EIG - Earnings call transcript Q3 2019 | Employers Holdings, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2019 Employers Holdings Inc. earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Lori Brown, General Counsel. Thank you. ahead. go Please

Lori Brown

call. available Officer; website, on Executive the me Good XXXX be Jimmy. our our Festa, being welcome, to of everyone, and Thank call Chief morning, for Doug will and With third-quarter our our Chief section Investors earnings from is Mike Officer. a are Paquette, Dirks, Employers. today the the following replay Chief Steve call webcast Operating you, Officer; the and where Today's recorded call Financial

Statements call on made statements are historical of on of that fact in Act These Reform provision the XXXX. made this statements. the during conference Litigation not Private safe harbor are based considered are Securities reliance forward-looking

are be and results to call and remarks set the we not the cause reflect actual Exchange different could materially forth the reasonable, with All will risks the time including expectations believe in forward-looking Although, the the development. updated to uncertainties Securities be of Commission. and our expressed call at from expectations, in filings risks subsequent are current during our statements made our

financial our the including Reconciliations Investors our these In metrics presentation the any release our non-GAAP our in investor or those to of Transfer, press release, questions, XXXX use may that to and and responses in exclude in are earnings Loss our included the our impact we LPT. financial of materials remarks Portfolio earnings metrics, website. of press non-GAAP section or attachment supplement as an other available

turn to will over call the I Now Doug.

Doug Dirks

all for you us Lori, and today. you, thank Thank joining

highly much aggressive middle attractive and to end the that of is smaller more results casualty remains a line market Notably, most pricing of our consequently behaviors. results the compensation to insurance, were expectations. year-to-date Within on favorable, highly line are third-quarter accident-year in and and competitive. we prone with basis finding be business were workers' continues property relative broadly a the Our the and

by less accounts. market, focuses we sensitivity to competition, recent the smaller is higher less This actions. with and to in Our business is confirmed resilient on We is direct-to-consumer our premium through remain the rate low-hazard therefore on middle unit Cerity, small for price and California retention partners more model sales alleviating it our changes. pricing or and Compared friction or the in characterized this despite business focused accounts high achieving are on our rates process, be platform. agency the eliminating persistency,

rapidly District open Cerity and is is the nationally. XX Columbia in currently expanding for states of business in

accelerated force, We on continue of well plan support execute both and IT our that as our of to digital customers. direct agency our development capabilities as and implementation benefit

annualized a During X.X% on adjusted the quarter, return we equity. delivered

the combined before We deferred impact by our delivered ratio the loss and current of per also X.X%. maintained our a grew at ratio XX.X% XX.X%, including book gain, the value of LPT accident-year share,

business premiums the pricing Our be and in rate to decrease adequacy, to the competitive the rate remaining in terms what trends committed proactive was top California impacted ensuring are in to remaining expected we marketplace. in market. undertook new recently was considered we negatively line of generally increases by of address while The unfavorable we in meaningful

I'll that and additional Steve the We the line requires to to ratio. over for the and even unfavorable our top expense on strategy. business new the protect margins, turn impact have continue if detail now that will on call actions have And

Steve Festa

business decreases the related and decrease million was premium morning. renewal increased is on down from existing rates, our new written in growth $XX to a continue the and growth. new X, Thank business XXXX. payroll of a quarter decrease audits in for or see as in last rate relative of policies, due in quarter writings to you, at The premium XXXX. we premium written over audit respect to to quarter final Doug, of were $XXX result year's third-quarter and decline for good premium, of the million July in third but California principally Net to With XX.X% which quarter slower the final effective net this

average with results the Our to XX% from growth same Employment be in period appear which quarter the for the noted for observations National is Report, months down three September last past year. line outlined in the ADP job the that monthly

over This state. related quarter largest decrease filing decreased directly increased million. premium California, July is quarter rate New $X.X X our to our in by that pricing

quarter $X.X over million California, new grew business quarter. Excluding by

trends pricing the continues premium for quarter. $X.X Importantly, we loss compensation workers' that but significant Renewal as be an strong evidenced increase million to remained favorable, believe headwinds persist. by

Our unit improved. retention also

at Our the up which rate in is is retention from current unit period. prior-year XX.X%, XX.X%

California renewal by At our California business retention increased small The Overall, our count on grew have contributors well, key this point, continues policy a renewal we rate our book. be persistency, strong to premium in in year-over-year especially in-force in X.X%. as to well been the as as basis, growth. rates our strong

state the Hawaii. entered the quarter, of During we

footprint. for As I'll of us not over our capitalize allows available With us. that we new to to discussion the footprint now a to Mike have a our result, results. business turn previously opportunities further partnerships that, were completed This our national financial and now call

Mike Paquette

Thank Steve. you,

was the ago. before ratio LPT LAE points X.X impact a the and XX.X% of of than loss lower third-quarter year Our

quarter, reserve prior to During of accident year million prior-year loss ago. we $XX million development development nearly recognized favorable the of favorable all a $XX relating versus years recognized

were primarily premiums written. projected result than agency a by third-quarter Our ago, incentive decrease XXXX commissions, XX.X% in reductions was directly of expense commission in points which impacted ratio a of a percentage X.X as lower year

digital XX.X% our meaningfully technologies of of represented with percentage earned Our those representing other operating the and increase, X.X% than ago. a quarter The expense with of balance and the X.X ratio and year point was underwriting of premium third-quarter higher expenses in development the for including capabilities, the reduction accelerated Cerity. implementation associated

worked past, far to As so a tighter results. discussed in expenses into and period, are these have accelerate we the with pleased the we

fourth as move we forward for expect our into into early We expense years greater to the quarter have XXXX. anticipated clarity and future ratio

Moving Net the ago. up investments. investment year was to for quarter XX% $XX.X a from million, income

yield our a credit portfolio total ago. was for pre-tax the maturities of Our A+ had duration X.X% our quality fixed portfolio. average securities quarter-end, on XX% At book X.X year an represented versus quarter the equity investments X.X% the investment of of and and other and

the investments prepayment variable due rate speed than changes Our as in reported current a as made securities. affecting our loans, lower duration to in we've well assumptions is year X.X ago recent bank mortgage-backed

investment from of XXXX, pre-tax of $XXX million gains. benefited months nine first the During we

by million year-to-date fixed by reflected driver of in million, which our increase book value equities reflected Our in our on investments increased statement. the value including These per in which $XX and balance share, of income portfolio sheet, maturities deferred increased other gain. the is $XXX on value our is investment XX.X% our gains primary and were

And for finally, during common currently and million. average the to million turn quarter, I'll our per back $XX at his price it stands at our that $X.X remaining $XX.XX we of final And share, of stock for remarks. share Doug with repurchased an repurchase authority

Doug Dirks

Mike. Thanks

to Frequency slower of pace view remains through at period. be to of to move growth, and unchanged. albeit in a and stable general cycle, we broad severity support currently favorable this our compensation than falling, workers' conditions continue the segment As recent the continue environment economic

we market mono-line nimble us have a monitor allows changes to and in data, perspective to As the to react experience, that tools conditions. quickly insurer, closely a and changing

open that the please. up And questions, call operator, to with we'll

Operator

Instructions] [Operator

Carletti Matthew JMP from with comes question first Our Securities.

Your line is open. now

MatthewCarletti

Steve Hey, Doug. few or good just for questions. a be morning. I first might had Maybe

the of the you Regarding break versus states kind apart California, of what get growth, ex newer rate in and are renewal versus production doing idea hopefully both retention business kind California can the actions an new California? we so can of

SteveFesta

Sure, Matt. I'll that. take This Steve. is

over the quarter, other prior new over saw business $XX.X year, was a the increase period for in million California million for in comparable So the premium production we states. down the and quarter last $X.X quarter,

saw states, in over states. also quarter XX% policy in count other in quarter, the those a We increase

standpoint, the percentage renewal, the of California, retention bit growth steady, premium in higher We've and on July obviously have especially, a particular, in our XX,XXX rate the we because count the of retention below. rate So since those slippage states. very percentage rates we've declines unit little at policy those than XX,XXX. on seen a the implemented other From the held seen up accounts hikes, above is

But attached the accounts higher that our the majority of were were sticking, that accounts, which to it. getting they're rate

California actually our the grew the in in the premium had so renewal quarters California, of prior So that more two year. we quarter, third we for

MatthewCarletti

a have we year even Okay, can impact that? going kind QX great. And what then number think the and forward. was premium about we year then more just as Very of get QX comparables the one audit this you maybe kind of helpful. Do maybe ago, so

SteveFesta

quarter came year impact though from still a into I change No, in year, premium from about that no. endorsement elevated that -- implemented, renewal XX% XX% declined do to some decrease. of about and came About seeing over audit even quarter the with came a What this that through processes. that. process they And of of quarter number know was growth, $XX.X the payroll is of slower we're growth, through that XX% the million the that we the last that moving numbers that third audit because of

MatthewCarletti

it. got Okay,

of that was ago like process maybe otherwise been. would a sounds because little bit it than So comp year tougher the have

SteveFesta

then Yes, into And of little normalize residual quarter, to a carrying year. that by that we expect to over next the true. fourth that's we'd expect see bit but

MatthewCarletti

just It's we of investment flows expectation interest in terms been do what rate, income. movements think -- just then to I now. of Mike, give forward Okay, captured a largely loan rate? run question, few next bank have quarters of that great. probably And NII net kind in rates this for already? in the of kind know Can variable seeing on portfolio been in about Has all going how has one we're one you we kind Or another that your need lately. us through

MikePaquette

as of and this loans a can change allocation the you increase million a the see, is investing had we of lot So mentioned. net you Matt, our in $XXX big as in roughly because so that bank income of in quarter

I change. rates we sure here of lot a we do probably I do. entirely we ago, much from are go where wouldn't decent year whereas But I'm think they a at not for quarter. than things were run how we're inflation expect where this until higher So currently from here sit rate a higher

Operator

Thank you. Hughes And Mark next comes our from question from SunTrust.

is now open. line Your

MarkHughes

thank did was $XX.X you decrease? the million magnitude you. The say of decreased. the Yes, audit Steve,

SteveFesta

Yes, that's $XX.X Mark, amount, quarter, the quarter million. over

MarkHughes

that say that? you was how change, did that And much technical of XX% was

SteveFesta

to is that. XX% due of that

MarkHughes

that say it then quarter sort of you normalizes... but this And quarter, Okay. is next and

SteveFesta

of process year-over-year of growth, the Yes, normalize that through because But XXXX. worked seeing make into growth I September, other referenced line very least before, but said want that with That we slowed clear, the will came and normalizes reports that XX% I out in so that we from I to as to the those change. came figure be that that of in we're way rate payroll of the our move as already. -- at one just seems still some has

MarkHughes

-- think did number. I'm you overall. gave renewal premium The I Yes. down. if not wrote a I you sure growth it And

SteveFesta

the million, including in was quarter over $X.X yes, premium Oh, renewal California. up the for quarter growth

MarkHughes

the renewal XX% so or book business, that your when just you the you that's of calculate existing retain unit And XX.X% Right. retention. premium,

$X.X and on million? change that cohort renewal the up is calculate You

SteveFesta

Right.

So growth renewable had last and rate because our is then have year We growth that we the of start in saw base a -- increase increasing our with. to book California renewal retention rate. really we on higher

increase we in those to million of $X.X rate other lead declining do environments characteristics business So the production, three states in in. the despite all renewal all

MarkHughes

Right.

here. we the it, So the the about that's really of issue audit kind when decrease think it's key

Your is up. renewal premium

is new the Your same down amount. about business

at So XX% of audit and Am it's properly? change. I the is premium process the that that looking

SteveFesta

Yes.

primary driver don't extrapolate If you outside million, production up We audit. look necessarily of at audit the but million down next $X.X what's the to renewal being the happening this new California volatile. be quarter. That's quarter. $X.X quarter $X.X can And million, and it's the production being this the up

for production, we The that production, of by new the business final quarter, outside saw the other September, out driven I growth new month California. business in states thing would call the on actually some the

MarkHughes

new business net in So you're growth production. saying

SteveFesta

In the month September. of

MarkHughes

year that or over year that... is Is

SteveFesta

year over -- to we Yes, that's comparing year this yes, over grew. prior, September year. September

MarkHughes

average don't I rate Okay. the gave think or pricing. average you

I or think you've time in in done can that share you otherwise. past around? California the this Anything

SteveFesta

the past on year decrease XX.X%. company we talked about Well, was rate the quarter average as and year whole, quarter for the for X.X% renewals the a in which was over over

MarkHughes

versus year. last XX.X% XQ So

SteveFesta

on and year on on then X.X% on year quarter. the the XX.X% quarter

MarkHughes

said trends California, I for than for what increase to speaking? driven outlook think you of is Am I that outlook have be rate properly? In about rate Okay. your roughly I the in rather your loss How need need California? going assume the to you is it's are loss competition. by that price rate thinking competition. And because your would losses,

SteveFesta

said us. and be Mark, Any this industry to prospective changed our more very, environment The Doug with in severity be reforms holding well stable. on California. very the three very as alluded call, up very we worth still seeing, as and seems appears before, of whole, loss to a favorable hasn't still earlier we're in even to The are frequency California data. Well, to months

we if filed think charged at charged rate, the since and lowest since charged rate, the call from on the California industry, data XX% look this out it's earnings rate and WCIRB. the but the XXXX that you comes is last rate down call, not I average in But XXXX

said do California the feel inflection the reached as where was for hikes that X. in we pricing to decreases point, before, have need rate we like justified we us So the the made effective July just

So pricing that has declined pricing so the of there just ratio loss several the change. deteriorating not will we doesn't past years that in a environment. the if the that feel has much, It's rate declined deterioration over the much be so course it's loss

MarkHughes

Is you're saying? what downside? the that on overshoot you Did

SteveFesta

that I so. that the is appropriate I that that Even into in though now just competitive trends rate a make I justified it past. did increase we we're in that. change. say the from we based to were think that we're standpoint, say we noticing without future decreases make visual to think time would it's on to that But think seeing are don't we taking the wouldn't very the July. that for the do rate way much occurred, that it's the time move now have time that think

MarkHughes

ask so thoughts strategy, in I'll Cerity? operating some the give ask you marketing how Cerity, out I and K more, you many. seeing Are of Doug, then And on strategy us distribution still to kind could one updated on metrics But any you're anticipating apologize breaking evolve? or your financials

DougDirks

results. wouldn't Mark, At stood any as this company not material as on We're getting out be focused we're really point, quickly up the breaking we It detail. to the can.

So in getting rate the getting licenses place, and done. form filings

we're XX indicated, states I now in D.C. As in

progress over made good we've So the last very quarter.

we day the or five added more Within that. last two, just states to

starting fairly roll quickly. they So are in to

on to which out. them. There but are to market what diligently and of prepared of the things to terms terms yet, of of the build We're not there's bit a in still we're are approach. still going comment trying get marketing, quite ongoing, number that certainly working very some we just testing are identify that to customers In of is how a on where I'm best

this overnight, to we but happen As inevitable. think isn't going it's we've said,

is taking either rapidly We're maybe the had expected. finding as shapes customers than initially not planned. different we one But we is market It is. different surprising as as developing that's this than

we a to meaningful results. be continue will before impact overall but So the sometime on optimistic, has this be it

Operator

with question next our And you. from Farnam and Scattergood. Boenning comes Bob Thank

now is line open. Your

BobFarnam

be plan going for agent I morning. insurance good Or using use fashion independent forward? in and guess not Do question going able pricing to the to the thanks, as Yes, on on business? Cerity are a Cerity comments. another your you follow-up you company, Cerity, that tier

DougDirks

a It the separate we Employers are another that not are doing of of distinction. are at we're is And aware certainly customers. point, is for different other different a Yes, that. from different There there has in of pricing agents. this significant channels tier companies channel, our all that's think companies. of pursuit a customers. we think It rate that. other We're unique but It different as planning it And don't filing.

BobFarnam

increase X/X, in you charged Okay. I missed you you -- did And amount rates it, effective me pardon if go California the but the of have rate -- up? the did much how any did

SteveFesta

up. it Yes, went

depended upon territory. it the So

price for the four is We we a have whole in as about that territories The state net X%. California.

BobFarnam

-- a Los Okay. seems like assume seems And of there County and I the more high litigious to -- the of it so always more down the state? kind -- more rates lower Angeles be environment, the rest rates

SteveFesta

in rate is the L.A. higher the right. in you're higher the Bob, of rate than rest increases -- exactly the Yes, state. L.A.

BobFarnam

kind own? Okay. is any competitors Or you your following And on of have suit? still you standing guys this seen

SteveFesta

yet, competitors in not is I'll compared very when any what their seen call yet. have filings we raise what haven't recent just some seen moderation rates their recently we noticeable to filings. Well, But previous of

we're call movement that I out that So a as would noticing.

Operator

Bobman question with next comes Our Capital from Returns. Ronald

now Your open. line is

RonaldBobman

Hi. Thanks it's rate to tough a zig when else is action lot. your everyone And I zagging. applaud in --

So Could had that it's last on about you referred competitor that you to quite action. impressive. expand point

of with I sort specifics? saying think that little sort could expand of more moderating, on you you bit a

SteveFesta

Sure.

have than and you up, it recently when flat but we've out company, at and recent least lower companies a called decreases We historically you'd you if it the say to to data their four calls that not what California that I point other several percentage I saw flat, would see with in doing companies where one pretty at respect The that was noticed are the filings. you last in have see out moderation the filing moderation, of look in a it where years, some this And noticeable the some filings, three -- when back looked at seen. filings. what -- play we into access decrease case rate comes large to but much

I'm that's say to. I what referring when noticeable So moderation,

RonaldBobman

I many And the offering of of of think of in following sort the credits company, a the filed bit fair latitude of past, that sort to us companies you all on Okay. years sort debits educated over rates. have and

And rate could should issuing think that credits? so to that filings you when sort of dwarfs I when about effect -- not of issuing or way flexibility you here, speak action that by otherwise sort companies of speak that

SteveFesta

correct. That's

RonaldBobman

Okay.

SteveFesta

That is correct.

Q&A of End

Operator

I'm Doug questions to I'd to back remarks. queue in any further the And this you. like Thank time. showing turn call the for at Dirks closing no

Doug Dirks

today. Again, for the Very participation the good. your with pleased Thank you, we're very results quarter. everyone, for

to the doing right what strong the we have a day. thought pursue results. Have and year speaking you is we our move very continue doing we're Thanks. participating. in it continue It's And conviction a Thank next what would. again, for California strategy. that look you early with to to We we will to exactly forward year-end all, great

Operator

Ladies and you today's this call. for concludes conference gentlemen, Thank participating.

now disconnect. may You

Lori Brown	Executive Vice President, General Counsel
Doug Dirks	Chief Executive Officer
Mike Paquette	Chief Financial Officer
Steve Festa	Chief Operating Officer
Matthew Carletti	JMP Securities
Mark Hughes	SunTrust Robinson Humphrey
Bob Farnam	Boenning and Scattergood, Inc
Ronald Bobman	Capital Returns

Employers (EIG) 26 Oct 192019 Q3 Earnings call transcript