Presurance Holdings Inc (PRHI) 2016 Q2 法說會逐字稿

Good morning, and welcome to the Conifer Holdings second-quarter 2016 investor conference call and webcast.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Adam Prior of the Equity Group. Please go ahead.

Thank you, and good morning, everyone.

Conifer issued its second-quarter 2016 financial results after the close of market yesterday. On the Company's website, ircnfrh.com, you can find copies of the earnings release, as well as the slide presentation that accompanies management's discussion today. If you're looking at that presentation via the webcast, you may find the slides are easier to read in large-scale 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 expect 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 subsidiaries. Actual results from Conifer may differ materially from the results anticipated in 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 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 the statutory accounting rules, and therefore are not reconciled to GAAP. We will conduct a Q&A session after management's prepared remarks this morning.

With that, I'd like to turn the call over to Jim Petcoff, Chairman and Chief Executive Officer of Conifer. Jim, please go ahead.

Thank you, Adam. Good morning, everyone. Joining me from the management team today is Brian Roney, President; Nick Petcoff, Executive Vice President; and Harold Meloche, our CFO. I'd like to begin with a quick business overview, and then I'll turn it over to Nick for some insight regarding our underwriting results. Harold will then follow up with a brief commentary on our financials. After I'll return for a few closing remarks, the outlook for the second half of 2016, and then we'll open it for any questions you may have.

If there's a theme for the second quarter of 2016 at Conifer, it is continued strong organic growth with improvement across each underwriting metric. The initiatives we've put in place in the latter half of 2015 are gaining traction, both in bringing seasoned underwriting teams in, and in expanding our specialty products. On the top line, Conifer reported an exceptional quarter with almost 30% growth in gross written premium for the period. This is the highest quarterly premium volume totals since our inception in 2009. We achieved the growth in each of our business lines with considerable increases coming from our commercial liability business, focused on specialty niche products such as liquor liability and security guards, and complemented by growth in our personal lines low-value dwelling business.

An example of this growth can be seen in the success of our liquor liability products. This has been a specialty of our management team prior to founding of the Company. And since launching Conifer in 2009, we have steadily been building this book. Our value proposition is that we can provide a higher level of direct service to our independent agents, who's customers are increasingly seeking a one-stop shopping approach with a bundled package to cover all their property and liability-related needs. With our operating experience and the help of our agency force, we believe we are uniquely position to understand and better serve these niche markets.

In addition, we can leverage years of data and personal service to properly price these products, while tailoring limits and terms to (inaudible) risk profile. In addition, we are nimble enough to operate in specialty markets where big carriers aren't as effective, and yet we are large enough to be able to provide bundled insurance packages that smaller companies cannot. Aiding us in this effort are long-standing relationships with hundreds of agents that specialize and serve as both advocates of the Company and as additional data source to properly gauge trends and price. As a direct result, in the second quarter we grew to be the largest writer of liquor liability Michigan. And we are expanding this leading market position to select states nationally. While we have not yet achieved the underwriting profitability we ultimately expected based on our historic loss trends, we are encouraged with our progress over the last few months.

The majority of our lines of business are operating at loss ratios that are consistent with our expectations. A few select areas require more direct attention. We have taken appropriate measures to address the areas of concern. And are now seeing a clearer path forward toward profitability overall. While Nick will go into greater detail about these specific measures taken to date, I'll take a moment to address them initially.

In the second quarter we continued to take a conservative approach to reserving for commercial auto and Florida homeowners business, which did affect our combined ratio in both the first and second quarter of 2016. In commercial auto we have implanted significant rate increases increased coupled with underwriting enhancements that are now close to a full year of renewals. These have already had a decided impact on this line of business.

On Florida homeowners, given the results of the market as a whole, we feel validated in our decision to slow expansion in 2015. We began to experience unfavorable loss results found entering the market. In many ways, we feel we are ahead of the broader P&C market in the region, and regarding the assignment of benefits issue in general. This worked to our detriment initially, as we were reporting losses and increasing reserves at a time when others were reporting stronger results. Now we're starting to see tangible progress and continue to individually address our business needs, and are finally seeing the industry starting to reflect what we have already mentioned in previous calls. Through disciplined underwriting we have taken the hard steps to improve our Florida results, and feel better positioned.

While our focus remains on achieving consistent underwriting profitability, we are seeing an ongoing improvement across the board from an underwriting perspective. And we continue to grow our earned premium rates and drive down expenses. The investments in integrating underwriting teams into our fixed infrastructure temporally inflate our expense ratio. But we have been seeing marginal improvement sequentially over the past three quarters and feel there is considerable run rate for the continued progress as we grow to a more efficient scale. In summary, with our core [niche] business developing nicely and a growing top line, continued potential downward improvement in our expense ratio, we expect better line -- bottom line going forward.

With that, I'd like to turn it over to Nick.

Thank you, Jim. I'll take a few moments to highlight our operating performance for the period and provide some additional granularity on our business.

For the second quarter 77% of Conifer's gross written premium came from our commercial business, with roughly 23% in our personal lines. We are equally committed to growing both sides of the house, but our ultimate focus is on developing a properly balanced and diversified book that outperforms across market cycles. We feel this balance gives us the best opportunity to drive our bottom line and outperform our peers over time.

Let me first begin with our commercial lines. Commercial line gross written premiums grew by 25% to roughly $23 million in the second quarter of 2016. The majority of the year-to-date growth came from the commercial multiperil and other liability lines, which together grew by approximately 29%, largely from the expansion in our hospitality and security services liability product line. We have enjoyed continued success in growing into a leadership position in our select niche markets. For example, our liquor liability progress -- products are still one of the main drivers of our growth today, as seen in the quarter. Liquor liability will continue to drive premium growth going forward as we add additional offerings for our craft beverage program, which includes microbreweries, brew pub, and distilleries. To help further drive our results, we have been reengaging in specialization throughout the hospitality space, with whom we have worked previously with favorable results.

In addition to liquor liability we saw strong growth from our security services book as well. This covers general liability for security guards and private investigators. This is another niche where we have leveraged our past experience with a strong set of relationships with agents that understand what Conifer can offer. This team started ramping up its business in 2015 and has almost doubled since inception, with strong growth expected for 2017 and beyond. This line is a solid complement to our current line of commercial offerings. And the associated team has a strong reputation within the agent community.

Moving to our commercial lines underwriting results, we're seeing improvement quarter to quarter that our combined ratio is still higher than target. Impacting the commercial combined ratio in the quarter was additional reserve strengthening within the commercial auto segment. When looking at our results as of June 30, 2016 and comparing them to a year ago, we are seeing an average increase in our repo towing premium per policy of roughly 22% overall. For the same period, June 2015 to June 2016 comparison, total in-force policies for the repossession towing program are down almost 30%. Coupling an average premium increase of almost 22% with a reduction of policies in force of roughly 30%, we feel we are much better positioned for positive results going forward. Even with the additional reserve strengthening in the quarter, our commercial lines loss ratio remains consistent and strong at 56%.

Moving to personal lines. For the period personal lines, which consist of low-value dwelling and wind-exposed homeowners insurance, represented approximately 23% of the total gross written premiums for the second quarter. Personal lines gross written premiums increased by over 45% in the second quarter of 2016. This growth is coming from two areas, low-value dwelling and wind-exposed homeowners products, mainly in states such as Hawaii and Texas.

Let me start with the wind-exposed homeowners market, which is the largest portion of our personal lines business. We have achieved exceptional operating results in both the Hawaii and Texas books, especially given the level of catastrophe activity experienced in Texas this year.

Jim noted this earlier, but let me speak a little bit more on Florida and our current business there. We have been affected on two fronts in this market. The first was increased competition from new entrants. And the second is ongoing industry issues surrounding the assignment of benefits that has affected this space. As we have noted in the past conference calls, we began see this trend affecting our business in 2015 and immediately started to both slow our rate of growth and redistribute our policies in the regions of the State that have not been as adversely impacted.

For the quarter our personal lines loss ratio all-in was much higher than planned at 78% driven mainly by the aforementioned AOB situation in Florida. In efforts to mitigate AOB concerns, we have hired Florida specific experienced property managers and added boots-on-the-ground adjusters. In addition to the personnel changes, we've adjusted our claims adjudication process and revised our reserving guidelines and procedures to address the systemic and industrywide phenomenon. Moreover, our Florida homeowners average case reserve is up 57% since last June.

We feel that we are seeing traction with our ongoing efforts, and we are starting to see a decline in the claims activity here. Finally, we received approval for policy (inaudible) changes adopted by citizens in order to limit our exposure to AOB claims moving forward. We feel that we will see continued progress as a result of the actions taken in both claims and underwriting for this line.

In addition to wind-exposed business, much of our personal lines quarterly growth was driven by our low-value dwelling business, which performed well during the period, increasing gross written premiums by 69%. This is a homeowners and dwelling fire insurance product that is tailored for owners of lower valued homes. We'll be expanding in the coming months into other regions of the US beyond our current States of Texas and Louisiana. In the short term we were impacted by the additional reserve strengthening in the quarter.

We still generated a solid overall loss ration of 61.7%. While our operating results were impacted by a higher than projected expense ratio due to lower earned premiums as a result of underwriting discipline in Florida, we continue to see sequential improvement in our expense ratio. Our expense ratio will continue to trend downward as we actively monitor and control our expenses and continue to grow our earned premium base.

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

Thank you, Nick. As the financial results and balance sheet information is fully detailed in our press release and quarterly filings, I will only briefly go over a few highlights, while welcome any specific questions during Q&A.

Conifer reported gross written premiums of $29.7 million, a roughly 29% increase over the prior-year period. And as Jim mentioned, our highest quarterly premium volume since inception. Net premiums written increased 64% to $26.2 million. And net premiums earned increased 43% to $21.7 million. This was largely the result of both higher gross written premiums and the termination of the quota share reinsurance treaty in August 2015 that had been put in place effective December 31, 2014. Again, these changes to our reinsurance program have a substantial impact on the financials of the Company, as we are retaining more of the business we write and expect net earned premium growth to remained elevated.

The Company reported a combined ratio during the period of 109.7% compared to 97.7% in the prior-year period. Our loss ratio for the quarter was 61.7% and was adversely impacted by 6 percentage points in the quarter due to reserve strengthening in our commercial auto and Florida homeowners lines, that Jim detailed.

Moving to expenses. We reported an expense ratio of 48% during the quarter. We believe that as we achieve scale, earn, and retain more premium, this ratio will continue to improve and decline. We do not anticipate any additional underwriting teams coming onboard for the foreseeable future. And we remain focused on vertical growth in our existing niche markets. We were pleased to see the sequential progression downward for the expense ratio, 54% in the fourth quarter of last year, followed by roughly 50% in the first quarter of this year, and then 48% this quarter. That is a 600 basis point improvement since the end of last year.

But we understand that there is additional work to do to rationalize expenses and achieve our long-term goals. As we noted in the previous call, we are anticipating a steady trend downward each quarter of 1 to 2 percentage points for the expense ratio. When we achieved the 1.8 percentage point improvement from Q1 2016. This ongoing downward progression will be largely dependent upon our continued ability to manage our expenses and grow net earned premiums.

Moving quickly to the balance sheet. While we have experienced additional reserve strengthening in the second quarter and for the six months, our cumulative reserves have remained redundant over a five-year period. We [topped] total assets of just over $200 million in the quarter. And have cash and total investments of $147 million.

We maintain a conservative investment strategy, with 97% of our portfolio currently in fixed income security with an average credit quality of AA, an average duration of three years, and a tax equivalent yield of just over 2%. We have conservatively managed our investments with the objective of protecting capital while we expand.

On a tax note, the $623,000 income tax benefit was primarily due to the tax effect of the change in unrealized investment gains, which is included in other comprehensive income. However, the corresponding change in the valuation allowance on the deferred taxes runs through the income statement. As of 6/30 we had a valuation allowance against our net deferred tax assets equating to $0.75 per share. That $0.75 a share is not reflected in our book value, which was $10.03 at quarter end.

With that, I'd like to turn it back over to Jim for closing remarks.

Thank you, Harold.

We made significant progress during the second quarter, particularly in recording very strong organic growth including the lines of business principally launched in 2015 ramping up as anticipated. With underwriting and claims enhancements in place, we have started to turn the corner with regard to the adverse development that affected us in the first half of the year. And through it all, we have built a strong and growing premium base in diversified niche products.

It's fitting to mention that tomorrow is the one-year anniversary of the pricing of our IPO. While the first year as a public company certainly has been a challenging one, the basic premises of what we are building at Conifer still holds true. As a specially insurer, we feel that we can leverage our underwriting teams' unique past experience to achieve better financial industry loss results. Moreover, our management team has years of success in underwriting our core lines of business. And we have cultivated these agency relationships for decades.

Our initial focus has been to recapture our shares of these market and then exceed it through three geographic expansion. We will then marry these -- this with newer point-of-sale operating systems that are not weighed down by the antiquated systems of the past to drive greater operational efficiency. Our goal for the remainder of this year and beyond is to execute on this initial thesis and achieve improved book value per share over multiple years, higher ROE, and ultimately improved value for shareholders.

Now we're ready to take any questions. Operator?

(Operator Instructions)

Greg Peters, Raymond James.

Good morning everyone, and thank you for the call. I had a couple questions for you. And pardon me, I know you were flying through a lot of information in your prepared comments. So we're going to go back to some of them. First of all in the commercial auto business, how should we be thinking about that going forward? I mean, it's become -- it's been an area, source of problems for you. And it's also an active book of business. Is it a shrinking business for you? Is it a stable business that you're just getting price in? Try and fill some blanks for us on that for us, please?

Sure. In the commercial auto business there's really two distinct areas. There's the commercial auto business that's everything other than other than our towing and repo lines. The towing and repo line is where we had experienced some adverse development. And the adverse development really comes from our claim staff not necessarily -- our case reserves becoming greater than they were initially.

We've realized this. We increased our rates, lowered our -- changed our underwriting results. And Nick is going to talk to this. But in general that book of business is where the problems have existed. The other book of business, the rest of our commercial auto, runs profitably.

So, Nick you want to?

Yes. In terms of looking at that book moving forward, and specifically the auto repossession and towing book that Jim mentioned, it's not a line that we are actively growing. Premiums are relatively steady, but that is because of those actions we've taken on rate increases for renewals. We are nonrenewing underperforming accounts in space that were giving us the most issues.

We don't see plans to actively grow that segment until we feel comfortable that we have the underwriting and claims expertise to grow that profitably. So in the near term we are taking a hard stance on renewal with rates, as well as from changes which we've made. We are starting to see some progress in those areas. And once we feel that we have an acceptable profitability in that segment we may look to grow it. But for now it's a steady book with the changes. And we're seeing progress on that.

Okay. Thanks for that color.

The other area that comes into view would be the growth of the low-value dwelling business, especially when in the past several months there's been such high-profile catastrophe announcements coming out of some of the other larger companies. As you grow this business how should we think about that type of exposure to tornadoes and hail damage and things like that, just from a perspective of operating performance as it grows?

Well, I think the first thing you got to look at is who's underwriting that business and look at the history that Greg Vanek has in those areas. And he's the underwriter that's been doing it for a long time.

Secondly, the low-value dwelling business, we have the benefit of being able to write this on a surplus lines basis. And the terms and conditions we can put in have kept us from having unfavorable losses in the current hailstorms.

And I'll let Nick expand on that.

Yes.

In addition to the form changes that -- they're not really changes, but forms that we implemented at the outset with that book of business that separate us from some of the other competitors, we have also taken a very measured approach to growth, not only within the State of Texas but in terms of other states. So we really working on it.

Similar to the wind exposure, we want a very balanced portfolio from a geographic standpoint to [employ us] somewhat from the variability in weather in certain states. So Texas was the first state where we rolled that out, early to mid-2015. We expanded into Louisiana earlier this year in a very measured way. And we're looking, as we mentioned on the call, to other geographic areas that don't correlate with similar perils that you see in Texas and the parts of Louisiana where we are located. And those include areas of the Midwest, also the Southwest.

But in all of the cats that came through Texas, we have not experienced -- we did not have cats, not even got close to our retention in that area. The loss ratios in Texas, although they are little bit elevated this year, they are still within acceptable ranges. So we think that the selection process and the forms that we have, have helped us avoid the problems that other companies have experienced.

Okay. The final question would be just around revised projections going forward in the context of when you expect to become profitable. Is it going to happen this year, or do we have to wait for another year? And then secondly, how do we wrap that around capital requirements, considering your continuing growth?

Good question.

We expect to turn the page in the fourth quarter of this year. And as far as capital, we're thinking 12 to 24 months, depending on how the growth continues. As you can imagine, when we have an issue like the Florida homeowners or we had the issue with the Midwest homeowners, we directly attack it and we go after it from all angles. And we look at all the expense components of those and try to minimize the damage on those issues. And we try to address it right away and put up the reserves necessary to get there. So we believe in the fourth quarter we turn the corner. And we believe that if our growth continues and we're able to continue to write the business that we want, we think sometime in the next 12 to 24 months we're going to have to make a decision on what we're going to capital-wise.

All right. Thanks for the answers.

Thank you, Greg.

Charles Sebaski, BMO Capital Markets.

Good morning.

Hey, Chuck.

A couple questions on the personal lines business.

One, could you tell us what's the outstanding reserve base on the Florida homeowners book that's kind of in, I don't know if it's really runoff, but seems to be kind of stagnant? And what's that book marked to on an ultimate loss ratio basis? I'm just curious, what is the potential for further development on the Florida reserves? Where are we to ultimate losses?

Yes, Chuck, can I take a moment to give you just a little bit of a color on that book in general? That AOB problem is a recent phenomenon that people are still grappling with. And that occurred in 2015. So if you think about it, when water claims came in, we were used to reserving for water claims based on our historical knowledge of how they develop. The AOB issue has taken them to a new level. So as this has transcended, whatever reserves we put up last year we have had to increase on those cases to get them equal to where we need to be for those claims.

So when we do that, it's going to show up as development. But you're talking about something that started last year and is going into this year. This is not like a 10-year issue where we have been under-reserving these for 10 years. So what we've done is we've done all the studies we can in figuring out where these are coming from, how much they are costing, and of course we are doing all the things we can to mitigate them and changing our policy forms and working on the expense structure. And also working with our legal team to try and figure out how to attack what we consider to be the fraudulent aspects of these claims.

So we are reserving them today at where we think the ultimates would be, based on our current knowledge. We didn't have that knowledge last year when we are setting reserves.

So is there a potential for additional development in these claims? Yes. But remember, we only have 3,300 outstanding policies that are in that area that have a potential for problem. And yes, we're getting a large number of them have water claims. But this is not going to be a multi-million dollar issue.

This is going to be a couple hundred thousand here or there, in my opinion, going forward as we continue to update those reserves and work on those claims. And because of the great influx and the quickness of which they came, it's taken us some time to get the infrastructure in place to handle them as well.

So yes, we believe that there will be a little bit of development going forward. We're trying to grab our hands around it so we can once and for all put it to bed. But this is a current ongoing issue within the industry. And I can tell you, Chuck, we have done everything possible form-wise, expense structure-wise to get this as much under control as possible.

And what's fascinating to me is the fact that we took out, I don't know, maybe 6,000 or 7,000 policies and other people have taken out hundreds of thousands of policies. And these numbers have not quite shown up yet in the industry as a whole.

So it's going to be interesting to see how other people grapple with this. Because we have a very small book of this, and we're trying to do it as efficiently and quickly as possible to get a handle on this. So will there be some? Yes. Will it be a multi-million dollar issue? No. But there'll be some.

I appreciate all the color. Can you give us what the loss pick is? What's your ultimate loss pick on this book of business?

What I can tell you is, I mean, the loss pick changes from period to period. But what I can tell you is our current estimate year to date loss ratio is 23 percentage points higher this year then it was at the same period last year. We are definitely at a much higher loss ratio for the accident year, and then obviously on top of that you have the adverse (multiple voices)

But that's reflective of our change reserving on those cases as they come in at a much more adequate level. That's why the development is going to go down. We still don't know -- because of the changes we made we're actually seeing a slight decrease in the number of claims coming in. So it's kind of hard for us to put a loss pick -- I mean, but our loss pick for this year, I don't know. What is it? we are at --

75%.

75%.

Okay. And I appreciate the color on talking about fourth quarter. On a consolidated basis you expect to return to, I think, consolidated profitability. But within the personal business, what is the expectation that franchise -- when I look at it, it's obviously smaller than the commercial. And so some of the effects of expenses and everything else, but are you expanding in different states?

It makes me think that the expenses are going to continue to run high as you geographically expand. And so just appreciate any color on the expectation of the personal lines business getting to more of a run rate, and what you think that might be able to be on a combined ratio basis?

Okay. When you look at expenses, there is the variable cost, or the acquisition cost, and there's fixed cost. There's no more fixed cost going into that book of business. All that comes in from that book of business is variable cost. So there's huge economies of scale as that book moves forward. It's just the front-end acquisition costs on that book.

And really the only part of that book that is giving us heartburn is the Florida homeowners. So once we can finally put that, and I'm not saying we have it totally under control because nobody has it totally under control. The legislature in Florida is going to have to make some changes to get that book of business. But if that doesn't get under control, we're not going to be in it. So everything else is totally -- is running right now at acceptable levels. So anything that going forward, the expense side, it's just the acquisition costs.

Okay. But the accident year combined ratio's 109% in the quarter, right? And I would imagine that you expect this book to run in the 95% kind of basis?

Yes.

So at current growth rates, what is the expectation that this gets to be a 95%? I mean, you don't think that you're going to be able -- do think you're going to be able to get that business to profitability by the fourth quarter?

We expect that the expense ratio continues to go down by a couple hundred basis points per quarter. And if that continues to go down by a couple hundred basis points -- the first six months of any year is going to be our worst six months for the property side. So when you look at the personal lines and you look at the commercial properties, those are the six months that have the highest amount of potential for storms and cats and stuff in the Midwest and where our commercial property is.

So we expect on the personal lines side that the loss ratios will improve throughout the year, as they have historically. The first half of the year has always been worse. So as those improve and the expense ratio goes down, we think we can get the profitability, not just on a combined basis, but very close on the personal lines by the end of the year. And as we continue to move in Florida and make those changes, which is actually decreasing our footprint in Florida, we expect that to become less and less an issue because the loss ratios on the other books of business are in acceptable ranges.

Excellent. And then finally on the security guard business, obviously it's coming along nicely. Where is that, and I apologize if it's in the presentation. I'm away from my desk. Where is that book relative to what the expectation is? Or what's the runway still on the security guard business relative to the long-term expectation? I know it's early, but any color would be appreciated.

Sure, yes. It's on task for this year in terms of meeting our expectations. It'll be probably will be right at our expectations for this year. We have partnered -- we have a partner now on the work comp side of that business, which is very helpful to us. But there are still some key space where we need to find a partner, and we've been talking to a few different carriers about partnering with us on the work comp side that will open up additional space for us. So there's still a significant runway. We've been very measured in terms of the distribution of that book through mainly our retail specialty partners. We definitely have runway if we choose to move towards the wholesale route, which is something that we've look at next year. But we are very happy with the progress of that book this year. It should be on task. And there's still a significant runway.

Yes. That's a significant portion of our commercial book, but it's still 10% to 15% of our commercial book. And that's where we expect it to be. And we expect it to grow to keep up with the growth of the Company overall.

Excellent. Thanks a lot for the answers, guys.

Thanks, Chuck.

Jeff Schmitt, William Blair.

Hi. Good morning, everyone.

Hey, Jeff.

Some of my questions I think were answered here. But the nonstandard auto book, I think on the last calls you had mentioned there were 200 claims outstanding, or case outstanding. Could you give us an update on where that stands?

Yes actually we are now I think at roughly 145. It continues to move, as we thought. And as you can see there weren't any prepared comments relative to it because we were slightly favorable on the quarter relative to our reserving. So we feel like that one's pretty much put to bed.

Okay. And then with the issues going on in Florida with the assignment of benefits, what are competitors doing down there? I mean, are you able to push through pretty substantial rate increases on the business? How are people handling it?

I'm going to let --

Go ahead.

I was going to say, Nick -- Andy Petcoff's in here, too. And he runs that division. So Andy, do you want to answer that?

On the rate side there are carriers that are filing for rate increases. We filed for a rate increase on the voluntary business of 7.9% and are currently working on the assumptions rate filing, which will show an increase. We haven't exactly fleshed what the total will be on that one. But we are also doing changes to the forms like mirroring the citizens form on the assumption book, which has already been approved for Conifer and will be implemented.

What about on the claims side? What are competitors doing?

On the claim side, there are some things that you can do. One of them, which we working on now and which we have implemented, which is reviewing the water mitigation bill and to what extent the usage of those are for claims. So what we are finding is that a lot of times there are over-used measures to mitigate the water loss, which is where we are being able to negotiate down some of those claims.

Are we doing everything other competitors are doing, or is that --

We are doing what we believe is everything that all the competitors are doing. And we are trying to take some other measured steps as well.

Yes. I mean, we are doing everything we can. In addition, Jeff, it's 3,300 policies. It's not like it's 100,000 policies. And is it a problem? Yes. And is it causing us heartburn? Yes. But we have -- we've assigned one of our attorneys, this goes back 6 or 8 months, who is continuing to look at every possible avenue and continuing to monitor what every other competitor is doing to try and mitigate these claims. And there's no one answer. We have hired, obviously, the best people we can find in Florida that come from different companies. And what we found is, they take different approaches on these types of claims, whether it be mandatory arbitration versus going the legal route and how do you pay for the attorneys. And one of the things we are doing, and this crosses the line into our commercial business, we litigate our own claims in house Michigan. We are setting up that type of facility in South Florida.

Now, it's going to help both in the personal lines, but it's also going help us in the commercial lines to control the costs and have a better handle on each and every one of those claims, whether they be the GL, slip and falls, et cetera. So we are doing the things that have been successful for us in other areas. But we're also looking at what the other competitors are doing to try and make sure that we don't miss something.

However, this is an ongoing problem. And until really the legislature makes a change, this is going to be a massive problem for the Florida homeowners market.

But I think it's important to point out that as a percentage of our business, personal lines was 23% of our business, whereas commercial lines was 77% of our business, and was running at a 56% loss ratio even with additional reserve strengthening. So I think Jim's point here is we would like to echo, this isn't a diminishing book for us.

We are deemphasizing, obviously, those areas. And to earlier to Chuck's point on personal lines, where do think you're going with it? We think over a market cycle that's how you have to look at this business. Because personal lines can be additive over time and can help drive down the loss ratio. We just haven't seen it, given some of the things that have been existing with Florida. So we are deemphasizing Florida.

Okay. In the commercial segment, I think the press release, it said a majority of the growth came from commercial multiperil and workers comp. I think Nick had said commercial multiperil and other liability. Is it sort of all the above? I'm trying to figure out the workers comp premium (multiple speakers).

Yes, actually CMP and workers comp together was 50%. CMP and other liability was 29%. So actually you are seeing growth in those areas. But do you want to talk specifically, Nick?

Yes. As it relates to the work comp, that's growth supplementing our commercial package business on hospitality, primarily. So we added a second state. In addition to Michigan we added Montana in the second quarter to supplement our commercial package business on hospitality. And that's something we will continue to do. We are looking at Oregon as a state coming up. And it's really one of our differentiating factors for agents in that class of business is the ability to sort of one-stop shop with Conifer where they can get the commercial package, their liquor liability and work comp under restaurant, bar, tavern, which is pretty unique in the marketplace. So when you see the work comp increase along with CMP and other liability it's primarily revolving around that class of business.

And we're not looking to take work comp and jump into it nationally or anything like that. As Nick said, it's purely a support to our other business.

Got you. And was any of that workers comp growth in Florida at all? I'm just curious on what the (multiple speakers)

We don't write work comp in Florida.

Got you, got you. Okay. That's all I had. Thank you.

Thanks, Jeff.

(Operator Instructions)

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

Thank you. And I appreciate the questions. I appreciate everybody's interest in Conifer. We really believe in everything we told you today. And we really look forward and are excited about the future. So thank you, and talk to you again next quarter.

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