CNA Financial (CNA) Q4 2021 Earnings Call Transcript

CNA Financial (CNA -0.14%)
Q4 2021 Earnings Call
Feb 07, 2022, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to CNA's discussion of its 2021 fourth quarter financial results. CNA's fourth quarter earnings release presentation and financial supplement were released this morning and are available via its website, www.cna.com. Speaking today will be Dino Robusto, CNA chairman and chief executive officer, and Larry Haefner, CNA interim chief financial officer. Following their prepared remarks, we will open the line for questions.

Today's call may include forward-looking statements and references to non-GAAP financial measures. Any forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the statements made during the call. Information concerning those risks is contained in the earnings release and CNA's most recent SEC filing. In addition, the forward-looking statements speak only as of today, Monday, February 7th, 2022.

CNA expressly disclaims any obligation to update or revise any forward-looking statements made during this call. Regarding non-GAAP measures, reconciliations to the most comparable GAAP measures and other information have been provided in the financial supplement. This call is being recorded and webcast during the next week, the call may be on CNA website. If you were reading a transcript of this call, please note that a transcript may be reviewed for accuracy.

Thus, it may contain transcription errors that could materially alter the intent of the meaning of the statements. With that, I will turn the call over to CNA chairman and CEO, Dino Robusto.

Dino Robusto -- Chairman and Chief Executive Officer

Thank you, Tracy, and good morning. In the fourth quarter, we continue to effectively leverage the favorable market conditions and achieve strong quarterly results, which topped off a great year with record core income. Before I provide details, let me offer a few highlights on both periods. Our gross written premiums, excluding our captive business, grew by 16% in the fourth quarter and 10% for the full year.

Importantly, the overall P&C rate increase remained at 8% in the fourth quarter, consistent with the third quarter, leading to a full-year rate increase of 9%, which was well above long-run loss cost trends. The all-in combined ratio was 92.9% for the quarter and 96.2% for the year, each representing the best ratios in five years. Underlying combined ratio was 91.2% for the quarter and a record low of 91.4% for the full year. All of this led to record core income of just over $1.1 billion for the year, up 50% in core EPS of $4.06 per share.

Drilling down on the details starting with the fourth quarter, our P&C operations produced core income of $353 million, or $1.29 per share. Our Life & Group segment produced core income of $6 million, and our Corporate & Other segment produced a quarter loss of $94 million, mainly impacted by a non-economic charge related to asbestos and environmental. As usual, Larry will provide more details on Life & Group and the Corporate segments. In the fourth quarter, the all-in combined ratio was 92.9% percent, a half a point lower than the fourth quarter of 2020, and the lowest all-in quarterly combined ratio since 2016.

Pretax catastrophe losses in the quarter were $40 million or 2 points of the combined ratio, compared to $14 million in the prior year period. P&C's underlying combined ratio of 91.2%, the 1.4 points improvement over last year's fourth quarter result. The underlying loss ratio in the fourth quarter of 2021 was 60.1%, which is down 0.3 points compared to the fourth quarter of 2020. Excluding the impacts of COVID in the prior year quarter, the underlying loss ratio improved by 0.8 points as we continue to recognize some of the margin built in the current accident year from the earned rate increases, as we did last quarter.

For P&C overall, prior period development was favorable by 0.3 points on the combined ratio. Turning to production, gross written premium, excluding our captive business, grew by 16% in the fourth quarter, which was twice as high as the first half of the year. Net written premium grew by 11% for the quarter, an increase of 6 points from the third quarter. New business grew by 28% in the quarter, and the overall written rate increase was 8%, while earned rate in the quarter was 10%.

In addition, retention of 83% was higher than it's been all year. The strong production results were broad-based across all the operating segments. In terms of the business units, the all-in combined ratio for specialty was 89.9% and the underlying combined ratio was 90.1%, a half-point improvement compared to last year. The underlying loss ratio improved by 0.9 points to 59.1%.

The expense ratio increased by 0.5 points to 30.9 from a one-time to up, and Larry will provide more detail in the discussion on expenses. Gross written premium ex captives grew 15% in the fourth quarter, with 58% growth in new business. This is the sixth consecutive quarter of double-digit growth in specialty. We also achieved an overall rate increase of 11%, up 1 point from the third quarter.

We achieved higher rate in management liability, and our affinity programs, and stable rate in our healthcare business. In addition, retention improved to 3 points to 83%. Turning to commercial, the all-in combined ratio was 94.9% in the quarter, including 2.9 points of cat. This was the lowest all-in combined ratio in four years.

The underlying combined ratio was 92.2% this quarter, which was the lowest on record, and was 1.4 points lower than the fourth quarter of 2020, and 2.4 points lower, excluding the COVID frequency impacts that lowered the loss ratio in 2020. The underlying loss ratio of 61.4% improved by 0.3 points compared to the fourth quarter 2020, excluding the COVID frequency impacts. As we referenced last quarter, the underlying loss ratio for commercial was higher in the latter half of 2021, resulting from mix change between Property & Casualty net earned premium due to the new property quota share treaty we purchased in June. Expense ratio improved 2.3 points to 30.4% this quarter.

Commercial achieved that 19% growth in gross written premiums ex captives, with 16% growth in new business. Rate at 5% was only slightly below the third quarter, and excluding work comp, the rate change was +7% in the quarter, which was consistent with the third quarter. Retention was up 2 points to 84%, which was the highest of any quarter this year. Retention were strong in all of our commercial business units, and middle-market retention improved to 85%, which is the highest level since prior to the pandemic.

Exposure change was +2% in commercial this quarter as a result of increases in payrolls, and sales volumes as the economy continues to improve. This is the highest exposure increase since the first half of 2019. For International, the all-in combined ratio was 94.8% in the quarter. The underlying combined ratio improved by 4.2 points to another record low of 90.9% this quarter.

The expense ratio improved at 2.6 points to 32.4%, and the underlying loss ratio improved 1.6 points to 58.5%. We are very pleased with the improvement in our international results, which highlights our disciplined approach to the reunderwriting and catastrophe exposure reduction we executed. International achieved a 9% growth in gross written premium and new business growth of 15%. Rates were up 13% this quarter, achieving double-digit rate for the seventh consecutive quarter and 9 of the last 10 quarters.

In addition, retention at 82% was the strongest quarterly retention in over three years. Now, let me provide some perspectives on the full-year performance. As I mentioned before, core income was a record for the year increasing 50%, so a little over $1.1 billion or $4.06 per share, and net income for the year was just over $1.2 billion or $4.41 per share. This compares to $735 million and $690 million in 2020 respectively.

The increase from the prior year is attributed to significantly improved underlying underwriting gain, and while still substantial a lower level of cat loss compared to 2020, as well as higher net investment income driven by limited partnership returns. The all-in combined ratio was 96.2%, with 5.1 points of catastrophe loss and 0.3 points of favorable prior period development. This is the lowest calendar year combined ratio in five years, and a significant accomplishment considering the heavy levels of catastrophe lost again this year. That losses were $397 million pre-tax in 2021, compared to $550 million last year.

But catastrophe losses in 2021 were actually higher than the $355 million catastrophe result in 2020 when you account for the COVID cat charge we incurred in 2020. Our P&C underlying underwriting profit for the full year increased 31% to $667 million, and the underlying combined ratio improved to 1.7 points to 91.4%. It's the fifth consecutive year of improvement in the underlying combined ratio. The underlying loss ratio in 2021 was 60%, down 0.2 points compared to 2020.

Excluding the impacts of COVID in the prior year, the underlying loss ratio improved 5.6 points. The expense ratio improved 1.5 points for the full year. All three operating segments produced a strong underlying results in 2021. For specialty, the underlying combined ratio of 89.7% was the best on record and 1.6 points lower in 2020.

Commercial produced an underlying combined ratio of 92.6% in 2021, which is also a record and 1.3 points lower than 2020. Multiple years of reunderwriting initiatives in our international portfolio of paid off, an underlying combined ratio of 92.1% in 2021, three and a half points lower in 2020. Turning to production for the full year, gross written premium growth ex captives was 10% this year. We achieved strong new business growth of 19%, and a full year rate increase of 9%.

Retention was 82% for the full year. Net written premium grew by 5% for the year, in terms of the wider spread between gross and net written premium for the year compared to 2020. This is a function of the new property quota share treaty agreement, which was on a risk-attaching basis, causing the spread to widen. Before I turn it over to Larry, I'd like to acknowledge Scott Lindquist, who's also on our call.

He'll be transitioning with Larry through the first quarter, and we'll be handling the earnings calls after the first quarter. We are excited to have Scott on board. And with that, I'll turn it over to Larry.

Larry Haefner -- Interim Chief Financial Officer

Good morning, everyone. I will provide some additional information on the results, as Dino indicated. Starting with core income for the fourth quarter, our P&C operations produced a core income of $353 million, as Dino indicated. A key contributor to the strong result was our pre-tax underlying underwriting income of $167 million, a 22% increase from the fourth quarter of 2020.

In addition, our catastrophe losses were relatively modest at $40 million pre-tax, despite the fact that estimated cat losses for the industry were significantly above the 10 year median for fourth quarter events. For full-year 2021, the record core income of $1.106 billion produced an ROE of 9.1% up substantially from 2020 6.1%. Our Q4 expense ratio was a key component of our higher underlying underwriting profits. For the fourth quarter of 2021.

The expense ratio was 30.8%, which was 1.2 points lower than the fourth quarter of 2020. In specialty, the expense ratio increased slightly in the quarter by half a point compared to a year ago due to recognition of higher profit sharing in the quarter for one of our profitable programs. In commercial, the expense ratio improved by 2.3 points this quarter, largely from growth in net earned premium. International also showed significant year-over-year improvement of 2.6 points, driven by net earned premium growth and lower acquisition cost.

On an annual basis, the expense ratio was 31.1% in 2021, one and a half points lower than full year 2020. We believe 31% is a reasonable run rate going forward as we continue to make investments in talent, technology, and analytics. The expense ratio improved for each segment for specialty, improving 0.8 points from 31.3% to 30.5%. Commercial improving almost 20.4 points from 33% in 2020 to 31.1% in 2021.

In international improving 20.4 points from 35.5% for 2020 to 33.1% for 2021. Moving to a prior period development, for the fourth quarter, the overall Property & Casualty net prior period development impact on the combined ratios was 0.3 points favorable compared, to no impact in the prior year quarter. Favorable development was driven by surety and especially segment from more recent action years, somewhat offset by management and professional liability. In the commercial segment, stable development, and worker's compensation was offset by unfavorable development in auto and general liability.

In international, favor will develop in our commercial classes was offset by unfavorable development in our specialty classes. In terms of our covered reserves, we made no changes to our overall COVID catastrophe loss estimates during the quarter. We continually review our COVID reserves, and our previously established estimate of ultimate losses, ALAE remains appropriate. The majority of the loss estimate remains in IBNR.

For the full year 2021 over, our development was favorable by three-tenths of a point, compared to 0.7 points favorable in 2020. The pay to incurred ratio of 0.89 was elevated in Q4 relative to the first three quarters of 2021, due largely to pay out of catastrophes that occurred in prior quarters. However, the 0.89 ratio remains at the lower end of our pre-pandemic range. The ratio, which fluctuates quarter to quarter, has been consistently lower over the past two years, with several factors driving that, including our growth in underlying underwriting profits.

We have also had lower non-cash paid losses across several product lines, where we have taken significant underwriting actions such as our medical malpractice, and excess liability lines that we have previously discussed with you. The slowdown in the court dockets has also contributed to the lower-paid losses. On a full-year basis to pay to improve ratio was 0.70. Moving to on our Property & Casualty segments, a corporate segment produced a core loss of $94 million in the fourth quarter, which compares to a $49 million core loss in the fourth quarter of 2020.

The loss for fourth quarter 2021 was predominantly driven by our annual asbestos and environmental reserve review completed during the quarter. The results of the review included a non-economic after-tax charge of $48 million, driven by the strengthening of reserves associated with higher defense and indemnity cost on existing accounts. In compares to last year's non-economic after-tax charge of $39 million. From a core income perspective, the impact of the fourth quarter 2021 charge was a reduction of approximately $0.18 per share versus an approximate reduction of $0.14 per share impact in the fourth quarter of 2020.

Following this year's review, we have incurred cumulative losses of $3.4 billion, which is well within the $4 billion limit of our last portfolio transfer cover that we purchased in 2010. Importantly, pay losses are at $2.2 billion. You will recall from previous year's reviews, that there is a timing difference with respect to recognizing the benefit of the COVID relative to incurred losses, as we can only do so in proportion to the pay losses recovered under the treaty. The loss recognized today will be recaptured over time through the amortization of a deferred accounting game, as paid losses ultimately catch up with incurred losses.

As of year in 2021, we have $429 million of deferred gain that will be recaptured over time. In addition to the impact from our annual investment, asbestos and environmental reserve review, net investment income in the fourth quarter attributed to our core corporate segment is down $13 million after-tax on a year over year basis due to loss portfolio transfer agreement we entered into the end of last year related to legacy excess worker's comp reserves. We also strengthen our legacy mass tort IBNR reserves this quarter by $16 million on an after-tax basis. The Life & Group we had core income of $6 million for the fourth quarter of 2021, which is $20 million lower than last year's fourth quarter, as those results benefited from favorable commodity experience driven by the pandemic.

I wanted to comment on the approaching change in GAAP accounting methodology related to long-duration targeted improvements are LDTI, which will apply to our Life & Group businesses. We will adopt this new accounting guidance effective January 1st, 2023, and we'll apply it as of January 1st, 2021. We are working diligently on this implementation and intend to discuss the impacts on our first quarter call. We do expect the impact of this change will be a material decrease in accumulated other comprehensive income, predominantly being driven by the difference between the expected interest rates from our investment strategy, and the liability discount rate assumptions required under this accounting change.

This accounting pronouncement applies only to GAAP basis financial statements and has no statutory accounting or cash flow impacts on the businesses. As a result, this accounting change is due by us, and the industry as non-economic as none of the fundamentals of the businesses are changed by it. Turning to investments. Total pre-tax that investment income was $551 million in the fourth quarter, essentially the same as last year's fourth quarter.

The results included income of $108 million from our limited partnership, or LP and common stock portfolios as compared to $140 million on these investments for the prior year quarter. The strong LP returns for the quarter across both. the P&C, and Life & Group segments were significantly driven by private equity funds and reflected the lag reporting results from the third quarter. As a reminder, our private equity funds, which comprise approximately two-thirds of our LP portfolio, primarily report results on a three-month lag basis, whereas our hedge funds are on a real-time basis.

Our fixed income portfolio continues to provide consistent net investment income stable relative to the last few quarters, and the prior year quarter. While the current low-interest rate environment continues to be a headwind, the impact on our net investment income has been mitigated by our strong operating cash flows, which have been driven by our growth in premium volume, strong underwriting profitability, and the slower payout of losses that I previously discussed. Pretax that investment income for the full year 2021 was $2.2 billion, compared to $1.9 billion for 2020. The increase was largely driven by our LP and common stock investments, which had pre-tax returns of $402 million for 2021, compared to $144 million for 2020.

The returns from our fixed income securities portfolio was essentially the same for 2021 as it was for 2020, as our higher asset base offset the lower average portfolio year. Our average book value has increased $1.4 billion from the year in 2020. On a pre-tax effective income, yield decreased 20 basis points. To give a sense of magnitude of the increase in our operating cash flow in the fourth quarter, operating cash flow was strong once again at $643 million, and then our full year basis increased approximately $860 million from full-year 2020 after adjusting for the payment to purchase our excess workers' comp LPT agreement.

From a balance sheet perspective, the unrealized gain possession of a fixed income portfolio was $4.4 billion at year-end, down from $4.8 billion at the end of the third quarter, reflecting the slightly higher interest rate environment. Fixed income invested assets that support our P&C liabilities, and Life & Group liabilities had effective durations of 4.9 years and 9.2 two years, respectively, at year-end. Our balance sheet continues to be very solid. At year-end, shareholder's equity was $12.8 billion for $47.20 per share.

Shareholder's equity, excluding accumulated other comprehensive income, was $12.5 billion, or $46.02 per share, an increase of 10% from year in 2020 adjusting for dividends. We have a conservative capital structure, with a level leverage ratio of 18%, and continue to maintain capital above target levels in support of our ratings. We are still digesting the potential changes to the S&P Capital model. Although, we do not currently see this fact changing, our course the final version of the model has not been determined, and S&P has determined the deadline for companies to provide feedback.

We continue to work with them to fully understand the potential impact of the proposed changes. Finally, we are pleased to announce we are increasing our regular quarterly dividend 5% to $0.40 per share, which will be payable on March 10th to shareholders of record on February 22nd. In addition to the increase in our regular quarterly dividend, we are declaring a special dividend of $2 per share, also payable on March 10 to shareholders of record on February 22nd. With that, I'll turn it back to Dino.

Dino Robusto -- Chairman and Chief Executive Officer

Before opening the call to the Q&A session. I'd like to offer a few comments about how we perceive the marketplace dynamics might evolve in 2022. Most importantly, we see pricing remaining favorable with overall rate increases, persisting above the long-run loss cost trends for most of 2020 to in light of the oft-quoted headwinds like social inflation, and economic inflation, and elevated cat activity. All of the headwinds are still present, there has been no significant change since last quarter.

The uncertainty these factors create a lot of cost trends have only been exacerbated by the Omicron variant, which has slowed the full return of court activity in docket logs to a pre-pandemic level. Which is why we have continued to prudently recognize margin improvement in our current accident year loss ratio. And although written rate increases in the last eight to ten quarters have allowed us to make up most of the lost ground from 2015, when the rate versus loss cost trend started to become a headwind. It can easily become insufficient if loss cost trends increase further.

And this is why we are focused on pushing for more rate and where needed additional improvements in terms and conditions. As I mentioned earlier, our pricing remains stable for the third quarter at 8 points, while retention increased 2 points. So even though rates have moderated from their high watermark in the fourth quarter of 2020, we believe the pace down will be slower than the pace rates increased. Finally, as seen by our increasing overall growth, as well as our growth in new business as the year progressed, we are bullish about our continued prospects at meaningful levels of quality business to our portfolio in 2022.

And with that, we will take your questions.

Questions & Answers:

Operator

Thank you, sir. [Operator instructions]. I will now take our first question from Joshua Shanker from Bank of America. Please go ahead.

Joshua Shanker -- Bank of America Merrill Lynch -- Analyst

Yes. Thank you. So let's see, in prior calls and this one too, are you spoke about the need to perhaps increase the loss cost trend assumptions based on what you're seeing in the marketplace. But of course, we all talk about the risk from dockets opening up and carry more losses.

At the time that the courts were closed and the dockets were thin, what data was coming in that said that you know what, we need to increase our loss trend? Was it more or less a hunch? Or did you actually see underlying court data saying that court decisions are getting more generous to the plaintiffs when one?

Dino Robusto -- Chairman and Chief Executive Officer

Josh, the way I would answer it is, based on some of the information we talk to you about originally with lines like medical malpractice, and some of the other liability, as we have a portion of the portfolio in construction, which wasn't as impacted by the corporate benefits and also just umbrella. And what we were seeing at the time, even before the pandemic, and then it continued in those lines through the pandemic in particular in professional liability. You saw things like a little bit higher attorney representation on cases, which also might have led to some additional frequency of cases, potentially interested in being litigated, you saw some higher settlement demands even when the facts of the case didn't warranted, and so. Those are the kinds of things that despite, the dockets being lower, it's got implications on settlement values, and we saw that, and we continued to move our long-run loss cost in the last quarter.

You also recall, we increased our property long-run loss cost trends about 2 points that had less to do, obviously with dockets and it had to do with our view that economic inflation supply chain issues would probably continue. So, there's a dynamic in particular in lines like medical malpractice that started before the pandemic and continued through it in terms of settlements that we saw.

Joshua Shanker -- Bank of America Merrill Lynch -- Analyst

And if I try, and think about that in terms of the stock at issue in paid to incurred ratio? I mean, nobody really knows. But do you have any advice for us in thinking about how to think about pay to income ratio in 22 and 23, given that the courts will presumably reopen?

Dino Robusto -- Chairman and Chief Executive Officer

Yeah. [Inaudible]I let Larry jump in the considerable amount of time on these people and third ratios.

Larry Haefner -- Interim Chief Financial Officer

Yeah. Josh, we spend a lot of time thinking about that as well. I can assure you of that. And it really is difficult to parse between them right now, which is why we have been prudent about it.

But as we look at it, as I mentioned in my remarks, you know where we have seen lower non-campaign ratios paid lost dollars actually is in product lines where we have taken pretty significant underwriting action like medical malpractice in some of our excess liability loans, particularly with auto exposures. So it's really hard for us to try and separate what the differences between those. But we do know that the incurred loss ratio is down significantly from pre-pandemic days, and we're just being cautious about recognizing any of that potential improvement if it exists until we know more about what's happening as those dockets open back up.

Joshua Shanker -- Bank of America Merrill Lynch -- Analyst

All right. Well, we will certainly find out more. Thank you for the color.

Operator

We will now take our next question from Gary Ransom from Dowling and Partners. Please go ahead.

Gary Ransom

Yes, good morning. I wanted to focus on the areas where the rates are moving up more noticeably. That would be financial lines in the specialty segment and small commercial in the commercial segment. Is there something particular going on that's making those move up and accelerate compared to some of the other segments or lines?

Dino Robusto -- Chairman and Chief Executive Officer

Yeah, there's a little bit on each. I mean, clearly on the financial lines, which includes our cyber, cyber has been accelerating the rate increase. And if you look at it in the fourth quarter, we actually got triple digit rate increase. And the other lines had some more stable sort of behavior on the small business.

Gary, we it's on our board policy. We had filed for about a few points of rate increases. We also got 3 points of exposure change in our retentions also up. So, you know, it's all sticking.

So it's really just filings in the policy on small business.

Gary Ransom

Thank you. If I look at the growth, I think you did mention in commercial about the exposure increases, which just across the whole business is. Can you somehow parse out the amount of exposure increase we're seeing versus rate or other factors?

Dino Robusto -- Chairman and Chief Executive Officer

Well, in commercial, we got about 2 points of exposure growth, and that was, I think I may have mentioned in the prepared remarks. You're seeing more in the way of sales, you're also seeing payroll increases. You have underwriting actions that work against that, a little bit It's hard to know exactly, but our sense is we probably had a point reduction in exposure in commercial due to our underwriting actions, and so maybe you're looking at 3 points in the absence of that, which I think is sort of reflective of the economic activity, that's about the sort of best detail I can offer there on the exposure, Gary.

Gary Ransom

That's great. Thank you. And one other thing on more on the loss trends and just thinking about your loss picks for the full year. Were there any adjustments or true-ups that you just kind of changed your view at all as you looked back at 2021, in any of the segments or areas?

Dino Robusto -- Chairman and Chief Executive Officer

No, there was nothing really significant at all in the quarter, and when we looked at the long-run loss cost trends, which obviously despite the name of long-run, we look at them all the time and the reality is still relatively in line with what the changes we had made in the third quarter. So there was nothing in the way of any meaningful true-ups.

Gary Ransom

OK. Great, and one last little one, can you remind us what your COVID reserves actually are at this point?

Larry Haefner -- Interim Chief Financial Officer

Yeah, Gary, there $195 million. That was the original estimate, we held them.

Gary Ransom

OK. And with some of that recognized in 21 or was all of that in 20?

Larry Haefner -- Interim Chief Financial Officer

All of that. That was the initial estimate we put up, and we're still comfortable with that.

Dino Robusto -- Chairman and Chief Executive Officer

Yeah, we never moved it from there.

Gary Ransom

Great, thank you very much.

Dino Robusto -- Chairman and Chief Executive Officer

Thank you. 

Larry Haefner -- Interim Chief Financial Officer

Thank you.

Operator

[Operator instructions] Over now take our next question from Meyer Shields from KBW. Please go ahead.

Meyer Shields -- Keefe, Bruyette and Woods -- Analyst

Great. Thank you, good morning. I want to follow-up on with the exposure unit growth. In your view, that source unit growth likely to have any impact on the loss ratio?

Dino Robusto -- Chairman and Chief Executive Officer

Meyer, we're struggling a little bit here, but are you asking what the impact on the loss ratio is from the exposure growth?

Meyer Shields -- Keefe, Bruyette and Woods -- Analyst

But sort of. I'm asking whether you expect it to have an impact on unfortunate unit growth? I'm sorry, I'm [inaudible], I'm asking whether exposure unit growth should have an impact on the life issues going forward.

Dino Robusto -- Chairman and Chief Executive Officer

It's minimal right now. I mean, certainly when you think about worker's comp, and you think about payroll, what's going up, is it salaries going up, and how is the salaries that you're insuring compare to the average weekly wage versus just growth in number of employees? Right. Because if it's just payroll going up, average amount being paid, and you're above the average weekly wage, it would have some benefit. But we haven't really incorporated any benefit into to our loss ratios from that.

Meyer Shields -- Keefe, Bruyette and Woods -- Analyst

OK. That was helpful. They talked about inflation, and obviously, it's everywhere, this whole thing you could zero in maybe on whether the various forms of inflation that we're seeing now are likely to translate into above-average lost trend on the affinity than this

Dino Robusto -- Chairman and Chief Executive Officer

And so on inflation is on the social inflation side, you're referring to Meyer?

Meyer Shields -- Keefe, Bruyette and Woods -- Analyst

Sort of. I'm trying to incorporate, or just to see whether any because there's so many different aspects of inflation now, and most of them seem to be getting worse. Whether any of those matter to affinity.

Larry Haefner -- Interim Chief Financial Officer

Yeah. On affinity, we've talked a little bit about it before, Meyer, in the context of social inflation, because it's all professional liability. Our affinity programs, and as I've I think I've indicated before, these programs largely comprised of single practitioners like nurses, and they typically their coverage is largely supplementary to the facilities, and rarely is there any singular accountability to the practitioner, and the facilities of higher limits where typically you see the plane plaintiffs to go after from a social inflation. So it's clearly had a lot less impact on the affinity portfolio, even within the medical side of it than it did on the regular healthcare portfolio.

And it's mainly there that we focus on given its professional liability.

Meyer Shields -- Keefe, Bruyette and Woods -- Analyst

OK. Perfect. I'm all set, thank you very much.

Operator

There appears to be no further questions, and I'd like to turn the conference back to Mr. Robusto for any additional or closing remarks.

Dino Robusto -- Chairman and Chief Executive Officer

OK. Thank you, everyone. And we look forward to chatting with you next quarter.

Operator

[Operator signoff]

Duration: 42 minutes

Call participants:

Dino Robusto -- Chairman and Chief Executive Officer

Larry Haefner -- Interim Chief Financial Officer

Joshua Shanker -- Bank of America Merrill Lynch -- Analyst

Gary Ransom

Meyer Shields -- Keefe, Bruyette and Woods -- Analyst

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