Ladies and gentlemen, good day, and welcome to the CNA 2022 Second Quarter Earnings Conference Call. [Operator Instructions]. As a reminder, today's conference is being recorded. I would like to turn the call over to Ralitza Todorova, AVP, Investor Relations for opening remarks and introduction of today's speakers. Please go ahead..

Thank you, Elaine. Good morning, and welcome to CNA's discussion of our second quarter 2022 financial results. Our second quarter earnings press release, presentation and financial supplement were released this morning and are available on the Investor Relations section of our website, wwe.cna.com.

Speaking today will be Dino Robusto, Chairman and Chief Executive Officer; and Scott Lindquist, Chief Financial Officer. Following their prepared remarks, we will open the line for questions. Today's call may include forward-looking statements and references to non-GAAP financial measures.

Any forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the statements made during the call. Information concerning those risks is contained in the earnings press release and in CNA's most recent SEC filings.

In addition, the forward-looking statements speak only as of today, Monday, August 1, 2022. CNA expressly disclaims any obligation to update or revise any forward-looking statements made during the call.

Regarding non-GAAP measures reconciliations to the most comparable GAAP measures and other information have been provided in our earnings press release, financial supplement and other filings made with the SEC. This call is being recorded and webcast. A replay of the call may be accessed on our website.

If you're reading a transcript of this call, please note that the transcript may not be reviewed for accuracy. Thus it may contain transcription errors that could materially alter the intent or meaning of the statements. With that, I will turn the call over to our Chairman and CEO, Dino Robusto..

medical inflation, non-medical cost of goods sold inflation, and wage inflation. And how each impacts our portfolio, which often will note equate to the weighting ascribed in the CPI metric. For example, in our portfolio, medial inflation has a much larger impact than the weight it has in the CPI.

And within the non-medical cost of goods sold inflation, we focus more on a few key items, such as, increases in construction materials and used car and truck prices rather than an overall average. Wage inflation, obviously, increases cost, but has a partial offset on the premium side, so we incorporate that dynamic.

The impact from these refinements are used in our reserving and pricing studies, more so than the headline CPI number. And importantly, these impacts are treated separately from the impacts of social inflation, which has become a prevalent liability loss cost inflation over the past several years.

We think about social inflation as being driven by somewhat independent factors, we and others in the industry have spoken about at length, such as more aggressive plaintiff's bar, a higher number of nuclear verdicts, higher prevalence of litigation funding, and changing jury attitudes, which are increasingly punitive, regarding corporations.

And as we have previously noted and we continue to believe, social inflation mix will be obfuscated somewhat because court dockets are still backlogged. So let me provide some examples of how we have and continue to incorporate these inflation pressures, together with our earned pricing trends, into our assessment of prior and current accident years.

Our medical malpractice business has been impacted by social inflation and higher long run loss cost trends starting several years ago.

We saw that in the data and increased our accident year lost ratio fixed considerably, which led us to start raising prices very early on at the expense of retention, and we increased prior year reserves through unfavorable prior period development of $210 million from 2017 through 2021, which we have spoken about on prior calls and we continue to maintain ongoing loss cost trends for this class above our overall P&C average.

For commercial property, we reacted to increases in lost cost from inflation in the third quarter last year. We increased our long run loss cost trends assumptions about 2 points in our property lines which we also previously discussed.

These increases impacted the pricing and reserving for our current and most recent accident years given the short tail nature of the claim development patterns. And the last example is workers' compensation.

We did not reduce our accident year fix to reflect the lower levels of benign medical trends over the last five plus years, as we maintain the higher long run loss cost trends that were more evident prior to this period of benign medical trends.

In addition, we have only partially reacted to the favorability in prior accident reserves that the lower, more benign trends would suggest.

Accordingly, we believe our current reserve position is strong and further that our prudence will allow us to withstand the period of higher medical inflation, should a situation occur, where the rate environment remains slightly negative, but medical inflation accelerates in the next 18 or24 months.

Of course, should it then keep increasing for several years, hence, that will put pressure on our loss cost, but in that situation we will at least have ample time to thoughtfully react.

This general pattern of prudence in reacting to prior year favorability and not reflecting the entire perceived margin between loss cost trends and earned rate in recent accident year fix is evident across our entire portfolio and reflects our conservative underwriting company bias.

Even maintaining that prudence, the P&C underlying combined ratio was a record 90.8% this quarter. The expense ratio of 30.5% was lower by about 1 point and the underlying loss ratio 60% was a 0.5 point higher than the prior year quarter.

But as I've mentioned in prior quarters, the property quota share treaty that we purchased in June of last year, lowered the net premium mix between property business and our other classes. And since our property business has a lower underlying loss ratio, this mix effect increased the overall P&C underlying loss ratio by about a 0.5 point.

We remain very pleased with the purchase of the quota share treaty as well as the additional cap cover in our property per risk treaty and CAT treaty, all of which were successfully renewed last month at a modest mid-single-digit rate increase. Now, let me provide a little more detail on the three business units.

The all-in combined ratio for Specialty was 88.1% in the second quarter, which is now the eighth consecutive quarter below. 90%. The underlying combined ratio was 89.2%, a record low and consistent with last year. The expense ratio of 30.4% is up slightly from the second quarter of 2021, while the underlying loss ratio improved by 0.4 points to 58.6%.

Gross written premiums ex-captives grew by 8% in the second quarter and net written premium growth was 6%. We achieved rate increases of 7% in the quarter. This is down 3 points from the first quarter, but is still exceeding long run loss cost trends and earned rate at a little over 10% is still well above long run lost cost trends.

Retention was 85%, consistent with last quarter and new business grew 9%. Turning to Commercial. The all-in combined ratio was 93.2%, the lowest all-in quarterly combined ratio since 2008. CATs in the quarter were 3 points compared to our 10-year average in commercial of 6 points.

The underlying combined ratio was 92%, a 1 point improvement over last year. The underlying loss ratio of 61.5% is 1.4 points higher than the prior year quarter. However, as I've mentioned earlier, this is largely due to the mix impact of the property reinsurance program we purchased last June.

The expense ratio improved by 2.3 points to 30% in the second quarter due primarily to strong growth.

Commercial gross written premium ex-captives grew by 25% this quarter and the net written premium growth was 20%, excluding the impact of the one-time catch-up related to the addition of the property quota share reinsurance treaty in the prior year quarter.

New business was up 39% in the quarter, as several larger opportunities we had been quoting for quite a while, successfully landed in the quarter. For commercial, the rate increase was plus 5%, and excluding workers' compensation, the commercial rate increase was plus 6 % and plus 7% on an earned basis.

With the modest moderation in pricing, we are experiencing, we continue to believe that commercial earned rates ex-workers' comp should remain at or above long run loss cost trends through year-end. Commercial retention was strong, again, this quarter at 86%, which is higher than any quarter since prior to the pandemic.

We continue to see middle market digit exposure changes in lines --- excuse me, we continue to see mid-single-digit exposure changes in lines of insurance with inflation sensitive exposure bases like work comp and general liability. And we are clearly highly focused on valuation for property.

In national accounts, valuation increases were up nearly 10% prior to other account level changes like higher deductibles and movement within a property tower. These various exposure increases are a good outcome. And we estimate that up to half of the increase acts as additional rate in our portfolio over and above our 6% rate increase.

For International, the all-in combined ratio was 91.6% this quarter. The underlying combined ratio was 90.6%, reflecting 1.9 points of improvement from the prior year quarter. The underlying loss ratio of 58.5% is lower by 0.5 point and the expense ratio of 32.1% is down 1.4 points compared to last year.

In terms of our loss exposure to Russia-Ukraine, it continues to be de minimis. International gross and net written premiums grew 13% or 18% excluding currency fluctuations. Rates were up plus 7%, which is a 1 point decrease compared to last quarter, but remain above long run loss cost trends. Retention in International was particularly strong at 85%.

And it was broad-based, including our Lloyd's Syndicate. With the Syndicate and European business re-underwriting behind us, International retention increases are meaningfully contributing to the profitable growth of our P&C operations as is new business, which grew by 24%. And with that, I will turn it over to Scott..

Thanks, Dino, and good morning, everyone. Core income of $245 million is down 28% as compared to the second quarter a year ago, leading to a current quarter core return on equity of 8.1%. Our P&C operations produced core income of $317 million. Underlying underwriting income of $191 million pre-tax was up 15% over the second quarter of 2021.

Overall, underwriting gain in the quarter was up 64% year-over-year to $185 million. Net investment income of $432 million pre-tax was up $16 million in our fixed income portfolio offset by a $171 million decline in our limited partnership in common stock investments, which we report in core income. More on our investment results in a moment.

Our Q2 expense ratio of 30.5%, which is 1.1 points lower than last year's second quarter. Lower acquisition expenses and higher net earned premiums drove the favorability despite continued strategic investments in technology, analytics and talent.

To drill down a bit further, specialty incurred higher underwriting expenses primarily related to technology. Commercial benefited from lower acquisition costs and higher net earned premiums, while International acquisition expenses continue to benefit from the repositioning of this portfolio over the last several years.

As I noted last quarter, there will be a certain amount of variability quarter-to-quarter. However, we continue to believe an expense ratio of 31% is a reasonable run rate. For the second quarter, overall P&C net prior period development impact on the combined ratio was 1.6 points favorable compared to 0.2 points favorable in the prior year quarter.

In the Commercial segment, favorable development in workers' compensation was partially offset by unfavorable development in general liability and auto. In the Specialty segment, favorable development in surety was partially offset by management and professional liability.

Favorable prior period development in International was driven by the commercial classes. The paid to incurred ratio was 0.89 in the second quarter. This is up slightly from the first quarter and consistent with the fourth quarter of 2021. The 0.89 ratio remains at the lower end of our pre-pandemic range.

The ratio, which fluctuates quarter-to-quarter has been consistently lower over the past two years. As Dino noted earlier, our Corporate segment produced a core loss of $78 million in the second quarter compared to a $53 million loss in the prior year quarter.

Annually, we conduct a review of our mass tort reserves in the second quarter, while asbestos and environmental reserves are reviewed every fourth quarter.

As a result of this quarter's review, the segment includes a $51 million after-tax charge related to the unfavorable prior period development largely associated with legacy mass tort abuse claims, including the recent Diocese of Rochester proposed settlement.

For Life & Group, we had core income of $6 million for Q2 2022, which was $37 million lower than last year's second quarter, primarily from lower investment income from limited partnerships. As a reminder, we will be conducting our annual gross premium valuation review during the third quarter.

While we are on the topic of Life & Group, I'd like to give a brief update as to the approaching change in GAAP accounting methodology related to long-duration targeted improvements, otherwise known as LDTI that will apply to our long-term care business. We will be adopting this change effective January 1, 2023, but will apply as of January 1, 2021.

Two years of adjusted financial results will therefore be included in our 2023 financial statements. Recall in last quarter's call, we estimated the net impact of these changes will be a $2.2 billion to $2.5 billion decrease of stockholders' equity as of the transition date of January 1, 2021.

In a rising interest rate environment like we have seen over the last two years, as the corporate single-A rates increase, the impact of adoption decreases.

As an example, assuming June 30, 2022, interest rates were in place on January 1, 2021, we estimate the transition impact would have been significantly lower to a decrease of $400 million to $700 million to stockholders' equity as corporate single-A rates are substantially higher at June 30, 2022, than at January 1, 2021.

Finally, I want to emphasize this change in accounting has no impact to the underlying economics of CNA's business. Turning to investments. Total pre-tax net investment income was $432 million in the second quarter, compared with $591 million in the prior year quarter.

The decrease was driven by our limited partnership and common stock results, which returned a $15 million loss in the current quarter, compared to a $156 million gain in the prior year quarter. The current quarter results reflect losses in our hedge fund limited partnerships of $35 million and common stock portfolio of $21 million.

Directionally in line with equity market performance during the quarter that were partially offset by positive returns of $41 million from our limited partnership private equity portfolio. The gain in the prior year quarter reflected particularly strong results from all three portfolios.

As a reminder, private equity funds, which now represent approximately 75% of our limited partnership portfolio, generally report to us on a three-month lag, so results this quarter were primarily reflective of performance from Q1 2022.

Given that broader public equity markets were notably down in the second quarter, it would be reasonable to expect pressure on private equity valuations in the near-term. Hedge funds now represent 25% of our limited partnership portfolio and predominantly report results on a real-time basis.

If you refer to Pages 10 through 14 of our financial supplement, you will find additional details of our limited partnership holdings and income by the private equity and hedge fund strategies. Our fixed income portfolio continues to provide consistent net investment income, which has been steadily increasing over the last several quarters.

We continue to benefit from the higher invested asset base driven by higher P&C underwriting income. As a point of reference, our average book value has increased $1.5 billion from the prior quarter -- prior year quarter, excuse me.

Additionally, I am pleased to note the average effective income yields in our P&C portfolio were higher in the current quarter relative to the first quarter, indicating that we have reached an inflection point where reinvestment rates were about 100 basis points above our P&C effective yield.

Given the longer duration nature of our Life & Group portfolio, we have not reached an inflection point in this segment. Fixed income assets that support our P&C liabilities and Life & Group liabilities had effective durations of 5 years and 9.7 years, respectively at quarter end.

The increase in Life & Group duration from 8.9 to 9.7 years during the quarter is reflective of strategic actions taken to simultaneously reduce reinvestment risk by selling short dated holdings projected to roll off in the near term, while also extending duration by redeploying the proceeds into longer-dated high- quality securities, at yields exceeding our long-term assumptions.

In total, over $1.9 billion of long-dated fixed income securities were acquired in the Life & Group portfolio during the quarter, with an average yield of 4.7% and an average rating of A plus. Meanwhile, the 1.8 billion of mostly tax exempt securities sold in the quarter as part of this repositioning generated $19 million of pre-tax investment gains.

While higher rates are positively impacting the outlook for investment income, from a balance sheet perspective, they've continued to adversely impact our net unrealized investment position, which ended the quarter at a $1.8 billion loss, down from a $4.4 billion gain at the end of the fourth quarter 2021.

The investment portfolio of credit quality remains strong with a weighted average rating of A, with very little in impairments. Accordingly, interest rates driven fluctuations in market values do not impact how we manage our investment portfolio, as we generally hold our fixed income securities to maturity.

Notwithstanding the decrease in our net unrealized gains position, our balance sheet continues to be very solid. At quarter end stockholders equity excluding accumulated other comprehensive income was $12.2 billion or $45.06 per share, an increase of 4% from year-end, adjusting for dividends.

Stockholders equity, including AOCI, which reflects our investment portfolio, moving into a net unrealized loss position during the quarter was $9.5 billion or $35.06 per share.

We continue to maintain a conservative capital structure with a leverage ratio of 19%, excluding AOCI, and our capital remains above target levels required for our current ratings, while statutory surplus remains stable after dividends.

Finally, net investment losses were $40 million in the second quarter, compared with a net investment gain of $27 million in the prior year quarter.

The current quarter results were driven by an unfavorable change in the fair value of our non-redeemable preferred stock portfolio, reflecting the higher interest rate environment, while the prior year gains were primarily the result of sales calls and exchanges.

Operating cash flow was strong once again this quarter at $608 million, and was a result of solid underwriting and investment cash flows. In addition to strong operating cash flows, we continue to maintain liquidity in the form of cash and short-term investments.

And together they provide ample liquidity to meet obligations and withstand significant business variability. Finally, I am pleased to confirm our regular quarterly dividend of $0.40 per share, which will be payable on September 1, to shareholders of record on August 15. With that, I will turn it back to Dino..

Thanks Scott. Our second quarter generated fantastic results across Commercial, Specialty and International. We have been clearly focused on accounting for social inflation for several years, both prospectively and retrospectively, and we continue to be prudent in the face of uncertainty and backlog the court dockets.

More recently, we have similarly included the impacts of the rise in economic inflation. Market pricing remains relatively rationale and we are successfully optimizing the rate and retention dynamics across the board and effectively growing our new business at strong terms and conditions.

Bottom line, we remain enthusiastic about our business opportunities going forward. And with that, we'll be happy to take your questions..

Thank you. [Operator Instructions]. We will take our first question today from Gary Ransom of Dowling & Partners. Please go ahead..

Good morning. I had a few questions. One was just on the catastrophes and the impacts from the new quota share.

Is it possible to quantify how much benefit you got in the quarter from that or how to think about what a run rate for your CAT load might be going forward?.

I think going forward, well probably, the more recent average makes a lot more sense. But I'd say about a third probably benefited from the quota share. Keep in mind also, Gary, that obviously all the re-underwriting that we did on the Syndicate, which had a lot of U.S. CAT exposure that was coastal, also wildfire, we underwrote all of that.

We also mentioned on several calls some of our property re-underwriting from the healthcare aging services, coastal exposures, wildfire exposures, and some of that probably benefited the CAT ratio this quarter. And then, I guess always probably appropriate to put a little luck in there..

Right. Okay, that's helpful. I just also wanted to ask about the rate versus loss trend. I mean, you gave us a lot of material there and I -- if I think about what's going on, we have rates gradually decelerating but we also have the potential for inflation accelerating loss cost trends, perhaps.

It all seems to be bringing the point at which those two lines cross, maybe a little bit closer, it seems like you were preparing for that possibility.

But is the market per -- do you think there's any place where the market is prepared for that? Is the market reacting to that possibility? Or it just seems like there's the fact that there's so much uncertainty isn't -- I don't see it from the outside completely reflected in market behavior but you might have a different viewpoint..

I mean, it's really -- it's hard to say. I think it has been rationalists, been moderating quite slowly. Gary, we did see on our larger property, in national accounts, in particular, anything that's CAT exposed, there the rate actually went up from probably high-single-digits to slightly over double-digit.

So that could be one would say, a rationale reaction. Clearly, there's a lot of talk of that in large property. Now, it's not a huge portfolio for us. But clearly, we do have a national accounts property strategy. I mentioned before we are trying to balance the portfolio a little bit. So we are seeing that conversation on property.

Commercial auto, we saw it on, as I said, in our construction, and its high single-digit in auto, so that's good. And the rest, we just are going to be as prudent as we can be on the loss cost trend side. And as I said, look up, I mean, we don't think about rate adequacy at any moment in time.

And so we've got an opportunity to continue to push for rate and that's what we are doing. And I think, the tradeoff that the underwriters are making are good ones.

It's harder to, sort of, incorporate more of a market overall their perspective, that's just, the way I see it and hence why I think in the end, you get the gap still persisting maybe through year-end, as I indicated. And we'll see.

You have a tough CAT season that can turn around because not only -- the inflation is going to put a pretty big toll on -- if you have a large CAT in addition to sort of demand surge. So that's probably not enough from what you wanted, but that's the best I could offer..

That's -- that's -- that's great. Yes. It's always difficult to see all the trajectories of these things..

Yes..

I also wanted to ask about the retention in International. It's up at 85%.

You did talk about it a little bit, but are there any particular classes or types of business where it's a little more sticky for you now after all that re-underwriting?.

Yes. So let me just parse out because we throw in Canada there too. I mean, Canada has always maintained a relatively stable and good retention ratio. It was more with respect to as you point out, Europe and the Lloyd's Syndicate. And you had seen retentions in the low-60s for quite a few quarters.

And as we re-underwrote the portfolio, what we did is just aligned it with our appetite in the United States. And so what we do in Commercial here and what we do in Specialty here is, is what we are targeting. We took down the portfolio substantially. What we left, we really wanted to hang on to. And I think we saw some good increase on the retention.

It's nothing more significant than that. Both Europe and Hardy were 80% or a little over. So that -- so we had expected, right? We went in to the renewal season expecting that after the re-underwriting and so many quarters of it being down substantially..

Okay. That's great. And maybe just one more on the mass tort abuse claims. You seem to be implying that there were other things besides Rochester that might have been in the abuse claim category.

Is there anything there you can mention or talk about?.

Yes. So I think Scott mentioned it, right? We do the mass tort review every second quarter. We don't parse out all the components in there. A lot of it has to do with abuse and the impact of reviver statutes, but there's other old mass torts.

And based on that review, we think and all the information we have that we have it appropriately reserved and broadly across all of the mass torts. But there's a host of things in there..

I guess I was dancing a little bit around the Boy Scouts too, if there's anything specific you can say. I'll understand if there isn't anything you can say..

Well, yes. No. I mean, listen -- and that falls under the abuse. But at this point, there isn't anything for us to comment as it's ongoing and active, as you saw. And listen, when and if warranted, we'll obviously comment on it, like we always do..

Terrific. Thank you very much, Dino..

Okay. You're welcome..

Thank you. We take our next question from Meyer Shields of KBW. Please go ahead..

Thanks. Dino, I want to start, if I can, I'm trying to understand one of the comments that you made where you say we don't assume we will cover our long-run loss cost trends every year going forward.

Does that mean that when things are accelerating we should expect in the short-term loss ratios to go up?.

So this is -- this was more -- as I caveated the end of that sentence well history taught us that. But in any underwriting cycle, Meyer, it plays over 15, 16 years. You get, I don't know, 8, 10 years of a soft cycle. You've got pricing that will drop below long-run loss cost trend. So that's why it was more -- just that that's a reality.

I've seen it happen over 40 years. It's going to continue to happen. Now is the time to continue to take advantage of the pricing in the marketplace and keep pushing harder. It's nothing more sophisticated than that. It's just a reality that causes us not to talk about, well; we're rate-adequate now. And so that's really all I was trying to get at..

Okay. That’s helpful. Thanks for clarifying that. Within Specialty, I guess, both last quarter and this quarter, we've seen the warranty expenses rise faster than the revenues.

And I was wondering whether there's anything material there and how that -- how are you expecting that to play out maybe going forward?.

No. There's nothing really there a little bit of -- as we indicated some technology and a little bit of analytics. We also hired some additional staff in talent as we sort of moved away from the shutdown period of the pandemic, but it's nothing really significant..

Okay. And then final question, I'm just wondering whether or what you're seeing with regard to your clients in terms of a possible economic slowdown going forward.

Are you seeing any level of concern?.

Well, yes. So when we talk to a lot of the clients, I think they still remain relatively optimistic. And I mean, I think the economy is going to be what it's going to be, right, Meyer? So we -- what we do is we pay close attention to exposures and the audit premium. Now both of them were up considerably in the quarter.

And so far, the signs continue to look good. And we'll just keep tracking exposure; we'll keep tracking audit premiums. Obviously, if you get into a deeper recession, you'll see it in the audit premiums and we'll be able to reflect it. But right now, it continues to be a pretty good outlook..

Thank you. Our final question today comes from Josh Shanker of Bank of America. Please go ahead..

Yes. Thank you. The disclosure in the call has been excellent, but I want to go a little deeper. And I -- well, you said on the call that you want to talk about both pricing and reserves for preparing for inflation. You've been very fulsome, and please don't let me get anything wrong. If I say something wrong, correct me.

But I think about two years ago, you were estimated 2.5%, 3% long-term cost inflation, and now you're closer to 5.5%, 6%. Have the reserves for 2016, 2017, 2018, 2019 the unpaid losses been revised up in all classes other than workers comp over that time? Every time -- and you're not alone.

There's a lot of folks that say oh, we're taking up our loss picks and yet they still release reserves. And so I'm trying to figure out how you when taking the long-term.

So can you talk a little bit about that and what's happened in the last, like nine months?.

Sure. So let's -- look, first of all, if you look at the open claims on quite a few of the lines, so if you look umbrella, you look at medical malpractice, you look at auto, all of those are unfavorable, and you can see it. Of course, we had offset on comp, but don't forget, we also had offset on surety, and that's significant.

But if you look at the other lines, as I gave you, there were $200 million just on medical malpractice.

When you add commercial auto and umbrella, which you can obviously see to a large extent in our disclosures, it's been substantial because it does, to your point, Josh, and a point you've been making effectively, it does affect the past, not only the future, because of all of the open claims..

And so when you said, look, we -- I don't want to -- I read it was just rhetorical in some ways and Meyer got into it a bit. But when you say that we're not always going to be below, we're not targeting a long-term pick -- I guess it's hard for me to parse that. we're not targeting a long-term inflation pick in how we're pricing.

We're attacking it more organically.

I just -- is there confidence that those reserves are now being picked at or above the long-term loss cost inflation that you have in your assumptions?.

Yes. We clearly -- we've increased those long-run loss cost trends substantially, right. They doubled, as I said, in four years. And we believe with the actions we have taken over this period and in this quarter, that the reserves do capture it. Now, it's possible that long-run loss cost ratios, which we are sitting at about 6%, might go up.

My point on the other aspect that Meyer brought up of rate, it was a question of rate adequacy because you hear conversation around rate adequacy. What I was simply suggesting is that we don't focus on that as much because it is, it has been increasing. It can continue to increase.

And so you might be rate adequacy in a rate adequate line and quickly you're not anymore because of long-run loss cost trends. And then the other component I was just making is let's be realistic. There's also times in a soft cycle where you're not going to make it. And so my point there was simply that, hey, now's the time to go get more rates.

And that's all I was intending..

And that makes sense. And then my other question on medical loss inflation, to what extent is it just a lagging indicator? Medicare and the HMO does have a lot of bargaining power. And so the cost of medical services had been tame as we're using pricing for medical services that was set in the past.

But should we expect that the input costs for hospitals are rising, even if the cost to the patients haven't gone up yet?.

Well, first of all, let's just put in context the medical malpractice line and our actions on that medical malpractice line, which have been substantial, both in terms of unfavorable, prior period development and long-run loss cost trends. And of course, in consequence pricing, et cetera, was a function clearly of social inflation.

We saw significant attorney representation increase on those cases. We saw on embolden plaintiffs. We saw higher settlement demands even when the facts didn't warrant it. That's what drove that a lot.

Hard for me to sort of then sift through all of that and say, is it an indicator for what medical trends are going to do as we see it in work comp? Not -- it's not something that I can assess and I wanted to be clear on the social inflation impact on professional or medical malpractice.

Does that help?.

That helps. And what about on workers compensation, which has been very favorable. Some of that -- there's some medical in that. Is it -- and look, I certainly expect that workers comp loss trend will rise in the future.

But to what extent is that -- is medical costs a delayed or a lagging indicator of inflation as opposed to a concurrent indicator?.

I mean, I'm not really sure how to -- when you look at the CPI, medical inflation on the CPI this quarter, I think it changes every quarter, went up to 4.5%. Our trends are showing less, probably under 4% and a function of some of the things that offset it, fee schedule, the opioid utilization, which has come down.

The fee schedule does -- those kinds of things does cause a lag and so some of that has a lag impact. We watch it; we clearly have a good handle on it. As I was trying to point out on the work comp, because we've been so conservative that that if it goes up. We think we've got some room there.

Of course, if it really turns a corner, a function of economic inflation goes up for a protracted period of time, well, the good news is we'll have a little bit of time to react, and we think we can, based on our portfolio that we have, which to a large extent is more sort of the white collar work comp..

Well, I just want to say, as usual, the disclosure, the detail, the depth, it's all top tier. And thank you for doing so much work on this..

Okay. Thanks, Josh..

Thank you. We'd now like to turn the call back over to Dino Robusto for any additional or closing remarks..

Well, thank you very much everyone, and we look forward to chatting with you next quarter..

Thank you, ladies and gentlemen. That will conclude today's conference call. Thank you for your participation. You may now disconnect..