ProAssurance Corp (PRA) 2017 Q1 法說會逐字稿

Good morning, everyone. Welcome to the conference call to discuss ProAssurance’s results for the quarter ending March 31, 2017. These results were reported in a news release issued on May 4, 2017, and also in the company's quarterly report on Form 10-Q, which was also filed on May 4.

These documents are intended to provide you with important information about the significant risks, uncertainties and other factors that are out of the company's control and could affect ProAssurance's business and alter expected results. Further, we caution you that management expects to make statements on this call dealing with projections, estimates and expectations and explicitly identifies these as forward-looking statements within the meaning of the U.S. federal securities laws and subject to applicable safe harbor protection.

The content of this call is accurate only on May 5, 2017. And except as required by law or regulation, ProAssurance will not undertake and expressly disclaims any obligations to update or alter information disclosed as part of these forward-looking statements.

The management team of ProAssurance expects to reference non-GAAP items during today's call. The company's recent news release provides a reconciliation of these non-GAAP numbers to their GAAP counterparts.

Now as I turn the call over to Mr. Frank O'Neil, I would like to remind you all that this call is being recorded, and that there will be a time for questions after the conclusion of prepared remarks. Please, Mr. O'Neil, go ahead.

Thank you, Anita. Thanks, everybody, for joining us. On our call today are our Chairman and CEO, Stan Starnes; Howard Friedman, the President of our Healthcare Professional Liability Group; Chief Financial Officer and Executive Vice President, Ned Rand; and Mike Boguski, the President of Eastern, our workers' compensation subsidiary.

As is our custom, we're going to lead off with Stan.

Thank you, Frank. I want to welcome everyone to our call to discuss a strong though uneventful quarter. We achieved solid profitability, retention of existing business was good and we wrote significant new business in both our Specialty P&C and workers' compensation segments. Given the straightforward nature of the quarter, our remarks will be brief, and we look forward to questions at the end.

Ned, will you please lead us all.

Thanks, Stan. Gross premiums rose almost 5% year-over-year, driven primarily by growth on our Lloyd's Syndicate and workers' compensation segments of 84% and 8%, respectively, compared to prior year. We wrote $10.2 million of new business in our Specialty P&C segment, and $14 million of new business from workers' compensation. Our coordinated sales and marketing efforts produced $7.7 million of business in the quarter.

The consolidated current accident year net loss ratio was 80.9%, an increase of 2.3 points over the prior year and attributable almost entirely to the growth in our Lloyd's segment. So that's the flip side of Lloyd's growth coin. The consolidated calendar year net loss ratio was 65.1%, which is 2.6 points higher than last year, again, primarily as a result of growth in the Lloyd's Syndicate segment. We realized $28.8 million of net favorable development with all segments contributing. That is essentially level with the first quarter of 2016.

We continue to pay close attention to our expenses, which is important given the competitive nature of the market and the limits we place on growth by being disciplined in our pricing and underwriting.

We saw a $21.6 million swing in net realized investment gains, which were $13.3 million in the first quarter of this year versus a loss of $8.4 million in the first quarter of last year. Our net investment result was $3.2 million higher year-over-year. This was due to a sizable change in the earnings of unconsolidated subsidiaries, which were $1.8 million compared to a loss of $3.6 million in Q1 2016.

Offsetting those gains was a $2.3 million decline in net investment income, which continues to suffer from the low interest rate environment that is affecting the entire insurance industry.

Taxes were a somewhat bright spot for us in the quarter. We realized a 3% tax benefit compared to a 6.6% tax expense in the same quarter last year, due primarily to the application of revised accounting guidance, which was effective January 1, 2017, and resulted in an excess tax benefit on share-based compensation. And to a lesser extent, our investment in various tax credits and tax exempt income in our bond portfolio.

With higher revenues, thanks to net realized investment gains and higher premiums coupled with the tax benefit, net income for the quarter was $41.5 million, $0.77 per diluted share. Operating income for the quarter, which strips out investment gains, was $33.4 million or $0.62 per diluted share. Our ROE improved to 9.1% in the quarter, which gets us much closer to our targeted 7 points above the 10-year treasury rate, which at April 30 was 2.29%.

Book value stood at $34.19 per share at the quarter end, a 1% gain in the quarter. As of May 1, we held approximately $135 million in unpledged cash and liquid investments outside our insurance subsidiaries and available for use by the holding company. That includes approximately $18 million of subsidiary dividends paid to the holding company in April.

Frank?

Thanks, Ned. We'll turn next to Howard Friedman for detail on the Specialty P&C segment. Howard?

Thanks, Frank. Despite the competition, we held our own in the Specialty P&C segment. Gross premiums were down 1%, but the components bear some explanation. Physician professional liability continues to be the largest single line within this segment and premium derived from our policies with a 1-year term grew a little more than 1% to $89.7 million.

Most of our investors know that we also write a limited number of 24-month physician policies. Because of the renewal cycle of these policies, we expect an overall decline in odd-numbered years. Premiums on our 2-year policies were down $2.8 million to $5.9 million, and that is the primary driver of the $1.4 million decline in premiums for the segment.

Health care facilities declined 4% to $12.2 million, primarily due to the timing of policy processing in the first quarter of 2016. Premium from other health care providers, aligned with the growing importance in the health care evolution in America, was up $486,000 or 6%. Our premium retention on the physician line was 90% for the quarter, up from 88% in Q1 of 2016. Rising on renewing physician business, a key benchmark for us, was 1% higher year-over-year.

Our current accident year net loss ratio for the quarter was 88.7%, essentially unchanged from the first quarter of 2016. We made a lower provision for mass torts than in the same quarter last year, but there was some upward revision in the overall loss ratio due to the mix of business. Our favorable net loss reserve development in the segment was $25.3 million, coming principally from accident years 2009 through 2014. Importantly, we do not see any change in the overall loss trends for the segment. Frank?

Thanks, Howard. Next, we'll turn to Mike Boguski for comments about workers' compensation. Mike?

Thank you, Frank. The workers' compensation segment operating results increased to $2.9 million for the 3 months ended March 31, 2017, compared to $1.3 million for the same period in the prior year, driven by an increase in earned premiums and decreases in the net loss ratio in underwriting expenses.

Gross premiums written increased 7.9% to $84.2 million for the 3 months ended March 31, 2017, compared to $78 million for the same period in '16. This includes new business writings of $14 million that Ned mentioned previously during the quarter, compared to $9.4 million in 2016. We also launched a new initiative, Eastern Specialty Risk, which I will discuss in more detail later, that contributed $1.5 million of that new business in the quarter.

Audit premium was $1.2 million in the first quarter of 2017, a slight decrease compared to the $1.5 million in 2016. Renewal pricing decreased 3% in the quarter, reflecting continued price competition in the workers' compensation marketplace. Premium retention was 89% for the first quarter, driven by strong results in our alternative market program business. Premium retention for alternative markets was 96% in the first quarter of 2017 compared to 92% for the same period in '16.

We were successful in renewing all 10 of the available alternative market programs in the quarter. Overall, alternative market program gross written premium increased 18.3% in 2017 compared to the same quarter in 2016. The decrease in the first quarter 2017 accident year loss ratio in our traditional business reflects lower winter weather claims activity in 2017 compared to 2016 and overall favorable trends in claim closing results. We successfully closed 21.8% of 2016 in prior claims during the quarter, one of the best first quarter claim closing results in company history.

Favorable reserve development was $2.4 million in the quarter compared to $1.1 million in the first quarter of 2016, primarily related to alternative market business but also includes approximately $400,000 in both periods related to the amortization of purchase accounting fair value adjustments. The decrease in the 2017 expense ratio reflects a 1.1 point reduction in intangible asset amortization, a decrease of 1.2 points related to a pension plan termination that was fully settled in 2016 and continuing prudent expense management strategies. The 2017 combined ratio of 92.9% includes 1.3 percentage points of intangible asset amortization and 1.1 percentage points of a corporate management fee.

Lastly, I'm pleased to announce that we launched the Eastern Specialty Risk underwriting unit during the first quarter of 2017. As I noted earlier, we wrote $1.5 million of gross premiums in this unit in the first quarter, primarily in the mid-Atlantic region. This new initiative provides an additional product and service strategy to our valued agency partners that focus on employers engaged in higher hazard industries.

These employers tend to have less frequent but more severe claims compared to other industries. As a result, employers engaged in high hazard industries pay substantially higher than average rates for workers' compensation insurance. We believe that our short-tail claims strategy, high quality risk management and disciplined underwriting platform will be attractive to customers in this market segment.

In addition, we expect this unit will deliver value by working with customers to reduce the overall incidence and cost of workplace injuries, while promoting a safer work environment. This strategy aligns well with our capital based position, return expectations, internal service expertise, pricing strategy and the improving economic outlook for this market segment.

I also want to stress that we have the full cooperation and support of our reinsurance partners. Our reinsurance retention on this business is the same as that of our traditional business, which limits our downside risk and expands our relationship with our long-term reinsurance partners by providing them with additional rate for exposure in this sector of the market.

Frank?

Thank you, Mike. Let's go back to Howard now and hear about Lloyd's.

Thanks, Frank. We continue to see growth at Lloyd's, and that includes higher premiums along with a commensurate increase in expenses. As we get into specific numbers, let me remind you we report net results reflecting our 58% participation in the syndicate, and we do so on a 1 quarter lag.

Gross premiums written were the big story, up 84% quarter-over-quarter to $12.7 million due to both new business and the growth of existing accounts. Net premiums earned were $14.6 million, an increase of 17% over the same quarter of last year. This reflects the increase in overall premiums, and as we have explained before, adjustments to premiums on policies for which initial exposures are estimates and on policies for which premiums are adjusted based on loss experienced.

Underwriting expenses within the syndicate continue to grow as we expect. This quarter, expenses were $6.2 million, up 20.2% over the prior year first quarter, but trending down from the 23.3% growth for 2016 versus 2015. With the slowing of expense growth and the rise in premiums, the expense ratio was up only a little more than 1 point quarter-over-quarter.

The current accident year loss ratio increased 19.8 points compared to last year's first quarter. This is primarily the result of the unusually low loss ratio in the year ago quarter, which resulted from timing differences on premiums earned for accounts that were in run-off at that time.

Also, at work but to a lesser degree, are small shifts in the mix of business compared to last year and the use of loss assumptions that continue to be derived from Lloyd's' historical data for similar risks. Although the Syndicate is increasingly relying on its actual experience to modify the Lloyd's data. So the same factors drove an increase of 15.6 points in the net loss ratio, which did benefit from the recognition of $1.1 million of favorable reserve development.

And one final note to underscore our excitement about the success of our investment in Syndicate 1729 and the degree to which we value the Syndicate's ability to grow while maintaining underwriting and pricing discipline, we can report that we have extended our $200 million capital commitment to the Syndicate through the year 2022.

Frank?

Thanks, Howard. Stan, will you wrap this up?

Thanks, Frank. As I said, this was a strong straightforward quarter with solid results. We continue to see the benefit of the dedicated execution of well-reasoned, strategic initiatives designed to ensure that ProAssurance meets the evolving needs of a dynamic marketplace. We remain excited about the future, and look forward to answering your questions.

Frank?

All right. Thank you Stan. Anita, we're ready for questions.

(Operator Instructions) The first question comes from Matt Carletti with JMP Securities.

A couple of questions. First one, on the strong new business production in the Specialty segment and specifically in the physicians business, and I guess my question is maybe, Stan or Howard, if you could give a little color on was that just kind of organic policy by policy kind of battling it out on the street? Or was there some consolidation maybe that took place and the good guys won one? I'm just curious kind of what's driving that and how you see it going forward?

Okay. Yes, Matt, the -- I think it's really just a normal kind of business mix. As we've talked about in several of our prior calls, we've done a lot over the past several years to develop stronger relationships with some of the larger brokers who are now dealing with the larger consolidated health care accounts. And we're getting many more submissions. Submission growth continues to be a real area of concentration for us. And yes, there are some consolidations taking place where we are on the winning side. I mean, it happens the other way as well from quarter-to-quarter, and we've reported in the past accounts that we've lost as a result of consolidation. This quarter, we had one that benefited us. So I think it's a combination of a lot of things. Nothing really dramatic or different than we've done in the past, other than getting more at-bats on the submission side.

Great. And then just a numbers question, probably for Ned. Just want to make sure I'm understanding the stock compensation tax benefit dynamics. Am I right in thinking that, that will largely be a Q1 event since that's, I'm assuming when a lot of year-end comp that takes place and that will be lesser or no impact on most of the other quarters.

Matt, yes, that is what we would anticipate.

The next question comes from Mark Hughes with SunTrust.

The workers' comp business, another good quarter in terms of new business production. With pricing down though, I'm just sort of curious if you could expand a little bit more on where you're seeing the opportunity? And is pricing staying ahead of loss cost trend with this business?

Mike?

On the new business front, it was $14 million compared to $9.5 million from the first quarter of 2016. Half of that increase was a large health care new business account within Inova which is, for us, is more of a fee-based revenue opportunity. So what we saw Mark, there in the quarter, was consistent production across these operating territories on the new business front. And your second part of your question on frequency, I mean, the industry has seen significant reductions in frequency, which has driven loss costs down slightly in across the operating territories. And ours is reflective of that as well. Our claim frequency has been down fairly consistently. It was down about 9.5% at year-end 2016. So we feel like we're well positioned there.

And I'm sorry, I might have missed -- I missed just a portion of your commentary on the high hazard. Was your point you're going to be pursuing that high hazard business a bit more in the future?

Yes. We've really been evaluating this strategy for several years. And Mark, as we look at the overall -- our overall capabilities, our reinsurance structures, the growth of that sector from an economic perspective, the talent level that we have in our organization on some of the risk management claims and underwriting perspective, we believe that at the end of the day, it's an underserved market where we can achieve margin over time and achieve our return expectations. So we'll be very disciplined about it. We'll continue with our individual account underwriting strategy and we'll be conservative on the pricing, but we do think it's a very nice opportunity going forward.

Mike, you might also mention the agent interaction you've had with that.

Yes. Good point, Frank. One of the observations we've made is we've talked to our agents at various advisory council meetings over the last 3 years. And one of the, I think, sustainable competitive advantages for us there is the typical higher hazard account is written -- the agent has 1 or 2 accounts with a specialist. Eastern, in their agency management model, has a broad book of business and a larger book of business that includes small business in Inova and middle markets workers' comp. So the agents have been really, really receptive to the high hazard unit from the perspective of, hey, this is a new product and service that we can expand our relationship with Eastern. We've already had a -- we already have an extensive relationship there, and we are seeing those opportunities. So we think we have an agency management advantage.

What do you think the top line impact of all that is -- is that a few points a year? Or is there a potential to -- when you throw the net out, you might have a good haul in the near term?

Yes. Just taking a look at what we've seen in the first quarter, we wrote $1.5 million in first quarter with no loss activity. And there's a balance there, Mark, from the perspective of you need scale for your reinsurance relationships in that business and for severity funding. However, we've looked at it for the remainder of the year and unless there's a very large account or 2 in there, we think it'll be less than 3% to 5% of our premium in '17. But we'll grow slowly at a disciplined pace as we go forward.

On the Lloyd's business, what should be the normalized loss ratio? It's bounced around, I think you, pointed out it's unusually low perhaps in this quarter last year. What's a good trend on that?

I think that's going to depend a lot on how the mix of business evolves. And of course, the loss ratio part of it is also dependent on the expense ratio. And the reason I'm talking about the mix of business is the fact that some of the Lloyd's business being reinsurance assumed with ceding commissions has a higher expense ratio than maybe some of the binding authority business. I think that it's -- rather than giving you a firm number, I'd say that the loss ratio expectations are probably in the 60% or so range with the expense ratio probably in the 35% or so range. But there's going to be a good amount of variability around that from quarter-to-quarter. So please don't get locked in on those.

Understood. Final question. You've commented on the past on how in pursuing some of the larger hospital business or the big group practices that broker relationships have been important. Could you comment on kind of what you see, what kind of dynamic you're seeing with that strategy outside of your core position? What kind of progress are you seeing on the facility, hospital, large group front?

Yes. I think we're seeing good progress. A lot of our new business growth last year, and we have sort of a record amount of, if you will, of new business last year came from larger account physician business resulting from groups that had consolidated and from hospital facilities. And I'd say that most of that came from the larger broker relationships. I don't have a precise percentage for you, but I know just thinking about it, I'd say the majority of that new business last year came from the larger broker relationships.

A couple of caveats to add to that, Mark. First, remember as we've spoken about before, that this business rolls around, at most, once a year or sometimes once every 2 or 3 years, where somebody takes a look at us and our program. So it's not like we sell any consumer product where they come in 1 day, look at it, and come back the next day and buy. And so that creates its own set of issues. But second, when you apply those same issues to the big relationships, that's what is the choppiness and the volatility into the revenue that we talked about at the year-end call we had 3 months ago. So it makes it impossible for us to predict and even harder for you to predict, but we would expect to continue to see progress in that area. We're very pleased with what we've accomplished to date, and we think that activity will continue to serve us well.

The next question comes from Amit Kumar with Macquarie Capital.

Just a few questions. The first question goes back to the discussion on capital and you didn't repurchase any stock this quarter. I know that in the past, we've talked about a special as the more appropriate means based on where the stock is trading at relative to the book value. Can you just remind us how you evaluate one over the other? And how should we be thinking about any capital repatriation down the road?

Amit, so for stock repurchases, we try to be very disciplined. We try to avoid kind of taking a view on what I would call value vis-a-vis The Street and look at it more on how long it takes us to recoup any dilution that is caused by buying above our stated book value. And as that recoup period approaches 3 years, we begin to take ourselves out of the market on share repurchases. We certainly prefer share repurchases at prices we find within that threshold over any sort of special dividends. But I would also remind you that we are constantly evaluating kind of the capital position of the organization and looking at the opportunity set that's out in front of us. And then kind of we'll make decisions based upon that regarding our current dividend levels, the payment of any special dividends and the repurchases of stock.

Okay. The second question goes back to the workers' compensation segment. And I know you talked about the growth in the alternative market business, and in the press release you talked about 10 programs. Can you just give some broad color what these programs look like? Are they are all alike? Maybe just help us understand that piece a bit better?

Absolutely, Amit. Today, just to give you an overall profile of an alternative market business, we have 30 total programs which includes the 3 that we have medical professional liability. In them, 27 of them are active. We have 23 of those programs that are -- Cayman based and we have a few in other domiciles. From a perspective of what types of alternative market programs we have, we have a significant level of health care-related alternative market programs, association business in different segments of the marketplace and then we also have a component of what I would call agency-owned captives or segregated portfolio cells. It's a real balanced book of business. It produce very nice fee-based revenue. We produced about $3.8 million of fee-based revenue in the first quarter and we made about $630,000 in underwriting profit on the cells that we own, and about $820,000 of net income on those -- on the cells that we own. So we continue to believe it will be -- it's a sticky product, it's got high program retention, it's got high premium retention within the programs as you saw by the 96% premium retention. And we expect continued opportunities there.

That's actually quite helpful, the refresher. The final question I have is for Stan or anyone for that matter. Just going back to the Lloyd's business. Obviously, we've talked about the expense ratio challenges. You're talking about the loss ratio sort of reaching a new normal and probably remaining at these elevated levels in the near future. I'm curious how should we think about the profitability aspect of this business? Because if you look at it, it's had an underwriting loss on a quarterly basis -- I'm sorry at an operating loss on a quarterly basis. So maybe just help us understand why you're writing this business? Why do you need to be writing this business? And how does this make money longer term? So that we can understand as outsiders what is so special about this business.

I'll let Howard respond to that, but bear in mind, Amit, we don't make decisions about a business based on this quarter or that quarter, but as part of our long-term strategy. So we view the Syndicate as an investment today. We're quite pleased with it. Howard will give you some specifics on that. But it also is an integral part of our long-term strategy as we've said in the past. And someday, we expect Syndicate 1729 to be the platform for writing additional international business. So we think it gives us flexibility. It gives us a different arrow in the quiver, and it's one we're very pleased. We take a very disciplined approach to it. Duncan Dale and his team at Syndicate 1729 are long-term players. They understand the Lloyd's market and they take advantages of the opportunities that come along. With that as preface, I'll let Howard talk about the specifics of the numbers.

Sure. And I guess, I take a little exception to the idea that it's a -- in terms of operating loss on an overall or long-term basis, we have choppiness, no question about it. It's a relatively new operation. We actually -- the Syndicate actually closed its first underwriting year, the 2014 year, at a small profit, which I think was a pretty remarkable achievement for a brand new syndicate. It doesn't mean that every underwriting year will and some will be better than others. I think we expect that a number of underwriting years will close with large profit. But we had the loss ratio up this quarter. If you're comparing it to last year, I think, that's probably an unrealistic comparison because as I mentioned, last year was unusually low. But we did have a 65.3% loss ratio, a little bit higher than kind of that rough long-term number that I mentioned earlier of 60%. Expense ratio is still elevated because of the relative use of the Syndicate and growing into its staffing. Part of the ability to write business is also -- has also been the attraction of underwriting talent with relationships in the marketplace. And that has allowed us to -- or allowed the Syndicate to grow pretty significantly but also, at the same time, have some operating expense components. And that expense ratio we expect will trend down. So I still think that over a period of time, those numbers that I mentioned will prevail and we'll end up with an underwriting profit in the Syndicate, much less an operating profit.

So if I were to -- and maybe you can educate me here, if you were to step back and as an outsider, would you say that this materially exceeds the cost of capital, modestly exceeds the cost of capital or marginally exceeds the cost of capital over time? I mean, again, the ProAssurance story was built on very strong med mal in the U.S. and then, obviously, we branched into other areas. What I'm trying to think is if you internally do the exercise in terms of capital deployment, what sort of goalposts in terms of returns did you pick? And are we anywhere closer to them down the road? Or is that -- again, you talked about the premiums, you talked about Duncan. And again, I completely agree with those aspects. But just help us understand how internally we should think about the profitability target and how far or close are we from that target?

I think, first thing, I think we need to look at this as a strategic initiative and not only with respect to a cost of capital type of analysis. We benefit from the Lloyd's Syndicate and expect to benefit by allowing us to have an international platform. That is beginning to materialize with respect to international health care business as well as the other business that is being written in the Syndicate. In terms of a cost of capital-type approach, my expectation is that on an overall basis over the long period of time, the Syndicate will produce a return that is commensurate with our desired returns on capital, on our return on equity -- in line with our return on equity expectations for the capital that we have committed to the Syndicate.

Would you be able to broadly define what the time period is?

Tell me what's going to happen in the market for 7 years. It depends entirely are we going to have no cat losses for the coming 12 months or we're going to have 5. It's very difficult to predict. And that difficulty is why it's so important to be disciplined in what we're doing. We take a very long-term view of it. As Howard said, it's the strategic initiative designed to provide us with additional opportunities and additional mechanisms by which to take advantage of the world is evolving pretty quickly behind us. If you stop and step back for a minute, given the very, very difficult times the reinsurance business around the world has faced over the last few years, to think you can start a brand new syndicate and close your first underwriting year at a profit is, frankly, pretty remarkable. And I haven't looked at it, but I would venture that it hadn't been done all that often. So we take a very, very long-term view of it, Amit. And we think over the long term, the capital we have allocated to this now investment in over the long term to a more strategic opportunity will be very worthwhile for all of our shareholders.

(Operator Instructions) We have Bob Farnam with Boenning and Scattergood.

I've got a question for Mike again. So sorry you're on the line again, Mike. So with the Eastern Specialty Risks piece, can you give us like an example of the types of the accounts that you're looking for, the higher hazard accounts?

Yes. One thing to keep in mind, Bob, is that this is business that we've written in our high experience modification book over time and we have a proven profitability track record. So it is the next level of risk in the sense that the types of risk will be more aligned with the infrastructure growth in the United States. So we have some construction, regional transportation, forestry, those types of things. But keep in mind, we've written those classes of business successfully in our HIMA book, in our Inova book and others. This is more of a specialty unit design for the individual account in these particular sectors. The other thing that's very interesting, and we looked back and looked at a 20-year history of the business that we do write, is the more conservative underwriting company that we use produces about a 57% loss ratio over the last 20 years, which is 5 or 6 points lower than our 20-year history at Eastern, which is in that 61%, 62% range. So you do find margin in business that has less competition and where you can provide value on the risk management claims and underwriting side of the equation.

Right. And I actually had a question whether you're going to be able to write some of this business in the alternative markets. But it sounds like some of these are already in the alternative markets and you're deciding to take some underwriting risk with it? Is that -- am I reading that correctly?

Well, yes. In some respects, we do take some underwriting risk in some of the Inova programs on this type of business. However, look at it -- I think it would be interesting to look at it this way, it's another product spectrum, not like -- for example with Inova, not all customers want to go into a captive program. So they may want to be underwritten on an individual account basis within this unit. And that presents us, again, with another product spectrum and service offering to our agency partners that we really built over the last 10 years. I mean, we started with small business. We have all the product lines necessary in workers' comp for middle markets. We've added Inova over that period of time. And I think this will be a very attractive product and service offering as we go into the future.

Right. And are these account sizes similar to the ones you have in the standard traditional book? Or are these larger or smaller?

On average, it's a bit larger to fund for severity. But just to give you some perspective on that, Bob, we wrote $1.5 million in the first quarter, no loss activity, and it was 5 customers.

Okay. Good. That's great. And I guess one question maybe for Ned. It looks like you repaid some of your revolving credit agreement in April. I just want to know if you had any expected changes to the credit agreement in the second quarter.

Bob, so what we've said, if you recall, the roughly $200 million that we borrowed under this facility is all collateralized. It's really an interest rate arbitrage. And so as the underlying collateral matures, we'll pay down that collateral as it matures. If we do have collateral that matures in the second quarter, and off top of my head I'm not sure that we do, we'll pay that down. But that's how that will happen. So it will just be as that collateral matures. And it's pretty short-dated collateral for the most part.

This concludes our question-and-answer session. I would like to turn the conference back over to Frank O'Neil for any closing remarks.

Thank you, Anita. We'll wrap up the call, and look forward to speaking to everybody again in August when we release second quarter results. Thank you, everyone.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.