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Edited Transcript of BWINB earnings conference call or presentation 6-Nov-19 4:00pm GMT

Q3 2019 Protective Insurance Corp Earnings Call

Indianapolis Nov 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Protective Insurance Corp earnings conference call or presentation Wednesday, November 6, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeremy David Edgecliffe-Johnson

Protective Insurance Corporation - CEO, Principal Executive Officer & Director

* John Richard Barnett

Protective Insurance Corporation - CFO

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Conference Call Participants

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* Brett Reiss

Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor

* Jayme Clark Wiggins

Palm Valley Capital Management LLC - Founder, Co-CEO, Chief Compliance Officer & Portfolio Manager

* Ronald David Bobman

Capital Returns Management, LLC - President

* Steven Spence;RBC Capital Markets, LLC

* Marilynn Meek;MWW Group

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Presentation

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Operator [1]

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Greetings. Welcome to the Protective Insurance Corporation Third Quarter 2019 Earnings Conference Call. (Operator Instructions)

Please note, this conference is being recorded. I'll now turn the conference over to your host, Marilynn Meek. You may begin.

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Marilynn Meek;MWW Group, [2]

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Thank you. Thank you all for joining us this morning for the third fourth -- the Protective Insurance Corporation Third Quarter 2019 Conference Call.

If you did not receive a copy of the press release, you may access it online at the company's website along with an investor presentation to accompany today's call and earnings release, which is available at www.protectiveinsurance.com. I would like to remind everyone that we are hosting a live webcast for the call, which may be accessed at the company's website as well. At this time, management would like me to inform you that certain statements made during this conference call and in the press release, which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Protective Insurance Corporation believes the expectations reflected and any forward-looking statements are based on reasonable assumptions, it can give no assurances that expectations will be obtained. Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release and are included from time to time with the company's filings with the SEC.

I would now like to introduce Jeremy Johnson, CEO of Protective Insurance Corporation, and turn the call over to him. Please go ahead.

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [3]

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Good morning, and thank you all for joining John and me this morning. John joined us as our CFO a few weeks ago. He is a talented and experienced finance professional, and I'm very pleased that he chose to join Protective. Our quarterly results show continued progress in our turnaround strategy. As a long-term specialist in ensuring large fleets of trucks, we operate in one of the most volatile segments of the Property and Casualty Insurance industry. This quarter, I am pleased with the continued improvement in accident year loss ratio, pleased to report no material changes in our reserves and comfortable that we are managing our expenses for a competitive expense ratio over time while still investing in the talent and technology we need to position ourselves well for the future.

As I said in the last quarterly call, my priorities have been and will be to meet and speak with our customers and distribution partners and understand the value we bring and can bring to them to build confidence and credibility with all constituents through disciplined execution of our ongoing turnaround strategy and to shape and steer the culture at Protective for a competitive advantage and to continue to attract reward and retain the very best talent in the industry.

During the last quarter, we've brought on a new Chief Financial Officer, Chief Information Officer and several other key positions in the management team.

I will now turn to the highlights of the quarter and then speak a little about our ongoing turnaround strategy. Book value per share grew by 0.3% in the third quarter and total value creation after payment of the quarterly dividend was 0.7%.

Total return on the investment portfolio was 1% for the quarter and 5.5% for the year-to-date. Our portfolio is well-balanced and well-positioned to create value. Our investment leverage is 2.57x our equity. Our portfolio is relatively short duration and high in credit quality. 90% or $854 million dollars of our investment assets are held in fixed income securities and cash, which we expect will create a solid base of earnings, contributing to growth in book value in the future.

Our third quarter combined ratio at 107.1% was slightly higher than Q2 as our lower loss ratio was offset by higher expenses. Our expense ratio for the third quarter included charges of $1.6 million related to severance and new-hire-related costs as well as bad debt expense, which we do not expect to recur. Over the next 12 months, we anticipate further expense reductions, which will enable us to take the necessary remedial actions without elevating the expense ratio. And at the same time, free up money for reinvestment in talent and technology, harden our infrastructure and enable us to onboard more risk management and analytics capabilities.

The current year -- the current accident year loss ratio improved by 1.9 points compared to Q2 2019 and improved by 3.9 points compared to Q3 2018. Improvements are driven by rate achievement and mix shift in commercial auto. Overall, on the $35.4 million of commercial auto liability premium renewed during the quarter, rates improved by 17.5%. Removing 2-year policies where, by contract, we could not improve pricing, rates were up by 25.6%.

Moreover, we are retaining higher percentages of the better-priced customers and attracting new well-priced risks into the portfolio. We have momentum in our effort to optimize rates, pricing and risk selection and remain confident that the premium that we are arriving today will earn in profitably. As a specialist insurer to the trucking industry, we face a difficult litigation climate. Our commercial auto book has not been immune to the adverse trend that is being recognized across the industry. Trucking companies have become a favorite target of an aggressive plaintiffs' bar that is attracted to the higher policy limits required to be carried by our insurers. Emboldened by outsized and nuclear verdicts, we are seeing more plaintiffs' council pushing cases towards trial and making higher settlement demands. Expanded theories of recovery, the influx of medical and litigation finance and general trends in social inflation are driving loss and defense costs up. These trends and practices required a diligent approach to the handling of transportation claims, recognizing the factors in individual cases that could lead to potentially higher values, providing a vigorous and strategic defense when appropriate and utilizing all available data to understand ultimate values will be critical as the industry moves forward.

An experienced specialist claims team focused on trucking insurers is a large part of the value that we bring to our customers and large part of the reason why customers choose to do business with us. We are focused on establishing accurate reserves on new claims quickly and committed to continuously reviewing older claims, making adjustments when necessary. While we do not anticipate substantial adverse reserve development in prior accident years and experienced no material development in the quarter, we believe that our commercial auto reinsurance protection in the form of a 75% reinsured stock loss for treaty years 2013 through 2018 largely insulates our financial results from potential deterioration in our reserve position.

I believe we are executing very well on our turnaround strategy. We have an excellent team, and we'll continue to invest in talent. Our pricing environment continues to improve and our customers and distribution partners value us.

Working with them, we help to make the roads safer. With that, I'll now turn the call over to John, and I look forward to your questions following John's comments.

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John Richard Barnett, Protective Insurance Corporation - CFO [4]

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Thank you, Jeremy. As discussed in our press release, third quarter net loss was $0.7 million or $0.05 per share, which compares to net loss of $12.3 million or $0.82 per share for the prior year's third quarter. For the first 9 months of 2019, net income totaled $3.6 million $0.24 per share, which compares to a net loss of $9.5 million or $0.63 per share for the prior year period. Gross premiums written for the quarter decreased 1.1% to $137.1 million. Net premiums earned for the quarter increased to $110.3 million, up 13.9% compared to the prior year period.

The increase was attributed to higher premiums seeded in the third quarter of 2018 related to prior period's reserve strengthening.

Gross premiums written for the first 9 months of 2019 increased 0.8% to $433.2 million. Net premiums earned for the first 9 months of 2019 increased 6.9% to $335.9 million compared to the prior year period. Our operations produced an underwriting loss of $7.8 million, resulting in a combined ratio for the third quarter of 107.1. This compares to a combined ratio of 124.3 for the third quarter of 2018. The decrease in the combined ratio during the third quarter reflects the impacts of reserve strengthening and the corresponding seeding of additional premium related to our historical Reinsurance treaties in the third quarter of 2018, which did not recur in 2019.

For the first 9 months of 2019, our operations produced an underwriting loss of $23.5 million, resulting in a combined ratio of $107.2 million, which was flat compared to 2018.

We continue to maintain current accident year loss ratios at a level consistent with the rising severity expectations in the commercial automobile sector. As more time passes, and we learn more about the ultimate performance of the current accident year, we will adjust our loss base accordingly.

Third quarter net investment income increased 20% compared to the third quarter of 2018. The increase in net investment income reflects an increase in the average funds invested, resulting from positive cash flow as well as continued reallocation from equity investments and limited partnerships and cash and cash equivalent investments into short-duration high-quality bonds. For the first 9 months of 2019, net investment income increased 21% compared to 2018. Operating cash flow was, once again, positive during the quarter, resulting in $62.3 million of positive operating cash flow for the 9 months ended September 30, 2019. Book value per share on September 30, 2019 was $25.33, an increase of $1.38 per share or 5.8% during the first 9 months of 2019. This increase was net of $0.30 per share in cash dividend.

We do continue to note that our operating initiatives are supported by a strong balance sheet. As a reminder, we have posted our press release, quarterly financial statements and a brief presentation reviewing our third quarter results on our website. This concludes our formal commentary. At this time, we would be happy to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Ron Bobman of Capital Returns Management.

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Ronald David Bobman, Capital Returns Management, LLC - President [2]

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I got on the call a little bit late and I have not seen the poster presentation so I apologize if you provided specifics on the buyback activity during the quarter and if there's been any activity since the quarter's end. Could you share that with us, please?

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John Richard Barnett, Protective Insurance Corporation - CFO [3]

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Yes, we have included the buyback for the period. So during the quarter, we've repurchased $3.8 million in shares. Total shares were 227,000 shares at 66% of current book value.

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Ronald David Bobman, Capital Returns Management, LLC - President [4]

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Great, okay. And anything since the quarter-end?

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John Richard Barnett, Protective Insurance Corporation - CFO [5]

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Yes, very minimal amount.

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Ronald David Bobman, Capital Returns Management, LLC - President [6]

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Okay. Jeremy, in your -- when I got on, your prepared remarks, you shortly after the rate information that you provided, where you mentioned the $35 million of renewing premium roughly a 17% average increase in rate but then when you strip out the multiyear portion, you had sort of an average rate of, I think, 25% approximately. And then you followed with a statement along the lines of, you expect ultimately the business as currently being written to earn in profitably.

So stop me if I heard that wrong but I think it's accurate. Given the absence of any sort of material adverse development this quarter, so in effect, the 107 is sort of a clean number, that combined ratio of 107.1 is a clean number. My takeaway and I just want to make sure, this is in essence what you were inferring, is that ultimately, given these rate increases that you expect there to be redundancy in the reserves associated with the businesses currently being bound, for example, in the most recent quarter, Q3.

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [7]

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That's not really the point that I'm trying to make. If you think about our combined in the quarter from an accident year, you've got premium earning into this quarter from prior quarters. Some of that was not priced at the same level as the business that we are writing today. The business that we are writing today, we think we're pricing at a level that is -- that will, in the future as it earns in, produce a profit for us. When you think about our business, earning into the premium this quarter is, for example, books of business that we have now discontinued, that was running hot. That's still running into this quarter. You have business that was priced in Q4 of 2018 and Q1 of 2018 -- I'm sorry, Q1 of 2019 before we really got a kind of a mojo going with getting difficult rate increases on the book.

And then you got premium -- a little bit of premium earning in from the current quarter. And as you look out over the next, lets just call it, 4 quarters, you're going to have premium earning in from this quarter and future quarters but you will also have some business that is renewed at a -- renewed by almost by contract at a price point that we don't think is acceptable any longer. When that business comes up for renewal, we will then get more rate on that as it comes up. But we believe that the price on the business that we renew today is an appropriate price given what we know. Now we are also in an environment where there's quite a lot of trend. So even if you just want to stay still from a loss-ratio standpoint, you've got the increase price every year, fairly significantly because of the claims costs. So I don't believe in our -- certainly in our commercial auto liability line of business where we're really seeing trend. I don't believe price -- keeping a fixed price is going to be appropriate for -- certainly not for the foreseeable future because the lost trend is so significant. So we have to keep getting rate increases just to stay still in our book. Does that make sense?

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Ronald David Bobman, Capital Returns Management, LLC - President [8]

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Absolutely. What is the loss trend assumption that you are incorporating into the current period -- the current quarter's book of business that you renewed at these higher rates? What's the underlying loss trend that you're assuming on that?

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [9]

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Ronald, we actually don't disclose that. And I'd rather not disclose that. I will tell you that we -- as we look at trend across different attachment points in our portfolio, the higher you attach, the higher the trend.

So if we're promulgating of a 0-dollar attachment, you've got a lower trend than if you're promulgating of a $1-million attachment or -- and so on and so forth. And I will tell you that our trend factors are, we believe to be generally in line with the industry. But I...

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Ronald David Bobman, Capital Returns Management, LLC - President [10]

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Okay. I understand. How about the -- you've mentioned, not only in this call but on prior, there's been reference to generally, sort of multiyear policies. Is the mix -- is the multiyear mix going down, despite the very nature of what's going on in commercial auto?

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [11]

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Yes.

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Ronald David Bobman, Capital Returns Management, LLC - President [12]

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Could you talk about where it was, where it is? Where you think it's going?

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [13]

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Well, sure. So I'm just going to give you rough numbers. So on our excess portfolio, about half of that book was on a 2-year commitment and turning into really the kind of the first quarter of this year, we stopped providing 2-year commitments. So as those policies have come up, we're not renewing them as a general rule on a 2-year basis. So within the next couple of quarters, I think we will have fully got off the -- any 2-year policies. Upon occasion, there may be 1 or 2 or 3 2-year deals that we will renew for extraordinary reasons. But it's not a part of our underwriting practice going forward to offer anything other than an annual policy.

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Ronald David Bobman, Capital Returns Management, LLC - President [14]

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Okay, so then come March of -- late March of 2020, the enforced book will all be -- the enforced excess portfolio will all be on annual policies without a 2-year commitment remaining outstanding?

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [15]

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I would say by moving into the second quarter of 2020, there may still be some deals.

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Ronald David Bobman, Capital Returns Management, LLC - President [16]

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Okay. Close enough. I understand your point.

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [17]

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Yes.

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Ronald David Bobman, Capital Returns Management, LLC - President [18]

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Okay. Could you talk a little bit about public transportation and how significant that was in the mix in the recent past or in '18, let's say, in early '19, and where you think that's going?

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [19]

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Yes. So we essentially had 2 books of public transportation. We had a book that was small fleets, up to 25 million -- sorry 25 units and then a larger fleet book, and we certainly -- we saw fairly significant deterioration in that larger fleet book. And so we've run that down. We're probably retaining 25% of that book and the volume on that book was $25 million or $30 million thereabouts, and then we had a smaller fleet book, which we think that book needs rate too, Ron. But we are committed to that smaller fleet book.

So I think you could probably think about like the run rate for public transportation for us going forward has been about $35 million to $40 million of enforced premium and the majority of that being smaller fleets.

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Operator [20]

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Our next question comes from the line of Brett Reiss of Janney Montgomery Scott.

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Brett Reiss, Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor [21]

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Welcome aboard, John.

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John Richard Barnett, Protective Insurance Corporation - CFO [22]

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Thank you.

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Brett Reiss, Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor [23]

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What would the combined ratio have been this quarter without the higher expenses, which you mentioned -- Jeremy you mentioned in your opening remarks.

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [24]

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About 2 points lower, approximately.

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Brett Reiss, Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor [25]

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All right. So instead of 107, it would've been around 105?

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [26]

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Yes. 105 and change, yes.

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Brett Reiss, Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor [27]

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All right. Well, that's good.

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [28]

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It's progress, absolutely.

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Brett Reiss, Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor [29]

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Yes, yes. Can I just circle back to the arithmetic on the share buyback in this quarter. I'm looking at your second quarter release where you had purchased -- repurchased 526,832 shares, and in the third quarter, it's up to -- for the whole 9 months 618,032 shares. So I come up with -- you purchased like 91,200 shares this quarter. Did I hear you say it was to 2019?

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John Richard Barnett, Protective Insurance Corporation - CFO [30]

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Yes. For this quarter, we repurchased really 228,000 shares during this quarter. During the third quarter.

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Brett Reiss, Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor [31]

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All right. during the quarter. All right, and it was at an average price of what? And what is the breakdown between the A and the B share?

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John Richard Barnett, Protective Insurance Corporation - CFO [32]

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In line with what we've repurchased historically, it was very little of the A shares. And our repurchase price was 66% of our current book value.

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Brett Reiss, Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor [33]

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All right. So $25.33 times 0.66, so around $16.71?

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John Richard Barnett, Protective Insurance Corporation - CFO [34]

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Right around there.

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Brett Reiss, Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor [35]

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Okay. How much remains on your share buyback authorization? And do you have the wherewithal without jeopardizing ratings to continue to aggressively buy back stock down here?

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John Richard Barnett, Protective Insurance Corporation - CFO [36]

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Yes. At this time, based on our current plan to execute share repurchase, we feel we have the appropriate approval for the near-term.

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Operator [37]

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Our next question comes from the line of Jayme Wiggins from Palm Valley Capital.

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Jayme Clark Wiggins, Palm Valley Capital Management LLC - Founder, Co-CEO, Chief Compliance Officer & Portfolio Manager [38]

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In general is there anything unique about the business you're not renewing versus what you're keeping besides the pricing? Are the cancellation's more towards newer customers, older customers, bigger ones, smaller ones?

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [39]

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On the commercial auto liability book, not really. I mean there's certainly been a handful of accounts that we have made a categorization that we just don't -- they shouldn't be on the books anymore. But for the most part, it's market driven, and we find that we lose -- we're more likely to lose an account that needs more rate than the average i.e. we're losing -- where we lose business, it's, generally speaking, the accounts that need more price. So that's a good thing. We think we're losing more of -- we're losing accounts that are more underpriced than the average account is underpriced. Does that make sense?

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Jayme Clark Wiggins, Palm Valley Capital Management LLC - Founder, Co-CEO, Chief Compliance Officer & Portfolio Manager [40]

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Yes. One more from me. In 2017 Protective began marketing workers' comp coverage to non-transportation clients. And in last quarter's 10-Q, you guys disclosed you had litigation with Personnel Staffing Group, which I think, was your first major customer in that space. Now it appears PSG is also engaging in similar lawsuits with a couple of other insurance companies who proceeded Protective and serving them. I'm not exactly sure what went into Protective's decision to attempt to serve a toxic client like that one, especially outside of the core market but I recognize this was a different leadership team. But I will ask, are you still writing workers' compensation policies for clients that aren't in the commercial auto space and if so, why?

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [41]

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So we write a book of about $20 million for smaller relatively, low-risk workers' compensation exposures.

We certainly do not write any starting companies or PEOs. We write some retail stores and some restaurants and some small manufacturers. Frankly, as I kind of think about where I want to take the company as a specialist in the transportation of -- actually specialist in the wheels space, I think you'll probably see that even that book will tail off in the future as we focus on trucking and wheels. And very little outside of that. We also have a book that's performed extremely well for us of cannabis growers. And our workers' compensation for cannabis growers. And that's the book that we remain committed to. But that will probably be the only area that we are focused on outside of wheels from our workers’ compensation standpoint.

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Operator [42]

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(Operator Instructions) Our next question comes from the line of Steve Spence of RBC Capital Markets.

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Steven Spence;RBC Capital Markets, LLC, [43]

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I wanted to ask you a couple of questions. The Wall Street Journal, about 60 days ago, ran a story on shippers and their profit squeeze and the first item that was mentioned in the interview was insurance costs, which they had cited. This carrier had cited their monthly cost has gone from $180,000 up to $300,000 for coverage. Obviously not a high level of detail there. But the pricing environment would seem to be in the industry if that one case is an indication, one that certainly is more favorable than it has been. But I'm a little bit surprised to hear that your rates aren't up even a bit more than 24% I believe, number that you cited. What's the competitive environment like? And where you are guys in that scale?

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [44]

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So I mean, it's a hard question to answer in a short amount of time. It's -- we certainly have competition but it's not a highly competitive environment. We think we have a good book. We like the risk that we have on our book. We just feel, and obviously you see that in the numbers, that it's underpriced. There is a lot more distress in the excess market than there is in the primary market and a lot less competition in the excess market. So if you were to -- if you were a trucking company building a tower of insurance of $50 million, you might expect rate increases in the area that we're getting for your first $2 million to $5 million but you might then expect significantly higher rate increases as you go up that tower because if you think about the impact of these nuclear verdicts, that's really hitting the excess carriers as the claim gets bigger and bigger. It's hitting the excess more than it's hitting the primary if you could kind of think about just the extrapolation of large verdicts, it's hitting more people in the excess tower because the primary tower would be taken away anyway by a midsize claim.

Does that make sense? So there's a lot more distress in the buffer layers and in the excess and in the umbrella for truckers and really for anybody who is in commercial auto driven by these extraordinary nuclear target verdicts that are increasing in volume and in value. It is more extraordinarily large claims hitting the trucking industry and -- whether that's private transportation or public for higher truckers.

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Steven Spence;RBC Capital Markets, LLC, [45]

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Okay. And in a related way, is there a rule of thumb that we might be able to look to in order to get your combined ratio down in the 97, 99 range from 107. How much price relief further? And granted obviously, I'm asking you it -- we're operating the dark in terms of what the claims experience will be but just from the pure underwriting standpoint, how much more price are you going to have to get, to get to double digits on the combined ratio?

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [46]

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It's a bit of a tough question to answer. It's a very legitimate question. It's a little bit tough one to answer because we have multiple books of business that have different rate needs. The numbers that you cite, the combined ratio numbers that you cite, I mean, if we were 97, 98, we think with -- in this kind of interest rate environment, we would probably be achieving a 10% ROE. So those are very a reasonable target to expect us to try to achieve in a shorter time as it will take us to earn through increases on our commercial auto book and sustain a hopefully reasonable price point in our workers’ compensation book.

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Steven Spence;RBC Capital Markets, LLC, [47]

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Okay. Not quite the easy answer that I -- pardon me, that we were looking for. That's all right. I'm certain -- certainly, it was the right one but we all are lazy people, I should say. But it's easier for us to work from these numbers. But in order of magnitude, it seemed to be on the back of the envelope that you need to get about half again, more than you currently are getting or at least if you just sort of look at it arithmetically.

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [48]

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Yes. In commercial auto, I'd say that's -- we're not far off. I mean we certainly think we need high single digits further rate increases in commercial auto. And as I've spoken about before, we have some of these 2-year deals that we haven't hit -- I'm sorry, that's the wrong word, that have not yet come up for renewal, and so we haven't changed a price on and those will continue to come through and then there's trend on the portfolio. So yes, we believe we need and anticipate that we'll continue to get fairly significant rate on the commercial auto portfolio.

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Steven Spence;RBC Capital Markets, LLC, [49]

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Okay. And then two more quick questions for you. In the context of your pricing for miles driven as opposed to ensuring vehicles, how sensitive is that if we get into a little bit weaker economy? With how you bill for the services you're providing and as it relates to miles driven, if we had a soft recession, how quickly does it pass through to premiums? How does that work?

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [50]

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It would pass through to premiums, yes, absolutely. Many of our policies are on reporting forms, the premium earns through over the course of the year. If there's less miles driven, the premium may come down. I mean there's some minimums, of course, but that would be a translation into top line. It should also be translation into bottom line too as there is less -- there should be less risk.

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Steven Spence;RBC Capital Markets, LLC, [51]

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Good point. My last question for you is Mr. Shapiro's Estate, and his holdings, I believe if I recall correctly he holds A shares and since he reported that it was very low in the way of shares that we've purchased in the quarter. Is that a -- roughly, 1/5 of the company, is that a bit of an overhang in the market? Are they able to convert into B shares and sell? How does that work?

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [52]

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I don't really want to get into that on this call.

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Operator [53]

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Next question comes from the line of Ron Bobman of Capital Returns Management.

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Ronald David Bobman, Capital Returns Management, LLC - President [54]

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One more topic. Retention. On the -- if we sort of put workers' comp aside and just focus on the wheels book, how did retention compare in this third quarter as compared to, let's say, the sequential proceeding second quarter?

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John Richard Barnett, Protective Insurance Corporation - CFO [55]

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It was down a little bit.

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Ronald David Bobman, Capital Returns Management, LLC - President [56]

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Could you be more specific?

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John Richard Barnett, Protective Insurance Corporation - CFO [57]

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If it was trading in-- if it was running mid-70s overall in the second quarter, it would be high 60s in the third quarter.

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Ronald David Bobman, Capital Returns Management, LLC - President [58]

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Okay. And is that -- you characterized it is down a little bit. Is that magnitude change your conviction for the magnitude of rate that you're pursuing now currently in the fourth quarter or is that...

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John Richard Barnett, Protective Insurance Corporation - CFO [59]

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No, no.

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Ronald David Bobman, Capital Returns Management, LLC - President [60]

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Okay. Quick and firm answer.

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [61]

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Yes. And as I said earlier, we think that we are retaining the better accounts. So I mean, look you always have to try to balance rates and retention. But I mean, our commitment is to get into rate on the book in order to get the loss ratio down, and I'm -- measuring top line is not a priority for me.

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Operator [62]

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We have reached the end of the question-and-answer session. I will now turn the call back over to Jeremy Johnson for any closing remarks.

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Jeremy David Edgecliffe-Johnson, Protective Insurance Corporation - CEO, Principal Executive Officer & Director [63]

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Thank you and appreciate all of you joining the call and great questions. And I look forward to speaking to you next quarter.

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Operator [64]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.