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Operator
Good morning everyone and welcome to the Apparel Assurances conference call to discuss the company's third quarter 2021 results. These results were reported in a news release issued on November the 8th 2021 and in the company's quarterly report on form 10Q which was also filed on November the 8th 2021. Included in those documents were cautionary statements about the significant risk uncertainties, and other factors that are out of the company's control and could affect ProAssurance's business and ultra-expected results. Please review those statements. Management expects to make statements on this call dealing with projections, estimates, and expectations and explicitly identifies these as forward-looking statements within the meaning of the U.S. federal securities law and subject to applicable safe harbor protection. The content of this call is accurate only on November the 9th, 2021 and except as required by law or regulation, Pro Assurance will not undertake and expressly disclaims any obligation to update or alter information disclosed as part of these forward-looking statements. The management team of Pro Assurance also expects to reference non-GAAP items during today's call. The company's recent news release provides a reclamation of these non-GAAP numbers to their GAAP counterparts. Now, as I turn the call to Mr. Ken McEwen, I would like to remind you that the call is being recorded and there will be a time for questions after the conclusion of prepared remarks. Mr. McEwen, please go ahead.
Ken McEwen
Thank you, Robin, and good morning, everyone. On our call today, we have Ned Rand, President and CEO, Dana Hendricks, Chief Financial Officer, Mike Bogusky, president of our specialty property and casualty lines, and Kevin Shook, president of our workers' compensation insurance operations. Ned, will you please start us off?
Robin
Thank you, Ken. It was our first full quarter with NorCal, and we remain very pleased with the progress we are making on the integration of our two companies. At the moment, we are ahead of schedule on our integration plan thanks to the excellent work by all team members. and the blend of best-in-class talent we've built as a result. Even outside of daily underwriting claims and risk management operations, our investment results alone begin to show the earnings power of this combined enterprise. And I'm excited to complete the integration plan in 2022. Meanwhile, results in our legacy ProAssurance healthcare professional liability business continue to show improvement as we make incremental progress towards underwriting profitability. and expand the regional operating structure to maximize service quality for our customers. On the workers' compensation side, we are reacting to what we perceive as a tough loss environment, as the impact of labor shortages, time away from work, and the mental wear and tear of the continuing pandemic weigh on employers and their workforces. However, the segment remains profitable through 930, And we remain confident in our ability to succeed across economic and insurance cycles. Kevin will highlight some of the positives during his remarks later in the call. In all, it was a quarter where we executed on a plan amidst the continuing national challenges presented by the pandemic. And I'm proud of the work that we've completed to date. Now I'll ask Dana to share results for the quarter. Dana.
Ken
Thanks, Ned. It was another solid quarter, and we reported net income of $12.2 million, or 23 cents per share, and operating income of $13.8 million, or 25 cents per share. While this result was driven primarily by our investments, particularly our equity and earnings from unconsolidated subsidiaries, we also improved results in our specialty P&C segment through continued rate gains, strong retention, and top-line growth both including and excluding the effect of the added NorCal premiums. Further, we reduced expense ratios in all segments as the structural changes implemented in 2020 continue to pay returns. These improvements were partially offset by unfavorable development in our Lloyds Syndicate segment, lower income from our segregated portfolio sale reinsurance segment, and a loss in our workers' compensation insurance segment. Consolidated gross premiums written increased nearly 26% year-over-year, driven primarily by the addition of NorCal's premium to our specialty PNC results, as well as $15.5 million of new business written in the quarter from our core operating segment. Our consolidated current accident year net loss ratio is 85.2%, a year-over-year increase of 4.5 points, as improvements in our legacy specialty PNC business were offset by higher average loss ratios in the NorCal Book of Business and a higher net loss ratio in our workers' compensation business. We recognized net favorable development of $8.6 million in the current quarter, driven largely by the specialty PNC segment at $6.8 million, which includes $2.3 million related to the amortization of the purchase accounting fair value adjustment on NorCal's assumed reserve. We also recorded $1.5 million and $1.6 million of favorable development in the workers' compensation insurance and segregated portfolio sale reinsurance segments, respectively. The Lloyds segment recorded unfavorable development of $1.3 million, primarily related to natural catastrophe losses. Excluding one-time transaction-related costs, Our consolidated underwriting expense ratio decreased approximately seven points in the quarter to 23.3%. That's driven by the effect of significantly higher earned premium acquired through NorCal and lower related expenses. Year-over-year improvement is also attributable to restructuring in the third quarter of 2020 and related one-time costs. In our Form 10Q, we provide a detailed breakout of the items affecting our expense ratio in the quarter to help readers arrive at a run rate. From an investment perspective, our consolidated net investment result increased nearly 60% year over year to $34.5 million. This includes $15.2 million of equity and earnings from our unconsolidated subsidiaries due to the results of our investments in LPs and LLCs. Consolidated net investment income was $19.3 million in the quarter, up significantly from the year-ago period, and primarily due to higher investment balances following the NorCal transaction. Higher investment balances were offset slightly by lower yields from our short-term investments in corporate debt securities due to the low current interest rate environment. Ken?
Ken McEwen
Thanks, Dana. Now we're going to pivot to Mike Bogusky for commentary on the specialty property and casualty segment. Mike?
Dana
Thanks, Ken. Before we get into the results of the quarter, I'd like to provide a brief overview of where things stand with both Legacy ProAssurance and NorCal Business. First, we continue to achieve incremental improvements and results from our legacy business, including higher gross premiums written, rate and retention gains decreased operating expenses, and improved loss experience. On the NorCal front, we are extremely pleased with progress to date and the overall execution of our integration plan. During the quarter, we announced and implemented our healthcare professional liability organizational structure and regional service model on a national basis. We successfully integrated reinsurance programs, financial and investment operations, in investment operations and retained 87% of NorCal's business, while achieving average rate increases of approximately 11% on the book since the close of the transaction. This is a great start to the re-underwriting efforts on the NorCal book. We are ahead of plan on targeted expense synergies, achieving $17.2 million through the end of the third quarter on an overall plan of $18 million. Information systems consolidation is proceeding as planned, and the cultures are merging together, the combination of exceptional talent from both organizations. Now for the results of the third quarter. Gross premiums written during the quarter increased by over 48%, or approximately $77 million. NorCal contributed just over $72 million, of that increase. Premium retention for the segment was 84% in the quarter, driven by retention rates that either improved or remained consistent in all lines of business. Furthermore, we achieved average renewal pricing increases of 9% in the segment this quarter, driven by 9% in standard physicians and 13% in specialty healthcare. Although not reflected directly in our rates or pricing improvement, we continue to strengthen rate adequacy through adjustments to product structure, terms, and conditions. Both our small business unit and medical technology liability business achieved average rate gains of 8%. New business written in the quarter totaled $11.2 million, an increase of $2.5 million from the year-ago quarter and primarily driven by $6.4 million written in our HCPL specialty business. The current accident year net loss ratio was essentially flat from the year-ago quarter, as improvements in our legacy HCPL business were offset by higher average loss ratios associated with NorCal business. As previously stated, we are off to a great start in the re-underwriting of the NorCal business. We are confident the HCPO loss ratio in the segment will continue to benefit from the previous re underwriting work in our legacy pro assurance business execution of the NorCal plan and lower claims frequency experience for several quarters. The segment net loss ratio decreased to 86.6% due to higher net favorable reserve development, which was $6.8 million in the quarter. This includes $2.9 million related to the amortization of the purchase accounting fair value adjustment on NorCal's reserves. The reduction in HCPO claims frequency observed in 2020 has continued into 2021 thus far, some of which is driven by the impacts of the COVID-19 pandemic and our re-underwriting efforts. Given these favorable trends, we began to recognize some of the benefits in our healthcare professional liability current accident year loss ratio during the third quarter of 2021. The segment reported an expense ratio of 17.7% for the third quarter, a year-over-year improvement of 6.1 points driven by significantly higher earned premiums, the impact of transaction accounting, and benefits from prior organizational restructuring and expense management efforts. Exclusive of the NorCal impact, the expense ratio decreased approximately one point. Overall, we continue to be pleased with the improvement in our operating results and the NorCal integration process. Ken?
Ken McEwen
Thanks, Mike. Kevin, will you please bring us up to date on the workers' compensation insurance and segregated portfolio sale reinsurance segments?
Mike
Sure, Ken. The workers' compensation insurance segment recorded an underwriting loss of $2.2 million and a combined ratio of 106.3% in the third quarter of 2021. The increase in the combined ratio quarter over quarter reflects a higher accident-year loss ratio in 2021, partially offset by an improvement in the underwriting expense ratio. Of note is the fact that the reported combined ratio includes intangible asset amortization and a corporate management fee. The combined ratio excluding these items for 2021 was 103% for the quarter and 97.4% year to date, an indicator of the results of our ongoing business performance. During the quarter, the segment booked $64.6 million of gross premiums written an increase of 2.5% quarter over quarter. Renewal pricing increased 1% in our traditional book of business in 2021 compared to a decrease of 3% in 2020. And premium renewal retention was 87% for the third quarter of 2021 compared to 84% in 2020. Traditional new business writings for 2021 were $3.5 million, compared to $6.2 million in 2020. We continue to see higher premium retention and lower new business, a trend that began at the beginning of the pandemic. Audit premium in our traditional book of business improved $700,000 quarter over quarter to an audit premium return to customers of $100,000, a significant improvement over recent quarters. The increase in the calendar year loss ratio from 62.2% in 2020 to 74.3% in 2021 reflects an increase in the current accident year loss ratio. Favorable prior year reserve development was $1.5 million in 2021 compared to $2 million in 2020. The increase in the full year 2021 accident-year loss ratio during the quarter reflects higher claim activity as workers return to full employment with the easing of pandemic-related restrictions in our operating territories and the labor shortage, resulting in increased overtime hours by existing employees, a reduction in skilled job training, and increases in alternative work arrangement risks. The trend in higher claim activity continues to be concentrated in our historically profitable small book of business, most notably in restaurant hospitality and small construction market segments, and was from accounts within our renewal policyholder base. We recorded a current accident year loss ratio of 77.8% for the third quarter of 2021, which brings the ratio for the nine months ended September 30th to 74%. Our detailed actuarial process each quarter is consistent in scope and scale with that at year end, and this, coupled with our short-tailed claim strategies, enables us to react and record these trends real time. Despite the increase in claim activity in our small book of business, overall frequency continues to be below pre-pandemic levels and the lowest in 10 years with the exception of accident year 2020. The claims operation closed 12.2% of 2020 and prior claims during the 2021 quarter consistent with third quarter historical trends. There were 160 reported COVID claims with accident dates in the third quarter of 2021 with a total reported incurred loss expense of $127,000, which management relates to the spread of the Delta variant. We continue to monitor legislative attempts to broaden workers' compensation coverage in our underwriting territories, but observed minimal movement during the third quarter. The 2021 underwriting expense ratio decreased to 32% from 35.2% in 2020 primarily due to the realization of the restructuring initiatives implemented in August of 2020 and the recording of $900,000 in employee severance costs in the third quarter of 2020. Other underwriting and operating expenses were $8.6 million in the third quarter of 2021, a decrease of 13.7%. The segregated portfolio sell reinsurance segment produced income of $539,000 and a combined ratio of 87.7% for the third quarter of 2021. Premium trends in the SPC RE segment were largely consistent with those in the workers' compensation insurance segment. We renewed all of the captive programs that were available for renewal during the current quarter. The SPC RE segment calendar year loss ratio increased from 42.7% in 2020 to 56.7% in 2021, driven largely by a decrease in prior year favorable development quarter over quarter. The 2021 accident year loss ratio was 67.2% compared to 67.3% in 2020. The 2021 accident-year loss ratio reflects the continuation of intense price competition and the resulting renewal rate decreases in the workers' compensation business and the impact of higher claim activity as workers return to employment offset by favorable trends in prior accident-year claim results and its impact on our analysis of the current accident-year loss estimate. Favorable loss reserve development was $1.6 million in the third quarter of 2021 compared to $4 million in 2020. Despite the increase in loss activity in the workers' compensation insurance segment, I want to emphasize that there were several positive indications for the quarter, including a decreased expense ratio, gross written premium growth of 2.5%, strong premium renewal retention, improved audit premium, and rate increases of 1%, the first rate increase in many years. Ken?
Ken McEwen
Thanks, Kevin. Now we'll turn back to Ned for a review of the results from Lloyds. Ned?
Robin
Thanks, Ken. Though the Lloyds segment reported a profit in the third quarter, it was a smaller one than the year-ago quarter due to the expected top-line reduction and some adverse catastrophe development. As you know, for the 2021 underwriting year, we reduced our participation in Syndicate 1729 from 29% to 5% and our participation in Syndicate 6131 from 100% to 50%. The gross premiums written in the segment this quarter reflect that change. Meanwhile, adverse development primarily driven by certain large catastrophe related losses further thin the margin this quarter. I'll close with a big thank you to our team members across the organization for your continued dedication and commitment. Change is hard, particularly during a period of national uncertainty and upheaval. You've done a remarkable job, and we're on the right track.
Ken McEwen
Thanks, Ned. Robin, that concludes our prepared remarks. We are ready for questions.
Operator
Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind and would like to withdraw your question, please press star followed by 2. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question comes from Matt Carletti from JPMorgan. Matt, please go ahead.
Matt Carletti
MATT CARLETTI, Hey, thanks. Matt Carletti at JMP. Good morning. Ned or Mike, this one's probably for you. I was hoping you could give us a little bit of a picture of where the competitive landscape sits today in the core physician's book, I guess as well as the specialty book. A large competitor announced, I think, just a week ago that they're pulling out of an excess portion of the hospital space. Are those sorts of things continuing to happen? We've seen some a while ago, or are they still happening and It takes a large public company to mention it on a conference call for the rest of us to see it. Just an update would be helpful.
Robin
Hey, Matt, good morning. Maybe I'll answer and then Mike can fill in with some more details. I think it is, to a point I think you made there, I think it is important to look at the healthcare professional liability marketplace in particular in kind of two distinct pieces. And one is the physician business perspective. And one is what we would call specialty healthcare, which would pick up the hospitals and facilities and large national groups. And the reason I think it's important to look at those differently is I think the markets for them, one, they're served in some instances by different companies. And then what's going on in those two markets is different. In the physician space, which continues to be served by a large number of mutual companies, While we are seeing rate and we are seeing competitors take rate, I think it remains a very competitive marketplace with really very limited withdrawals of capital. There's, I would say, still an abundance of capital in this space. In the specialty healthcare business, that certainly has been more volatile, and we have seen players exiting the space. I think there are probably also players that are are entering the space as well. So the capital withdrawals have not been so significant as to create, you know, an intense hard market rate is needed in that part of the market. And people are obtaining the rate and including pro assurance. So I think that's very, very good. Someone said to me yesterday, you know, if you're, if you're getting right on a, on a piece of business that has 160% loss ratio, that's not necessarily a hard market. That's just getting rate where you need rate. And I think that's what's going on more so than saying we're in a hard, hard market. We're getting rate where we need to get rate. And the folks that are competing in that segment of the business are chasing rate in the same way that we are. The reductions in capital I don't think have been significant enough to change the market dynamics beyond that. Mike, what would you add?
Dana
Thanks, Ned. And good morning, Matt. The only thing that I would add on the specialty business is we have seen consistent achievement improvement in terms, conditions, product structure, and limits profile on top of the rate. So the market has allowed us to really look at that closely and make some good decisions on the underwriting side there. So that has been helpful in moving that book towards profitability. Just would finish up by saying just one thing to keep in mind, Matt, is that our rate increases have been prolonged. We went back to the late 2018 all the way through the Q3 of this year with really positive rate across our healthcare book of business. So I think we've been ahead of it. I think we've gotten those incremental increases and stayed ahead of the frequency and severity trends. And just one last point because I was really pleased. We had rate increases across our overall specialty book this quarter. It went beyond the NorCal book and HCPI. We had eight points in Medmark and at our IST small business book. So there was some nice consistency in our pricing across the book this quarter.
Robin
Mike, thanks for that add-on. And I think one of the things that Mike said there, Matt, is really important, you know, the compounding impact of rate increases over multiple years, and you can really trace the rate increases that we've been driving, you know, back to 2018, which I do think is important.
Matt Carletti
Yeah, very good point. Thank you for the color. And one other question, if I could. In talking about the accident-year loss ratio in the specialty business for the quarter, specifically the physician's book, you You talked about how you recognized some of the, you know, reduced frequency that you saw in 20 and 21, you know, kind of finally this quarter, but it was offset in the reported numbers by NorCal, which runs a little higher. Can you help us understand that nuance a little more, either kind of how much you recognize in the legacy, you know, ProAssurance or kind of what the spread is between where legacy ProAssurance and NorCal run? and then kind of the follow-on to that is, is that, for structural reasons or otherwise, a healthy spot for NorCal, or is that part of why maybe they're getting a little more rate than a legacy pro-assurance book that you're aiming to bring that, to narrow that gap?
Robin
Yeah, and I'll let, Matt, that's a great question. I'll let Mike answer it. One thing I would say, though, is that, you know, just understand that even though we had a long period to do due diligence with NorCal and we're still getting to know that business and that company better and better every day. And so I think we're cautious as a consequence of that. And as we get more comfortable with the data, their lost data, and spend more time with it, our view will likely evolve. But more specific to Matt's question around kind of the comparison of NorCal and Legacy PRA, I'll let you answer that.
Dana
Thank you, Ned. Thank you, Matt. Just something to think about. Just from a segment loss ratio perspective, we had an improvement of roughly 3.4, 3.5 points. And that was kind of offset by a higher average loss ratio that was roughly about the same, 3.5 points. That did include purchase accounting adjustments for NorCal. A couple things from a color perspective, Matt. We did... As we looked at the books of business, we did see that we've had prolonged frequency reduction in our pro assurance legacy book of about seven quarters. We were able to recognize that to the tune of about two and a half points and about $4 million on the accident year. I think for both, as Ned said earlier, and I think it's a great point, we're still underwriting the understanding the book and the data. We will certainly do a deeper dive on those frequency trends in the fourth quarter, both internally on the actuarial side and externally. Those changes, if we continue to see these improvements, we will be able to take some favorable action on that. The other thing to think about here is that from an underwriting standpoint, It was just the NorCal team has done a terrific job. We had double-digit physician rate increases, 18 points on the specialty book since we've joined forces. So even though the loss ratios are higher at this point in the cycle, I think the re-underwriting efforts are going very, very well. And another thing to keep in mind is, you know, there's 87% retention. We had 90% retention in the NorCal physicians. I think we're just off to a great start there.
Matt Carletti
Great. All great points. Thank you for the color and for taking my questions.
Operator
Thank you, Matt. Our next question comes from Paul Newsome from Piper Sandler. Paul, please go ahead.
Matt
Good morning. Maybe a little bit more on the... outlook for the accident year loss ratios for mainly especially business, but I also would love to hear some comments on the workers' comp business as well. You know, the spread of price to underlying claims inflation has been kind of the topic du jour for the last quarter or two. Where does that sit? And I guess sort of somewhat relatedly, Where do we think the, given the way that you sort of uniquely account for your business, how would that sort of work its way through the system?
Robin
Maybe I'll give some high-level thoughts, and then Mike and Kevin can fill in some details there, too. Paul, I think that the challenge from a reserving standpoint right now is just all of the uncertainty that exists. So Mike talked about it. decline in claim frequency. And while we can observe a decline in claim frequency, we don't know what to attribute that decline to. We don't know if it's higher selectivity on the part of plaintiff lawyers about the cases that they're bringing or what else might be driving that frequency, and it's just too early to be able to tell. And as a consequence of that, we're going to be cautious in recognizing any benefits associated with it. The fact that court systems aren't fully open right now, and so things are proceeding more slowly through those court systems, if they're proceeding at all through the court systems, adds to that uncertainty, especially for a long-tailed line of business like our healthcare professional liability line of business. And so we are very, very cautious. And that spells over to what we saw this quarter in the workers' compensation business, as Kevin will fill in some more details on, but we began to see some increases in claim frequency and some concerns about claim severity there and took action very quickly to what we're seeing. I would note that Eastern writes what we perceive and many perceive as a short-tailed workers' comp business, just in the way that they handle claims, and I think that is somewhat unique within the workers' comp industry, and so I think we're probably ahead of many others in recognizing some of the trends that are actually going on in the workers' comp space and have reacted appropriately. Maybe we'll work backwards. Kevin, do you want to pick up on some further details on comp, and then we'll go to Mike.
Mike
Yeah, I'm happy to. Thanks, Ned, and thank you, Paul. You know, if I were to look at the accident-year loss ratio for comp, and really the increase in the third quarter and kind of bifurcated in the two areas. You know, we talked about the return to employment with the lifting of pandemic restrictions, and I would say some activity there in Q1 and Q2 and a little bit into Q3 where workers are not in shape. Again, small construction, small manufacturing, restaurant, hospitality. And what we saw in the third quarter that caused us to increase our estimate, I would say was more directly related to the labor shortage and seeing an increase in activity with employee fatigue and burnout for those that are actually working, you know, not as much skilled training and, you know, policyholders will say, Kevin, I just need a warm body. Employers performing alternative tasks because they're short on people and just general anxiety about working in the pandemic. So I think all of those were a contributor. You know, Ned talked about frequency. Our frequency is down. It's just up a little bit relative to 2020. And what's interesting about frequency of reported claims is the hard claim counts are down. So I can compare 2021 to 2011, and I actually have less reported claims in 21 than I do in 11. Severity's up a little bit. We've seen a lot of claim activity in that $50,000 to $150,000, $200,000 area. And again, with our short-tailed nature of our business model, I believe we're going to recognize those trends much more quickly, get those reserves to ultimate faster than a lot of the industry is. So hopefully that provides you a little more color.
Robin
Thanks, Kevin. Mike, do you want to cover for healthcare professional liability as well?
Dana
Sure, Ned. Thank you. Paul, just a couple observations. One, we're pleased with the pricing improvements relative to both the frequency and severity trends. Severity varies by state, but it's roughly been in that 3% to 3.5% range. range for our book of business. So we're encouraged by the improvements in the accident year loss ratio. We're encouraged by the reduction in frequency in both NorCal Legacy and I'm sorry, Pro Assurance Legacy and the NorCal book. We're just going to contemplate all that as we review the fourth quarter. I think just overall they're pretty encouraging trends on all fronts.
Matt
Maybe just a few more on the workers' comp business. The workers' comp business, the industry has had quite a pretty good run the last several years. But if you look at your workers' comp loss ratios relative to the industry, they're three, four points higher. What about your mix versus the industry would create a generally higher loss ratio? Obviously, as analysts, we have a view on the industry overall typically. So maybe kind of thinking about sort of comparing and contrasting while your loss ratio is a little higher than the rest of the industry.
Mike
No, I'm happy to do it. I would say the loss ratio is directly related to our reserving philosophy. And again, the short tailed nature of our business. And I think that there are going to be some industry trends in the future where others may be recognizing this, but not necessarily real time. When I think about our overall book of business, we're diversified in over 600 class codes. Our largest segment is health care. It's about 23, 24 percent of our book. But, you know, restaurants are 5%, hospitality 6%, construction is 9% or 10%. So we've always been well diversified by market segment, and we've been diversified regionally. And I just believe that we are recognizing this trend up front, which is driving our accident-year loss ratio up. that I believe is going to be more of an industry-recognized event that hopefully will be another thing that will ultimately change the market in workers' comp long-term.
Matt
Great. Thank you very much.
Operator
Thank you. Our next question comes from Gary Ransom from Dowling & Partners. Gary, please go ahead.
Gary Ransom
Good morning. I wanted to follow up on the workers' comp. It sounded like you were saying the frequency was only up a little bit from 2020, yet we're talking about, you know, recognizing something that sounds more significant in the changes there as employment comes back. And I just, what, can you connect that to me, for me, to help understand?
Mike
Yeah, so frequency is up only a little bit from 2020 to 2021. And again, I have to go back to 2010 before I find a lower number of reported claims. I think if you think about 2020, a lot of businesses were shuttered and, you know, the world had really changed in that year. And you fast forward to 2021 with businesses reopening, exacerbated by the labor shortage, we're not seeing significantly more reported claims from a frequency perspective. We're just seeing some more difficult claims with workers, you know, for example, working on a piece of machinery that they're not used to working on because they're only at 80% of their required labor. or a newer worker that comes in and isn't trained the way they would have been 18 months ago because they're just trying to get warm bodies in. You know, general anxiety in the workplace with the pandemic and with being short staffed. So anecdotally, you know, we're hearing about, you know, a 20 or 25 year experienced person that's been operating a piece of machinery for 25 years And they're like, I don't know how I got my, you know, hand or arm or whatever caught in this machinery. So I think frequency is only up slightly, but I really believe that the claim activity that we've recognized is directly related to the events in 2021, starting with the return to employment, and most recently, this increased loss activity specifically related to the labor shortages. Is that helpful, Gary?
Gary Ransom
Yes, that is helpful. I appreciate it. I also wanted to ask about the health care professional liability rate trends. In the prepared remarks, you talked about terms and conditions and various other changes that are going on besides rate. And I wondered if you could help quantify at all what those changes might add up to as compared to rate? you know, just any color you might be able to add there.
Robin
Yeah, that is historically a very challenging thing to do, actually, to quantify. You know, we know directionally the impact that it has. Mike, do you have any color you can provide?
Dana
Yeah, I agree, Ned. I think it's a tough one, Gary, but we'll see how it plays out. And I do think... It's helpful. It's material because as you bring up retentions and deductibles and really look at lower limits profiles, it helps. But it's a long-tail business. It's going to help over time. But I couldn't give you a specific number on that, for example, for a rate acquisition standpoint. A lot of moving parts on that book as well. So I think the thing to think about there, Gary, is it's a book that has been more in that 75% to 80% retention over the last couple of years, so there's a lot of movement there. We just think our underwriters are doing a really good job across the company on securing better terms, conditions, and product structure for us.
Gary Ransom
But just so I'm clear here, when we talk about whatever the quantification is of terms and conditions changes, that's on top of the numbers you gave us for the average premium changes. Is that correct?
Dana
That is correct, Gary.
Gary Ransom
Okay. Yeah, okay. And then one last thing on how you're recognizing a little bit of a benefit in the loss ratio. I was curious whether, this is all claims made business, is there a statute of limitations element that goes into this where after enough years go by you kind of know your frequency truly is lower?
Robin
Yeah, that's a good question, Gary. I think there are a couple parts to that question maybe to unpack. The concern right now, I think, is not that the frequency number is not a good number because it is a claims made book. So we kind of know the number of claims. What we don't know is, let's call it the quality of those claims relative to the quality of claims in past periods. And as I said earlier, whether or not it's driven by higher selectivity, as an example, by plaintiff's lawyers. There is a further question or a further concern that we have, which is that because the court systems have been somewhat shut down, And just the malaise that has been caused by COVID is that there's a, what I would call a pinch in the pipe in the reporting of claims. And that would show up in future years as claims under claims made product and whether or not those will materialize, say in 2022, that otherwise would have materialized in 2021. And that's where the statute of limitations does come into play. And the statute varies from state to state. Let's say on average, it's two plus years. And then for minors, it's very different because typically it doesn't begin to run until a minor reaches the age of majority, which is typically, I think, 18. So longer runway for OBs is an example as opposed to a general surgeon. But, yeah, it's something we're watching very, very closely, again, more because of this worry or concern about these claims that are potentially sitting on the sidelines that may come in into the future. Mike, anything you'd add there?
Dana
I don't have any further comment. Thank you, Ned.
Gary Ransom
And maybe just one last little thing, just in terms of the general impact of that. pinch in the pipe. Are any claims starting to come through now that give you a feel for what may have happened during COVID, whether social inflation just stayed the same and is kind of running as you might have expected, or whether it actually was a little better, a little worse?
Robin
I'd say it's too early to to say, and again, just to be very clear, we're, we're talking more about frequency when we, when we get into the areas of social inflation, you're, you're really talking about severity of claims. Um, and you know, we have some optimism that this idea of healthcare workers as heroes and the fact that healthcare workers across the country have really put themselves in the front lines and dealing with this pandemic, uh, creates some goodwill. that may have some impact on claims, but I think it's too early to tell yet. But I'd say more broadly, social inflation, you know, not necessarily just within the healthcare professional liability line, but across all casualty lines and within the litigation system, I don't think that there's been any significant downward trend in the impact of social inflation. Right.
Gary Ransom
Thank you very much.
Operator
Thank you, Gary. This now concludes our Q&A session. I will now hand back to Ken McEwen for any further comments. Thank you, Ken.
Ken McEwen
Thank you, Robin, and thank you to everybody else who joined us today. Look forward to speaking with you again in 2022.
Operator
Thank you, everyone. You may now disconnect your
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