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ProAssurance Corp (NYSE:PRA)
Q3 2019 Earnings Call
Nov 6, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, everyone. Welcome to ProAssurance's conference call to discuss the company's results for the Third Quarter of 2019. These results were reported in a news release issued on November 5th, 2019. Included in that release were cautionary statements about the significant risks, uncertainties, and other factors that are out of the company's control and could affect ProAssurance's business and alter expected results. Please review those statements.

Management expects to make statements on this call dealing with projections, estimates, and expectations, and explicitly identifies these as forward-looking statements within the meaning of the US Federal Securities Laws and subject to applicable Safe Harbor protection. The content of this call is accurate only on November 6th, 2019, and except as required by law or regulation, ProAssurance will not undertake and expressly disclaims any obligation to update or alter information disclosed as part of these forward-looking statements.

The management team of ProAssurance also expects to reference non-GAAP items during today's call. The company's recent news release provides a reconciliation of these non-GAAP numbers to their GAAP counterparts.

Now, as I turn the call over to Mr. Ken McEwen, I would like to remind you that the call is being recorded. And there will be a time for questions after the conclusion of prepared remarks. Mr McEwen, please go ahead.

Ken McEwen -- Investor Relations Manager

Thank you, Leslie [Phonetic] . On our call today, you will hear from our President and CEO, Ned Rand; Dana Hendricks, our Chief Financial Officer; Mike Boguski, President of our Specialty P&C lines; and Kevin Shook, President of our Workers' Compensation Insurance Operations.

Ned, will you please start us off.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Thank you, Ken. I hope everyone has had a chance to review our news release and 10-Q, but the short of it is we continue to achieve overall profitability despite operating in very challenging market conditions. This is especially true for the terrific performance of our Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments, which together contributed $3.7 million to our operating earnings this quarter. On the other hand, we recognize our Specialty P&C segment results are not in an acceptable level, and we are taking necessary steps to return to underwriting profitability through pricing and underwriting that reflect emerging loss trends.

Even as we secured another consecutive quarter of renewal rate increases in our Specialty P&C lines, and recognize favorable reserve development, our net loss ratio increased in the quarter. While we have been quick to react to the increase in perceived severity trends, we are being cautious and reflecting the impact of the steps we have taken, given the uncertainty in the loss environment. The severity trends continue to influence our view of reserves and our loss assumptions. And I assure you we are being appropriately disciplined in our analysis. We're also seeing encouraging signs in our Lloyd segment business, and we'll be providing greater insight on each of these segments throughout the call.

I maintain what I've said in the last two calls. We expect loss severity trends in healthcare professional liability to continue, affecting our reported results for the remainder of the year and into 2020.

Now I'd like to ask Dana to provide some commentary on our consolidated results. Dana?

Dana Shannon Hendricks -- Chief Financial Officer, Treasurer, and Executive Vice President

Thanks, Ned. As you mentioned, this was a strong quarter for our Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segment. Both made significant contributions to our consolidated net income for the quarter, which was $17.2 million or $0.32 per share. In addition, our Lloyd segment was a contributor to our overall profitability and is beginning to show encouraging signs of improvement. Echoing Ned's thoughts on the Specialty P&C segment, the loss environment continues to be a challenge. You'll hear more on that from Mike shortly. The reality is that despite strong premium writings, another consecutive quarter with renewal rate increases, and solid retention, our view of loss trends continues to suppress these positives and resulted in an operating loss in the Specialty P&C segment.

Consolidated operating income was approximately $16.3 [Phonetic] million or $0.30 per share, driven in part by tax benefit of $6.7 million, which included a benefit of $2 million to align our actual effective tax rate with our projected full year effective tax rate. This same adjustment last quarter resulted in an additional tax expense of approximately $2.4 million. We saw a reduction of just over one point in our expense ratio, primarily the result of a decrease in share-based compensation and other incentive related compensation costs and a decrease in operating expenses in our Lloyd segment, largely due to the start of Syndicate 6131 in 2018.

Our consolidated current accident year net loss ratio was essentially unchanged quarter-over-quarter at 82.3%. We saw a quarter-over-quarter reduction in the current accident year loss ratio in our Workers' Compensation Insurance segment, but that reduction was offset by an increase in our Specialty P&C loss ratio due to the continuing concern over loss trends. We do not see any change in the medical liability loss trends for the foreseeable future. So we will continue to be cautious in establishing neural loss picks.

Net favorable reserve development was approximately $16 million with all operating segments contributing. While our reserves continue to develop favorably, prior accident year development was lower as compared to the prior-year period, which accounted for approximately three points of the increase in the net loss ratio, and was primarily due to our observation of increased loss severity trends in the broader healthcare professional liability industry. This brings us to a consolidated combined ratio of 103.6% for the quarter, up 2 points from the third quarter of 2018.

In our Corporate segment. Our equity and earnings of unconsolidated subsidiaries experienced a loss of $1.3 million, compared to $5.2 million of earnings in the year ago quarter, driven by the results from two limited partnership. Meanwhile, net realized gains were approximately $950,000 compared to approximately $11 million in the third quarter of 2018, mainly due to changes in mark-to-market adjustments in our equity trading portfolio.

Now I'll turn the call over to Mike Boguski for his comments on the results from our Specialty P&C segment. Mike?

Michael Leonard Boguski -- President, Specialty P&C

Thank you, Dana. The Specialty P&C segment recorded a third quarter operating loss of $10.2 million compared to the second quarter loss of $8.4 million. This was due to decreasing prior year favorable development driven by loss volatility in our large account business and a continued cautious view of emerging severity trends, resulting in a higher current accident year loss ratio.

Starting with the top line trends, gross written premium decreased $2.6 million compared to the third quarter of 2018 to $165 million. This was primarily driven by a decrease of $2.8 million in healthcare facilities premium, compared with the third quarter of last year. And the timing of the pending $3.6 million physician policy renewal that we expect will be included in premiums for the fourth quarter of 2019. The decrease in healthcare facilities premium was due mostly to retention losses as we emphasize price adequacy in that business. The decrease in total gross premiums written was partially offset by the acquisition of a $2.7 million loss portfolio transfer account, written and fully earned during the period.

We continue to be pleased and encouraged by the solid premium retention of 86% across Specialty P&C, while achieving renewal rate increases of just over 7%. Physician premium retention, our largest portfolio of business in the segment increased to 89% from Q2 of this year, and we achieved rate increases of 8%. This result reflects the marketplace recognition of the ProAssurance value proposition in a highly competitive market. Premium retention in the facilities book was 57%, largely resulting from the decision not to renew certain large accounts written on an excess and surplus lines basis.

Meanwhile, we were successful in securing 12 points of positive rate during the quarter in our facilities business. These results are consistent with our focus on underwriting discipline as we continue to emphasize careful risk selection, rate adequacy, and a willingness to walk away from business that does not fit our goal of achieving a long-term underwriting profit.

New business written in the quarter was $9 million, which is relatively consistent with Q2 of this year.

Loss ratio trend continued as in recent quarters with higher accident year losses and lower favorable development from prior years. The calendar year loss ratio increased to 85.9% as compared to 81.4% in the third quarter of 2018. This result was driven by a 1.1 percentage points increase in the current accident year loss ratio, and a 3.4 percentage points quarter-over-quarter decrease in favorable prior accident year reserve development.

Although we have not seen a significant change in claims paid losses or paid ALE, we will continue to maintain a cautious view of emerging severity trends. The expense ratio for the period was 0.6 points higher quarter-over-quarter, primarily related to fees from a data analytics service relationship that we did not begin to incur until Q4 of 2018. Since Q2 of 2019, the senior leadership team has executed on several strategic business decisions designed to improve operating performance as we bring together all of the Specialty P&C product lines and operations under unified organizational and management structure. This includes leadership and organizational structure changes.

Restructuring healthcare professional liability underwriting into two distinct units, Standard Physicians and Specialty. Consolidation of several internal operations and evaluation in leverage of systems investments. We also recruited new executive leadership in targeted areas and announced the integration of the podiatric, chiropractic, dental, and lawyer care lines into a specialized small business transactional unit.

We are enthusiastic about the impact these changes will have in the future with a focus on improving the company's competitive position, operating efficiency, underwriting results and delivery of superior service to our distribution partners and healthcare customers. Ken?

Ken McEwen -- Investor Relations Manager

Thanks, Mike. Kevin, will you please take us through the Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments.

Kevin Merrick Shook -- President, Workers' Compensation Insurance

Thank you, Ken. The Workers' Compensation Insurance segment produced operating income of $2.7 million for the third quarter of 2019, compared to $1.6 million in 2018. Eastern remains committed to the consistent application of its individual account underwriting strategy in this highly competitive marketplace. We carefully assess the underlying risks of each policy including severity exposure, medical trends, and the impact of new and inexperienced employees in the workforce. This underwriting process and established business model produced an increase in gross written premium of 6.6% quarter-over-quarter. However, year-to-date gross written premiums are down 2%.

New business written was $11.3 million during the quarter, down from $11.8 million in the third quarter of 2018. $3.1 million of last year's new business premium was from the Great Falls renewal rights transaction. So excluding the effect of that one-time transaction, we saw higher levels of new business this quarter, despite an increasingly competitive marketplace.

Audit premium was $1.8 million for the quarter compared to $1.2 million for the same period in 2018, a continued sign of the strong economies and our operating territories. 84% premium retention for the quarter was largely in line with the 85% for the third quarter of 2018. Renewal premium decreases during the quarter were 4%, a solid result in this market cycle, and consistent with improving loss trends.

The calendar year loss ratio increased from 64.8% to 65.4% quarter-over-quarter. This was driven by a decrease in favorable reserve development, partially offset by a decrease in the current accident year loss ratio from 70.7% in 2018 to 68.2% in 2019. The lower quarter-over-quarter current accident year loss ratio primarily reflects a higher 2018 accident year loss ratio due to an increase in severity related claim activity in the third quarter of that year.

Net favorable reserve development recorded in the third quarter of 2019 was $1.4 million largely from the 2016 accident year and represents continued favorable claim closing trends. Eastern's claim operation closed 12% of all 2018 and prior claims during the quarter with 51% closed year-to-date. The impact of the renewal rate decreases on the 2019 accident year loss ratio was offset by these favorable claim trends. The decrease in the expense ratio for the third quarter of 2019 primarily reflects the increase in net premiums earned including the previously mentioned increase in audit premium. The combined ratio for the 2019 quarter was 95.5% compared to 97.4% in 2018.

The Segregated Portfolio Cell Reinsurance segment produced an operating result of approximately $1 million. Gross written premiums in this segment increased 2.9% to $17.3 million in the quarter. This top-line growth reflects the retention of all programs available for renewal during the quarter and the addition of a new program as well as strong premium retention of 96% up from 87% in last year's third quarter. These favorable trends were held in check somewhat by a decrease in new business writings and renewal rate decreases of 5% in the third quarter of 2019.

The SPC Reinsurance segment current accident year loss ratio increased to 66.1% from 64.8% for the third quarter of 2019 due to an increase in severity and renewal rate decreases. At the same time, we produced favorable reserve development of $3.3 million in the third quarter of 2019 as we observed claim trends in accident years 2016 through 2018, that were better than initially projected. The expense ratio for the segment was slightly over 30% and represents the ceding commission paid to the Workers' Compensation Insurance and Specialty P&C segments for underwriting, claims, and risk management services provided to the segregated portfolio cell customers.

We continue to be pleased with the persistency of the SPC business and attractive underwriting margins in this model. Ken?

Ken McEwen -- Investor Relations Manager

Thanks, Kevin, Ned, will you please give us an update on Lloyds and then provide closing comments.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Thanks, Ken. Remember that these results are reported on a one quarter lag and reflect results of April through June of this year. Overall, the news in our Lloyd segment is better this quarter. The risk premiums were up 15% as the Syndicate was able to write new business with solid underwriting and renewal pricing was generally higher as the market starts to firm, resulting in $1.3 million in operating earnings. There were volume increases from existing business as well. Net premiums earned were higher by almost 12%, which reflects the increases in premium volume over the past year, but were offset somewhat by higher ceded premiums under the Syndicates' reinsurance arrangements.

We did see a two-point increase in the current accident year net loss ratio to 58.3%. This resulted from a quarter-over-quarter decrease in estimated reinsurance recoveries for catastrophe and other property-related losses as well as the effect of an increase in ceded premiums earned. As to the future of our Lloyd segment, we are encouraged by the improvement in the Syndicates business, as well as the progress being made to bring greater stability and increased discipline to the overall Lloyd's market. We're reviewing the Syndicates business plans for 2020, and we continue to evaluate how we will manage our exposure going forward. I expect we will have greater detail to share with you when we report our fourth quarter results early next year.

Let me wrap up by underscoring what we've been stressing for the past year in these calls. We continue to believe the current loss environment merits caution and our way forward centers in our disciplined underwriting operations, that have driven our long record of success. And that our strategy to improve profitability will ensure our strength in the future. With each policy we write, we make a promise to our insurers and distribution partners. To keep that promise, we must be good and careful stewards of the capital that is entrusted to us, and create value for those who invest alongside this management team for the long-term.

Ken McEwen -- Investor Relations Manager

Thanks, Ned. That concludes our prepared remarks. Leslie, we are ready for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from Amit Kumar with Buckingham Research Group. Please go ahead.

Amit Kumar -- Buckingham Research Group -- Analyst

Thanks, and good morning, and thanks for the call. A few questions, maybe in reverse order. Starting with the Lloyd's business, any thoughts on how we should think about potential Typhoon Faxai and Hagibis exposure for Q4 and maybe Q1?

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Good morning, Amit. It's a good question. But quite honestly, the data coming in from Japan has been pretty slow, but based on what we know today, we expect that the losses for our book stemming from those events will be within kind of the expected loss loads for the business. That the same can be said for the wildfires in California that are bringing right now. So we don't see anything right now that would indicate anything otherwise. But I do caution that the data that's coming in, in particular on the Japanese exposures, has been pretty slow to come in.

Amit Kumar -- Buckingham Research Group -- Analyst

Got it. And on Lloyd's business, I appreciate the comments regarding the business plans, but I was thinking about this. If you step back, the Lloyd's business has changed materially over the past 12 to 24 months for the industry. If you look at the new Lloyd's blueprint, we're talking about relatively meaningful steps , so even talk about the expense ratio. I was curious, is there some thought process that maybe now is in fact a good time to stick around with Lloyd's or how should we think about that?

Edward Lewis Rand Jr. -- President and Chief Executive Officer

That's another good question and one that we do discuss internally. I think kind of given the profitability of our core business is right now in the challenging markets that we face in those businesses, the reality of the Lloyd's exposure that we have through our participation in the syndicate adds more volatility than I think a lot of investors would care to see. And I'm pleased [Phonetic] to say that, when I say volatility, I really mean on the downward side, I think everyone likes volatility when it works in your favor.

So because of that, we are continuing to kind of evaluate ways to manage our exposure down, but as a part of that process, we want to continue to have a level of participation and our ownership in the Syndicate and Duncan's operations, because we do think that over the long-term there is considerable value creation there. We just need to dampen down some of the volatility that it introduces into our results.

Amit Kumar -- Buckingham Research Group -- Analyst

That's a fair point. And final question and I will requeue. Going back to the discussion on pricing and loss cost trends and industry trends versus ProAssurance's book, we've spent a lot of time talking about how we really haven't seen some of these trends manifest in the paid data, and I was curious when we -- as we are heading toward the year-end reserve review, it will be 24 months, since we've had a talking about it or so. Any thoughts on -- would you revisit the loss peaks, if the data was favorable, and why we still haven't seen any of this pressure in the paid data versus the industry.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Amit, definitely it is going to be an important topic and data point as we do our year-end reserve reviews, and we're approaching it very, very cautiously, and there're lots of different ways you can kind of slice and dice the paid data to try and get a sense of the trends, I think we're just now getting through a point where we'll have some comfort level in saying something is a trend versus maybe a one or two quarter change. And that will, by the time we get to year end, I think we'll have greater confidence around that. As to why it takes time, it's just, there is a long tail on this business that we write for the resolution of a claim, especially something that results in -- that comes as a result of a verdict in litigation, where there're post-trial motions and then appellate issues and it -- the resolution process can take quite a while as can the trial process. I mean, a number of these reserves that we have established where we believe there are -- the severity trends where we're putting up higher reserves, haven't even made it to trial yet. And so it just takes a long time for these things to work their way through the system. But we are, as you point out, it's been 18 months-24 months since we've really been observing this, and so I think we are beginning to get some credible paid data. The other thing I think you have to be cautious about is that as with a lot of lines of business, the order claims is the more dangerous claims, the more damaging claims, and so you have to be careful about reading too much into the early claims paid data that you get recognizing a lot of the more complicated and challenging claims will take longer to resolve.

Amit Kumar -- Buckingham Research Group -- Analyst

Got it. That color is very helpful. I will stop here. Thanks for the answers. And good luck for the remainder of the year.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Thanks, Amit.

Operator

Thank you. Your next question comes from Christopher Campbell with KBW. Please go ahead.

Christopher Campbell -- KBW -- Analyst

Hi, good morning, everyone.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Good morning.

Kevin Merrick Shook -- President, Workers' Compensation Insurance

Good morning.

Christopher Campbell -- KBW -- Analyst

I guess, a kind of my first question would be on workers' comp, you guys about, I'm just trying to think about the environment right -- lots of rate declines, you guys are growing aggressively. So a little bit surprising there. So I guess, I'm also a little bit surprised to see the core loss ratio in workers' comp dropped by 250 bps given you guys are kind of growing in a softer market. So I guess, just any color you could give on this to help us like square those kind of thoughts together?

Kevin Merrick Shook -- President, Workers' Compensation Insurance

Sure, Christopher. It's Kevin. We -- the growth was largely in the third quarter. If you look at the year-to-date trends, we're down about 2%. We individually account underwrite every policy and that's how we come up with what the end result is going to be. I do believe that the trends that we saw in the first and second quarter from a premium perspective are more indicative of what we expect for the remainder of this year and believe that the third quarter was a little bit of an aberration.

In terms of the, your second question on the core loss ratio, in the third quarter of 2018, we increased our accident year loss ratio for the entire year in that quarter, if you look at our nine month current accident year loss ratios, the '19 is actually up a couple-tenths of a point over the '18. So, we are increasing that, but somewhat offsetting those trends as we continue to see favorable claim trends in prior years, we apply that to our view of the current accident year. So you really look at expected ultimate in the numerator, earned exposure in the denominator for the last couple of years, and you apply a factor to the current year. So the reality of it is, our accident year loss ratio is up, but the favorable claim trends that we've seen are driving it down a little bit from what we thought it was going to be initially.

Christopher Campbell -- KBW -- Analyst

Okay, thanks. That's very helpful, and then just kind of another one on workers' comp, I think the press release referenced the audit premiums being positive. I guess, how much -- like how much were they up year-over-year and kind of what has been your trend over the last few quarters in terms of like growth of exposures from existing clients?

Kevin Merrick Shook -- President, Workers' Compensation Insurance

Yes, let me just give you a couple of numbers, and again I want to -- the quarterly numbers for the third quarter was $1.8 million this year versus $1.2 million last year. Again in a long tail line of business, I think it's important to focus on the longer-term trends. If you go through our SEC filings, in 2016 for the full year, it was $6.4 million, in '17 it was $4.1 million, in '18 it was $5.8 million, and through the third quarter of '19 we're at $3.6 million total. So the economies remains strong in our operating territories. We always look at the health of our insureds, when we're underwriting policies, and I think as a byproduct of all of those processes, we have seen positive audit premiums throughout our operating territories.

Christopher Campbell -- KBW -- Analyst

All right. Okay, that's very helpful, and then just kind of one last one for Ned. I know, we're getting into the special dividend season, right? So, I guess just kind of wanted to get your thoughts on, given the -- given kind of the environment in each of your major lines, how are you guys thinking about the potential for a special dividend? And obviously how that factors in with all the loss cost pics, which don't sound like they're worse year-over-year. Right?

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Chris, so that is something that we kind of the capital position, something that we discussed with our Board on a quarterly basis. And we'll certainly be discussing with our Board when we meet in December. As we've talked about in the recent past, the volatility that we're seeing in the Specialty P&C segment in particular causes us to want to hold more capital than we otherwise would for really two reasons. One, just when you kind of have a capital model volatility introduced into that model, it increases the capital, and the model says you should hold, and we think that's the prudent thing to do. We also think the volatility that we're seeing, and we know, others are experiencing as well, will open up opportunities for us, be they M&A opportunities or other strategic opportunities to grow the organization. And that kind of causes us to want to hold more capital as well.

I think on top of that, when you look at the regular quarterly dividend we are paying, as compared to our operating earnings, we are currently just through those ordinary dividends returning excess capital. So those will be the factors that we'll be discussing with our Board, but I think high level view is we're returning excess capital already, and there is a desire as an organization to hold more capital overall.

Christopher Campbell -- KBW -- Analyst

Okay, great. Well thanks, Ned. Very helpful, and thanks for all the questions, best of luck for the fourth quarter.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Thanks [Indecipherable]

Operator

Thank you. [Operator Instructions] Your next question comes from Mark Hughes with SunTrust. Please go ahead.

Mark Hughes -- SunTrust Robinson Humphrey, Inc. -- Analyst

Yes, thanks, good morning.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Good morning.

Mark Hughes -- SunTrust Robinson Humphrey, Inc. -- Analyst

The severity trends, you've gone into good detail out, I do -- I am curious, this AEON Society for Human Resources Management report that give their benchmarks for severity in the primary layer. They said frequency flat, severity up 2%, and they made a distinction between the primary versus excess layers. When you see industry data like that, do you think that is misguided? You're not seeing it yet in your paids, when we think about the larger verdicts that's more of an excess or hospital issue, but for the primary physician business, is there really as much risk that that severity inflation will kick up?

Michael Leonard Boguski -- President, Specialty P&C

Mark, it's Mike. Just comment on our current trends. It's been relatively flat on the frequency side, even perhaps slightly down. And the severity trend side as we go through our quarterly actuarial analysis, it's been in that two to three point range for quite some time. So that's kind of our view, and I'll let Ned comment further as well.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Yes. So as we've said Mark, we're not seeing anything substantial in our paid data. But what we do know from past experience is that when you get in these times of increasing verdicts that has a knock-on effect in everything that we do, in the settlements we make, and the other verdicts that are going to come and our view as far as kind of what's going on with the verdicts in the litigation environment is the pendulum is continuing to swing up. It hasn't reached a safe protection [Phonetic] and it not swinging back down at this point in time. So we believe that there is still ample reason to be cautious in this environment. Again the paid data, I think is, I would not make any long-term judgments right now based on paid data because I think that there is still a lot to come out on how these are resolved.

And then on the excess, I do think, obviously, you look at the large verdict reports that treasury and others put out, and there is a lot of pressure and the excess layers that will ultimately find its way into the pricing of the primary layers as well. So that's something to keep in your sight as well, but I think it's -- I don't know that it's not good data or drawing the wrong conclusion, I'd just be very, very cautious and reading too much in that paid data given the long tail nature of this line and what we think is yet to come.

Michael Leonard Boguski -- President, Specialty P&C

Yes, the only other thing I'd add to Ned comments is the excess verdict will tend to put some pressure on reinsurance costs going forward, and which, we've kind of had the tailwinds of attractive terms over the last five to six years and that's turning around a bit.

Mark Hughes -- SunTrust Robinson Humphrey, Inc. -- Analyst

When you think about the hospital or facility business, your retention was low. I think you've been actively looking to clean up that book, how far through that process are you? Is this something that we're going to see repeated the next two or three quarters? I'll leave it at that.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Yes, we have a year process. The new leadership teams came in the second quarter of 2019, really started evaluating the book with a critical eye starting in the third quarter. So I think we've got another, roughly six months to get through the overall book of business. And one of the things that I'd say that I think is important, there is the rate side of that, but there is also the terms and conditions. So when you look at deductibles, retentions, just kind of deal structure and the large account in the facilities business, we're also seeing improvements on that side of the house. So all will have a positive impact on the future kind of accident year loss ratios.

Mark Hughes -- SunTrust Robinson Humphrey, Inc. -- Analyst

And then when you look at the, say the physician business this quarter really seen to have pick up pretty nicely on the rate. Was that a mix issue? It's been kind of wavering more in the low to mid single digits, this is upper single digits. What happened in this quarter?

Edward Lewis Rand Jr. -- President and Chief Executive Officer

It was just is consistently across the board, pushing rates and particularly in states where we felt like the need was a little bit greater. Yes, we'll say in general, I think there is a bit -- the physicians book has a -- it doesn't have as long of a runway to go on rate as we do, say the Specialty large account business that has some pricing pressures on it.

Mark Hughes -- SunTrust Robinson Humphrey, Inc. -- Analyst

Should we think of this as the effect of the new management team being more aggressive on pricing or is this reflective of market dynamics.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Mark, I think its really a combination of both. The market dynamics are certainly would have put us into a combined ratio well in excess of 100% for the Specialty P&C book, and so the management team that is there now led by Mike is tasked with driving that back to the levels of profitability that are more acceptable and more in line with long-term objectives of the organization. So, it is definitely what this team has been tasked to do and what they're executing on.

Mark Hughes -- SunTrust Robinson Humphrey, Inc. -- Analyst

And then the final question on the Lloyd's, when we think about the growth profile, what is the appetite in the Syndicate for new business? Clearly pricing is getting better, do we view this as the time to grow? Is that the way they are seeing the market?

Edward Lewis Rand Jr. -- President and Chief Executive Officer

So I'm going to answer that in two points, Mark. From a pure Syndicate perspective, and kind of Duncan's view of the syndicate, there are good opportunities for growth, both driven by rate increases and business opportunities and the business plan for 2020 will reflect, kind of cautious careful growth for the syndicate. I think it is more likely that our participation in the overall Syndicate will go down. And so the impact on our financials of that growth will be muted or reversed by a decline in participation on our part. Not in a position to say precisely where our participation will land, but the expectation is that it will be lower and 2020 than it was in 2019.

Mark Hughes -- SunTrust Robinson Humphrey, Inc. -- Analyst

Thank you.

Operator

Thank you. [Operator Instructions] Your next question comes from Greg Peters with Raymond James. Please go ahead.

Charles Gregory Peters -- Raymond James -- Analyst

Thank you. Good morning, everyone. Most of my questions have been asked, but I'm going to follow your example and read a line from your press release and then ask you to comment. Towards the end of the press release you say, and it's around the tax benefit, you say, while projected tax credits for 2019 are less than 2018, they continue to have a significant impact on the effective

tax rate for the third quarter. So I know you've commented on this in the past, Ned, but maybe you can just remind us of how we should be thinking about those credits as we look out to 2020 and 2021?

Dana Shannon Hendricks -- Chief Financial Officer, Treasurer, and Executive Vice President

Hi, it's Dana. So our projected tax credits coming from our low income housing tax credits have been fairly consistent quarter-over-quarter, and we expect to continue to see those into next year. I mean that's sort of the short answer.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

I think Greg, if you look in our slides that are out on the website, there is a kind of a projected schedule of those tax credits. They taper off after a few years, but I think for the next couple of years, there is still a pretty meaningful impact to the effective tax rate for the organization.

Dana Shannon Hendricks -- Chief Financial Officer, Treasurer, and Executive Vice President

Yes. That's true. In 2020, it would be slightly less than what we expect in 2019, and then tapers a bit more in 2021 and then significantly thereafter.

Charles Gregory Peters -- Raymond James -- Analyst

Great, thank you for those answers. I just commend you guys on being a little bit more aggressive upfront on the severity concerns. It seems like it started to ripple through some of the larger insurance companies and other lines like commercial auto, and so I'm sure we're going to all wait for your year-end reserve review and see how your paids look out, but it's certainly worth noting that you guys were among the early birds to notify the Street about these issues.

Michael Leonard Boguski -- President, Specialty P&C

Thanks.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Yes. Thank you, Greg. And thanks for that. We don't quite feel so alone, after some of the other Q3 results that have been published.

Operator

Thank you. Your next question is a follow-up question from Amit Kumar with Buckingham Research Group. Please go ahead.

Amit Kumar -- Buckingham Research Group -- Analyst

Thanks, two quick follow-ups. The first question I think goes back to one of the prior questions. I was looking at the sequential pricing increases for physicians business and healthcare facilities, and I noticed that the physicians, I think went up by 500 basis points, but the healthcare facilities' pricing went down by 500 basis points. And I know one quarter does not make a trend, but maybe if you could just comment on that.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Yes. Thanks, Amit. Mike mentioned that another important factor and looking at the facilities business in particular, is terms and conditions. And I think that's the bigger driver. So, where you tighten that terms, or you put a larger deductible in, that is a factor price increase, but it doesn't get reflected in the rate increase, and I think that's the most significant driver there. It's just we're attacking this kind of from multiple angles, absolute price being one of them, but terms and conditions being equally important.

Amit Kumar -- Buckingham Research Group -- Analyst

Would do you expand on that? What would be an example. Would it be -- what were the limits previously, did the limits change materially?

Edward Lewis Rand Jr. -- President and Chief Executive Officer

So right Amit, I think, I can just kind of give you a general example.

Amit Kumar -- Buckingham Research Group -- Analyst

Yes.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

So let's say, you've got an account that the premiums of $1 million and you renew it with a $500,000 self-insured retention or deductible, and that $1 million was based on kind of your burn rate of losses. So your new premium maybe $500,000 for that same account. And so from a pure pricing perspective, that looks like a substantial reduction in pricing. From a kind of change in the risk profile, probably hasn't changed dramatically. So then take that same account or you put in the $500,000 deductible and you get $700,000 in premium. Well, when you analyze that, that's a $200,000 or 20% increase in rate, but because you put that deductible in place, it doesn't get reflected in that rate comparison.

Amit Kumar -- Buckingham Research Group -- Analyst

Yes, that's a fair point out. The only other question might be for you Ned, and I know that I think, Mike alluded to this, and there was a previous question on the changes in terms of the focus with you in the seat versus the prior management, would you be able to sort of distill this into maybe, I don't know, two or three top priorities for you going forward versus things which might have been done differently in the prior management team? Thanks.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

I don't think, I mean quite honestly there's anything dramatically different. I do think the markets are very different, and that's the biggest and most impactful aspect of it. So from my perspective, it's kind of the new management team executing in the new environment, and those go hand in hand. I might get Mike just to comment on a few of the things that he's got in mind as he has taken over the Specialty P&C area.

Michael Leonard Boguski -- President, Specialty P&C

Yes, Ned, I think just in general when you look at the past 10 years and then look at the next 5 years. In the past 10 years, you had major frequency reductions, you had major reserve redundancies, reduced capacity, little bit more pricing power, and reinsurance costs were lower. So, and then I've chatted a lot about as we kind of feel like to win going forward, we have to be really operationally excellent. And that's, I think that's the difference in companies that will be successful going out the next five years. So we spent a lot of work on consolidating of operations, deeper talent in some of the underwriting areas, leveraging of systems, just kind of regional structure type thoughts and then consolidating some of the small business into one unit.

So we just kind of feel going out over the next three to five years that we'll benefit more from operational excellence in an environment, where there is frankly just more wins in our face than there were in the past.

Amit Kumar -- Buckingham Research Group -- Analyst

Got it. That's helpful, and I'd also conclude by commending you on doing a phenomenal job over time in terms of creating value for the shareholders. And I know the share price is, it is what it is shorter term. But I think longer term, you guys have done probably a better job than most of the franchises out there. So again congrats on that.

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Thank you, Amit.

Michael Leonard Boguski -- President, Specialty P&C

Thank you, Amit.

Operator

Thank you. We are showing no further questions at this time. And that does conclude our question-and-answer session. I would like to turn the conference back over to Mr. McEwen for any closing remarks.

Ken McEwen -- Investor Relations Manager

Thank you, Leslie, and thank you to everyone who joined us today. We'll talk to you again in 2020.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Ken McEwen -- Investor Relations Manager

Edward Lewis Rand Jr. -- President and Chief Executive Officer

Dana Shannon Hendricks -- Chief Financial Officer, Treasurer, and Executive Vice President

Michael Leonard Boguski -- President, Specialty P&C

Kevin Merrick Shook -- President, Workers' Compensation Insurance

Amit Kumar -- Buckingham Research Group -- Analyst

Christopher Campbell -- KBW -- Analyst

Mark Hughes -- SunTrust Robinson Humphrey, Inc. -- Analyst

Charles Gregory Peters -- Raymond James -- Analyst

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