Good morning, everyone. Welcome to ProAssurance’s Conference Call to Discuss the Company’s First Quarter 2021 Results. These results were reported in a news release issued on May 5, 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 securities laws and subject to applicable safe harbor protection.

The content of this call is accurate only on May 6, 2021, and except as required by law regulation, ProAssurance will not undertake and expressly disclaims any obligation to update or alter information disclosed as part of these forward-looking statements.

This 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. Now as I turn the call over to Mr. Ken McEwen, I would like to remind you that the call is being recorded. [Operator Instructions] Mr.

McEwen, please go ahead..

Thank you, Francesca 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..

Thanks, Ken. The landscape looks much different than it did at this point in 2020 and not just regarding the pandemic. This time last year, we were looking at a very challenging quarter and a long road ahead in pursuit of our planned acquisition of the NORCAL Group. Today, however, I’m pleased to say we’ve made outstanding progress in both areas.

For the quarter, we got off to a strong start in 2021, as each of our major segments recorded improved results. This represents the continued benefit of the work we’ve completed over the past two years. And we’ll look to build upon this momentum through the remainder of the year.

At least as exciting as the improvement in our results whoever is the latest news from the NORCAL transaction. I’m pleased to announce that after over two years of discussions, planning and playing hard work on behalf of employees at both companies. We closed the acquisition of NORCAL yesterday afternoon.

This is a major milestone for proassurance and NORCAL and we’re excited for the opportunities the deal delivers to our customers and our shareholders. We’re excited about the close of the transaction in the strategic value it presents.

However, we know the true measure of our success will be the successful integration of the organizations and executing on our strategies to deliver on our short and long-term goals. To our new colleagues at NORCAL, welcome. I cannot overstate how pleased I am to add your many contributions to our business and culture.

Now I’d like to turn the call over to Dana, so she can lead us into the results for the quarter.

Dana?.

Thank you, Ned. For the first quarter, we saw meaningful quarter-over-quarter improvement in our underwriting results along with a strong performance from our LP and LLC investment portfolio. Further, each of our operating segments recorded quarter-over-quarter improvement in its bottom line, with the exception of the Lloyd’s Syndicate segment.

As a result, we reported non-GAAP operating income of approximately $2.1 million or $0.04 per share. Gross premiums written decreased quarter-over-quarter driven primarily by the non-renewal of two large accounts in Specialty P&C, which Mike will address momentarily.

The decrease was also attributable to our reduced participation in Lloyd’s Syndicate 1729 and to a lesser extent, continued competitive conditions in all our lines of business.

Even in the current competitive environment, we were able to secure $18.8 million of new business, a quarter-over-quarter increase of $5.3 million driven by our specialty, healthcare and medical technology liability lines business.

Our consolidated net loss ratio was 79.9% a quarter-over-quarter decrease of 1 percentage point attributable to our Specialty P&C and Workers Compensation Insurance segment, largely offset by natural catastrophe activity in our Lloyd’s Syndicate segment.

While, overall favorable reserved development was lower due to the adverse development at Lloyd’s, we recorded higher levels of favorable reserve development in our Specialty P&C and Workers Compensation segments.

Our consolidated underwriting expense ratio for the quarter was 30.1% a slight decrease from the prior year quarter, despite lower top line revenue. Further evidence that the strategic initiatives to improve our underlying expense structure executed in 2020 are having the desired effect.

From an investment perspective, our consolidated net investment results increased quarter-over-quarter to $21.8 million driven by $6.8 million of income from our unconsolidated subsidiaries. We invest in various LPs and LLCs and the results of those investments are typically reported to us on a one quarter lag.

Accordingly, the earnings from unconsolidated subsidiaries in the current quarter represent the gains in value of LPs and LLCs in the fourth quarter of 2020.

Consolidated net investment income was $15 million in the quarter down from a year ago period, primarily due to lower yields from our short-term investments in corporate debt securities in the current low interest rate environment, as well as a decrease in our allocation to equities.

In addition, the decline in net investment income reflected the impact of capital planning in anticipation of closing our acquisition of NORCAL.

Ken?.

Thanks, Dana. Mike, will you please take us through the Specialty P&C segment..

I will Ken. 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, we are encouraged by the 6.5 percentage point reduction in our combined ratio from the first quarter of last year and continued positive momentum.

As Dana mentioned, gross premiums written contracted in the quarter, primarily due the non-renewal of two policies in specialty healthcare, representing $13 million of premium writings. The retention loss for these two accounts reflects discipline pricing and underwriting decisions.

We will continue to focus on underwriting discipline and achievement of our long-term profit objectives, managing the segment’s top line as necessary to improve our bottom line. As a result of these aforementioned non-renewed accounts, premium retention for our specialty line of business was 56% in the quarter.

Standard Physicians, however, increased 86% a quarter-over-quarter gain of 6 percentage points. While Standard Physicians retention has largely stabilized from the impact of price strengthening and state strategy re-underwriting initiatives over the past year and a half it remains slightly lower than our historical average for this line of business.

Retention in our small business unit and medical technology liability business both increased to 91% and 87%, respectively. With the non-renewal of the two specialty accounts behind us, we anticipate retention rates for the segment will continue to normalize going forward.

We achieve renewal price increases of 6% in the segment driven by price increases in our Standard Physicians and specialty businesses of 6% and 8% respectively. However, in addition to the pricing increases in specialty, we continue to strengthen rate adequacy through adjustments to product structure, terms and conditions.

The increased level of new business written in the quarter totaling $12.1 million was primarily driven by $8.7 million from our specialty business, an increase of $6.8 million from the comparable period of 2020. Furthermore, new business in our medtech line increased by $1.1 million to $1.8 million.

The current accident year net loss ratio decreased 4.4 percentage points, which primarily reflects the improvement from our re-underwriting efforts and pricing gains.

We observed a reduction in claim for frequency in 2020 that has continued in 2021 some of which is likely associated with the pandemic as courts, and jury trials in most places have yet to return to normal schedules.

We remain cautious in recognizing these favorable frequency trends in our current accident year loss pick, due to the long tail nature of our lines of business and the high degree of continuing uncertainty that COVID-19 has introduced into operating conditions.

Speaking of COVID, we have not seen significant emergence of additional suits from the incidents reported today, with only nine actual suits filed as of the end of the first quarter. We continue to carefully monitor pandemic-related claim activity, and no additional IBNR reserves have been booked since the second quarter of 2020.

Despite the challenges in the current loss environment, we recognized net favorable development of $2.7 million primarily in our medtech business, which is an increase of about $300,000 compared to the first quarter of 2020.

Especially, Property and Casualty segment reported an expense ratio of 22.8% for the first quarter, an improvement of 1.8 percentage points from the year ago quarter. Despite lower net earned premiums. We continue to benefit from organizational restructuring efforts and proactive expense management.

To conclude and as Ned mentioned in his introduction, we are delighted with yesterday’s closure of the NORCAL transaction. We are especially pleased with the response of NORCAL policyholders to our tender offer through which we have acquired over 98% of the stock of NORCAL Insurance Company, the successor to NORCAL Mutual.

This is an exciting day for ProAssurance one that represents the hard work and dedication of employees at both companies. And I’d like to thank them all for their contributions to the close of the transaction. We look forward to the disciplined integration of the companies in a very bright future.

Together, we are confident in our ability to deliver a premier healthcare professional liability platform on a national basis.

Ken?.

Thank you, Mike and congratulations again to you and the team. Now I’ll ask Kevin Shook to give us some details on the Workers’ Compensation Insurance, Segregated Portfolio Cell Reinsurance segments.

Kevin?.

Thank you, Ken. The Workers Compensation Insurance segment produced underwriting income of $1.9 million and a combined ratio of 96.2% for the 2021 first quarter compared to 98.7% in 2020. The decrease in the combined ratio quarter-over-quarter reflects improvements in both the net loss ratio and underwriting expense ratio.

During the quarter, the segment booked $72.3 million of gross premiums written a decrease of 8.7% quarter-over-quarter. Renewal price decreases in our traditional book of business were 2% in 2021, compared to 4% in 2020, and premium renewal retention improved to 89% for the first quarter of 2021 from 85% in 2020.

Traditional new business writings for 2021 were $5.9 million compared to $8 million in 2020. Audit premium and our traditional book of business decreased $2.5 million quarter-over-quarter, reflecting the economic conditions associated with the COVID-19 pandemic and its impact on final audits of policyholder payrolls.

The decrease in the calendar year loss ratio from 66.9% in 2020 to 65.5% in 2021 reflects prior year favorable development of $2.2 million in 2021, compared to $1.5 million in 2020, partially offset by an increase in the current accident year loss ratio from 70.2% in 2020 to 71% in 2021.

The claims operation closed 18.2% of 2020 and prior claims during the 2021 quarter consistent with first quarter historical trends.

The increase in the current accident year loss ratio reflects the impact of renewal rate decreases and the reduction in audit premium partially offset by the impact of favorable prior year trends on the 2021 loss estimate. Reported claim frequency for non-COVID claims decreased 19% during the first quarter of 2021 compared to pre-pandemic run rates.

Gross undeveloped incurred losses for the 1,754 reported traditional COVID claims since March 2020 totaled $2.9 million as of March 31, 2021. Importantly, 96.4% of all 2020 and 2021 reported COVID claims are closed as of March 31, 2021 and the reported COVID claims trajectory trended downward in 2021 compared to 2020.

We continue to monitor legislative attempts to broaden workers compensation coverage in our underwriting territories. While many legislative enactments or proposals expired at December 31, 2020 new legislative sessions that commenced in 2021 may revive efforts in this regard.

The 2021 underwriting expense ratio decreased 1.1 point to 30.7% compared to 31.8% in 2020, primarily due to the restructuring initiatives implemented in August 2020, partially offset by a decrease in net premiums earned. General expenses were $7.3 million in the first quarter of 2021, compared to $8.7 million in 2020, a decrease of 16%.

The Segregated Portfolio Cell Reinsurance segment produced income of $545,000 and a combined ratio of 90.9% for the first quarter of 2021. Premium trends in the SPC Re segment were largely consistent with those in the Workers Compensation Insurance segment.

We renewed all of the captive programs that were available for renewal during the current quarter. The SPC Re segment reported favorable development of $1.4 million in the first quarter of 2021 compared to $1.8 million in 2020.

Reporting COVID claims since the beginning of the pandemic, through March 31, 2021 for this segment, were 1,417 with $3.3 million of gross undeveloped incurred losses.

Ken?.

Thank you, Kevin. Turning to Lloyd’s Syndicate segment now. I’d like to ask Ned to take us through the results for our investment there.

Ned?.

Thanks, Ken. As you know, we reduced our participation in Syndicate 1729 for the 2020 underwriting year from 61% to 29%. And the gross premiums written in the segment this quarter reflect that change. The adverse development in our Lloyd’s segment came from higher than expected losses in development on certain natural catastrophes.

Our participation in the results of Syndicate 1729 and 6131 led us to record of loss of just under $3 million in the quarter. As we disclose last quarter, we have further reduced our participation in Syndicate 1729 from 29% to 5% for the 2021 underwriting year.

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..

Thanks, Ned.

Any closing comments for us before we open it up for questions?.

Yes, I do have some. Thank you, Ken. I think the progress we’re making is clear in our results for the quarter. However, it’s important that we maintain this momentum. The fog that COVID-19 settled over the healthcare professional liability and workers compensation insurance industries will take time to dissipate.

But in the meantime, our objectives are clear, responsible underwriting, rational pricing and an unwavering dedication to our customers. Again, I’d like to add my welcome to our new colleagues at NORCAL and I look forward to our journey together..

Thank you, Ned. Francesca, that concludes our prepared remarks and we’re ready for questions..

[Operator Instructions] The first question is from Matt Carletti with JMP Securities. Please go ahead..

Good morning. I was hoping you might be able to give us a little more color around market conditions and pricing and terms and conditions that you’re seeing. I mean, the nominal pricing increases moderated a little bit. Understanding we’re several years into the increase now and you’re compounding pretty well.

Can you talk a little bit about where is the market is right now and how we should think about kind of reported numbers in that context..

Thanks, Matt and good morning. I’m going to let both Mike and Kevin kind of just give a quick update on market conditions for both healthcare professional liability and work compliance.

Mike, do you mind going first?.

Of course. Thanks, Ned. And good morning, Matt. What we’ve seen in the in the first quarter is some moderation of the rate increases, but you do have to keep in mind that, as you described earlier that this has been compounded.

So, we have – as an example, in core physicians, a loss pick that makes really good sense for us in our core states, so we’ve moderated that we want to make sure we retain that great book of business. It has been a little bit more competitive. As a result, maybe some of the slowdowns on the claim side as a result of the pandemic.

And certainly, we have competitive pressures from mutual players on a state by state basis. But we’re pleased with the consistency of the rate increases. We want to retain that quality book in Standard Physicians.

And we’re certainly have taken most of our underwriting actions in what I would describe as non-core states from a state strategy standpoint. In the specialty business, the market has been firmer, really nice improvements in terms product of structure, and overall rate adequacy on top of the premium rate increases.

So we’re hopeful that continues, our medical professional liability business continues to be competitive, as it is in our small business IST area. But definitely a little bit of slowdown from some of the terms and conditions that we were able to secure in 2020..

And then Matt, quick on comp. The environment remains competitive, certainly, despite COVID-19 and the associated economic conditions, but we are starting to see indications that the market may be bottoming out.

Accident years combines of 100 or greater for the industry, larger package players looking for rate loss cost normalization, and a lot of insurance carriers filling expense ratio pressure from payroll decreases, and the need to underwrite a little bit more. So our rate was down to about minus 2%.

And we are starting to see rate on some of the more difficult risks, which also is a good sign..

Yes, definitely. One more question I had is, in the past quarter you have referenced the kind of significant reduction in frequencies in the MLP line, largely COVID related. And, Mike, you touched on in your opening comments, but I was hoping maybe you could just kind of update us on your thoughts there.

More so around just kind of what the timeline might be in terms of when you might be able recognize that a little more in the numbers if we need to get to kind of the back end before reopening and let things work in the courts.

And that might be several quarters away or if you could help us understand kind of, we know you’re observing it and kind of optically optimistic, I guess, would be my take away, but you help us understand the process..

Hey, Matt, I’m sorry, your question – your audio was not good, but I think it was respect to the claim frequency reductions as a result of COVID and some color on that. So I’ll try to address that. As we stated, we’re taking a conservative view to it because of the slowdown of the system.

It is material – the reductions, and this is particularly in the healthcare professional liability area, and you really expect to see that play out as you look at the next kind of 12 to 20 – 12 months to 24 months on recognition of the benefits of that. I mean, you might see some at the end of 2021. But you’ll see a really true understanding of that.

I think as we go out into 2022, from the standpoint of recognizing it..

Great, thank you so much for the color and congrats on getting the [indiscernible].

Thanks, Matt. Really appreciate your questions..

The next question is from Greg Peters with Raymond James. Please go ahead..

Good morning.

Can you hear me okay?.

Yes, Greg, we can hear you. I think I may have in just umatched line..

Okay, just making sure. So I know you are excited about the NORCAL acquisition. So I’m looking at – I think, which is the statutory summary of the results over the last five years and the loss ratio in 2016, 2017 and 2018 looked to be in the high 70s.

And then in 2018, popped up to 145 is the debt I had, it might not be the right data, and then in 2020, it’s still elevated to 106. And that loss ratio is higher than your group average.

So maybe you just can comment on what we should be thinking about as you merge this entity, which looks like it was running at a higher combined ratio, higher loss ratio than where your company’s at..

Hey Greg, thanks for that question.

Mike, do you want to respond first?.

Yes. Sure. I mean, I think as we look at their first quarter results, Greg that through their re-underwriting efforts and throughout 2020, the loss ratios come down to the 96 level, really closer – getting closer to us than the historical results. So that’s an encouraging trend.

But I think that just kind of the big picture of it, when you start looking at a roughly $300 million core physicians book that they have roughly the same on our side is that the re-underwriting side of that will really be focused on just rate trends and state strategy.

So as we look at the integration of the companies, we will have the opportunity to really evaluate that from a re-underwriting perspective, a state strategy perspective, and really kind of move the loss ratios incrementally the way we have with our book of business over the last few years.

But they have been working hard throughout 2020 on their book of business as well. And the other thing that I just say is you look at the combined companies is, we’ve stated this public, we think from a competitive position standpoint, the synergies – the expense synergies on the NORCAL transaction are kind of in that $20 million range.

And we’ve kind of done the same thing over the last two years with especially P&C, particularly HCPL. So roughly in that $20 million range as well. So the other strategy here is really to run, what I’d say, a very competitive expense structure, reduce the loss ratios through pricing and state strategy.

And really bring this closer together as we go out into the future. That will take some time, but I’m confident in our ability to get that done..

Just as a follow up to that, versus your specialty business. It looks like and I may – again, my data might be wrong. It looks like they’ve actually grown their top line in the last two years. And if I compare it with your results, your top line has been under pressure as you’ve been re-underwriting and repricing.

So where have they been able to grow where you guys haven’t? I’m assuming my numbers are right here..

Greg, I’ll let Mike add. One thing to keep in mind, especially when you look at what they did through last year, is the pending demutualization of NORCAL and the benefit back to the policyholders of NORCAL caused them to have much higher retention levels then probably the industry average, certainly higher retention levels, then we have.

And we see that kind of any demutualization that we’ve been involved in, you see that kind of between the period of announcement and the close of the transaction.

But Mike, you want to add some color?.

Yes, Greg, it’s a good question. Their growth on the new business side has really been in that core physician book in a company wide basis and it was higher than our new business in 2020.

But the other thing on top line trends was their ability to secure rate also to re-underwrite some of their – they have a much smaller specialty portfolio and did some re-underwriting on that side. So I think both organizations really focused on that.

I think the real difference as Ned stated is the demutualization and probably more growth on their side in the core physicians book..

Thank you for those answers. I’m going to ask one more question on NORCAL just because for the benefit of everyone just trying to make sure, I accurately sort of run the numbers through my model or make the best guest possible.

Is there any seasonality to the earned premium or the written premium? And then do you anticipate – I look at their investment income results.

Do you anticipate any change in their investment portfolio as you’ve wanted to ProAssurance?.

Certainly, there’s not a lot of seasonality in their earned premium, Greg. Mike, you may know better on the seasonality of the written side of things. I don’t recall there being tremendous seasonality on that. And then Dana wants your question on investments.

But Mike, do you know more specifically about the written side?.

Yes, it’s relatively consistent. And Greg, I just wanted to go back to that previous question as well. They did have – the NORCAL team had a large tail premium also during 2020, that drove the top line a bit more than usual. And it was a one-off. So I just want to mention that as well.

But I think with the core physicians book, and not all the large account business and hospitals and facilities and larger stuff. The seasonality will be more consistent..

Hi, Greg, it’s Dana here. As to your question about NORCAL’s investment portfolio and how to be thinking about that as we move forward, we will be looking to take down risk at NORCAL to be more in line with our investment portfolio allocation. So they certainly have more in terms of equities.

And we’ll be looking to take that – some of that risk out of the portfolio..

Dana, just one quick follow up on that. What’s the total invested asset base that’s going to transfer to ProAssurance..

We’ve got over $1 billion invested asset base. That’ll come over. I can give you a more specific. I can give you an example momentarily..

We can take this offline. I’ve paused enough of your time. Thank you for the answers..

Thank you, Greg..

The next question is from Bob Farnam with Boenning & Scattergood. Please go ahead..

Hey, there. Good morning, guys. I just have maybe a couple questions on the Specialty P&C segment.

I’m trying to get a feel for it and it sounds like probably Matt and Greg, are similar trying to get a feel for what you’re actually your loss ratio is going to be going forward, you’re getting the rate increases, the loss trends, have been favorable, but you’re not recognizing that and you’re getting the changes in terms and conditions or whatnot.

So I’m just trying to figure out, should we expect your accident year loss ratio to improve going forward? Or is this kind of where it is for the time being?.

Bob, good morning, it’s Mike. What we’re waiting to see here is, we’ve made tremendous progress on our re-underwriting efforts. And we’re starting to see the early benefits of those re-underwriting efforts. And our goal, obviously is to bring that down further into the future. And it really comes down to when we start to see it in the data.

And then also the second piece, which we are starting to see the early returns of that, which is why we were able to reduce the accident year loss ratio in 2020 and in 2021. So, we would be cautiously optimistic that that will continue to improve..

You have kind of a goal you’re trying to get to. I mean, you’re kind of around 90% right now in terms of accident year loss ratio, so is that something that you’re trying to get down to the 80s or the 70s, 60s.

Is there is there a in mind for you?.

Yes, absolutely. I mean, we look at it big picture and our initial goal is really to get into the mid 70s and better on the loss and LAE side of our business. Our core book and fit Standard Physicians is running much better than that when I say core, our physicians business and some of our core states, our non-core states are running a bit higher.

And again, one of the challenges is really bringing that specialty loss ratio, which did not meet our expectations on loss ratio aggressively down. I think that I’m really confident in the underwriting actions that we’ve made.

And it just kind of needs to earn out over the next quarters, and we should be able to make improvements going into the future as well..

All right, and so in the non-renewals that you had in there, is there any anything in particular about those accounts that you can no force?.

Yes, absolutely. First of all, it was really what I would describe as the last quarter of heavy re-underwriting in specialty. We’ve been at this for two years. The first one, we had $8.5 million, large account that was on a two year policy. So we did not have the opportunity Bob to re-underwrite that back in 2020, when this was the first time.

And that was a result of significant price strengthening. We wanted to make sure we hit our premium targets for that and we lost that to competition. The second one pretty important was roughly about a $4.5 million correctional care account that we non-renewed.

And importantly on that, Bob, that business has not been profitable for us over the last five years, the correctional care segment, believe we have roughly five to seven accounts, and we are effectively out of that business as a result of this non-renewal.

So I think the thing to keep in mind, over the last five quarters, we’ve taken out about $45 million of what I would call more volatile, large account business that was not meeting our financial targets for loss ratio. And then we certainly reduced our volatility in senior care.

And then we really jumped out of – effectively jumped out of correctional care, which was not profitable as well.

So when I looked at a big picture going into the future, those are the strong underwriting decisions, and I’m really proud of our underwriting teams, they’ve done a terrific job that I think are really good to help us on that accident year loss ratio as we go forward.

But again, we’re seeing the early signs, and I’m excited about where we can go with this..

Great, thanks for that color, Mike. And one last question I have is the cat losses.

You mentioned the Lloyd’s second head cat losses, can you kind of quantify the amount of cat losses that you saw?.

Bob, we’re going to – not necessarily have that at our fingertips. There are two things that were going on there. One was cat losses. And recall that for us as a quarter lag, so this is fourth quarter last year. And it was both cat losses that occurred in that fourth quarter as well as kind of increased attritional losses on prior catastrophes.

And 2020, while didn’t have any one large catastrophe has had a high number of individual catastrophes. Dana you may have more detail on that. I’m not sure..

I do Ned. Yes, I have some detail on that and happy to address it.

So we did share a little bit at our year-end earnings call in early February that the syndicate saw natural catastrophe losses in their fourth quarter related to hurricanes Laura and Sally and the wind storms that came through the Midwest and when we talk then those losses on the storms and other natural catastrophes in the last few months to 2020.

From all that we were expecting a segment loss in the first quarter of about $2.5 million. And so as we expected the syndicate did see that deterioration relative to the past quarter on Laura, Sally, the wind storm, approximately $2 million net deterioration there.

And then also had losses related to the fourth quarter hurricanes Delta and Zeta around $3 million there. So I think that gives you sort of the highlights, but a little more detail..

That’s very good. Thanks, Dana. That’s all the questions for me. Thanks..

The next question is from Paul Newsome of Piper Sandler. Please go ahead..

Good morning. Thank you, folks. I have a – first off, I want to beat the NORCAL a little bit better. But it’s really an accounting question. How will the accounting work for NORCAL, if NORCAL – if you end up taking reserve charges for NORCAL. I recognize that there’s a piece of the purchase price that changes.

But I’m just curious – and to offset those reserved changes. But I’m just curious about how the accounting work just so we’re not confused when we first see the second quarter results..

Yes. Paul, this is Dana. Essentially, any adjustment to reserves that we make will be made through the purchase accounting adjustment on the front end..

So if you have reserve changes in the second quarter after the purchase agreement, would that flow through or is it – you sort of have one shot to do it at the beginning of the purchase agreement?.

We would fair value that at onset of the transaction..

I think, Paul to your question. Typically there’s a period of time after the close that if they’re kind of things become delayed that would affect the fair value at close that those would push back into any goodwill number is associated with the transaction up or down.

Our actuaries will get in starting today and really begin to pound hard on the reserves, come up with what we think the overall reserve number should be. That will be reflected in the fair value of reserves that we established in the opening balance sheet. Our objective there would be that we get that is a really solid number.

But if something were to come to light shortly after that it would it would flow back into the goodwill number. I think that may have answered your question..

Yes, I think so. And then, kind of similarly, the Lloyd’s business, I believe next quarter will be pretty darn small, I think, a very small participation.

Will it be material enough to have a separate segment anymore? Or do you think they’ll just kind of get rolled up into other parts?.

Paul, it’s a good question. It’s something that we’re looking at as the best way to display that going forward.

Keep in mind that while our participation goes down to a much lower level, we’ve got to earn out all the underwritten premium that is there and a lot of the contracts from 2020, a lot of reinsurance are still pushing premium into the 2021 year as return premium.

So the full impact of that reduced participation will take a number of quarters to really be reflected in the premium number, especially the written premium, but that is something we’re looking at is, how best to display that with reduced capacity..

Is there any possibility that we might see senior losses isn’t the same kind of losses that we’ve seen in the past two months?.

Yes. So largely because of the large number of catastrophes that did occur and throughout 2020 and then kind of into the beginning of 2021, the way that reinsurance structure that we have for the syndicate is structured, there’s an aggregate cap on exposure that essentially has been breached.

And so we’ll get reinsurance recoveries on the vast majority of those clients..

Great. Thanks for the call. Congratulations on closing your account deal, obviously very interesting strategic thing to do, so congratulations..

Thanks, Paul..

This concludes our Q&A session. I would like to turn the conference back over to Ken McEwen for any closing remarks..

Thank you, Francesca. And actually I did want to say one thing.

Earlier, Dana, you had mentioned that the net losses from the Q4 hurricanes of Delta and Zeta was $3 million that’s actually the total for the hurricanes and the wind storm it was $1 million from Delta and Zeta and then $2 million from Laura, Sally and the Wind Storm, so just want to make sure that was clear..

Thank you, Ken for that correction. I certainly, had $1 million in my head and just said the wrong thing. So thank you for that correction..

My pleasure. I thought you did. I just wanted to make it clear. So I just want – anyway just wanted to say thank you to everybody who joined us today. Please stay safe and healthy and we’ll look forward speaking to you again in August..

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