Q2 2024 Employers Holdings Inc Earnings Call

Good day, and thank you for standing by. Welcome to the 2024 Second Quarter Employers Holdings, Inc. Earnings Call. At this time, all participants are in listen-only mode.

Operator: earnings call. At this time, all participants are in listen-only mode. After this speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press Start 1-1 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press start 1-1 again. Please be advised that today's conference is being recorded.

Operator: Earnings Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Lori Brown, General Counsel. Please go ahead.

After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.

Speaker Change: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Lori Brown, General Counsel. Please go ahead.

Lori Brown: I'll like to hand the conference over to you, first speaker today, Lori Brown, General Council. Peace, go ahead.

Lori Brown: Thank you, Marvin. Good morning and welcome everyone to the second quarter of 2024 earnings call for Employers. Today's call is being recorded in webcasts from the investors section of our website, where a replay will be available following the call.

Lori Brown: Thank you, Marvin. Good morning and welcome, everyone, to the second quarter 2024 earnings call for employers. Today's call is being recorded and webcast from the investor section of our website, where a replay will be available following the call. Presenting today are Kathy Antonello, our Chief Executive Officer, and Mike Paquette, our Chief Financial Officer.

Lori Brown: Thank you, Marvin. Good morning and welcome, everyone, to the second quarter 2024 earnings call for employers. Today's call is being recorded and webcast from the investor section of our website, where a replay will be available following the call.

Lori Brown: Presenting today are Kathy Antonello, Chief Executive Officer, and Mike Paquette, Chief Financial Officer. Statements made during this conference call that are not based on historical facts are considered forward-looking statements. These statements are made in reliance on the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations expressed in our forward-looking statements are reasonable, risks and uncertainties could cause actual results to be materially different from our expectations, including the risks that forth in our filings with the Securities and Exchange Commission. All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments.

Speaker Change: Presenting today are Katherine Antonello, our Chief Executive Officer, and Mike Paquette, our Chief Financial Officer.

Lori Brown: Statements made during this conference call that are not based on historical facts are considered forward-looking statements. Such statements are made in reliance on the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations expressed in our forward-looking statements are reasonable, risks and uncertainties could cause actual results to be materially different from our expectations, including the risks set forth in our filings with the Securities and Exchange Commission. All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments.

Speaker Change: Statements made during this conference call that are not based on historical facts are considered forward-looking statements. These statements are made in reliance on the safe harbor provision of the Private Securities Litigation Reform Act of 1995.

Although we believe the expectations expressed in our forward looking statements are reasonable, risks and uncertainties could cause actual results to be materially different from our expectations, including the risks set forth in our filings with the Securities and Exchange Commission.

Speaker Change: All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments.

Lori Brown: The company also uses its website as a means of disclosing material non-public information and for complying with disclosure obligations under the SEC's Regulation FD. Such disclosures will be included on the Investors section of our website. Accordingly, investors should monitor that portion of our website in addition to following our press releases, SEC filings, public conference calls, and webcasts.

Lori Brown: The company also uses its website as a means of disclosing material non-public information and for complying with disclosure obligations under the SEC's Regulation FD. Such disclosures will be included in the investor section of our website. Accordingly, investors should monitor that portion of our website in addition to following our press releases, SEC filings, public conference calls, and webcasts. In our earnings press release and in our remarks or responses to questions, we may use non-GAAP financial measures.

The company also uses its website as a means of disclosing material non-public information and for complying with disclosure obligations under the SEC's Regulation FD.

Speaker Change: Such disclosures will be included on the investor section of our website. Accordingly, investors should monitor that portion of our website in addition to following our press releases, SEC filings, public conference calls, and webcasts.

Lori Brown: In our earnings press release and in our remarks or responses to questions, we may use non-GAAP financial measures. Reconciliation of these non-GAAP measures to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation, and any other materials available in the Investors section on our website.

In our earnings press release and in our remarks or responses to questions, we may use non-GAAP financial measures.

Lori Brown: Reconciliations of these non-GAAP measures to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation, and any other materials available in the investor section on our website. Now, I'll turn the call over to Katherine.

Speaker Change: Reconciliations of these non-GAAP measures to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation, and any other materials available in the investor section on our website.

Kathy Antonello: And now we'll turn the call over to Kathy. Thank you, Lori. Good morning to everyone, and welcome to our second quarter 2024 earnings call. Today we will follow our typical agenda, where I'll begin by providing some highlights of our second quarter 2024 financial results. I'll then hand it over to Mike for more details on our financial, and prior to Q&A, I'll come back to you with some additional commentary. Our second quarter results were very strong. Our adjusted net income per share of $1.10 was the sixth highest quarterly result in our last 10 years of operation.

Katherine Antonello: Thank you, Lori. Good morning to everyone and welcome to our second quarter 2024 earnings call. Today, we will follow our typical agenda, where I'll begin by providing some highlights of our second quarter 2024 financial results. I'll then hand it over to Mike for more details on our financials, and prior to Q&A, I'll come back to you with some additional commentary.

Speaker Change: And now I'll turn the call over to Kathy.

Kathy: Thank you, Laurie. Good morning to everyone and welcome to our second quarter 2024 earnings call.

Kathy: Today, we will follow our typical agenda, where I'll begin by providing some highlights of our second quarter 2024 financial results. I'll then hand it over to Mike for more details on our financials. And prior to Q&A, I'll come back to you with some additional commentary.

Katherine Antonello: Our second quarter results were very strong. Our adjusted net income per share of $1.10 was the sixth highest quarterly result in our last 10 years of operation. Higher new and renewal premiums, strong net investment income, and continued net investment gains drove year-over-year increases in revenue for both the quarter and the first six months of 2024. Our steady growth in written premium resulted from a 9% increase in new business and a 10% increase in renewal business, partially offset by lower final audit premium recognition. Excluding audit premium adjustments, our gross written premiums increased 10% for the quarter, with all major distribution channels contributing to the growth.

Speaker Change: Our second quarter results were very strong. Our adjusted net income per share of $1.10 was the 6th highest quarterly result in our last 10 years of operation.

Kathy Antonello: Higher new and renewal premiums, strong net investment income, and continued net investment gains drove year-over-year increases in revenue for both the quarter and the first six months of 2024. Our steady growth in written premium resulted from a 9% increase in new business and a 10% increase in renewal business, partially offset by lower final audit premium recognition. Excluding audit premium adjustments, our growth-written premiums increase 10% to the quarter, with all major distribution channels contributing to the growth. Our investment performance would also abuse to revenue, with strong net investment income and further net unrealized gains from our common stocks and other investments.

Mike: Higher new and renewal premiums, strong net investment income, and continued net investment gains drove year-over-year increases in revenue for both the quarter and the first six months of 2024.

Mike: Our steady growth in written premium resulted from a 9% increase in new business and a 10% increase in renewal business.

Mike: Partially offset by lower final audit premium recognition.

Mike: Excluding audit premium adjustments, our gross written premiums increased 10% for the quarter, with all major distribution channels contributing to the growth.

Katherine Antonello: Our investment performance was also a boost to revenue, with strong net investment income and further net unrealized gains from our common stocks and other investments. From an underwriting standpoint, our mid-year full reserve study led to the recognition of $9.3 million of net favorable prior loss reserve development from our voluntary business. That action, coupled with a meaningful decrease in underwriting expenses, led to a combined ratio of 95.4 percent, excluding the LPT, and our current accident year combined ratio, excluding both the LPT and prior year development, was 100.2 percent, which is the lowest it's been since the fourth quarter of 2018.

Speaker Change: Our investment performance was also a boost to revenue, with strong net investment income and further net unrealized gains from our common stocks and other investments.

Kathy Antonello: From an underwriting standpoint, our mid-year full reserve study led to the recognition of $9.3 million of net favorable prior-year loss reserve development from our voluntary business. That action, coupled with a meaningful decrease in underwriting expenses, led to a combined ratio of 95.4%, excluding the LPT. And our current action-year combined ratio, excluding both the LPT and prior-year development, was 100.2%. Which is the lowest expense since the fourth quarter of 2018. We believe that our action-year 2024 loss ratio of 64%, along with our existing provision for a potential increase in medical inflation, positions us well from a reserving standpoint.

Mike: From an underwriting standpoint, our mid-year full-reserve study led to the recognition of $9.3 million of net favorable prior-loss reserve development from our voluntary business.

Mike: That action, coupled with a meaningful decrease in underwriting expenses, led to a combined ratio of 95.4%, excluding the LPT, and our current accident year combined ratio, excluding both the LPT and prior year development, was 100.2%.

Katherine Antonello: We believe that our Accident Year 2024 loss ratio of 64%, along with our existing provision for a potential increase in medical inflation, positions us well from a reserving standpoint. I'm particularly pleased with our underwriting and general and administrative expense ratio this quarter of 22 percent, which is down sharply from 26 percent a year ago and is the lowest it's been since the third quarter of 2018. The decrease was primarily the result of the CERI integration plan, which we executed in the fourth quarter of 2023. With that said, Mike will now provide a deeper dive into our financials, and then I'll return to provide my closing remarks. Mike? Thank you, Katherine.

Mike: which is the lowest it's been since the fourth quarter of 2018.

Kathy Antonello: I'm particularly pleased with our underwriting and general administrative expense ratio of this quarter of 22%, which is down sharply from 26% a year ago, and is the lowest expense since the third quarter of 2018.

Kathy Antonello: The decrease was primarily the result of the Syrian Integration Plan, which we executed in the fourth quarter of 2023.

Mike: The decrease was primarily the result of the CERI integration plan, which we executed in the fourth quarter of 2023.

Mike Paquette: With that, Mike will now provide a deeper dive into our financials, and then I'll return to provide my closing remarks.

Mike Paquette: Mike. Thank you, Kathy. Our gross premiums written were $208 million, an increase of 5%. As Kathy mentioned, the increase was primarily due to higher new and renewal premiums, partially offset by lower final audit premiums. That premiums earned were $188 million, an increase of 6%. Our losses and loss adjustment expenses were $109 million versus $91 million a year ago. The increase was primarily the result of higher net earned premiums, and less net favorable prior year loss reserve development. We recognized $9 million of net favorable development during the second quarter versus $20 million of net favorable development a year ago.

Michael Paquette: Our gross premiums written were $208 million, an increase of 5%. As Kathy mentioned, the increase was primarily due to higher new and renewal premiums, partially offset by lower final audit premiums. Net premiums earned were $188 million, an increase of 6%.

Michael Paquette: Our losses and loss adjustment expenses were $109 million versus $91 million a year ago. The increase was primarily the result of higher net earned premiums and less net favorable prior year loss reserve development. We recognized $9 million of net favorable development during the second quarter versus $20 million of net favorable development a year ago. To both mitigate our overall tail risk and generate additional reserve salvage, we've continued to settle claims throughout 2024 on an accelerated basis consistent with that of prior years.

Mike: We recognize $9 million of net favorable development during the second quarter versus $20 million of net favorable development a year ago.

Mike Paquette: To both mitigate our overall tail risk and generate additional reserve salvage, we've continued to settle claims throughout 2024 on an accelerated basis consistent with that of prior years. Commission expenses were $27 million versus $24 million a year ago, and our commission expense ratio was 14.3% versus 13.3% a year ago. The increase in our commission expense ratio was primarily related to an increase in new business writings, which are typically subject to a higher initial commission rate. The increase further resulted from a reversal of commission expense made in the second quarter of 2023 relating to uncollected premium.

Mike: To both mitigate our overall tail risk and generate additional reserve salvage, we've continued to settle claims throughout 2024 on an accelerated basis consistent with that of prior years.

Michael Paquette: Commission expenses were $27 million versus $24 million a year ago, and our commission expense ratio was 14.3% versus 13.3% a year ago. The increase in our commission expense ratio was primarily related to an increase in new business writings, which are typically subject to a higher initial commission rate. The increase further resulted from a reversal of commission expense made in the second quarter of 2023 relating to uncollected premiums. Underwriting and General and Administrative Expenses were $41 million versus $46 million. And our Underwriting and General Administrative Expense Ratio was 22% versus 26% a year ago. The decrease was primarily the result of the success of our SARITY integration plan, as Kathy previously mentioned.

Mike Paquette: Underwriting in general and administrative expenses were $41 million versus $46 million, and our underwriting and general administrative expense ratio was 22% versus 26% a year ago. The decrease was primarily the result of the success of our Saturday integration plan, as Kathy previously mentioned. Our net investment income was $27 million for the quarter, a slight increase from a year ago. The increase was primarily due to higher yields on our fixed maturity investments, largely offset by the unwinding of our former Federal Home Loan Bank leveraged investment strategy in late 2023. When considering the nearly $2 million of interest expense that we incurred from that former strategy in the second quarter of 2023, our net investment income was actually up more than 8% year over year.

Michael Paquette: Our net investment income was $27 million for the quarter, a slight increase from a year ago. The increase was primarily due to higher yields on our fixed maturity investments, largely offset by the unwinding of our former Federal Home Loan Bank leveraged investment strategy in late 2023. When considering the nearly $2 million of interest expense that we incurred from that former strategy in the second quarter of 2023, our net investment income was actually up more than 8% year over year.

Mike: Our net investment income was $27 million for the quarter, a slight increase from a year ago.

Mike: When considering the nearly $2 million of interest expense that we incurred from that former strategy in the second quarter of 2023, our net investment income was actually up more than 8% year-over-year.

Mike Paquette: Our fixed maturitys currently have a duration of 4.4 and an average credit quality of A plus. Our weighted average book yield was 4.3% at quarter end, which is up nicely from 4.1% a year ago. Our net income this quarter was favorably impacted by $4 million of net after-tax unrealized gains generated from equity securities and other investment holdings, both of which are reflected on our income statement. And our stockholders that was unfavorably impacted by $5 million of net after-tax investment losses generated from fixed maturity holdings, which are reflected on our balance sheet. During the second quarter, we repurchased $19 million of our common stock at an average price of $41.53 per share.

Michael Paquette: Our fixed maturities currently have a duration of 4.4 and an average credit quality of A+. Our weighted average book yield was 4.3% at quarter end, which is up nicely from 4.1% a year ago. Our net income this quarter was favorably impacted by $4 million of net after-tax unrealized gains generated from equity securities and other investment holdings, both of which are reflected on our income statement. And our stockholders equity was unfavorably impacted by $5 million of net after-tax investment losses generated from fixed maturity holdings, which are reflected on our balance sheet.

Mike: and our Stockholders Act was unfavorably impacted by $5 million of net after-tax investment losses generated from fixed maturity holdings, which are reflected on our balance sheet.

Michael Paquette: During the second quarter, we repurchased $19 million of our common stock at an average price of $41.53 per share, and thus far, we have repurchased an additional $3 million of our common stock in the third quarter at an average price of $42.56. Our remaining share repurchase authority currently stands at $44 million, and yesterday, our Board of Directors declared a third quarter 2024 regular quarterly dividend of $0.30 per share. This dividend is payable on August 28th to stockholders of record on August 14th. And with that, I'll now turn the call back to Katherine.

Mike Paquette: And thus far we have repurchased an additional $3 million of our common stock in the third quarter at an average price of $42.56 per share. Our remaining share repurchased authority currently stands at $44 million. And yesterday, our board of directors declared a third quarter 2024 regular quarterly dividend of 30 cents per share. This dividend is payable on August 28th to stockholders of record on August 14th.

Mike: And yesterday, our board of directors declared a third quarter 2024 regular quarterly dividend of 30 cents per share. This dividend is payable on August 28th to stockholders of record on August 14th.

Kathy Antonello: And with that, I'll now turn the call back to Kathy. Thank you, Mike. This quarter we returned $27 million to our stockholders through a combination of regular quarterly dividends and share repurchases at an average price that was highly accretive to our adjusted book value per share. After considering dividends declared over the last 12 months, our book value per share, including the deferred gains, has increased 14 percent to $44.91, and our adjusted book value per share has increased by more than 10 percent to $48.89. Both the combined ratio and the growth in our adjusted book value per share continue to be our preferred metrics for measuring our success.

Katherine Antonello: Thank you, Mike. This quarter, we returned $27 million to our stockholders through a combination of regular quarterly dividends and share repurchases at an average price that was highly accretive to our adjusted book value per share. After considering dividends declared over the last 12 months, our book value per share, including the deferred gain, has increased 14% to $44.91, and our adjusted book value per share has increased by more than 10% to $48

Katherine Antonello: After considering dividends declared over the last 12 months, our book value per share, including the deferred gain, has increased 14% to $44.91, and our adjusted book value per share has increased by more than 10% to $48.89.

Katherine Antonello: Both the combined ratio and the growth in our adjusted book value per year continue to be our preferred metrics for measuring our success, and we're confident we will see further improvements in these metrics in the future. In closing, last month we made the bittersweet announcement that Mike will be retiring at the end of March 2025, and I want to personally acknowledge his tremendous contributions to the organization over the past seven years. And with that, Operator, we will now take questions. Thank you.

Kathy Antonello: And we're confident we will see further improvements in these metrics in the future.

Kathy Antonello: In closing, last month we made the bittersweet announcement that Mike will be retiring at the end of March in 2025. And I want to personally acknowledge his tremendous contributions to the organization over the past seven years.

Mike Paquette: In closing, last month, we made the bittersweet announcement that Mike will be retiring at the end of March in 2025. And I want to personally acknowledge his tremendous contributions to the organization over the past seven years.

Operator: And with that operator, we will now take questions. Thank you. At this time, we'll conduct the question-and-answer session. As a reminder to ask the question, you'll need to press start one one on the telephone and wait for your name to be announced. To withdraw your question, please press start one one again. Please stand by while we compile the Q&A director.

Speaker Change: And with that, Operator, we will now take questions.

Operator: Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A list. Our first question comes from a line from Mark Hughes of Truist. Your line is now open.

Speaker Change: Thank you. At this time, we'll conduct the question and answer session. As a reminder to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Mark Hughes: Our first question comes to our line of Mark Hughes of Choice. Your line is now open.

Mark Hughes: Thank you.

Kathy Antonello: Good morning. Hi, Mark. Thank you. I think that the risk of future medical inflation is limited if fee schedules are there, and I, you know, many other states. I'm not exactly sure of the numbers, but if those are tied to those fee schedules, I assume the government is going to be just as motivated to suppress those costs in the future as they have been in the past. So, should we think that medical inflation is less of a risk? Well, I say generally speaking, the industry has done a really nice job over the last, you know, more than a decade of putting medical cost containment measures into place.

Mark Hughes: Katherine, the... Hi Mark. Hello.

Mark Hughes: Thank you. Good morning.

Katherine Antonello: In California, does workers' comp reimbursement follow Medicare fee schedules in whole or in part?

Speaker Change: Hello. In California, does the workers' comp reimbursement follow Medicare fee schedules in whole or in part?

Katherine Antonello: Yes, it is my understanding that the California medical fee schedules are tied to Medicare. I think, I believe there are some adjustments. It's not dollar for dollar, but yes, they are tied to Medicare.

Katherine Antonello: Yeah, now under the circumstances... Are we to think that the risk of future medical inflation is... limited if the fee schedule is there and many other states. I'm not exactly sure of the numbers, but if those are tied to those fee schedules, I assume the government is going to be just as motivated to suppress those costs in the future as they have been in the past. Should we think that medical inflation is less of a risk?

Katherine Antonello: Yeah. Now, under the circumstances,

Katherine Antonello: Are we to think that the risk of future medical inflation is...

Katherine Antonello: limited if fee schedules there and

Katherine Antonello: many other states, I'm not exactly sure of the numbers, but if those are tied to those fee schedules, but I assume the...

Katherine Antonello: Should we think that medical inflation is less of a risk?

Katherine Antonello: Well, I think, generally speaking, the industry has done a really nice job over the last, you know, more than a decade of putting medical cost containment measures into place, and those would include medical fee schedules for hospitals, physicians, you know, inpatient, outpatient, and so forth. Many, but not all, of those fee schedules are tied to Medicare, and so, you know, I would think they would move somewhat in tandem, but the fee schedules that have been put in place have been very successful.

Kathy Antonello: And those would include medical fee schedules for hospitals, physicians, you know, inpatient, outpatient, and so forth. Many, but not all of those fee schedules are tied to Medicare. And so, you know, I would think they would move somewhat in tandem. But the fee schedules that have been put in place have been very successful. I mean, you mentioned California in particular. You know, back in, I think it was back in 2013 when they passed Senate Bill 863, that was highly successful, wildly more successful than I think anyone predicted. And so, I would just say generally speaking that these schedules in workers' compensation are working, and they are helping to keep medical costs under control.

Katherine Antonello: putting medical cost containment measures into place, and those would include

Katherine Antonello: but the fee schedules that have been put in place have been very successful. I mean, you mentioned California in particular, back in, I think it was back in 2013 when they passed.

Katherine Antonello: I mean, you mentioned California, in particular, back in 2013, when they passed Senate Bill 863, that was highly successful, wildly more successful than I think anyone predicted, and so I would just say, generally speaking, the fee schedules and workers' compensation are working, and they are helping to keep medical costs under control.

Kathy Antonello: Well, when we think about the top line outlook, audit premiums are still positive, not as positive as they've been. That we talked about the kind of your expansion and appetite, and you could throw in competition. Any kind of general commentary about what you expect when it comes to top line growth, you know, keeping in mind all the different drivers. Yeah, I mean, I'm pleased with the level of top line growth that we're seeing. We did see some pressure this quarter in terms of, you know, offsetting the new and renewal business growth. There was an offset in terms of audit pickups, slowing down.

Katherine Antonello: When we think about the top line outlaw, audit premiums are still positive, not as positive as they've been, but we've talked about the kind of your expansion and appetite, and you could throw in Competition. Any kind of general commentary about what you can do for top line growth, you know, keeping in mind all the different drivers. Yeah, I mean, I'm pleased with the level of top-line growth that we're seeing. We did see some pressure this quarter in terms of, you know, offsetting the new and renewal business growth. There was an offset in terms of audit pickup slowing down, but we also decreased our audit accrual during the quarter. None of it; I would

Speaker Change: Any kind of general commentary about what you...

Speaker Change: expect when it comes to top line growth, you know, keeping in mind all the all the different drivers.

Katherine Antonello: Yeah, I mean, I'm pleased with the level of top-line growth that we're seeing. We did see some pressure this quarter in terms of, you know, offsetting the new and renewal business growth. There was an offset in terms of audit pickup, which slowing down. We also decreased our audit accrual during the quarter. None of this, I would say, is surprising to me, though, when you look at the underlying economic conditions. As of June, just to give you a few numbers, the BLS annual change in employment and hourly wages for leisure and hospitality, which is where a lot of our focus is.

Katherine Antonello: Yeah, I mean, I'm pleased with the level of top line growth that we're seeing. We did see some pressure this quarter in terms of, you know, offsetting.

Katherine Antonello: The new and renewal business growth, there was an offset in terms of audit pickup slowing down.

Operator: We also decreased our audit accrual during the quarter. None of it, I would say, is surprising to me, though, when you look at the underlying economic conditions. As of June, just to give you a few numbers, the BLS annual change in employment and hourly wages for leisure and hospitality, which is, you know, where a lot of our focus is. Yes. Are you still there? Yes. Are you there? Yes. If you were there, I would have lost you. Please remain on the line.

Katherine Antonello: As of June, just to give you a few numbers, the BLS, Annual Change in Employment, and Hourly Wages for Leisure and Hospitality, which is where a lot of our focus is,

Beth: Beth, are you there?

John O'Neill: and John O'Neill.

Katherine Antonello: [inaudible]

Operator: Kathy, if you were there, I would have lost you. Please remain on the line. Your conference will resume shortly.

Operator: Kathy, if you were there, I have lost you.

Operator: Please remain on the line; your conference will resume shortly.

Mark Hughes: Your conference will resume shortly. Thank you. We were talking about lines, so I would start back on that there. Yes. Hello, Kathy. Can you hear me? Yes. My apologies for that. Yeah, no, it's probably me; I'm sure I did something wrong.

Speaker Change: Please remain on the line. Your conference will resume shortly.

Operator: Bye.

Operator: So I would start back up there.

Operator: We were talking about timelines, so I would start back up there.

Operator: Hello, Kathy, can you hear me?

Operator: Hello, Kathy. Can you hear me?

Mark Hughes: Yeah, no, it was probably me. I'm sure I did something wrong. I had asked a question about the growth outlook, and you had just started a comment, so I'll say it again. If you take into account competition, appetite, all that, what should we think about the top line?

Kathy: Anne, my apologies for that.

Mark Hughes: Yeah, no, it was probably me. I'm sure I did something wrong.

Kathy Antonello: I had a question about the growth outlook. And you would just started a comment. So I'll say it again. If you take a kind of competition appetite, all that, what should we think about the top line? Yeah, so I am not terribly surprised with the decrease we saw in audit pickups this quarter, especially given the underlying economic conditions that we're seeing. And so just to give you your numbers, as of June, the BLS annual change in employment and hourly wages was 6% for leisure and hospitality. That compares to 10 and a half percent a year ago.

Mark Hughes: I had asked a question about the growth outlook, and you had just started a comment, so I'll say it again. If you take into account competition, appetite, all that, what should we think about topline?

Katherine Antonello: Yeah, so I am not terribly surprised with the decrease we saw in audit pickup this quarter, especially given the underlying economic conditions that we're seeing. And so just to give you a few numbers, as of June, the BLS annual change in employment and hourly wages was 6% for leisure and hospitality. That compares to 10.5% a year ago, and that reduction in the change in employment and wages is what's putting pressure on our audit pickup. And it's... Hello, can you hear me?

Katherine Antonello: Yeah, so I am not terribly surprised with the decrease we saw in audit pickups.

Katherine Antonello: This quarter, especially given the underlying economic conditions that we're seeing. And so just to give you a few numbers, as of June, the BLS annual change in employment and hourly wages.

Katherine Antonello: was 6% for leisure and hospitality. That compares to 10 1⁄2% a year ago. And that reduction in the change in employment and wages is what's putting pressure on our audit pickups.

Kathy Antonello: And that reduction in the change in employment in wages is what's putting pressure on our audit pickups, and it's just all again. Hello, can you hear me? Yeah, I can hear you. You're coming through. Okay, sorry about that. So that is what is putting pressure on our audit pickups, and it's also causing us to decrease our audit of pool, and it's bringing our top line growth down a bit. But we're not seeing decreases in terms of the new business premium that's coming through, and our renewal premiums continue to be strong too. So just to give you a couple of numbers, we ended the quarter with an audit of a 34.2 million.

Katherine Antonello: Hello, can you hear me?

Mark Hughes: Yeah, I can hear you. You're coming through loud and clear.

Speaker Change: Yeah, I can hear you. You're coming through loud and clear. Okay. Sorry about that.

Katherine Antonello: Okay, sorry about that. So that is what is putting pressure on our audit pickups, and it's also causing us to decrease our audit accrual, and it's bringing our top-line growth down a bit. We're not seeing decreases in terms of the new business premium that's coming in, and our renewal premiums continue to be strong, too. So just to give you a couple of numbers, we ended the quarter with an audit accrual of $34.2 million, and that's a decrease of $5.1 million this quarter.

Katherine Antonello: So that is what is putting pressure on our audit pickups, and it's also causing us to decrease our audit accrual, and it's bringing our top-line growth down a bit. We're not seeing decreases in terms of the new business premium that's coming through, and our renewal premiums continue to be strong, too.

Katherine Antonello: So, just to give you a couple of numbers, we ended the quarter with an audit of 34.2 million, and that's a decrease of 5.1 million this quarter. That compares to an increase in the second quarter of 2023.

Kathy Antonello: And that's a decrease of 5.1 million this quarter. That compares to an increase in the second quarter of 2023. So, you know, that decrease in pool was a meaningful contributor to the written and our premium this quarter. But then when you look at audit pickups, they were 4.9 million this quarter versus 7.7 million in the second quarter of 2023. Like I said earlier, if you exclude the final audit pickup and the change in a pool, our growth written premium was up about 10% in the second quarter of 2024 relative to the second quarter of 2023. Endorsement premium is also coming in very strong.

Katherine Antonello: That compares to an increase in the second quarter of 2023. So, you know, that decrease in accruals was a meaningful contributor to both written and earned premium this quarter. But then when you look at audit pickup, it was $4.9 million this quarter versus $7.7 million in the second quarter of 2023.

Katherine Antonello: Like I said earlier, if you exclude the final audit pickup and the change in a pull, our gross written premium was up about 10% in the second quarter of 24 relative to the second quarter of 2023. Endorsement premium is also coming in very strong. We recognize about $13 million in endorsements and about $3 million in noncompliant premiums. So, the growth that we're seeing is coming from, you know, all of our major distribution channels, like I said, strong endorsement premiums.

Katherine Antonello: Like I said earlier, if you exclude the final audit pick up and the change in a pull, our gross written premium was up about 10% in the second quarter of 24 relative to the second quarter.

Kathy Antonello: We recognize about 13 million dollars in endorsements and about 3 million in non compliant premium. So the growth that we're seeing is coming from all of our major distribution channels. Like I said, strong endorsement premium. You mentioned appetite expansion. That is a meaningful contributor to the growth. I think about 41 million dollars of our premium this quarter came from our appetite expansion efforts. And that's performing at a very good loss ratio, very similar to what we're seeing for all of our other lines, all of our other classes. I appreciate that detail.

Katherine Antonello: You mentioned appetite expansion. That is a meaningful contributor to growth. I think about forty-one million dollars of our premium this quarter came from our appetite expansion efforts, and that's performing at a very good loss ratio. Very similar to what we're seeing for all of our other lines, all of our other products.

Mark Hughes: I appreciate that detail. Then, one final one on the expenses. Mike, the step-down sequentially this quarter is pretty... Pretty striking, you know, historically, the progression from 1q to 2q is steadier up a little bit. What's the right run rate? First, was there anything unusual? this quarter, one-timer customers, that sort of thing. And then, is this the kind of the starting base, so to speak, and apply whatever expense growth or seasonality, that sort of thing, but the 41.4, is that a good number as a base, starting base?

Mark Hughes: And then one final one on the expenses. Like the step down sequential this quarter pretty. Pretty striking historicality, the progression from one cue to two cues, steady or up a little bit. What's the right run rate? First, was there anything unusual this quarter, one-timers, that sort of thing. And then, is this kind of the starting base, so to speak, and apply whatever expense growth or seasonality, that sort of thing. But the 41, is that a good number as a base, starting base? It's hard to say, Mark, and the reason why is our expenses can ebb and flow.

Mark Hughes: pretty striking, you know, historically, the

Mark Hughes: progression from 1q to 2q is steadier up a little bit.

Mark Hughes: What's the right run rate? First, was there anything unusual?

Michael Paquette: It's hard to say, Mark, and the reason why is that our expenses can ebb and flow. I'm not aware of anything that's particularly unusual in terms of our second quarter of 2024 expenses, but they can vary dramatically based on incentive accruals, the timing of IT projects, and all of those types of things. If you recall, when we had this call at year end, we kind of mentioned that the CERTI runoff or the CERTI integration was going to provide at least a point and a half of relief on our expense ratio versus what it would otherwise be, so that's probably the same thing to bring into the balance of the year, but keep in mind, it will ebb and flow.

Mark Hughes: I'm not aware of anything that's particularly unusual in terms of our second quarter of 2024 expenses, but they can vary dramatically based on, you know, incentive accruals, timing of IT projects, and all of those types of things. And if you recall, when we had this call at your end, we kind of mentioned that the Saturday run-off or the Saturday integration was going to provide, you know, at least a point and a half of relief on our expense ratio versus what it would otherwise be. So that's probably the same thing to bring into the balance of the year, but keep in mind, it will ebb and flow.

Mark Hughes: And so if we think of last year, I think it's a 25% increase. Is that the way to think about it? You know, a point and a half off of that is a good way to look at it.

Mark Hughes: And so if we think of last year, I think it's a 25%. Is that the way to think about it? You know, point and a half off of that is a good way to look at it. With expenses and commissions, I would always look at the year-to-date because that'll take out some of the noise. But if you look at, say, the year to date and then look at at least 1.5, you know, percentage points of savings or so, that's about what the best guess I could give you right now. Yeah, okay.

Mark Hughes: And so if we think of last year, I think it's about 25%.

Mark Hughes: Is that the way to think about it, you know, point and a half off of that is a good way to look at it.

Michael Paquette: With expenses and commissions, I would always look at the year-to-date because that'll take out some of the noise, but if you look at, say, the year-to-date and then look at at least 1.5 percentage points of savings or so, that's about the best guess I could give you right now.

Michael Paquette: With expenses and commissions, I would always look at the year-to-date because that'll take out some of the noise, but if you look at, say, the year-to-date and then look at at least 1.5, you know, percentage points of savings or so, that's about what the best guess I could give you right now.

Mark Hughes: Okay, I'll squeeze in one more if I if I might. Kathy, competition, anything you would say about the level of competition that people see more? Are competitors more enthused about workers comp, about the same.

Kathy Antonello: I'll squeeze in one more if I might. Kathy, a competition, anything you would say about level of competition, the people seem more competitors, more induced about workers comp. About the same. Yeah, I say it's about the same, you know, for when you look at the sectors and policy sizes that we write. We would continue to say that the environment is fairly competitive. You know, when we look at our renewal book and adjust for changes in exposure, our 2024 average rate showed a year-over-year rate decrease of between 3 and 4%. And that's pretty typical of what we've been seeing over the last several quarters.

Mark Hughes: Yeah, okay. I'll squeeze in one more if I might. Kathy, competition, anything you would say about level of competition that people see more?

Kathy: competitors more enthused about workers comp, about the same.

Katherine Antonello: Yeah, I'd say it's about the same, you know, for when you look at the sectors and policy sizes that we write, we would continue to say that the environment is fairly competitive. You know, when we look at our renewal book and adjust for changes in exposure. Our twenty, twenty-four average rate showed a year over year rate decrease of between three and four percent, and that's pretty typical of what we've been seeing over the last several quarters. So, yeah, things are a lot of that is being driven by the decreases in lost costs that the bureaus are filing, but it's still competitive.

Katherine Antonello: Yeah, I'd say it's about the same, you know, for when you look at the sectors and policy sizes that we write, we would continue to say that the environment is fairly competitive. You know, when we look at our renewal book and adjust for changes in exposure.

Katherine Antonello: Our 2024 average rate showed a year-over-year rate decrease of between 3 and 4 percent, and that's pretty typical of what we've been seeing over the last several quarters. So, yeah, things are, you know, a lot of that is being driven by the decreases in lost costs that the bureaus are filing, but it's still competitive.

Kathy Antonello: So, yeah, things are, you know, a lot of that is being driven by the decreases in loss costs that the bureaus are filing. But it's still competitive.

Mark Hughes: Great. Thank you very much. Thank you, Mark. Thank you.

Mark Hughes: Great, thank you very much.

Mark Hughes: Great. Thank you very much.

Operator: Thank you. We'll move on to our next question. Again, as a reminder, to ask a question, you'll need to press 1-1 on your telephone. Our next question comes from the line of Matt Carletti of Citizens JMP. Your line is now open.

Matt Carletti: Thank you, Mark.

Operator: Again, as a reminder to ask a question, you'll need to press 11 on your television. on the phone.

Speaker Change: Again, as a reminder, to ask a question, you'll need to press 1-1 on your telephone.

Matt Carletti: Our next question comes from the line of Matt Carletti of Citizens, JMP. Your line is not open.

Matt Carletti: Hey, thanks. Good morning. Good morning, Matt.

Matthew Carletti: Kathy, my first question kind of actually follows on from one of Mark's questions on Medicare, but my understanding is there are some somewhat significant fee schedule changes coming. I was hoping you could comment on your ability to manage that, particularly in the context of Florida.

Kathy Antonello: Cathy, my first question kind of actually follows on from one of Mark's questions on Medicare, but my understanding is there's the Florida, there's some from what significant fee schedule changes coming. I hope you could comment on kind of your ability to manage that, particularly in the context of Florida being more of an administered pricing state. So less, I guess, flexibility on how you can price each risk. Yeah, so it's a great question, Matt. You know, I'll say internally we we haven't analyzed the legislation in Florida yet, or you know, or NC series recent filing in response to those medical fee changes.

Katherine Antonello: Yeah, it's a great question, Matt. You know, I'll say internally, we haven't analyzed the legislation in Florida yet, or, you know, or NCCI's recent filing in response to those medical fee changes. My understanding is that the changes are effective in January of 2025, and that the primary driver of the increase is expected to be physician services and the cost of those services, a little bit coming from hospital outpatient services. But I believe NCCI is projecting a 5.6% increase in costs as a result of those legislative changes.

Katherine Antonello: Yeah, it's a great question, Matt. You know, I'll say internally we haven't analyzed the legislation in Florida yet or, you know, or NCCI's recent filing in response to those medical fee changes.

Kathy Antonello: My understanding is the changes are effective in January of 2025 and that the primary driver of the increase is expected to be physician services and the cost of those services, a little bit coming from hospital outpatient, but I believe NCSI is projecting a 5.6 percent increase in cost as a result of those legislative changes. But, as you said, the truth matter is, you know, with Florida being the last remaining administered pricing state, there isn't a whole lot that we can do if we disagree with the pricing, you know, other than tighten our underwriting standards. But in terms of pricing flexibility and Florida, we have none.

Katherine Antonello: But as you said, the truth of the matter is, with Florida being the last remaining administered pricing state, there isn't a whole lot that we can do if we disagree with the pricing, other than tighten our underwriting standards. But in terms of pricing flexibility in Florida, we have none. So we'll just have to look at the business that we're writing and, if we feel it's necessary, tighten our underwriting standards from a declination standpoint.

Katherine Antonello: you know, other than tighten our underwriting standards. But in terms of pricing flexibility in Florida, we have none. So we'll just have to look at the business that we're writing and if we feel it's necessary, tighten our underwriting standards from a declination standpoint.

Matt Carletti: So we'll just have to look at the business that we're writing, and if we feel it's necessary, tighten our underwriting standards from a declination standpoint. Okay, thanks. That's helpful.

Matthew Carletti: Okay, thanks, that's helpful. And then, and this one for Mike, on reserves, on the favorable reserve development in the quarter, can you give us any color on trends by accident year or just kind of anything, you know, kind of peel back the onion a little bit on some of the movements behind the scenes that led to that good result?

Mike Paquette: And then this one for Mike, on reserves on the favorable reserve development in the quarter.

Mike Paquette: Can you give it any color on trends by accident year or just kind of anything, you know, kind of peel back the onion a little bit on some of the movements behind the scenes that led to that good result? Sure. So the favorable development that we saw this quarter was predominantly years 2022 and prior. We did have a little bit of unfavorable experience in 2023 that partially offset the amount that we recognize relating to other states with some large losses that occurred late in the year and have developed a little bit unfavorably in this calendar year.

Michael Paquette: Sure, so the favorable development that we saw this quarter was predominantly in years 2022 and prior. We did have a little bit of unfavorable experience in 2023 that partially offset the amount that we recognize relating to other states with some large losses that occurred late in the year and have developed a little bit unfavorably in this calendar year. And that's where we came out. OK, great.

Michael Paquette: Sure. So, the favorable development that we saw this quarter was predominantly years 2022 and prior.

Mike Paquette: And that's where we came out.

Matt Carletti: Okay, great. Thank you. Appreciate it. Thanks, Sam.

Matthew Carletti: Okay, great. Thank you. I appreciate it. Thanks, Sam.

Matthew Carletti: and that's where we came out.

Operator: Thank you, one woman, for next question.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Bob Farnam on Janie Montgomery Scott. Your line is now open.

Bob Farnam: Thanks, Sam.

Speaker Change: Thank you. One moment for our next question.

Bob Farnham: Our next question comes online from Bob Farnham of Jenny Montgomery Scott. Your line is now open.

Operator: Our next question comes from the line of Bob Farnham of Janie Montgomery Scott. Your line is now open.

Bob Farnham: Yeah, hey there.

Robert Farnam: Yeah, hey there, and good morning. My primary question was about the performance of the book of expansion business. But Kathy, it sounds like that business is performing as expected or in line with your other business. I guess I'll focus on another question I had. Is there much of a difference between the performance of the book you're getting from ADP versus your non-ADP book?

Kathy Antonello: Good morning. My primary question was on the performance of the book of expansion business. But Kathy, it sounds like that business is performing as expected or in line with your other business. I guess I'll focus on another question I had: is there much of a difference between the performance of the book you're getting from ADP versus your non-ADP book? We are; we do analyze this results separately. And the ADP book of business for us has always been very favorable. And it continues to be. We have a very strong relationship with them and continue to, and, you know, I think, I think it's a very strong book.

Robert Farnam: your other business. I guess I'll focus on another question I had was

Robert Farnam: Is there much of a difference between the performance of the the book you're getting from ADP

Robert Farnam: versus your non-ADP book.

Katherine Antonello: We do analyze those results separately, and the ADP book of business for us has always been very favorable, and it continues to be. We have a very strong relationship with them and will continue to, and I think it's a very strong book. We haven't seen any changes in that book of business.

Katherine Antonello: We do analyze those results.

Katherine Antonello: separately, and the ADP Book of Business for us has always been very favorable.

Katherine Antonello: and it continues to be. We have a very strong relationship with them and continue to, and I think it's a very strong book. We haven't seen any changes in that book of business.

Kathy Antonello: But we haven't seen any changes in that book of business.

Bob Farnham: Okay. That's, yeah, that's, that’s it for me. I just again, I wanted to more more interested in the expansion book of business. But again, you kind of already entered that.

Robert Farnam: Okay, yeah, that's it for me. I just, again, I wanted to be more interested in the expansion book of business, but again, you kind of already answered that, so thanks. Yeah, yeah, that expansion book.

Robert Farnam: Okay, yeah, that's it for me. I just, again, I wanted to be more interested in the expansion book of business, but again, you kind of already answered that. So thanks.

Kathy Antonello: So thanks. Yeah, yeah, that explains the book. We've been very, very pleased with the results that we're seeing there. And, and have, you know, our intention is to continue to expand into new class codes. As, as we see the environment is favorable. So continuing to do that.

Katherine Antonello: Yeah, yeah, that expansion book. We've been very, very pleased with the results that we're seeing there and have, you know, our intention is to continue to expand into new class codes as we see the environment is favorable. So we'll continue to do that.

Katherine Antonello: Yeah, yeah, that expansion book, we've been very, very pleased with the results that we're seeing there and have, you know, our intention is to continue to expand into new class codes.

Katherine Antonello: as we see the environment is favorable. So, continuing to do that.

Bob Farnham: Great. Thanks.

Bob Farnham: Thank you, Bob.

Operator: Thank you.

Operator: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Kathy Antonello for closing remarks.

Kathy Antonello: Great, thanks.

Operator: I'm showing all further questions at this time.

Kathy Antonello: Thank you, Bob.

Kathy Antonello: I'll now like to turn it back to Kathy and tell us the closing remarks. Okay. Thank you, Marvin. And thank you all for joining us this morning. I look forward to meeting with you again in October. Thank you for your participation in today's conference.

Speaker Change: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Kathy Antonello for closing remarks.

Katherine Antonello: Okay, thank you, Marvin, and thank you all for joining us this morning. I look forward to meeting with you again in October.

Kathy Antonello: Okay, thank you, Marvin, and thank you all for joining us this morning. I look forward to meeting with you again in October.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Operator: This does conclude the program. You may now disconnect. Thank you.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.