Q2 2024 Palomar Holdings Inc Earnings Call
Good morning, and welcome to the Palomar Holdings, Inc. Second quarter 'twenty 'twenty four earnings conference call.
Operator: During today's presentation, all parties will be in a listen-only mode.
During todays presentation, all parties will be in a listen only mode. Following the presentation the pulse.
Chris Uchida: France lines will be opened for questions with instructions to follow as a reminder, this conference call is being recorded I would now like to turn the call over to Mr. Chris Uchida Chief Financial Officer. Please go ahead.
Chris Uchida: Thank you operator, and good morning, everyone. We appreciate your participation on our earnings call with me here today is Mac Armstrong, our chairman and Chief Executive Officer.
Speaker Change: Additionally, Jon Christianson, our president is here to answer your questions. During the Q&A portion of the call as a reminder, a telephonic replay of this call will be available on the Investor Relations section of our website through 11 59 P. M. Eastern time on August 13 2024.
Speaker Change: Before we begin let me remind everyone that this call may contain certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 995.
Speaker Change: These include remarks about management's future expectations beliefs estimates plans and prospects such statements are subject to a variety of risks uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements such risks and other factors are set forth in our quarterly report on Form 10-Q filed with the securities and exchange.
Change Commission, we do not undertake any duty to update such forward looking statements.
Speaker Change: Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U S. GAAP.
Mac Armstrong: A reconciliation of these non-GAAP measures to their most comparable GAAP measure can be found in our earnings release at this point I will turn the call over to Mac.
Mac Armstrong: Chris and good morning.
I am very pleased with our second quarter results as we achieved record gross written premium and adjusted net income during the quarter and put ourselves in a position to accomplish the inaugural Palomar to external doubling 2021 adjusted underwriting income in three years, our profitable growth remains robust with gross written premium and adjusted net income increasing.
Mac Armstrong: <unk> and 47% respectively year over year.
Mac Armstrong: The quarters strong financial results and a host of associated accomplishments reflect the sustained execution of not only Palomar to act of 2024, its four strategic imperatives.
Mac Armstrong: We want manage dislocation and diversification provide consistent earnings and scale the organization or.
Mac Armstrong: Our first imperative is centered on achieving strong premium growth across the portfolio with an emphasis on those segments that generate the strongest risk adjusted returns.
Mac Armstrong: Our topline growth of 40% was driven by solid execution across the book of business highlighted by earthquake franchise, which saw an acceleration in year over year growth rate from the first quarter and the continued strong growth in our casualty book.
Two product categories helped drive profitable growth.
Mac Armstrong: With limited volatility.
Mac Armstrong: Our second imperative requires navigating and managing the dislocation in the market while further diversifying our business.
Mac Armstrong: During the quarter, we successfully placed our June 1st excess of loss reinsurance program not only to complete the six one at attractive rates that were well below our initial expectation, but we also procured incremental excess of loss limit to support our growth and reduce and reduced our nonrecurring occurrence retention.
Mac Armstrong: Separately, we signed an agreement to acquire first indemnity of American insurance company our FIA.
Mac Armstrong: A regionally focused surety ensure that all our palomar to internally attractive business segment further diversify our portfolio and create a meaningful growth driver.
Mac Armstrong: Yeah.
Speaker Change: Our third imperative is a steadfast commitment to the delivery of consistent earnings. This quarter, we achieved adjusted net income growth of 47%, enabling us to raise our guidance once again this quarter and more personally for the fifth consecutive quarter.
Speaker Change: Additionally, we delivered an adjusted return on equity of 24, 7% was slightly elevated catastrophe losses in the quarter.
Speaker Change: Our fourth imperative is scaling the organization and making the requisite investments to accomplish Palomar to ask.
Speaker Change: The separate starts with an investment in people and I'm proud to say that we've recruited industry, leading talent that joined the Palomar team this quarter.
Speaker Change: Previously announced Tim Carter joined the Palomar team as our Chief people Officer, and Rudy Herve, that's come on board as our Chief operating officer.
Their expertise and leadership will be invaluable as we continue to grow and innovate, we're executing very well and as I mentioned at the outset of the call. We are firmly on track to achieve the Palomar <unk> goal of doubling our 2021 underwriting income in three years importantly, this strategy is ongoing as we work to continually plant the seeds for future growth and returns.
Speaker Change: The accomplishments of 2024 in the past several years undoubtedly help lead to a M best upgraded our financial strength rating to AA from an a minus this upgrade underscores our financial stability strategic success in health as an insurer counterparty and trading partner long term it should create opportunities within our portfolio and beyond.
Speaker Change: I would now like to review the performance in market conditions or our byproduct categories.
Speaker Change: Firstly, our core earthquake franchise grew gross written premium 25%, representing a strong acceleration from the first quarter's 13% growth rate, which as a reminder was 18% on a same store basis.
Dan: Overall, we remain confident that earthquake premiums will grow in the high teens, 20% range in 2024, and this quarter's performance Emboldens us Dan.
Dan: Residential earthquake business continued to generate consistent new business growth highlighted by strong E&S production, but.
Speaker Change: Ines books up 38% growth year over year as personal lines business continues to flow into the non admitted market in California. Additionally, our residential earthquake book, So a decent traction from new partnerships with Cincinnati financial and USAA.
Speaker: The earthquake market remains stable and attractive from a pricing perspective. Commercial rates averaged an increase of 11.7% this quarter as compared to 11.6% in the first quarter of 2024. In the fourth quarter, fronting premium will decline as one of our key partners, Omaha National, an AMBES rated insurance company, secured the requisite license to do business in California without a front.
Speaker Change: The earthquake market remains stable and attractive from a pricing perspective commercial rates averaged an increase of 11, 7% this quarter as compared to 11, 6% in the first quarter of 2024.
Speaker Change: The 10% inflation guard that our residential earthquake policies container now, providing a meaningful cushion above inflationary levels and provide annual increases regardless of market conditions.
Speaker Change: Consistent with prior calls our key portfolio metrics of average annual loss in the 250 year probable maximum loss to premium ratio remain at all time best levels.
Speaker Change: This will translate into strong net earned premium growth as the cost of excess of loss reinsurance has moderated from previous highs.
Speaker Change: We remain positive on the growth and profitability prospects of our earthquake franchise.
Speaker Change: Our eliminating other property products grew 34% year over year, driven by our builders' risk access national property and Hawaiian Hurricane lines of business.
Speaker Change: Growth in this product that slowed from the first quarter's rate as we continue to focus on our mantra grow everyone and curtail exposure and hurricane exposed regions of the country.
Speaker Change: Builder's risk our largest in the marine product in our excess national property line continued to experience robust premium and submission growth during.
Speaker Change: During the quarter, we hired more regionally focused underwriter for both business lines to expand our addressable markets and sustain the growth in these businesses.
Hawaiian Hurricane premiums grew 52% in the second quarter through a combination of rate increases as an aside we received an approval for a 23% increase at the end of the quarter as well as an increased level of fee generating new business written through La Lima reciprocal exchange.
Speaker Change: Our all risk business has seen rate increases flattened versus the 18% in the prior quarter. However, the underlying P&L and al metrics much like our earthquake business are healthy as is the profitability of the book and as previously mentioned, we are not increasing exposure in this line.
Speaker Change: It is worth mentioning that we did see elevated cat losses from Texas severe convective storm and tornado activity in our builders' risk book during this quarter.
Speaker Change: Fortunately the losses were only modestly above our crisp budgets for many cats at this time of year. The limited impact of these losses on our quarterly results is a testament to our conservative underwriting.
Speaker Change: Casualty products that had another strong quarter with premiums increasing 281% over the prior previous year's second quarter.
Speaker Change: Excess liability led the growth as the investments made in talent and distribution over the course of 2023 allowed to book to grow fivefold year over year.
Speaker Change: Other standout performing lines in the quarter include new segments like contractors.
Speaker Change: General liability real estate errors and omissions, an environmental liability our contractors GL book grew 122% over the prior year real estate grew 110% and our nascent environmental liability book grew 120% on a sequential basis from the first and second quarter.
Speaker Change: We are growing our business through broadening our distribution footprint and increasing our submission activity a strong growth in casualty products, which now comprises 60% of our total book remains anchored in the conservative approach to underwriting targeted niche segments of the market.
Speaker Change: We employ prudent risk management taxes, such as modest growth in net line size avoidance of heavy bodily injury and other high severity exposure and conservative reinsurance car loss potential in the classes. We write as an example, with realize I just highlighted above real estate D&O contractors, GL and environmental liability have an average net.
Speaker Change: Line of $1 2 million.
Speaker Change: Additionally, we continue to see decent rate increases in excess of loss cost across the casualty book.
Speaker Change: Our professional liability products, our blended increase above 10% with real estate errors and omissions rates increasing 18%.
Speaker Change: The excess liability book was over it was up over 20% and the contractors general liability books or an increase of 8%. While there are certain pockets of our casualty book that are softer from a pricing perspective private company D&O was down four 8%. We continue to believe our rates are more than adequate for the quarter. The casualty book loss ratios remained at or conservative loss.
Fixed with reserves continuing to build due to the Nascency of the book, we are optimistic that as the book seasons reserves develop favorably.
Speaker Change: Our fronting business grew premium 20% year over year fronting growth is primarily driven by a new fronting partnering the personal marine yacht sector.
Speaker Change: We also saw solid performance from our cyber cross border trucking in Texas homeowners programs with our Texas homeowners in cyber fronting programs had successful reinsurance renewals in the quarter seeing improved economics and reinsurance support.
Speaker Change: As previously indicated we do expect our fronting segment to under index the growth of our other business segments as we take a very selective approach to curating and managing our fronting partner portfolio in.
Speaker Change: In the fourth quarter fronting premium will decline as one of our key partners Omaha National and a M. Best rated insurance company secured the requisite license to do business in California without upfront.
Speaker Change: Termination of the contract will impact our fronting segment's growth over the next several quarters as we work to replace the loss business with new partnerships, while we have a healthy pipeline of opportunities we will be selective as we closely manage the risk in this segment.
Speaker Change: Turning to crop, we wrote $2 $2 million of premium in the second quarter, which is a seasonally low period year to date, we've written over $40 million of premium compared to <unk> 5 million in the prior year.
Speaker Change: Overall, it's been a good planting season, and we remain confident in achieving or exceeding the full year forecast of $125 million of gross written premium.
Speaker Change: As discussed we see significant opportunity to build a large business in the crop market to that end, we appointed James long EVP of innovation ahead of crop insurance in July.
Speaker Change: James joins us from Renaissance re where he spent 15 years at a senior level specialty reinsurance underwriter with a focus that included global crop insurance Jayson.
Speaker Change: James will work side by side with John Christmas in building this business and capitalizing on the large opportunity in the crop market, which is an aside continues to consolidate the number of improved insurance provider standard <unk>. Following farmers' mutual hails recent acquisition announcement of global AG from Axa XL.
Speaker Change: Turning to reinsurance we successfully placed our six one excess of loss reinsurance program and pricing in terms that were better than our expectations. We also procured approximately $400 million of incremental limit to support the growth of our earthquake franchise and issued our fifth Torrey Pines re catastrophe bond our reinsurance coverage now extends to $3 6 billion for earthquake events.
Speaker Change: $735 million, and Hawaii Hurricane event, and $117 5 million for all of their payroll, including Continental United States Hurricane.
Levels of Oxy at our 101 in 250 year peak zone probable maximum loss.
Speaker Change: It is important to note that we did sacrifice some savings as we reduced our per occurrence event retention to $15 5 million for non earthquake catastrophe events, including hurricane and severe convective storm from $17 5 million in the previous year, we slightly increased our earthquake retention to $20 million.
Speaker Change: These are levels that continue to be meaningfully within our stated retention guideposts of less than one quarter's adjusted net income and less than 5% of Palomar surplus on an after tax basis.
Speaker Change: In the spirit of delivering consistent earnings we felt sacrificing some savings for improved predictability was prudent.
Speaker Change: Overall, our reinsurance program is becoming increasingly attractive to reinsurance as the program becomes less exposed to continental U S and Hawaii Hurricane.
Speaker Change: Once all Hawaii Hurricane policies are assumed by La Lima.
Speaker Change: Our reinsurance program will be almost entirely single apparel earthquake. This should afford us better pricing during next year's renewal all else equal.
Speaker Change: In addition to the excess of loss renewal re renewed 12, other reinsurance treaties, including large quota shares for flood in builders' risk and our cyber fronting program overall, the renewals were favorable would have seen improved economics at the renewal and only once the negative economics.
Speaker Change: I want to discuss our proposed acquisition of first Indemnity of America insurance company, our FIA, which we are acquiring for one seven times closing book value.
Speaker Change: FIA is in New Jersey, domiciled insurance carrier, who specializes in the underwriting of contract surety bonds for small to medium sized contractors, primarily in the northeast United States FIA writes approximately $10 million in premiums license in 16 States and is rated a minus by a M best.
Speaker Change: <unk> is led by Pat Lin Senior and has an experienced team with a long track record of profitable underwriting FIA delivered loss ratios have outperformed the broader surety market over its history and importantly over the last five years.
Speaker Change: Surety is a very attractive specialty insurance market that we have analyzed for several years surety consistently outperformed the broader P&C market in terms of combined ratios in the underwriting cycle, but does not follow the general P&C cycle.
Speaker Change: On an atypical fashion, we decided it made more sense to enter surety through an acquisition versus building the business from the ground up.
Speaker Change: We believe that by is a great business and one that we can help grow significantly using Palomar capital distribution of technology resources.
Speaker Change: FIA is led by a talented market experts and as such we will maintain their underwriting and claims handling philosophies and strategies.
Speaker Change: Upon closing, we will invest resources toward the expansion of their distribution and geographic footprint and help them get federal delisting.
Speaker Change: These efforts will meaningfully expand our market opportunity.
Speaker Change: FIA strong team will enabled palomar to confidently and expertly ability national surety franchise, and a business that could become a material contributor to Panama's earnings base over the medium term, we expect to close the acquisition before year end and do not expect consequential revenue earnings contribution in 2024, we do expect the transaction to be accretive to 2025 earnings.
Speaker Change: As I mentioned in my opening remarks, this quarter, we recruited experienced industry veterans to help us further grow and scale Palomar.
Speaker Change: Tim Carter from LPL financial to be our Chief people Officer in June Tim brings more than 20 years of executive leadership, and human resources operations and sales functions.
Speaker Change: Additionally, Rudy array has joined us.
Speaker Change: Score to be our new Chief operating officer.
Speaker Change: Rudy is an experienced insurance executive who has also has more than 20 years of experience across technology operations strategic transformations and mergers and acquisitions.
Was that these exceptional executives apart as a proven track record and their ability to build market leaders.
Whether it is by officially launching new products recruiting best in class talent are implementing innovative technologies their experience and expertise will be invaluable as we enter the next phase of our growth to.
Speaker Change: To conclude our business is performing well and we are raising the guidance range for our full year 2024, adjusted net income to a $124 million to $130 million from $122 million to $128 million.
Chris Uchida: With that I will turn the call over to Chris to discuss our results, including guidance assumptions in more detail. Thank you Mack. Please note that during my portion when referring to any per share figure I'm, referring to per diluted common share as calculated using the treasury stock method.
Chris Uchida: Methodology required us to include common share equivalents, such as outstanding stock options during profitable periods and exclude them in periods when we incur a net loss.
Chris Uchida: For the second quarter of 2024, our adjusted net income was $32 million.
Speaker Change: Our $1 25 per share compared to adjusted net income was $21 8 million or <unk> 86 per share for the same quarter of 2023, representing adjusted net income growth of 47% are.
Speaker Change: Our second quarter adjusted underwriting income was $32 $9 million.
Speaker Change: Compared to $23 $1 million last year, our adjusted combined ratio was 73, 1% for the second quarter compared to 72, 2% in the second quarter of 2023.
Speaker: Our adjusted combined ratio was 73.1% for the second quarter compared to 72.2% in the second quarter of 2023, with only a modest premium in the second and fourth quarters. While there is some expected seasonality in our net-earned premium ratio, we continue to expect strong net-earned premium growth. At the end of the quarter, our net room premium to equity ratio was 1.02 to 1, and our stockholders' equity has reached $532.6 million, a testament to our profitable growth, also implying that we will double our 2021 adjusted underwriting income in three years.
Speaker Change: Excluding catastrophes, our adjusted combined ratio was 73% for the quarter compared to 69, 6% last year.
Speaker Change: For the second quarter of 2024, our annualized adjusted return on equity was 24, 7% compared to 21, 3% for the same period last year. The second quarter. Adjusted return on equity continues to validate our ability to maintain top line growth with a predictable rate of return above our Palomar to X target of 20%.
Speaker Change: Gross written premiums for the second quarter were $385 2 million.
Speaker Change: An increase of 40% compared to the prior year second quarter.
Speaker Change: Along with breaking out crop. We're also regrouping a written premium to align with our five key specialty insurance products earthquake in the marine and other property casualty fronting and crop. It is important to remember the seasonality of our crop premiums.
Speaker Change: Based on our current expectations majority of our crop premium will be written and earned in the third quarter of each year with only a modest premium in the second and fourth quarters.
Speaker Change: The crop premium written and earned in the third quarter, we will have a seasonal effect on our ratios calculated as a percentage of gross written premium in the third quarter, specifically the ratios for net earned premium acquisition expense and other underwriting expense.
Speaker Change: Since the majority of our crop business as ceded.
Speaker Change: Impact to our financials will not change compared to our previously shared expectations.
Speaker Change: Net earned premiums for the second quarter were $122 3 million, an increase of 47% compared to the prior year second quarter for the second quarter of 2024, our ratio of net earned premiums as a percentage of gross earned premiums were 37, 4% compared to 34, 3% in the second quarter of 2023 and compared sequentially to 35.
Speaker Change: 6% in the first quarter of 2024.
Speaker Change: The year over year increase in this ratio is reflective of a higher growth rate of our non printing lines of business, including earthquake that seed less premium.
Speaker Change: In addition, these results include the first month of our new excess of loss reinsurance placement that started June one.
Speaker Change: While the dollar are associated with those placements are higher the facilities facilitate continuing earthquake growth the risk adjusted rate online is lower than the previous year.
Speaker Change: With our excess of loss reinsurance in place and the majority of our crop premium, which we currently see it about 95% written and earned during the third quarter, we still expect the third quarter to be the low point of our net earned premium ratio.
Speaker Change: From there we expect the net earned premium ratio to increase through the remainder of the reinsurance treaty and a similar pattern to last year.
Speaker Change: There is some expected seasonality in our net earned premium ratio. We continue to expect strong net earned premium growth.
Speaker Change: Losses and loss adjustment expenses for the second quarter were $30 4 million.
Prior to the $27 million of non catastrophe, attritional losses, and $3 $4 million of catastrophe losses from severe convective storm activity.
Speaker Change: The loss ratio for the quarter was 24, 9% compared to a loss ratio of 21, 5% a year ago.
Speaker Change: For the second quarter, our Attritional loss ratio was 22, 1% and our catastrophe loss ratio was two 8%.
Speaker Change: During the quarter, we also experienced favorable prior year development from their property lines of business as we continue to maintain conservative casualty reserves.
Speaker Change: We expect our attritional loss ratio to be approximately 21% to 25% for the year and our catastrophe loss ratio to be about 2% to 3% for the year. These expectations include our estimate of third quarter catastrophe losses from Hurricanes barrel, and Debbie a $5 million to $7 million.
Speaker Change: Our acquisition expense as a percentage of gross earned premiums for the second quarter was 11% compared to 10, 8% in last year's second quarter and sequentially to 10, 5% in the first quarter of 2020 for.
Speaker Change: This percentage increase for the same reasons as our net earned premium ratio strong growth from our non funding lines of business, resulting in higher commission expense and lessening convention to offer our acquisition expense.
Speaker Change: <unk>, we expect third quarter crop written and earned premium to result in higher ceding Commission pushing this acquisition expense ratio a little lower in the third quarter. We expect this ratio to move up from the low point in the third quarter.
Speaker Change: The ratio of our other underwriting expenses, including adjustments to gross earned premiums in the second quarter was seven 3% compared to six 9% in the second quarter last year and compared sequentially to six 8% in the first quarter of 2024.
Speaker Change: Slightly higher this quarter from the performance based accruals from our strong results, but in line with our expectations. We continue to invest in our organization as we continue to grow.
Speaker Change: We continue to expect long term scale and this ratio, while we may see periods of sequential flatness as we continue to invest in scaling the organization.
Speaker Change: Crop premium will have a similar seasonal impact on this ratio for the third quarter as it does with the acquisition expense ratio.
Speaker Change: Our net investment income for the second quarter was $8 million, an increase of 43, 6% compared to the prior year's second quarter. The year over year increase was primarily due to higher yields on invested assets and a higher average balance of investments held during the three months ended June 32024, due to cash generated from operations our yield in the second quarter was.
Speaker Change: Four 3% compared to three 6% in the second quarter last year. The average yield on investments made in the second quarter was five 9% we.
Speaker Change: We continue to conservatively allocate our position as the asset classes that generate attractive risk adjusted return.
Speaker Change: At the end of the quarter, our net written premium to equity ratio ratio was 1.0 to two to one and our stockholders equity has reached $532 6 million.
Speaker Change: Testament to our profitable growth.
As Mac mentioned, we are raising our full year 2024, adjusted net income guidance range again.
Mac Armstrong: The increased guidance range includes $6 8 million of catastrophe losses incurred for the first half of the year and 5% to $7 million of additional catastrophe losses related to hurricanes barrel and Debbie incurred in the third quarter, but does not include any incremental income from the FIA acquisition if it closes this.
Speaker Change: Year.
Speaker Change: Based on our strong performance during the first half of the year, we are raising our full year adjusted net income guidance range to 124 million to $130 million implying.
Speaker Change: Implying 36% adjusted net income growth at the midpoint of the range also implying that we will double our 2021 adjusted underwriting income in three years.
Speaker Change: With our sustained strong performance, we are confident in our ability to continue achieving our palomar to X goal of doubling adjusted underwriting income and three to five years, while maintaining an Roe above 20%.
Speaker Change: With that I'd like to ask the operator to open the line for any questions operator.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star one on a telephone keypad.
Speaker Change: Formation tone will indicate your line is in the question queue.
Speaker Change: But I stopped to if you would like to remove your questions from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star one.
Speaker Change: One moment please poll for questions.
Speaker Change: The first question comes from the line of Paul Newsome with Piper Sandler. Please go ahead.
Paul Newsome: Good morning, and congratulate my opinion I guess congratulations on the quarter.
Paul Newsome: I was hoping you could give us a little bit more of your thoughts on the topic of include witches casually.
Paul Newsome: Sure.
Speaker Change: And I think mainly concerns that the new one.
Speaker Change: Inflation rate is.
Speaker Change: Rising in general to switch.
Rich: Thank you rich.
Rich: And just.
Rich: To the extent you see it or not CE business.
Speaker Change: Growing quite there and how you feel you can go and comfortable environment. It seems more uncertain.
Greener: Any additional thoughts greener.
Paul Newsome: Yes, Paul.
Paul Newsome: This is Matt good to hear from you. Thanks for the question.
Speaker Change: It starts with reinforcing what we're doing in casualty in it and we're writing niche segments within the market real estate.
Speaker Change: Contractors GL environmental liability.
Speaker Change: Narrow professional lines like contractor EMEA collection agencies.
Speaker Change: And some miscellaneous professional lines broadly but.
Speaker Change: We're not weighed down by legacy books of business. So really is a matter of us making sure that we feel very confident in our underwriting our loss picks and.
Speaker Change: Our line size and risk management, so just to give you a little bit of color on.
Speaker Change: On the risk selection side.
Speaker Change: We're really avoiding severity exposed classes.
Speaker Change: Other.
Speaker Change: Public D&O or <unk>.
Speaker Change: Large commercial auto fleets, we have really modest limits.
Speaker Change: Our Max gross line is $5 million.
Speaker Change: But as I pointed out in the call. When you look at some of those niche segments. Our net line is $1 2 million.
Speaker Change: On the high end, it's going to be $2 million on a net basis. So what we like about that is it.
Insulates us from a shock loss.
Speaker Change: B, it's not in the realm of litigation finance and social inflation.
Speaker Change: And.
Speaker Change: And then there is other underwriting controls for contractors GL, if we do have.
Speaker Change: Auto we're trying to confine it to fleets that are less than 50 units of.
Speaker Change: Vehicles and.
Speaker Change: Minimizing the number of jobs that people are driving to you on a daily basis.
Speaker Change: I think the other thing though is when you look at.
Speaker Change: How we're managing the book relative loss relative vis vis Las costs, we think we're getting rate right now.
Speaker Change: The excess liability.
Speaker Change: AD rates increases that were 20% plus.
Speaker Change: On the real estate agency you know it was in the high teens and I think we look at that line Thats also a line thats really not too exposed to.
Speaker Change: Social inflation right, it's really tied to.
Speaker Change: Transaction values and home sales and if there is a loss of value in the home. While you are covered by that because your underwriting on the.
Speaker Change: The value of the home and the sales of the agency does so what youre really looking at there is social inflation or excuse me inflation exposure, that's come down meaningfully because it's tied to property values. So.
Speaker: We are very, very focused on making sure that we have rates in excess of lost costs. We're very, very focused on managing line size, and we have terrific people that are doing it, well-experienced industry veterans that are leading the books, managing, and building great books of business.
Speaker Change: We are very very focused on making sure that we have raised in excess of loss cost. We're very very focused on managing line size and we have terrific people that are doing it well experienced industry veterans that are leading the books are leading and building great books of business.
Speaker Change: Hopefully that gives you some color, but we feel very confident and we also feel very confident we haven't touched our reserves yet. So we're building up a big a big big of reserves that hopefully will favor lead it off.
Speaker Change: That's great.
Speaker Change: Second question, maybe another broad one.
Speaker Change: Could you. Please talk about the can you talk about the competitive environment from your perspective your business mix.
Speaker Change: Theres broader concerns that properties are moderating it casually sort of not doing much.
Speaker Change: But your mix is pretty unique.
Speaker Change: Yes.
Speaker: Do you think it's, you know, the same, getting better, getting worse? capacity has come back into that market because the rates have been so strong. Our metrics are really strong there, but we're not looking to grow exposure. We're seeing in builders' risk a little bit more competition, but for us, we're more focused on building out a national footprint there, and so we've added underwriters to help us expand in the Midwest, to help us expand in the Northeast and the Western U.S.
Speaker Change: Do you think.
Speaker Change: The same getting better getting worse.
Speaker Change: Okay.
Speaker Change: And.
Speaker Change: Yes, so I mean listen I'm going to give it some more broadly because we do have a diverse book of business and I'll talk about it within our five product categories.
Speaker Change: In the circumstance of earthquake, we feel like it remains a very.
Speaker Change: Attractive competitive environment for us our rates remained strong up 10% to 12% 11, 6% I think exactly.
Speaker Change: The CA on the residential side continues to pullback. It's coverage actually now has a rate increase it will be going into place effective I think started the year.
Speaker Change: Commercial earthquake.
There is still is limited capacity and we bought incremental reinsurance to support our growth and I think you saw the growth in the first quarter, so that broad brush, how I would describe that.
Speaker Change: In the marine and other property. This is where we think we are growing where we where we want to yes. I mean, there is a little bit of increased competition in the all risk book, you can see that with our rates kind of flattening in the second quarter.
Speaker Change: <unk> have come back into that market.
Speaker Change: Because the rates have been so strong our metrics are really strong there, but we're not looking to grow exposure.
Speaker Change: We're seeing in builders' risk a little bit more competition, but for us we're more focused on building out a national footprint there.
Speaker Change: And so we've added underwriters to help us expand in the Midwest to help us expand in the northeast and.
Speaker Change: The Western U S. So probably that's probably the second what I would say, we see the most competition and inland marine and other property.
Speaker: So that's probably the thing where I'd say we see the most competition in Inland Marine and other property. Casualty, you touched on it, we're right in the niche lines. We feel like we're getting rates, we're coming into markets and expanding our distribution footprint, adding underwriting talent, so we feel like there's good growth there and not too much in the way of competitive impact that's going to slow down our growth plan
Speaker Change: Casualty you've touched upon it we are writing niche lines, we feel like we're getting rate.
Speaker Change: We're coming into markets and expanding our distribution footprint, adding underwriting talent. So we feel like there's good growth there not too much in the way of competitive impact that's going to that's going to slowdown.
Speaker Change: Our growth plans.
Speaker Change: Crop is a fourth one.
<unk> seen consolidation in that market. So we still think we're the new kid on the block here. So we think we can continue to take share and are well on our way to doing so and then frankly, it's a bit of a mixed bag as I said, we lost one large account.
Speaker Change: A good partner highly rated am best rated company that now has the licenses that merits it getting rid of a front. So I'd say, there's competition in that market as well so if I had to sum it up in.
In the marine and other property and frankly, probably we're seeing the most competition.
Speaker Change: Great. Thank you that's very helpful. I appreciate it as always thanks, Paul Yeah I appreciate it.
Speaker Change: Thank you next question comes from the line of Mark Hughes with <unk> Securities. Please go ahead.
Mark Hughes: Yes. Thank you good morning.
Chris: The ratio of earned premium to gross, Chris, I think you say it will bottom out in the third quarter at a low point. Can you kind of say roughly where that number will bottom out?
Speaker Change: The ratio of earned premium to growth Chris.
Speaker Change: Chris I think you would say will bottom out in the third quarter at a low point.
Speaker Change: <unk>.
Speaker Change: Let's say roughly where that number will bottom out.
Speaker Change: Yes, Thanks, Marc for the question.
Speaker Change: Talk about net earned premium a lot, but yet we do expect the net earned premium ratio to be at its low point in the third quarter Theres two factors affecting that is the one that's consistently impact of it is excess of loss.
Speaker Change: First full quarter of our ex new excess of loss will be the third quarter of this year similar to last year. So that will put pressure on the ratio, we do buy that premium or by the excess of loss to support our overall growth in the portfolio. So even though the rate was down approximately 5% on a rate online basis the dollars.
Speaker Change: We spend are still going to be up so that increased pressure on the ratio. The second factor is going to affect this year and in years to come as also the crop premium the majority of the crop premium that will be written and earned in the third quarter of this year.
Speaker Change: Like years to come and so that and we still see about 95% of that premium. So that will also put additional pressure on that ratio and I look at it in the third quarter. So when I look at it specifically I would expect something similar to what you saw last year I would expect low thirty's type net earned premium ratio in the third.
Speaker Change: And then moving up from there I'd say the.
Speaker Change: Down.
Speaker Change: <unk> will probably been a little bit steeper this year, but that's really driven by crop while when you look at the net earned premium dollars I expect to see continued sequential growth in the net earned premium dollars. When you look at Q1 Q2, and then into Q3 I still expect the net earned premium.
Speaker Change: To increase but that ratio will see a little bit more variability in the third quarter and a lot of that driven from the crop premium that we're expecting.
Speaker: Thanks for that detail. And then there is the impact of the loss fronting business.
Speaker Change: Thanks for that detail.
Speaker Change: And then the.
Speaker Change: The impact of the lost fronting business.
Speaker Change: What is the dollar amount roughly.
Speaker: Yeah, so the total portfolio for that book of business is right around $165 to $168 million. So that, obviously, is a significant chunk of business that we will be losing. We will start losing that, or I call it, rolling that over, in the second or the third quarter of this year. So we'll probably experience about half of it this year. The first quarter is the heaviest quarter for that.
Speaker Change: Yes, so the total portfolio for that book of business is right around $165 million to $168 million. So that obviously is a significant.
Speaker Change: Chunk of business that we will be losing we will start losing that or we will start.
Speaker Change: Rolling out over in the second or the third quarter of this year. So we will probably experience about half of it this year.
Speaker Change: First quarter is the heaviest quarter for that and then just trying to get to the number right now that we will see about.
Speaker: And then, just trying to get to the number right now that we will see, it's about $39 million of premium last year in the third quarter. So I would say, think about that as half of what we will not get this year. The fourth quarter of 23 was about $37 million of written premium.
Speaker Change: $39 million of premium last year in the third quarter. So I would say think about that as past that we will not get this year.
Speaker Change: Fourth quarter of 'twenty, three was about $37 million of written premium the first quarter of 'twenty four was about $48 million of written premium in Q2 of this year. This quarter was about $44 million of premium. So in total that's about $168 million of fronting premium that we will be.
Rolling off of starting in the middle of the third quarter, I think what I would add.
Mark Hughes: Mark has just importantly.
Speaker Change: I think couple of things one.
Speaker Change: This is a company that now has the requisite licenses needed. It has always had an a M. Best rating. So I think it speaks to the quality of the counterparty.
Speaker Change: Two is if you look at <unk>, it's a nice fee income stream, but it's a lower margin.
Speaker Change: Margin product for us. So we think we can certainly.
Speaker Change: Through that next year and then some because we have a nice pipeline and we added new clients in the quarter.
Speaker Change: And.
Speaker Change: Furthermore, there is so many other growth vectors, we have I mean, the beauty of our businesses. We can lose someone like this and we have a great portfolio and we still feel very good about the long term growth prospects of the business.
Speaker: And thank you for that. And in California, in the personalized market, the dislocation, I think it's been helping from the Quake standpoint. I think you talked about more movement into E&S was beneficial on the residential side. Is that continuing to pace? How do you see the trajectory in that? Is it still as dislocated or is that?
Speaker Change: And then thank you for that.
Speaker Change: In California in the personal lines market dislocation.
Speaker Change: I think it's been helping from the quake standpoint, I think you talked about more movement into E&S was.
Speaker Change: Beneficial on the residential side is that continuing a pace how do you see the trajectory and that is still as dislocated or is that slowing down.
Speaker Change: Mark Good question, yes, it's continuing to pace.
Mark Hughes: I mentioned, 38% E&S growth in residential quake in the second quarter.
Mark Hughes: We're seeing still steady new business in E&S as we sit here today.
Mark Hughes: The admitted homeowners market remains.
As this location.
Kate: Kate Discombobulated.
Kate: And we don't expect that to.
Kate: Remedy itself in the near term. So we think that's a nice tailwind for us and the other thing I would add is a lot of the partnerships. We brought unlike Cincinnati financial that has with their E&S offering their high value that's offering so.
Speaker Change: It's a natural conduit for me and Thats homeowners policies to come over to quake.
Speaker Change: I appreciate it thank you.
Mark Hughes: Thanks Mark.
Mark Hughes: Thank you next question comes from the line of David <unk> Evercore ISI. Please go ahead.
Thanks, Good morning.
David: I had a question just on the.
Speaker Change: Some of the loss ratio discussion so it sounds like 21% to 25% Attritional with two to three points of cat losses for this year. So.
Speaker Change: If I think about that all in loss ratio of about 23 to 28.
Speaker Change: For this year I guess, how are you guys thinking about that as we head into next year.
Speaker Change: Given all the changes in the mix of business.
Speaker Change: Any sort of thoughts there would be helpful. Thank you.
Speaker Change: Yeah. Thanks, Dave No I think the loss ratio is moving up as we have kind of projected and expected right I think the one nice thing that we're seeing is that the.
Speaker Change: Lines of business that you have attritional losses.
Speaker Change: Inland Marine are growing at a very strong rate those are profitable lines of business for those lines of business also come with Attritional losses, which we expect so that growth is outpacing our expectations a little bit. So we think it's prudent to kind of push the loss ratio up a little bit we've said that I wouldn't be surprised if it moves up.
Speaker Change: Appointed every quarter as these books mature and as that earned premium of growth comes on the books. So I think thats. What we are seeing that two to three points of cat losses that you talked about that does reflect the losses that we've seen through the first half of the year, but also our projections or estimates for losses from barrel and Debbie that is still kind of impacting.
Speaker Change: The U S. Right now so we think those we hope that those estimates are conservative, but we do think that our loss ratio is moving as we would expect the other thing that when you look at our loss ratio for the quarter. There was some favorable prior period development, we're happy to see that as always that did come from our property line of business.
Matt: Typically some of our larger builders risk, where we were holding some conservative reserves, we were able to closeout. Some claims during the quarter. So we felt comfortable taking those reserves down importantly, as Matt pointed out a little bit earlier, we are not touching our casualty reserves. The casualty book is a little newer for US we are reserving.
Matt: Our minds conservatively and we're holding those reserves. So we have not taken those reserves down at this stage and so we feel like we have a conservative position for our total reserve base and we hope that proves out but importantly, our book of business just maturing.
Speaker Change: Our mix is growing in lines of business outside of earthquake <unk> still have strong growth.
These other lines are growing at a greater rate so that greater rate is causing our attritional loss ratio to move up because while these businesses are still profitable. Unfortunately, if theyre not a sub 20 loss ratio line of business, but they are still very profitable and so we are happy to see the attritional loss ratio move up with the growth in those lines of business.
Speaker Change: Got it that's helpful and I guess just on.
Speaker Change: The cat losses so.
Speaker Change: If I look at year to date and include the barrel and Debbie losses, I guess around $13 million to $14 million is that sort of what you would expect in terms of a of a cat load.
Speaker Change: For a typical year just given the mix shift in your business.
Dave: Yes, Dave.
Dave: I think it's directional candidly I believe that the.
Speaker Change: Second quarter had elevated SCS activity and we had.
Speaker Change: A tornado loss that hit our builders' risk book that probably disproportionately.
Dave: Usually high so.
Dave: I wouldn't expect that every year.
Dave: It's not a bad.
Dave: Trajectory. The other thing is you know influenced the first quarter most of those cat losses were from the flood activity and.
Dave: California and.
Dave: If we rotate out of.
Dave: And now ill Nino into aligning and there may be potentially lower rain activity in southern California.
Dave: That probably is jinx myself, but nonetheless.
Dave: Yeah.
Dave: So it's a combination of cat load, it's from SCS flood and.
Dave: Continental Hurricane that's not a bad direction, they will target over the course of the year.
Dave: Great. Thank you.
And then.
Interesting to learn a little bit more about the surety deal.
Speaker Change: For F. I E. I guess are are there any other lines you haven't spoken about where youre thinking of entering and yeah, where you're sort of weighing either building. It yourselves, which is what we've seen you guys do in the past.
Speaker Change: Versus acquiring something like you like you just did here.
Speaker: Yeah, good question, Dave, and what I would say is, first and foremost, we still believe that we are an organic growth story.
Speaker Change: Yeah. Good question, David what I would say is first and foremost we still believe that we are an organic growth story.
Speaker Change: It's.
Speaker Change: With all of the growth that we've done to date has been organic and the predominance will remain so.
David: It was unique.
David: It's a market that we really like.
David: There is an expertise.
David: That we thought we were better suited to buy than build.
David: So.
David: I think you should continue to continue to consider us an organic growth story, but in the case of FIA, because we have market experts, who have generate exceptional returns and better than industry returns for decades.
David: We found a great partner and what I think youll, probably see though as you know as I mentioned, it's $10 million of premium.
David: Our goal is to build at multiples of that so it will turn into inorganic gross joined once we bring it on board.
David: Bye.
Speaker Change: <unk> organic growth and an opportunistic acquirer, especially when you goodbye great franchise like FIA.
Speaker Change: Got it understood. Thank you.
Dave: Thanks, Dave.
Operator: Thank you. The next question comes from the line of Andrew Andersen with Jeffries. Please go ahead.
Speaker Change: Thank you next question comes from the line of Andrew Anderson with Jefferies. Please go ahead.
Andrew Anderson: Hey, good morning, any way to size the benefit or expanded growth opportunities from the recent am best upgrade and what would be the timeline to seeing any benefit there.
Speaker Change: Yeah.
Andrew Anderson: Hey, Andrew Yes.
Speaker Change: We were good question, we were thrilled to get that upgrade.
Andrew Anderson: It's hard for us to size. It I think there are segments of our book that will.
Andrew Anderson: Be more positively impacted than others in particular professional lines and.
Andrew Anderson: Some of the niche casualty segments that we write in.
Speaker Change: I don't think its going to be it's pertinent to property.
Speaker Change: But I think it does enhance us as a counterparty it certainly enhances us as a trading partner.
Speaker Change: And.
Speaker Change: It will open distribution.
Speaker Change: Sources, it will potentially open new lines of business I also think it will probably help us recruit talent, but I don't want to give you.
Speaker Change: Some type of dollar impact.
Speaker Change: But we're going to use it to the best of our ability to market.
Speaker Change: Understood and then maybe on the earthquake side. The inflation guard has been pretty sticky should we think of that maybe reversing and 25 and then if you could also just touch on the commercial earthquake market, where pricing has at least quarter over quarter remained relatively consistent.
Speaker Change: Yes, I'll, let Jon christianson speak to speak to that.
Jon Christianson: I will say just on the inflation guard and he should chime in.
Jon Christianson: <unk> locked in.
Jon Christianson: Underwriting guidelines that we have filed so they're underwriting rule rather that we have filed so we have no intention to rescind it and change it so.
Jon Christianson: It will be firm for 2025.
Yes.
Speaker Change #100: I'd add one thing that we watch those retention ratios very closely.
Speaker Change #100: And how the inflation guard may impact.
Speaker Change #100: A buyer's decision to renewal policy.
Speaker Change #101: As of right now, we're seeing no change in buyer behavior.
Mark Hughes: Like Mark said we're.
Mark Hughes: Pleased to continue that.
Speaker Change #102: <unk> inflation approach that we've had employed here over the last couple of years.
Speaker Change #103: On the commercial earthquake to your question.
Speaker Change #104: That rating environment.
Speaker Change #105: To be very strong the strongest in our careers.
Speaker Change #105: And.
Speaker Change #105: While there has been some.
Speaker Change #106: Decreases of Mac mentioned or flattening I should say of the all risk segment.
Speaker Change #105: Continuing to see.
Speaker Change #105: Some appreciation in rate over the course of the second quarter in the commercial earthquake segment. So.
Speaker Change #105: More opportunities in the market.
Speaker Change #105: And.
Speaker Change #105: Pleased to see the rates hold up.
Speaker Change #105: And I think Andrew what I would add is two things done with respect to the residential earthquake.
Andrew Anderson: And then those retention rates and sustaining those with the CEO of pushing for a rate increase that will get it will be effective at the start of the year that gives us a bit of.
Speaker Change #107: Competitive cover so to speak and then on just all of the earthquake. The fact that we were able to lock in our reinsurance.
Speaker Change #107: A 5% rate decline, while maintaining that type of.
Speaker Change #107: Price integrity.
Speaker Change #107: Whether it's the inflation guard our commercial rate increases.
Speaker Change #107: It does.
Speaker Change #107: Bode well for.
Speaker Change #107: Net earned premium conversion class margin expansion in that line of business.
Speaker Change #108: Thank you.
Speaker Change #109: Thank you next question comes from the line of Man Shields with <unk>. Please go ahead.
Man Shields: Great. Thanks, so much.
Man Shields: A couple of questions probably all over the place first is there any overlap in FIA as agency network and the contractor related liability lines that you're writing now.
Speaker: Not a lot currently. There's potentially a way to cross sell in time. I actually think there's probably a decent cross sell too with some builders risk. But as we sit here today, there's not much in the way of geographic or distribution overlap. FIA is Northeast heavy. Our contractors, GL, tend to be Western US heavy.
Speaker Change #111: Not a lot, but currently there is potentially a way to.
Speaker Change #112: Cross sell in time, I actually think there is probably a decent cross sell to you with some builders risk.
Speaker Change #112: But as we sit here today.
Speaker Change #113: There's not much in the way of geographic distribution overlap northeast heavy or contractors GL tends to be western U S. Heavy.
Yes.
Speaker Change #113: Okay perfect.
Speaker Change #114: Assuming that just because of the size and presumably be insurance plans or you Shouldnt expect this to impact acquisition expense ratios for 2025.
Speaker Change #115: For FIA.
Speaker: Yeah, in other words, including FIA.
Speaker Change #114: Yes.
Speaker Change #116: Yeah go.
Speaker Change #116: Go ahead, Chris Yes, no I think obviously, it's a.
Chris Uchida: It's a smaller book of business.
Chris Uchida: Some of our other lines of business. So it will have an impact, but I wouldn't expect anything material to change on the overall weight even in 2025 weighted that book in 2025.
Chris Uchida: From a ratio standpoint, sorry.
Speaker Change #117: Right understood.
Speaker Change #118: On the trucking side I guess.
Speaker Change #118: The remaining books in other words outside of.
Speaker Change #118: Aloha casualty.
Speaker Change #119: Is that business more permanent in nature or are clients Theyre also looking for licensing or distribution to sort of ratchet on their own over time.
Speaker Change #120: Yes, I would say, it's more permanent in nature.
Speaker Change #121: Omaha National.
Speaker Change #122: We knew.
Speaker Change #121: That at some point.
Speaker Change #121: I would no longer need to front the other ones tend to be more either MGA or reinsurance that don't have primary.
Speaker Change #121: Primary company Axa.
Speaker Change #121: Yes.
Speaker Change #123: Okay Perfect and then last question if I can on it I'm sorry.
Speaker Change #124: On ethanol.
Speaker Change #124: Did you retain any of that underwriting risk.
Speaker Change #126: We did yes, we.
It had been between five and seven.
Speaker Change #126: And so.
Speaker Change #126: But that will not go forward.
Speaker Change #127: Okay perfect. Thanks, so much.
Speaker Change #127: Thank you.
Speaker Change #127: Thank you.
Speaker Change #129: <unk> to all the participants that you May press star one to ask a question next question comes from the line of Pablo Cingal, but JP Morgan. Please go ahead.
Pablo Cingal: Hi, good afternoon.
Pablo Cingal: I've been surprised by the sequential increase in the net earned premium ratio right. So just given that you only have one month.
Speaker Change #131: I guess the rebates.
Speaker Change #131: <unk> costs here.
Speaker Change #131: Yeah.
Speaker Change #133: Putting that aside if you think about the bigger growing right are there lines of business, where you get the most leverage again.
Speaker Change #133: <unk> budget, that's flattened out.
Speaker Change #133: Think about ready earthquake, that's an obvious one.
Speaker Change #135: Excellent program, but we didn't seem to be in our property, which I think has given the fastest for you year to date.
Speaker Change #135: Or are there lines there.
Speaker Change #135: Benefits like earthquake from <unk> budgets have flattened out.
Yes, all of the property business.
Speaker Change #135: <unk>.
Lal Lima: Even Lal Lima, where we're now our attorney in fact manager there's more margin for us to.
Lal Lima: Retained potentially there so all of the property business from builders risk too.
Lal Lima: Earthquake to Hawaiian Hurricane and all risk.
Speaker: They benefit from decreasing reinsurance prices.
Lal Lima: They benefit from decreasing.
Lal Lima: Reinsurance pricing.
Lal Lima: Okay. It sounds like.
Speaker Change #137: Those lines are not heavily quota share then right is that correct.
Speaker Change #138: Correct via builders' risk has a quota share but.
Speaker Change #139: For noncash and.
Speaker Change #138: <unk>.
Speaker: Yeah, and Access National Property, same.
Jamie: Yes, and the access national property Jamie.
Speaker Change #141: That tends to be more back heavy but yes.
Speaker Change #141: But Hawaii.
Speaker Change #141: Earthquake and all risks.
Speaker Change #141: Is.
Speaker Change #142: That's where you are there's not much quota share or using their yes gotcha.
Speaker Change #142: Gotcha understood.
Speaker Change #144: Probably maybe I'll speak a little bit just to the sequential growth in the net earned premium ratio, which was a little unexpected when we go back to the Q1 results, but I think after the placement of the excess of loss. We did receive some benefit there so those where it was better than our expectations we had.
Speaker Change #144: Single digit savings there versus we were expecting a rate increase so that definitely impacted our expectations on the net earned premium ratio and then just overall growth in lines of business that use.
Speaker Change #145: Less reinsurance or a quota share reinsurance in fronting fronting was probably as a slower grower over the first half of the year. So the growth in lines like marine and casualty, even though they still use quota share they don't use as much as fronting so the growth in those lines of business. It was a little bit ahead of our expectations as well.
Speaker Change #145: Helps increase that net earned premium ratio sequentially.
Speaker Change #145: From Q1 to Q2, so that's something else that needs to be factored in when you think about it well when we talked last time, we were probably expecting that ratio to be a little bit flatter for Q2, but still we do expect that dip in the third quarter.
Speaker: Yep, okay, that makes sense. And then switching gears here, just on the E&S Resi product in California. So the high-value homeowners customers you're getting, are these customers net new business for you? Or are you seeing some shift from, you know, admitted quality on the E&S side?
Speaker Change #146: Yes, okay that makes sense.
And then switching gears here just on the.
Speaker Change #147: Rescue product in California.
Speaker Change #148: The high value homeowners customers, you're getting are these customers net new business for you or are you seeing some shift from admitted policy side.
Pablo Singzon: It's both. That's a good question, Pablo, and I'd say it's both.
Speaker Change #149: It's both.
Speaker Change #149: That's a good question Pablo and I'd say, it's both so.
Speaker Change #149: I've highlighted again, Cincinnati financial and those are going to be new business.
Speaker: So, you know, I've highlighted again Cincinnati Financial. Those are going to be new businesses. There are others that are coming into the market to buy, and only E&S is open to them. And then we have made a deliberate renewal or migration, rather, of certain policies in peak zones in Southern California or Northern California, for that matter, that we want to have on E&S paper, whether we need to charge more for them to justify the reinsurance costs or just improve the spread of risk.
Speaker Change #149: There are others that are coming into the market.
Speaker Change #149: Yes.
Speaker Change #149: Goodbye.
And the only in E&S is open to them and then we have made a deliberate.
Speaker Change #150: Renewal or migration, rather of certain policies and peak zones in southern California, and northern California for that matter that we want to have on E&S paper, whether do we need to charge more for to justify the reinsurance cost or just improve the spread of risk.
Speaker Change #150: Go ahead, John Pablo I'd also add that as we see.
Speaker Change #151: Changes in the personal lines market in California.
John Pablo: With associated with those carriers, who are participating insurers with the California earthquake authority.
Speaker Change #153: As the California earthquake authority reduces its exposure, particularly to those that may be kind of a higher value profile of customer we.
Speaker Change #154: We see that business coming to us while there may be historically earthquake buyers.
Speaker Change #154: We see that business coming to us.
Speaker Change #154: Side of the house as well.
Speaker Change #155: Got it that makes sense and then just last for me on the FAA.
Mac Armstrong: Mac you said the desperation.
Mac Armstrong: Premium basis multiples of what it is now.
Mac Armstrong: For you as well.
Mac Armstrong: This FAA get by being part of that.
Speaker Change #156: Palomar platform that you think will enable that growth right its.
Speaker Change #156: Distribution is in operation.
Speaker Change #158: How are you thinking that all of those things.
Speaker Change #158: I mean I.
Speaker Change #160: Our objective is to export their excellence in surety underwriting and claims management too.
Speaker Change #161: Broader geographic and distribution footprint. So we can bring capital potentially keep a little more on the balance sheet, there right nice modest limits that.
Speaker Change #161: When disproportionately impact our.
Speaker Change #161: Risk management targets. So we can give them capital to write more and keep more we definitely can open up distribution for them.
Speaker Change #161: And we certainly if we can bring more resources to bear to help them expand their geographic footprint, what you won't see a material change in the underwriting appetite and classes of business nor their claims handling approach. They are excellent at that and that's what we want to export.
Speaker Change #162: Understood. Thank you so much.
Pablo Cingal: Thanks Pablo.
Pablo Cingal: Thank you ladies and gentlemen, we have reached the end of question and answer session I would now like to turn the floor over to Mac Armstrong for closing comments.
Mac Armstrong: Thanks, operator.
Mac Armstrong: And thank you to everyone for participating today.
Mac Armstrong: Conclusion, we had another strong quarter, where we executed our Palomar to X strategy I wanted to as always thank our talented team for their hard work and dedication.
Mac Armstrong: Our success.
Mac Armstrong: As a reflection of their efforts.
Mac Armstrong: Looking to the second half year.
Mac Armstrong: Optimistic of our ability to execute our plan and deliver profitable growth.
Mac Armstrong: Lastly, I look forward to welcoming the FIA teams to Palomar upon the closing of the acquisition.
Mac Armstrong: I am very excited about what we are going to accomplish together. So thank you all enjoy the rest of your day and we'll talk to you next quarter.
Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change #163: Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change #163: [music].
Speaker Change #163: Yes.