Morning, and welcome, ladies and gentlemen, to the RLI Corp. Second Quarter Earnings Teleconference. As a reminder, we will open the conference up for question and answers after the presentation. Before we get started, let me remind everyone that through the course of the teleconference, RLI management may make comments that reflect their intentions, beliefs, and expectations for the future. As always, these forward-looking statements are subject to certain factors and uncertainties, which could cause actual results to differ materially, including the ongoing impact of the novel coronavirus COVID-19 global pandemic. Please refer to the risk factors described in the company's various SEC filings, including in the annual report on Form 10-K as supplemented in the Form 10-Q for the quarterly period ended March 31st, 2020, which should be reviewed carefully.
The company has filed a Form 8-K with the Securities and Exchange Commission that contained the press release announcing second quarter results. RLI management may make reference during the call to operating earnings and earnings per share from operations, which are non-GAAP measures of financial results. RLI's operating earnings and earnings per share from operations consist of net earnings after the elimination of after-tax realized gains or losses and after-tax unrealized gains or losses on equity securities. RLI's management believes these measures are useful in engaging core operating performances across the reporting periods but may not be comparable to other companies' definition of operating earnings. The Form 8-K contains a reconciliation between operating earnings and net earnings. The Form 8-K and press release are available at the company's website at www.rlicorp.com. I will now turn the conference over to RLI's Vice President, Chief Investment Officer, and Treasurer, Mr. Aaron Diefenthaler.
Please go ahead, sir.
Good morning. On behalf of management, welcome to RLI's second quarter earnings call. We hope you're all staying safe in this new normal and appreciate you listening in. Joining me are Jonathan Michael, Chairman and CEO; Craig Kliethermes, President and Chief Operating Officer; and Todd Bryant, Chief Financial Officer. Todd will first offer some additional financial details from the quarter and hopefully answer some of your common questions. Craig will break down market dynamics and the current climate. At the close of prepared remarks, we'll open the call to questions, and John will close with some final thoughts. Todd?
Thanks, Aaron. Good morning, everyone. Last night, we reported second quarter operating earnings of $0.77 per share. We experienced 1% of top-line growth while posting an 88.4 combined ratio. Investment income was relatively flat in the quarter, while unrealized gains on the portfolio reversed the first quarter's trend and positively impacted net earnings and book value. Book value per share ended the quarter at $23.39, up 8% for the year inclusive of dividends. Craig will talk more about our products and market conditions in a minute, but from a top-line standpoint, the 1% growth in gross premiums written was driven largely by rate increases and expanded distribution. As you would expect, premium from some products was down in the quarter given the impact of the economic slowdown and shelter-in-place orders brought on the pandemic.
Most notably, transportation premium declined down $12 million in the quarter and $33 million on a year to date basis. Excluding transportation, gross premiums written was up 6% in the quarter and 11% year to date. While overall premium growth was down from prior quarters trends, top-line results were better than our initial expectations as the quarter began. From an underwriting perspective, we posted a second quarter combined ratio of 88.4. Our loss ratio was 48.5 and included $6 million in COVID-19 related impacts as we increased current year loss booking ratios on several products where heightened exposure exists. With the $5 million we set aside in the first quarter, our year to date COVID-19 reserves total $11 million as of June 30th. By segment, these reserves totaled $2 million for property, $1 million for surety, and $8 million for casualty.
We also recorded $6 million in storm and civil unrest related losses in the second quarter. Offsetting these additions, we posted approximately $22 million in net benefits from prior year's reserve releases, with casualty adding $19 million and surety adding $3 million. Moving to expenses, compared to last year, our expense ratio declined 2.8 points to 39.9. During this time of uncertainty, we have taken targeted actions to eliminate or defer expenses. Among other things, actions taken include a slowdown in hiring, position consolidations, select merit reductions or eliminations, travel curtailment, and option grant deferral. We continue to evaluate areas of opportunity for efficiency gains and expense savings. Having said that, similar to last quarter, the majority of the decline in expenses continues to be driven by reduced levels of amounts earned under bonus and incentive plans.
While two performance metrics, combined ratio and operating earnings, compare favorably to last year, a third component, growth in book value, continues to lag last year's achievement, resulting in lower amounts earned. The decline in amounts accrued under incentive plans account for the majority of the decrease in our expense ratio, as well as the bulk of the decrease in general corporate expense. Turning to investments, coming off the early stages of stabilization in late March, capital markets made a significant rebound in the second quarter. As outlined in our press release, total return for the three months was 6.6%, driven by meaningful results from both fixed income and equities. The portfolio is now in positive territory for the year, and once again, a contributor to book value growth since December.
Our liquidity profile has proven durable in this environment, and our operating cash flow returned to form in the second quarter, allowing us to put money to work in high-quality investment-grade bonds. Investment income was flat on the quarter as influenced by a larger average cash balance and lower overall yields. Obviously, the outlook on the economy remains less than certain. We will continue to focus on investing for the long term while maintaining a sound balance sheet. Outside of the core portfolio, our share of earnings in Maui Jim was down over 50%, while earnings from Prime were up modestly in the quarter. As John discussed in the first quarter call, Maui Jim results are significantly affected by the retail and economic environment. With much of the retail sector shut down during the quarter, Maui Jim results were negatively impacted.
Certainly, the length of any downturn may impact the results of these investees, particularly any lasting impact on the retail sector as it relates to Maui Jim. Overall, a good quarter in an environment that remains challenging and somewhat uncertain. With that, I'll turn the call over to Craig.
Thank you, Todd, and good morning, everyone. A pretty good quarter, all things considered. As Todd mentioned, we achieved top line growth of 1% and an 88 combined ratio. Year to date, we've been able to achieve 4% growth with an underwriting margin of 10 points. Rewind 90 days, we would've been pleasantly surprised at these results. Overall, we see the market as broadly improving. In the U.S., businesses are adjusting to the new environment, beginning to open back up, and people are getting out, even if only on a limited basis. I see this as a testament of American ingenuity and perseverance. Rate momentum has continued with double-digit increases on our property and casualty portfolio on both a quarter and year-to-date basis.
We're still seeing pockets in the P&C space and certainly in surety that remain quite competitive. Our results for the quarter speak to our resiliency as a company. The construction industry, which touches about one-third of the businesses we insure, never completely shut down. There have been a number of delays in projects, but very few cancellations. We did not flinch in the face of adversity and continue to execute in markets that were feeling disruption even prior to the outbreak of the pandemic. Namely, our excess casualty, management liability, property catastrophe, and marine businesses continue to achieve rate increases and some growth. We remain cautious that a slower economic recovery and new capital entering the market may serve to dampen top-line growth opportunities, particularly in the construction industry, where we expect to see some slowing of new projects into 2021.
I do want to provide some introductory comments about our assessment of COVID-19, then I'll go into more details by segment. As a reminder, we do not offer event or travel cancellation, trade credit, or any virus-related coverages. We also do not focus on large insureds, program business, the entertainment industry, or high-profile risks where bespoke manuscript forms are more common. We are underweight in certain high-risk classes like restaurants, lodging, bars, and habitational, and we have a very small book of workers' compensation insurance. All of our policies require direct physical damage to property to trigger coverage for business income. We believe all of these mitigating factors will serve us well as we quantify our exposure relative to the industry and peers. The true financial impact of this pandemic will never be known with absolute certainty.
We do believe that it will result in direct, tangential, and even some moral hazard losses to us and the industry. As I mentioned last quarter, the bulk of the COVID claims we have received are being made due to the suspension of operations based on government orders or business decisions and are not the result of direct physical damage to any property. Although claim flow has diminished significantly over the last 45 days, we continue to diligently review the individual circumstances of each claim, gather detailed information from claimants, thoroughly investigate the facts, and undertake detailed analysis to determine coverage based on the individual facts of each claim. We have incurred some costs related to these investigations but have not paid any losses to date. As Todd quantified, we currently estimate our ultimate amount for losses that have occurred resulting from the pandemic to be $11 million.
We have increased our current year booking ratios in several of our financial-related product lines to reflect the protracted impact of pandemic-related loss occurrences. We will continue to assess and adjust if necessary as new information materializes. To offer some perspective on the breadth and relative impact to us, I wanted to offer some perspective on the claims that have been reported. We have received COVID-related claims in each of our three major reporting segments across 18 different products and from 40 states. The claim count began to flatten out in the middle of May, we are still receiving one or two claims a day. 90% of those claims are being made for loss of business income. To provide some scale relative to our operations, COVID-related claims make up less than 10% of all reported claims this year and less than 2% of our entire open inventory of claims.
We will continue to monitor the impact and profile of our claims closely. Onto some detail within each of our segments. In casualty, top line was flat for the quarter with a combined ratio of 93. Many of the products in this segment were challenged with stalled exposure bases, particularly in primary and commercial excess liability. We are pleased with our solid underwriting performance, and we were able to continue to grow many products that had momentum prior to the COVID outbreak. Management liability was up 22% with growth coming from rate over exposure. The public and private D&O market is hard. Submissions are up 20%, limits are down, and rates have risen more than 35% for the second straight quarter. This significant market shift is beginning to make a dent in the last decade of softening rates and increasing loss cost inflation.
We will remain cautious in this business as we believe it will be impacted by pandemic-related claims and litigation at least through 2021. Our Contrac Pac product is focused on small contractors in the admitted space and continues to grow as a result of new production sources and geographic expansion. It remains a very solid business from a profitability standpoint. The unsupported personal excess business, also known as PUP, continues to grow significantly as a result of market disruption, investments in sales teams and technology, and channel expansion. Our transportation business is by far the most affected by the resulting shutdown and is a meaningful drag on the top-line results in this segment. The public transportation business, which consists mostly of charter, school, and transit buses, will continue to be impacted until there's a vaccine, effective treatment, or drastically lower number of new cases.
In-force premium has dropped by more than 50% for this class. We have reported very good underwriting results in this business on the quarter and year-to-date. Submission flow and size of rate increases are highly correlated to the most problematic classes and lines of business for the industry, including habitational, automobile, commercial excess, and directors and officers' liability. Our team is working closely with our customers and making sure they know we are in this with them for the long haul. Rate increases continue in casualty overall. Although we achieve very little overall premium lift in the segment for the quarter, many of the underlying products continue to grow. We were also able to achieve a 9% rate increase, which should bode well for future bottom-line results as we prudently manage any increased exposure from people and businesses resuming normal activities.
Our property segment was up 8% for the quarter and 11% year-to-date. The combined ratio of 86 for the quarter is much improved from last year. All products in this segment continue to grow, but more so through rate than exposure. Rates are up over 20% on catastrophe-exposed businesses. Marine market conditions continue to harden as Lloyd's assesses its future and refocuses on profitability. Our property portfolio is well diversified in classes, geographies, and perils, which is supported by another great quarter of results. We do anticipate further hardening in this segment. We are well positioned and confident in our ability to execute on opportunities that present themselves. In surety, our top-line is down 7% for the quarter and 3% year-to-date. We continue to report very good underwriting results and remain profitable across all products in this segment.
This speaks to our bottom-line focus and discipline in what remains a very competitive space. The top-line remains challenged as we still see significant competition despite some principals suffering from more financial distress and some underwriting losses felt by our competitors on large accounts. Demand is down due to economic factors, less regulation, and decreased commodity prices. We believe the best long-term positioning is to flex our underwriting muscle and play great defense until better opportunities arise. We will continue to focus on building deeper relationships with our most trusted and valued distribution partners, investing in technology, advancing our sales and marketing efforts, and listening and responding to the needs of our customers. The pandemic has allowed us to focus and deliver on several long-standing technology projects in our transactional businesses. One of the silver linings of this crisis is that it has served as a catalyst for change.
Given all the disruption and uncertainty, we are pleased with our results, which were better than we expected heading into the quarter. Despite the economic downturn and a heightened risk profile in some financial products, we feel better because we have a broad and diversified portfolio of products, and many of these products have only been marginally impacted by the pandemic. We have not missed a beat in our execution in these markets. Pricing continues to be on the rise in most products. Our customer retentions remain very strong, and cancellations and premium collections have only been mildly impacted. We attribute this to our focus on selection of the best-in-class risks and financially strong insureds. The frequency of claims is down with some improvement in the environment to settle and reduce our claim inventory.
The industry has won a few early court decisions on standard wording around direct physical loss. Despite this guarded optimism, there's still economic headwinds that will continue to put pressure on our top line. In addition, the plaintiff bar is very adaptable, creative, and persistent. The pandemic has presented them with a target-rich environment for years to come. RLI will maintain a prudent approach to underwriting and continue to be opportunistic in niches where we have unique expertise. We are known in our chosen markets and to all of our stakeholders as a stable, successful, strong, and sustainable partner. We're a special company made up of very talented and responsible owners. It makes us different in our industry, and this different works for all our RLI stakeholders. Thank you, and now I will turn it over to the moderator to open it up for questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. Our first question comes from Matthew Carletti, JMP Securities.
Hey, thanks. Good morning.
Morning, Matt.
Morning, Matt.
Craig, I wanted to circle back on just one question on your COVID exposure, the claims you've seen. I heard your comments that there's no paid losses to date. You really just investigated some things. I appreciate a lot of the stats you gave, and it sounds like most of what you're seeing are claims for BI. If I go back to last quarter, I remember you saying that a couple things. One was the vast majority of the exposure you have has some sort of, not just the physical damage qualifier, but a virus exclusion or pathogen exclusion. That there is some split along those lines in terms of admitted versus surplus line products. I was hoping that you might be able to give us just a little bit better of an idea how to think about that.
Is vast majority kind of 90% plus, or is it more south of that? Broadly amongst the universe, there's a lot of just qualitative terms kind of being put on things, and everybody has a different meaning by it. I was just hoping to get a better feel for what part of your book might not have a virus exclusion, understanding that doesn't mean there's exposure, that it still has a physical damage exclusion on it.
Sure, Matt. Well, I think I said last time is that the policies that don't have the virus exclusion specifically are mostly excess and surplus lines policies. That's still true. I guess from the definition from a vast majority, I would say, I'll leave you with greater than 50%. That's true of both the claims that have been made as well as the policies that were written.
Okay. I guess another way to think about this is, or if you provide any color here is, obviously property is kind of the exposure where business interruption would come in. When we think about RLI's property book, can you give us just a rough split of what might be written on an admitted basis versus written on a surplus lines basis? Excluding like live homeowners and things where there wouldn't be any exposure.
The businesses that are admitted for us, we have a small home business insurance product, which is really just that. It's people that have a business running out of their home. That's all admitted, and those are small policies. There's a large number of policies there. Obviously our personal lines products are admitted, and then we have a fair amount of property and casualty packages, commercial packages for architects and engineers, miscellaneous professionals. That Contrac Pac product I talked about in my opening remarks is an admitted product. A lot of that is the architects and engineers, those folks are white-collar workers for the most part, that are working from home, much like insurance companies right now. The Contrac Pac is smaller subcontractors who are still, for the most part, on the job on very small jobs.
Yes.
On the E&S space, those classes can be anything from a warehouse. It could be an apartment building. We don't do a ton of restaurants, but we do do some. Don't do very many bars. That's mostly written through our excess and surplus lines property unit. Those are mid-size risks, so we don't write these really big limits, right? A typical property limit for us would be less than $10 million. Then the business interruption or income coverage would be sub-limited even under that. Then some of the binding authority business that we've started doing over the last couple of years is also in the excess and surplus line space. Again, those folks typically buy even lower business income coverage.
I think the average is less than $100,000 of business interruption or income coverage, and it has monthly limitations in addition to that total limit that I just outlined.
The one thing I would add there too, just real quick, is a number of those policies, the package policy, the general binding authority policy, those are in the casualty segment. We book all of our package policies in the casualty segment. They have property and liability components. I just want to make sure there's clarity on that.
That's helpful. Great. That's great. Thank you for the color. All those tidbits help in kind of painting the mosaic of what's out there. That's all I got. Thank you for the answers, and congrats on a nice result in a tough environment.
Thanks, Matt.
Thanks, Matt.
If you find that your question has been answered, you may remove yourself from the queue by pressing star two. Our next question comes from Randy Binner, B. Riley.
Hey, good morning. I'd like to try and ask a more direct question about the COVID-related claims that you mentioned at the top of the call. I guess, is it possible for you to describe one of those BI claims that's still open? What the dynamic would be to have something that you're still determining what the loss might be?
Well, Randy, so obviously all these claims didn't come in on one day. We've had claims that are reported as frequently as yesterday around business interruption. We are investigating every claim and talking to every one of the claimants, and walking through and understanding the circumstances, and then evaluating whether there's coverage for each claim. We certainly are approaching this on a one-by-one individual basis. There is no summarily decision or summarized decision here. We go into each claim looking to see if there's coverage and evaluating the circumstances of that. One example would be talking to someone about whether they had actually had COVID or someone on the premises has been tested for COVID, and if that test turned back positive, so they might be able to prove that there actually was COVID on the premises or in the premises.
Every situation, every claim is different, so I don't think I could describe an average claim in this.
Okay. Are some of them advancing more from a claims perspective, meaning that they've retained a lawyer and they may be in a jurisdiction where they can advance their case? Because based on what I'm understanding on how you describe your policy forms and how I understand policy forms, it doesn't seem like there'd be a lot of coverage. I'm just curious if there are some cases where they're able to push the claim forward.
Well, ultimate decision is made in a court of law, right? If someone chooses to retain an attorney and pursue that avenue.
I think ultimately, Randy, those types of things are what our claim folks and our actuarial folks talking together consider in establishing what we have up from a reserve, from an IBNR standpoint.
Yeah.
Nearly 100% of the reserves we have up are in IBNR.
Yep. Okay. Fair enough. Just a couple more. One quick one, just on Maui Jim real quick. Can you quantify for us, that result is actually a little bit better than I would've thought. Can I take it they have e-commerce sales, and if so, can you give a rough % of how much they can operate online?
Well, Randy, it's John. Actually, when this happened, as you might expect, Maui Jim does have a direct line. They also have a relationship with Amazon Prime. Thank God they did, because largely their operation, retail-wise, was shut down worldwide. It was shut down during their three best months for sales. The fact that they were able to do roughly half on an earnings basis for the quarter of what they did last year is a testament to Maui Jim's management and operations. As the quarter progressed, retail began to open up, not just in this country on a limited basis, but in other places worldwide, that their orders on a retail basis began to come in as the quarter progressed. The latter months were better than the early months. For example, April was not a very good month.
May and June were much better months. I will just say that those direct-to-consumer type distribution channels were not a very large part because Maui Jim was really focused on retail. Thank God they did have those direct channels and did have very good technology around those channels that enabled them to see pretty good increases in the use of those channels. We think they've done very well through this, and they think they've done very well, even more important.
Okay, great. Just one more. I apologize if I missed this. Did you all quantify submission activity in the E&S area specifically?
No, we thought generally that submissions were up in certain areas. It is a mixed bag. I think certainly on the property side of the house, submissions are significantly up. On the casualty side, realizing the E&S space. We write predominantly construction risks. There are not a lot of new projects that were undertaken during COVID. The submission flow was flatter to even slightly down in some of our primary general liability.
Got it. Okay, thanks.
Yeah.
Our next question comes from Jeff Schmitt, William Blair.
Hi, good morning.
Morning, Jeff.
The COVID-19 losses of $11 million year-to-date, could you break that out between the LAE component and the pure loss component? There've been a couple of court rulings in favor of that physical damage requirement. Does that change the math at all, on the LAE component?
I don't have the breakdown between loss and LAE, Jeff. I think as our actuaries go through it, there's not necessarily a distinction in what we put up in the second quarter. I know we talked in the first quarter, the bulk of that really was defense related. They really are looking at it in the totality from both a loss and defense standpoint. I don't have the breakdown between IBNR.
Okay. Just looking at property margins, obviously they're pretty good compared to where they were a couple of years ago. You continue to get rate there. The market's getting rate, if anything that's probably more likely to go up than down. Is there an opportunity there to sort of pull back on rate and try and really expand that business? I know if you go back five, six, seven years ago, it was 35% or 40% of gross premiums. Is there an opportunity to try and grow that back to a larger book?
Jeff, this is Craig. Obviously our underwriters make those decisions and trade-offs every day and try to evaluate. I can tell you from a portfolio level, whenever they do the math, the math never works. When you do the math to figure out, well, how much rate do I have to cut to grow more, the margin gets so thin that you end up being bigger, but you don't really make any more money, and there's no incentive to do that for us. Why would we take on more exposure for no more profit? That's generally the math. It doesn't mean there aren't going to be pockets of opportunity there. Certainly, we'd love to continue to grow that business. We think that right now we're getting rate, I'll say above what we'd like to see as technical rate. Of course, there's no such thing as enough.
Let's also keep light that the reinsurers, I believe, are in the process. They've already started the process, but I believe that will continue for a while, is getting rate increases. We're going to be paying more for reinsurance, I think us as well as the whole market on a go-forward basis. We need that rate to pay for the additional protection that we, or the protection that we currently have.
Got it. Okay.
Jeff, one more thing on that, John Michael. We are restrained as to how much cat risk we can take too.
Okay.
That would restrict our writings.
Got it. Just one last one on the E&S market. It seems like there could be more exposure there. There's probably less virus exclusions. I know you mentioned it, I think others have as well. There's already sort of some large players pulling back there. If they have more exposure here on the COVID, are you seeing sort of even more dislocation there? Or has it been similar to what it was a quarter or two ago?
I think the disruption is the fact that the reinsurers are starting to raise rate, and that rate has to get into the primary at some point in time to be able to continue to make your margins. I don't think we would classify the disruption necessarily to be COVID related or virus related, on the E&S side. I think it's just rate we've needed to get for a while, and now that the reinsurers are charging more, we know that the cost of our goods sold has gone up, and we need to pass that along or get more rate to be able to make the same margins.
Mm-hmm. Okay. All right. Thank you.
Our next question comes from Meyer Shields, KBW.
Thanks. One question, I really probably should know the answer to this, but are any of the defense costs against the BI claims recoverable?
You say recoverable by reinsurers? From reinsurers?
No, no. I mean from the claimants or from the attorneys.
I don't think I can answer that question, Meyer. Well, Meyer, it could be litigated, right? Largely in this country, no. It could be litigated.
Okay. No, fair enough. Is there any way we can get both the weather related losses and the COVID losses in dollars by segment just for the second quarter?
Yeah, Meyer, it's Todd. If you look at the second quarter, the storms and civil unrest, the $6 million there splits about $4.5 million to the Property segment and $1.5 million to the Casualty segment. Again, that general binding business, another package business that we have in the Casualty segment. That's how that splits. The COVID-19 is $5 million in Casualty and about $1 million in Surety for the second quarter piece.
Perfect. Okay.
I think the first quarter we were $3 million casualty and $2 million property for COVID-19.
Excellent. Okay, that's very helpful. Final question. I think Craig was just talking about reinsurance rate increases. Is there any reason to anticipate any change in maybe how much of your gross premiums you're ceding as reinsurance prices rise and as primary prices rise?
Yeah, it's John. We evaluate that all the time, obviously. We view reinsurers as our partners. As rates increase on the margins, I've heard other companies talk about reevaluating their retentions, and we do that all the time. Largely, we're viewing our reinsurers as partners in the whole process. Yes and no but i don't see any significant change in...
We haven't yet, really.
Obviously, Meyer, we price the stuff up internally and try to figure out what we think is a fair price loss cost with their margin on top. If we would change retentions, it normally would be around the co-participation as opposed to our first dollar retention. As Jon says, we have long-term partners, reinsurers, and that's exactly the way we view them, as partners, and we talk about our alignment all the time. We talk about our alignment with shareholders, we also have a lot of alignment with other stakeholders, particularly reinsurance partners, and we need them to continue to be able to thrive and be successful as well.
Okay, perfect. Thank you much.
Our next question comes from Mark Dwelle, RBC Capital Markets.
Yeah, good morning. Just a couple of questions that haven't already been covered. Just want to clarify on all of the COVID-19-related charges that you've taken, those are all just being ordinarily run through the loss ratio. Those metrics that you gave us, to the extent we wanted to back them out of kind of the run rate of your loss ratios, we could just do that math off of the premiums and the numbers you gave. Is that correct?
Yeah. With respect to the casualty and the surety, that really is booking ratio based, yes. The $2 million that was put up in property, you could still do the same thing with it's not truly booking ratio based from that standpoint. Property is really more of a reported based, similar approach either way from your standpoint.
Okay. Then you had indicated all of this is sort of IBNR. Based on some of Craig's comments, it sounds like the pace of incoming claims is continuing to slow. I'm inferring, I guess accordingly, that we would expect that kind of the need for further reserves would likewise continue to slow alongside of a slow in claim count, presuming that persists. Is that likewise correct?
Well, Mark, I think some of it's going to determine over what period of time this ultimately develops over. Craig talked about that, too, is it will become more difficult over time to know what's directly related to COVID-19, and indirectly related. It really is going to be a quarterly view as our actuaries and claim folks get together and look at loss trends, and those have another quarter worth of information. I would say it's really a quarter-by-quarter review in that respect.
Okay, that's helpful. I think we've had enough of COVID discussion for today. Let's move on to Craig, you had mentioned on the transport business, if I wrote it down right, it was the premiums were down $12 million. Was that primarily the result of layup credits or whatever you might call them? Or maybe I guess what I'm trying to get at is, was there an underlying growth in the book of business due to premium pricing and/or new business that was then offset down to that level? Or was there an actual reduction in the amount of business you were writing that contributed to the decline?
Mark, on transportation, the biggest hit is being taken in the public transportation area, and we did take all the policies that were in force at the time last quarter, first quarter. We had adjustments we offered to people to be able to lower their exposures because basically, on average, people were taking nine out of 10 units out of service and storing them, and they weren't obviously operating them. We allowed them to basically take credit for that. The things midterm, we had to make a bunch of midterm adjustments, whatever. Now as you start to renew these policies, some of them are putting some business, some buses are going back into production, but not very many. I'm going to tell you, public transportation, it's still operating at about 10%-20% of what it was prior to the pandemic.
I think that's the way it's going to be for a while. I think that also as things renew, we're additionally recognizing some of our other businesses, like a truck and small commercial specialty business within transportation, that the exposure bases are down and they're getting credits in their insurance premiums for the fact that the miles they're driving or anticipating are going down, therefore, they're paying less premium. I think, as I said, we expect that that business is probably going to cut in about half overall this year, and then we'll have to build it back up. We've done this before. The business was as big as $80 million at one point in time and shrunk to $40 million because it was just way too competitive, and our people were willing to cut it to stay profitable.
In this case, this isn't really about rates as much as it is because we're still getting rate. It's really more about exposures, and exposures are down, therefore the premium is down.
Right. I appreciate the clarification. Thanks. That's good color. The last question I have, this is just kind of a small question. Within the Prime Holdings business, I'm trying to understand, is there some seasonality to that business or is there something that we can track independently to kind of get an understanding of the ups and downs? It seems like a much more jaggedy earnings pattern than maybe I would have expected.
Yeah. Well, he's the market of last resort, and where there's disruption, he will step in. It really is going to depend on where the opportunities are for disruption and if he feels he has expertise in that space. He'll step in you will see fairly jaggedy results, or not results probably as much as top line, in his business, just because it just really depends. I'll tell you frankly, I'm as surprised as probably you are every month when he reports his premium.
As long as we're all surprised together.
Just a reminder, we're a small player on that business.
Understood. Appreciate the color. Thanks.
There are no further questions in the queue at this time.
Thank you, Jonathan Michael. Craig was being more modest than we're used to around here. He called the quarter a pretty good quarter. I'm going to say it was a great quarter, given the circumstances. I'd like to thank our employees for remaining focused on our customers. Our employees have not missed a beat. We're effective. They're effective and productive. Thank you for listening. Stay healthy and keep you and your family safe.
Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.