Presurance Holdings Inc (PRHI) 2015 Q4 法說會逐字稿

Good morning and welcome to the Conifer Holdings year-end 2015 conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Heather Wietzel. Please go ahead.

Thank you, Kate, and good morning everyone. Thank you for joining us for Conifer's year-end conference call and webcast. I'm Heather Wietzel and I work with Conifer on investor outreach.

On the Company's website, ir.cnfrh.com, you can find copies of the year-end release and the presentation that management will be discussing today. If you are looking at that presentation via the webcast you may find the slides are easier to read in the large slide view which can be selected on the right-hand side of the webcast page.

Before we get started the Company has asked that I note that except with respect to historical information, statements made in this conference call constitute forward-looking statements within the meaning of the federal securities laws including statements relating to trends, the Company's operations and financial results, and the business and the products of the Company and its subsidiary. Actual results from Conifer may differ materially from the results anticipated in these forward-looking statements as a result of risks and uncertainties including those described from time to time in Conifer's filings with the SEC. Conifer specifically disclaims any obligation to update or revise any forward-looking statements whether as a result of new information, future developments or otherwise.

Also a reconciliation of non-GAAP measures was provided with the news release. Statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not reconcile to GAAP.

Before we open for questions, management will offer some prepared remarks. So let me turn the call over to Jim Petcoff, Chairman and Chief Executive Officer, to begin.

Thank you, Heather, and welcome everybody on the call. I am disappointed in our quarterly financial results but I'm also very confident in our overall corporate direction. Our loss ratio was impacted by adverse reserve development in our nonstandard auto and commercial auto lines.

These contributed about 4 points to our loss ratio. Excluding this our loss ratio would have been 53% which is below our target. Our expenses were too high relative to the earned premium.

Three things impacted us: significantly lower premiums in the Florida homeowners resulting in lower earned premium, the addition of underwriting groups added during the year along with the cost in supporting these new teams. We believe these new underwriting teams are performing and will continue to perform as expected. This will begin significantly reducing our expense ratio.

We are staying focused on our core underwriting and claims. We do not foresee any increase in staff or additional underwriting teams in the near future.

I would like now to turn it over to Nick Petcoff to go into more details on the underwriting and claims loss.

Thank you, Jim. We continue to make a progress on building out our platform across the country. We are now Excess & Surplus lines authorized in 44 states and admitted in 28 states with an additional 10 states pending.

The increased licenses in Excess & Surplus lines of authority has allowed us to continue our growth throughout 2015. Additionally, we have secured a fronting carrier arrangement for states where we are not licensed. We will continue to add these licenses and authorizations in 2016.

With the platform in place we continue to grow both the Commercial and Homeowners segments. The growth is driven by an experienced management team with significant ownership in Conifer including large share purchases in 2016. Additionally, all of these leaders of underwriting teams driving the premium growth have significant ownership in Conifer.

Two of these underwriting teams joined Conifer in 2015. The low value dwelling underwriting team joined in January 2015 and began writing in the second quarter. We also added an underwriting team with significant experience in the quick service restaurant segment.

This team joined us in the second half of 2015 and began writing in January 2015. Both underwriting teams represent significant growth opportunities in the hospitality and personal lines classes. The classes of business they write provide an excellent complement to our current hospitality and personal lines books of business.

2015 was another year of strong growth driven primarily in the Commercial lines segment. Gross written premium was up almost 12% year over year, despite the runoff of the personal auto segment and attrition on the Florida homeowners take-out from Citizen. The hospitality class and security guard classes of business accounted for most of the growth in the Commercial lines book in 2015.

The Personal lines book grew in Hawaii and the low value dwelling book grew in Texas in the second half of 2015. This growth was offset by less than expected growth in Florida due to significant competition. We've also seen competition impact growth in coastal Texas as Florida carriers begin to enter that market.

As I mentioned earlier, Commercial lines provided the premium growth in 2015 primarily from the hospitality and security classes. The hospitality book was comprised of independently owned restaurant bars and taverns. We'll write the commercial package and liquor liability coverages on this business.

We will also offer workers compensation coverage in Michigan. We continue to see strong growth in the hospitality book in Michigan and Florida. We've also seen growth as we've increased our presence in Texas and appointed additional agents in states west of the Mississippi.

The security guard book covers general liability for security guards and private investigators. We'll also offer workers compensation on this class of business in Michigan. The security guard business grew significantly in California, New York and Michigan.

The commercial auto book grew slightly in 2015 as underwriting changes were made to continue to reduce the loss ratio in that class. Those changes included reducing exposures in less profitable states and price increases at renewal. As Jim mentioned, we've strengthened our reserves in this class of business as we've seen increased frequencies consistent with other writers in this line.

We believe you'll see continued strong growth in both the hospitality and security guard businesses in 2016. We continue to appoint new agents for the hospitality business and we have seen strong growth so far in the quick service restaurant class since we began writing in January. The quick service restaurant class is focused on franchise multilocation restaurants that have low or no alcohol sales.

This increases our product offering for current agents in the hospitality class. Additionally, the underwriting team that joined us have strong producer relationships in this class of business. We also expect to see continued growth in the security guard book from appointing new agents.

We were also able to partner with a work comp carrier in order to provide our agents with a work comp option on our security guard book outside of Michigan. This will allow us to appoint new agents and increase our writings with current agents.

The Personal lines business was down roughly 11% in Gross written premiums for 2015 year over year. This decline was caused by a few factors including the runoff of the personal auto book, underwriting changes made in the Midwest low value dwelling book and lower than expected growth in Florida homeowners.

We have seen an improvement in the loss ratio as a result of the changes in the Midwest low value dwelling book and anticipate that those improvements will continue. We believe the Florida book will grow modestly in 2016 as a result of the increasing competition in that market. Rates are continuing to fall to levels that make that segment less attractive to us and we are committed to our underwriting discipline in this area and have been focusing on growth in other areas.

We continue to grow the low value dwelling book in Texas as we appoint new agents. We also began writing this program in Louisiana in 2016 and look to add another state by the end of the year. The Hawaii book continues to grow even as we see increased competition in that market.

I will now hand over the call to Harold Meloche to provide the financial review.

Thank you, Nick, and good morning everyone. Our overall fourth-quarter financial results were clearly challenging. We are confident, however, that our investments in our underwriting claims and corporate teams will facilitate continued profitable top-line growth.

This growth will enable us to leverage our current expense structure. We finished the year with a net loss of $0.09 per share and a combined ratio of 102%. 2015 was much improved versus 2014 but we are still disappointed in the current-year losses.

During the year gross written premiums increased approximately 12%. However, excluding the decline in our personal auto line we actually had a 22% increase in gross written premiums. Much of the growth came from our commercial line which currently represents 73% of gross written premiums.

I would like to highlight that we had an underwriting gain in every commercial line of business for both the quarter and the year. We also saw premium increase in our wind exposed homeowners in all three of our geographic regions, Florida, Texas and Hawaii. And this line of business was profitable for the year.

The low value dwelling line saw a small overall decrease in premium production as we are ramping up our Southwest underwriting efforts. Admittedly 2015 or 2015, our plan was for considerably more growth from our Florida homeowners program. However, as Nick noted the market conditions have changed which means future expansion in Florida must be done at a measured pace. Our combined ratio decreased by 12 percentage points in 2015, largely reflecting the improved commercial lines results plus progress in our Midwest homeowners line.

I will talk more about the loss ratio in a moment but let us first discuss the expense ratio. As the release shows our expenses increased as we enhanced our underwriting and corporate teams. The additional expenses were necessary to support our growth initiative.

As a result we did not see the decline in the expense ratio we expected but we are on course to see a decline in the beginning of 2016. The expense ratio was also impacted by the costs we continue to incur in our personal auto business while the corresponding net earned premium was negligible by the fourth quarter. We ended the full year with an expense ratio of 45% comparable to 2014.

We anticipate the 2016 expense ratio will improve as our three additional underwriting teams help us grow our premium base and balance out the current costs. The expense ratio for the fourth quarter of 2015 was 54%. That's 5 percentage points of the increase that's directly related to the runoff of the personal auto business, plus the launching of our two newest underwriting teams.

Let's turn back to the loss ratio. I'm pleased to note that the 2015 loss ratio declined almost 12 percentage points compared to 2014, coming in at just under 57%. This is close to our target of 55%.

The improvement in our loss ratio mainly stems from our excellent results in our Commercial line as well as an improved mix of business and the benefits of underwriting changes in some lines. For the year we had adverse reserve development driven by our personal and commercial auto line with the remaining lines netting a small favorable redundancy. While personal auto runoff continues to drag on our overall results we had less than 275 open claims outstanding at the end of 2015.

As for commercial auto our experience was similar to the industry as a whole. We strengthened reserves because our frequency and severity of prior-year losses increased. The combined impact of the personal auto losses and the reserve strengthening in commercial auto represented 4.3 percentage points of our 2015 loss ratio.

Excluding just the personal auto line our 2015 loss ratio would have been 53.8% which is below our target. Homeowners as a whole had a substantially improved 2015 loss ratio. The ratio in low value dwellings increased to 70% in 2015 from 123% in 2014.

We are confident that as we ramp up the Southwest the loss ratio for this line and the corresponding expense ratio will continue to decline. In the fourth quarter the loss ratio was 56.2% excluding the personal auto line. We anticipate the loss ratio will continue to decrease during 2016 as the personal auto line runs off and we see improvements from the underwriting enhancements that were implemented in the commercial auto line during the year.

Let me talk a bit about our reserves. While reserves are admittedly estimates we see a high degree of confidence that our overall position is adequate. As can be seen by this graph, we have had favorable reserve development in four of the last five years and we are cumulatively redundant in the full five-year period.

Regarding our commercial auto reserving in particular, we believe that a combination of the pricing and underwriting changes taken during the year, the strengthening of our in-house commercial auto claims group and the reserve changes made during 2015 should put us in an adequate reserve position today and going forward. As for the personal auto lines, by looking at the next chart you can see that our exposure to personal auto has decreased dramatically over the course of 2015. Our total outstanding claims account for all personal auto decline from 1,100 to less than 275 during 2015.

In addition, our average reserve per claim is consistently moving up year over year. At this point we believe our personal auto case reserves are adequate.

Now looking at our investments. We are maintaining a conservative investment strategy with 96% of our portfolio currently in fixed income securities with an average credit quality of AA, an average duration of 3.1 years and a tax equivalent yield of 2%.

Also we would like to address a research report from last week that stated our Company holds 44.4% of our portfolio in commercial mortgage-backed securities. We would like to clarify that as of December 31, 2015 actually 6.5% of our fixed income portfolio was invested in commercial mortgage-backed securities of which almost all are in super senior tranches with credit quality AAA and with a 30% credited henchmen.

To close our net written premium to statutory surplus ratio is a healthy 1.1 to 1. With the balance sheet strengthened we are well-positioned to achieve our longer-term objective. Lastly, book value at year-end was $10.11 per share.

And with that I'd like to turn it back over to Jim.

Thank you, Harold. Just to reiterate, we are disappointed in our quarterly results but extremely confident in the future growth and profitability. I'd like to now open it up for questions if anybody has any.

(Operator Instructions) Greg Peters, Raymond James.

Good morning. A couple of questions for you. The gross written premium number on a consolidated basis up nicely for the year but down in the fourth quarter and there's obviously some issues you pointed out.

But even if I look at the commercial lines component which was an area that shouldn't have been affected by the homeowners or personal lines business was flat. As we look forward, what kind of growth on a consolidated basis should we be seeing? Is it 5%, 10%?

And I against that backdrop, I mean do you really need all the capital you have sitting at the holding Company and within the Company now? Or could you do something like share repurchase considering the stock price in the context of where it trades today versus where the offering was?

Good morning, Greg. Our capital management is dictating whether or not we do share repurchase plan. We are in the process of setting up the corporate resolutions and the accounts to initiate a share repurchase plan and the Board is considering a small repurchase as we continue to look at what our capital management needs to be to support our growth.

With respect to the volume in the fourth quarter, down a little bit but if you remember the fourth quarter had a takeout under Florida a year before and it also had auto runoff. The attrition on the Florida takeout is about 40% to 50%.

So if you assume that I mean that was kind of a spike in the fourth quarter of 2014 with respect to gross written. Our gross written premium continues to increase with the commercial lines continuing to grow. So we're taking that into consideration and looking at our capital position.

But we will be putting a share repurchase program into place shortly more than likely. And if we do that, our intent would be, if it goes into place and we authorize it our intent would be to repurchase whatever makes sense while allowing us to keep the capital for our growth.

But, Jim, just on the big picture gross written premium number, when we think about 2016, 2017, should I look at the annual results, the 11.8% as sort of like the benchmark for performance that we should expect or is it going to be better than or less than that as we think about 2016?

Well let me highlight what happened in 2016 or 2015 and then you can extrapolate that. If you recall some of the underwriting teams didn't come on until the fourth quarter. One of them didn't start writing until January 5 of 2016.

The Southwest low value dwelling came on although we hired them in January started writing in mid-May with one agent and that's been ramping up and increasing on a monthly basis. So even though the Florida homeowners didn't meet our expectations it's kind of on a flat pace. And when you look at the addition of the agents that are coming on in commercial, we expect much better growth in 2016 than we had in 2015.

I don't know that it's going to be 50% but it's not going to be 11%. I would say somewhere near the middle of that whether it's 30% or 35% is where we're kind of shooting for.

Harold, in your comment you said you didn't see the decline in the expense ratio you expected. What did you mean by that?

Well, basically we were expecting more earned premium from the Florida homeowners. And we were expecting that to offset the additional expenses that we were incurring.

And in the fourth quarter you said it was 5 points of expense due to the investments and the public Company, correct?

Yes.

And that's about $1 million. If I think about the first quarter, second quarter, third quarter, fourth quarter, should I just take the quarterly results last year and add $1 million of expense to account for this new investment?

No.

And just allow the earned premium to flow through to cover it?

No, we have the personal auto team that is mostly gone now. All that's left is the claims staff and it's a very, very small claims staff. A little bit of systems and rents, things like that that are really small.

So that was layered on top of our underwriting, our new underwriting teams as well, so we were kind of hit with a double whammy. So with them gone, you should probably see things coming back down from the fourth quarter to maybe not exactly what we had in the first three quarters but maybe somewhere in between what was the fourth quarter and the third quarter.

Okay. And then just you mentioned the personal lines, the auto, can you please confirm that the last policy has indeed expired and can you speak to if there's been any new claim activity in January or so far in February?

Yes, I can confirm that the last policy was earned in November. We are seeing -- there is really, if I were to break personal auto into two pieces our biggest adverse development came from our Illinois book and that was about 65% of the adverse development.

That is only has 50 claims left, we are seeing no new emergence of any new additional claims so that one is really done. And we're very comfortable with the case reserves on that. The only place that we're still seeing new claims is coming from the Florida auto book which you would expect is still a fresher book.

But the last policy on the Florida book has expired, correct?

Yes, it has.

And that expired in December, correct?

I believe November actually.

And so you are still seeing in February new claims on policies that have expired a couple of months ago, correct?

Well, Greg, let me handle this, okay? The attorneys in Florida are very creative and we're seeing them come, go back on closed claims trying to collect additional dollars.

We have one in litigation right now that we feel we're going to win the case which relates to attorneys getting assignment of benefits from providers to sue for additional compensation from old claims. But our policy form is such that we believe that we're going to win. Some companies have won in court, some have lost but we've received a number of claims in the fourth quarter relating to that.

And we put up the reserves because we know we're going to have to defend them. If we win that case the res go away.

But that was something that was totally unforeseen by the marketplace. And it's just, it really cropped up in the fourth quarter and is new to the nonstandard auto market in Florida. And it's the attorneys down there came up with another way they are hoping to use the assignment of benefits to generate revenue.

The other thing keep in mind, too, this is Brian, Greg, that obviously in a runoff book you're going to have additional claims that just come in. The last policy just rolled off a couple of months ago. So that's pretty normal and we have IBNR for that that set up.

So what Jim has talked about I think we have a good position there, we put up the LAE that we feel is appropriate. But you will see additional claims coming over time as part of normal course runoff. And we have IBNR to appropriately reserve for that.

Okay, thank you very much for your answers.

Charles Sebaski, BMO Capital Markets.

Good morning. I guess I'd like to first get into the Personal lines business and how you think that that book can develop going forward given the contraction of expectations from wind exposed property in Florida.

So if I look at it in the quarter accident year combined ratio was 129%, kind of fourth quarter it's kind of elevated each quarter this year. I realize there's 5 points of excess expense from the auto runoff. But how do we think about this book getting to underwriting profitability?

Is that a 2016-type event? I guess I'm trying to understand how we get from the 130 here on an accident year basis into underwriting profitability?

Okay. We look at the different blocks of that business, the Hawaii homeowner, hurricane-only is obviously profitable. The loss ratios in our Texas Tier 2 are profitable.

The growth that we're having is in the Texas low value dwelling through I used his name before Greg Vanek in Texas, he came from National Lloyd's. That book is growing, that book has an historical loss ratio of sub-50. The problems came in the Midwest in 2014.

We completely re-underwrote that book. Andy Petcoff heads that division and he re-underwrote that book and the loss ratio on that, correct me if I'm wrong, for the year was about 70, Harold?

Yes with homeowners, yes.

It's down from 123, and we're going to continue to see improvement. If that doesn't improve to an acceptable loss ratio we will get rid of that book but that book has significantly decreased.

I think it was $4.7 million for the year in 2015 with writings that have gone down on a monthly basis because of our re-underwriting in that book. The second, the loss leader has been the nonstandard auto which is gone and the homeowners in Florida we have -- we obviously suspended any takeouts when we saw that the marketplace was competitive.

We are growing the voluntary with our long-term agents in the areas we want to grow. And we are re-underwriting that book, and by re-underwriting even the takeout book we're inspecting all of them inside and out to try and mitigate these water claims. We are very proactive on how we're going after these water claims.

We are not going to look for growth in Florida. We are just re-underwriting it and maintaining and only growing with our long-term agents that we have a history with. So we expect that loss ratio to mitigate as well.

So if you look at it as a whole the areas that were causing us problem, the nonstandard auto is gone, the Midwest homeowners has improved significantly, still has a little ways to go but we think we're on the right path. I think the fourth quarter, what was the loss ratio in the fourth quarter?

For the Midwest? It was 63.9.

So it continues to decrease. And as far as Florida we just have to address the takeout business and the water claims which we are all on top of, and we're not growing in those areas. So we expect 2016 to be profitable in the Personal line.

Okay, so you are expecting that the current track underwriting profitability in Personal lines, what would you expect given the investment in then on the expense ratio side? Obviously there are some claims from runoff.

The expense ratios is 65 points in the quarter and 40 points in the year. What should we think of on the expense side for a full-year 2016 basis in Personal lines?

Well, that's a good question. But if you think of the runoff we had a staff in Orlando that was running that business that was on board plus the addition of the other staff. So if you look at our total number of employees we're kind of decreasing in that Personal line staff in Orlando and we added these other underwriting teams.

We are currently staffed for growth. We don't see additional staff in our operational side.

As the premium grows we may have additional staff on the claim side but that's gonna come through in the loss ratio, not in the expense ratio. So from a staff standpoint and an overall overhead cost structure, we're perfectly positioned where we are to grow this Company significantly.

So expenses for -- the expenses should be static then, for all practical purposes then? Outside of acquisition expense should all be operating expenses should be static in 201 over 2015?

Yes. The commission side obviously we continue to work on and we're trying to manage that but we're not going to get a huge benefit there. But our underwriting groups are in place, so their acquisition cost as a percentage of earned premium is going to continue to decrease.

And like I said, we expect to grow and we're seeing it in the first couple of months of this year as we bring on the new -- as we have brought on the new underwriting team. Texas is performing as expected, our security guards is performing as expected and our quick service restaurant that not as outstanding but a very good January. And we expect that to continue to move forward.

And if I could clarify just one point, I agree with Jim that we don't expect our expenses to increase or stay flat. But if we look at quarter versus quarter because we did have a couple of different expense loads in different quarters we're going to fall somewhere between the third quarter and the fourth quarter. So the fourth quarter is a little high, it's going to come down from the fourth quarter but we don't expect it to go up after that by any great amount.

You know, Chuck, this is Brian. Just one thing. If you look at your segment report in the back I think you can really see some of this kind of broken out.

The auto line had 130% loss ratio and it had almost a 70% expense ratio and it impacted us by $2.7 million as a segment. So as Jim alluded to we've seen significant improvement in the low value dwelling line, that's as we've seen the loss ratio come down.

We also have not ramped up the Southwest division as much but we expect to see that come into line not only from a loss but as well as an expense side. And if you look at wind exposed, the expense ratio was 30% there and if you look at commercial lines, every single one of those particular lines has obviously made money and continues to do well. So I think echoing Jim's comments, when you see the auto rolloff move out, when you see the low value dwelling business ramp up and when you continue to see an increased incremental growth in wind exposed we truly believe that the Personal lines segment will be contributory in 2016.

Okay. And then I guess overall on a consolidated basis, interested in, I guess it goes along with the capital management that was talked about before, is the earnings profile of the business in total. I think when you guys did the offering and the expectations of the Florida homeowners book that was conceptually expected to be pretty rich business because it was cat exposed from I'm thinking often ROE kind of profile.

Now kind of growth is going to come from low value dwelling, some of these other lines. I guess I would like your guys thoughts or any color you can share on what you expect the earnings profile outside of growth to be and how do you manage around that.

What's your growth versus ROE and what's the balance, where's the trade-off on your focus and the lines that you're trying to grow? What's the return profile of that business?

Well, I'm just going to answer first from the standpoint of the growth and where it's coming from. I don't want you to think that those are the only three lines that are growing. We are adding agents that we had before in all of our hospitality lines.

The hospitality book of business is still growing at significant levels. Even in the state of Michigan we lost a competitor. And our growth in the state of Michigan is significant.

So our core business whether it be the old Northpoint business or these new ones is still growing at quite -- we still have a long runway on all of them. With respect to the earnings profile and now I'm going to let Brian talk to that.

You know, Chuck, I think we talked about a little bit earlier. So as people are trying to understand the Company more, Jim said it, we're targeting 30% to 40% top-line growth for 2016. And you're right, when we came out on the IPO we thought we had a better mix of business with the Florida business we anticipated.

We were calling for double digit ROEs. I think realistically as you look at 2016 I think we're looking at roughly a 7% ROE plus or minus. It depends on the ramp up of some of these teams and how good we are at managing our expenses.

But as we look at 2017 we believe we can be back to double-digit ROEs at that point in time. So we expect to be profitable significantly so in 2016 and we look to be back on the target that we had talked about before for 2017.

Thank you very much for the answers guys.

(Operator Instructions) Jeff Schmidt, William Blair.

Hi, good morning everyone. A question on the expense side and you kind of hit on how bringing on underwriting teams without the premium being there just yet, it's driving up expenses.

But when I look at more granular by line breakout in the investor presentation expenses look pretty good at basically everywhere outside of nonstandard auto and then low value dwelling. It looks like the Corporate & Other is way up. Is there some underwriting expenses in there even if it's for one of the lines that's kind of hiding in there or what's driving that to be so high?

Just to start out with regards to that, Jeff, we allocate to our underwriting lines of business based on our ability to do so. There's obviously a handful of people who will work on multiple lines of business and there's some overhead that we can't allocate.

So that would end up in Corporate. And so clearly some of our underwriting expense does still fall in Corporate as opposed to it being in the line business. But we do expect that that corporate charge to not grow proportionally with our written premium.

There's a lot of support on the overhead that comes with adding these new groups whether it's IT, internal and all of that support has a cost as well. But that cost is now a fixed cost at the top level.

Those fixed costs in the overhead are not going up and as the earned premium goes up, those fixed costs are coming down. So that's really where the issue is. Just having the structure for all of these underwriting groups to be successful is the cost that we're going to mitigate over time with the increase in earned premium.

Another factor is we have been very profitable for our reinsurer. And the reason that is when you're a new Company they look at exposure rating as opposed to experience rating. If you look at our loss ratios were consistent on our core business to be quite very competitive because our focus as a Company is on underwriting claims.

Because of that, on the multiline treaties that renewed we got a little bit of a benefit on that in the rate. And with respect to our cat which comes up in June, we've done some modeling and our book, the way it spread with Florida not being too big, looks like a mature book of business that's been around for a long time with a spread that very few people have from Florida to Texas to Hawaii.

Because of that we expect better terms and hopefully better pricing on that book of business when it renews. So if you take those things into consideration not only is the earned premium going up from growth but the amount being spent on reinsurance is going down.

So it's going to actually increase marginally the earned premium and lower expenses. So we're reaping the benefits of our focus on underwriting claims.

Okay, and could you speak a little bit about what you're seeing in the commercial auto space from a rate perspective? And where exactly do you play in that space, what type of risks are you focused on there?

So a large piece of our commercial auto book is driven by our auto repossession and towing program. What we've seen in that class of business pretty consistent with what a lot of people are seeing with increased frequencies. But at the same time we're also seeing our ability to take rate at renewal on that book.

It's an E&S book for us primarily, so it allows us a lot of flexibility on the rate side. And we've been very aggressive at achieving rate increases on renewals, especially with any accounts that have any type of claims activity.

And on top of that there certain states that have been more problematic than others and those states we're either reducing our exposure or taking additional rate. Florida would be a good example of a state that's been more problematic than others and where we've been able to get additional rate or for risks that don't warrant renewals, non-renewing that piece of business.

And keep in mind that the commercial auto line actually was profitable for the year even though there was reserve strengthening.

Okay, thank you.

There are no additional questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to James Petcoff for closing remarks.

I want to thank everybody for listening in today and we really appreciate it. We knew we had a tough quarter. We're disappointed in the loss development but we are very excited about where we are going.

As a growth Company we are focused on the long term. We're looking at being a solid underwriting and claims Company and as the premium grows we expect it will come into line. Thank you all for listening and thank you for your support.

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