State Auto Financial Corporation
Q3 2017 Earnings Call Transcript

Published: 2 Nov 2017

[Operator:]

Welcome and thank you for standing by. At this time, all parties are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Today's call is being recorded. If you have any objections, please disconnect at this time. I'd now like to turn the call over to State Auto Financial Corporation, Investor Relations and Financial Director, Tara Shull.

[Tara Shull:]

Thank you, Heidi. Good morning and welcome to our Third Quarter 2017 Earnings Conference Call. Today, I'm joined in Columbus by our Chairman, President and CEO, Mike LaRocco; Senior Vice President and CFO, Steve English; Senior Vice President of Personal Lines Jason Berkey; Vice President of Commercial Middle Market, Ben Blackmon; Chief Actuarial Officer, Matt Mrozek and Chief Investment Officer, Scott Jones. Kim Garland, Senior Vice President of Commercial Lines and Managing Director of State Auto Labs is joining us by phone. After our prepared remarks, we'll open the lines for questions. Our comments today may include forward-looking statements which by their nature involve a number of risk factors and uncertainties which may affect future financial performance. Such risk factors may cause actual results to differ materially from those contained in our projections or forward-looking statements. These types of factors are discussed at the end of our press release as well as in our annual and quarterly filings with the Securities and Exchange Commission. A financial packet containing reconciliations of certain non-GAAP measures, along with supplemental financial information, is available on our website, stateauto.com, under the Investors section as an attachment to the press release. Now, I'll turn the call over to STFC's Chairman, President and CEO, Mike LaRocco.

[Michael LaRocco:]

Thanks Tara. Good morning everybody. I am really pleased with our third quarter performance. After a long hard effort to rebuild State Auto, we've turned the corner and are moving forward. Obviously, our overall results were impacted by the hurricanes, but the underlying results across majority of our core lines of business continued to improve and reflect our two years of hard work. The hurricanes impacted all our segments, but the greatest impact came from specialty. Once again I am so proud of our care team and their response to our customers in their time of need. They responded with speed and compassion, and helped our customers to get their lives and their businesses back. This quarter we continue to make progress across our three key targets

[Steve English:]

Thanks Mike and good morning everyone. You may have noticed our segments changed slightly this quarter, with our farm and ranch line of business moving to the Commercial Line segment and out of the Personal Line segment. This is consistent with our earlier announcement regarding changes in leadership for both segments. Kim Garland retained responsibility for farm and ranch. As a result we have reclassified results in this quarter and previous periods to be consistent. Before I get into specialty performance, I will offer some comments on cat losses, loss reserve development and expenses. Cats were clearly driven this quarter by Hurricanes Harvey and Irma. On a dollar basis, Harvey and Irma produced cat losses of $32.5 and $22.7 million, respectively. Of the total, $55.2 million of hurricane losses, the Specialty segment produced $43.5 million with the balance coming for Personal and Commercial Lines. Non-hurricane cat losses this quarter were a net $900,000, which is extremely low compared to historical levels for the third quarter. Our third quarter cat losses have averaged 2.1 points over the past five years. Specialty losses were almost entirely from the E&S property unit, which is a combination of business underwritten by third party MGUs and our internal property underwriting team. Approximately three quarters of the specialty hurricane losses were generated by the third party underwriters. Non-cat and ALAE development this quarter was favorable for the fourth consecutive quarter totaling $9 million, improving the loss ratio 2.8 points. This compares to a year ago in which $3.5 million of adverse development increased the loss ratio 1 point. We continue to see modest favorable development in personal auto as we closely monitor severity trends. Commercial lines this quarter produced favorable developments of $9.9 million coming from all lines of business. As you recall, we did not anticipate a repeat of last quarter's $15.6 million of favorable development. For Specialty, adverse development totaled $1.2 million. For the year, overall favorable development totaled $32.8 million compared to adverse development of $34.7 million a year ago. Expenses for the quarter were up $2.8 million and $10.2 million year-to-date. The GAAP expense ratio was up 1.6 points for the quarter to 1.5 points for the year. This is a combination of multiple factors. First, as we mentioned on previous calls, we made change on how specialty costs are treated, which reduced our capitalization rate in the current year. In addition, overall earned premium is down, while we continue to build out our new digital platform for Commercial Lines and complete the state rollout of Personal Lines. This technology investment is critical to our ability to grow profitably and it's putting short term pressure on our expense ratio. We added a new table in the investor packet, combining the statutory results of the Personal and Commercial segments. While reflecting current allocations of expense, this table provides a view of the Company's results excluding our Specialty segment. On this basis, net written premiums grew in the quarter by 5.1% compared to a year ago, and were flat on a nine month basis. Cat losses added 4.8 points and 8.9 points to the combined ratio, both up slightly from a year ago. The non-cat loss ratio improved 8.4 points and improved 4.1 points in the quarter and year-to-date, respectively. The expense ratio is up about a point for both the quarter and year reflecting our technology investment. Moving to Specialty results for the quarter. Quarter-to-date, net written premiums is $38.5 million, down 42% from last year, largely due to our decision to exit programs. E&S casualty and E&S property are also down slightly. The combined ratio for the quarter was 179.4, up 75.2 points from the same period a year ago. The non-cat loss and ALAE ratio was flat at 63.2%. Prior year development added two points to the ratio this quarter and the current accident year ratio this quarter is up 1 point compared to the same quarter last year. The cat loss and ALAE ratio was up 72 points, entirely due to our losses from hurricane Harvey and Irma. And the expense ratio is up 3.7 points, expense dollars are down considerably but not enough to offset the reduction in premium. For E&S property, production for this unit is down for the quarter and year-to-date compared to a year ago. As we've mentioned previously, we've been battling the soft property market for some time. We took meaningful steps this quarter greatly restricting new business across both externally and internally underwritten business. The losses from the two hurricanes were mostly limited to this line, so our total loss ratio is up dramatically from prior years. The non-cat loss and ALAE ratio was 38.6 points, up 13.4 points from last year, prior year development accounts for 13.6 of this change. This development is limited to the small Florida package business that we discontinued at the beginning of 2017. Focusing on the current accident year results, this quarter is up 1.5 points from the same quarter last year. As far as the hurricane losses in E&S property, hurricane Harvey accounted for $24.2 million, while Irma accounted for $18.5. Next E&S casualty. Production for this line is down 17% in the quarter compared to last year. In 2016 we changed the structure of our E&S casualty, reinsurance treaty which resulted in a large return of unearned ceded premium. That was a one-time impact that did not repeat in 2017, so our gross premiums were flat for the quarter, net premiums were down Our environmental and general liability books are stable in terms of volume. We continue to be able to get rate increases on auto exposure that combined with new business growth, resulted in premium growth for our gas and propane book and our umbrella book. The overall casualty loss ratio in the quarter is down 6 points from last year, driven by two things

[Jason Berkey:]

Thanks Steve and good morning everyone. Our plan to improve personal auto profitability has been consistent. In each quarter, we will continue to update you on our progress. In this quarter, we had a continuation of minimal loss reserve development. At the same time, we continue to take aggressive rate actions in personal auto and drive for claims operational improvements. Looking at our personal auto results in the quarter, the loss and LAE ratio was 79.9%, with the combined ratio of 107.6%. The personal auto cat loss and ALAE ratio for third quarter 2017 was 3 points which is 1.2 points higher than the third quarter 2016 personal auto cat loss and ALAE ratio of 1.8 points. In terms of rate activity in 2017, in the first quarter we had 17 state rate changes with an average rate change of 13%. We followed that with five state rate changes averaging 12% rate increases in the second quarter. Most recently, in the third quarter, we implemented six rate changes, with an average rate increase of 14.3%. Subject to DOI approval, we have 13 rate changes in the pipeline with an average of 7.4% rate change in fourth quarter. These rate changes, continues to earn into our personal auto book of business and ensure that we are adequately priced for the risk. The result is that the average written premium per vehicle in September 2017 is 13.7% higher than September 2016. As a reminder, there is a lag before this increase in written premium shows up as a comparable increase in earned premium. The average earned premium per vehicle in September 2017 is 11% higher than September 2016. In recent quarters, we have discussed the operational changes in our claims organization. This quarter, we see loss cost trends generally improving on this front with the exception of bodily injury. The accident year loss cost trends we see are as follows

[Ben Blackmon:]

Thanks Jason. This is the second consecutive quarter where our Commercial business has been profitable producing a combined ratio under 100, this quarter 97.9. The actions our team has taken over the last two years across product rate underwriting and claims has been seen in our results. Our Commercial business also grew this quarter as third quarter 2017 written premium increased 2% versus the third quarter of 2016. Catastrophe losses did not did not disproportionately impact our results this quarter, as our third quarter 2017 cat loss ratio was 3.8% compared to 3.6% in third quarter of 2016. The Commercial lines expense ratio increased about 1 point to 38.5% in the third quarter of 2017 compared to 37.6% in 3Q 2016. We have nominally achieved profit and growth in our Commercial business through improved execution of the traditional basics. As Mike mentioned, in the third quarter of 2017, we launched the first state, Illinois on our digital platform for BOP and commercial auto. This digital platform is comprised of a new quoting and issuing process, a new and significantly more automated underwriting process, new pricing models and then entirely digital fulfillment process, no paper, and only recurring payment methods. This digital platform will be the enabler of our next era of improvement in commercial lines results. Loss ratios in commercial are performing well and meeting our expectations. Our elevated expense ratios put undue pressure on the commercial combined ratio. The early results from Illinois, provides some insight into the past for reduced expense ratios. Before the launch of connect, our digital platform, 100% percent of new business had to be manually touched by underwriting. To-date in Illinois, 80% of commercial auto quoted and issued on the new system is being issued without being touched by an underwriter. Underwriting and sales, our new business touch areas make up around 6 points of the commercial expense ratio. In the digital platform world, the unit cost of sales and underwriting will be meaningfully lower. The other early finding consistent with our new quote and issue launched in Personal lines is at an easier to use quoting system results in more total agents quoting us and more quotes overall, and this is without having to add additional resources to handle this higher volume. To-date in Illinois, we've seen over a 50% increase in the agents who were quoting us and 84% increase in quote volume. The combination of lower sales and underwriting unit cost per new business combined with significant increases in new business volume without adding additional resources is a large part of the path of reducing our commercial expense ratio. The results for each product line in Commercial for third quarter 2017 are as follows. Commercial auto had a loss in LAE ratio of 63.9 versus 89.3 for the third quarter of 2016 and a combined ratio of 106 versus a 129 for the third quarter of 2016. Cats added 1.5 points versus third quarter of 2016 and favorable development of prior accident years contributed 13.6 points. Written premiums were 2.6% less in the third quarter of 2017 versus the third quarter of 2016. The combination of our 2017 year-to-date new business premium per vehicle being up around 20% versus 2016 year-to-date, the continued shift towards smaller fleet and the fact that we have completed the initial pass of re-underwriting our worst deciles makes us believe the loss ratio improvement is sustainable and we are counting on increased new business from being on our new platform to be our driver for growth in commercial auto. Small commercial package had a loss and LAE ratio of 65.1 versus 66.7 for the third quarter of 2016 and a combined ratio of 109.9 versus 106.9 for third quarter 2016. Cats added 0.5 point versus third quarter of 2016 and favorable development for prior accident years contributed 9 points. Written premiums were 1.3% less in the third quarter of 2017 versus the third quarter of 2016. The core combined ratio in small commercial packaged this quarter was driven by an abnormally higher amount of large fire losses. Large fire losses in the third quarter of 2017 had an unusual impact of 15 points on a combined ratio. The impact of large fires is normally less than 5 points on the combined ratio for this product line in the third quarter. A review of these losses did not identify any underwriting concerns. We are comfortable that our rates for this product line will produce appropriate loss ratios and will look for the impact from our new digital platform to produce improved expense ratios and growth. Middle market commercial had a loss and LAE ratio of 52.1% versus 95.1% for the third quarter of 2016 and a combined ratio of 88.1% versus 133.7% for the third quarter of 2016. Cats were 1.3 points less versus the third quarter of 2016 and favorable development of prior accident years contributed 3 points. Written premiums were 5.1% more in the third quarter of 2017 versus the third quarter of 2016. As our new digital platform allows small commercials to transition to more of a pricing model, automated underwriting approach, it will also enable our allegiance and underwriters to have a more explicit focus on true middle market business. Winning in small commercial and winning it middle market require two distinct approaches. In the third quarter, we revised organizational structure to approach these two markets in distinct ways. Workers compensation had a loss and LAE ratio of 60.9 versus 75 for the third quarter of 2016 and a combined ratio of 90.5 versus 104.1 for the third quarter of 2016. Favorable development of prior accident years contributed 9.6 points. Written premiums were 4.6% more in the third quarter of 2017 versus third quarter of 2016. Continued excellent case management and maintaining pricing discipline are our keys for success in this line. Farm and ranch had a loss and LAE ratio of 63.1 versus 71.6 for the third quarter of 2016 and a combined ratio of 99.9 versus 113.1 for the third quarter of 2016. Cats were 1.6 points less versus the third quarter of 2016 and favorable development of prior accident years contributed 2.7 points. Written premiums were 18.8% more in the third quarter of 2017 versus the third quarter of 2016. With that, we'd like to open the lines for questions.

[Operator:]

[Operator Instructions]. Your first question comes from the line of Paul Newsome with Sandler O'Neill. Please go ahead.

[Paul Newsome:]

Good morning. I was hoping you could walk through maybe with a little bit more detail. The run-off of the specialty businesses and you know just exactly, because that looks like there is going to be multiple pieces here. How quickly that will sort of disappear from your income statement over time? Just a little bit more detail. Obviously, you have talked about it already, but a little bit more detail in terms of specifically how that premium will disappear and over the course of the next year too?

[Michael LaRocco:]

Hey Paul, this is Mike. I'll start and Steve may want to jump in or clean up depending. The key answers we don't know for sure, because we're right now in the process of working through deals with a handful of various companies that are interested in the renewals right opportunities for the different lines of business. So, it's very difficult for us to say that with a lot of specificity. I think by the time we talk again next quarter, or maybe even before that, as these deals get completed, we will then move to the next step of determining, because every deal could be a little bit different whether they kind of want to do a list and shift of the whole book including reserves or they just want to do a clear renewal rights where we hold on to the claims and the reserves. So, there is a lot of different potential ways this could play out. As we've modeled this and given the timing that we see now, and the expectation of timing. We do believe that what I said in my comments is that the vast majority of the premium will be off our books by the end of 2018, but I'll ask Steve to comment as well.

[Steve English:]

Good morning, Paul. Last quarter, I think I updated everyone on our forward looking view on the just a program piece. And I think at that point we were expecting somewhere around $25 million of earned premium here in the third quarter and ended up being shy at $24 million. So I'll just repeat that guidance because I think it's still – is reasonably close which was about another $19 million of earned premium in the fourth quarter of this year, $12 million in the first quarter, $5 million in the second quarter, $1 million in the third quarter, and then obviously nothing in the fourth quarter. Flipping over to E&S property, I think you'll see that disappear quicker than you will see E&S casualty. We already as I mentioned in my comments, headcount of restricted back new business in that unit here even in the third quarter. And then I'll just echo Mike's comments in regards to the E&S casualty lines of business. There are active deals. We are working on that are all have different timings and different structures and aren't yet – actually fully negotiated. So that's the piece that's kind of difficult to give some guidance on and should be in a better position at the end of the year to give more clarity around that.

[Paul Newsome:]

My second question is to ask about the reinsurance structures, prospectively. Obviously, you are going to be eliminating some businesses that had different characteristics than your auto and commercial businesses. How should we think about what sort of reinsurance structures you'll have next year versus what you have today?

[Steve English:]

Yeah. I think Paul, that was all easier to talk about, actually because – you are exactly right. Obviously, the E&S property is a different risk profile than a broadly spread homeowners book or small commercial property book. I think what you'll probably see is, you know I don't expect us to change anything on the bottom end. So, in terms of our group retention which is at $75 million, I think what you'll see is that when that business comes off our books and we do the risk modeling in regards to the impact it has on PMLs in the kind of the tail risk management side. It's quite possible that we will not need to buy as much limit up on top. And so, you might see that changing, I don't see in the future that any change in the per risk structure as a result of this decision.

[Paul Newsome:]

Great. Thank you.

[Operator:]

Your next question comes from a line of Christopher Campbell with KBW. Please go ahead.

[Christopher Campbell:]

My first question is on the personal auto results, so the core results looks good and would have been even better without the higher year-over-year unallocated LAE jump. Was there anything unique in last year's new LAE? Since this quarter's run rate is close to what we would see sequentially.

[Steve English:]

Good question, Chris. I will tell you that quarter-over-quarter and line-to-line there is a little bit more art than science sometimes into the allocation of that ULAE cost. So nothing comes to my mind in terms of a discreet events or action that I would point to.

[Christopher Campbell:]

Okay. And then just following up on auto as well, so you are putting a lot of rate into that book and then the premium is going to grow on the net basis? And as that earns in, how should we be thinking about the expense ratio for personal auto going forward, like what's a good target range?

[Michael LaRocco:]

Yeah. I'll start and Jason can certainly jump in as well. This is Mike, Chris. The personal autos got to be in the low 20s to be competitive. I mean we've got to be down in the low 20s. I think that's where you need to play. This is a cost base pricing and if you are not in that range, I think long-term you'll have challenges. It's a very inefficient market, so people always try to attack a very scientific thought it's – you know to each costs, to each expense ratio. But having said that, to win long term we believe strongly that we've got to be in very low 20s and I think as we look to the future and again everything we are doing here is about building something long term. And if you look at our digital platform and the efficiency of it, we can add a lot of volume to a very efficient platform that comes with lower commission rates and obviously lower operational costs as well. So, as we look in the 2018 and see it and experience a growth that we are already seeing now in the third and beginning of the fourth quarters, we have some optimism that that top line will help relieve some of the pressure. We've also made most of our IT investment for personal auto has been done. So that's a positive as well. We will keep investing in 2018, but that will hit more of the commercial and farm and ranch business. Jason, do you want to add anything to that?

[Jason Berkey:]

Yeah, Chris, this is Jason Berkey. I mean I agree with Mike's long term comments, and I think in the current environment we are seeing personal auto expense ratio in the high 20s. So that's kind of how we think about it today in terms of pricing and it varies by state based on premium taxes and a lot of other factors. But over time as we grow and as we leverage the technology, we see that coming down as Mike indicated.

[Christopher Campbell:]

Okay, great. Thanks for the extra color. That's very helpful. And Mike, just circling back on something you just mentioned about generational shift to the digital platform. Are you concerned at any level about maybe retention being more of an issue as you moved to this easier used digital platform that would increase the shopping behavior of current customers or potential one?

[Michael LaRocco:]

Yeah. Actually, no, I mean I think as the generational shift becomes more significant. I think the consumers that will be the consumers and the growing base of consumers that are emerging. I think their tendency will potentially be a shop a little bit more. But the way the digital platform works where you give us either your checking account or your credit card, and so the payment process is very painless and you're not writing checks, and it's not an events, it just becomes another deduction either on to your credit card or out of your checking account. We actually anticipate that the retention of those customers will actually be better. We are feeling retention pressure right now on the current book of business. And I thought that's where you're going, so I'll answer that question even though you didn't ask it because I think what you are seeing now is in our effort to grow, we are taking a lot of rate on our legacy customers because they need it. And so, while we're doing very well on the new business, we just have to make sure as Jason emphasized in his comments, this is about profit first, so there is retention pressure on our current book. But we think as we move forward with the digital book, we actually anticipate a stronger retention going forward.

[Christopher Campbell:]

Okay. And then one more if I may. I am sorry, go ahead.

[Michael LaRocco:]

No. Sure, absolutely go.

[Christopher Campbell:]

Okay. Just switching to workers' comp, you been running about a 109, 110 core combined in 2017, which dropped to about 101 this quarter, anything special going on there?

[Michael LaRocco:]

Discipline. I'll start and Ben can certainly jump in. But we take a very hard line across all the lines of business that each one must hit a combined ratio target that shows demonstrates profitability and every line of business has a combined ratio target that reflects that. And right now I mean this industry and workers' comp has been pathetic quite frankly in the lack of discipline. We have a couple of good years and people start chasing rates down. And we have a team of underwriters and a product management approach that says we are not going to do that, number one. And number two, we have a very terrific claims organization. We have a return to work approach. We use nurses, doctors, our claims professionals. And so, we think when you combine that discipline that product management approach with that type of a claim approach that really gives us the opportunity to be profitable on the tough line of business. Ben?

[Ben Blackmon:]

Yeah, Chris, I think part of it of course with some of the development from prior years that helped us a lot. Mike makes a great point about our pricing discipline. We also have underwriting discipline as well. We kind of stick to our knitting with the four walls exposure, we try to stay away from exposure to heights in the occupational disease and limit to driving. So, it's those things as we move forward, we are pretty confident in our ability to continue to produce good results in workers' compensation. The market or results across the industry have been pretty good in the past couple of years. So we are seeing a lot of the rating bureaus bringing their loss costs down. And so we are trying to limit those where possible with that lost costs multiplier so that we can still maintain our margins.

[Christopher Campbell:]

Okay. So that's very helpful. Thanks for all the answers and best of luck to rest of 2017.

[Michael LaRocco:]

Thanks, Chris.

[Operator:]

[Operator Instructions]. Your next question comes from the lines of Larry Greenberg with Janney. Please go ahead.

[Larry Greenberg:]

Thank you, and good morning. Just wondering if you could give us some idea when you might expect underwriting performance in both autos, personal and commercial to maybe go sub 100?

[Michael LaRocco:]

June 17, 2018.

[Larry Greenberg:]

I'm engraving that on stone, Mike.

[Michael LaRocco:]

My general counsel just threw something at me. I am kidding. No, it's an appropriately fair question. I am very bullish for 2018 as well. I'll answer that, obviously we don't talk about specific projections. But as I look, as we look under the covers on personal auto and on commercial auto, the work that we have done it is a hard long process. And having done this before, I can see it, I can feel it, I can smell it. And I know where we are at right now on both of those lines of business is going clearly in the right direction. Our claims organization has a very clear effort in terms of reducing loss leakage as they've done on the auto damage and property side. In the bodily injury side, I think Jason mentioned it takes longer on that side Larry, as you know as well. But there is a lot of room there and most notably of course the good work by Jason and his team to get the rate that we needed. It's put pressure as we said on the retention side, but while we don't want to see that happen, we are okay with that. So as I look at 2018 and I look towards the end of 2018, all I say to you is that, I am very bullish. Jason?

[Jason Berkey:]

Yeah. I would just add that on the BI side, which is where we are seeing the major challenges. We've already put a number of claims initiative in place, in terms of getting early reports and working those files to close quicker and so forth. It just takes sometime before that to show up in the loss reserve patterns and to be able to recognize it. So, I think on the rate side, we will continue to take action and so forth, but the piece of it needs to come as that, the claims operational improvements need to come through and be seen in the reserves, and that could take some time.

[Larry Greenberg:]

And then Mike, so I think you are touching on both Commercial and Personal, but I mean Commercial would kind of dovetail what you had to say about Personal?

[Michael LaRocco:]

Yeah. I am actually probably a little more optimistic about Commercial turning sooner just because of the way we can get the rate in there quite a bit faster. And commercial auto, some of the things that were broken were really, really badly broken. In terms of the way we priced a couple of years ago, and the lack of modeling and the lack of segmentation. And we moved really, really quickly to go after those types of problems. We clearly weren't as good on larger fleet business and we've reduced our exposure in that space the number – average number of vehicles for policy is significantly less. The only challenge on the commercial side is really the expense ratio. It's a challenge on both sides by the way in Personal and Commercial, but it's worse on the Commercial side. So we have to be thoughtful about that because quite frankly some of our loss ratio – when you look at the combined ratio in commercial auto and you bifurcate it between the loss side and the expense side, you know the expense side is a piece that we really have to hit. Of course going digital will get us there much more rapidly, but I still believe that there is enough room on the loss side that we have good reasons to be excited about 2018. Ben, do you to talk, jump in there.

[Ben Blackmon:]

Yeah. Thanks Mike. Larry, one of the things – one of the other reasons we're really excited about our new digital platform is that we have a new model in our pricing and our pricing segmentation should be much better as we move forward on to the new model for new business. And on our legacy book of business, we continue to get rate and where we really focus is we have a – we break out our business by decile. In the top three, the three worst deciles with 8, 9, 10, we're putting the most rate there. And then on the larger fleets, more than 10 vehicles, our experience is somewhat worse. There is a lot more competition in that space for more vehicles. So, from about decile 6 up we're putting more and more rate on that, and we're being a little more marginal from a renewal rate perspective on the lower deciles where our experience is really good. So, we're trying to re-shape the book and then counting on more states rolling out on the digital platform with the better modeling.

[Larry Greenberg:]

And are you seeing renewal retention rates come down pretty significantly on those higher decile tranches?

[Ben Blackmon:]

Yeah we're seeing – what we're seeing is our book is shaping the way we would like to see it. Overall, retention ratio for our legacy book is probably around 78%, which is pretty good considering the amount of action that we're taking. But we're seeing retention in the 60% to 50% range on those higher deciles and the retention is higher up in the high 80s, on the lower deciles, on the better business. So that's why we're pretty confident that we'll get the corner turned on the loss side for commercial auto.

[Larry Greenberg:]

Great. Thank you.

[Michael LaRocco:]

Thanks Larry.

[Operator:]

There are no further questions in the queue.

[Michael LaRocco:]

I just want to close with a couple of comments. I mean obviously we see the quarter in a very positive way and I want to explain that just briefly for everybody. We're on a journey here and the journey is to not only turnaround State Auto, but prepare it for, what we believe is an industry that's beginning to go through and will continue to go through significant transformation. Don't take our optimism for being fooled that we think things are better than they are. We know there is a long way to go. We are optimistic, but incredibly focused. We're very different company in nearly every way than the one you were speaking to two and half years ago. And it's a journey that's not for the faint of heart, but we believe that this is a type of effort that will reward folks who believe in us and we have a lot of confidence as we go forward. But again, it's confidence based on a realization that it's going to take a ton of hard work. We're committed to that and we appreciate your time to today. Have a great rest of your day. Thank you.

[Operator:]

This concludes today's conference call. You may now disconnect.