Q2 2025 Employers Holdings Inc Earnings Call
Good day, and thank you for standing by. Welcome to the second quarter 2025 Employers Holdings, Inc. earnings conference call.
At this time, our participants are in listening-only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during this session, you'll need to press star 1. 1 on your telephone, you will then hear automated message advising your hand is raised to withdraw your question. Please press star 1 1 again.
Marvin: Thank you, Marvin. Good morning and welcome, everyone, to the second quarter 2025 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. 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. All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments.
Please be advised that today's conference is being recorded online to hand the conference over to your first Speaker today. Laurie. Brown Chief legal officer. Please go ahead.
Thank You, Marvin. Good morning and welcome everyone. To the second quarter 2025 earnings call for employers today's call is being recorded and webcasts from the investor section of our website where a replay will be available following the call.
Statements made during this conference call that are not based on historical facts or 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.
Set forth in our filings with the the Securities and Exchange Commission.
Marvin: The company also uses its website as a means of disclosing material non-public information and for complying with the 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. 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. And now I'll turn the call over to Kathy Antonello, our Chief Executive Officer.
All remarks made during the call, our current only at the time of the call, and will not be updated to reflect subsequent developments.
The company also uses its website as a means of disclosing material nonpublic information and for complying with the disclosure obligations under the sec's regulation FD.
Such disclosures will be included in the investor section of our website accordingly. Investor should monitor that portion of our website. In addition, to following our press releases SEC filings public conference calls and webcasts.
And our earnings press release.
And in our remarks or responses to questions, we may use non-gaap Financial measures, reconciliations of these non-gaap measures to our Gap. 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.
Katherine Antonello: Thank you, Lori. Good morning, everyone, and welcome to our second quarter 2025 earnings call. Joining me today is Mike Padraja, our Chief Financial Officer. During today's call, I'll begin by providing highlights of our second quarter 2025 financial results and then hand it over to Mike for more details on our financials. Prior to Q&A, I'll come back to you with some additional thoughts. Our second quarter gross written premium decreased by 2.2% compared to 2024 due to a decrease in new business written premium within the middle market. Our focus on profitability over growth led to targeted underwriting actions and improved risk selection, which impacted our ability and desire to grow at the same pace in certain classes and jurisdictions. We are pleased that we continue to grow with our small commercial clients that value our investments in automation and ease of use.
And now, I'll turn the call over to Cathy and Janelle our chief executive officer.
Quarter 2025 earnings call.
Joining me today is Mike sraa. Our Chief Financial Officer.
During today's call, I'll begin by providing highlights of our second quarter 2025 Financial results.
And then hand it over to Mike for more details on our financials.
Prior to Q&A, I'll come back to you with some additional thoughts.
Our second quarter gross written premium decreased by 2.2% compared to 2024 due to a decrease in new business written premium within the Middle Market.
Our focus on profitability over growth led to targeted underwriting actions and improved risk selection which impacted our ability and desire to grow at the same Pace in certain classes and jurisdictions.
Katherine Antonello: Net premiums earned for the quarter increased 5.6%, primarily due to strong increases in net written premium in 2024. We ended the period with a record number of policies enforced, with a year-over-year growth rate of 4.6%. We earned $27.1 million of net investment income during the quarter, which was slightly higher than the second quarter of 2024. Our current accident year loss and LAE ratio on voluntary business was 69% versus the 66% we recorded in the first quarter of 2025. This increase was a prudent response to the rapid rise in cumulative trauma claims in California in the most recent accident years and the level of uncertainty around this new trend.
We are pleased that we continue to grow with our small commercial clients that value our investments in Automation and ease of use,
Nest premiums earned for the quarter, increased 5.6%.
primarily due to strong increases in net, written premium in 2024,
We entered the period with a record number of policies. Enforced with a year-over-year growth rate of 4.6%.
We earned 27.1 million of net investment income during the quarter, which was slightly higher than the second quarter of 2024.
Our current accident year loss in Lae ratio on voluntary business was 69% versus the 66% we recorded in the first quarter of 2025.
Katherine Antonello: In addition, while we did not recognize any prior year loss reserve development for voluntary business this quarter, we did reallocate significant favorable loss development from accident years 2020 and prior to accident years 2022 through 2024 to reflect the increased frequency of cumulative trauma claims in California. We intend to perform a full actuarial study in the third quarter. I am pleased with the reductions we achieved in our commission expense ratio, which was 13.2% this quarter, down from 13.9% a year ago. We also achieved reductions in our underwriting expense ratio, which was 21.7% this quarter compared to 22.4% a year ago. We continue to find ways to reduce expenses by automating processes, delivering customer self-service capabilities, and utilizing artificial intelligence. With that, Mike will now provide a deeper dive into our financial results, and then I'll return to provide my closing remarks. Mike, excuse me.
This is this increase was a prudent response to the rapid rise in cumulative. Trauma, claims in California in the most, recent accident, gears, and the level of uncertainty around this new trend,
In addition, while we did not recognize any prior year loss, reserved development for voluntary business. This quarter, we did reallocate significant favorable loss development from accident years 2020. And prior to accident years, 2022 through 2024 to reflect the increased frequency of cumulative, trauma claims in, California
We intend to perform a full Actuarial study in the third quarter.
I am pleased with the reductions we achieved and our commission expense ratio which was 13.2% this quarter down from 13.9% a year ago.
We also achieved reductions in our underwriting expense ratio which was 21.7% this quarter compared to 22.4% a year ago.
We continue to find ways to reduce expenses by automating processes. Delivering customer, self-service, capabilities, and utilizing. Artificial intelligence.
Lori Brown: Gross premiums written were 203.3 million compared to 207.9 million for the prior quarter, a decrease of 2.2%. As Kathy previously mentioned, declines in our middle market new business offset new business premium growth within our smaller customer segment. Net premiums earned were 198.3 million compared to 187.8 million for the prior quarter, an increase of 5.6%. During the period, our loss and loss adjustment expenses were 104.1 million versus 108.8 million a year ago. As Kathy discussed, we increased our current action year loss and loss adjustment expense estimates in response to the rapid rise in cumulative trauma claims in California we are experiencing as a reminder. In our first quarter, 2025 reported loss and loss adjustment expenses were based on a loss and LEA ratio of 66%.
With that Mike will now provide a deeper dive into our financial results. And then I'll return to provide my closing remarks. Mike
Gross premiums written for 203.3 million, compared to 207.9 million for the prior quarter. A decrease of 2.2%,
And as Cathy previously mentioned declines, our Middle Market, new business offset, new business premium growth within our smaller customer segments.
Net premium is urns. Were a 198.3 million compared to 187.8 million for the prior quarter and increase of 5.6%.
During the period, our loss and loss adjustment expenses were 1 of 104.1 million versus 108.8 million a year ago.
As Kathy, discussed the increased, our current action year loss and loss adjustment expense estimates in response to the rapid rise in cumulative. Trauma, claims in California, we are experienced
Lori Brown: Accordingly, the current quarter loss and loss adjustment expenses include a first quarter catch-up adjustment of 5.5 million, resulting in a 70.7 loss and LEA ratio. Commission expense of 26.1 million was essentially flat compared to a year ago, and our commission expense ratio was 13.2% versus 13.9% for the prior period. The reduction in the commission expense ratio was primarily due to the proportional increase in renewal premiums, which carry lower commission rates, as well as lower agency incentive commissions. Underwriting expenses were 43.1 million for the quarter versus 42.2 million for the prior year. Our underwriting expense ratios for the corresponding quarters were 21.7% and 22.4% respectively. The underwriting expense increase was primarily related to a reduced internal allocation of underwriting expenses to loss adjustment expenses, resulting from a refinement in our internal assumptions.
As a reminder, in our first quarter, 2025 reported loss in the loss adjustment expenses were based on a loss in Le ratio of 666. 666 percent
Accordingly the current quarter loss in the loss. Adjustment expenses includes a first quarter, catch up adjustment of 5.5 million resulting, in a 70.7 loss in Le ratio.
Commission, expense of 26.1 million was essentially flat compared to a year ago and our commission expense ratio was 13.2% versus 13.9% for the prior period.
The reduction in the commission. Expense ratio was primarily to to the proportional increase in renewal premiums, which carry lower commission rates as well as lower agency incentive commissions.
Versus 42.2 million for the prior year.
Our underwriting expense ratios for the corresponding quarters were 21.7% and 22.4% respectively.
Lori Brown: Excluding this allocation, underwriting expenses decreased by 3 million, primarily driven by lower compensation-related expenses and depreciation amortization costs offset by higher bad debt expense. Increased net premiums earned contributed to the lower underwriting expense ratio. Net investment income was 27.1 million for the quarter compared to 26.9 million for the prior year. The slight increase was primarily due to higher yields on our fixed maturity investments. The total investment return for the second quarter was 57.5 million compared to 26.5 million for the prior year. The current quarter net income results included after-tax realized and unrealized gains from our investments in equity securities and other invested assets of 14.8 million and 1.8 million, respectively. Our stockholders' equity at June 30th, 2025, reflects 7.4 million of net after-tax unrealized gains generated from our fixed maturity investments during the current quarter.
The underwriting expense increase was primarily related to a reduction, A reduced internal allocation of underwriting expenses to loss adjustment expenses, resulting from a refinement in our internal assumptions.
excluding this allocation underwriting expenses is the decrease by 3 million, primarily driven by lower compensation related, expenses, and depreciation to amortization costs, all set by higher bad debt expense
Increased net premiums earned contributed to the lower underwriting expense ratio.
Net investment income was 27.1 Million for the quarter compared to 26.9 million for the prior year.
The slight increase of primarily due to higher yields on our fixed maturity Investments.
The total investment returns for the second quarter were $57.5 million compared to $26.5 million for the prior year.
The current quarter, net income results included after tax realized and unrealized gains from our investments in equity Securities, and other invested assets of 14.8 million and 1.8 million respectively.
Lori Brown: Our fixed maturity investments currently have a modified duration of 4.3 and an average credit quality of A plus. Our weighted average book yield was 4.5 at quarter end, which is consistent with a year ago. Our adjusted net income, which excludes net realized and unrealized investment gains and losses, and the benefit of our LPT deferred gain amortization totaled 11.5 million, a 58.8% decrease compared to prior year's adjusted net income of 27.9 million. During the second quarter, we repurchased 23 million of our common stock at an average price of 48.08 per share and thus far have repurchased an additional 229.365 shares of our common stock in the third quarter at an average price of $46.44 per share. With that, I'll turn it back to Kathy.
Our stockholders Equity at June 30th, 2025, reflects, 7.4 million of net after tax unrealized gains generated from our fixed maturity Investments during the current quarter.
Our fixed maturity Investments. Currently have a modified duration of 4.3 and an average credit quality of a plus.
Our weighted average book yield was 4.5% at quarter-end, which is consistent with a year ago.
Our adjusted net income, which excludes net realized and unrealized investment gains and losses and the benefit of our lpt deferred gained amortization totaled. 11.5 million, a 58.88 percent decrease compared to Prior years, adjusted in income of 27.9 million
During the second quarter, we repurchased 23 million of our common stock and an average price of 48.08 per share.
Katherine Antonello: Thank you, Mike. Yesterday, our board of directors declared a third quarter 2025 quarterly dividend of $0.32 per share. The dividend is payable on August 27th to stockholders of record on August 13th. We are confident in employers' financial strength and financial prospects and will continue to manage our capital strategically. Consistent with my first quarter message, we also continue to identify and implement refinements to our underwriting and pricing approach that we believe will result in profitable growth in new and renewal business. We are pleased that the California Insurance Commissioner, Commissioner Lara, recognized the increased frequency of California cumulative trauma claims through his approval of increased rates and are also encouraged by his call for legislative changes to combat this growing negative trend.
And thus far have repurchased, an additional 229.365 shares of our common stock in the third quarter at an average price of 46.44 cents per share.
With that, I'll turn it back to Kathy.
Thank you. Mike yesterday. Our board of directors declared a
Third quarter, 2025 quarterly dividend of 32 cents per share.
The dividend is payable on August 27th to stockholders of record, on August 13th.
We are confident in employers Financial strength and financial prospects and will continue to manage our Capital strategically.
Consistent with my first quarter message, we continue to identify and implement refinements to our underwriting and pricing approach that we believe will result in profitable growth in new and renewal business.
We are pleased that the California insurance, commissioner, commissioner, Laura recognized, the increased frequency of California cumulative, trauma claims through his approval of increased rates.
Katherine Antonello: We have not experienced direct impacts from the ongoing tariff uncertainties, but we'll continue to closely monitor the cost of prescription drugs and medical services for potential changes. If any necessary headwinds emerge, we are cautiously optimistic that our deep relationships with our customers and agents, our product and service value proposition, and our geographic and industry segment diversification will allow us to maintain our strong customer base and weather the storm. I am also pleased with the team's continued focus on expense management and our prudent capital management. We continue to improve our key operating metrics, which is a clear indication of our success. After considering dividends declared, our book value per share, including the deferred gain, increased 12.8% to $49.44, and our adjusted book value per share increased by 8.2% to $51.68 over the last 12 months.
And are also encouraged by his call for legislative changes to combat this growing negative trend.
We have not experienced direct impacts from the ongoing tariff uncertainties.
But we'll continue to closely monitor the cost of prescription drugs and medical services for potential changes.
If any necessary headwinds emerge, we are cautiously optimistic that our key relationships with our customers and agents our product and service value proposition. And our Geographic and Industry. Segments diversification will allow us to maintain our strong, customer base and whether the storm
I am also pleased with the team's continued focus on expense management and our prudent capital management. We continue to improve our key operating methods, which is a clear indication of our success.
Katherine Antonello: And finally, we returned $31.4 million to our stockholders this quarter 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. And with that, Marvin, we will now take questions.
After considering dividends declared our book value per share, including the Deferred gain, increased 12.8% to 49.444 and our adjusted book. Value per share, increased by 8.2% to 51.68 over the last 12 months.
At an average price that was highly accretive to our adjusted book value per share.
Lori Brown: Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you'll need to press star one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star one-one again. Please stand by while we compile the Q&A roster. And our first question comes from Mark Hughes of True Securities. Elias, now open.
And with that Marvin, we will now take questions.
Thank you at this time. We'll conduct a question and answer session as a reminder, to ask a question, you'll need to press star 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 compare the Q&A roster.
Mark Hughes: Yeah, thank you. Good morning.
In our first question concerned line of Mark Hughes of true Security's Elena open.
Katherine Antonello: Good morning, Mark.
Yeah, thank you. Good morning.
Mark Hughes: Good morning. You clearly talked about this issue last quarter, and it impacted your current accident year loss fix. I wonder if you could kind of just reflect on how this has emerged the last few quarters, a couple of years, and what you saw this quarter that triggered more significant action.
Good morning.
Uh, good morning.
Katherine Antonello: Sure. So let me just back up and kind of give you the backdrop. As you're aware, though, California continues to be about 45% of our book, and our results in California across the last few decades have consistently been more favorable than the industry. And we believe that that will continue to be true. But overall, industry results are worsening in California. So we talked about the increase that Commissioner Lara approved. It was 8.7%. That was effective 9/1. And the drivers of that increase included things like medical loss development, increase in medical costs in 2024, and an increase in frequency, particularly in CT claims. Now, for our book of business, we did not see overall frequency in California begin to increase in total until late 2024. So when I say that, I mean across all accident years.
You, you clearly talked about this, uh, issue last quarter and it impacted your current accident, your lost, fix. I wonder if you could kind of just reflect on how this has emerged, the last, uh, few quarters, couple of years. And what you saw this quarter, the triggered more significant action
Sure. Um so let me just back up and kind of give you the backdrop as, as you are aware, the California continues to be about 45% of our book.
And our results in California across. The, the last few decades have consistently been more favorable than the industry, and we believe that that will continue to be true.
But overall industry results are worsening in California.
Um, so we talked about the increase um that commissioner Laura approved. It was 8.7% that was affected 91 and the drivers of that increase, um, included, things like medical Los development. Um, increase in medical costs in 2024 and an increase in frequency, particularly in CT claims,
Now, for our book of business, we did not see overall frequency in California, begin to increase in total until late 2024.
Katherine Antonello: So, for example, for accident year 2023, the increase in frequency didn't occur until late 2024. And that's when we started taking action on the current accident year. And then, as we discussed in the first quarter and then again this quarter, we've had significant favorable development in older accident years that we've pushed forward to the more recent accident years to reflect that.
So when I say that, I mean, across all accident years. So for example, for accident, year 2023, the increase in frequency didn't occur until late 2024.
Mark Hughes: The 2023 frequency, am I right in thinking that this is, it really is just a function of California, the ability to report claims post-employment? And.
Um, and that's when we started taking action on the current accident year. And then, um, we've been, as we discussed in the first quarter, and then again this quarter, we've had significant favorable development on older accident years that we've pushed forward to reflect on the more recent accident years.
The uh, 2023.
frequency um am I right in thinking that this is uh, it it really is just a function of California, the ability to
Report, the claims post employment. Um,
Katherine Antonello: That's absolutely.
Mark Hughes: I guess.
Katherine Antonello: I'm sorry.
Mark Hughes: Yeah, no, I was just, I was going to say, why is it because the attorneys are just going that far back and advertising, letting people know that, hey, even if you separated in 2023, there's still opportunity? Is this, can you correlate that with something that's going on in the broader environment? It seems that it seems unusual that the frequency would have been increasing across the state. You wouldn't have seen it. And then now you're starting to see it, and it's on older accident years as well. So clearly, these are events that are seemingly well in the past.
and uh,
that's absolutely. I'm sorry.
Yeah, no I was just um I was going to say the what why um, is it because the attorneys are just going that far back and advertising letting people know that. Hey, even if you separated in 2023, there's still opportunity is this
uh, can you, uh,
Can you uh, correlate that with something that's going on in the?
Broader environment. It seems unusual that the frequency would have been increasing across the state. You wouldn't have seen it, and then now you're starting to see it. It's on older accident years as well. So clearly, these are events that are...
Katherine Antonello: Yeah, it's a very good question. So, you know, California is an outlier in terms of the way that they treat cumulative trauma claims. They allow claims to be filed, as you mentioned, post-termination. And they're the only state that allows cumulative stress and workers' compensation. So they have a much broader and much more liberal legislative, you know, the way it's written into law is much, much broader than any other state. So they're an extreme outlier there. So the post-termination filing of claim does have high attorney involvement. So when the claim comes in the door, there's typically an attorney involved. The other trend that has been cited is the ability for attorneys to bring these cases remote. So this was previously Southern California, primarily in the Los Angeles area phenomenon. And we are now seeing it spread into the Bay Area and into Sacramento.
Seemingly well in the past.
It. Yeah, it's a very good question. So, you know, California is an outlier in terms of the way that they treat, um, cumulative trauma claims they allow claims to be filed. As you mentioned, post-termination and their, um, the only state that allows cumulative stress and workers compensation, so they, um, they have a much broader and much more liberal, um,
uh,
The post termination filing of claims.
Does, um, have high attorney involvement. So when the claim comes in the door, there's typically an attorney involved. The other Trend that has been cited is the ability for, um, attorneys to to, um, bring these cases remote. So this was in previously,
uh,
Katherine Antonello: And that's because they can handle these hearings remotely.
Southern California, primarily Los Angeles area phenomenon and um, we are now seeing it spread into the bay area and into Sacramento. And that's because um, they can handle these hearings remotely.
Mark Hughes: When did they make that change?
When did they uh, make that change?
Katherine Antonello: It was sometime during and after. Well, COVID was sort of the starting point for it, right? Because they wanted to enable hearings to keep things moving along, to be remote. So COVID was the start of it, and now it's continued.
Mark Hughes: Yeah. Okay. The frequency and severity, I think the I understand the severity is not that substantial on these, generally speaking. Can you talk about that and what you've seen over time with severity for these types of claims when they have emerged in your book?
The the ability to hear it was sometimes, sometimes during and after well Co was the was sort of the, the starting point for it, right? Because they wanted to enable hearings to to keep things moving along to be, um, to be remote. So Co was the start of it, and now it's continued.
Yeah. Okay. Um
Katherine Antonello: Yeah, I would say that's generally true. This is a frequency issue that we're seeing. It is not necessarily a severity issue. Now, you can see severe CT claims, particularly legitimate CT claims, are oftentimes severe. But there are a lot of nuisance claims that come in too. But yeah, it's really a frequency phenomenon. You know, when we look at our book of business across countrywide, our lost claim frequencies have continued to trend downward over the last several years. California, again, is the outlier. It's increased in the latest accident year. Again, and that's all driven by the CT claims. If we take the CT claims out, California, and look at non-CT, we continue to see a nice decrease in frequency. And in some ways, that can mask what's going on when you put the two together.
The, uh, frequency and severity. I think I understand the severity is not that substantial on these generally speaking. Can you talk about the, uh, about that? And what you've seen over time with severity for these types of claims? When they have emerged in your book?
yeah, that that I would say that's generally true that this is a frequency um,
Issue that we're seeing it is not necessarily A severity issue. Now, you can see severe CT claims.
Particularly legitimate CT. Claims are are often times severe. Um but there are a lot of nuisance claims that come in to. Um but yeah, it's really a, a frequency phenomenon. Um you know, when we look at our book of business across Countrywide our lost time, breaks claim frequencies have continued to Trend downward over the last several years. California again, is the outlier. It's increased in the latest accident year. Um,
Katherine Antonello: But when you know, when we adjust for wage changes, our overall claim severity values have really held steady in the more recent years. And they're still below pre-pandemic levels. And that's mostly driven by medical severity coming down still.
Again, and that's all driven by the CT clients. If we take the CT claims out California and look at non CT, we continue to see a nice decrease in frequency and in some ways that can mask what's going on. When you put the 2 together,
Um, but when, you know, when we adjust for wage changes, our overall claim severity values have had have really held steady in the more recent years.
Mark Hughes: How confident are you that you've fully reflected the trend in your reserves? I know you alluded to the fact that you don't have quite as much visibility because it's a new phenomenon. But that being said, I think that contributed to your reserve actions and the current accident year increase. How confident are you that you've got this under control?
Um, and there's still below pre-pandemic levels and that's um, mostly driven by medical severity coming down. Still
How uh, how confident are you that you've fully reflected the trend in your reserves? I know you alluded to the fact that you don't have quite as much visibility, um, because it's a new phenomenon. But that being said, I think that contributed to your
um your reserve actions in the you know, the current accident year increase
Katherine Antonello: Well, we have put together over the last six months, we've implemented a multi-pronged approach to manage through this period. And we're confident that this approach is going to be impactful. We've implemented a combination of pricing actions, risk selection actions, and claim management strategies. So getting to reserves, the claim management strategies are looking at these CT claims after they come in the door and actively managing those. From a reserving standpoint, you know, it's a rapidly changing environment. And that's why we felt it was important to do another full study in the third quarter. We're very confident that, you know, accident year 2025 is in a good spot. And we continue to see really significant redundancies in those older accident years. So, you know, I am very confident that our book as a whole is in a good spot.
Um, how confident are you that you you've got this under control?
Well, we have put together um, over the last uh, 6 months. We've implemented a multi-pronged approach to manage through this period and we're confident that this approach is going to be impactful. Um, we've implemented a combination of pricing actions with selection actions and claim management strategies so getting to reserves um the claim management strategies are looking at these CT claims after they come in the door and actively managing those
um,
Mark Hughes: Yeah. How do you see your book comparing to California as a whole? If you look at the state data, are you now seeing claims that are more consistent with the industry as a whole? You're still better than the industry. And then I'll ask this question, and kind of a separate question, is do you think it's emerging more aggressively across the industry and across the state? Or is there something about your book that it was somewhat delayed and now you're having the, you know, having it happen to you, you know, but the state maybe is more, you know, it's already at a point where, you know, this has hit its kind of run rate.
As a whole is in a good spot.
Yeah.
How do you see your book comparing to California as a whole if you look at the the state data are you
Now seeing claims that are more consistent with the industry as a whole.
Um you you you're still better than the industry.
and then I'll ask this question and kind of a separate question is, uh,
Do you think it's emerging more aggressively across the industry and across the state? Or is there something about your book that was somewhat delayed? And now...
your uh, you're having the, uh,
you know, having it happen to you, you know, but the state maybe is more
Mark Hughes: Do you think the state more broadly is going to see an acceleration in your kind of the early indicator, or are you the laggard and you're finally kind of catching up with the state?
you know, it's already at at a point where, you know, this is hit, its kind of run rate is, is this do do you think the uh, the the state more broadly is going to see a an acceleration and
Katherine Antonello: I don't think we're a laggard. Going to your first question, our book has consistently been better than the industry-wide average in California, and it continues to be significantly better than the industry-wide average. I don't think we're a laggard. I think, you know, these claims are typically very late reported. I think when I look at how they're emerging in some of these older accident years, it's pretty consistent across the accident years how they're coming in. So, you know, the ultimate way to solve this problem is for legislative reform. Commissioner Lara did write a letter to Governor Newsom asking him to work towards reform. And we are actively involved in working towards that also. And I'm fairly confident that that is going to occur. It's been a while since I've seen something kind of come to light and the state jump on it this quickly.
Are you the early indicator, or are you the laggard, and you're finally kind of catching up with the state?
I I don't think we're a lagger. Um, going to your first question, our book has consistently been better than the industry-wide average in California and it continues to be
Significantly better than the industry-wide average. Um, I, I don't think we're a lagger. I think, you know these claims are typically very late reported. Um, I think, when I look at, um, how they're emerging in some of these older accident years,
it's pretty consistent across the accident years, how they're coming in, um,
So you know, the the the ultimate way to solve this problem is for legislative reforms. Um,
Katherine Antonello: And in his letter to the governor, he highlighted the impact on business in California when he was urging them to take action. So I think that's fairly unprecedented. And I'm very, very hopeful that they're going to move on this quickly. But having said that, we're not waiting on any legislative reform to occur. And we've got a well-thought-through plan internally to combat this.
Commissioner Laura did write a letter to Governor Newsome. Um, asking him to work towards reform and we are actively involved in, um, working towards that also, and I'm I'm fairly confident that that is going to occur. Um, it's it's been a while since I've seen. Um, something kind of come to light and and and the state Jump On It Just quickly. Um, and in his letter to the governor he highlighted the impact on on business in California. Um, in
When he was urging them to take action. So I think that's fairly unprecedented and I'm very, very hopeful that that they're going to move on this quickly.
Mark Hughes: Yeah. Yeah. I'm going to be super rude and ask just two more if that's all right. The magnitude of the reserve shift, I think you used the word significant. Are you able to size that or give through any other adjectives at it, you know, what that might have been between the older redundant accident years and then this, the more recent years where you're seeing this phenomenon?
um, but having said that, we're not waiting on any legislative reform to occur and we've, we've got, um, a well-thought through plan internally to combat this
I'm going to be super rude and ask just 2 more if that's all right. Um,
The magnitude of the reserve shift that, I think you use the word significant. Are you able to
Size that or give through any other Edge edges at it. Um, you know what, that might have been between the older redundant actually years and then this, uh,
Katherine Antonello: Yeah. We were in the older accident years this quarter, we had over $50 million of favorable development. And to be prudent and cautious, instead of, you know, taking any action, we moved those reserves to the more recent accident years. So it's a significant number, and I have no reason to believe that that will not continue because it has emerged like that for a long time now.
the more recent years, where you're seeing this phenomenon,
Yeah, we were a the the older accident years this quarter, we had over 50 million dollars of favorable development and to be prudent and cautious. Instead of, you know, taking any action, we moved those reserves to the more recent accident years.
so it was it says it's a significant number and I have no reason to believe that that will that will not continue because it has emerged like that for
Mark Hughes: Very good. And then from a capital management perspective, could you talk about, you know, what you see as the kind of excess capital on the balance sheet? You know, how much more conservative might you be in light of this trend that's emerging? And, you know, assuming you'd get the opportunity, you know, I'm just looking at the market. It's not that volatile in your experience. It doesn't seem that volatile under the circumstances. But would you push the capital management in order to, you know, take advantage of the situation here?
a long time now.
Very good. And then the, uh,
from the Capital Management perspective. Could you talk about, you know, how what you see is? The kind of excess capital on the balance sheet? You know how much more conservative might you be in light of this, uh,
Trend, that's emerging and, uh,
you know, um,
Assuming.
You'd get the opportunity. You know, I, you know, I'm just looking at the market, it's not
um,
is that volatile under the, under the circumstances? Uh, but would you push the Capital Management in order to uh,
Michael Pedraja: Hey, thanks, Mark. It's Mike. You know, as you know, as we discussed and has been well-publicized by AMBEST, you know, we are ranked at the highest level of excess capital, and we're very proud of that dynamic. And we think it gives us a lot of flexibility. Our prioritization for excess capital is to support our organic and inorganic growth investments in technology. But assuming that we have those covered, thinking about capital management will be something to consider, especially when the return on investment significantly exceeds our cost of capital. So we'll be driven by an investment return on investment criteria and be very disciplined by it. But we see the opportunity that's out there and are considering all options.
You know, to take advantage of the, uh, the situation here.
Mark Hughes: Yeah, very good. Okay. Thank you. I could get back in the queue, and I probably will, but I'll defer for now. Sorry again to be so rude.
Hey, thanks Mark, it's Mike. Um, you know, as as um, you know, as we discussed and has been well, publicized by ambassade. You know, we are ranked at the highest level of, uh, excess capital and, uh, we're very proud of that Dynamic. And we think it gives us a lot of flexibility, our prioritization for excess Capital. This is to support our, uh, organic and inorganic growth investments in technology. But assuming that we have those covered, um, thinking about Capital Management will be a something to consider especially when the return on investment significantly increase, um, exceeds our cost of capital. So we'll be driven by an investment, uh, return on investment criteria, and be very disciplined by it. But we see the opportunity and that South there and in our considering all options,
Yeah, very good.
Michael Pedraja: No, it's okay.
Lori Brown: Thank you. One moment for our next question. And our next question comes from a line of Matt Carlevi of Citizens Capital Markets. Your line is now open.
Okay, thank you. I, I could get back in the queue and I, I, I probably will, but I'll, uh, defer for now. Sorry, again, to do so, rude.
Thank you. One moment for our next question.
Matt Carletti: Hey, thanks. Good morning.
Katherine Antonello: Hi, Matt.
And our next question comes from a line of Matt Carle. A citizen Capital markets in line is now open.
Matt Carletti: Hi. Mark made it easy for me, so he covered a few that I was going to ask. So I'll make it really short. And it's just kind of the last follow-up I had on the CT claims. As you look across your book, is there anything you note in terms of where you're seeing it more, whether that be by account size or industry exposure, class code, whatever it might be? Or is it more kind of just or geography? I know you mentioned it had been an LA thing and it's moving up north, but just any observations you might have in terms of, you know, any nuances like that?
Hey, thanks. Good morning.
Hi Matt. Hi Mark, made it easy for me. So uh he covered a few that I was going to ask, so I'll make it really short. Um, and it's just kind of the last follow-up. I had on the the CT claims. Um, as you look across your book. Is there anything? You know, in terms of where you're seeing it more, whether that be by account size or industry exposure? Um,
Katherine Antonello: Yeah, it's a good question. And the answer is, other than the spread from a geographic standpoint, we don't see any other trend occurring. It's, you know, not within a specific class code or policy size. It's a broad-based trend other than it's the fact that it used to be highly concentrated in LA, and it has now moved into the Bay Area and Sacramento.
Class code, whatever it might be, or is it, is it? Or is it more kind of just or geography? I know you mentioned that had been in La thing and it's moving up north. But just any observations you might have in terms of um, you know, any nuances like that.
Yeah it it's a good question and the answer is other than the spread from a geographic standpoint. We don't see any other Trends occurring.
um, it's it's
you know, not not within a specific class code or policy size.
Matt Carletti: Okay. And then I guess one other just you talked a little bit about, you know, deciding to do an additional reserve study in Q3 that you wouldn't normally do. And it sounds like that's just it's moving quickly and you want to stay on top of it. Will that reserve study be any kind of different or just be focused on the CT, you know, angle of things? You know, would it differ from kind of the more typical Q2 or Q4 studies? Or is it just kind of the same approach, but let's do it every 90 days to make sure that we're not missing anything as this develops?
Um, it's a broad-based trend. Other than it's the fact that it used to be highly concentrated in LA and um, it is now moved into the bay area in Sacramento.
Katherine Antonello: It'll be a very similar approach to what we did in Q2. But in Q2, we did start to look at things differently from a cumulative trauma standpoint. So it'll be another point for, you know, us to reflect on. But generally speaking, yeah, our approach to reserving has not changed.
Okay, and then I guess 1 other just um you talked a little bit about um you know, deciding to do an additional Reserve study in Q3 that you would normally do. And it sounds like that's just it's moving quickly and you want to stay on top of it. Well, that reserves study will be you kind of different or or just be focused on the CT, you know, angle of things, you know, would differ from kind of the more typical Q2 or Q4 studies or is it just kind of the same same approach. But let's do it every 90 days, to make sure that we're not missing anything as this develops.
It. It'll be a very similar approach to what we did.
Matt Carletti: Okay. Great. Wonderful.
Katherine Antonello: And we'll move forward.
In Q2. Um but in Q2 we did start to look at things differently from a cumulative trauma standpoint. So it'll be another another point for uh you know us to reflect on. Um but generally speaking Yeah our approach to reserving has not changed.
Matt Carletti: Great. Appreciate the answers. Thank you.
Okay, great.
Katherine Antonello: Thank you.
Lori Brown: Thank you. One moment for our next question. Again, as a reminder, to ask a question, you'll need to press star one-one on your telephone. And our next question comes from a line of Bob Farnham of Jamie Montgomery Scott. Your line is now open.
Appreciate the answers. Thank you.
Thank you.
Thank you, 1 moment for our next question. Again, as a reminder to ask a question you'll need to press star 1 1 on your telephone.
Robert Farnam: Hey there. Good morning. Unfortunately, I'm going to ask a couple more questions on the cumulative trauma claims, even though Mark and Matt have covered it pretty well. I just wanted to verify a couple of things. So you say that there are cumulative trauma claims in other states. It's just that they're more narrowly defined and you don't see a change in frequency. Is that accurate?
In our next question, comes from line of Bob Farnum of Jamie McCarthy Line is now open.
Hey there. Good morning, unfortunately, I'm gonna ask a couple more questions. Uh, the cream blue of drama claims, uh, even though Mark and Matt have covered it pretty well. Um, I just wanted to verify a couple things. So you, you, do you say this that there are cumulative trauma claims in other states.
Katherine Antonello: That's accurate.
Robert Farnam: Okay. And.
Katherine Antonello: Yeah. And the reason the frequency is controlled in other states is because they are defined very, very narrowly in other states, whereas the opposite is true in California.
It's just that they're more narrowly defined. And you don't see a change in frequency; is that accurate? That's accurate.
Okay.
Robert Farnam: Right. Okay. And you're not just one more verification. You're not seeing any change in your legacy classes versus your expansion classes? There's still, it's kind of broadly based on both aspects?
And yeah. And, and the reason the frequency is controlled in other states is because they are defined very, very narrowly in other states whereas the, the, the opposite is true in California.
Right. Okay.
Change in your legacy classes versus your expansion classes.
Katherine Antonello: Not at all. This is, this has, we have not seen anything different in our appetite expansion. If you're speaking narrowly to CT claims, we don't see any difference there. But I will also add that our expansion class codes are behaving favorably. So they're either very similar to or better than our original target class codes from, say, four years ago.
There's still... it's kind of broadly based on both aspects.
Robert Farnam: Okay. Great. And last question for me, just quickly, just the reserve study, that's internal only, right? You're not getting external actuarial opinions on what's going on?
Not not at all. This is this has we have not seen anything different in our appetite expansion. If you're speaking narrowly to CT claims, we don't see any difference there, but I will also add that our expansion class codes are behaving favorably. So they're either very similar to or better than our original target class codes from say 4 years ago.
Katherine Antonello: We do have an external actuarial study that we do from time to time, but that will not be occurring at the end of the third quarter.
Okay great. Uh, and last question for me just quickly just the the reserve study that's got that's internal only right? You're not getting external. Actuarial opinions on what's going on.
Robert Farnam: Okay. That's more of a fourth quarter thing?
We do have an external um, Actuarial study that that we do from time to time, but that will not be occurring at the end of the third quarter.
Katherine Antonello: Yeah.
Robert Farnam: Okay. Great. Thanks for the answers.
Okay, that's that's more of a fourth quarter thing.
Yep.
Katherine Antonello: Thank you.
Lori Brown: Thank you. I'm showing no further questions at this time. I'll now turn it back to Kathy Antonello for closing remarks.
Okay, great. Thank you. Thanks for the answers.
Thank you.
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.
Thank you. I'm showing no further questions at this time, I'll now turn it back to Cassie Antonello for closer remarks.
Lori Brown: Thank you for your participation in today's conference. To just conclude the program, you may now disconnect.
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, this is just conclude the program, you may now disconnect