Old Republic International - Earnings Call - Q2 2020

Transcript

Speaker 0

Good day, and welcome to the Old Republic International Second Quarter twenty twenty Earnings Conference Call. I would now like to turn the conference over to Marilyn Meek with the MWW Group. Please go ahead. Thank you. Good afternoon, everyone, and thank you for joining us for the Old Republic conference call to discuss second quarter twenty twenty results.

This morning, we distributed a copy of the press release and posted a separate statistical supplement, we assume you have seen and or otherwise have access to during the call. Both of the documents are available at Old Republic's website, which is www.oldrepublic.com. Please be advised that this call may involve forward looking statements as discussed in the press release and statistical supplements dated 07/23/2020. Risks associated with these statements can be found in the company's latest SEC filings. This afternoon's conference call will be led by Craig Smitty, President and CEO of Old Republic International Corporation and several other senior executive members as planned for this meeting.

At this time, I would like to turn the call over to Craig Smeddy. Please go ahead, sir.

Speaker 1

Thank you, Marilyn. Good afternoon, everyone, and welcome to Old Republic's second quarter twenty twenty earnings conference call. With me today, we have Karl Miller, ORI's CFO and Carolyn Monroe, the President of our Title Insurance Group. Let us first reiterate our continued best wishes to all of you, your families, friends, coworkers, as we all face the challenges related to the COVID nineteen pandemic. As we mentioned in the release, while some of our associates have begun returning to our offices, the majority of Old Republic's more than 9,000 associates continue to work remotely, ensuring that our services are delivered uninterrupted to our customers, agents and brokers.

And all in, our remote work efforts have gone extremely well. Given the challenges emanating from COVID-nineteen, we're pleased with the results we posted for this quarter, particularly the very strong title insurance results and the recovery in shareholders' equity since the end of the first quarter. As we noted could be the case in our first quarter release, the effects of COVID-nineteen and the associated governmental responses have indeed had a negative effect on the top line in the General Insurance group in the second quarter. However, our Title Insurance group set yet another production record, again, demonstrating that our strategic diversification between general insurance and title insurance works very well. So at this point, I'll turn the discussion over to Karl Miller to discuss our overall consolidated financial results and also our small RFIG runoff business.

And then he'll turn things back to me to discuss the General Insurance segment, followed by Carolyn Monroe, who will discuss the Title Insurance segment. And after that, I'll make a few closing comments before we open up the discussion to Q and A. So with that, Carl, please take it away.

Speaker 2

Very good. Thank you, Craig, and good afternoon, everyone. Earlier today, we announced second quarter net income, excluding all investment gains and losses of $124,000,000 or $0.42 per share, and that's down approximately 7% from last year. For the first six months of twenty twenty, EPS was $0.89 up nearly 4%. Consolidated net premiums and fees earned grew by 1.5 percentage points during the second quarter and 5.7% for the first half of this year.

Our title insurance group, as Craig said, continues to set the pace with an increase of almost 10% for the quarter and 16% year to date. General insurance recorded relatively modest decline of 3.80.6% for the quarter and the first six months of the year as the pandemic further impacted economic activity here in The U. S. Net premiums earned in our mortgage runoff business continued to decrease as expected. And really, they're no longer a significant contributor to the consolidated total.

Net investment income dropped by 3.8% for the quarter and 1% year to date, and that's mostly caused by lower yields, which offset the generally higher invested asset balances. Turning to underwriting results. This quarter's consolidated combined ratio ticked upward by less than one percentage point to 96% from 95.2% last year. For this year's first six months, the combined ratio was 95.4%, and that was largely unchanged from the same period a year ago. Consistent with recent trends, the claim ratios moved lower and the expense ratio higher, and that's due mainly to a shift in the mix of business towards the title business, making up a greater percentage of total.

And as we've pointed out in the past, title carries lower loss and higher expense ratio, and that's influencing the consolidated total. Claim reserves on a consolidated basis dropped or developed favorably for the current quarter and year to date periods, reducing the reported claim ratios by zero point four and zero point six percentage points. Prior year development for the comparable 2019 periods was again favorable by zero point two and zero point nine percentage points. At June 30, the allocation of the investment portfolio remained relatively consistent. Roughly 75 is invested in bonds and short term investments, with the remaining 25% directed toward equity securities.

Our primary investment objective is to create a steady and growing stream of interest and dividend income. And in that light, we do not anticipate any material changes to our investment strategy. Turning to our during this year's first quarter, disruption to the financial markets resulted in a 24% or $963,000,000 decline in the value of our equity portfolio. During the second quarter, the financial markets improved considerably, resulting in a $354,000,000 recovery in the valuation of our equity portfolio. And I would also add that as of yesterday's close, the portfolio had rebounded by an additional $126,000,000 on top of the $3.54 Old Republic's book value per share increased from 17.29 at March 31 to $19.68 at the June, driven both by operating income and increases in the fair value of the investment portfolio.

Book value is now up slightly for the year after consideration of the regular cash dividends paid year to date, which now generate nearly a 5% yield. In fact, 2020 marks the seventy ninth year of uninterrupted regular cash dividends and the thirty ninth consecutive year of increasing dividends. So now let me turn briefly and discuss our runoff mortgage insurance business. As previously noted, we continue to monitor the impact of unemployment levels along with the effects of government loan forbearance programs on reported delinquencies. At the end of the first quarter, we cautioned that these factors along with the rate at which The U.

S. Economy recovers could affect future claims experience and potentially slow the return of capital from the runoff business. During the second quarter, we did actually experience an increase in reported delinquencies. A significant portion of these newly reported, almost 41% of total delinquencies outstanding at June, are loans in forbearance. And our experience with prior forbearance programs suggest that these loans will have significantly lower ultimate claim rates.

Therefore, they have been segregated and reserved for separately. We have also preemptively increased the frequency factors on early stage delinquencies for normal loan defaults. And what I mean by that are loans that are not in forbearance, and we've done so in consideration of the current economic environment. So in combination, these additional reserves resulted in the $5,000,000 pretax operating loss and escalated claim ratios that were reported.

Speaker 1

So overall, we believe this was a very

Speaker 2

good quarter, and there are a number of positives to build upon for the future of Old Republic. So as Craig said in the opening remarks, I will now turn things back to him to talk about General Insurance.

Speaker 1

Okay. So as the release indicates, compared to the second quarter, General Insurance saw quarter over quarter operating revenues decrease by 3.6% and quarter over quarter pretax operating income decreased by 1.8%. For the General Insurance Group, quarter over quarter combined ratio, we saw that it rose slightly to 98.4% from 98.1%, while the expense ratio remained very steady. As shown in the financial supplement, net premiums earned in commercial auto decreased by 2.5% quarter over quarter, attributable to a decline in the exposure base resulting from the economic downturn, along with tighter risk selection criteria, offset by the positive effect of rate increases that have continued at a pace in the percentages in the lower teens. Claim frequency has decreased significantly for commercial auto, again, attributable to the economic downturn.

But this was offset by severity that continued to increase. We believe that comes from higher speeds as a result as a result of less congestion on the highways and also continued effects of social inflation on on settlements. Continuing with the financial supplement, workers' compensation experienced a 14.3% decrease in net premiums earned quarter over quarter, hereto attributable to a decline in exposure base resulting from the economic downturn. And on this line, that's also further exacerbated by the effect of rate decreases that continued in the low single digits for workers' compensation. Aside from COVID nineteen related claims, claim frequency here too decreased, again, attributable to government and businesses, and their responses to the COVID nineteen pandemic and, of course, the impact on the overall economy.

Turning to the line of coverage claim ratios in the financial supplement. Our second quarter commercial auto claim ratio increased to 83.4% compared with 79.6% in the same period of 2019. So our work on this line of coverage continues with necessary rate increases and stricter risk selection criteria to bring that claim ratio back in line with our target in the low 70s. Turning to the workers' compensation claim ratio. The second quarter came in at 65.7 compared to 69.3% in the second quarter of twenty nineteen.

As we discussed following the first quarter, it's important to remember that more than ninety percent of our COVID-nineteen workers' compensation claims emanate from loss sensitive business such as large deductibles. And furthermore, greater than ninety percent of the COVID nineteen claims that we see in workers' compensation are mild in nature with very low claim payments. And, ultimately, less than one percent of those workers' comp claims are severe, and less than one percent result in a fatality. So therefore, based on our current analysis, we are confident in our current accident year loss ratio selection for workers' compensation, and, we're confident that they're adequate, especially taking into consideration the loss sensitive nature of our business, the reduction in frequency we spoke about, and the very high proportion of mild cases for COVID nineteen claims. For commercial auto workers' comp general liability combined, given that we usually provide these coverages together to our customers, we like to look at it that way as well.

And quarter over quarter, that claim ratio came in at 74.6% compared to seventy five point three percent last year. Still looking at the financial supplement, the remainder of our other line of coverage claim ratios are generally within our targets, and we feel very good about those. So for General Insurance, the second half of twenty twenty will remain challenging from a top line perspective, no doubt. But we will continue to seek the appropriate price for our products and continue with our long term focus. So on that note, I'll turn the discussion over to Carolyn for her comments on title insurance.

Carolyn, along with her team, continue to do a remarkable job keeping our title operations executing at an extremely high level. So Carolyn,

Speaker 0

please take it from here.

Speaker 3

Thank you, Craig. As the trials of COVID-nineteen continued in the second quarter, our title employees continued to face the challenges head on, effectively serving the needs of agents and customers. We have transitioned a portion of our workforce back to their office, so we are maintaining our nationwide work from home capabilities. Our high standard of service commitment and execution remain regardless of the location of our employees. In our first quarter earnings call, we reported that our owned digital closing provider, Provaso, had adjusted its platform to allow our agents and offices to be able to offer electronic signing products that were key to facilitating real estate transactions in the manner predicated in many of the emergency orders implemented by state governments.

Prior to the COVID-nineteen pandemic, the real estate industry had not committed to adopting the digital closing models. Based on need and then following regulations, there has been a dramatic increase in this activity. From the national perspective, electronic closings are relatively small number of the overall transactions. However, as a result of the emerging interest to continue these methodologies, we have accelerated the development and rollout of our digital close tools. We also continue to evaluate multiple products that will augment automation in the title production segment.

As reported this morning, the title division second quarter and year to date results remain strong. All time second quarter and mid year highs were set for both underwriting revenue and operation profit. For the second quarter, total premium and fee revenue was up 9.9% and up 16.4% year to date. Our pretax operating income of $65,400,000 for the quarter compared to $60,200,000 in last year's second quarter was an increase of $5,200,000 or 8.6%. Year to date pre tax operating of $108,700,000 compared to $80,800,000 in the prior year to date period, an increase of $27,900,000 or 34.6%.

Year to date 2020, our composite ratio of 93.1% compares favorably to the 94.3% reported for the comparable 2019 period. Despite all the unknowns surrounding COVID-nineteen, we remain cautiously optimistic going into the third quarter with a robust order count in both purchase and refinance transactions, a strong real estate market, with thirty year mortgage rates remaining historically low around 3% and expectations for these favorable rates to continue for the foreseeable future. While we have adjusted to doing business during COVID-nineteen, we are still mindful of the challenges ahead for our organization and our nation. My appreciation goes out to all our employees and Title agents as they remain dedicated and positive as we all deal with the daily challenges of the pandemic. Our accomplishments are achieved with the commitment of our employees and the support of our agents.

As with past challenges, we rely on the same guiding principles of integrity, managing for the long run, financial strength, protection of our policyholders and the well-being of our employees and customers that have served us well over the last one hundred plus years. And with that, I will turn the call back over to Craig.

Speaker 1

Okay, Carolyn, thank you. So again, our second quarter operating results indicate that our businesses continue to perform and our strategic diversification between general insurance and title insurance works well. We will continue to focus on underwriting excellence, and we will continue to ensure that our capital position remains very strong as we weather the current economic disruptions. So with that, we'll conclude our prepared remarks and open up the discussion to Q and A.

Speaker 4

And

Speaker 0

Thank

Speaker 5

is turned off to allow your signal to reach our equipment. Again, that is star one

Speaker 0

to ask a question. We'll pause for a brief moment to allow everyone an opportunity to signal for questions. We'll take our first question from Greg Peters from Raymond James. Please go ahead. Your line is open.

Speaker 6

Good afternoon, everyone. I wanted to start with a question or two around the General Insurance business. So in your press release, you spoke and I know you like to look at things perhaps on a six month basis as opposed to a quarterly basis, but the the decline in net premium written in the second quarter on a year over year basis of almost 10% is pretty dramatic. And then we go to your supplement and you give us earned premium by segment, by line of business. So was wondering if you could help bridge the gap, Craig, and tell us where the weakness in written is coming from, which lines?

And is it just onetime payroll adjustment, say, hypothetically through workers' comp? Or is this something that we should anticipate through the balance of the year?

Speaker 1

Sure, Greg. Good afternoon. Right. So the net written premiums by line, they they're going to be very proportionate to what you're seeing happen, on the byline, net premiums earned. So, it's just an order of magnitude.

So so if if you see a a decline in in net premiums earned line by line, you can extrapolate from there and and assume that what you're seeing there is proportionate to the overall net premiums written. We can take a closer look at that in future quarters and perhaps include the net written by line.

Speaker 6

Okay. And then I think I appreciate that. And I understand the earned premium is a lag number. But were there some onetime issues that hit the second quarter, like a payroll audit that customers ask you to consider? Or is that 9% sort of where what we're dealing with for the balance of the year?

What's striking is that it's down that much yet from all reports, you're probably one of the best pricing environments you've had in the last fifteen plus years.

Speaker 1

Well, it it as I indicated in my earlier remarks, it it's it's down because of a significant impact from from the the COVID nineteen related closures and the responses that governments and businesses have taken and the overall impact on the economy. So future quarters are are going to be dependent upon how all of that plays out. And I don't think, any of us are in a position to predict how things will play out in the third and fourth quarter. We all watch enough news these days to know that it seems things change daily. So, it is it there isn't any one specific event in a certain book of business or anything that I would point you to.

It's a decline in in workers' compensation for sure as I think, frankly, the results were, pretty much what, we, I think, indicated, last quarter, and that is that given that workers' compensation premiums are a direct function of payrolls. And to the extent that payrolls are down, we we said, last quarter that the impact on, workers' compensation premium, in particular, exacerbated by the fact that there is still, you you say, you know, best rating environment, but workers' compensation is still experiencing rate decreases. So you couple together the reduced payrolls and the rate decreases, and I would say that we were not surprised at at what we're seeing on comp. And, you know, there's an expectation that with economic recovery, that number will recover as well. As I mentioned earlier, auto is a different story.

And I think there, too, it's playing out as we discussed we thought it would after the end of the first quarter. And that is, at least with auto, you have the offsetting benefit of of, robust rate increases. So even though we're seeing volume decrease, the number of vehicles decrease or be furloughed, there is some benefit from the, the robust rate increases that that we're getting. The, the only other thing that I'll just add on to conclude, Greg, is that, I think you know and you may recall, a lot of of the states had, introduced regulation whereby they either requested or required insurers to, accelerate credits to to customers, based on exposure reductions. So said a different way, rather than waiting until audit time at the end of a policy, they asked to consider exposure reductions early.

And we did that as required and were requested. And we've kept very close tabs on that. In many states, we have to report back to the state on what we've done. So approximately $30,000,000 of premium was, credited, because of those exposure reductions. So that that's the only thing that, I guess, out of the normal course of business where that would have come later, it was accelerated into the the second quarter because of those regulations and requests.

Speaker 6

Thanks. Pivot one just one question on title and then one on the runoff. On title, Carolyn, it sure seems like the pipeline, even as we close out the quarter the second quarter, it still seems like you have a pretty strong pipeline, which is surprising in the context of everything that's going on. Can you give us your view of how the order book looks and what you're thinking for the balance of the year?

Speaker 3

Well, yes, thank you, Greg. July has been very strong for us, and we'll close the month out with really strong orders in both refi and resale. And all indications are right now that this will continue through the third quarter. There was a little bit of a late spring that has just pushed everything and could carry us actually all the way through the end of the year if things continue the way they are.

Speaker 0

We're very optimistic. It's pretty robust.

Speaker 6

Right. Certainly seems like things are robust. Yes. Hey, the last question, just on the runoff business and your comments, Carl, about the 41% foreclosure assumption. How do we apply those type of assumptions when we're looking at your just your net risk risk in force?

Because that doesn't seem to be shrinking as fast perhaps as your top line. So should we think about a percentage of your risk in force being in this foreclosure category? And can you give us some color around that?

Speaker 2

Well, when you look at the financial supplement and the risk and force numbers that we report, I'm just trying to flip here as I'm speaking. I believe it's the Page six of the supplement. The risk and force is running off about 25% per year, and that's continued into 2020 with about 5.6%, 5.7 running off each quarterly period. The revenues are continuing to decline as we've projected. I would say the right on in line with what we expected them to be.

It's the claim costs that are starting to deviate from the projections that we had prepared a while back. And that's largely attributable to what's happening with unemployment and the surge in reported delinquencies. But as we've disclosed in the supplement, the delinquency count increased dramatically during the third quarter. And if you look on Page eight of the supplement, you can see that it jumped by about 2,400 loans from six thousand two and eighty up to 8,700. And of that net increase, newly reported net of cures, the vast majority of that increase was attributable to loans that are part of a forbearance program.

So what I was attempting to communicate earlier is that we have experience with these types of programs and the ultimate loss costs are significantly better than the normal non forbearance loans. So we've set these aside, reserved for them separately and increased reserves accordingly. And by the same token, we have looked at development trends. And while the trends themselves in the early stage delinquencies wouldn't suggest having to take any dramatic reserve actions, we, in fact, used our judgment to try and get ahead of what we think might happen with lost costs and increase the frequency factors this quarter as opposed to waiting to see it manifest itself in the underlying development data. So those things in combination is what drove the underwriting loss and operating loss for the quarter.

The premium runoff is pretty much in line with expectations.

Speaker 6

Got it. Thank you, everyone, for your answers.

Speaker 1

Thank you, Greg.

Speaker 0

We'll now take our next question from Matt Carnetti from JPM Securities. Please go ahead.

Speaker 4

Thanks, Emma. Hello, JMP. Good afternoon.

Speaker 1

Good afternoon, Matt. Follow-up.

Speaker 4

Okay. Good afternoon. Just first one, I just wanna follow-up on on one of Greg's questions, and I got one other one. You know, on on that follow-up, you know, Craig, you mentioned, I think, was about kind of $30,000,000 ish of philanthropy from kind of exposure change, you know, related premiums. And I just wanted to clarify there.

Is that is that the actual kind of exposure in in the quarter that actually took place as well as, call it, midterm adjustments for for future exposure? And and if it is, can you even roughly kind of break that out? I'm just trying to get a feel for, you know, what kind of the the three month exposure was, whether it's actual payrolls or actual kind of miles driven or or receipts or whatever it is versus how much of that might have been something likely to come in a future quarter that got back forwarded to this quarter because of a midterm adjustment.

Speaker 1

Right. So, if I fully understand your question, the, the premium, the $30,000,000 figure that we talked about, comes from a reduction in exposure as you described. It's against written premium. So that written premium would would go out over a one year period. So, so to the extent that the majority of policies are are one year, we would be adjusting premiums, that would span over the course of that of that year.

So for some policies, that credit may have come in the first quarter. The policy was written, whereas for other policies, perhaps they were written in 2019, and and and, therefore, the credit is for a shorter period of time. So it's, okay.

Speaker 4

Yeah. No. That's helpful. I do realize there's a written number as opposed to earned number, so that that that helps.

Speaker 1

Yeah. It's great. That that's a written numb

Speaker 4

Perfect. And then the other question I had just I was hoping you could expand a little on what you're seeing in the market in terms of pricing. Maybe just in the three major general insurance markets, mentioned kind of low single digit rate declines still on workers' comp. That said, I think one of your peers called the bottom of the market this morning on their call. So I'm curious what you're seeing there, if you if you think we're kinda nearing an inflection point.

And then any comments you can provide on just what you're seeing in in commercial auto as well as GL.

Speaker 1

Sure. Sure. I'd be happy to. So, yeah, let me first start with with comp. As you say, I I had indicated low single digits in the way of decreases.

And as we've said in prior quarters and for several years now, we're not we haven't been terribly concerned with those kind of decreases because our own data combined with bureau data, whether it's NCCI or the individual state bureaus, all of it is very consistent in reflecting decrease in frequency. And the the decline those small declines in workers' compensation rates that that we're giving, are, more than offset by the declines in in frequency. Now, of course, this quarter, frequency is way down. So it's, best to look at at frequency excluding the the impact of COVID nineteen. And if you look at at our data and and if you look at industry data, again, excluding the impact of that COVID nineteen has had on on, the workforce and payrolls, The the frequency is still coming down, you know, as an industry.

So I would not be one to say that we would expect a a bottoming. And, you know, it hasn't been, as we said, unmerited in in the the the amount of rate that we've given up, has been more than offset by frequency. So it seems to us that it's that it's justified for for comp. Okay. Moving to to auto, I think I mentioned in my comments that we were seeing rate increases still in the low teens.

And as I mentioned in my comments, we think those are necessary. Sure. There's a temporary, reduction in frequency, but, severity is still driving the need for rate. So, you know, on on comp, it it it you have a tale of two cities here. On comp, you have frequency declines that are justifying some reduction in rate.

On auto, you have severity that continues that justifies the need for the robust rate increases that we're getting. But just commenting on a other couple other particular lines that that we write that are are certainly noteworthy in the way of rate. Aviation is still getting very robust rate increases in the neighborhood of 25%. And D and O, E and O, here too, extremely robust rate increases. We think they're necessary, and and same goes for aviation.

But in in D and O, E and O, the the rate increases we're getting are in the neighborhood of 50%. So, and then you asked about GL specifically. GL, because there is some knock on effect similar to the the issues affecting auto, rate is needed there. And right now, even though it's a smaller portion of our portfolio for general liability, we're getting rate increases in the mid to high single digits.

Speaker 4

Great. That is very helpful. Thank you for all the answers, and best of luck going forward.

Speaker 1

Thanks a lot, Matt.

Speaker 4

Thank you.

Speaker 0

We will now take our next question from Craig Peters from Raymond James. Please go ahead. Your line is open.

Speaker 6

Great. I thought I'd chime up with a follow-up or two. Craig, I wanted to go back to Page four of your financial supplement. And specifically, I wanted to and I know it's a smaller line of business for you, but I wanted to give you a moment to talk to us about the other coverages category. This is this is the line that includes the home and the auto warranty, the aviation and travel accident coverages.

And I was wondering if you could give us a sense of what's going on price in that business. And then, you know, if you look at the claim ratios that you reported in the second quarter, it was up, you know, to 65.1 from 57.7 a year ago. You know, if it's auto and home warranty, I felt feel like everyone's at home. I I'm not sure where the pressure is coming from, but I'm sure there's a really good explanation that you have for it.

Speaker 1

Well, there is, and I'd be more than happy to to give you more granularity on that, Craig. I guess, you know, the the only categories here that I didn't speak to are the financial indemnity, the property, and the other coverages. As you can see on financial indemnity, which which includes our surety, our D and O, E and O business, You can see the claim ratio there at 59.6% for the quarter, which, as I indicated in my earlier comments, we were very happy with, and that's very similar to the six month ratio. Similarly on property, you know, here too, pretty much pretty much flat, as a pancake, whether you're looking at the quarter or or the year to date. So we were happy with that.

When you get to other coverages, as you point out in in the footnote four there, it's made up of home and auto warranty, aviation, and travel accident. And I can tell you that auto warranty, aviation, and travel accident are all pretty much flat. And it's our home warranty business that has seen an increase in, in loss ratio. So what's what's behind that are a couple of things. One is the cost of work orders has increased much faster than we expected and much faster than normal.

And then secondly, the number of claims that we've seen has increased. And we think that part of that is actually COVID related in that people are home and discovering, issues with whether it be appliances or systems in their homes and are making more claims. So, you you couple those things, and we we've seen a an increase in our home warranty business. So the good news about home warranty, as you well know, is that it's extremely short tail, and we can react extremely fast as we always do on that business with pricing. And, you know, it's a fairly straightforward business.

And when we see those kind of things, we immediately take pricing action, and it's really that simple. So those are that's what's underlying that increase that you're seeing there, Greg.

Speaker 6

Excellent color. I just wanted to pivot back to your comments around the benefit from the lower claims frequency offset by the rising severity. You know, if I think back to just the way you approach your loss picks and the reserving methodology of the company, it already it strikes me that it's usually pretty cautious. And so you may see, for example, in my mind, you may be seeing a trend of better claim frequency, but you may not be fully taking that into account in your assumptions around loss picks. So I guess the question becomes, is this one of the cases, you know, where you're seeing the severity and fully accounting for that in the numbers and really sort of discounting the benefits of the lower claim frequency?

Or am I just overthinking this altogether?

Speaker 1

No. I think I think your question is a good one. Let me just clarify. Was your question specific to comp? Or

Speaker 6

or I guess you could apply it to

Speaker 1

your auto line. You could apply it

Speaker 4

to comp. I mean, where you know,

Speaker 6

in the context of our previous conversations, Craig, where you've talked about, you know, how you hold on to your IBNR, you know, for several years out before you start taking down, you know, a particular year. I'm just thinking about it here. We're having an aberration theoretically and lower claim frequency. Does that mean that you automatically are taking down your reserves, or does this mean that you're gonna wait for several years before you recognize that benefit? Just trying to understand sort of the cadence of what's going on with the economy in the context of the numbers you've reported in the pretty much in the major coverage lines.

Speaker 1

Right. So so on on a comp in in particular, you know, the frequency decline there is, we think, a very temporary phenomenon. And therefore, as we stated, we have taken a very close look at our lock picks. And and we have taken into consideration the unknowns of COVID nineteen. We've weighed that against our, the reduction that we're seeing frequency when we look at the accident year, and we say in totality and there's other factors as well.

But in totality, there isn't severity in comp that is is creating any concern. And but it is a matter of frequency down. And then and then as I went into detail in my opening comments, you know, there there is some impact from COVID nineteen. So we put it all together, and we say, we're confident in our accident year loss pick. And I might just take the time to say, you know, that that is why, we know a lot of our competitors, our peers might be putting up bulk reserves or they all are are going out with headlines on, on their cat, the the cat number that they're putting up.

And we just we just don't see that as necessary. You know, first off, we, we don't write international, and I'm moving, you know, a little outside of the comp question, but we we don't write any international business other than Canada. We don't have political risk exposure, trade credit exposure, entertainment insurance exposure. So far, we haven't seen any surety losses From a commercial property standpoint, we have an immaterial amount of policies out there without a virus exclusion. Loss on our travel accident business is immaterial after reinsurance is applied.

So far, GL losses have been immaterial. You know, we're not a main street retail insurer. And you put all those things together, and there just is no reason for us to put up a specific COVID-nineteen number. The only thing that we certainly will have is the work comp losses, and, that's where we took a hard look at our accident year loss pick, and we're very comfortable with it. And we have no intention of reducing it prematurely, so we will hold that.

And if things change with respect to COVID-nineteen, if they change for the worse, you know, we would actually look at maybe increasing it. But, right now, given all those reasons, you know, the loss sensitive nature and the the mild proportion the proportion of the losses, we're comfortable with where we're at. So, and then on on auto, the other, you know, the other big one, there, yeah, frequency is down. But, again, we think it's it's it's temporary, and we we need the the reduction we're seeing in frequency to offset the increase we're seeing in severity. So therefore, there too, we would say that, you know, we're we're comfortable, confident in our loss pick for auto.

We're not looking at decreasing it or increasing it because it's a different dynamic on that line, and that is that the reduction in severity is helping along with the rate increases to offset the things we're seeing with severity.

Speaker 6

Well, I have to say I got a lot more than I bargained for, in terms of your answer, and, I certainly appreciate it. So

Speaker 1

I'll take that as a comp I'll take that as compliment, Greg.

Speaker 6

Yes, you should. You should. Thanks for your answers. At this time, the moment, there appears

Speaker 0

to be no further questions. I would like to turn the call back to management for any closing remarks.

Speaker 1

Okay. Well, we certainly appreciate everyone's participation. As we said, we feel good about where the business sits relative to the overall economy in America and throughout the world. And we're very proud of all of our more than 9,000 associates that have stepped up and are doing what they need to do to make sure that our business moves forward and that we continue to serve all of our constituents. So thank you all, and we'll look forward to talking to you again next quarter.

Speaker 0

This concludes today's call. Thank you for your participation. You may now disconnect.