Employers Holdings Inc (EIG) 2011 Q1 法說會逐字稿

Good days, ladies and gentlemen, and welcome to the first quarter 2011 Employers Holdings Incorporated earnings conference call. My name is Jeff and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will facilitate a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms Vicki Erickson, Vice President Investor Relations. Please proceed, Ms Erickson.

Thank you, Jeff. Welcome everyone to the first quarter 2011 earnings conference call for Employers Holdings. Yesterday we announced our earnings results. Today we will file our form 10-Q with the Securities and Exchange Commission. Our press release and form 10-Q may be accessed on the Company's Web site at www.employers.com and are accessible through the investors link. Today's call is being recorded and Webcast from the investor relations section of our Web site, where a replay will be available following the call. With me today are Doug Dirks, our Chief Executive Officer, and Ric Yocke, our Chief Financial Officer.

Statements made during this conference call that are not based on historical fact 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 at the time of the call and will not be updated to reflect subsequent developments.

We use the non-GAAP metrics that excludes the impact of the deferred gain from the 1999 lock portfolio transfer, or LPT. This metric is defined in our earnings press release, available on our Web site. As has been our practice, a list of our portfolio securities by QSIP is available in the investors section of our Web site under calendar of events, first quarter earnings call. Now I'll turn the call over to Doug.

Thank you, Vicki. Welcome, everyone, and thank you for joining us, as we review our first quarter results. In the first quarter of 2011, our results were positive overall with the important exception of lost cost trends. The lack of favorable prior-period reserve development decreased net income $0.29 per share relative to last year's first quarter. This is the third consecutive quarter that we have not recognized any favorable development for prior periods.

We increased our current-year loss provision rate by more than 6 points over the last 2 quarters to 76.6% at March 31, 2011. This increase in our loss provision rate is due to increasing medical and indemnity costs in California. Year over year, net income in the first quarter was favorably impacted by increases in premium and policies, a significant decrease in operating expenses resulting largely from our cost control efforts, and a tax benefit resulting from the carry forward of tax exempt investment income.

Yesterday we reported double-digit percentage growth in premium and policies year over year despite unemployment rates that are at historically high levels in our largest state. To achieve this growth, we have expanded our rapid quote technology nationwide, focusing on small low-hazard business, and these strategies are yielding positive results. Net written premium, excluding audit adjustments, increased approximately 11% in the first quarter of 2011 compared to the same period last year, and earned premium increased 4%. We grew policy count 12% year over year and 8% year to date.

In the past year our average policy size has declined 18% to $6,800 at March 31, 2011. Year over year premium in our accounts under $10,000 grew more than $6 million, or by 17%, with half of that growth occurring in the first quarter of this year. Accounts larger than $10,000 remained more competitive. Although we grew premium 1% in the accounts between $10,000 and $25,000 the first 3 months of this year. California continues to be our largest state, representing slightly more than half of our in-force premium at the end of the first quarter.

Total payroll declined 3% in the last year, but increased 3% in the first quarter. In California, payroll dropped 5% over the past 12 months, but grew just over 1% in the quarter. Payroll increased in Illinois, both year over year and year-to-date. Illinois is now our second largest state in terms of both payroll and premium.

Overall net rate declined 5% year over year. Net rate in Florida and Nevada continued to be negative, reflecting, in part, the loss of construction-related jobs in these states. However, net rate has been relatively flat year-to-date, declining less than 1% in the first 3 months of 2011. This improvement was largely driven by ongoing positive net rate in California.

As you will recall, we have increased our pure premium rates in California more than 28% since early 2009. Over the same period, the insurance commissioner continued to reject every recommendation for pure premium rate increases made by the California rating bureau, the WCIRB. In April, the governing committee of the WCIRB sent an informational filing to the insurance commissioner that included an analysis of insurers loss experience and referenced that pure premium rates were inadequate by roughly 40% compared to its January 1, 2009, benchmark. The actuarial committee also revealed that insurers experience had deteriorated more than 10% since the bureau's analysis based on June 30, 2010, data.

The WCIRB indicated that this further deterioration was due to several factors. These included continued adverse loss development on the 2009 accident year, high emerging costs on the 2010 accident year, primarily due to increased claims frequency, less optimistic forecasts for statewide wage growth in California and increased loss adjustment expenses that are likely a result of certain workers' compensation appeal board decisions.

As I mentioned earlier, we have increased our filed pure premium rates in California over 28% since early 2009, with the most recent increase of 2.5% effective March 15 of this year. Even so, the current claims environment indicates that further increases in rates will be required. We continue to believe that our underwriting strategy produces fewer claims and better claims experience than the industry in general. However, even in our low-hazard business, we are observing increasing indemnity claims frequency and severity in California. In response to these trends, we expect to file for an additional pure premium rate increase in California.

We will also continue to file rates in other states as required, based on our own lost cost experience. In Florida, an administered pricing state, we increased rates 7.8% effective January 1, 2011. Rating information for the states in which we operate indicates that effective in 2011, NCCI has received approval for pure premium rate increases in 10 states and for decreases in 11 states.

Our return on average equity with both components of that major are adjusted for the LPT, was 4% for the 12 months ending March 31, 2011. In the first quarter, we grew book value $0.03 per share through accretive share repurchases. Year-to-date we repurchased nearly 500,000 shares of common stock at an average price of $17.27 for a total of $8.6 million, with $77 million of the authorized share repurchase program remaining through June of 2012. Going forward, this program will be executed based on a number of factors, including stock price, corporate and regulatory requirements and other market and economic conditions. Yesterday our Board of Directors again declared a quarterly dividend of $0.06 per share with a record date of May 18, and payable on June 1. Now, I'll turn the call over to Ric for a further discussion of our financial results. Ric?

Thank you, Doug, and good day to everyone on the call. Our underwriting margin in the first quarter was pressured by loss trends. On a GAAP basis, we had an underwriting loss of $14 million in the first quarter, with a combined ratio of 116.9. Excluding the impact of the LPT, our underwriting loss was $18.5 million, with a combined ratio of 122.4. Both GAAP and LPT adjusted combined ratios were higher than last year's first quarter, solely as a result of first quarter losses in LAE, which increased over 40% compared to last year's first quarter.

Our first quarter loss ratio increased 21.3 points year over year, largely due to the difference in prior-period reserve development and an increase in the current-year provision rate for losses. We had $11.1 million of prior-period reserve releases in the first quarter of 2010 and none in the first quarter of 2011. This difference contributed 13.5 points of the 21-point increase in the first quarter loss ratio. The remainder was attributable to the increase in our provision rate for current year losses to 76.6%, as a result of increasing medical and indemnity cost trends, particularly in California. On favorable, prior-period reserve development of $830,000 in the first quarter was related to our assigned risk business. Involuntary losses, which are generally immaterial, are reported by the state's only after allocations of the high-risk pools have been made.

Doug has mentioned the WCIRB's informational filing and the rationale that they use to support a nearly 40% increase in California lost cause. Recently the WCIRB released updated data indicating that the ultimate statewide losses in LAE ratio for the 2010 accident year was approximately 104%. This compares with our first quarter accident year losses in LAE ratio of 76.6%, while the WCIRB ratio is 4 percentage points lower than the 2009 accident-year losses and LAE ratio of 108%, these ratios for each of the last 2 years are the highest in California since 2001.

In terms of our own book of business, we've observed an increase in indemnity claims frequency and severity in California. In some cases, increasing severity has resulted from prolonged and expanded claims, particularly in southern California. These claims may involve multiple body parts and conditions, which allow for greater numbers of medical and psychological office visits. Nationally, continuing high levels of unemployment have impacted our ability to return injured work employees to work.

We believe our reserves for prior accident years remain adequate. While we evaluate prior accident-year reserves collectively, we have seen some more negative trends in the more recent periods, 2007 through 2010, with 2010 being very green. These negative trends have been offset by favorable developments in earlier accident years, 2003 through 2005. We considered these trends when we established our loss provision rates in the fourth quarter of 2010 and the first quarter of 2011. The increase in our loss ratio was partially offset by a significant reduction in our underwriting and other operating expense ratio. The quarterly ratio decreased nearly 10 points from a year ago as staffing declined approximately 225 positions since March 31 of last year, largely from our cost control efforts.

Underwriting and other operating expenses declined by $6.6 million, or 20.4% in the first quarter compared with the same period in 2010. Throughout the year, we expect quarterly operating expenses other than commissions and premium taxes to be relatively flat compared with those recorded in the first quarter. However, as we grow the top line, the expense ratios should continue to fall.

Our first quarter pretax net investment income declined to $20.5 million from $21.3 million in the first quarter of 2010, due to a slight -- or slight decrease in yield from 4.3% in the first quarter of 2010 to 4.1% in the first quarter of 2011. The significant tax benefit recognized in the first quarter was primarily attributable to the carry-forward of tax exempt investment income.

Our $2 billion portfolio remained largely unchanged in the first quarter. The portfolio is comprised primarily of fixed income maturities, which are rated on average AA or better. Our portfolio is weighted towards short term and intermediate term bonds.

At March 31, 2011, equity securities represented 4.2% of our total portfolio, and the average yield on our portfolio was 5.3% on a tax equivalent basis with a duration of 4.9%. At March 31of 2011, we had approximately $366 million in cash and securities at the holding company. We have structured our balance sheet to meet our goals of preserving capital, providing sufficient income to support operations and growing long-term shareholder value. With that I'll turn it back to Doug.

Thanks, Ric. We remain focused on growing our business while maintaining underwriting discipline and adequately recognizing changes in lost cause trends. The growth initiative we implemented in July of 2010 are yielding results as reflected in increases in policies, producer appointments and premiums in the first quarter. New business submittal have increased and total company submissions, quotes and written policies are up year over year at March 31. Our policy count at March 31, 2011 grew by 12%, or by approximately 5,000 policies since March 31 of 2010. In the first quarter, we grew policy count by nearly 3,500 policies, or 8%. This increased our total in force policies to over 48,000 at March 31, 2011. We added 245 producer appointments in the first quarter for a total of more than 560 new appointments since the middle of last year.

As we add new policies and agencies, our underwriting remains selective, focused on small businesses and those hazard groups and classes that have historically produced favorable loss ratios. We continue to expand our relationships with the National Federation of Independent Business. Now in 10 of states and most recently in Indiana, North Carolina, Virginia and Missouri. We will continue to pursue the membership recommendations of NFIB, as well as other industry focused associations representing small businesses in our core underwriting appetite.

Our strategic partners generated 22% of our in-force premiums as of March 31, 2011, compared to 20% at the end of last year's first quarter. The percentage increase can be attributed to higher retention rates for this business than for independent-agent produced business. Retention of strategic partner policies in the first quarter was 90%, compared to overall retention of 84%.

Adverse conditions we reported in 2010 continued into the first quarter of this year. First, our small business markets reflect persistent competition, particularly now from some of the larger multi line carriers. Second, yields are historically low levels and the economic recovery is sluggish. Finally, 3 of our top 5 states are experiencing their highest unemployment rates in the past 35 years. Despite these challenges, we successfully grew premium and policies in the quarter, reduced our operating expenses substantially and have improved our ability to service our existing business and produce new business.

Deteriorating loss trends in California presented our largest single challenge in the quarter, and it is likely this will persist through the year. In addition to our implementation of a 2.5% pure premium rate increase in March, we will file for an additional California rate increase in the third quarter of this year, based on an analysis which is already underway. We believe it was prudent to raise our current year loss provision rate. Through these adjustments and filed pure premium rates and loss provision rates, we believe we are keeping pace with the unfavorable loss trends in California. With that, Operator, we'll now take questions, please.

Thank you. (Operator Instructions) Mark Hughes with SunTrust.

Thank you very much. The new success in terms of new policy holders in the first quarter, was that kind of a burst of activity with the new relationships, or should we assume that, that sort of pace will be sustained, or is there any reason to assume it wouldn't be sustained as we go through the balance of the year?

We expect over the balance of the year to continue to grow new appointments and to encourage more online interaction with our existing agents. If you look at the quarter, it was definitely ramping up month over month from January to March, and we're hopeful that we will continue to see that throughout the year.

That business, as you're putting it on the books, does it have a lower expected lost cost or your initial lost sticks on this new business? Are they below where you're assuming losses are for your existing policy holders?

It's being underwritten exactly the same way as the existing book of business. If anything, as we put more of the small account business on, we're seeing more of a drift down towards A, B, C and D and away from E and F. If anything it's less hazardous than the existing book of business.

The up tick -- you talked about negative trends, recent accident years, I think more difficult return to work. How much -- you may have intimated this, but how much of that is just new, news in recent months or recent quarters? How come the market is not responding to it?

Let me point to something that is a newer development, and others have observed this, and it's just now emerging in the data. The average duration of indemnity claims is stretching out. If you think back over a 24-month period of recession, we're just now getting to the point where the average duration is starting to move out over what it was pre-recession levels, and so it truly is something that is just starting to emerge the end of last year, which is why we adjusted our provision rate in the fourth quarter and are continuing to see through the first quarter of this year.

Right. Why do you think -- are other carriers just not seeing it? Are they going to get surprised by this, or how come it's not showing up in pricing, do you think?

There shouldn't be anything unique to our book of business that says we are the only ones that are experiencing this, why others aren't observing it or adjusting for it is a question I can't answer.

The WCIRB data is based on the industry's experience itself. So, it should correspond with what the companies themselves are reflecting.

Right, exactly.

And I'll just add a little bit more color on that. The other thing that's new over the last couple of quarters is an increasing difficulty in return to work, and I think that's a function of the extended economic downturn, especially in California, but that's a national phenomenon. You think of some of these injured workers, there employer might not even be in business anymore, so there's not even an opportunity to bring them back in a modified duty position. The longer those claims are open, the greater risk that you're going to have increasing medical costs and additional body parts. In fact, that's what we're observing in our books.

Are the bigger carriers being more conservative in their underwriting, perhaps raising prices? Is that a trend of the market?

I've heard others observed that. We're not observing that in our competitive segment of the market. We're seeing as much competition today as we have previously, and that competition is around price.

Thanks.

Amit Kumar with Macquarie.

Thanks, and good afternoon. One of your peer companies mentioned that Governor Brown has said that he would not look at any bills for the next 2 years. Maybe -- can you talk about the current situation out there, and do you think, based on that comment, it would be better or easier, I don't know if I can say that, for companies to get rate increases compared to the past?

If I look at California from a political standpoint and what's happening in the marketplace today, it's not the result of any legislative changes. Some of what we've seen in deteriorating trends has been the result of some judicial decisions, but those aren't new, and everybody, I think, accurately expected what the impact of those decisions would be.

Really what's changing is the environment. There's much more litigation. There is much more effort to add additional body parts and increase disability awards. Those are the types of things that I think are having the largest impact in California. From a pricing standpoint, with California being an open rating state, it's not filed rates that are the problem, it's intense competition, and desire on the part of some of the larger market players to continue to grow share through the soft part of the cycle, and that's a situation that frankly we can't impact.

Got it. Okay. And then just going back to the broader trend on medical costs and lengthening of duration, one of -- one other public company, in fact, saw those trends in the third quarter of 2010, and I'm just wondering if those trends are now picking up in your book. Is there something else going on, or is it just a function of the business mix?

I think what we've observed in the past is consistent with what others are seeing. I think the largest driver right now that's different is that extended duration, and although you think of that as just lengthening the claim, it does lead to additional medical costs. When you think about medical costs and the impact it has on the overall severity of indemnity claims, I think that's a significant driver to the cost. The other piece is litigation holding open the duration of the claims longer. And then there's an unusual impact, something we're not accustomed to seeing and that is, given the budget issues in California and the furloughing of state employees, it's slowed down the adjustment of claims and the ability to handle appeals and get claims closed out more quickly. I can't quantify that for you, but our adjusters, who have been in the business for many years, are observing that's having an impact on the cost of claims.

That's helpful. One final quick question and I'll re-queue. Can you talk about -- based on what you were talking about, changing sort of market dynamics and conditions. How do you think about capital management at these levels? Do you monitor the loss trends and sort of pull back, or based on where things are, it continues for the foreseeable future?

I think about our needs for capital at a very basic level, which is so long as we can write business that's within our underwriting appetite, which we believe presents profitable opportunities over the course of the cycle, we're going to continue to write that business and set aside the capital that's necessary to support it. As we have seen through the first quarter, we are driving growth. At least at the moment, we believe the capital that's in our operating companies is sufficient to meet our growth expectations. The capital in the holding company remains available to support any additional operational needs that we don't expect to support opportunistic acquisitions, and then finally to support share repurchases and dividends, and that remains unchanged for us.

Got it. Thanks so much.

Matt Carletti with JMP Securities.

Thanks. Good afternoon. Just a couple of questions. First, Doug, you commented on filed rate activity and your plans that continue to file additional increased rate, I know you don't disclose specific numbers, but can you give us a little bit of color on where charged rates -- out the door charged rates are currently? Are they still increasing? Is it kind of the same as in past quarters? Does it slow done?

Rate out the door continues to increase in California. It has slowed down, because we were at the end of the last rate filing. We have another one now that was effective March 15. The marketplace, I think, generally and specifically for us is not allowing companies to take the full filed rate, and so there's still a net credit. I would expect that's true across the market. We want to make sure we're in a position that where we can get more rate on business that we're able to get it through a rate filing, and consequently we will be making that filing in the third quarter.

And then with regard to Illinois, I think you commented that it's now one of your largest states, it has moved up a bit. Can you comment on what in specific you like about Illinois? The reason I'm asking is that the commentary from a number of your peers has been negative surrounding the state and a lot of companies have been pulling back.

Yes. It's driven by a very narrow focused underwriting strategy that says we don't see that restaurants in Illinois are inherently riskier than a restaurant somewhere else. There is discussion of reform of workers' compensation in Illinois. I don't know that, that's going to go anywhere. It's been dead a couple of times, and they seem to continue to try to resurrect it. But staying within our appetite of low-hazard business, we're finding opportunities to grow in Illinois.

Great. And last question for Ric, I know there's no development on the voluntary book in the quarter, but was that kind of nothing material out of any of the years or did some of the years show favorable and was offset by adverse and others?

There were pretty small movements, just a collection of odds and ends, if you will.

Okay. Great. Thanks a lot.

(Operator Instructions) Ron Bobman with Capital Returns.

Hi. Thanks a lot for taking my questions. I've got a few. By the way, I like your pronunciation of Missouri with the a at the end there. Sounds like you've got your marketing face on there.

Loss picks, and obviously the specific reference to the 76.6% largely driven by California. In the prepared remarks, you mentioned that the extended -- maybe in the Q&A, the extended period upon which indemnity payments are being made for, and that is a meaningful element here, and I think you referenced the 24 months. So, what I'm wondering about, you're seeing data from claims that incepted in let's say 2009 and obviously 2010 and 2008 that are expending longer, but the loss pick, sort of the reaction to that is solely -- I think, it's solely been the adjustment of the current period's loss pick whereas I would think that, that expended claim period, on these, like I said, '09 claims, would give cause for adjustments for business written in those periods. That was my first question.

Bob, as I mentioned in my remarks, we look at prior period reserves, their adequacy collectively, and I made that comment purposely. That's not to say that -- and this has always been the case, not only this year, but in prior periods, that there is always movement between the accident years, between actuarial evaluations up and down within those years. There's some improvements in certain accident years. There's some development in others. In the end we look at collective adequacy. What we're saying is, as I commented, we have seen some upward movement in the more recent periods, '07 through '10, but we have seen some improvement against what we provided against in earlier periods '04, '05, '06, those years that have offset that and we continue to believe that the collective adequacy of our prior reserves is unchanged.

And I think you were just answering Matt's question, and I got the inference that you were sort of saying that it wasn't material, the plus -- people call it any pluses to '07 through '10 were not all that material against the reductions for '06 and prior. But in answering my question, are the numbers a little bit bigger than my takeaway from hearing the last question answered?

Actually, as I was answering the prior -- Matt's question, I was thinking a little bit more toward the involuntary, which was, in fact, very small impact on individual years, in any 1 year. But with respect to our own direct carried reserves, again, while individual years would have been slightly greater, there was no glaring jump in 1 year that I would call out to you. And as I say, the one we're looking at is the greenest year, and that is 2010.

And if this -- okay. And if this trend for extended indemnity continues, are we just going to see sort of this 76% loss pick holding and not much of a change to these prior years, or might holes appear in effect is what I'm asking in some of these more recent years, '09,'08, '07, '10?

As we look at it as of March 31, we believe it was adequate. As we have observed, there was deterioration in the more recent years and that is not inconsistent with what the bureau is observing as well.

I cut you off. I apologize. Please continue. I'm sorry.

When we set both the reserve level and the provision rate, we're looking not at only what it is today, but what we expect it to be based on the trends we are seeing. At any point in time we're trying to fully incorporate what we expect to be the future.

It's back to the well used phrase, Bob, that at any given point in time it is our best estimate of the ultimate value.

Any change to your medical cost inflation factor, or, again, it's really just this extended period of out of work and not so much inflation?

Well, actually, that is what people talk about, medical inflation, but the greater part of that concept is really the expansion of term and definition of benefit, as opposed to an aspirin that was $1 before and is now $1.10.

Okay. How about your outside or independent actuarial review, when did you do that? I assume that's once a year.

That's twice a year. It's at December and June.

Okay. What was the growth in the quarter in California or decline, premium volume or payroll volume?

Let me just turn to -- with reference to -- Let me just reference, not the written, but the in force. The in force was up approximately $5 million over year end. Year over year it was up about $1 million.

Okay. And then if I can just changing gears, you talked a lot about California. What about basically sort of loss activity in the rest of the geography that you write, sort of benign? We spent so much time on California, I know it's 50% of your business approximately. Should I take away that the rest of the country is not really seeing this California loss dynamic?

That's correct, Bob. We see, of course, some increases, and the driving force behind some of those increases tend to be consistent in terms of the impact of the economy, but it is maybe, to steal your word, relatively benign compared to what we're seeing in California.

All right, Bill, that's 3 times. The first name is Ron. Got to correct you after the third one.

Beg your pardon.

No problem. I get it all the time. Have a nice day. Best of luck to you.

(Operator Instructions) Bob Farnam with KBW.

With the loss cost trends, I think one of your last comments, Doug, you sounded like the pricing you're getting is now -- you think is keeping up with the loss cost trend? Did I hear that right?

We're trying to make sure that our filings are consistent with what we're observing in the market. It's very difficult to get price across the board, and our focus is on getting the most rate we can on the best business we have in the book. We try to compete for new business and get more rate on the new business, but that is extremely difficult.

Right. It looks like from the WCIRB data, the rate going through the street has been flat for a few years now. So, I think that goes to your point with the competition still pretty intense if you still are having a lot of companies that aren't really raising rates at all.

Yes. I think that net rate is interesting. I suspect some portion of that is related to business mix in California maybe with the declining construction. I think the bureau put about 1.5% to that, but I haven't seen anything just recently on that.

And what actions, if any, can you specifically take to control either frequency or severity trends? Can you give us an idea of things you can control?

The focus on the severity side where we would have the most impact is really around the medical side, and just touching on a couple of key ideas, we've revamped our claims model, claims manager model, so that we can specifically target claims that require higher levels of involvement. We've put together a litigation management department so that given the increasing frequency of litigation in California, that we've got a group that's focused on nothing but managing litigation in California, and then issues around making sure that our provider network is tailored appropriately to meet the needs of injured workers and then pharmacy management costs. You do everything you can to control the costs of a claim along those lines, but in the end it's very difficult to shut down the claim where there's an attorney involved. You can't get it to a hearing, and it continues to be open for purposes of medical, and you just -- you do everything you can, but in the end you can't completely shut it off.

Okay. And sounds like in your prepared comments, the litigation aspect, that's been increasing relative to where it has been in the past few years.

Yes, we have seen an increase. I think that's a result of greater opportunities to add body parts, and increase disability boards and consequently compensation. We are seeing it more in southern California than in northern California, and those rates in California are significantly higher than they are everywhere else in the country.

Okay. Very good. Thank you.

(Operator Instructions) Amit Kumar with Macquarie.

Thanks. Going back to your response to Ron's question on the premium change in California, if you ex out the new initiative premiums, how much has the core book shrunk compared to 2010?

Let me break it down by a couple of segments for you. If you look at the $25,000 in under business, which is our core strategy, the in force there is down by less than 1%. If you look at the over $25,000, which then would describe everything else, our in force year over year is down 7.9% at the over $25,000 business.

And that was higher hazard, right?

Yes, it would have more hazard in the E and F, their larger accounts, so they would be higher hazard groups.

And the new business growth, did you say that's low hazard from new states? Is that what the what you said?

It's principally A to D under $25,000. Not exclusively, but underwhelmingly under $25,000 A to D?

So, would it be fair to say that going forward your core book should continue -- the core book, which is seeing these extended duration trends, would continue to shrink meaningfully?

That would be our hope based on our underwriting strategy and an improving economic situation.

Got it. And the only other question is this new business growth -- and I apologize if you talked about this, how much is the commission structure different than your core book?

It's not meaningfully different. There are instances where we will provide short periods of additional incentive to produce new business, but it's not a meaningful change in our overall commission levels.

Okay. That's all I had. Thanks so much.

Ron Bobman with Capital Returns.

Two questions. Doug, you made a couple of mentions and sounds sort of Halloweenish. You keep referencing increased body parts. What did you mean by that?

Let me give an example of that. You'll have a claim that maybe starts as an injury to a knee, and after a while the hip on the other side starts to hurt, and so as these claims get longer, there's more opportunity for the addition of body parts that are disabled. It was a little ghoulish, I apologize for that.

An example, you do have an injured leg, but now you're not sleeping because of the discomfort.

Got you. And then I had a question about your reinsurance. Could you remind us when and if it -- when it renews and are you planning any changes to the structure or did you effect any changes to the structure and pricing expectations that you benefited from or suffered behind you or going forward? Thanks.

Our renewal rate is 7-1. We have been out in the market. We met with existing and perspective markets. We don't have indicative pricing yet, and at least at the moment, we don't have plans to change our structure, but depending on what the pricing indications are, it's always possible.

Okay. Great. Best of luck with that.

Ladies and gentlemen, this does conclude the Q&A portions of the call. I would now like to turn the presentation back over to Mr Douglas Dirks for closing remarks.

Thank you very much. Thank you, everyone for joining us today. We appreciate your attention and your attention to detail. We look forward to talking to you again next quarter.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.