Presurance Holdings, Inc. 9.75% Senior Unsecured Notes due 2028 (PRHIZ) Q3 2020 Earnings Report, Transcript and Summary

Good morning, and welcome to Conifer Holdings' Third Quarter Investor Conference Call. [Operator Instructions]. Please note that this event is being recorded. Now I'd like to turn the conference over to Mr. Adam Prior. Please go ahead.

Thank you, and good morning, everyone. Conifer issued its 2020 third quarter financial results after the close of market yesterday. On the company's website, ir.cnfrh.com, you can find copies of the earnings release as well as the slide presentation that accompanies management's discussion today, which is available to view or download via webcast or from the Investor Relations portion of Conifer's website. Before we get started, the company has asked that I note that except with respect to historical information, statements made in this conference call may constitute forward-looking statements within the meaning of the federal securities laws, including statements relating to trends, the company's operations and financial results and the business and the products of the company and its subsidiaries. Actual results from Conifer may differ materially from the results anticipated in these forward-looking statements as a result of various risks and uncertainties underlying our forward-looking statements, including risks and uncertainties associated with COVID-19 and its impact on the economy and on our business as well as those risks described from time to time in Conifer's filings with the SEC, including our latest Form 10-K and subsequent reports. Conifer specifically disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. In addition, a replay of this call will be provided through a link on the Investor Relations section of our website. During this call we'll also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures are included when possible in our earnings release and historical SEC filings. Statutory accounting data is prepared in accordance with statutory accounting rules and, therefore, not reconciled to GAAP. We will conduct a Q&A session after management's prepared remarks this morning. With that, I'll turn the call over to Mr. Jim Petcoff, Chairman and Chief Executive Officer. Please go ahead, Jim.

Thanks, Adam. Good morning, everyone. On the call with me today is Nick, Harold, Andy and Brian. I'm going to provide a brief overview, and Nick will discuss our underwriting results in greater detail, and then Harold will cover the financials. Beginning with our top line, we reported solid growth in our core lines. Gross written premiums increased over 10% in the quarter to just under $30 million. We reported profitable operations during the quarter, largely due to higher realized gains from investments, leading the company to post earnings per share on a GAAP basis of $0.06 during the quarter. We feel very good about our current business mix, with the emphasis on select commercial accounts, all performing largely as we expected. This, along with our personal lines, low-value and dwelling business, which has contributed meaningfully to the bottom line all year long. Given the heavy cat impact of our peers and most in the industry as well, we are especially pleased to post these personal lines results in light of the highly unusual cat activity. However, we have continued to see increased claims activity from select older years, 2018 and prior in our hospitality business, largely focused in the quick service restaurant area that required additional reserve strengthening. These reserves moves muted an otherwise solid quarter for the company in a positively developing rate environment overall. As a reminder, Conifer has been transitioning our book of business away from personal lines coastal wind exposure and toward our specialty core commercial business. This plan moved away from the cat-exposed areas into markets where we have a distinct value proposition over our competitors, was a way of derisking our portfolio from a volatility perspective and achieve sustainable profitability in markets where we can be a leader over time. We believe the transition away from cat-exposed premium is largely complete as our business split is 90% specialty commercial and 10% personal lines, with the latter largely coming from our low-value dwelling products. During our transition, we reiterated our belief in a balanced book, covering both commercial and personal and long-tail versus short-tail business. Moreover, within our underwriting, we value the ability to evaluate and place risks as either admitted business or in the excess and surplus alliance company. That ability to pivot between commercial and personal, long tail and admitted -- long tail and short admitted in E&S is an advantage we have over our peers. And we believe this will generate greater underwriting selection overall and improve the profitability over time. This balance served the company very well during the third quarter as our specific market niche in low-value dwelling products generated exceptional results, both in terms of 24% top line growth in gross written premiums, and even more impressively, generating a 68% personal lines combined ratio. Geographically, moving into personal lines markets, we know them well, while avoiding the cost exposure has helped us to outperform our peers. In addition, we are seeing lower instances of overall claim activity, which we attribute to an increased propensity for individuals and families to be at home during the current pandemic conditions. In commercial lines, one of our distinguishing factors is that we cultivate relationships with agents and insureds that specialize in our area of expertise, and they meet our selective underwriting criteria. This strategy is starting to produce the results we have anticipated. Our commercial lines premiums grew by over 9% in the quarter. This growth is even better when compared to the reduced hospitality premiums during the period. We are pleased to be maintaining high overall premium retention levels as well, and we continue to see favorable rate dynamics in our commercial lines in general as we move into 2021. Over the last two quarters we spoke extensively about COVID-19 and its impact on our markets, employees and the economy in general. We have taken a cautious and deliberate approach to the impact of the virus. Our principal focus is on the safety of our employees as we continue to provide exceptional service to our agents and their insurers. Overall, we continue to closely monitor performance across our book in the segments we focus, specifically in hospitality markets. As discussed in previous calls, the majority of our writings in this regard premium-wise have not been impacted as greatly as we prepared for earlier in the year. And as positive in this difficult time, overall claims volumes continue to be down significantly, specifically in our liability lines versus earlier in the year and versus last year as well. We have shifted the majority of our premiums into our commercial lines with favorable effects and loss ratios and are continuing to improve. We also believe that our expense ratio will start to tick down as growth filters through our book of business, and we continue to optimize costs. With that, let me turn it over to Nick for some more color on our specific lines of business. Nick?

Thank you, Jim. Last night we reported solid growth in all of our key operating segments. Conifer's strategy of focusing on its core markets, coupled with a favorable rate environment, has led to our company binding more of the business that we ultimately want to retain and with pricing that fits our selective underwriting criteria. As we discussed in detail over the past few quarters, it has taken time to properly transition the book, and likewise our growing top line will take time to work its way into earned premiums. But in the meantime, we are very encouraged by the breadth and depth of our developing premium base. This is an excellent quarter for the top line. More importantly, our overall operations have thrived in the continuing COVID environment. As we effectively manage our underwriting and claims operations, largely all in house, we've been able to utilize our previous successful investments in technology to transition seamlessly to continued remote operations. As of now, roughly 95% of our employees are working remotely, and our business is operating at an extremely high level. In addition to select new business, we are seeing retention rates running at or higher than historical norms. In the quarter, retention rates were running at just over 90%, maintaining high levels exhibited in the second quarter as well. On our top line, the 10%-plus increase in quarterly gross written premium came through a mix of rate and new business in both commercial and personal lines. Submission growth continued to trend higher throughout the course of 2020, and we are growing market share in many of our key geographies. Our home state of Michigan is still our largest premium state, and we have room to grow there. Our business mix shift, especially commercial lines has been a well-thought-out, well-executed plan, emphasizing overall continued enterprise risk management by logically exiting lines that were negatively contributing target results while growing our core specialty commercial accounts that we feel exhibit much higher profitability. For example, we reported strong growth in our small business segment, which specializes in niche markets where we can offer tailings solutions for contractors, small commercial insurers and select commercial auto clients among other classes of business. These markets have historically performed well for us and continue to be still today. In addition, we have a strong market position in the hospitality segment, which includes policies mainly for restaurants, bars and taverns and quick service restaurants. Speaking on our hospitality business, I'd like to discuss the performance that led to a greater strengthening of reserves for the period. Over the past year, we've seen a greater preponderance of older accident year claims activities in certain hospitality business, most notably in select geographic markets. Typically these losses are generally slip and falls and the like. What has been atypical is the higher severity totals we have experienced in geographies such as Pennsylvania, Montana and Florida. It's important to note that the majority of this development is not related to this year's pandemic effect. And then we are seeing particularly positive results from the current accident year. Over the past year, we began to see higher claims volumes in certain hospitality lines mainly geographically specific. For example, due to the change in Pennsylvania liquor liability laws in 2015 or the uptick in claims volumes from Montana liquor liability as well. In addition, Southeast Florida general liability has had its challenges. We believe we have taken the necessary underwriting steps to help mitigate the negative effect impact of these select markets and the impact of the geographical challenges on our results. What have we done? First and foremost, we tightened our underwriting criteria overall. We have reduced exposure to underperforming geographies and added agents in targeted states and let go of underperforming accounts. For example, we have exited Pennsylvania liquor liability altogether effective 2019. We have reduced liquor liability limits and total premium exposure in Montana and significantly reduced our overall exposure to Southeast Florida general liabilities. These 3 areas represent a significant premium and claims concentration, impacting our recent hospitality results. Additionally, we have reduced quick service restaurant premiums in Florida by over 90% from a high watermark of roughly $5 million in 2018. As a result, we have seen improving dynamics in these lines, especially as additional rate has begun to filter through the book. In fact, the impact of the pandemic has generated significant improvement in overall claims activity for many of our hospitality insurance. For example, many restaurants and other quick service accounts are focusing on drive-up, phone app delivery or other takeout options, significantly reducing our general liability exposure. Through the third quarter we began to see reduced claim counts each month since the lockdown began. We've seen tangible improvements in both frequency and severities. In the second quarter we noted that total claims were down 40%, and this has continued to hold throughout the third quarter with liability claims counts down almost 50% year-to-date. Moving briefly to personal lines. We reported exceptional results in our low-value growing line of business. We've had a significant reduction in wind-exposed premium, largely as a result of the transition of our business away from these markets over the last few years. The reduction of wind-exposed premium is directly correlated to improved personal lines performance as we had focused away from cat-exposed business overall and firmly on low-value dwelling business instead. We are very pleased by the overall personal lines results, especially the 68% combined in the quarter and expect to continue to grow our top line contribution within our defined niches supporting these markets. Outside of the stated development, we have produced a quarter very consistent with the positive trends we noted in the previous quarter. With improving loss ratios in commercial lines, growing top line premiums, exceptional personal lines performance and stable investment returns, we feel very strongly about Conifer today. Our goal as the management team is to ensure that the company is well-positioned to generate sustainable operating profits for years to come. With that, I'll hand it over to Harold Meloche for a discussion of the financials.

Thank you, Nick. I'll provide a quick review of the results. And I also encourage investors to review our filings and presentation on the company's website for greater detail. In the third quarter, gross written premiums increased 10% to $29.8 million. With Jim and Nick having detailed the breakout in premiums, I'll focus on our underwriting results. Conifer's combined ratio was 111% in the third quarter compared to 109% in the prior year period. The loss ratio was 65%, which was flat compared to the same period last year. As noted earlier, we reported adverse development in certain commercial liability lines which contributed significantly to this quarter's loss ratio. Moving to our expense ratio. We have achieved some absolute dollar expense reductions, which were offset by some higher ceded premium rates. Accordingly, our expense ratio remained flat at roughly 45% this quarter and for the -- compared to the -- and to the same period last year. Overall, we expect to see the expense ratio reduce as we scale up our net earned premium and continue to implement cost cutting measures. We have a short-term goal of reporting an expense ratio at or under 40%. And as premiums continue to grow, we feel confident that this ratio will improve. Net investment income was $776,000 during the third quarter, compared to $1.2 million in the prior year period. And net realized gains increased substantially to $3.3 million compared to $390,000. Our investments are conservatively managed with the majority in fixed income securities with an average credit quality of AA, an average duration of just under 4 years and a tax equivalent yield of 2.1%. As a result of the above, Conifer returned to profitability, reporting net income of $541,000 or $0.06 per share compared to a net loss of $1.2 million or $0.13 per share in the prior year. This quarter Conifer reported an adjusted operating loss of $2.4 million or $0.24 per share compared to $1.8 million or $0.18 per share for the same period in 2019. This was largely due to the adverse development that Jim and Nick covered earlier. Moving to the balance sheet. Total assets were $260 million at quarter end compared to $247 million at year-end. Cash and total investments were $188 million at quarter end compared to $177 million at year-end. Finally, we reported book value at quarter end of $4.40 per share. We have a valuation allowance against the company's deferred tax assets of $1.42 per share that was not reflected in book value. With that, I'd like to turn it back over to Jim for closing remarks.

In short, we are pleased to grow our top line by writing almost $30 million in premium in the quarter. We see this as meaningful toward growing our earned premium base overall, helping reduce our expense ratio and driving operating profit. And now we are ready to take your questions. Operator?

That was actually nick because I had my phone on mute. I apologize. Go ahead. Any questions?

[Operator Instructions]. First question comes from Marcos Holanda, Raymond James.

And let me just say this, Nick, you fooled me. So good job. My first question, and maybe just give us some more color on the reserves this quarter, obviously not improving. Is there any statute of limitation that we should be looking for in '21? Or just give us a sense of how and when should we expect this to show an improving trend?

Nick, I'll let you answer that.

Yes. I mean, it's definitely part of the equation that statutes are running and will be running in 2021 on -- in particular, Pennsylvania. Florida is a little bit longer statute of limitations. So it may be more in 2022. But we -- the development that we saw was really a function of those 2 areas, Southeast Florida general liability, Pennsylvania liquor liability being the two largest. Our 2017 and prior year claims have come down significantly. Part of that's been COVID impact, as well as we've been able to close out older claims given the impact of COVID to the court system and the impact on plaintiff's attorneys. So we've seen some good traction there. We thought 2018 we did have lingering impacts of that Pennsylvania liquor in 2018 and that Southeast Florida GL, which is why we strengthened the reserves for that year. We did see a little bit of an impact on our security guard line in '18. We don't see that as a trend. That seems to be an anomaly versus the other years. But certainly, as we get further away from 2018, we'll see statutes run on some of those. And certainly we've really isolated the areas where we're seeing the development. And we feel like we've gotten a better handle on it, certainly during this quarter versus prior quarters. I don't know, Jim, if there's anything you wanted to add to that.

I do. And what I wanted to say when Nick closed for me a minute ago is the lines of business and the book of business we have today and had in 2019 and have in 2020, those books of business and lines of business have performed profitably in the geographic areas we're in, in those 2 years. The specific areas that are causing development, we've started to get out of and started to make changes in '16, '17, '18, and we're realizing the benefits of those in '19 and 20. We're very bullish on our current book and business and how it's performing and where we're going with it. We've made significant changes. We're very confident in that. And there's some -- every company in the country is having development on GL. I just think we're very proactive in going after trying to aggressively go after and settle those things. So can I tell you exactly that it's over and what date it's going to be, no, it will probably bleed in. But we're very positive on our book of business now and where we're going.

Got it. That's good color. I guess my second question is around your claim inventory. Maybe give us an update how you manage that through COVID, considering the core systems were largely closed. And maybe give us an update on how many claims you still have for the Florida home mortgage business.

I don't have those numbers. I don't know, Nick, do you have those numbers available?

Yes, I don't have the exact number on the Florida homeowners claims. I'd say it's less than 65, and there may be some cash claims included in that number as well. So that's really come down pretty significantly. The majority of the claims less outstanding are Irma-related claims that are already ceded to our reinsurers. Obviously we're trying to close those out. And definitely, there's been a lag due to the court system. On the remaining claims that we have outstanding, certainly, as we mentioned, the COVID impact to the legal system has dragged things on. But I think in some ways that's been a positive for us because we are seeing movement on settlements that may be plaintiff attorneys [indiscernible] been more aggressive in the past, knowing that courts are basically grinding to a halt and has been for almost 9 months now. That's pushed out all litigation significantly where you're not seeing things getting to trial probably into 2023, perhaps even later. So certainly one of the benefits is our claims count come down, and they're down. Our open claim count is down, I think, almost 20% since the beginning of the year. That allows adjusters to spend more time on each file. And certainly really dig into those open claims and put pressure on the other side to come down from their demands and settle things at a beneficial, more fair level from our perspective.

And I think, just to jump in, I think total claim counts, I think, are down almost 40%.

Yes, claims reported are down.

Claims reported are down 40%. And that's true. Your outstanding inventories are coming down. So your closing ratio is above 100, and it's been for some time. So we're eating into inventories across the board. And I want to say that for 2017 and prior there is roughly 200 or less claims that are still outstanding.

Got it. Great. My last question, expense ratio, in the quarter largely flat ride at the higher ceding commissions. But year-to-date it's still increasing. Maybe just give us a sense of what has been challenging there and perhaps when do you expect to achieve your below 40% target.

Well, I'm going to give this over to Harold, but I'm going to start by saying with the Florida Irma claims coming to an end in September, you had a big increase in those. And those were on -- they're all in the cat. But we still have reinstatement premiums which has been lowering our earned premium. That's been kind of skewing the amount we're seeding to reinsurers, lowering their net earned premium and actually increasing our expense ratio. Also, at year-end last year our reinsurance rates went up significantly. But we also lowered our retentions. So we derisked our portfolio, but we had an increase in reinsurance costs. We're hoping that those 2 things change in 2021 as our reinsurance comes up 1/1/21. And as the earned premium continues to increase, and we're actually lowering our overall administration expenses, we expect to see significant improvement in the expense ratio. So now that I said all that, I'll give it to Harold to see if he has anything else to say.

I think you did a good job there, Jim. The absolute dollar reduction in expenses is noticeable. We had sort of net operating expenses of about $5 million in the first quarter, and I expect them to be down to about 4.3% in the fourth quarter with it trending consistently lower each quarter. Now you can't take that to the bank every time because there's fluctuations. Usually the first quarter is slightly higher than some of the other quarters, just the way the expenses roll in over the course of the year. But in general, it does lead to a good, clear indication that on an absolute dollar basis we are reducing our administrative costs.

And I think I'd jump in there as well. So I mean, we're trying to attack the expense ratio from both sides of the ratio. So to Harold's point, we're trying to reduce absolute expenses. It's been a continued thing we've been doing all along. If you look at our overall headcount, where we were at year-end, the headcount is down versus where we are year-to-date. We're obviously trying to retain the best and go forward relative to absolute expenses. But as Jim talked about, you also have to look at the denominator too and so earned premium. So we take a lot of faith in seeing us achieve appropriate scale. I mean, if you go back to it, you don't want to write premium for premium's sake, you just don't want to tar a bunch of premium out there, especially in a COVID world. So you've seen it over the last couple of years, and Nick talked about it in his comments, there was a planned, well-thought-out execution of how we were execute -- coming out of our wind-exposed business and moving largely into the small commercial space. So I think as you see that earned premium base grow, that's going to work the denominator as you reduce your absolute expenses that hits the numerator. And I really think you get expense ratio compression from hitting both.

The next question is from Paul Newsome of Piper Sandler.

Just a follow-up to that expense discussion. The acquisition costs have been running around, I guess, 27-ish percent of premium for quite some time. That sounds like a fair amount of commission for this commercial business. Is there any chance that, that might be reduced in the future?

I would hope so, but it's 27% on a net basis after you take the net earned premium versus the gross -- on a gross basis, I believe, and Harold will give you the exact number. It's around 20%. The businesses we're in that are producing exceptionally good loss ratios, Michigan, et cetera, we are paying 15% to 20%. And there's some wholesalers we have out there that are -- have been profitable for us in other geographic locations that are getting in excess of 20%. So we're not paying anybody 27% that I'm aware of. It's on a direct premium basis. Nick, is that correct on the commission side?

Yes. No, you're right. On a gross basis, our commercial commissions generally are between 15% and 20%. A couple of things to keep in mind, acquisition costs include running costs as well on a couple of our key markets. And so that obviously adds to the expense as well, which is not -- that's not going to the agent, that's going to our fronting partners. But yes, typically we're 15 -- between 15% and 20% on commercial lines commission. We have a couple of select wholesalers, like you mentioned, that have long track records of profitability that are just above that 20% range. So the 27% number is not what's going to the agents per se, that -- and I believe that includes some of our underwriting costs as well that go or get coded to our acquisition costs.

Yes. I would say a couple of percentage points of that. So if you look at -- if we try to eliminate the impact of ceding premiums when we look at gross earned compared to total acquisition costs, we're at about 25%. And included in that number are some fronting fees for some of our lines of business. A little bit, maybe 1.5% is relating to internal variable costs. There's some premium taxes on some of the business or other underwriting reports that also are included in that. And I would say on a real net-net basis when you get down to just what are the commissions, it's about 21% with fronting fees.

So if A.M. Best would cooperate and give us an A minus, we could save quite a few percent and our expense ratio would look a lot better.

We'll keep our figures crossed to that. I wanted to see if you had any thoughts about your current rate levels versus what you think is the underlying claims inflation for your book overall. And maybe you could just give us a sense of kind of where you think you're, in general, making progress with the sort of underlying margins?

I guess, Nick, you should handle the rate question. I think on the claims inflation, that's a tough one for us to kind of figure out, but there's no question that it's geographically focused. There's some geographies that the claims inflation is just incredible, all of which hopefully we've been getting out of the ones that have been impacting us. But Nick, you want to deal with the premium?

Yes. No, I think that's a good point. I mean there are some geographies where we don't think that we could get the rate needed to keep up with the claims inflation, either from social inflation or whatever the drivers are. We've gotten out of those areas where we think that was the case. Pennsylvania liquor obviously being one of those and certain areas in Florida as well. When we look at property, we're off about a little over 7% rating increase this year. GL is a little bit lower. It's probably low single digits. Commercial auto is high single digits. That -- we feel good, I'd say about the property and GL. Commercial auto is a little bit trickier. I think everyone is kind of grappling with what that number needs to be to keep up with claims inflation. We've been taking rate increases for 4 years now. And although they're not as high of a level as they were maybe in '17, '18, we're still seeing high single-digit rate increases on that book as well. So we feel good about that number, and we're certainly seeing, based on, again, on geography, some improvement in the claims inflation on that book. And then I'd say work comp is sort of -- I'd say that pretty much looks like it's bottomed out at this point in terms of rate. And you're starting to see maybe even a little bit of a momentum to the positive. It's obviously a smaller piece of our book, but the claims trends there still seem to be pretty favorable.

And then final question. The pandemic has had all sorts of impacts on the insurance industry, but one of the ones that we've heard has been some positive impacts on things like slip and falls, losses and really frequency not to vary. Have you seen that in your book? Or have you not?

Well, I'll start, but yes, it's -- the quick service restaurants, as Nick noted in his comments, have gone from in-dining-room experience to carry out or drive through. I mean -- and that's our claim counts on that, on the GL side of that, I know our GL Nick said is down 50%. I would suggest to you that on the quick service restaurants, and maybe even a little bit in excess of that as the claim count goes. So we've seen on our GL book significant reduction in numbers of claims and in severity. If you think about the bars that are -- have not been open, and when they did open they had less capacity. We're seeing a lot fewer bar fights, that kind of stuff. I mean we're seeing a lot less claims on the -- lot less frequency on the GL side. The property has been pretty consistent, and we've been fortunate to be dodging all of these hurricanes and cats that have been going on because we have not -- I don't think we've even come close to our retention on our cat in any one of these categories. And our property continues to perform fairly well. But on the COVID side, it's a very bad situation. The COVID is terrible. And I know that. But from the claims side, we've seen significant improvement on the general liability frequency. Nick or Andy, do you want to add anything to that?

No. I think you covered it. Commercial auto, we did see some pretty significant improvement on claims frequency and on severity, really in April, May, June. We've seen that kind of normalize here really towards the end of the third quarter. So I think that has probably normalized the pre-COVID levels for us. We're pretty close to it. But certainly, that, as Jim mentioned, the impact has been pretty dramatic on the general liability and liquor liability frequency and severity.

And let me add one more thing on this…

I was going to say -- go ahead, Jim.

I was going to say on the security book, the frequency has gone down. Historically, some of our more difficult venues for security guards are concerts, events, those types of things. None of those have been happening. Now the security guards, the book itself has actually grown because you have vacant buildings. You have all these other things going on where they need people in buildings to check temperatures, et cetera. So the security guard business has been positively impacted from a business standpoint. And it's also been positively impacted on our side by being in the less volatile types of security guard businesses. Would you agree with that, Nick?

Yes. No, absolutely the sort of large groupings of people, typically that's a tougher exposure for our security guard business, and that's obviously gone down significantly. And another point on the hospitality side is, even though we're seeing reduced capacity, and obviously we have the lockdown, a lot of these restaurants have really persisted here pretty well through the pandemic with DoorDash and takeout and things like that. And maybe we've seen a small uptick in frequency of food-related claims, but those by and large are much less severe than your typical slip and fall. So it's still a net overall positive for the book.

[Operator Instructions]. Next question is from Bob Farnam, Boenning and Scattergood.

A few questions here. You were talking about cat losses. Just my -- my first question is just simple. Do you have any accumulation of cat losses that we can consider for the quarter?

No. No.

Okay. I figure that was a simple one. Now I get into more complex ones. So going -- kind of touching on Paul's discussion about the loss trend benefit from COVID. I'm trying to quantify how much of an improvement you got from -- in the combined ratio, the accident year combined ratio for that. I'm looking at 91% for the 9 months of this year. I'm looking at a 92% for the third quarter and 87% for the second quarter. Just kind of curious how much do you think that those benefited in terms of points due to the COVID environment rather than a clinical normal environment.

I don't know that I have the specific percentages. I would tell you that we were expecting significant improvement in the loss ratio anyway. And COVID has quickened that with the way the lockdowns have gone and stuff. And you know in liability you may get claims next year. I will tell you that one of the weird things is we're not getting a lot of claims from older years, '18, '17, '16, those types of things have really slowed down. And I don't know what COVID has had to do with that. But as far as late reporting, that hasn't really been shown. And the things that -- our loss ratio for this accident year was significantly impacted by COVID. However, we were expecting a fairly significant improved loss ratio anyway just because of the makeup of the book of business. Nick or Andy or Brian or whatever, do you guys have any idea of percentages? I mean, I don't think I know a percentage.

Yes. I mean, I think it's difficult. And I'll hand this over to Harold. He may have a better answer. But I think it's difficult to isolate how much is specifically due to COVID versus improvement in the book of business, like Jim mentioned. I mean we had expected improved loss ratios in the current accident year, just given the makeup of the business. Certainly we saw that even in the personal line side. So that's obviously not COVID-related. So I think it's tough to isolate just the COVID impact on that. Harold, do you have any other thoughts on that?

I mean, just recognizing that we, both for the quarter and year-to-date, have a 44% accident year loss ratio. I would say that maybe our normal run rate, and this is literally a guess, so would it be normally be at 55% or 60% or something like that. So maybe half of it is due to COVID.

Okay. I figured that was going to be a difficult question to answer, but I was just trying to get, maybe get some color around kind of what we should expect going forward if we go back to a normal environment, how much -- what those accident year loss ratios could be. I guess the next question I have is you talked a lot about changes you've made. So you've had a lot of the reserves going from '18 and prior. How has the 2019 reserves, how have they held up thus far in 2020?

It's held up well. I don't know, Nick, do you have any other comment on that?

No. I mean, I think today it's held up within our expectations, and I think it's -- the progress that we made from '15, '16, '17 continued into '18, albeit maybe not as much as we had hoped, obviously, strengthening that accident year this quarter. But '19, that continued improvement in the business mix has born itself out. So I think at this point we feel good about the 2019 accident year.

And in general…

Yes -- go ahead.

I was going to say, and in general I don't think we've seen as much overall claims activity in '20 specific to '19, as you might normally expect kind of under the normal course. So I think that that's kind of speaking to improved results for '19 in particular.

Yes. I'm just trying to get a flavor for kind of the -- has the adverse development kind of subsided in the more recent years. So hopefully as we see that continue to mature, that remains the case. And last thing for me. We don't talk about it a whole lot, but can you go into Sycamore, the wholesale agency operations, kind of what you're seeing in terms of revenue flow there and what your expectations are for the near future?

Andy?

On the Sycamore side, the first intent was really to have a platform for our retail agents to write surplus lines business around the country. And we continue to do that, and we help them by saying, by, one, holding the license, and two, paying the taxes and fees for them. So that -- as we continue to increase our surplus lines business, that portion of it continues to increase. We have come across a couple of retail agencies that have made sense and fit within our book of business and write a lot of business with our insurance carriers. And so that does continue to expand, although slowly, it does continue to expand and probably slower than we would have expected due to COVID. So that's one area where COVID has impacted us on the agency side slightly. But as we continue to grow, we continue to see additional fee income there, and we see additional premiums placed with our insurance carriers through that avenue as well.

All right. Sorry. I'm looking in the presentation, it looks like you're expecting maybe $7 million of revenue this year. I'm just kind of curious. So based on your expectations for growth, you'd expect that to increase going forward?

Yes. We expect that to increase slightly as we go forward.

This concludes our question-and-answer session. Now I'd like to turn the conference back over to management for any closing remarks.

Thank you. I just want to thank everybody for being on the call today. Patience in these times is really appreciated. I will tell you that from an operational level we have not missed a beat as far as servicing our agents for being able to handle claims in this COVID time. And that's a real tribute to our IT staff and our management in general being able to coordinate the working from home and to really not miss a beat. We've been very successful. Jason, our IT guy, and Nick got together early in January, and were thinking that something might happen. So they were well-prepared for this eventuality. And as we work from home, I think that our -- the way we do business in the future is going to be a little bit different. And more people will have opportunities to work from home. However, I do think this working from home hurts in the collaboration of ideas and the ability to learn from each other. So we're not going to be a total work-from-home environment. But it has not hurt us to date. I'm very hopeful. There's vaccines out there and everything else. But it sure looks like we're in for another 6 to 9 months of this, through midyear next year. So that's just, I guess, my analysis of where we are as a company. But thank you for being on the call today. Thanks for the great questions, and look forward to talking to you guys next quarter.

Thanks, everybody.

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