Robert Farnam

Robert Farnam asked for more details on the competitive landscape in downstate New York, specifically how competitors are expanding their target areas.

Answer

President and CEO Meryl G. Golden noted that competitors, primarily MGAs, are expanding by writing more classes of business than in the past, but Kingstone Companies maintains healthy growth and a high conversion rate despite these competitive shifts.

Robert Farnam inquired about Kingstone's Select product penetration, the transition of legacy policies, the development and approval status of new E&S products for state expansion, the initial performance of the AmGuard book, and the competitive landscape in downstate New York.

Answer

President and CEO Meryl Golden clarified that legacy policies remain profitable and will not be converted to Select in the near term, while all new business since early 2022 is on the Select platform. She detailed that new E&S products will leverage Select experience, are under development with actuarial consultants, and that a new company filing in Connecticut is pending. Golden reported that the AmGuard book is performing within expectations, contributing to geographic diversification, and noted that while competitors are expanding, Kingstone maintains healthy growth and high conversion rates in New York.

Robert Farnam of Janney Montgomery Scott inquired about Kingstone's reinsurance coverage for a second catastrophic event, the potential impact of state expansion on the near-term expense ratio, and the revised premium expectations from the Amgard renewal rights transaction.

Answer

President, CEO & Director Meryl Golden explained that the second event retention is $9 million and that a reinstatement premium applies to the first layer of the catastrophe tower. She stated that the geographic expansion is not expected to materially impact the expense ratio as the foundational teams and products are already in place. Regarding the Amgard transaction, she clarified that the total expected premium of $25-35 million remains the same, but it will be spread more evenly over three years rather than being front-loaded, due to Kingstone's higher rate levels compared to Amgard's.

Robert Farnam of Janney Montgomery Scott questioned Kingstone's reinsurance protection for a second catastrophic event, the expected impact of state expansion on the expense ratio, and the reasoning behind the revised, lower near-term premium estimate from the Amgard transaction.

Answer

President, CEO & Director Meryl Golden clarified that the second event retention is $9 million, with a reinstatement premium on the first layer of the catastrophe tower. She stated that the state expansion would not materially increase the expense ratio due to existing infrastructure. Regarding the Amgard deal, Golden explained the total premium expectation is unchanged but is now spread over three years, rather than front-loaded, because Kingstone's higher rates mean customers will likely wait until non-renewal to switch.

Robert Farnam of Boenning & Scattergood inquired about the nature of the first-quarter fire losses, the rationale for maintaining guidance despite low catastrophe losses, and the company's capital management priorities following its debt payoff. He also asked about the potential price differential for policies in the AmGUARD renewal rights transaction and the status of the CFO search.

Answer

President and CEO Meryl Golden explained that the higher fire losses were a random, small-scale event within the legacy product and were offset by lower catastrophe losses, thus not requiring a guidance update. On capital management, she noted the board actively discusses restoring the dividend but does not foresee share buybacks due to growth opportunities. She acknowledged Kingstone's pricing is higher than AmGUARD's but stated this is factored into premium estimates. Lastly, she confirmed that a retained search firm is actively interviewing candidates for the CFO position.

Robert Farnam inquired about the drivers for the 2025 growth forecast, the current competitive environment in Downstate New York, details on potential geographic expansion, long-term targets for the expense ratio, and the weather impact in the first quarter of 2025.

Answer

Executive Meryl Golden explained that growth will stem from persistent hard market conditions, as few competitors write coastal policies. She noted that while the company is exploring expansion into other catastrophe-exposed states, the immediate focus remains on New York. Golden stated a goal to reduce the expense ratio by another percentage point in 2025 and characterized Q1 2025 weather as having no material catastrophe events despite being colder than the prior year.

Robert Farnam of Boenning & Scattergood inquired about the assumptions within Kingstone's 2025 guidance, specifically the catastrophe load and expense ratio targets. He also asked for an update on the company's growth trajectory, pricing competitiveness amid market exits, details on a third competitor leaving the market, and the primary differences between the 'Select' and 'legacy' insurance products.

Answer

Executive Meryl Golden confirmed that the 2025 guidance assumes a roughly 6% catastrophe load, reflecting a return to a long-term average, and targets a 28% expense ratio, expecting a decrease due to higher earned premiums. She described the growth as unprecedented but well-managed, noting high conversion rates suggest competitive pricing. Golden identified the third exiting competitor as a Berkshire Hathaway company and highlighted that the 'Select' product's superior performance stems from its by-peril rating model and use of insurance scores, which differ significantly from the legacy product.

Robert Farnam of Janney Montgomery Scott questioned if undocumented worker trends could impact workers' comp claims and asked about the drivers of recent adverse development in the excess liability business.

Answer

CFO Brian Hertzman stated that AFG is not currently seeing or expecting changes in workers' comp claim patterns related to worker documentation status. He explained that the modest adverse development in the casualty group was driven by increased severity in social inflation-exposed lines like E&S, spread across multiple accident years, not concentrated in a single period.

Robert Farnam asked about the potential impact of undocumented workers on workers' comp claim patterns and inquired about the drivers of recent adverse development in the excess liability business.

Answer

CFO Brian Hertzman stated that the company insures all workers and is not currently expecting a change in claim patterns related to worker documentation status. He explained that the modest adverse development in the casualty group was driven by severity in social inflation-exposed lines like E&S and nonprofit, spread across several accident years, not concentrated in one period.

Robert Farnam asked about the potential impact of undocumented workers on workers' compensation claim patterns and inquired about the drivers of recent adverse development in the excess liability business, including specific accident years.

Answer

SVP & CFO Brian Hertzman stated that the company is not currently expecting a change in workers' comp claim patterns related to worker documentation status. He clarified that the $10 million in adverse development in the casualty group was driven by severity in social inflation-exposed lines like E&S and social services, was spread across multiple accident years, and occurred in business where AFG writes the excess layers.

Robert Farnam of Janney Montgomery Scott asked if AFG anticipates any change in workers' comp claim patterns related to undocumented workers. He also inquired about the modest adverse development in the excess liability business, asking if it was tied to specific accident years or classes.

Answer

CFO Brian Hertzman stated that AFG is not currently seeing or expecting any change in workers' comp claim patterns related to the immigration status of workers. Regarding excess liability, he explained the $10 million adverse development in the casualty group was driven by severity in social inflation-exposed businesses, was spread across multiple accident years, and that the company has prudently adjusted reserves and current accident year loss picks in response.

Robert Farnam asked about the potential for changing claim patterns in workers' compensation due to shifts in the documented vs. undocumented workforce and inquired about the drivers of recent adverse development in the excess liability business.

Answer

CFO Brian Hertzman stated that the company is not currently expecting a change in workers' comp claim patterns but will continue to monitor it. Regarding excess liability, he explained that the modest adverse development in the casualty group was driven by increased severity in social inflation-exposed lines, such as E&S and nonprofit social services. This development was spread across several accident years and was not concentrated in any single period.

Robert Farnam of Janney Montgomery Scott sought to verify several points regarding the cumulative trauma (CT) claims. He asked for confirmation that CT claim frequency is stable in other states due to narrower legal definitions, that there is no difference in trends between legacy and expansion classes, and whether the planned Q3 reserve study would be internal or involve external actuaries.

Answer

President & CEO Katherine Antonello confirmed that CT claim frequency is controlled in other states because the laws are narrowly defined, unlike in California. She also affirmed that the company has not seen any difference in CT claim trends within its appetite expansion classes, noting those classes are performing favorably overall. Finally, she clarified that the Q3 reserve study will be an internal one, with an external actuarial study typically occurring in the fourth quarter.

Robert Farnam of Janney Montgomery Scott sought to verify if cumulative trauma (CT) claim frequency was stable in other states, whether the trend was impacting legacy versus expansion classes differently, and if the upcoming Q3 reserve study would be internal or external.

Answer

President & CEO Katherine Antonello confirmed that CT claims are narrowly defined in other states, so no similar frequency increase is occurring outside California. She stated that the company's expansion class codes are performing favorably and show no difference in CT claim trends. She also clarified that the Q3 reserve study will be internal, with an external actuarial review typically conducted in the fourth quarter.

Robert Farnam asked for the rationale behind the increased investment in mortgage-backed securities and its expected impact on new money yield. He also inquired about the proportion of business in higher-hazard groups, the associated claims trends, and which accident years contributed to the $9 million in favorable reserve development.

Answer

CFO Michael Paquette detailed a strategic shift where the company used a Federal Home Loan Bank letter of credit to meet California deposit requirements, liberating lower-yielding assets. These were sold and reinvested into residential mortgage-backed securities yielding near 6%, which will boost future net investment income. CEO Katherine Antonello clarified that the shift into higher-hazard groups is a thoughtful expansion and also a result of an NCCI remapping, emphasizing a 'cherry-picking' approach to risk. Paquette added that the favorable development was predominantly from accident years 2020 and prior.

Robert Farnam of Janney Montgomery Scott asked about changes in the caseload per claims adjuster, the potential for upward pressure on the 71% accident year loss ratio, the company's strategy for balancing share repurchases with special dividends, and the long-term target for the expense ratio.

Answer

CEO & President G. Janelle Frost confirmed that the caseload per adjuster remains unchanged and low, at under 50 claims on average. She acknowledged that continued declines in market loss costs are putting pressure on the 71% accident year loss ratio. EVP & CFO Anastasios Omiridis addressed capital management, noting the Board reauthorized a $25 million share repurchase program and that a special dividend is still anticipated given capital sufficiency. Regarding the expense ratio, Omiridis stated the company expects the full-year ratio to align with historical ranges, without providing a specific long-term target.

Robert Farnam sought to clarify whether AMERISAFE's new business expansion involves adding new class codes or further penetrating existing ones. He also asked for a qualitative view on the age of the company's open claim inventory to better understand the average duration of its liabilities.

Answer

President and CEO G. Frost stated that the company's growth strategy is focused on penetrating markets where it already operates, not adding new classes of business, noting that over 80% of in-force policies remain in high-hazard groups. Regarding claim duration, Frost explained that for accident years prior to 2019, 99% of reported claims are closed. She attributed this rapid closure rate to their 'good old-fashioned claim adjusting' and maintaining low caseloads of less than 50 claims per adjuster.

Robert Farnam of Janney Montgomery Scott requested more detail on the medical cost inflation trends in Workers' Compensation, asking for quantification of the moderation and the underlying assumptions. He also questioned if Pennsylvania is a primary driver of these trends for ProAssurance.

Answer

Executive Kevin Shook explained that while overall average medical costs have moderated, down about 3%, underlying drivers remain challenging. He cited rising unit costs, particularly in Pennsylvania where the fee schedule is up 14-15% over three years, along with increased utilization and an aging workforce. President and CEO Edward Rand added that while Pennsylvania is impactful, these inflationary trends are being observed across the company's entire footprint.

Robert Farnam asked for quantification of the costs and benefits of insurtech investments in workers' comp, like Clara Analytics, and whether these investments could lead to loss ratio improvement despite rate pressures.

Answer

Executive Kevin Shook explained that upfront insurtech costs were minimal and benefits are hard to quantify yet but are expected to be significant. He anticipates Clara will improve medical outcomes and severity prediction. Despite headwinds from rate declines, he expects the workers' comp loss ratio to continue to improve, noting it was already down 4 points from six months prior.

Robert Farnam of Janney Montgomery Scott asked what non-rate actions ProAssurance can take to address social inflation in the Specialty P&C segment and whether any geographic areas are showing progress on this front.

Answer

President and CEO Edward Rand detailed a multi-faceted approach beyond pricing. Internally, this includes refining claims strategies and careful risk selection by territory. Externally, he pointed to broader industry efforts like public education on the value of insurance, recapturing the narrative around healthcare safety, and pursuing comprehensive tort reform, including litigation funding disclosure and new rules for life care planners. He noted that while some markets are more stable, the unpredictability of large verdicts is now more widespread than a decade ago.

Robert Farnam of Boenning & Scattergood inquired about the company's future expense ratio outlook, the impact of Florida's unresolved assignment of benefits (AOB) issue on growth strategy, the seasonality of losses, and the rationale for exiting the Brotherhood Mutual quota share agreement.

Answer

CFO John Hill projected the future net expense ratio would be in the 55% to 58% range, improving from 59% as the company scales. President and CEO Douglas Raucy added that due to the AOB issue, the Florida strategy will focus on niche wind-only and manufactured home policies rather than the multi-peril homeowners' market. Raucy also characterized Q1 as seasonally quiet so far, with the primary risks being hail and tornadoes in H1 and hurricanes in H2. He explained the Brotherhood Mutual partnership was terminated because it was no longer profitable, a program which CFO John Hill noted represented about $2 million in annual earned premium.