Q1 2024 ProAssurance Corp Earnings Call
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Operator: Good morning everyone, welcome to ProAssurance's conference call to discuss the company's first quarter 2024 results. I would like to remind you that the call is being recorded, and there will be a time for questions after the conclusion of prepared remarks. Now, I will turn the call over to Heather Wetzel.
Speaker Change: Good morning, everyone and welcome to Pro assurances conference call to discuss the company's first quarter 2024 results I would like to remind you that the call is being recorded and it will be a time for questions. After the conclusion of prepared remarks, now I will turn the call over to have a vessel.
Heather Wetzel: Morning, everyone. It's a pleasure to be here today.
Havre Vessel: Good morning, everyone, it's a pleasure to be here today.
Havre Vessel: <unk> issued by this news release and report on Form 10-Q first quarter results yesterday May six 2024 included in those documents were cautionary statements about the significant risks uncertainties and other factors that are out of the company's control and could affect <unk> business and alter expected results. Please review those statements.
Heather Wetzel: ProAssurance issued both its news release and report on Form 10-Q and first quarter results yesterday, May 6, 2024. Included in those documents were cautionary statements about significant risks, uncertainties, and other factors that are out of the company's control and could affect ProAssurance's business and alter expected results. Please review those statements.
Heather Wetzel: This morning, our management team will discuss selected aspects of the results on this call, and investors should review the 10-Q and news release for full and complete information. We expect to make statements on this call dealing with projections, estimates, and expectations and explicitly identify these as forward-looking statements within the meaning of the U.S. federal securities laws and, subject to applicable safe harbor protection, the content of this call is accurate only on May 7, 2024, and, and except as required by law or regulation, ProAssurance will not undertake and expressly disclaim any obligation to update or alter information disclosed as part of these forward-looking statements.
Havre Vessel: This morning, our management team will discuss selected aspects of the results on this call and investors should review the 10-Q and news releases for a full and complete information we.
Havre Vessel: We expect to make statements on this call dealing with projections estimates and expectations and explicitly identify these as forward looking statements then the meaning of the U S Federal securities laws and subject to applicable safe Harbor protections.
Havre Vessel: Contents of this call is accurate only on May seven 2024, and as except as required by law or regulation <unk> will not undertake and expressly disclaims any obligation to update or alter information disclosed as part of these forward looking statements.
Heather Wetzel: We also expect to reference non-GAAP items during today's call. The company's recent news release provides a reconciliation of these non-GAAP numbers to their GAAP counterparts. On the call with me today are Ned Rand, President and CEO, and Dana Hendricks, Chief Financial Officer. Also joining on the call today are Executive Leadership Team members Rob Francis, Kevin Shook, and Karen Murphy. Now, I'll turn the call over to
Havre Vessel: We also expect to reference non-GAAP items during today's call. The company's recent news release provides a reconciliation of these non-GAAP numbers to their GAAP counterparts on the call with me today are Ned Rand, President and CEO, and Dana Hendricks Chief Financial Officer.
Havre Vessel: Joining on the call today are executive leadership team members, Rob Francis Kevin Chuck and Karen here.
Havre Vessel: Now I'll turn the call over to Matt.
Edward Lewis Rand: Thank you, and I'd like to start by welcoming everyone to our call and welcoming Heather to ProAssurance. We reported operating earnings in the first quarter of $0.08 per share, benefiting from a six-point improvement in the calendar year loss ratio and a 12% increase in investment income.
Matt: Thank you and I'd like to start by welcoming everyone to our call and welcoming Heather approach Laurence.
Matt: We reported operating earnings in the first quarter.
Matt: <unk> per share benefiting from a six point improvement in the calendar year loss ratio and a 12% increase in investment income.
Edward Lewis Rand: We remain focused on driving underwriting improvement, which can be seen as a three-point improvement in our current action-at-your-loss ratio. The markets we operate in continue to be challenging, and we remain cautious about both the risks we underwrite and lost cost trends. We are focused on achieving pricing levels that help move us toward our long-term profitability goals and believe we are continuing to get right beyond lost-cost trends. We saw solid progress toward our objectives in the quarter with strong retention of existing insured.
Matt: We remain focused on driving underwriting improvements, which can be seen in the three point improvement in our current accident year loss ratio.
Matt: The markets, we operate in continue to be challenging and we remain cautious about both the risks, we underwrite and lost cost trends.
Matt: We are focused on achieving pricing levels that helped move us toward our long term profitability goals and believe we are continuing to get rate beyond loss cost trends.
Matt: We saw solid progress toward our objectives in the quarter with strong retention of existing insureds.
Edward Lewis Rand: We continue to forego new and non-renew existing business that does not meet our underwriting criteria. The loss environment in the medical professional liability market continues to be challenging in many jurisdictions, with the resumption in the fourth quarter of 2022 of the pressure on claims costs from social inflation and higher than anticipated severity trends that initially emerged in 2019 and 2020 but abated during the pandemic.
Matt: We continue to forego new and non renew existing business that does not meet our underwriting criteria.
Matt: The loss environment in the medical professional liability market continues to be challenging in many jurisdictions with the resumption in the fourth quarter of 2022 of the pressure on claims costs from social inflation and higher than anticipated severity trends.
Matt: These had initially emerged in 2019 and 2020, we debated during the pandemic.
Edward Lewis Rand: We continue to monitor the impact that these trends could have on our open case reserves and prior year development. We are confident in the actions we're taking to address market conditions. Reinforcing the importance of our underwriting stance, we are continuing to see the impact of higher medical costs per claim in the current workers' compensation claims trend, a trend we believe the broader workers' comp market must ultimately address, despite continued moderation of claim frequency.
Matt: We continue to monitor the impact that these trends could have on our open case reserves in prior year development.
Matt: We're confident in the actions were taken to address market conditions.
Matt: Reinforcing the importance of our underwriting stance, we are continuing to see the impact of higher medical cost per claim and current workers' compensation claims trends a trend we believe the broader worker's comp market must ultimately address.
Matt: Despite continued moderation of claim frequency.
Edward Lewis Rand: The average medical cost per claim is still rising due to healthcare wage inflation, higher utilization, and rising costs as new treatments and technologies are applied to patient care. Confirming our view in a study published in December 2023, the Workers' Compensation Research Institute described the impact on payments per claim of vertically integrated providers, which represent an ever-growing share of the market. The study noted that workers treated by these providers received more medical care and saw more providers increase payments per client by more than 10% at 12 months of maturity without meaningfully changing outcomes.
Matt: Average medical cost per claim is still rising due to health care wage inflation higher utilization and rising costs as new treatments and technologies are applied to patient care.
Matt: Confirming our view in a study published in December 2023, the Workers' compensation Research Institute described the impact on payments per claim a vertically integrated providers.
Matt: Which represents an ever growing share of the market.
Matt: The study noted that workers treated by these providers receive more medical care and saw more providers increasing payments per client by more than 10% at 12 months of maturity without meaningful meaningfully changing outcomes.
Edward Lewis Rand: Since we close cases on average 40% faster than the industry, we can observe and respond to trends more quickly in our book of business. We're using the insights we're gaining to underwrite accordingly. We're convinced the impact of higher medical utilization will be seen industry-wide in the coming quarter. The bottom line is that our long history in both medical professional liability and workers' compensation has taught us that these cyclical lines of insurance will respond to our focused efforts.
Matt: Since we closed cases on average 40% faster than the industry.
Matt: We can observe and respond to trends more quickly in our book of business.
Matt: We're using the insights we gain to under we were gaining to underwrite accordingly.
Matt: The impact of higher medical utilization will be seen in industry wide in the coming quarters.
Matt: The bottom line is that our long history in both medical professional liability and workers' compensation.
Matt: Taught us that these cyclical lines of insurance will respond to our focused efforts.
Edward Lewis Rand: We remain confident in our ability to ultimately achieve underwriting profitability in both businesses. However, as I said last quarter, the current market conditions are a headwind keeping us from achieving that goal as quickly as we would like. These conditions will likely require us to shrink our book in some markets while we wait for conditions to improve and we can turn our focus to growth. But we will not compromise to achieve a short-term fix at the expense of protecting our balance sheet and our insurance over the long term.
Matt: We remain confident in our ability to ultimately achieve underwriting profitability in both businesses.
Matt: However, as I said last quarter. The current market conditions are a headwind keeping us from achieving that goal as quickly as we would like.
Matt: These conditions will likely require us to shrink our book in some markets, while we wait for conditions to improve and we can turn our focus to growth.
Matt: But we will not compromise to achieve a short term fix at the expense of protecting our balance sheet and our insureds over the long term.
Edward Lewis Rand: We know that maintaining our discipline will be key to delivering the positive long-term results we believe we can achieve. I think you'll see signs of our progress in Dana's remarks as she takes a closer look at the segments.
Matt: We know that maintaining our discipline will be key to delivering the positive long term results. We believe we can achieve.
Matt: I think youll see signs of our progress in Dana's remarks, as she takes a closer look at the segments.
Dana Shannon Hendricks: Thanks, Ned. Let me start with the specialty PNC segment. The segment's top line is a good example of the progress Ned mentioned, although gross premiums written declined $3.6 million quarter over quarter driven by our non-renewal of a large account. We retained 86% of policies eligible for renewal, maintaining our disciplined underwriting and pricing criteria to achieve an average rate increase of 7%. We were able to generate $10.4 million of new business priced at rates that move us toward our long-term profitability goal.
Dana Shannon Hendricks: Thanks, Dan let me start with the specialty P&C segment.
Dana Shannon Hendricks: The segment's top line is a good example of the progress and Ed mentioned gross premiums written declined $3 $6 million quarter over quarter, driven by our non renewal of a large account.
Dana Shannon Hendricks: We retained 86% of policies eligible for renewal, maintaining our disciplined underwriting and pricing criteria to achieve an average rate increase of 7%.
Dana Shannon Hendricks: We were able to generate $10 $4 million of new business priced at rates that move us toward our long term profitability goal.
Dana Shannon Hendricks: We're also seeing the benefit of our risk selection, where we're leveraging our expertise in the sector to identify segments of the medical professional liability market that could yield opportunities for greater profitability. Another example is the segment's current accident year net loss ratio, which improved almost five points as compared to last year's first quarter. This also demonstrates the positive effects of our ongoing application of our underwriting and pricing guidelines, as well as our Effective Claims Management Strategy.
Dana Shannon Hendricks: We're also seeing the benefit of our risk selection, where we're leveraging our expertise in this sector to identify segments of the medical professional liability market it could yield opportunities for greater profitability.
Dana Shannon Hendricks: Another example is the segment's current accident year net loss ratio, which improved almost five points as compared to last year's first quarter.
Dana Shannon Hendricks: This also demonstrates the positive effects of our ongoing application of our underwriting and pricing guidelines as well as our effective claims management strategies.
Dana Shannon Hendricks: In the quarter, we recognized net favorable prior accident year reserve development of $1.3 million, primarily attributable to purchase accounting amortization related to the NorCal transaction. Last year's first quarter included $7.4 million of unfavorable development, primarily the result of several large verdicts.
Dana Shannon Hendricks: In the quarter, we recognized net favorable prior accident year reserve development of $1 $3 million, primarily attributable to purchase accounting amortization related to the norcal transaction.
Dana Shannon Hendricks: Last year's first quarter included $7 $4 million of unfavorable development, primarily the result of several large verdicts.
Dana Shannon Hendricks: As a reminder, we perform a more in-depth review of prior year reserves on a semi-annual basis in the second and fourth quarters. The increase in the quarter's expense ratio was primarily due to the impact of beneficial items in 2023, including a $3.8 million payroll tax refund from the Employee Retention Credit Program and a decrease in the fair value of the contingent consideration liability related to the NorCal acquisition. First quarter segment results also reflect our participation in Lloyd's with a one quarter reporting lag.
Dana Shannon Hendricks: As a reminder, we performed a more in depth review of prior year reserves on a semiannual basis in the second and fourth quarters.
Dana Shannon Hendricks: The increase in the quarter as expense ratio was primarily due to the impact of beneficial items in 2023, including a $3 $8 million payroll tax refund from the employee retention credit program and a decrease in the fair value of the contingent consideration liability related to the nor Cal acquisition.
Dana Shannon Hendricks: First quarter segment results also reflect our participation in Lloyds with the one quarter reporting lag this business will be in run off beginning in the second quarter with activity for open underwriting years prior to 2020 for earning out over the next few years.
Dana Shannon Hendricks: This business will be in runoff beginning in the second quarter, with activity for open underwriting years prior to 2024 earning out over the next few years. The theme of disciplined operational strategy continues in our workers' compensation segment, where state lost cost reductions are continuing to drive compounded premium rate decreases. We continue to believe the current market conditions require extraordinary dedication to premium adequacy and risk selection.
Dana Shannon Hendricks: The theme of disciplined operational strategy continues in our workers compensation segment, where state loss cost reductions are continuing to drive compounded.
Dana Shannon Hendricks: Premium rate decreases we continue to believe the current market conditions require extraordinary dedication to premium adequacy and risk selection.
Dana Shannon Hendricks: We saw a small decline in top line premiums for the segment of approximately $800,000. However, despite a slight reduction in policy count, premiums in the traditional book were approximately $3 million higher for several reasons. First, we're seeing higher reported insured payroll and positive midterm policy endorsement. Plus, we renewed several policies as traditional business that were previously written in a captive program in the segregated portfolio sale reinsurance segment. We retained 87% of existing policies at rates that we believe move us toward our long-term rate adequacy goals.
Dana Shannon Hendricks: We saw a small decline in top line premiums for the segment of approximately $800000.
Dana Shannon Hendricks: Despite a slight reduction in policy count premiums in the traditional book were approximately $3 million higher for several reasons.
Dana Shannon Hendricks: First we're seeing higher reported insured payroll and positive mid term policy endorsement.
Dana Shannon Hendricks: Plus we renewed several policies as traditional business that were previously written in a captive program in the segregated portfolio cell reinsurance segment.
Dana Shannon Hendricks: We retained 87% of existing policies at rates that we believe move us toward our long term rate adequacy golf.
Dana Shannon Hendricks: The $8.2 million of new business was added selectively. The segment's first quarter accident-year loss ratio was below full year 2023, although higher than last year's first quarter due to the medical cost trends that Ned discussed. We believe our caution around the current claims environment and our focus on operational discipline is beginning to be reflected in results. For example, there was no change in prior accident year reserve estimates in the first quarter of 2024 for this segment.
Dana Shannon Hendricks: The $8 $2 million of new business was added selectively.
Dana Shannon Hendricks: The segment's first quarter accident year loss ratio was below full year 2023, although higher than last year's first quarter due to the medical cost trends that Ned discussed.
Dana Shannon Hendricks: We believe our caution around the current claims environment and our focus on operational discipline is beginning to be reflected in result.
Dana Shannon Hendricks: There was no change in prior accident year reserve estimates in the first quarter of 2024 for this segment.
Dana Shannon Hendricks: The underwriting expense ratio was higher than the prior year quarter, primarily reflecting an increase in compensation-related costs in the current quarter and the impact of an increase in our EBUB estimate in last year's first quarter. Turning to investment results, net investment income rose by $4 million, or 12%, quarter over quarter, as we took advantage of the rising rate environment. New purchase yields in the quarter were 5.6%, or 220 basis points higher than our average book yield.
Dana Shannon Hendricks: The underwriting expense ratio was higher than the prior year quarter, primarily reflecting an increase in compensation related costs in the current quarter and the impact of an increase in our EBIT estimate in last year's first quarter.
Dana Shannon Hendricks: Turning to investment results net investment income rose by $4 million or 12% quarter over quarter. As we took advantage of the rising rate environment, new purchase yields in the quarter were five 6% or 220 basis points higher than our average book yield.
Dana Shannon Hendricks: We also recorded a $3 million gain in equity and earnings from our investment in LPs and LLCs compared to an $800,000 loss in the year-ago quarter. Book value per share was $21.82, with approximately $4 million. $4 per share of embedded unrealized holding losses. We have both the intent and ability to hold the related securities until maturity, so those unrealized losses will accrete back to book value as the portfolio matures. As Ned said, we are committed to protecting our balance sheet and our insureds over the long term. We are seeing signs that our actions are beginning to achieve pricing levels that meet our objective, and we will continue to be intentional about capital management. Heather? Thank you, Dana.
Dana Shannon Hendricks: We also recorded a $3 million gain and equity in earnings from our investment in L. P and L. L C compared to an $800000 loss in the year ago quarter.
Dana Shannon Hendricks: Book value per share was $21.82 with approximately $4 million.
Dana Shannon Hendricks: Excuse me $4 per share of embedded unrealized holding losses, we have both the intent and ability to hold the related securities until maturity.
Dana Shannon Hendricks: Unrealized losses will accrete back to book value as the portfolio matures as.
Dana Shannon Hendricks: As Ned said, we are committed to protecting our balance sheet and our insureds over the long term we are seeing signs that our actions are beginning to achieve pricing levels that need our objective and we will continue to be intentional on capital management Heather. Thank you Dana net any final comments.
Heather Wetzel: Thank you, Dana. Ned, any final comments?
Edward Lewis Rand: Thanks Heather.
Edward Lewis Rand: I'd simply like to reiterate that we're pleased to report profitability in the quarter, that we know there is more to be done, and that we understand the urgency of achieving that goal. But I'll say again, we will not take shortcuts to get there.
Edward Lewis Rand: I'd simply like to reiterate that we're pleased to report profitability in the quarter.
Speaker Change: That we know there is more to be done.
Speaker Change: We understand the urgency of achieving that goal.
Edward Lewis Rand: But I'll say it again, we will not take shortcuts to get there.
Heather Wetzel: Thank you. That concludes our prepared remarks. Terry, we're ready for questions.
Speaker Change: Thank you that concludes our prepared remarks, Terry we're ready for questions.
Operator: Thank you. If you would like to ask a question, please dial star followed by one on your telephone keypad now. If you change your mind, please dial star followed by two to exit the queue. And finally, when preparing to ask your question, please ensure that your phone is unmuted locally. And for our first question today, we will go to the line of Matt Carletti of JMP. Now, please go ahead; your line is open.
Terry: Thank you if you would like to ask a question a few staff star followed by one on your telephone keypad now.
Terry: If you change your mind, please dial star followed by two to exited the queue and find anyone preparing to ask your questions. Please ensure that your phone is a muted locally.
Terry: For our first question today, we'll go to the line of much called let's say of JMP.
JMP: Please go ahead your line is open.
JMP: Hey, Thanks, good morning.
JMP: Yeah.
Matthew John Carletti: Ned, you talked a bit about, um, good morning. Ned, you talked a bit about how, you know, about a year ago, you kind of saw kind of social inflation and severity really kind of spike back up coming out of the pandemic and some of the actions you guys took. Can you update us on how the competitive environment might have changed kind of over the past year or so in that time frame?
Matthew John Carletti: Ned you talked a bit about.
Speaker Change: Good morning.
Speaker Change: Talked a bit about how we go about a year ago, you saw kind of social inflation that severity really kind of spiked back up coming out of the pandemic and some of the actions you guys took can you update us on how the competitive environment might've changed kind of over the past year or so kind of over that timeframe.
JMP: Yes.
Edward Lewis Rand: Yeah, happy to Matt and to jump in as well. What I would say is that it is inconsistent in a competitive environment. A lot of our competitors, as you know, are mutuals that have accumulated a lot of capital and, as a consequence, generate a lot of investment income, and, as a consequence of that, are willing to write at levels that we think are not appropriate. But we do, I think, in markets and areas, see what I would call more rational... Pricing Decisions, and then we maybe were saying 12 months ago, but it's, It's kind of territory by territory, and..., segment by segment. Robert, anything you might add to that?
Speaker Change: Yeah happy to Matt and.
Robert: To jump in as well.
Speaker Change: What I would say that that it is inconsistent.
Edward Lewis Rand: Inconsistent.
Speaker Change: From a competitive environment a lot of our competitors.
Edward Lewis Rand: Are mutuals that have accumulated a lot of capital.
Robert: As a consequence generate a lot of investment income.
Edward Lewis Rand: And.
Speaker Change: As a consequence of that are willing to write at levels that we think are not appropriate.
Speaker Change: But we do I think.
Robert: And in market scenarios see what.
Speaker Change: What I would call more.
Speaker Change: Rational.
Speaker Change: Pricing decisions and then we may be were seeing 12 months ago, but it's.
Speaker Change: It's kind of territory by territory in and.
Speaker Change: Segment by segment, Robert anything you might add to that.
Robert David Francis: Thanks, Ned. I would concur with that overall. And generally speaking, what we saw coming out of the pandemic were some small rate increases. I won't say universally, but many companies were taking small rate increases and certainly taking a little bit harder look at their larger accounts, which were more underperforming. Unfortunately, they were taking rate increases that were probably half or a third of what they actually needed because they didn't want to lose that business, but it was moving in the right direction.
Robert: Thanks Ned.
Robert: I would concur with that overall and generally speaking what we saw was coming out of the pandemic. There was some small rate increases.
Robert David Francis: Say universally but many companies, we're taking small rate increases and certainly taking a little bit harder look at their larger accounts, which were.
Robert David Francis: We're more underperforming.
Robert David Francis: That softened a little bit in 23, we think because of the additional investment income, as Ned mentioned, they didn't, they didn't have the same underwriting profit goal; they had an overall operating profit goal. And so that softened a little bit in 23. We do believe that the larger carriers are maintaining a better level of discipline, but the mutual carriers are still living sort of in the world of a few years ago.
Robert David Francis: Unfortunately, they are taking rate increases that were probably half or a third of what they actually needed so because.
Robert David Francis: Because they didn't want to lose that business, but it was moving in the right direction that softened a little bit in 'twenty three.
Robert David Francis: Because of the additional investment income as Ned mentioned they didn't they don't have the same underwriting profit goal. They have an overall operating profit goal and so that softened a little bit in 'twenty three we do believe that the the larger carriers are maintaining.
Robert David Francis: Better level of discipline, but the mutual carriers are still living.
Robert David Francis: It's sort of in the world of a few years ago.
Matthew John Carletti: Great. Very helpful color. Thank you.
Speaker Change: Great very helpful color. Thank you.
Matthew John Carletti: Yeah.
Operator: Thank you. Our next question today is from the line of Greg Peters of Raymond James. Please go ahead. Your line is open.
Matthew John Carletti: Thank you. Our next question today is from the line of Greg features of Raymond James. Please go ahead. Your line is open.
Unknown Executive: Hey, good morning. This is Sid speaking on behalf of Greg. You called out being ahead of recognizing some of the severity in the workers comp line and with the rate decreases. I'm just curious how you see the rate environment playing out if you think the market could get to an inflection sometime, you know, over the next year or two. It's a great question, Sid.
Operator: Hey, Good morning, this is Sid on for Greg.
Unknown Executive: You called out being ahead of recognizing some of the severity and the workers comp one and with the rate decreases I'm. Just curious how you see the rate environment playing out if you think the market could get to an inflection sometime over the next year or two.
Edward Lewis Rand: It's a great question, Sid. We do think it needs to get to that inflection point. The decline in pricing has really been frequency driven. And, you know, I'm fairly certain frequency is not going to zero. And so it's really when that severity trend kind of crosses over that frequency trend that you have to watch for. In our view, while we continue to see frequency improvements and benefit from that frequency trend, we kind of think we're at a point where that severity trend is more meaningful.
Speaker Change: And so it's a great question said.
Edward Lewis Rand: We do think it needs to get to that inflection point.
Edward Lewis Rand: The decline in pricing has really been frequency driven.
Edward Lewis Rand: I'm fairly certain frequency is not going to zero and so it's really when that severity trend kind of crosses over that frequency trend that you have to watch for.
Edward Lewis Rand: And argue why we continue to see.
Edward Lewis Rand: Frequency improvements and benefit from that frequency trend. We we kind of think we're at a point where that severity trends as being more meaningful we don't see that reflected in a lot of the market yet.
Edward Lewis Rand: We don't see that reflected in a lot of the market yet, but we think that point is coming, regardless of your view on frequency and the impact that it's having. I think the trends in medical care are unquestionable and something that everybody's being faced with.
Edward Lewis Rand: We think that point is coming.
Edward Lewis Rand: Regardless of of your view on frequency and the impact that it's having a I think the severity trends in.
Edward Lewis Rand: In medical care are unquestionable.
Edward Lewis Rand: Something that everybody's been being faced with.
Speaker Change: Okay. Thank you.
Operator: Thank you. As a reminder, if you'd like to ask a question today, please dial star followed by one on your telephone keypad. Our next question is from the line of Dan Farman of GNA. Please go ahead, Dan; your line is open.
Edward Lewis Rand: Thank you as a reminder, if you'd like to ask a question today P style store fleet by one on your telephone keypad.
Robert Edward Farnam: Our next question is from the line of done bomb of Janney. Please go ahead, John Your line is open.
Robert Edward Farnam: Thanks. It's Bob Farnam with JANI. Ned, I had a question about, especially in Pete's segment, in regards to social inflation. And I'm just curious if there are things you can do to address social inflation that are not just raising rates.
Robert Edward Farnam: Thanks, Bob <unk> with Janney.
Robert Edward Farnam: I had a question about the specialty P&C segment in regards to social inflation.
Robert Edward Farnam: I'm just curious.
Robert Edward Farnam: If there are things you can do to address social inflation that are not just raising rates.
Robert Edward Farnam: Yes.
Edward Lewis Rand: Yeah, it's a good question, Bob, and it's probably a long answer. So yeah, there certainly are things. I think there are things that we can do and how we approach claims. So there are things that we can very, very directly control, and, you know, kind of finding that balance and refining that balance between claims you take the distance on and claims that you choose to settle. And that can have an impact, obviously, on the ultimate cost of a claim.
Robert Edward Farnam: Yeah.
Ned: So it's a good question, Bob and it's probably a long answer.
Edward Lewis Rand: So yes, there certainly are things I think there are things that we can do and how we approach clients. So there are things that we very very directly can control.
Edward Lewis Rand: And kind.
Edward Lewis Rand: Kind of finding that balance and refining that balance between claims you take the distance and claims that you chose to settle.
Edward Lewis Rand: And that can have an impact obviously on the ultimate cost of a claim.
Edward Lewis Rand: You know, from an underwriting standpoint, beyond price, obviously, the risk we choose to write, and the territories we choose to write in can make a difference as well. I think then the question really goes to what can be done about social inflation and how can you perhaps turn the tide of social inflation? And that's a much more complicated question.
Edward Lewis Rand: From an underwriting standpoint down price, obviously, the risk we choose to ride the territories, we choose to write and can make a difference as well.
Edward Lewis Rand: I think then the question really then goes to what.
Edward Lewis Rand: What can be done about kind of social inflation and how can you perhaps turned the tide of social inflation.
Edward Lewis Rand: And that's a much more complicated question.
Edward Lewis Rand: A lot of, in my view, a lot of what happens or is happening right now is just driven by kind of societal views of what a dollar is worth, societal views of the need to compensate injured parties regardless of who might be at fault. And so there are a number of those sorts of issues where I think, as an industry, better, better information. The public about what our product is and what we do, and how doctors practice and the safety focus that doctors do have to try and turn some of that tide.
Edward Lewis Rand: A lot of in my view, you know a lot of what happened or is happening right. Now is just driven by kind of the <unk>.
Edward Lewis Rand: <unk> views.
Edward Lewis Rand: Of.
Edward Lewis Rand: What's a dollar worth.
Edward Lewis Rand: Societal views of.
Edward Lewis Rand: We need to compensate injured parties rig.
Edward Lewis Rand: Regardless of who might be at fault.
Edward Lewis Rand: So there are a number of.
Edward Lewis Rand: Of those sorts of issues, where I think.
Edward Lewis Rand: As an industry better better informing.
Edward Lewis Rand: The public about what our product is and what we do and how.
Edward Lewis Rand: How doctors practice and the safety focus the doctors do have to try and turn some of that Todd is important.
Edward Lewis Rand: I think as an industry, the insurance industry could also do a better job of communicating the value that we provide to society because we're often seen as the bad guys, and I think the fact that we are kind of the grease that allows commerce to happen gets lost. And so I think there are some narratives that we need to try and recapture, both as a health care industry and as an insurance industry that can help improve that.
Edward Lewis Rand: I think as an industry the insurance industry.
Edward Lewis Rand: Also could do a better job of communicating the value that we provide to society.
Edward Lewis Rand: Because we are often made the bad guys.
Edward Lewis Rand: And I think the fact that we are kind of the gris that allows commerce to happen gets lost.
Edward Lewis Rand: And so I think theres, some narratives that we need to try and recapture them both as the health care industry as an insurance industry that can help improve that and then theres tort reform right and there is a there's a whole merit of.
Edward Lewis Rand: And then there's tort reform, right? And there's a whole myriad of things within tort reform. And it's, you know, when we talk about tort reform, I think people's minds automatically go to CAP. But there's so much more involved there. Some of it is around disclosure of litigation funding. Some of it is around putting parameters around life care planners and the plans and how they develop the plans and making sure that what they're putting is rational and realistic. So yeah, there are a lot of things that we as an industry are looking at that we are working to address. And then there are things within the organization that we can do as well.
Edward Lewis Rand: Things within tort reform.
Edward Lewis Rand: And when we talk about tort reform I think people minds automatically go to caps.
Edward Lewis Rand: But there is so much more involved there.
Edward Lewis Rand: Of it is around disclosure of litigation funding.
Edward Lewis Rand: Some of it is around putting parameters around lifecare planners and the plans and how they develop the plans and making sure that what they are putting forth as rational unrealistic.
Edward Lewis Rand: So yes, there are a lot of things that we as an industry are looking at that we are working to address and then there are things within the organization that we can do as well.
Edward Lewis Rand: Are there are there.
Robert Edward Farnam: [inaudible] The geographical areas that you're in, you see some progress in those regards.
Edward Lewis Rand: Geographic areas that you're in that you see some progress in those in those regards.
Edward Lewis Rand: I would say that there are geographic areas that we think are, you know, more stable and predictable, and there are those that are less stable and predictable. But I think that that delineation is harder to see today than it was 10 years ago. 10 years ago, I think you could say, here are the 10 really bad jurisdictions and [inaudible] are much more cautious about.
Robert Edward Farnam: I would say that there are there geographic areas that we think are.
Edward Lewis Rand: More stable and predictable.
Edward Lewis Rand: Those that are less stable and predictable, but I think that that delineation is harder to see today than it was 10 years ago.
Edward Lewis Rand: 10 years ago, I think you can say here, the 10 really bad jurisdictions and.
Edward Lewis Rand: If you were to kind of see where large verdicts were coming from it was highly probable that they were coming from one of those 10 jurisdictions and that's not the case today, there's it's a little more haphazard in a little more unpredictable.
Edward Lewis Rand: But theres certainly our markets that we feel better about and we feel better about where our pricing is and better about the litigation environment and there are others that we.
Edward Lewis Rand: Are much more cautious about.
Robert Edward Farnam: Okay, great. Now that's a good color. Thanks, Dan.
Speaker Change: Okay great.
Speaker Change: Good color thanks, Matt.
Robert Edward Farnam: Yeah.
Operator: Our next question today is from the line of Mark Hughes of Truer Securities. Mark, please go ahead; your line is open.
Robert Edward Farnam: Our next question today is from the line of Mark Hughes of True Securities. Please go ahead. Your line is open.
Mark Douglas Hughes: Yeah, thank you. Good morning.
Mark Douglas Hughes: Yes. Thank you good morning.
Edward Lewis Rand: Ned, do you think the Mutuals are doing cash flow underwriting just, I think, with their, transcripts provided by Transcription Outsourcing, LLC? Are they just taking advantage of the higher interest rates, and maybe we need a little turn in the Fed in order for them to be less competitive? What do you think about that?
Mark Douglas Hughes: Do you think.
Mark Douglas Hughes: Mutuals.
Edward Lewis Rand: Are they.
Edward Lewis Rand: Doing cash flow underwriting just.
Ned: I think with their <unk>.
Edward Lewis Rand: <unk> generally overcapitalized.
Edward Lewis Rand: Are they just taking advantage of the higher interest rates and maybe we need to.
Edward Lewis Rand: Turn on the fed in order for them to be less competitive what do you think about that.
Edward Lewis Rand: Yeah, I think it's really investment income driven. As Rob mentioned, they can write to a higher combined ratio and still turn an underwriting or operating profit, and they're very focused on that operating profit. I think a challenge, though, for them will come in that if you consistently underprice the market year over year over year, that gap to good pricing compounds every year. And so if you're not keeping up with trends and if you're running well below trends, when you finally have to get back to adequate pricing, the jump you have to make can be quite considerable. And I think that will present a challenge for them at some point. But for right now, yeah, they are able to generate a lot of investment income to offset underwriting losses.
Ned: Yes, I think I think it's really an investment income driven.
Edward Lewis Rand: As Rob mentioned, they can write to AR.
Edward Lewis Rand: A higher combined ratio and still turn at underwriting or an operating profit and they're very focused on that operating profit.
Edward Lewis Rand: I think the challenge, though for them will come in that if you consistently under priced the market year over year over year.
Edward Lewis Rand: That gap to good pricing compounds every year.
Edward Lewis Rand: And so if you're not keeping up with trends and if you're running well below trends. When you finally have to get back to adequate pricing jumped you have to make can be quite considerable.
Edward Lewis Rand: And I think that will present, a challenge for them at some point, but for right now.
Edward Lewis Rand: Yeah, they are able to generate a lot of investment income.
Edward Lewis Rand: Offset underwriting losses.
Edward Lewis Rand: And then I'm sorry if I missed this in the earlier commentary, but when you think about the improvement in the current accident year loss ratio in the healthcare business, thank you. Have a great day. Well, can you kind of break apart what were the components of that improvement, you know, price, terms and conditions, claims, experience?
Edward Lewis Rand: And then.
Speaker Change: Sorry, if I missed this in the earlier commentary, but when you think about.
Edward Lewis Rand: Improvement in the current accident year loss ratio.
Edward Lewis Rand: In the.
Edward Lewis Rand: Health care business.
Edward Lewis Rand: Can you kind of break apart what were the components of that improvement price.
Edward Lewis Rand: Terms and conditions.
Edward Lewis Rand: Claims experience.
Edward Lewis Rand: Yeah, I would say, you know, it's so For when you're looking at kind of earned premium in the quarter, you don't have a lot of claims to detail, you know, the number of claims that you've received, but you don't have a lot of detail around those claims. So this is more driven by, has been driven in part by, that, right? So the experience we're seeing in the first quarter, but it's also driven by the pricing gains that we made when we wrote that business 12 months ago and our belief that the pricing gains we've got are in excess of the severity trends that we're seeing, and so we give ourselves credit for that and the loss pick that we're making for the current year. We also take a look at the business that we've non-renewed and kind of the mix of business that we currently have when establishing that loss ratio.
Speaker Change: Yeah, I would say so.
Edward Lewis Rand: When you're when you're looking at kind of earned premium in the quarter that you don't have a lot of claims did tell you know the number of claims that you've received but you don't have a lot of detail around those claims. So this is more driven.
Edward Lewis Rand: It's been driven in part by that right. So the experience we're seeing in the first quarter, but it's also driven by the pricing gains that we made when we wrote that business 12 months ago.
Edward Lewis Rand: And our belief that that pricing trend.
Edward Lewis Rand: Pricing gains we've got are in excess of the severity trends that we're seeing.
Edward Lewis Rand: And so we give ourselves credit for that and the loss picks that were making for the current year.
Edward Lewis Rand: We also take a look at the business that we've nonrenewed.
Edward Lewis Rand: And kind of the mix of business that we currently have.
Edward Lewis Rand: When establishing that loss ratio.
Edward Lewis Rand: Yes.
Edward Lewis Rand: And again, I apologize if you've already touched on this, but the NCCI lost cost trajectory still seems like it continues to be down and not abating. Are you seeing any kind of sign that there might be some stabilization there just in terms of the... Industry Lost, experience, or the NCCI's analysis are there, have either lost cost recommendations.
Speaker Change: And again apologize if you already touched on this.
Edward Lewis Rand: In CCI loss cost trajectory still things are going it continues to be down not abating.
Edward Lewis Rand: Seeing any kind of.
Edward Lewis Rand: Sign that there might be some stabilization there just in terms of the.
Edward Lewis Rand: Industry loss.
Edward Lewis Rand: <unk>.
Edward Lewis Rand: Experience or the in CCI is.
Edward Lewis Rand: <unk> are there.
Edward Lewis Rand: Loss cost recommendations.
Edward Lewis Rand: Yeah.
Edward Lewis Rand: And Kevin, you can jump in when I'm done. I would say that, you know, our focus right now is not so much on. What NCCI thinks is what we think, focusing on how we drive rates as an individual account underwriter in a pretty challenging market where the whole market seems to want to drive prices down. Again, as I said earlier, I think the frequency trends can't continue forever, and the severity trends are very, very real, and so I think there has to be a response.
Speaker Change: And Kevin you can you can jump in when I'm done I would say that our focus right now is not so much on.
Edward Lewis Rand: Why didn't you see I think says what we think and.
Edward Lewis Rand: Focus on how we drive raid as an individual account underwriter in a pretty challenging market, where the whole market seems to want to drive drive prices down.
Edward Lewis Rand: Hmm.
Edward Lewis Rand: Again as I said earlier I think the frequency trends can't continue forever and the severity trends are very very real and and so I think there has to be a response.
Edward Lewis Rand: NCCI is backwards looking and often with the delay and that kind of backwards look, and we think that perhaps is influencing where they sit today, but we think the tide does need to turn. Just can't say when it will for the industry, so we're going to control it on our own. Anything you'd add to that, Kevin? No, I
Edward Lewis Rand: And CCI is backwards looking and.
Kevin: And often with a delay in that kind of a backwards look and we think that.
Kevin: Perhaps is influencing where they where they said we think that we think that that does need to turn just can't Kent.
Kevin: Say when it well for the industry. So we're going to control it on our own.
Edward Lewis Rand: Anything you'd add to that Kevin.
Kevin Merrick Shook: No, I agree with everything you said. I will say that NCCI is acknowledging that industry leaders are extremely worried about medical inflation, and I think, generally, people were surprised to see continued lost cost decreases. So I do think on the part of, you know, work company executives working with NCCI to try to build the medical network more instead of having it be largely frequency-based is something that we want to look forward to in 2025.
Kevin: No I agree with everything you said I will say that and CCI is acknowledging that industry leaders are extremely worried about medical inflation and I think generally people were surprised to see continued loss cost decreases.
Mark Douglas Hughes: understood. Thank you.
Mark Douglas Hughes: So I do think on the part of work comp company executives.
Mark Douglas Hughes: And working with NCI to try to build the medical more in instead of having it be largely frequency based.
Mark Douglas Hughes: Something that we want to look forward to in 2025.
Speaker Change: Understood. Thank you.
Operator: Thank you. This will conclude our Q&A session for today. And I'd like to hand it back at this time to Heather West.
Speaker Change: Thank you this will conclude our Q&A session for today and I'd like to hand back at this time Heather Westwood.
Heather Wetzel: Thank you everyone who joined us today. Please feel free to reach out if you would like to talk further. We look forward to speaking with you again on next quarter's conference call at least. So thank you. Great day.
Heather West: Thank you everyone, who has joined US today, please feel free to reach out if he would like to talk further we look forward to speaking with you again on next quarter's conference call at least thank you Greg.
Operator: This will conclude today's conference call. Thank you all for joining us. You may now disconnect your lines.
Speaker Change: This will conclude today's conference call. Thank you all for joining you may now disconnect your lines.
Operator: [music].
Operator: This will conclude.