Good morning, ladies and gentlemen, welcome to the James River Group Q2 2020 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Kevin Copeland, head of investor relations. Please go ahead, sir.
Thank you, Tiffany. Good morning, everyone, and welcome to the James River Group second quarter 2020 earnings conference call. During the call, we will be making forward-looking statements. These statements are based on current beliefs, intentions, expectations, and assumptions that are subject to various risks and uncertainties, which may cause actual results to differ materially. For a discussion of such risks and uncertainties, please see the cautionary language regarding forward-looking statements in yesterday's earnings release and the Risk Factors section of our most recent Form 10-K, Form 10-Qs, and other reports and filings we make with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. I will now turn the call over to Adam Abram, chairman and chief executive officer of James River Group.
Thank you very much, Kevin, and good morning, everyone, and welcome to our second quarter conference call. I'm joined here this morning by Sarah Doran, our chief financial officer, and Bob Myron, our president and chief operating officer. As is our usual way, Sarah and I will both have a few comments, then all three of us would enjoy answering any questions that you may have. A number of things seem worth mentioning and pointing out from my perspective. First, our returns are strong. We're reporting a group combined ratio of 95%. Our return on tangible equity this quarter was 12.9% and 12% for the six months. By our calculation, an investor in our IPO has enjoyed a 22.3% internal rate of return, including dividends from our IPO in December of 2014 through the middle of last week.
Our tangible book value per share grew 14.9% during the quarter. Our prospects, I think, are excellent. Our E&S segment grew gross written premiums by 18% for the quarter and 25% for the six months. Our in-force policy count in Core E&S grew by 28% from June 2019 to this past June. We had a 16% increase in submissions in E&S during the first half of the year. 10 of our 12 E&S divisions had increased submission flow, and the trend of greater submissions continues early in the third quarter. While we are growing, we're not changing our mix dramatically, and I think that's important. Average premiums remain in the low $20,000 level. Year to date, nine of 12 divisions within E&S have grown. For the quarter just ended, June 30th, that was the 14th consecutive quarter in which we had rate increases in Core E&S.
The pace of rate increases is accelerating. In the first quarter, we reported a 13% rate increase on renewal policies. In this most recent quarter, our E&S team achieved a 20% increase on renewal policies. Turning to our Specialty Admitted book, it's performing very well. The segment reported a combined ratio of 90.1% for the second quarter and 98.4% for the first six months of the year. During the first half of the year, our Specialty Admitted segment has signed new fronting deals that we expect will generate annual premiums of approximately $100 million and annual fees of about $6 million. We're making steady progress on building a highly diversified book of fee income producing programs that will earn in over the next year.
One of the things that we all pay a lot of attention to is the strength of our balance sheet, I believe that our balance sheet strength is increasing quarter-over-quarter. Our loss in LAE ratio in core Excess and Surplus Lines for the 15 years 2003 through 2018 is 57.1%. We are currently writing more of this business than in any previous year at better rates than at any time in our past, we're booking our current year at 65.7%. I know that the runoff of our large commercial account is always a matter that has gotten some attention in recent quarters, that's proceeding well. We closed an additional 15% of the claims associated with the canceled Rasier account during the quarter, that means that we've closed approximately 40% of the claims that were outstanding at the time we stopped writing the account.
We continue to expect it will take two to three years to complete the runoff of the book, we're pleased with the pace and claims are being resolved at cost within our expectations. The claims environment, in general, is relatively benign, that combined with what we're seeing in rates is a really powerful combination. Claims frequency in our E&S book is down 21.4% in the second quarter compared to a year ago, down 19.2% in our Specialty Admitted segment. We have no compensable COVID-19 claims reported in our E&S unit or in our reinsurance segment. As we talked about in our last call, the classes of E&S business we write, as well as our policy language and structure, insulate us against liability for COVID claims.
In our Specialty Admitted segment, our individual risk workers' compensation book has received four COVID claims, one of which was compensable, we had a net obligation of $750 on that claim. We do write workers' compensation policies in our fronted business under the Specialty Admitted segment, to date, we've had approximately 55 COVID-19 claims from this program unit. Our retentions are low. They're between 11%-20% on the first $1 million per occurrence, our maximum liability is $110,000-$200,000 per claim. To date, our average total net incurred for the few COVID claims we've had is less than $13,000 per claim, we just don't currently expect the net liabilities from COVID-19 to be material to us. Our reinsurance segment suffers from a lack of scale, it contributes to the overall profitability.
Relatively small amounts of adverse development from prior years when our book was larger overwhelmed the profitable underwriting in the much smaller book we write there today. The book we write in Bermuda today is overwhelmingly E&S casualty with good margins. We have allocated less capital to our reinsurance unit than to our primary segments because of the outsized opportunity available in our primary segments. Movements in prior year development in reinsurance can cause losses in the current year underwriting profits there. Looking forward, I think the momentum of the first half of the year is shaping up to continue. Our plan is to stick to our plan to continue to write business we understand at prices we expect to produce material underwriting margin.
We're focused on increasing our fee business and expect those fees to become a larger contributor to our margin over the next 12 months. We recognize, at the same time, the seeming disconnect between the many leading economic indicators, unemployment, for example, and our expanding business. We don't see signs of a slowdown in our business. We think the general E&S market is expanding as admitted markets retreat from more classes of business, pricing is definitely increasing as a reaction to prior losses in the industry and low prevailing market rates of interest. With that, if I could turn to Sarah to add her reflections on the quarter and the first half of the year. Sarah?
Thanks, Adam. Let me highlight a few of the financial points from the quarter. Last night, we reported first quarter operating earnings of $0.56 per share annualized adjusted net operating return on average tangible equity for the first half of the year is 12%. It was a very strong quarter and first half of the year, as Adam has noted. Let me jump right into investments. Our portfolio has recovered meaningfully since March 31st, with a total return of 4.3% for the quarter, excluding our restricted cash balance and private investments. Our fixed maturity investment portfolio had unrealized gains of $53.5 million, while the bank loan portfolio had unrealized gains of $26.6 million, offset partially by realized losses of $9.4 million incurred on the sale of approximately 40% of our senior secured bank loan portfolio.
As we mentioned in April, we made the decision to meaningfully reduce our exposure to bank loans by selling into the rally in this asset class as we look to tamp down our volatility. Given the current low yield environment, we expect net investment income to be at similar levels as this quarter throughout the year. Moving on from investments. This quarter, we posted a loss ratio of 66.4% accident year loss ratio of 65.6%, largely in line with the first quarter of this year, despite powerful rate increases, low loss emergence, meaningfully reduced claims frequency. As Adam highlighted, the Core E&S renewal rate increases we have benefited from for over three years now accelerated to 20% this quarter, reported losses have remained benign for multiple quarters, falling again this quarter.
Core E&S makes up approximately 70% of the company's net written premiums and close to half of our net reserves. As Adam mentioned, we've received COVID-related claims, but given our policies and exclusions and ongoing review of these claims, we did not put up an additional indemnity estimate related to COVID for the quarter. The runoff of what was formerly our largest account continues to perform within our expectations. At the end of the first half of the year, open claims for all years of the account represented a little bit less than 3% of the total reported claims for this account. At the end of the fourth quarter of 2019, I had reported to you that at that point, open claims for all years of the account represented over 5% of reported claims.
Of our approximately $1.3 billion of total group-wide net loss reserves at quarter end, approximately $300 million supports this runoff block of business. This quarter, we had $2.8 million of favorable development from E&S, most of which came from our Core E&S business. We had adverse development of about $5 million in our casualty reinsurance book. The development was concentrated in a few treaties related to general liability and commercial auto business, much of which we no longer write. We also had $1 million of favorable reserve development from our individual risk workers' compensation book. Last but not least, expenses. The expense ratio decreased to 28.6% this quarter from 34.2% in the first quarter of this year.
We've been working to reduce expenses and gain efficiency, and as part of that, reduced personnel during the quarter in areas where we were overstaffed. Also included in the quarter was a one-time reversal of an accrual, which had the impact of increasing fee income, lowering expenses. All that said, we continue to expect that our expense ratio for the full year will be in the low 30s, an improvement from the first quarter. With that, I'll hand it back to Adam.
Thank you, Sarah. Before we take your questions, which we're eager to get to, I just would like to have a little shout-out, if I might, to the employees and colleagues all around James River, who have been working remotely since March and doing a really terrific job and we're aware of all the strains that remote working calls for everybody in America who's doing it right now. We're thinking about all of our employees who are home with children and working on school arrangements and nonetheless generating more policies, more premium, more underwriting, more claims handling while they do it, and it's a remarkable feat. We're thinking about them.
Fortunately for us right now, at our last report, only one of our 800 plus, or approximately 800 employees, had tested positive for COVID, we're thankful for that too, and we're mindful of everybody's health and very grateful for the teamwork that's going forth and very proud of all of our colleagues. Wanted to say that to anybody who might be listening. Thank you. Let's open up with questions. Operator, can you help us?
Ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Please hold for the first question. Your first question comes from the line of Matthew Carletti with JMP Securities.
Hey, thanks. Good morning.
Morning, Matt.
Adam, you mentioned in your opening comments about where historically your Core E&S business has run in the loss ratio how you're picking it a bit more conservatively today. Can you give us a little bit of color how you guys think about the timing or how long you typically wait and let those years develop before you might take a look at that loss ratio with regard to if things are going the right way, look to bring that 65 down towards a more historical level?
We look at our reserves every quarter, we're careful about it. It's just that honestly, our culture is not to declare victory early. It's not a specific amount of time that has to pass, but it's the overall facts and circumstances, laced with a conservative view about what might arise, that cause us to bring it down. Generally, we're waiting, it also depends, Matt, on the line of business. I don't want to give you a date. I want to say that our approach is to try to be careful and conservative to not put ourselves in a position where we face later weakness, but to play from strength.
I think one thing I would say is, I believe that, as I mentioned, we're building quite a bit of strength in the balance sheet today, that's a position that we enjoy being in.
Great. Just a couple others. One is on could you comment a little bit just on what you saw in the quarter in terms of a lot of other companies have noticed reduced claim frequencies, a lot driven by the current situation we're in. I'd be curious what you saw across your book, both the Core book, as well as with respect to the runoff commercial auto book, if what's going on in the economy and otherwise is helping the situation there.
I think there are two things going on simultaneously. I mentioned that we had closed 15% of the claims that were outstanding and they closed in the discontinued commercial auto book during the most recent quarter. That follows having closed 25% in the first quarter. I definitely think that pace is faster than we expected, but we're not, again, I don't want to declare victory early there, so we're still anticipating a 2 to 3-year runoff of that book. In general, as I mentioned, 20-plus% decline in claims frequency in both our Core E&S book and our Specialty Admitted book. I think that is clearly the result of kind of suppressed activity in the people are at home more and restaurants are having takeout and all of those things that we all know about that are slowing activity, are slowing claims.
Yet that is happening at a time when rates are rising because of a lack of capacity in the market and because of inadequate pricing by large parts of the market for many years, and the withdrawal of the largest E&S writer from much of the E&S business and admitted companies leaving the E&S market. We're having depressed claims, increasing rates, and yet we're holding very high, I don't want to say overly high, but we're holding conservative reserve positions. I think it's a vortex, and it's a very positive one for us right now. The winds are blowing in our favor.
Sure. One last numbers question on the only a few million, but the adverse development in the casualty segment. If I recall correctly, the kind of ongoing development we've had there has really related to a small handful of lines in older accident years that you guys have exited a while ago. I was hoping you might be able to kind of frame that in terms of what's the reserve base left there? Where are we in the maturing of those lines of business that you've largely gotten out of? How much more could we have to go is the question.
I'm going to ask Sarah to jump in here, but in general, look, you're exactly right. These are policies from long ago, and you're talking about the casualty re segment. I just wanted to make sure that.
Correct. Yes
That's where you're going. Okay. These are policies from long ago and later risings. They come up as a little bit of a surprise. We also have shrunk the book in casualty re. It's a very profitable E&S quota share book that we're writing there, and it's underwritten very well by our leadership there. It's a small book, a relatively small claim from an older year where we had a lot more premium can overwhelm the current year results. Overall, we see that trailing off. The other thing I would say is that we do, we look very carefully at our entire reinsurance arrangement. Over the years, historically, our Bermuda operation has generated about a year's worth of income for net income for our shareholders.
Right. Adam is referencing the benefits of our overall structure that is added income that's not obvious to be attributed specifically to the underwriting operations of the casualty reinsurance business over time. Just in thinking about that kind of additional year's worth of income, so to speak. The other thing I'd add is a fair amount of the adverse development this year was, as Adam said, due to business that the treaties that we no longer write. Some of it was business that's continued that has been profitable for us as well and looks to be profitable in later years. I think there are two parts of the story there. Definitely a decent part of it is stuff that we're no longer on.
As Adam said, really the theme here is it is difficult to manage a book that is much smaller than it was two years ago. Some of that is what you're seeing in the movement of the numbers. We are pretty stable at the amount of writings that we have in there and that we've had over in that business for the last two years. As Adam said in his opening comments, we've allocated our capital more to our primary businesses, just given the opportunity there. I think the overall level of writings where we are now, where we've been for the last year or so, is pretty stable with regard to those segments.
Okay, great. Thank you so much for the color and best luck on forward.
Thanks very much.
Thank you.
Your next question comes from the line of Mark Hughes of SunTrust.
Thank you. Good morning.
Good morning, Mark
$100 million you describe as new business in Specialty Admitted, did any of that show up in 2Q or is that on the come?
It's almost all on the come.
Okay. The current accident year losses in Specialty Admitted that I think 80% this quarter, 82% last quarter Were those elevated or is this the right run rate on a go forward?
That's the right run rate for where we are right now. Obviously, a big part of that book is the workers' comp that we write there.
Please go ahead.
Yeah, Mark, it's Bob Myron. It's worth mentioning that with respect to Specialty Admitted workers' compensation, for our individual risk workers' compensation business, we moved the quota share for that business from 50% to 70% on January 1st. We like the ceding commission that we're getting paid for that. In terms of the net loss ratio that we're booking there, that number is elevated relative to, say, 2019 because we have to include 100% of the ULAE, right? In effect, our overhead and claims handling costs and the like for that line of business. The loss ratio went up, but then we're having more ceding commission come back through as a reduction to the expense ratio. There's a little bit of a technical reason for why that loss pick has increased and why it seems high.
To that point, your expense ratio was low this quarter. I assume that included some of the reversal you mentioned, Sarah. What should the normal expense ratio be in that business, at least for the near term?
Yeah. Thank you for asking that question. That is the big delta this quarter, Mark, and last quarter, we had a delta on the other side. I think what I'm thinking about as a normalized expense ratio for that business is in the low to mid-20s.
Thank you. In the E&S segment, the ceded premium ratio has been kind of in the low 30s, 32% last couple of quarters. I think if I understand it properly, you've had a little more growth in excess and property where you cede a bit more. What's the mix of excess now relative to that overall segment? What should the ceded premium ratio look like going forward?
Yeah, I will admit, and not really admit, but that business is by design. It's going to be lumpy. We've seen a great opportunity to grow the excess casualty book, and have done that really well for many quarters. This quarter, that was the book that grew the most within Core E&S, and it's been that way in other quarters. That's causing the delta, and that's a little bit situational. We're going to take advantage of that as it sits in front of us. I would say that right now that book, at least for the quarter, is a little bit more than 25% of the overall Core E&S book. I don't have a reason to think that that's going to change significantly by the end of the year, although, again, episodic. I would think that that ceded ratio would be pretty stable.
That's about where it was in the first quarter as well.
Low 30s?
That's right. Yeah. Kind of low, early 30s. Yep.
What is the tax situation now with, I think, a number of moving parts, as you point out, as your overall profitability is helped by the casualty re, which helps restrain taxes. What should we think about taxes for, say, the back half going into next year?
A lot of assumptions obviously go into the tax rate. I think about it from a practical perspective as being in the low teens for this year. Said a different way, it was 10% for the quarter. I think of it being a little bit higher than that for the balance of the year.
Right. When we think about the growth in 3Q, you mentioned that the trend in submissions, strong submissions, had continued early into 3Q. I think, as I understand it, the business would've been a little bit tougher early in the quarter with some strength building as we got into June. I think your 18% growth, you were comping against 81% growth, if I remember properly, in the second quarter of last year. How do we think about these growth dynamics, all these moving parts going into 3Q? I know you don't give projections in that way, but also a lot of moving parts. Any just kind of rough thoughts you might have around the growth picture late in Q2 and early in Q3?
I think right now we're feeling that the growth that we've experienced in the first and second quarter continues early, and of course, it's early days into the third quarter. Plus, we're adding in the Specialty Admitted bit. I think we'll see some of that $100 million I referred to in the fee income associated with it slowly begin to filter its way into the second half of the year. In the E&S side of the business, I think we're feeling that it's steady, and our growth rate is not
Is not threatened by events, indeed, we see that we continue to have pricing opportunities and we continue to have a really good flow of business. One thing I haven't mentioned yet is we are also seeing improvements in our efficiency, and this is another reason to commend our employees who are working so hard. The throughput and the buildup of policies in force over time, over the first half of the year. This is supported, by the way, by a superb effort on the part of our IT team, who not only got us remote, but at the same time started introducing new technologies to speed the throughput of applications so that our underwriters can more efficiently look at more applications for insurance and to quote them faster.
For example, in our small business unit, I think I'll be within a point or two if you allow me a little range here, but I think that our throughput there is about 26% higher than it was a year ago because of new technology introduced by our IT group and supported by our underwriting group. That's being rolled out. Similar technology is being rolled out to other divisions within the E&S space. We're becoming more efficient. We're seeing more applications where we've got better rate. I don't see any sign that the rate is decreasing, and some signs that the strength continues. Without predicting what it'll be, I'm just saying I feel very good about the second half of the year as I sit here today, and I think our whole team does.
Very good. Thank you for all that.
Your next question comes from the line of Randy Binner with B. Riley.
Hey, good morning. Thanks. I guess the observation I have is that your top line, it's growing a lot in Core E&S, but it's coming down overall, and the business is increasingly profitable. Your operating leverage is decreasing quite a bit on a forward basis. I guess, how do you think about that? Can you fill up that operating leverage with underwriting or can there be a thought that perhaps you'd return to kind of a higher level of capital return?
I'll take that first, and I'm happy to have my colleagues jump in. We are doing everything that we can to take advantage of this great opportunity that we have, especially in Core E&S, and writing as much good and profitable business as is coming across the transom, and that's a lot. That is our number one goal. I think we have more than enough capital to do it. Certainly, I think you've known us, I know you've known us for a while, Randy Binner. If it seems like we don't have enough opportunities, we'll be judicious in returning that capital. Right now, we're trying to put as much of that to work as possible, and we think we've got a great opportunity in front of us to do it in a good runway.
Okay. The other question I have is it's a little bit, maybe it's philosophical or it's high level. I agree that this environment looks good from a hard market perspective for all the reasons you've laid out. Since the early '00s, which was truly a hard market, there's been a few kind of false starts where we thought because of low interest rates or whatever the issue was, that pricing was going to firm and then all the capital in the world came into the insurance market and kind of ruined the party. My question is why is this feeling different? Because I feel different about it, but yeah, I'm curious. Your comments seem to me to be saying we think there's a sustainably firmer market here.
Why is this not a false start, everything we're seeing in the current environment as it relates to a hard pricing environment?
Randy Binner, you are a very good student of the market. If I begin, like you sometimes, with thinking about the history. The first piece of history that I'd bring to this examination or this analysis is we've had 14 quarters in a row of rate increases. If you read about what some very large E&S players are doing in terms of resetting their capital positions and restricting their writings right now because they're attending to other problems that they have. The largest E&S market in the country is retrenching, and that is continuing, and that is opening up new opportunities for us. The admitted market is continuing to disgorge large books of business, which are classic E&S writes that we write.
I think we are about a year into this, and 14 months as we have started to see rate increases, and there is more pressure coming. The COVID claims are coming, the low interest rate claims are coming. I do not believe all the prior year losses of underpriced business have been recognized yet. For all of those reasons I am encouraged to think that this market that we are seeing has legs. When we can deploy capital. This quarter, we reported a 12% return on tangible equity, 12.9% prior quarter. When we can deploy capital in an interest rate environment that is 2% and make a 12% return on tangible equity, I think that is a good use of our capital, especially when we see ourselves growing and continuing to grow. We are doing that, I think, while being prudent about what we are reserving for the future.
Those are all the considerations.
I appreciate that.
that go into our mind. I absolutely concede every point that I think there is a strong factual basis for your question. It is just, this is our analysis of the situation today.
No, it's good. Just one quick clarification. You said low interest rate claims. Did you mean there's pressure from lower interest rates on overall modeling?
I think the low interest rates for this industry means that the industry has to be very diligent about its pricing and-
Yeah
markets that might be tempted or think that they could underprice a long-tail risk and cover themselves with interest income, they don't have that argument to make to themselves today. That's not a strategy that they could pursue today.
All right. Understood. Thanks so much.
Your next question comes from the line of Sean Reitenbach with KBW.
Good morning.
Hi. Good morning. I just have another question on the kind of Core E&S growth, thinking about getting a feel for modeling going forward. Obviously, it was another strong growth this quarter, and just trying to get a sense of how much of that was-- but it decelerated, and how much of that was due to the pandemic versus you guys had 81% growth last 2Q 2019. How much of it is just a growing premium base that you're growing on top of?
Do you want to take that?
I'm not sure that she takes it. I'm not sure that I understood exactly, it may be me. I'm sorry.
Sorry. I can rephrase it.
Sure. Yeah.
You guys had 18% growth this 2Q, which decelerated from 65% in 4Q 2019, 37% 1Q 2020, How much of that is pandemic pressure versus just the premium base is a lot bigger in the prior year than it has been in past quarters?
Oh, you mean we have a larger comp?
Yeah.
Yeah.
Yes.
You want to do that?
Yeah. Look, I think that what's important here as we look at it, as Adam went through, we've had great policy in force growth this quarter. We've really stuck to that 20,000 and around that size growth, excuse me, premium base, premium account size. It's going to be a tough comparison when you have a quarter where we have 81% growth. That's just the law of large numbers and the fact that we've doubled the Core E&S business over the last two years is I think the most important point. We have not, and I would just answer the question a little bit more directly on the first part of it, Sean. We have not seen a slowdown in our growth due to COVID, just to hit that. This is very regular growth that we're seeing. I wouldn't have expected necessarily a bigger percentage number.
I'm pretty happy to see the outsized PIF number that goes along with the strong growth in the top line. I don't know if that gives you a little data point.
Thanks. That's helpful
to hit that up. Yeah.
Yeah, thank you. Then also, can you just give an update on how you're thinking about investment strategy with the pressured interest rates?
Yeah. Great question. I think one of the things that we did, which we talked about on this call last quarter is we sold out of a portion of our bank loan portfolio just because we had gone through so much volatility there, and we wanted to take some of that off the table, and that market has recovered substantially. We had a great opportunity to do that as we really focus on the underwriting that's in front of us in that part of our business. I would say that no one's really happy with where the investment opportunities are these days in our sector or overall, we're looking into some things.
I would say that overall, I would not expect our NII or our investment strategy to change very much from where it sits right now because again, our focus is on the underwriting and doing everything we can there. I think we'll stay in the bank loans for the most part for where we are, at least some part of it. Taking that volatility off the table has been very useful to us, we think.
All right. Thank you. That's all I have.
Thank you.
Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Again, that is star one. Your next question comes from the line of Ron Bobman with Capital Returns.
Hi. Thanks. Can you hear me?
Yes, we can. Hi, Ron.
Great. Good morning. Good to hear everyone's voice, especially Bob's. I have two questions. Any change in retention, was the first question. The second question, maybe you can address that maybe by line. Secondarily, are you seeing any change in claims settlement values? Thanks. Thank you.
Yeah. There are some changes in retention that we've spoken about in prior conference calls. We've reduced, and Bob may have made a reference to this in an earlier answer, but we reduced our net retention in both our individual workers' comp. That is material, but it's not going to make a huge difference overall in all of the premium that we write. Per claim, for example, we will have a smaller retention there. I've mentioned that we keep a very small portion of the workers' comp business that's in our program division, either 10% or 20%, 11% or 20%. We have opportunistically taken larger positions on particular risks occasionally during the last quarter or two. It's an individual account underwriting decision where we've, for example, a couple of excess casualty accounts that came to us where we felt the pricing was good.
It was a client, a customer that we liked a lot. The history of the account was good. We knew it. They were having difficulty filling out an excess casualty position, which is a sign of a very hard market. We stepped in at good pricing to take larger lines occasionally on that. We constantly review and are always open to reviewing our retentions. We're mindful that we have reinsurance partners who have been with us for a long time, and arrangements that we've had in place for a long time. We want to make sure that everybody is fairly treated across a long period of time. I hope that answers your question. Bob, do you want to add something?
Yeah. Ron, good to talk to you again. You may have also been asking about policy retention or renewal retentions.
Candidly, I was. I appreciate Adam's providing more info.
I'm sorry.
Maybe the best way to look at it is by count. We've seen in this business, in our Core E&S business, it's really been pretty consistent. It has been, and it stays in the low 60s. We haven't really seen a significant change in policy retention in Q2. It was right at that level, and that's where it has been for just about every year that we've been in this business. No significant change there. Then I think on the average claim value, I just want to give a little bit more of a qualitative answer. I think two things. Across our businesses, it's been a pretty benign claims environment in the first six months of the year. We've really seen pretty light paid and incurred loss emergence, and that's been great.
I do think that there is definitely a link to economic activity and the pandemic, and there definitely is a situation whereby plaintiffs and/or their counsel. There's more of a willingness and ability to get claims settled that otherwise might be stretching on for a while as the plan would've been previously, maybe take something to court. Courts were closed, as they reopen, a lot of them are going to be focusing on criminal-related matters and not civil matters. There has been a really good opportunity across our business to get claims settled faster at what might be lower average values, we've been taking advantage of that. New claims frequency is down.
Overall dollars of paid and incurred loss emergence have been modest, we're continuing to see good opportunities to just get things quickly mediated and settled that otherwise might not have happened before.
Thanks, team. Keep it up.
Yeah. The only thing I want to add to that, Ron, is that it is important to us that we settle at the fair value of these claims. We're in business to protect our insureds, I would not want it to be interpreted that we were taking advantage in any way of closed courts or unemployment or anything else. Our view is we come to a fair value for each claim, we work hard to settle the claim and to attend to the claimant in a fair way for the fair value of that claim.
Understood. Thank you. Be well.
Thank you.
Your next question comes from the line of Mark Hughes with SunTrust.
Yeah, thank you. Adam, I interpreted that question the same way, which is about the retention. It did make me think, I think your retention still is typically $1 million per-
That's right
risk or per account. I think one of your public competitors who had a similar policy increased their retention to $2 million, at least for public consumption. I'm not sure how broadly that's applied. Is that something you have considered as well, just as a general matter, increasing the retention? Is this the time to do it? Do you have the capital base and profitability to do it?
Well, we have a capital base that would allow us to increase retentions. The market is good right now. The overwhelming part of our Core E&S book, though, one should know, is only buying $1 million/$1 million. It's a smaller part of the book that's buying policy limits in excess of $1 million. For a large part of our book, for many of our classes, what the customer's buying is $1 million/$1 million. This goes back to the fact that our average premium account size is in that $20,000 level. What we're doing is taking more market share in a very profitable market because you see our policies in force going up. The places where we could take more retention would be in excess casualty, for example, or excess property, for example, where we're pretty cautious about property, as you know.
We have taken occasionally, and we look at taking more in the excess casualty. Those are opportunities that we want to look at one by one right now, and we're not looking to change our treaty structure there right now.
Thank you.
Again, if you would like to ask a question, please press star then the number 1. Again, that's star 1. At this time, I am showing no further questions in queue. I would now like to turn the conference back over to Mr. Abram.
Well, thank you, operator, thanks to all the participants, shareholders, our friends in the analyst community, our employees, and other interested parties. I hope that everybody stays well, and we'll look forward to speaking to you at the end of next quarter, if not before. Thanks a lot.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.