Employers Holdings, Inc. (EIG) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Q1 2020 Employers Holdings Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker for today, Lori Brown. You may begin.

Thank you, Towanda. Good morning. And welcome, everyone, to the First Quarter 2020 Earnings Call for Employers. Today's call is being recorded and webcast from the Investors section of our website, where a replay will be available following the call. Presenting today on the call will be Doug Dirks, our Chief Executive Officer; Mike Paquette, our Chief Financial Officer; and Steve Festa, our Chief Operating Officer. Statements made during this conference call that are not based on historical fact are considered forward-looking statements. These statements are made in reliance on the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations expressed in our forward-looking statements are reasonable, risks and uncertainties could cause actual results to be materially different from our expectations, including the risks set forth in our filings with the Securities and Exchange Commission. All remarks made during the call are current at the time of the call and will not be updated to reflect subsequent developments. In our earnings press release and in our remarks or responses to questions, we may use non-GAAP financial metrics. Reconciliations of these non-GAAP metrics to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation and any other materials available in the Investors section on our website. Now I will turn the call over to Doug.

Thank you, Lori, and thank you all for joining us today. On today's call, Mike, Steve and I will outline our financial results for the first quarter of 2020, and we'll discuss what we're observing in the market today. Before we begin, our thoughts are with each of you as we navigate together the challenges presented by the COVID-19 outbreak. Our company has invested significantly over the last several years in an operating model that drives superior customer experiences and enhanced efficiencies. Not only have those investments been meeting our goals, they added a critical resiliency to our business. Our company has been fully functional since we closed all of our offices to employees and the general public on March 20 of this year. We have taken necessary precautions to protect the safety and well-being of our employees and their families while continuing to provide uninterrupted service to our policyholders and claimants. We were able to successfully transition 99% of our employees to a work-from-home environment over 5 days in mid-March without any business interruption. We are currently operating under our work-from-home protocol and have been for the last 6 weeks. We are successfully leveraging and utilizing technology to maintain and ensure continuity without disruption. We feel that employers is in a strong position to weather the challenges created by the pandemic with a strong financial position and operational procedures in place that allow us to provide superior service to our insureds without disruption. Now I would like to move to the premium impacts we are currently observing. As a workers' compensation insurer, we continually adjust policyholder premium to reflect changes in their expected and actual payrolls. These changes can reflect both seasonality and then current economic conditions. Approximately 25% of payroll reported to us comes through our pay-as-you-go products, which reflect near real-time business activity of our insureds, and consequently, are self-correcting to changes. The majority of our policyholders pay premium based on an annual estimate of total payroll. And for those policies, payroll-related premium adjustments are made periodically through the life of the policy through midterm endorsements and/or premium audits. As a result of the COVID-19 pandemic, we received and have completed a significant amount of payroll-related midterm endorsement requests. These endorsements processed in March this year reduced policyholder premiums by $5.3 million. While endorsements processed in April through April 17, reduced policyholder premiums by another $6 million. We expect downward pressure in the second quarter this year in both gross and net written premiums because of changes in payroll estimates, and we expect this heightened endorsement activity to continue for an indeterminable period of time. We have also been impacted by regulatory orders, which either mandate or request that we suspend cancellations of policies for nonpayment of premium for a variety of time periods depending on each jurisdiction. Although we expect this likely will increase uncollectible premium and bad debt, and we have considered that in our first quarter results, it is too early to estimate the ultimate cost resulting from these orders. Just as every recession is different, so is every recovery. The length and depth of the impending pandemic-related recession is unknowable, but we have taken some actions in anticipation of those uncertainties. We chose to maintain our current year loss provision rate at the same level we observed last year. We believe that in the near term, we are likely to see a decline both in frequency and severity of losses, but we also believe that maintaining our pre-pandemic level of loss provision was the most prudent action given the high level of uncertainty. If we are correct in our view on frequency and severity, we have no way of estimating whether it will be short-lived or what will follow. Also, many states, through their insurance commissioners, legislative bodies and governors, have changed or are considering changes the definitions of compensability and presumptions related to virus exposure. These changes will have a negative impact on ultimate losses for the workers' compensation industry, although we believe our exposure to additional losses from currently enacted changes are likely immaterial given the classes of business we write. This is, however, a very fluid situation that could change at any time. We are working directly and indirectly through our trade association and through other industry trade associations to help shape the public policy response. Relative to the prior periods, despite a series of strong reserve releases going back several years, we chose to recognize observed reserve redundancies only for those years that we believe have low exposure to recessionary impacts. In this quarter, those years were 2010 and prior. For years 2011 and after, we chose to leave reserve -- loss reserves at year-end levels without regard to observed loss development since year-end. This decision reflects our view that there is a higher degree of uncertainty in the loss reserves because of the impending recession than there was previously. Before I close, I'd like to give an update on Cerity, our direct-to-consumer product offering. We are pleased to announce that Cerity is now approved to write business in California, the largest workers' compensation market in the country, and now offers direct-to-customer workers' compensation insurance in 38 states and the District of Columbia. Our goal is to provide small businesses the optionality to obtain workers' compensation insurance across America through whatever means they deem most efficient. Although Cerity is still very much in its infancy, we continue to believe that the addition of this digital product solution is very important to positioning employers for success in a rapidly changing marketplace. We suspect that many small business owners of today and those coming in the future have recently become much more comfortable transacting business digitally. For those businesses, we have a product that responds to their needs. With that, Mike will now provide a further discussion of our financial results. Steve will then discuss some of the current trends, and then I'll return for a few brief closing remarks. Mike?

Thank you, Doug. During the first quarter, we delivered a 3.7% annualized return on adjusted equity, which is satisfying given the chaos and disruption currently being experienced throughout the world attributable to the pandemic. Our underwriting results were solid for the majority of the first quarter, reflecting the strength of our business model, but our financial results were adversely impacted by unrealized net investment losses. Our net premiums earned were $168 million, a decrease of 4% year-over-year. Since premiums earned are primarily a function of the amount and timing of net written premiums, I'll let Steve describe the decrease in premium writings this quarter in his remarks. Our losses and loss adjustment expenses were $104 million, an increase of 18%. The company recognized $3 million of favorable prior year loss reserve development during the current period, which related to accident years 2010 and prior versus $22 million of favorable prior year loss reserve development a year ago. Our current accident year loss and loss adjustment expense ratio was 65.6%, which is literally unchanged from the full year ratio that we recorded for 2019. Commission expenses were $21 million, a decrease of 3%. The decrease was primarily due to the decrease in earned premium. Underwriting and general administrative expenses were $47 million, a decrease of 2%. The decrease was largely the result of lower premium taxes and assessments, partially offset by higher information technology and bad debt expenses. From a reporting segment perspective, our Employer segment had underwriting income of $1 million for the quarter versus $22 million a year ago, and its combined ratios were 99.5% and 87.2% during those periods, respectively. Our Cerity segment had an underwriting loss of $4 million for the quarter, which was consistent with its underwriting loss of a year ago. Turning to investments. Net investment income was $20 million for the quarter, down 9%. The decrease was primarily due to a sharp increase in the amortization of bond premiums associated with our residential mortgage-backed securities, which was caused by a recent distortion of mortgage loan prepayment speed assumptions. At quarter end, our fixed maturities had a duration of 3.1 and an average credit quality of A+, and our equity securities and other investments represented 9% of the total investment portfolio. We were unfavorably impacted by $43 million of net after-tax unrealized losses from equity securities and other investments, which are reflected on our income statement; and $29 million of after-tax unrealized losses from fixed maturity securities, which are reflected on our balance sheet. These unrealized investment losses were the primary driver of our 5% decrease in book value per share, including the deferred gain year-to-date. Finally, during the quarter, we repurchased $43 million of our common stock at an average price of $37.17 per share, and our remaining share repurchase authority currently stands at just under $36 million. And now I'll turn the call over to Steve.

Thank you, Mike, and good morning. Net written premiums for the quarter of $183 million were down $25 million or 12.1% from the first quarter of 2019. The primary drivers for this decrease were new business premium and midterm premium adjustments. Through the end of the quarter, we had the most policies in force and new business submissions in the company's history, which reflects the strength of our new business production and strong renewal rates. New business bound policies for the quarter were up 3.2% driven by increased submissions, which were up 5.1%; and quotes, which were up 15.9%. Our in-force policy count grew 8% over the first quarter of 2019. However, despite this increase in production, new business premium decreased by $18.5 million. This decrease was driven by factors such as continued rate decreases in the states we do business in as well as competitive pressures on middle market accounts, which continue to be very strong during the quarter. Also, as expected, we had a decrease in new business writings in California due to our increased rates, which went into effect as of July 1, 2019. In addition, we were impacted during the month of March, in particular the second half of the month, by a slowing of new business submissions and bound policies due to agents in our distribution channel transitioning to work from home and having less opportunity to market accounts at renewal. Midterm premium adjustments exhibited a decrease year-over-year of $5 million driven by endorsements in March related to payroll reductions. These reductions are directly related to the impact of the shuttering of nonessential businesses that we insure as well as reduced payroll in businesses that remained open. With respect to renewal business for the quarter, we continue to see high policy unit retention rates. For the quarter, this rate was 93.9%. This was offset to some degree by continued rate decreases. Renewal premium was flat on a year-over-year basis. New claim volume continues to decline on a year-over-year basis. We have experienced decreases in lost time claims of 15% in March and 50% so far in the month of April. Whereas we don't know if this will be a continuing trend, it is what we are currently seeing. We believe this decline is driven by less exposure because businesses are being shattered as well as lowered headcount and hours worked in businesses that remain open. Customer service remains our priority throughout this period of uncertainty with a focus on long-term retention and satisfaction of our customer base. And now I will turn the call back to Doug for his final remarks.

Thank you, Steve and Mike. As you have heard in our comments, we believe that the COVID-19 outbreak is more likely to be a premium event than either a capital or a claims event for workers' compensation. As incredibly tragic as the public health consequences of the COVID-19 pandemic have been, the public policy response to the pandemic is likely to have a much longer-term impact on our business and those businesses we insure. We remain confident that we were well prepared to weather the storm, and we expect to emerge successfully into a very different world. Our company turned 107 years old last month, meaning this isn't the first pandemic it has experienced and likely won't be the last. We have always recognized that the rare pandemics are an expected part of our business, and consequently, we have routinely considered them as a part of our business continuity and disaster recovery plans. The buzzword for the last several years has been resilience, and we will now find out whether that was lip service or real. I can assure you that for us, it was real. Overall, we have taken a very cautious approach in assessing our short-term operating results given the uncertainty across the economy. However, we have been proactive in ensuring that our operations and communications have been first rate. Thus far, our agents and insureds have provided favorable feedback which we believe over the long run will help strengthen our relationships. Finally, my thanks to our 700 employees for their unwavering dedication, flexibility and patience as we continue to seamlessly operate our business and execute our strategy despite being in a work-from-home status. Throughout our 107 years, our company has been in the hands of many. But I believe, and I hope you do as well, that this company couldn't be in better hands today. And with that, operator, we'll take questions.

[Operator Instructions] Our first question comes from the line of Matt Carletti with JMP Securities.

Steve, I was hoping I could go back to your comments on -- you touched on new business and retention and things like that. I was hoping you could give us a little more color on, even as we've got into April, kind of as the agents have maybe gotten comfortable working from home and transitioned, what you've seen. I mean I'd imagine in this environment, you'd see new business fall off and retention pick up. But just curious if you can give us any color on kind of the last several weeks.

Sure. And I want to broaden maybe, Matt, the discussion beyond even just the distribution channel to the insureds as well. From our vantage point, what we're seeing is that a lot of the insureds are -- in particular the smaller businesses are struggling to stay afloat, frankly. And as a result of that, looking at their insurance needs, in work comp in particular, is not their #1 priority. Some of them are focused on other insurance products. Business continuity continues to come up in discussions, we hear with our agents. So I think part of the equation here is just how much an insured at this point is focused on putting their business out to bid. But from an agent standpoint, clearly, as with any other business, the move from work from home has some residual impacts. Some of them have skeleton crews that are operating right now. And one of the things that we consistently are hearing from our agent distribution channel is some of the investments that we've made and talked about on these calls in the past year or so are lending themselves to a greater efficiency than would have been in place prior to those changes. So an example of that would be the ability today for an agent that they didn't have 1.5 years ago to put through self-service capabilities on these endorsements that are reducing payroll. In the past, they would have been required to call into our company and have our company do all that work. So I think one of the things that we're hearing from the agents consistently, no matter what part of the country you're talking about, is these investments that we've made are paying dividends, in particular in a time like this. But I can't tell you today, Matt, how long it's going to take for things to get back to normal in terms of new business production. I think we will see some of the benefits in terms of retention, in particular on smaller accounts. I quoted earlier on the call, we still continue to see very, very strong retention rates at renewal. I would expect that to continue. But my crystal ball at this point is not very clear on how long we'll be dealing with some of these new business impacts.

That makes sense. And then maybe just shifting quickly. I think it was in your opening comments, Doug, you talked about the -- some of the presumptive coverage efforts. I mean, obviously, California has been out there, but others, too. And yes, it makes sense that kind of the kind of ECI 1 classes, you guys just don't have a lot of. So I have a couple of questions there. One is, can you -- on the ECI 2 classes, kind of not the healthcare and not the first responders but the other essential businesses, kind of level of exposure there. And then secondly, just the WCIRB has been very open with their kind of publishing their thoughts on it, and I'm just curious kind of what you think of that analysis. And then as you look at some of the specifics in there in terms of the mix of what the hospitalization, ICU, otherwise and the cost of those claims, if that's -- not related to COVID but is generally speaking, an ICU versus otherwise, if that's consistent with what you see in your book or if the industry data is substantially different than what you might see in your book.

So let me begin by addressing somewhat how we're viewing this. And again, I commented earlier that this is a very fluid situation. We literally are reacting to proposals, orders, suggestions daily. We've internally had this described as a bit of whack-a-mole because it literally occurs across the country every day, and so it's something we are very much on top of, but it's very difficult to predict. We don't have a lot of exposure to kind of those first responder classes of business. There is some, but it's relatively small in our book of business. As that description of who's in the essential versus nonessential and whether or not they're going to be entitled to any type of presumptive workers' compensation coverage, there's just so much variability that we're uncomfortable predicting that. I won't comment on the WCIRB's analysis. Obviously, we're well aware of it. We have digested it internally, but it's their data based on the entire industry. It's a very wide range. And when you see that wide range of potential outcomes, I think that tells you the degree of uncertainty associated with putting any number out there. I mean I think I would describe it as ranging anything from not a problem to a very serious problem and everything in between. So there's simply no way to know. We are doing everything we can to be actively involved in the public policy discussions when they occur all over the country, and we'll continue to stay on top of it.

Great. And then -- it's really helpful, Doug. And then one last question, though. I don't want to keep Mike out of the loop. Just on the numbers. As we think about expense ratio, and obviously with some premium headwinds, can you just walk us through in rough numbers kind of how to think about that? I mean it's kind of leaving commissions out the -- kind of the rest of the operating expense ratio. What -- how much of that is fixed, how much is variable? To the extent that there is variable, how much of that would be kind of take action on your guys' part to reduce versus maybe you don't want to do that because you view this as more of a shorter-term impact and maybe that wouldn't be wise in the long run?

I'll take that question, Matt. When you think about the variable elements of other underwriting expense, the 2 largest ones there are premium taxes and assessments and bad debt. And typically, those run 4.5, 5.5 points to 5.5 maybe up to 6, depending on what happens with the bad debt provision. So those are fully variable. -- if you think of bad debt as being in a normal environment, those are pretty much variable to premium. The next level I would point to are the semi-variable costs. In that category -- and it's our largest operating expenses, salaries and benefits. This is still a business despite the investments we've made in technology that is very dependent on human capital, and that is a semi-variable cost. It's certainly something that we have some control over. At this point, we've taken no actions there because from our perspective, we are fully open for business and continue to transact business. What's left are things like projects and initiatives and rent occupancy costs. Those things are all fixed, and they represent -- think of those as probably something combined. They are probably 10 points or so.

Our next question comes from the line of Mark Hughes with SunTrust.

Yes. Steve, you had talked about the high retention. I think Matt was asking about what you see in April. Are you still seeing very high policy holder retention in April? Are you seeing some attrition in your customer base?

Mark, no, we still are seeing high retention rates through April. Obviously, with some of the issues that are going on in the economy from a payroll standpoint, where we'll see an impact in the future, even though the unit retention rates are strong with a lower payroll base, that'll have implications in terms of the renewal rate itself. But the unit retention rate at this point continues to be strong.

And when you look at those ones that are renewing, say, in the last few weeks, do you have a read on kind of the -- presumably, they're giving you updated outlooks on payroll. What are you -- what do you see in those numbers?

We're definitely seeing -- we called out some of these numbers a little bit earlier in terms of some of the endorsements. We see through the endorsement process, we see through the renewal process in the future, we'll see through final audit these payroll reductions, which, as we said earlier, Mark, escalated in March and at a higher rate so far in April.

Yes. I hear you, but -- or maybe I'll ask this question as a setup. Your -- at the end of the first quarter, your premium in force, do you have that or at least the most recent number for that, maybe year-end?

The premium in force through March was the number we called out earlier. I don't have anything through April at this point.

And I'm sorry, what was that number?

8. I believe it was 8%.

Oh, I am thinking absolute dollars. I think at year-end, maybe it was $600 million, $650 million, something like that. I'm just thinking about premium in force.

Mark, I've got -- in our 10-Q draft, I've got it at $643 million as of March 30.

Right. And then the endorsements, the $5 million in March or so, $6 million in April, those are a percent each. So that's collectively 2%? I'm just trying to get some sense because there's 2% and then you talk about in April, the claim is down 50%, but I would assume that's not based on payroll down 50%. It's just activity down substantially. So I'm just looking to see whether there's any newer data, the policies renewing in April, what those business owners think their payroll change is going to be. I think -- yes, hopefully, that makes sense.

I'll jump in there, Mark. And one of the challenges is there is a little bit of a lag to renewal activity. We prerenewal a large number of our accounts. And some of them ultimately convert to a renewed policy. Some of them don't take that renewal, and there's a bit of a lag on that. It's not an extreme lag. We're getting to the point -- we're just now getting to the point where we're going to start having some data there that's meaningful. I'm not trying to dodge that question. Obviously, we're asking the same question and are looking for the same things in our data. I think relative to endorsement, that's probably the better area to focus. What I expect we're going to see is that businesses are going to try to stay afloat as long as they can, which means they're going to endorse their payrolls down maybe to 0 until they reopen. And then when they reopen, their policy will still be in effect. They may or may not endorse their payroll back up when they start having a payroll again. So I think we're going to be dealing with this issue for the -- for another 12 to 15 months because a year from now, assuming that these businesses reopen, have payroll again but don't endorse their policy back up, we'll be collecting audit premium on those policies a year from now. And I think that's the way these pieces are going to move together over the next 12 to 18 months, but it's so volatile right now that we're reluctant to declare much of a trend here. We have much better information around new business submissions. We can see that in real time. As Steve indicated, that is down. It seems to be settling in at the moment. I'll put a number out there at the moment. It appears to be down about 1/3 year-over-year both in terms of premium and units. That could be a function of a lot of different things. It could be backlogs in agents' offices. It could be fewer new business start-ups. There could be any number of reasons for that, and that's why we're reluctant to say you should model anything based on that number, but that is what we're observing right now.

That's helpful. How about -- when we think about the reserve development, I understand your caution at this moment. Is there really material risk that, say, something from the 2017 accident year is going to get you at this point? How long of a tail or lag you have on claims in the last recession? Were there late reported claims that were 2, 3, 4 years old that emerged?

So Mark, I'll take that question as well. So I made a reference in my comments about every recession and every recovery being different. They are. Our caution is informed by what happened in the last recession and particularly what happened in California. We did have meaningful late reported claims associated with competitive motion, cumulative trauma injuries. I'm not predicting that, that happens again. I think a lot of that was unique to that recession, and what was unique to it was there was a very long period of unemployment. As you recall, the unemployment rate stayed high for a very long period of time. There was not a V recovery. There was not a U recovery. There was the hockey stick recovery. And our caution right now is there's nothing to say that, that couldn't happen again. And we were seeing those claims in 2011, '12 and '13 coming out of the 2008 recession, and that's informing our caution right now. I'm not predicting that, but we think that is a potentiality and it adds to the uncertainty and in setting loss reserves for years even as old as 2017 and earlier.

Understood. But did those claims come from, say, 2005 and 2006? Or were they more 2008 and 2009 accident years?

So the reason we decided to take the observed favorable development on some of those earlier years as we think at some point, those claims become almost immune to recessionary impacts. But certainly, when you're thinking about later years, you referenced 2017, 2018 and 2019, those -- because of the number of claims that are still open and the relative immaturity of those claims, there is still some potential exposure to recessionary impacts, and so we exercise a high degree of caution this quarter until we get a better sense on how we think this recession will unfold.

Understood. In California, I don't know if it's possible at this point to say what the level of activity or new sales was in California compared to what it was prior to your rate hike in July. But how much had California been running down? And was that a fairly abrupt change once you raised the pricing and so maybe you'll lap that come this summer that may be overwhelmed by other factors? But I'm just sort of curious to how much of an impact that has been on your business, that rate increase in California.

Quite a bit. On the new business side, I referenced the $18.5 million decrease in new business. About 85% of that came from California. So clearly, it's having a significant impact, which we expected.

Right. So that $18.5 million might have had a little bit of the virus impact, but it was probably more of the California pricing differential?

Yes. I would weight more of that on the price hikes that we took in July of last year. But California was also impacted disproportionately because that's the largest state for us on this COVID-19 impact that we saw in the second half of March as well.

I'll ask one more. Doug, would you have expected more midterm endorsements? It seems like we've been at this for a while. It's been weeks and weeks, but you've only -- it's a 2% issue so far. I think that's interesting data, but it strikes me as -- I wonder why it -- if there is meaningful decline in payroll among your customer base, why more of them are not being action on the workers' comp trend?

Yes. Mark, it's somewhat of an unknown for us because we've never experienced this phenomenon before. We've been very visible in terms of communicating with our agents and our insureds that this mechanism is available to them if their businesses are struggling and they don't have payroll. We're doing that to be responsive to our customers. We're also doing that to be responsive to the regulators. So there's a couple of objectives there. Another thing that I suspect is different from us is we have a very large number of very small policies that pay a full year's premium at the inception of the policy or have relatively small installments over the course of the year. It may be a function of our business mix but that's all we've observed to date versus perhaps somebody else's book of business that has much larger accounts that would be more benefited by midterm endorsements. We look at it and think it's an eye-popping number only because it's so much larger than it's ever been before. But to your point, it's still a relatively small amount of our total premium. I expect that at some point, as things settle in, this will plateau and then start to fall off. But there's just simply no way to know.

[Operator Instructions] Our next question comes from the line of Bob Farnam with Boenning and Scatter (sic) [ Scattergood ].

Yes. So from your comments, Doug, it sounds like -- are we safe to assume that you're going to be cautious with the reserves, at least for now until you have a better -- a clear understanding what the recession is going to look like?

I would answer that a couple of ways. Yes, we will continue to be cautious. Until things unfold, we get a little bit more visibility into what we think the recession exposure is. That being said, if we continue to observe very strong favorable development in prior years that we don't believe have significant exposure to recessionary impacts, we're going to react to those. This isn't just squirreling away reserves so we can sleep better at night. We are going to be responsive to what we're observing. And to the extent that we can get comfortable that some of those mid years are immune to recessionary impacts and we're observing favorable development, we'll take it.

Right. And it sounds like -- if I heard your comments right, it's sounded like the current business with the drop in frequency and drop in severity, you're almost going to be baking in some conservatism there because you're not really changing the loss ratio. Is that also fair to say?

I would say that's possible. I don't think that's an unreasonable scenario. Again, we kept the current year provision where we saw it at the end of the year. We do think there is going to be this reduction in premium or in frequency and severity on the loss side. It's not a dollar-for-dollar match to premium, which is why this is a little challenging in the very short run. But there is certainly a potential that if we see a sustained period of reduced frequency and severity, our current year provision might be more than adequate.

Okay. I wanted to talk about kind of like your -- the types of risks that you write. And obviously, restaurants is a big category for you. Are they -- are restaurants feeling the pressure more so than other risks -- other segments that you write? Or is that -- kind of across the board is feeling the pain?

So Bob, this is Steve. I'll answer that question. About -- for the March and April endorsements that we referenced earlier, about 40% of that volume is coming from the restaurant and hospitality classes. So a lot of them have shut down. Some of them that have stayed open are with a smaller staff, and they're doing curbside delivery or delivery. Now some of the delivery that they're doing is outsourced, and some of them are doing delivery within house staff. But that is the class of business that is showing the greatest impact and at a higher rate than they make up our in-force book as well, so they are definitely impacted.

And it sounds like the restaurants are probably smaller risk. So they're not really on the page of go format. They're more the annual policies, and that's why they're following endorsements?

Well, some of them are on pay as you go. Generally, it's the smaller businesses that are on pay as you go. So the other thing I would call out is that when I look at the endorsement volume, it's not disproportionate in one premium band versus another. So it's not like we're seeing the small business with a higher percentage than we see in our in-force book versus the larger accounts. It's pretty spread across -- equally across all sizes of business in terms of these endorsement requests. But generally, most of the pay-as-you-go policies are on the smaller side.

Right. Okay. And one last question for me, waiting periods. So I thought that -- like workers comp policies have waiting periods that last for a bit. So if people are catching the COVID virus and they're better by the end of the waiting period, does that mean you're off hook?

Yes. Each state has their own requirement in terms of the waiting period. But keep in mind, if someone is diagnosed with a positive test, even if it's not a severe claim, they're going to be required to self-quarantine. And generally, those quarantine periods would extend beyond the waiting periods, so you got to factor that into the equation as well.

Okay. And so with the states that are changing the presumption of compensability, have they made any adjustments to waiting periods? Or is that still up in the air?

No, they don't seem to be focused on the waiting periods. They're focused on the presumptive issue.

Our next question comes from the line of Ron Bobman with Capital Returns.

I have a handful of questions. I hope you'll be patient with me, in no particular order. How do you underwrite new business in this environment with the water being so murky as far as sort of the recession is concerned?

Well, one of the things, Ron, that we've done is we've taken a look at classes of business in the health care space that we write. And we don't have a high percentage of business in the health care space. The largest class that we have are physicians. And a lot of the physician offices today are, frankly, becoming virtual offices. They're doing teledoc or telerehab. So that exposure today is much lower than it would have been earlier on in this pandemic. But some other classes of business that we have a small amount of in-force premium in, and I'll call out a couple of them, home health care and nursing homes. We've actually placed a moratorium on writing new business for a period of time in those classes because we just feel like the exposure in those classes of business is still there. It doesn't mean that it's a permanent moratorium at all, but we've taken some underwriting decisions with respect to those classes of business. We don't write first responders, so we don't really -- don't have any exposure there. So when we're looking at certain classes of business that have a greater presumptive liability, we're making those decisions, and those are just a couple of the examples that we made decisions on.

What about employing credits and debits? Have you made sort of underwriting pricing decisions with respect to sort of the permissibility or the implementation of credits and sort of in effect moved rates further than the trajectory that you had been effecting 60 days, 60-plus days ago? Any changes with that with respect to that...

We have a -- we've historically had a threshold on when credit is part of the underwriting decision. As a result of this, we've lowered that threshold. But the majority of our policies are straight-through quoted and not even touched by an underwriter. We don't have a credit component to that.

Okay. Somewhat relatedly, sort of you've made a tremendous investment in customer service, digitization, et cetera, straight-through processing like you just mentioned. But I would imagine that the industry sort of, for the most part, lags you in that regard. Are there any signs of competitors just not being able to renew business, effect endorsements, quote and buying new policies in that there -- it's sort of evident to you that there's, as you call it, orphaned business, insureds and distress by virtue of not getting carrier reactions?

I'm not seeing, Ron, anything that they're being limited. What I am hearing very clearly from our distribution channel is that some of these investments that we've made in the last 18 months, in particular whether API technology investments, some of the self-service capabilities that we have that can allow for a quicker turnaround time on certain requests that we do stand out compared to some of our competitors. No question about that.

Could you discuss the reinsurance program, your reinsurance protections and the applicability of them or not in the context of, one, a worsening recession; two, whether the pandemic is considered a cat, whether that is important at all in the context of your reinsurance protections?

So Ron, I'll take that. It's easier to describe the pandemic aspect. We are covered under our current reinsurance program for a pandemic, always have been. The issue is that we have an hours clause, and that means that we have to have an aggregation of cases within that hours clause that has to exceed $10 million for that coverage to kick in. And if we do collect under that scenario, there's an additional reinsurance premium associated with that as well. So based on what we know today, we don't believe that we will trigger a recovery under our current reinsurance program for the pandemic, although it is a coverable event.

Okay. Did you buy stock back in April? Sorry if I missed this in the prepared remarks or it's in the disclosures. But did you buy any stock back in April? And what's your attitude -- I did hear about the remaining authorization. You were quite active in the first quarter. But what about looking forward?

So, Ron, we did buy a little bit of stock in April. Because of the volume, our 10b-5 filled very quickly in April as a result of our big amounts of transactions in March. So I believe that we had less than 1.5 million of repurchases in April. And I mentioned that our share repurchase authorization was about $36 million so take that down by about $1 million. Right now, we have an appetite to continue our share repurchase program when we have the opportunity to do, though -- to do so. The issue really is just the liquidity at the parent company, and it's not that we are tight in terms of liquidity. It's just that our dividends from our subsidiaries are lumpy. And they come at certain times of the year, and it's very difficult to accelerate those. So we try to match our appetite with the cash flows coming up from the subsidiaries. But we have an interest in repurchasing shares today, for sure.

So how much -- so how liquidity do you have at the holding company now or as of April 1? You sort of mentioned that, that is the real governor or the lead governor.

Right now, we're probably less than $10 million, but we do have a subsidiary dividend coming on the horizon of $22 million in just a few days, if that helps.

Okay. My last question. The -- I think it's called the Families First Coronavirus Act, and it obviously relates to sort of sick pay, leave, paid leave. What are the implications of that, I don't know, you call it, benefit or -- on employees going on work comp or not going on work comp?

Ron, I don't think we have a view on that whether or not it would have any meaningful impact in the event of a claim being filed or not.

We have a follow-up question from the line of Mark Hughes with SunTrust.

If there is a death claim related to a COVID-19 case, what are the parameters for how much would be paid out under workers' comp?

Once again, I don't want to sound like a broken record, but it does depend on the state. But I will tell you that generally, most states, the death benefits include, among other things, the payments for dependents of the deceased individual, which is generally where the higher dollar amounts come in. And so this wouldn't be treated any differently than any other workers' compensation claim in terms of what the benefits would be.

The benefit is usually magnitude of the payout to the dependent. Is that the idea? It's not like a life insurance policy?

Yes, the dependent. So that's part of the claims investigation, is are there dependents. And if there are, that includes -- that's generally other than the medical costs, which, in some cases, depending upon the cause of death can be large. But generally, the dependent pay is -- has some significant dollars attached to it depending on number of dependents, et cetera.

And what would the, round numbers, typical payout be? What's the range?

That's really going to -- that's really, Mark, going to vary depending upon number of dependents. So that's a hard number to come up with just in generic terms.

Understood. What -- I think you've got a good relationship or a close relationship with the California Restaurant Association. What are they saying about all of this? Have they put in any projections out about what it means for payroll? And I'm also curious, any feedback you might have gotten from brokers, just what do they see out in the marketplace?

So we've had numerous instances of dialogue with not only the California Restaurant Association. The National Restaurant Association, we have a relationship with Illinois Restaurant Association as well as some other states. And we've got a very collaborative discussion with them. In fact, with respect to one of those associations, I wouldn't call them out on the call, but one of those associations, we've had some very good dialogue where they're actually lobbying their state government against moving forward with these presumptive scenarios for work comp for their specific industry because of the costs that would be associated with that long term. So a substantial amount of dialogue is taking place with all of our restaurant association partners. CRA, as you've mentioned, is our largest. But we've worked hand in glove with them in terms of the impact that this is having on them and what we can do to assist them, including some of the lobbying efforts that they're undertaking at this point.

Thank you. I'm showing no further questions. I would now like to turn the call over to Doug Dirks for closing remarks.

Thank you, operator. Thank you, everyone, for your participation today. We are endeavoring to be as transparent as we can be. I caution that a lot of the comments we made today are things we're observing in real time, and we simply can't forecast what's coming next in most instances. But thank you very much. We appreciate your support and your time today. Please all be well and safe, and we'll talk to you again next quarter.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.