Maxwell Fritscher: Good morning. I’m calling in for Mark Hughes today. Kind of just an add-on to the last question. You had mentioned last quarter that inflation in Workers’ Comp was being driven more by wage inflation as opposed to medical inflation. It sounds like that’s kind of flipped this quarter. What are you seeing there?
Edward Rand: Yes. I think certainly, what we saw this quarter was the medical inflation really hit hard. That doesn’t mean the wage inflation has gone away. I do think the wage inflation is probably moderating a little bit, but I don’t think that’s fully reflected in kind of the payment rates across all states. So I think there will be — continue to be some upward pressure on the wage piece of it. But what really was more remarkable in the quarter was the medical.
Maxwell Fritscher: And then for the large claims, you’d mentioned in the first quarter that it had a big impact, relatively muted in the second quarter. Was there any impact from large claims in 3Q?
Edward Rand: Yes, it’s a good question. I mean we continue — I would say, first off, the industry continues to see a higher frequency of large claims. If you follow the analysis that TransRe does, and I think they do as good a job as anybody in kind of tracking what’s going on in the space, they’ve had to add a new chart in their most recent iteration where they’re now showing the trend for claims in excess of $100 million. So that’s still out there in the industry. In the quarter, we certainly — we had larger claims, but nothing that had an impact like those did in the first quarter. And just to remind you, in the first quarter, what we saw was the resolution of some claims at levels higher than we thought they should have been resolved, and that’s higher than where we established reserves for some older accident years where there was a limited amount of IBNR.
Operator: Our next question comes from the line of Bob Farnam from Janney Montgomery Scott.
Robert Farnam: Thanks. Good morning. A few questions. One is more broad for the workers’ comp sector. So Ned, you’re talking about the fact that the industry is probably going to miss on the downside. So I’m just trying to get a feel for what kind of time lag is there for the rating bureaus to update their loss costs to incorporate the higher loss trend. I’m just trying to figure out, all right, are rates going to continue to go down for 3 more years before the states kind of catch up? Is that something you’re having to face?
Edward Rand: Yes, it’s a really good question, Bob. So I would say, by and large, those states have put out kind of their loss picks for ’24. And by and large, those are, again, decreases over $23 million. Which is, again, I think it’s a bit of a head scratcher when you know what’s going on from an inflation standpoint. There’s a time lag of 12 to 18 months in the data that they’re utilizing, and they have been leaning pretty heavily, I think, on the frequency decline to push for these rate declines. So ’24 will be a challenge. We will continue to focus on individual account underwriting and seeking to get the price commensurate with the risk we believe we’re taking on. But if — unless something changes midstream, I wouldn’t expect to see anything before ’25. Kevin, anything you would add to that?
Kevin Shook: No, I think that’s spot on. The models are more frequency-based, and what’s driving our results quarter is certainly on the medical side, which I don’t think anyone is going to be immune to. But totally agree, Ned. .
Robert Farnam: Okay. And Kevin, have you — you talked about having multiple tiers to be able to write the Workers’ Comp business with different LCMs. So have you been seeing a shift in and getting classes to kind of higher tiers? Just kind of curious what kind of movement you’re seeing there to try to generate stronger performance in terms of rates?
Kevin Shook: Yes. We are seeing shifts and things moving to the upper tier companies. And quite frankly, we have a bunch of business that’s priced in the highest tier company at maximum debit. We cannot get the price any higher. So it’s been a challenge. Loss costs, as Ned said, have been down since 2015. And having the 3-tier company structure has been incredibly helpful, but a lot of business in the higher, a fair amount of business in the mid and then less business in the preferred company, obviously.
Robert Farnam: Okay. All right. And while you’re still on the line, just a few more — maybe a bit more color on the medical inflation. Are you seeing it in particular classes of business, in particularly geographies, different types of injuries? Just trying to figure out if this is a kind of a wholesale issue or if there are pockets that are showing this rather than everywhere?
Kevin Shook: So I would describe the higher medical trends as being pervasive. So we looked at our entire book of business, we looked at our regions, we looked at states, we looked at market segments, and it is pervasive across the book of business. There are obviously some market segments that are being impacted more than others. Restaurants are one. Hospitality. We write a lot of health care, and that was kind of right down the middle. We really write a lot of education, and that performed a little bit better. But pervasive across the book of business in all regions, in all market segments, which, again, points to medical inflation now making its way through the book.
Robert Farnam: Right. Okay. And in terms — from our vantage point, we can look at medical inflation via the CPI and whatnot. So are you seeing — what you’re actually seeing in terms of medical inflation is higher than the kind of the CPI version of inflation. And if so, kind of what are the primary drivers?
Kevin Shook: Yes. So we are — this is a quarter where I would — I’m sorry, Ned. Go ahead.
Edward Rand: Yes. Go ahead, Kevin.
Kevin Shook: This is the quarter where I would say medical inflation is outpacing CPI and wage inflation by a pretty wide margin. So if you think about a workers’ comp claim, you’ve got the indemnity piece, which is going to increase commensurate with payroll. And that, in theory, in a perfect world should be in your premium. But when medical starts outpacing indemnity, that’s when it has an unfavorable result to a workers’ compensation carrier.
