ProAssurance Corporation
Q4 2020 Earnings Call Transcript

Published: 23 Feb 2021

[Operator:]

Good morning, everyone. Welcome to ProAssurance's Conference Call to discuss the Company's Fourth Quarter and Year End 2020 Results. These results were reported in a news release issued on February 22, 2021. Please review the document. 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 Security Laws and subject to applicable Safe Harbor protections. The content of this call is accurate only on February 23, 2021, and, except as required by law or regulation, ProAssurance 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 ProAssurance also expects to reference non-GAAP items during today's call. The Company's recent news release provides a reconciliation of these non-GAAP numbers to their GAAP counterparts.

[Ken McEwen:]

Thank you, Tom and good morning everyone. On our call today we have Ned Rand, President and CEO; Dana Hendricks, Chief Financial Officer; Mike Boguski, President of our Specialty Property and Casualty Lines; and Kevin Shook, President of our Workers' Compensation Insurance Operations. Ned, I’ll turn it over to you.

[Ned Rand:]

Thanks, Ken. There have been countless attempts to summarize all that was 2020. And I won't add to those efforts here. Suffice it to say 2020 was a year we are all glad to put behind us. However, it was not one we should hurry to forget. For all the challenges 2020 brought, it ought to be defined instead by our response to those challenges, and our determination in taking the steps needed to accomplish our objectives. None of this could have been accomplished without the dedicated and remarkable work of all the employees at ProAssurance. And I want to thank them for all they have done. The organizational and strategic changes we have made beginning in 2019, and throughout 2020 have had a meaningful impact on our operations and are having a positive effect on our performance. You'll hear some of the details of those improvements momentarily. And one obvious impact of those efforts has been to our top line. Our top line contracted in 2020 as we took a hard look at some of the business we'd written in recent years. However, this does not mean we don't intend to grow. We do intend to grow. We just want to make sure we're doing it profitably. The recent jump in our top line is a result of that strategy. Though the last environment is challenging at this stage of the cycle, we're not hunkering down to weather the storm. Rather, we are taking a moment to consult the math before moving through it. Now I'll turn the call over to Dana to take us through the results of the quarter and year. Dana.

[Dana Hendricks:]

Thanks, Ned. For the fourth quarter, we’ve reported non-GAAP operating income of $3.3 million or $0.06 per share. This reflects higher equity in earnings of unconsolidated subsidiaries, and a meaningful quarter-over-quarter improvement in our underwriting results. While we have more to do before we say we're satisfied with our results, this quarter served as evidence that the changes we've made over the past year and a half are having a strong beneficial impact to our operating performance.

[Mike Boguski:]

Thank you, Dana. The Specialty Property and Casualty segment continues to execute a comprehensive business strategy to address our operating and underwriting results. Although we recorded an underwriting loss in the quarter and year, we continue to be encouraged with the improvement in both the expense and net loss ratios exclusive of the underwriting loss associated with the large national healthcare account in both 2019 and 2020.

[Ken McEwen:]

Thank you, Mike. Congratulations to you and your team for getting us this far in the process. Now we'd like to pivot to the results from the workers compensation insurance segregated portfolio sale reinsurance segments. Kevin, what can you tell us about the quarter and the year?

[Kevin Shook:]

Thank you, Ken. The workers compensation insurance segment produced income of $6 million, and a combined ratio of 97.8% for 2020 including income of $2.1 million and a combined ratio of 96.3% for the fourth quarter. During the quarter and full year, the segment booked $47 million and $247 million of gross premiums written respectively representing decreases of 13.6% and 11.4% compared to the same periods in 2019. Renewal pricing in 2020, decreased 4% for both the quarter and full year, reflecting the continued competitive pressures in our underwriting territories despite COVID-19 and the associated economic conditions. Premium renewal retention was 82% for the 2020 quarter and 84% for the year both improvements compared to 76% and 83% for the same period in 2019 as we continue to see stronger premium retention and lower new business during the pandemic. New business writings decreased quarter-over-quarter to $4.4 million in 2020 compared to $5.5 million in 2019 and for the full year were $27.4 million in 2020 compared to $30.8 million in 2019. Audit premium for the fourth quarter of 2020 resulted in additional premium to the company of approximately $700,000 compared to $2.2 million for 2019 and for the year with additional premium of $700,000 compared to $5.7 million in 2019. The decreases in audit premium reflect the economic impact of COVID-19 on policyholder payrolls. We continue to expect downward pressure and future quarters on premium resulting from changes in payroll estimates.

[Ken McEwen:]

Thanks, Kevin. Turning to our Lloyd's Syndicate segment. Now I'd like to ask Ned to take us through the results from the syndicates and some of the developments in the quarter. Ned.

[Ned Rand:]

Thanks, Ken. As expected, we saw natural catastrophe losses in the fourth quarter related to hurricanes Laura and Sally and the wind storms that swept through the Midwest in August. Our participation in the results of Syndicate 1729 and 6131 led us to record a loss of just under $1 million in the quarter. The fourth quarter loss combined with our reduced participation in Syndicate 1729 for the 2020 underwriting year contributed the overall lower income of approximately $2.1 million for the year. Losses on these storms and other natural catastrophes in the last three months of 2020, we just do expect a segment loss in our first quarter of approximately $2.5 million. Regarding the developments Ken mentioned, it's been a year of change for us at Lloyd’s and the fourth quarter proved to be no exception. For the 2021 underwriting year, we have further reduced our participation in Syndicate 1729 from 29% to 5%. Additionally, we reduced our participation in Syndicate 6131 from 100% to 50% for the 2021 underwriting year. Due to the quarter lag, these changes will be reflected in our results beginning in the second quarter of 2021. Our decision to further reduce our participation in the Syndicates is driven by our desire to support and grow our core insurance operations and to reduce volatility and our underlying performance. Duncan Dale and his team at Dale Underwriting Partners have been and will continue to be valued partners to ProAssurance and it is a testament to the quality of their work that the Syndicates were able to secure participating capital to replace our own without difficulty. Before we open the call to questions on note that the meaningful improvements we've made in the past 12 months go a long way towards our goals of operations excellence in sustainable profitability. And sustainable profitability. As we seek to build on this momentum in 2021, I want to thank this leadership team and again the employees we serve for their flexibility and dedication to our mission. I also want to thank our customers particularly the healthcare professionals who have risked their lives so that ours may be made safer in a year when protecting others took on new depth of meaning. Ken?

[Ken McEwen:]

Thank you, Ned. Tom, that concludes our prepared remarks and we are ready for questions.

[Operator:]

Great. We will now begin the question and answer session. We will pause momentarily to assemble our roster. And the first question comes from Greg Peters with Raymond James. Please go ahead.

[Greg Peters:]

Good morning, everyone. I wanted to just focus in for a second on NORCAL. And I know you've commented a little bit about it in your prepared scripts. But could you tell us a little bit how their results look like they'll measure out for the year? And you kind of put a budget in place for what you expect out of your operations. Can you give us any sense of how you're feeling about the outlook for NORCAL?

[Ned Rand:]

Hey, Greg, thanks. Thanks for those questions. So NORCAL has not yet released publicly its 2020 results, they'll be filing their statutory statements, I think along with everybody else toward the end of the month. Dana, you may have some updates, though. Is there anything you can provide?

[Dana Hendricks:]

Excuse me Ned. That's right. They'll be filing ahead of the March 1 deadline.

[Greg Peters:]

Thank you.

[Ned Rand:]

So there will be better information for you at that time?

[Greg Peters:]

Okay, that's fine. I understand. In the press release and I know it’s part of your standard sort of rhetoric about closing the transaction or made subject to the affirmative vote of policies. And in the press release to say and satisfaction of conditions described in the acquisition agreement between the companies and you've also made reference to this in your prepared remarks. Is there any issue in any of the conditions described in the purchase agreement that are outstanding or would you say at this point, now next quarter, they're meeting all of the conditions in the purchase agreement? I'm just trying to figure out it? Do you understand what I'm getting at?

[Ned Rand:]

Yes. No, absolutely. I mean, it's a kind of a broad sweeping statement. And we've got Jeff available, who can help fill in where I'd perhaps don't give clarity. So a couple of things, one is the regulatory approval that's been received is to, for NORCAL to go ahead and send out the solicitation to its policyholders. There is still to be held a hearing by the Department of Insurance before they make their final approval of the transaction. And I believe that's anticipated, that hearings anticipated to be late March early April. And so that is one of those conditions is kind of the final approval post hearing from the Department of Insurance. And then I would say that the other things that remain open are just those kind of typical due diligence, bring down sort of items that would be in any agreement. There are conditions governed by the California demutualization regulations on the number of respondents and positive response to the sale to ProAssurance and those sorts of things as well. But I don't think there's anything that's kind of out of the ordinary on those conditions. Jeff, is there anything that I've left off?

[Jeff Bowlby:]

Yes, Ned, there are a couple of conditions that relate to how NORCAL policyholders choose to be paid in the conversion. And without getting into too much detail, they can take stock in the converted company. They can take a discounted cash option or they can take a contribution certificate which is sort of a debt instrument for 10 years. And the agreement includes a condition that no more than $200 million in aggregate value will be in the form of contribution certificates. And for those policyholders who take stock at least 80% of the shares must then be tendered to ProAssurance pursuant to our tender offer.

[Ned Rand:]

That's helpful clarification, Jeff. Thank you.

[Greg Peters:]

Thanks for that detail. Can I just pivot using staying on that theme but to the broader perspective? I know at the time of the announcement, you talked about the company's capital position you talked about their capital position, you talked about reserves, here we are your 2020s in the books? And thank god that's in the rearview mirror. But as you think about your modeling out for capital for 2021 in the context for this pending merger, in the context of your top line that's declining every segment almost down double, it's done double, digit every segment is down double-digit from a top line perspective for the year, can you just give us an update on the capital position the company and where you stand?

[Ken McEwen:]

Greg, Dana, do you want to take that?

[Dana Hendricks:]

Yes, I'll be glad to thank you. It's a good question. So at the end of fourth quarter, we held cash and liquid investments of approximately $260 million outside of our insurance subsidiaries that are available for use without regulatory approval or restriction. And of course, we have additional $250 million in permitted borrowings available under our revolving credit agreement. And as of now we have no borrowings outstanding under that revolving credit agreement. So that's just a high level recap for you, Greg.

[Greg Peters:]

And in when you merge that with the pending acquisition, what changes if anything?

[Ned Rand:]

Okay, Greg. If you think about the transaction it is as structured essentially around a book value transaction for ProAssurance. And so as such it doesn't eat up any of our capital. What it will do is allow the capital that we hold as an organization to be better levered when you think about a premium to capital writing ratio. But importantly, it doesn't eat up any capital. As far as the creation of any substantial intangible assets.

[Greg Peters:]

I got it. I'll take the rest offline. Thanks for the answers.

[Operator:]

The next question comes from Mark Hughes with Truist. Please go ahead.

[Mark Hughes:]

Thank you very much. Good morning. I wonder if you?

[Ned Rand:]

Good morning Mark.

[Mark Hughes:]

If you could talk about. I wonder if you could talk about the competitive environment, we think about this quarter your premiums were still declining double-digit down a little bit faster it hit the same time the pricing increases relatively steady. How do you see the competitive environment now versus six months ago? Are you going to get the opportunity to kind of pivot to top line growth in 2021?

[Ned Rand:]

Mark, great questions. I'm going to kind of let Mike and Kevin in turn respond to their kind of their segments. So Mike, do you mind taking that first?

[Mike Boguski:]

Happy to do so. Just to start the decrease in the top line is really re-underwriting for the most part Mark. And that was important to us to move towards the profitability that we want to from a competitive environment like there's kind of two worlds that we're looking at today, the Standard Physicians market continues to be relatively competitive across our operating territory state-by-state. And, we continue to compete against some pretty tough competition there. What we've done in that segment is, we have our core stage continued to perform well. We've had some volatility and what I would call non-core or some smaller states, so we're really trying to get after that from an underwriting standpoint and make sure that is profitable going forward. The Specialty market has been pretty interesting. It's been pretty firm across all the different components of that when you look at hospitals and facilities correctional care, senior care. So as you can see by our year-end results with about 15 points of rate, we're starting to see more consistent growth in that segment due to the firming market and more importantly the product structure terms and conditions have really improved in that market. So I just think the underwriting environments is when you look at it compared to six months or a year ago is much more attractive as we re-underwrite that book of business.

[Kevin Shook:]

And then, Mark, its Kevin on the workers comp side quickly for 2020 down about 11%, 4 percentage points of that is rate. We talked about the reduction in audit premium which is COVID driven about $4 million of mid-term endorsements which is also COVID driven. Interestingly, for the month of January of ‘21, we were down about 5%. So saw an improvement there. And just in terms of competition, it's still very competitive in workers’ comp despite COVID-19. But we are starting to see signs like accident year combined ratios of 100 versus calendar years larger package players anecdotally are looking for rate and loss costs are starting to minimize. We are starting to see some positive signs that things may be taken a turn for the better later in 2021.

[Mark Hughes:]

Thank you for that. How do we think about the frequency? You talked about the COVID having some impact on frequency? What else could it be, any specifics on how much frequency was down in 2020? And I'm not going to pile on too much or make it too complicated, but your current accident year loss pick was up a little bit sequentially in the Specialty business. What are the prospects for frequency or I guess the courts are opening up now out of that mix with all this just curious your thoughts on frequency as we go into 2021 maybe I'll summarize?

[Ned Rand:]

Yes, Mark. And I think you're talking mainly about the Specialty P&C business, but I'll make maybe some comments and then let Mike just fill in. I think you're the one that in a conversation with you referred to COVID as it impacts kind of the insurance business as a fog of war. And I think there's some to that. And so while we see declines in frequency, we don't yet know-how to interpret those declines in frequency. We don't yet know all the drivers of those declines in frequency. And so we've been very cautious and giving any credence to those declines in frequency as we've established loss reserves for the 2020 accident year in the Specialty P&C segment. And so I think that kind of is the reality of the situation. And once that fog of war clears and we have better clarity and to the types of claims that have come in and maybe better said the declines that didn't come in we'll have a better sense of what that decline of frequency ultimately means. And I think it's going to take as it usually does and the long-tailed lines of business like NPL 12 to 24 months before we have that kind of hindsight. Certainly the court systems opening up will begin to help. One of the things I think we don't know as an industry is if there is a backlog of claims, just waiting on the court systems to open back up. I think offsetting that potential is the number of immunity measures that have been enacted either through executive order or through legislative measures and a lot of states in which we do business. And one thing I would point out and Kevin made this point in his comments is that the work comp business for us is a shorter tailed line of business. And as Kevin said, I think that 87% of their COVID claims being closed. We've been able to react a little more to the reduction in claim frequency within the work comp line. And so you do see some improvements there because we've got a little more credible data as to that impact. Mike, what have I left off there?

[Mike Boguski:]

That was great, Ned. I was just add a couple of points as we looked at that accident year reduction, it was primarily related to the re-underwriting efforts. And we took a cautious view as you're aware on the reduction in frequency. Mark you had asked a question about the quarter-over-quarter increase. In the third quarter, we had a large retro premium adjustment which reduced the quarterly accident year loss ratio down by almost 2 points in the third quarter. So that was just a kind of an aberration. The loss pack has really been established pretty consistently throughout the year. So I just want you to be aware of that.

[Mark Hughes:]

Thank you for that. Appreciate it.

[Mike Boguski:]

Yes, absolutely.

[Operator:]

The next question comes from Paul Newsom with Piper Sandler. Please go ahead.

[Paul Newsom:]

Okay, good morning. Just kind of a follow up on the low actually your pick for the premier if I'm looking at the loss ratio not so much on a quarterly basis but maybe on an annual basis. There used to be quite a bit of state stability and that sort of 82, call it 82% level. And similar to what you'd have with a long -tailed business but obviously last couple years it's popped up quite a bit. Is it fair to say that that these kind of the account issues and stuff wouldn't have not affected that loss pick, this sort of interpretation is getting? And so that that in general loss pick that we've seen in the past is about the same perspectively or are we actually put those in general to think of the loss pick higher and obviously affected by the business mix has changed over time as well? But any comments that kind of get us there and again, I'm not looking for quarterly stuff, I'm really thinking annually perspective. And broadly where that loss pick should end up being at the end clearly how you use?

[Ned Rand:]

[nutritional:]

[Mike Boguski:]

I would just say since 2016 both the ProAssurance in the industry the Specialty area has not met expectations with the loss package. It's clearly higher than the core Physicians business. And clearly over the last 18 months, we've been more aggressive in the underwriting actions there, because it's been more volatile. And I think we're moving it down materially over the last 18 months and we'll have that in line with the core Physicians as we move out into the future. But there was no question that as the market kind of went after is the health care consolidated in the market went after the facilities, hospitals, larger regional hospitals that pricing was pretty aggressive. And the loss picks were elevated. We have a terrific Specialty team that we've brought in to oversee those books of business, they're doing a fantastic job and we expected to be a smaller but successful part of our business going forward.

[Paul Newsom:]

[voice:]

[Ned Rand:]

Yes, it's a good question. Bottom line, it's a bit challenging just because of the way that the premium comes in from accident years to calendar years within Lloyd’s, given the fact that there's a good bit of reinsurance and other things that kind of the written and earn patterns are somewhat different. So you will begin to see the reduction and the participation in our second quarter, their first quarter of 2021. But it won't just be like falling off a cliff from 29% to 5%. Because there's still business coming in from that prior year that's on a written basis that will mute that some. The business plan for the Syndicate also increased for 2021. So they moved from 29% to 5% is not linear, there's also this increase in business that's going on although overall, it'd be a much, much smaller participation, for ProAssurance. And that's been kind of a pattern that's going on. So I think you will see kind of a steady decline in premium over time, but it will take 12 to 24 months before you really begin to see the full impact of that reduction down to 5%.

[Paul Newsom:]

So is that that mean, if I'm thinking about this is that you will see the reduction of the changes in the second quarter because of this lag and then the full run rate will end up being in the second quarter of ’22?

[Ned Rand:]

Yes, I guess that's probably not precise. But it's probably the best way to think about it.

[Paul Newsom:]

Get in the right zone. And then is the idea to hold on to the 5%...?

[Ned Rand:]

As we said, we have a lot of confidence in what Duncan and his team are doing. And view them as valuable partners to ProAssurance and we'll continue to have discussions with them and evaluations with them as we move forward. But we're very comfortable with where we are right now.

[Operator:]

The next question comes from Gary Ransom with Dowling & Partner. Please go ahead.

[Gary Ransom:]

Good morning. You mentioned a couple of times along the way and the remarks about product structure and terms and conditions. And I was wondering if you could give us some example or some sense of how important there are and what kind of changes are being made there?

[Ned Rand:]

Gary. Mike, you might take that.

[Mike Boguski:]

Absolutely. Good morning, Gary. It's actually pretty significant. And it's equal really to what you see on the premium side as far as improving the rate adequacy. And that's why we're working really hard to move the loss ratios down with product term and conditions. But it's a combination of rising of retentions, rising of deductibles re-pricing of the business, different products whether we move it to a captive structure with less risk lowering of limits all of those component parts are really, really important to the overall profile that we look at from a rate adequacy standpoint. We brought in a really talented Senior VP of Actuary that sits in on our large account team as well. And we have a lot of really good interaction between the actuary team and underwriting to look at the pricing and the terms product structure of those things. So it's pretty substantial. It's as important as the 15 points of rate for the year.

[Ned Rand:]

And important to what Mike just said and for everyone to understand is that the structural changes, the product changes terms and condition changes are not imputed into that rate increase. And so when you're thinking about the change and the business on the Specialty P&C side, you've got the impact of the rate increase. And then in addition to that you have the impact of the change in terms and conditions.

[Mike Boguski:]

And I will just add a few other points from the re-underwriting perspective. We’ve reduced our senior care exposure about 80% year-over-year. We've reduced some exposure in the correctional care side of our business. So the thing that's not being talked about that I think we should communicate a little bit more here, it's just a reduction in the volatility of the non-renewal of some large accounts and the aggressive actions in both senior care, correctional care and other areas of that Specialty book, the team has just done a fantastic job.

[Gary Ransom:]

Would it be possible to generalize in a way saying the retentions you have doubled over the past year or is there -- have trended in some -- to some extent that's quantifiable?

[Mike Boguski:]

Yes, at this point is really individual -- it's individual account underwriting. And there's so many variables it's really hard to comment on that.

[Gary Ransom:]

Yes. Okay. That's fine. Just On another subject, there's a couple of times where you talk about claims, closing patterns. I mean it's mostly in the segregated sale business, but I think you mentioned it on the call in the workers comp piece of it. It wasn't changing and maybe I heard that wrong. But can you talk about what you're seeing in that whole in the claims closing in worker's comp?

[Kevin Shook:]

Sure, Gary, it’s Kevin. What – we -- the point I was trying to make is that we are seeing consistent claim closing patterns. So getting an injured worker back to wellness during the pandemic and getting that claim closed. We're having the same success rates during the pandemic that we had pre-pandemic. And then the other item that I did mention is that for all of the 2020 reported COVID claims as of the end of January 31 of ‘21 87% of those are already closed. So Ned referred to this a couple of minutes ago, workers comp the long-tailed business, but we're a shorter-tailed writer and just wanted all of you folks to know that claim closings remain consistent both during the pandemic compared to pre-pandemic and that we've had great success in getting the COVID claims closed because of our wonderful claims professionals. That one clear.

[Gary Ransom:]

Yes, it's clear on the workers comp. What is it that was going on with the comment in the press release on changes in settlements or claim closing patterns in the segregated portfolio sale business?

[Kevin Shook:]

The only comment I believe that was made and take a look at the press release is that we had significant claim closing success in segregated portfolio sales that resulted in an unusually large amount of favorable development in the quarter compared to the fourth quarter of 2019. So I would characterize it by saying the workers comp business was status quo very, very successful. And the segregated portfolio sale had been even better quarter during the pandemic than they did in the fourth quarter of 2019.

[Gary Ransom:]

All right, thank you. And then Can I just go back to the healthcare side to Specialty P&C. What are you seeing on the claims patterns there it's -- it feels like a little bit of a mix because you have lower frequency, so maybe you can spend more time on them thinking about them and yet the courts aren't open. And on the other hand maybe there's some older claims that you could have worked on, so things get accelerated at that end. When I think of all the moving parts it's not entirely clear exactly what you might -- what you expect to see. And then how you translate that into whatever your loss might be. Do you have any comments on what you're seeing there?

[Mike Boguski:]

Yes, I would just -- this is Mike. I would just say obviously, it's just a total slow now, the court systems are closed, to some degree mediations are closed down. So their claims are going to remain open longer in that context, where we have the ability to work on settlements, we've been able to do that successfully. But I just kind of look at it overall as a -- just kind of roll the whole thing forward as a result of the pandemic delays. And we just got to continue to monitor and evolve that it's going to be an evolving situation. We have not -- a change direction at your loss picks as we stated earlier as a result of any changes in those patterns. We've been conservative on that side. But that's yes -- I think it's yet to evolve.

[Gary Ransom:]

All right, that's helpful. Thank you very much.

[Operator:]

The next question comes from Matt Carletti with JMP. Please go ahead.

[Matt Carletti:]

Yes, thanks. Good morning. Just a follow up on Gary's question there actually, I know it would be anecdotal. But have you seen anything in cases that maybe have gone to trial or were slated to go to trial? Have you seen anything with regard to jury behavior may be changing with regard to healthcare workers and kind of the public view of them being heroes and so forth? It might be too early, I understand you won’t to reflect that in numbers, but even anecdotally have you seen any of that?

[Mike Boguski:]

Hey, Matt, it's Mike comment. Yes, I think you got to have juries in order to be able to judge jury behavior. And the reality is that while the court systems are very slowly opening up, there have been very, very few jury trials and so not anything that you could face any sort of even anecdotal view on I don't think.

[Matt Carletti:]

That's very fair. And then just the only other one is the follow up on kind of back to the beginning of Greg's question. When he was asked about NORCAL, I was just wondering if there's any kind of update you can give us there just in terms of what's going on with their business, whether it be in terms -- is it anything as we think about your kind of Standard Physicians business? Is it a similar kind of -- if their 2020 looks similar to what we saw in your Standard Physicians business, whether it be in terms of top line patterns, loss ratio patterns, pricing so forth or is there anything kind of specific to NORCAL that we should we should keep in mind as we think about blending it in with your numbers mid-year?

[Ned Rand:]

I'll let Mike speak to the specifics. I think one thing that's probably a little different is that their top line probably remained a little stronger, you've got the demutualization pending and that will cause often policyholders to stick around to wait on that demutualization. So their retaining patterns probably a bit different than ours. Mike, you want to comment on anything else?

[Mike Boguski:]

Yes, I think the team there continued to do some re-underwriting of the Physicians book consistent with ours. I think new business would probably a bit better in the Physician space than what we saw in 2020. And as Ned stated that the top line held up better on a year-over-year basis that's basically what we've seen from the NORCAL team.

[Matt Carletti:]

Okay, great. Thank you. Appreciate it.

[Operator:]

The next question comes again from Mark Hughes with Truist. Please go ahead.

[Mark Hughes:]

Yes, thank you. Mike, did I remember properly that you had maybe alluded to some timing differences in the first half of ‘21 around renewals in the Specialty business, any either tailwinds or headwinds on that?

[Mike Boguski:]

Yes, there was a timing difference this quarter Mark from a large renewal. And there was one large non-renewed.

[Mark Hughes:]

I'm thinking the first half say Q1, anything like that to think about?

[Mike Boguski:]

Yes -- what we should -- the only thing I put out there Mark is for Q1 is that we've had just a handful of two year renewals in our Specialty area and there's still a couple of large accounts that we have not -- we were not able to re-underwrite in 2020, that we will still review those carefully in 2021. So there can be some potential impact on the top line from those isolated situations we have as you're well aware then really re-underwriting since the third quarter of 2019. But there are those isolated situations that we'll probably see throughout 2021.

[Mark Hughes:]

Okay. And then the premium at Lloyd’s, I don't know if it's possible to look at it this way. But if you took all of these changes that you're anticipating with the book at Lloyd’s and you look at their current premium in force, how much of that drops to your bottom line once you get to where you're going to assume other things being equal. What kind of premium run rate is that? And again just based on the current book just based on the way you're adjusting your participation?

[Ned Rand:]

Yes, Mark, and I don't know that we've got that at our fingertips that's something that we can try and pull together.

[Mark Hughes:]

Okay. And then the change in the reinsurance, the increase in the retention from a $1 million to $2 million, is that -- does that have much significance? Does that potentially impact the loss ratio if you're seeding-off more earned, if you're retaining more of those lower losses? How does that impact the P&L on a go forward basis?

[Mike Boguski:]

Ned, I'll take that it’s okay. Mark the -- we were in a pretty good position with a lower retention for a number of years we had really competitive terms the markets firmed. I think a lot of healthcare players are at that $2 million or $3 million retention as you look at it. But our evaluation was really simple. From the standpoint we did a very -- we did an actuarial analysis of the $1 million exit $1 million layer. We looked at the reduction in the seeded premium as a result of taking the increase. And it was a substantial cost decrease relative to stand with the $1 million retention. So it'll increase our reinsurance premiums maybe a couple of percentage points, but it's not material. So we're really pleased with the outcome. I think that's the way to look at it.

[Mark Hughes:]

Okay. And then Dana, since the -- that equity and unconsolidated subs is on a one quarter lag, any early indication about how a 4Q is going to impact 1Q here?

[Dana Hendricks:]

Yes. Mark, I don't have an early indication for -- sort of best advice on that is to sort of look at fourth quarter market overall. And we might expect to see something equivalent come through in our first quarter, but I don't have any true early indications for you.

[Mark Hughes:]

Okay, thank you very much.

[Operator:]

This concludes our question and answer session. I would now like to turn the conference back over to Ken McEwen for any closing remarks.

[Ken McEwen:]

Thank you, Tom, and thank you to everyone who have joined us today. Please stay safe and healthy and we look forward to speaking with you again in May.

[Operator:]

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