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spk05: Good morning and welcome to CNA's discussion of its 2022 first quarter financial results. CNA's first quarter earnings release presentation and financial supplement were released this morning and are available via its website www.cna.com. Speaking today will be Dino Robusto, CNA's Chairman and Chief Executive Officer and Scott Lindquist, CNA's Chief Financial Officer. Following their prepared remarks, we will be opening the line for questions. Today's call may include forward-looking statements and references to non-GAAP financial measures. Any forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the statements made during the call. Information concerning those risks is contained in the earnings release and CNA's most recent SEC filings. In addition, the forward-looking statements speak only as of today, Monday, May 2, 2022. CNA expressly disclaims any obligation to update or revise any forward-looking statements made during the call. Regarding non-GAAP measures, reconciliations to the most comparable GAAP measures and other information have been provided in the financial supplement. The call is being recorded on webcast during the next week. The call may be assessed on CNA's website. If you're reading a transcript of this call, please note that the transcript may not be reviewed for accuracy. Thus, it may contain transcription errors that could materially alter the intent of meaning of the statements. With that, I'll now turn the conference over to CNA's Chairman and CEO, Dino Robusto. Please go ahead, sir.
spk04: Thank you, Cecilia, and good morning, all. We started off the year strong with increased underlying P&T profitability, lower catastrophe losses, and good production results. But before we begin with the details, I wanted to acknowledge the unconscionable loss of life and devastation in Ukraine. Our hearts reach out to the displaced and suffering. Turning back to the quarter, core income was up 20%, the $316 million, despite lower investment income from LPs and common stock. In the first quarter, the all-in combined ratio was 91.9%, 6.2 points lower and the first quarter of 2021, and our best quarterly all-in combined ratio since the third quarter of 2016. Pre-tax catastrophe losses were only 19 million, or one point of the combined ratio. The PNC underlying combined ratio was 91.4%, a half-point improvement over the first quarter of 2021. The expense ratio of 31%, was lower by a half point, and the underlying loss ratio of 60.1% was the same as the prior year quarter. But, as I've mentioned in prior quarters, the property quarter share treaty that we purchased in June of last year lowered the premium mix between property business and our other classes. And since our property business has a lower underlying loss ratio, this mixed effect increased overall P&C underlying loss ratio. In the first quarter, this mixed effect on P&C overall was 0.3 points. So we actually recognized a 0.3 point of margin improvement in the quarter after adjusting for the mix. There was margin improvement in specialty and international, and accounting for the mixed effect, which for commercial is 0.7 points, the underlying loss ratio in commercial was consistent with the prior year's quarter. For PNC overall, the prior period development was favorable by 0.5 points on the combined ratio similar to the first quarter of 2021. Now turning to production. Gross written premium excluding our captive business grew by 8% in the first quarter, and net written premium grew by 4%. Excluding currency fluctuations, the growth was 9% and 5% respectively. The impact of the property reinsurance structure change from June of last year also had the effect of widening the spread between growth and net written premium growth. New business grew by 14% this quarter to $451 million. Retention was 83%. THIS QUARTER AND WAS UP TWO FULL POINTS IN EACH OF SPECIALTY AND COMMERCIAL COMPARED TO LAST QUARTER. EXPOSURE CHANGE WAS PLUS 2% THIS QUARTER. THE OVERALL WRITTEN RATE INCREASE WAS 7% THIS QUARTER, DOWN ONE POINT FROM LAST QUARTER. WHILE GENERALLY SHOWING A MODERATING TREND IN AGGREGATE, THE MOVEMENT WAS VARIED IN DIFFERENT PARTS OF OUR PORTFOLIO. FOR COMMERCIAL, The rate increase at plus 5% remained the same as it was in the fourth quarter of 2021. Excluding workers' compensation, the commercial rate increase was plus 7%, also consistent with the last quarter. Specialty achieved rate increases of 9% in the quarter. This is down two points from the fourth quarter, but about a half of this decline is due to the seasonality mix of business, as our affinity professional E&O programs are a larger percentage of special premiums in the first quarter compared to the remainder of the year, and these profitable programs have low single-digit rate increases. The international rate increase of 9% moderated from the double-digit highs but remains strong and will continue to fuel the earned rate which in the quarter was plus 13% for international. Overall, earned rate for P&C in total was plus 9% this quarter and still represents a meaningful gap above our lost cost trends, which now are between 5.5% and 6% in aggregate. Recall that during the third quarter of last year, we spoke to you about how we raised our long-run loss-cost trend assumptions in property in response to the economic inflation we were seeing at the time. That put our overall loss-cost trend assumptions at about 5%. In the last six months, the rate of economic inflation in the U.S. has accelerated, and as the courts have started to reopen and slowly clear the backlog in their dockets, with it, social inflation, which we consistently contended, was merely obfuscated by the pandemic rather than extinguished, also remains an inflationary factor. With three to three and a half point gap between nine points of earned rate and our lost cost trends, we have continued to reflect a small portion of this implied margin. This quarter we did so of 0.3 points. For the full year of 2021, we recognized about 0.6 points of margin improvement in the underlying loss ratio, excluding the impacts of COVID in the prior year. We continue to remain prudent in reacting to margin improvement in our portfolio because economic and social inflationary pressures may continue to increase or persist longer than anticipated making it difficult to know at this time how actual margin will materialize over time. And if we have been too conservative, we will benefit from the margin later on, all else being equal. Now let me provide a little more detail on our three business units. The all-in combined ratio for specialty was 88.7% in the first quarter, which is the seventh consecutive quarter below 90%. The underlying combined ratio was 90%, consistent with last year. The underlying loss ratio improved by half a point to 58.9 as earned rates are exceeding loss cost trends. The expense ratio of 30.9 is up slightly from the first quarter of 2021. Gross written premiums, ex-captives, grew by 8% in the first quarter and net written premium growth was 4%. Specialty growth was negatively impacted by approximately three points this quarter due to the continuation of non-renewals in parts of our health care portfolio that I previously discussed. Despite that retention, still improved two points this quarter to 85% and new business was up 41%. Turning to commercial, the all-in combined ratio was 94.5% in the quarter, including 1.8 points of CAT. This is the lowest all-in quarterly combined ratio since 2008. The underlying combined ratio was 92.7%. The underlying loss ratio of 61.5 is 0.7 points higher than the prior year quarter. However, as I mentioned earlier, It is consistent year over year, adjusting for the mixed impact of the property reinsurance program we purchased last June. The expense ratio improved by 0.7 points to 30.7% in the first quarter. Commercial gross written premium, ex-captives, grew by 9% this quarter, and net written premium growth was 4%. EARNED RATES FOR COMMERCIAL CONTINUE TO REMAIN STRONG AT PLUS 7% IN THE QUARTER AND PLUS 9%, EXCLUDING WORKERS' COMP. AND BASED ON THE MODERATION OF WRITTEN RATES WE'VE BEEN EXPERIENCING, COMMERCIAL EARNED RATES EX-WORK COMP WE BELIEVE WOULD REMAIN AT OR ABOVE LOST COST TRENDS FOR THE REMAINDER OF 2022. ADDITIONALLY, SOME PORTION OF THE EXPOSURE INCREASE, WHICH FOR COMMERCIAL WAS 3% IN THE QUARTER, could have comparable benefit to margin as rate increases do. Even if we assume only a quarter of the exposure increase acts as rate or roughly half of a point, it is still quite meaningful in offsetting some of the long run loss cost trend increases this quarter. We are experiencing mid single digit exposure changes and lines of insurance with inflation sensitive exposure bases like work comp and general liability. We are also seeing exposure increases in property more consistently with insurance to value adjustments to reflect the current inflationary environment. Commercial retention was up two points this quarter at 85% and was higher than any quarter since prior to the pandemic. For international, the all-in combined ratio was 92.4% this quarter. This is the best all-in combined ratio since 2016. The underlying combined ratio was 91.2%, reflecting 2.8 points of improvement from the prior year quarter. The underlying loss ratio was 58.6%, including a full point of margin improvement compared to the last year and the expense ratio of 32.6% is down almost two points. In terms of the Russia-Ukraine war, our insurance exposure in Ukraine and Russia is small, and any impacts to our portfolio are expected to be de minimis. International gross written premiums grew 6%, or 9%, excluding currency fluctuation. and net written premiums grew 7% or 11%, excluding currency effects. Retention of 73% for international this quarter was lower due to some targeted non-renewals in January where we couldn't secure appropriate terms and conditions in the market. Retention quickly improved to 80% for February and March. Now, as I mentioned last quarter, Scott Lindquist joined CNA early this year and formally transitioned into the CFO role in February. Larry Hafner is also with us for his last call, and he will be available for the Q&A portion of our call today. With that, I will turn it over to Scott.
spk03: Thanks, Tino, and good morning, everyone. Based on our 20% increase in core income, our core ROE of 10.3% is up from 8.8% in the first quarter a year ago. Our PNC operations produced a core income of $321 million, which is a 22% increase as compared to Q1 2021. A key contributor to this strong result was our pre-tax underlying underwriting income of $165 million. In addition, our catastrophe losses were relatively modest at $19 million pre-tax compared to $125 million pre-tax last year first quarter. Our Q1 expense ratio of 31% is in line with expectations that we set out in last quarter's call and is one-half point lower than Q1 2021. While we continue to make investments in technology, analytics, and talent, and we are beginning to incur more T&E as we emerge from the pandemic. Lower acquisition costs in commercial and the higher effect, the effect of higher net earned premiums have more than offset the effect of these higher costs. I will note there will be a certain amount of variability quarter to quarter. However, we however, we continue to believe an expense ratio of 31% is a reasonable run rate. For the first quarter, Overall P&C net prior period development impact on the combined ratio was 0.5 points favorable compared to 0.6 points favorable in the prior year quarter. Favorable development in our specialty segment was driven by surety and warranty for more recent accident years somewhat offset by medical malpractice. Our corporate and other segment produced a core loss of $28 million in the first quarter, which compares to a $36 million core loss in Q1 2021. Prior quarter results include $12 million after tax loss on a lost portfolio transfer of certain legacy excess workers' compensation reserves. For a licensed group, we had core income of $23 million for Q1 2022, which was $13 million lower than last year's Q1, primarily from lower investment income and higher expenses. While we are on the topic of life and group, I'd like to comment on the approaching change in gap accounting methodology related to long-duration targeted improvements. That will apply to our long-term care business, which we have set forth on pages 17 and 18 of our earnings presentation. We will adopt this new accounting guidance, effective January 1st, 2023, and we'll apply it as of January 1st, 2021. Two years of adjusted financial results will therefore be included in our 2023 financial statements. As we noted in last quarter's call, this change in accounting has no impact to the underlying economics of CNA's business. This change in accounting requires entities to update discount rate assumptions on a quarterly basis using an upper-medium grade fixed income instrument yield. This new accounting also requires cash flow assumptions, which includes morbidity and persistency, to be reviewed and, if there is a change, updated on at least an annual basis. The effective changes in discount rate assumptions will be recorded in the other comprehensive income component of stockholders' equity, while the effect of changes in cash flow assumptions will be recorded in the company's results of operations. The most significant impact at the transition date will be the effect of updating the discount rate assumptions to reflect a single A yield, rather than using the expected yield from our investment strategy. This adjustment will be partially offset by the de-recognition of shadow adjustments associated with long-term care reserves. As you can see on page 18 of the earnings presentation, we estimate the net impact of these changes will be a $2.2 to $2.5 billion decrease of stockholders' equity as of the transition date of January 1st, 2021. As I mentioned, we will be adjusting our quarterly results from Q1 2021 through Q4 2022 when we implement the accounting change in 2023. In a rising interest rate environment like we have seen over the past 15 months, as the corporate single A rates increase, the impact of the adoption decreases. As an example, assuming March 31st, 2022 interest rates were in place on January 1st, 2021, we estimate the transition impact would have been significantly lower to a decrease of $1 to $1.3 billion to stockholders' equity as corporate single A rates are substantially higher at March 31st, 2022 than at January 1st, 2021. I do want to emphasize that this accounting pronouncement applies only to gap basis financial statements and has zero impact to the underlying economics of CNA's business. This change has no impact on statutory earnings, capital, or risk-based capital metrics and has no impact on the dividend capacity of our insurance underwriting subsidiaries. As such, this accounting change is viewed by us and the industry as non-economic as none of the underlying fundamentals of the business are changed by it. Turning to investments, total pre-tax net investment income was $448 million in the first quarter compared to $504 million in the prior year quarter. The decrease was driven by our limited partnership and common stock returns, which generated $8 million of income in the current quarter compared to $61 million in the prior year quarter. As a reminder, private equity funds, which represent about 70% of our LP portfolio, primarily report to us on a three-month or greater lag. So our results this quarter are primarily reflective of performance from Q4 2021. Hedge funds were down for the quarter, directionally in line with markets, and reflect mixed results for managers. Hedge funds, which now represent about 30% of our LP portfolio, predominantly report results on a real-time basis. Our fixed income portfolio continues to provide consistent net investment income, slightly higher than the last few quarters and the prior year quarter. We continue to benefit from higher invested asset base driven by strong operating cash flows. As a point of reference, our average book value has increased $1.4 billion from the prior quarter. And while our average portfolio yields are lower relative to the prior year quarter, I am pleased to note that in this current rising interest rate environment, we are now achieving significantly higher yields on reinvestment relative to the last several years. In fact, as of last week, reinvestment rates are, on average, 50 basis points higher when compared to those we achieved this past first quarter just ended. And we will take advantage of this as our bond portfolio matures, which is roughly, on average, 7% each year, and as we put a significant portion of operating cash flows to work. While the rising rate environment positively impacts the outlook for investment income, from a balance sheet perspective, it has reduced our net unrealized investment gain position to $1 billion at quarter end. This is down from $4.4 billion at the end of the fourth quarter 2021. I would like to note that interest rate-driven fluctuations in market values do not impact how we manage our investment portfolio as we generally hold our fixed income securities to maturity. Notwithstanding the decrease in our net unrealized gain position, our balance sheet continues to be very solid. At quarter end, stockholders' equity, excluding accumulated other comprehensive income, was $12.1 billion, or $44.67 per share, an increase of 2% from year end adjusting for dividends. Stockholders' equity, including AOCI, which reflects the reduction in net unrealized investment gains during the quarter, was $10.8 billion, or $39.87 per share. We continue to maintain a conservative capital structure, a leverage ratio of 20%, and continue to sustain capital above target levels in support of our ratings. First quarter operating cash flow was strong once again at $645 million and was a result of solid underwriting and investment results. In addition to strong operating cash flow, we continue to maintain liquidity in the form of cash and short-term investments, and together they provide ample liquidity to meet obligations and withstand significant business variability. Finally, We are pleased to announce our regular quarterly dividend of 40 cents per share, which will be payable on June 2nd to shareholders of record on May 16th. With that, I will turn it back to Dino.
spk04: Thanks, Scott. Before opening the call to the Q&A session, I have a few additional comments. We are bullish about 2022. The market conditions are excellent. When you consider that rates are up plus 30% on a cumulative basis, since the beginning of 2019, and we are benefiting from the compounding impacts of progressively better terms and conditions over that same time period from things like higher deductibles, coverage restrictions, and limit re-profiling. And our new business pricing, as well as terms and conditions, track similar to renewals, so our new business rates are up substantially on a cumulative basis as well. We believe these favorable conditions afford us the opportunity to continue to grow our portfolio through new business and strong retention. Well, out of the rate increases, they hit their peak in the fourth quarter of 2020 and have moderated at a measured pace of about one point per quarter to 7% in the first quarter of 2022. With written rate increases still in excess of long-run lost cost trends and earned rates at 9%, This should portend positive margin persisting through 2022. Of course, there could be further upward pressure on lost cost trends, but the market has behaved rationally to prior increases in lost cost trends that have either accelerated precipitously or persisted at elevated levels for a protracted period of time, and we would anticipate that market pricing behavior would continue to react accordingly if lost cost trends persisted. accelerate further. And with that, we'll be happy to take your questions.
spk05: Thank you. If you wish to ask a question at this time, please press star 1 on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. That's star 1 to ask a question. We will now take our first question from Josh Shanker from Bank of America. Please go ahead.
spk01: Yeah, thank you for taking my question. I appreciate the color on the alternative investment performance and about the hedge funds. A couple questions. One is, we break it up into limited partnerships and hedge funds. I mean, limited partnerships for peers had a fairly good return in 4Q. Does that pretend that the hedge fund performance in 1Q was rough and continues to be so? Do we need to be concerned because in 2Q we're going to see obviously the 1Q marks for the limited partnerships. Do you have any sort of color on how we should be anticipating that in one quarter ahead? Hey, Josh. It's Scott.
spk03: Thanks for the question. Yeah, so if you take a look at our limited partnerships, again, 70% are private equity. This quarter results really reflected fourth quarter overall market performance. So, yes, I would expect the second quarter private equity lag limited partnerships to reflect the first quarter overall equity performance. And, of course, the hedge funds, those are real-time, flow right through earnings real-time. And then I would note about $200 million of common stock mark-to-market is within those results too. That, of course, is real-time also.
spk01: Okay. And, I mean, real-time, have you seen any recovery on the hedge fund side from the 1Q marks?
spk03: I don't know if I can really comment on that right at this point in time. Okay, it's totally fair.
spk01: You know, I realize business mixes have had a huge influence on combined ratios, and the rate and loss cost trend don't really explain the whole story, and you did explain that, you know, in the prepared remarks. But I'd also say that the rate and excess of loss cost trends, I think, has been the main story in PNC over the last three years. When I look at the commercial segments underlying 62-2 loss ratio, it's a very good number, but it's also the highest since 2Q19, and it's really higher than the annual averages from 2016 to 2020. And I'm scratching my head a little. You know, I think about maybe it would be worthwhile if you talk about when you came in in 2015, what the business mix looked like in commercial, what it looks like today, and how that's been affecting the loss ratio, despite the fact that you've been getting a lot of rate nexus loss costs.
spk04: Okay, Josh, I mean, I think, you know, we're, we're comfortable today with the portfolio, we've made, you know, a lot of different re underwriting changes that we've talked about, on many calls, whether it is some of our cat exposure, some of our property exposure here in the United States, etc. So we're, you know, we're comfortable with the portfolio, I think, When you take a look at the calendar year commercial loss ratio and combined ratio as indicated, I think it's amongst the best that we've seen since 2008. The underlying commercial loss ratio is consistent with the fourth quarter when you adjust for the property mix. The property mix did have the effect from the reinsurance. to put pressure on the loss ratio, on the underlying loss ratio, because we ceded more property premium away. But again, one of the reasons we purchased the reinsurance treaty, having also reduced a lot of our tax exposure, was to be able to balance the book a little bit going forward. It represented about 20% in commercial, 20% is property in our P&C overall. 80% is all the other sort of casualty lines. And in fact, it's interesting. If you were to take a look at the first quarter, property growth, you know, we still had some re-underwriting going on from cat-exposed property. But if you take that aside, which is coming to the tail end, property was up actually above most of the other lines from a growth standpoint. And so I think we start to take advantage of that reinsurance treaty that impacted it sort of adversely. So, look, I mean, at the end of the day, we're pleased with our commercial portfolio. We're pleased with how our PML to premium ratios have improved. And so we see it, you know, benefiting us both from an underlying standpoint and and from a calendar standpoint and then the margin conversation uh is what it is josh you know we're gonna uh what we've been prudent and uh and and we're gonna stay that way uh and if it's been a little too prudent then maybe we'll benefit it from it all lsql you know later on i appreciate that thank you paul welcome
spk05: We're going to take our next question from Gary Ransom from Dowling and Partners. Please go ahead.
spk02: Yes, good morning. I wanted to ask a little bit more about inflation, and clearly it's affected many of the short-tail lines, the economic inflation that we've seen over the last year. But how do you think about how that might seep into the social inflation that might affect long-tail lines? Can you share your thoughts on that?
spk04: I mean, look, I think you could see it impact some of the social inflation and some of the correlation that we see from some of the inflationary pressures. I think, though, honestly, from a social inflation standpoint, what we're looking at is as the courts open up, Gary, and the dockets get cleared up a little bit, it'll be interesting to see if that accelerates. I think our early read is we're clearly starting to see a little bit more attorney representation on certain claims, a little bit more pressure, but that's really where we think social inflation has got some pressure points and what we're watching very closely.
spk02: All right. Have the dockets actually cleared very much? I realize it's opening. No, it's still early. It's still early.
spk04: It's still early. So that's why when we think about uh, being prudent. Uh, we just need, you know, we just need some, some additional time to really see what is going on, uh, uh, with the sort of social legal tort sort of inflation. Um, and, uh, so still early, but, but, but like I've always contended, right. It's, it's, you know, uh, it was just obfuscated by, uh, the pandemic. Um,
spk02: rather than extinguished. Another thing you mentioned in the comments in the press release is that the rates remain robust where they're needed the most. And so I assume there's some pockets where there's still where profitability is not quite back to where it needs to be. Can you tell us what some of those places are? And maybe they're the same as they've always been, but I just wanted to add.
spk04: Yeah, yeah, yeah. Quite frankly, Gary, to a large extent. But look, I mean, a commercial auto, we're getting about nine points of rate. That's good. It's slightly above lost cost trend, but it's going to have to sustain itself at 9% for a longer period of time right before we see that line of business getting into what we sort of consider as form of rate adequacy. On the healthcare, we're still seeing in parts of our healthcare portfolio, we've got double-digit rate increases, and there too, that's required. International, you know, in the quarter still, UK, Europe, double-digit. Canada is a little bit less, but it's a lot more profitable. And then obviously, You know that work comp is down slightly. Cyber, you know, it's not a big portion of the overall portfolio, but it deteriorated quickly with ransomware claims, and, you know, we're still in an around almost triple-digit rate increases. So, you know, those are the lines that you would expect.
spk02: All right. And then I just, you told us that the Ukraine was de minimis, but do you have, do you write any of those categories of lines that might be exposed over there in the international book, whether it's credit risk or, and I'm just trying to get a sense of the mix over there.
spk04: That's fine. You may recall, Gary, one of the runoff lines several years back when we started to re underwrite our Lloyd syndicate was political risk and trade credit and so that's all been in runoff and we don't anticipate whatever might be a tail on that is going to come to be any form of an issue and it's a small a small portion of a very small portion netted down on political violence that we all have through the syndicate, which we don't expect is going to amount to anything based on all of our analysis. So no, we're not a big writer of lines that are obviously getting affected many of which you and your analyst colleagues have all written about, and we don't play in those lines.
spk02: Great. Thank you very much for that, Dino. Welcome.
spk05: As a reminder, to ask a question, please press star 1. We will now take our next question from Meyer Shields from KBW. Please go ahead.
spk00: Great. Thanks. Good morning. Dino, can we get a little more color on the non-renewal in international in January? Is there a particular line of business that you're finding less attractive?
spk04: Sure. So it's really, you know, it's two things. There's a little bit of healthcare portfolio. Since we have been in healthcare, you know, in the U.S. for a long period of time, we had a little bit of exposure. And, you know, it's under the same scrutiny as in the U.S. And unless we can get really substantially large rate increases, then, you know, we walked away from that. And then, as you know, Meyer, Gen 1 Europe is a tacit renewal season. You get a lot of part of your portfolio that renews there. And for a lot of carriers, Gen 1 sometimes can be a feeding frenzy. And so, you know, there's some business that, we could see we're not going to get the terms and conditions that we wanted. And so, you know, we walk away from it, right? Look, our international portfolios come along the way. It's generating strong profitability, and we're going to work to make sure that does not go back to where it was.
spk00: Okay, thank you. That's helpful. The second question, and this is, I guess, more broad. You talked about how So far, relatively little of the gap between earn rate increases and loss trends is hitting the bottom line. Is there the same, I'm trying to think of the right word for it, offset to reserve development? In other words, are there indicated reserve releases that you're just not comfortable booking at this point in time?
spk04: No. Maya, look, as I've always contended, right? social inflationary pressures affect your current accident years, but they can also affect prior accident years that play out and settle in a current period. But every quarter we do our reserve reviews and we feel comfortable with where those are. It has to do with And again, maybe at the risk of sounding a little bit like a broken record, I look back over the several decades of my career. The last several years are quite unique relative to the inflationary pressures that have been escalating lost cost trends. First, it was social inflation. It emerged over these last five years and went up pretty significantly. Then we had the economic inflation. And we've been discussing with you how it's all gone up. The economic inflation in the third quarter, we then put that, caused our overall loss constraints to go to five. And now in the last six months, both the economic inflation has increased And as I said, we'll wait to see, right? As these court open up the dockets clear, you know, I think you're still dealing with an inflationary pressure. So, you know, the way I think about it is in terms of, you know, how to trigger what would be maybe a little bit more, it's sort of a picking margin. I think, you know, we need to see some stability in the rate of acceleration of of of those lost cost trends and and it could settle at a higher level but but settle and be more stable and and until we're you know faced with that kind of a trigger we're just gonna you know remain prudent okay no perfect that makes a lot of sense uh final question if i can um i'm asking this because we've gotten somewhat different uh descriptions of this
spk00: Are you planning workers' compensation rate pressure to be a little worse in the first quarter of this year than the fourth quarter of last year?
spk04: If I just make sure I heard, you're referring to the rates on work comp and how they moved from first quarter to fourth quarter, if that's it. No, if you actually look at our rate movement on work comp over the course of the last four or five quarters, It's been, you know, there's been a little bit of fluctuation up and down, but relatively the same at about low single-digit, and we haven't seen any sort of trend. Back then, you recall, Myra, I said I didn't see an inflection point, and it's just still playing out at the low single-digit rate.
spk00: Okay, fantastic. Thank you very much.
spk05: We will now take a follow-up question from Josh Shanker from Bank of America. Please go ahead.
spk01: Yeah, thank you. I'm just looking for a little education on the fronting business with, I guess, the cell phones. Obviously, growth continues to look good. Can you talk a little about your arrangements there, the relationships you have, how sticky they are, and whether as the 5G revolution takes place that you're going to be there at the forefront of providing that service?
spk04: Okay. So on the warranty business, as you know, Josh, we have two components. We have the electronics and in particular the cell phones for which that is done through the captive and reinsured back 100%, which is why we always give you the growth X captive and we do have a longer-term arrangement. And, you know, it's a function of how that sort of business grows. Then there's a little bit of other electronics business that we also go after. And then, of course, there's our auto warranty. And all in all, the warranty business continues to be, in all its aspects, a focus for us. And... On the issue of the 5G revolution, I'm going to leave it to those that are considerably more intelligent than I am on the technology.
spk01: Yeah, so the important thing that I want to clarify, your relationships are locked in for the next three years.
spk04: Yeah, well, they are longer term, and I don't know when the exact sort of – coming up, but yes, they're multi-year deals and have been for a long time, and we have excellent relationships with them.
spk01: That's all I needed. Thank you. You're welcome.
spk05: If there are no further questions at this time, I would like to turn the call back to your speakers for any additional or closing remarks.
spk04: Well, that's great. Thank you, Cecilia, and thank you all. Talk to you next quarter.
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