Please go ahead.
Speaker Change: Great. Thanks, so much most of my questions are really smaller.
Meyer Shields: Transcription by Transcription Outsourcing, LLC, also have medical exposure, is the same trend showing up? Yeah, I think there's a little bit of pressure on medical, but it's still relatively small and, and, and, and captured within our, you know, our lost cost strengths. OK. You mentioned in your comments that, you know, price decreases as they're slowing down, all in. The Accelerated.
Speaker Change: And in the scope, but you know you're talking about medical inflation and workers compensation picking up a little what about other lines that also have medical exposure is the same trend showing up.
Speaker Change: Yeah, I think it's a you know there's a little bit of pressure on medical but it's still relatively small and.
Speaker Change: And and captured within our you know our loss cost trends.
Speaker Change: Okay excellent you mentioned in your comments that Dino.
Speaker Change: Decreases in rate decreases are slowing down all in financial institutions and management liability rate decreases got a little bit bigger than in the third quarter. So what.
Speaker Change: What lines are seeing the accelerated decline.
Dino E. Robusto: Yeah, so in the fourth quarter, because you know what we call FIML, it's got a lot of lines of business in there. So in the quarter, you had a seasonality mix because we had a lot more of what is our miscellaneous professional E&O business. And in the fourth quarter, it's about, you know, two times the sort of average quarter.
Speaker Change: Yeah. So in in the fourth quarter, because you know what we call F. I M. L. It's got a lot of lines of business in there. So in the quarter you had a seasonality mix because we had a lot more of what is our miscellaneous professional E N O business.
Speaker Change: And in the fourth quarter. Its about you know two times, the sort of average quarter end and in there in particular with some of the larger accounts on those lines of business and many of them excess just had higher rate increases. So if you then break out two of the other sort of larger lines as you pointed out.
Dino E. Robusto: And in particular, with some of the larger accounts on those lines of business, and many of them, excess just had higher rate increases. So if you then break out two of the other sort of larger lines, as you pointed out, the D&O, we saw some moderation. The other one is cyber, but there, too, although still negative, we saw some slight moderation also in cyber. But the seasonality mix of miscellaneous professional E&O is what caused it, Meyer.
The D N O. We saw some moderation the other one is cyber but there too although still negative we saw some slight moderation also in cyber but the seasonality makes a miscellaneous professional you know is a is what caused it.
Speaker Change: Meyer.
Meyer Shields: Okay, perfect. And then the final question, and The Transcripts provided by Transcription Outsourcing, LLC. Yeah, thank you. First of all, just to remind everyone of our definition of exposure, so you have the classic sort of valuation increases in there, or as companies, the sales go up, and you capture. But whenever we have changes in participations, in particular on different towers, and we bring those down, that will show up as negative exposure. And in the quarter, in particular, and internationally, we did come down on some property towers and also on some healthcare, and that more than offset the still increasing valuation increases that we're getting. So it is because we would put them together, it's the offset from the change in participation. Okay, so if I understand that correctly, there's still, if we could isolate somehow just the exposure component acting as a rate, it would still be favorable in international terms?
Speaker Change: Okay, Perfect and then final question in international.
The.
Speaker Change: Gap between rate change in premium change I guess, there wasn't it they were both 2% recent quarters that somewhere between I guess, the three and five points of what we would assume our exposure unit growth I was hoping you could talk about what's changing there.
Speaker Change: Yeah.
Speaker Change: Thank you first of all just to remind.
Speaker Change: Every one of our depth of our definition of the exposure. So you have the classic sort of valuation increases in there or as companies as sales go up and you can capture.
Speaker Change: But whenever we have changes in participations in particular on different powers and we bring those down that will show up as a negative exposure and in the corridor in particular in international we did come down on some property towers and also.
Speaker Change: So on from health care and that more than offset the still increasing valuation.
Speaker Change: Increases that we're getting so it is because we when we put them together, it's the offset from the change in participation.
Speaker Change: Okay. So if I understand that correctly theres still.
Speaker Change: If we could isolate somehow just the exposure component right, yeah, there'll be favorable international yeah, yes, it would be it would be.
Dino E. Robusto: Yeah. Yes, it would be. It would be.
Meyer Shields: Oh, all right, perfect. Thank you so much. And this concludes our question and answer session. I'd like to turn the conference back over to Dino Robusto for any closing remarks. Thank you very much, everyone. Thank you. Ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Speaker Change: Alright, perfect. Thank you so much.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Dino Robusto for any closing remarks.
Dino E. Robusto: Thank you very much everyone.
Dino E. Robusto: Yeah.
Dino E. Robusto: Thank you ladies and gentlemen. This concludes today's conference call. We thank you all for attending today's presentation.
Speaker Change: You may now disconnect your lines and have a wonderful day.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: [music].