Executives
Philip Romney - VP of Finance & Principal Accounting Officer
John Pasqualetto - Chairman, President & CEO
Richard Gergasko - COO
Scott Maw - SVP & CFO
Analysts
Mike Grasher - Piper Jaffray
Bijan Moazami - FBR Capital Markets
Matt Carletti - JMP
Bob Farnam - KBW
Adam Klauber - Macquarie
Raymond Iardella - Oppenheimer
Matt Carletti - JMP
SeaBright Holdings, Inc. (SBX) Q3 2010 Earnings Call October 26, 2010 4:30 PM ET
Operator
Good afternoon, ladies and gentlemen and welcome to SeaBright Holdings third quarter 2010 earnings conference call. At this time all participants have been placed in a listen-only mode. Following formal remarks, the call will be open to questions.
It is now my pleasure to introduce the host of today's call, Mr. Philip Romney, Vice President of Finance and Principal Accounting Officer for SeaBright Holdings. Please go ahead, sir.
Philip Romney
Thank you, Marvin and welcome to SeaBright's third quarter 2010 conference call. Joining me on the call today are John Pasqualetto, Chairman, President and Chief Executive Officer; Richard Gergasko, Chief Operating Officer; and Scott Maw, Senior Vice President and Chief Financial Officer.
Before I turn the call over to John for opening remarks, I'd like to remind you that statements made during this conference call that are not based on historical facts are forward-looking statements.
These statements are made in reliance on the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to uncertainties and risks. SeaBright's future results may differ materially from those anticipated and discussed in forward-looking statements. Some of the factors that could cause or contribute to such differences have been described in the press release issued today and in SeaBright's filings with the SEC. We refer you to these sources for additional information.
I'd also like to point out that remarks made during the conference call are based on information and understandings that are believed to be accurate as of today's date October 26, 2010. This call is a property of SeaBright Holdings, Inc. Any distribution, transmission, broadcast or rebroadcast in any form without the express written consent of the company is prohibited.
With those announcements complete, I give you John Pasqualetto.
John Pasqualetto
Thank you, Phil. Good afternoon, and thank you for joining us today. Before turning the call over to Rich and Scott for a review of our operating and financial results let me make a few comments about the third quarter.
I am pleased to report a return to relative stability for SeaBright in the third quarter following an uncharacteristically difficult second quarter. I'm sure you remember that we took decisive action on quarter two to strengthen our reserves and response to adverse developments.
As we stated before SeaBright is committed to doing the right thing and we did what we felt was necessary to bring the reserves to a level we believe would reflect their ultimate claim cost. I remain confident that we acted in the timely an appropriate manner and in the best long term interest of world SeaBright shareholders.
No adjustments to reserves were made during the third quarter. I'm pleased to report that we encountered a more routine operating conditions during the recent quarter or at least conditions to which we have become accustom throughout this prolonged very soft underwriting environment.
The three things that have dominated our industry during the past few years are recession, soft pricing and rising claim cost, all of which we have persistently worked to address. While we had no ability to directly affect the recession and the rate at which the economy recovers, we've dealt with what it affects by creating a more balanced portfolio of business thereby reducing our vulnerability on that single industry of construction, our past core market segment.
Alternative market program business expands both in terms of premium, both written and breadth of targeted industries. Our small maritime program has steadily gained traction and provides an operating model for the launch of similar programs. Also we now offer workers' competition coverage for healthcare and refuse management businesses to a retail broker network and through our PointSure subsidiary; we now market a new manufacturing employers program.
We respect the claims cost, the workers compensation industry continues to experience medical inflation as well as longer case duration mostly driven by the high unemployment.
As we've discussed during our previous call, longer claim duration negatively impacts claim expenditures, calls for more medical treatment and use of higher price procedures. SeaBright has made in its claims challenges directly by continuing to deliver excellent claim service and innovation.
Our medical care management subsidiary Paladin reviews all medical bills and performs utilization review pursued by an insurance company and has outperformed our prior outsourced medical management vendors. We also launched our new BrightCurePDQ program in California to address the high cost and longer duration claims.
BrightCurePDQ, PDQ stand for Physician Directed Quality used as predictive modeling to identify those potential high cost claims very early which are then managed by medical doctors who got approved dotcoms working side by side with company claims examiners. Our initial results from this groundbreaking approach are encouraging. After we've had suitable amount of time to evaluate the program performance, we would plan the concept to be moved out nationwide.
We've also been successful in managing expenses and in implementing efficiencies which has had a positive impact on our operating expenses. Later in the call, Scott will provide insight into the anticipated direction of our expense ratio.
Regarding pricing, we've been successful in gaining rate increases to counter to counter rising claims severity. Rich will provide more detail about these increases. As a consequence in our rate increases in California and Illinois, we are seeing preliminary signs of customer price resistance. We had lower than anticipated gross written premium of 51.7 million during the third quarter. The reduction in gross written premium was experienced both in new and renewal business.
The bottom-line is that SeaBright continues to push for price increases in order to achieve appropriate levels of underwriting returns. Our stand on pricing is resulting in a reduced market share and may continue to do so until soft market conditions abate. However, we remain confident that the -- when the market does turn we'll be in a good position with a flight toward quality, a hallmark of SeaBright franchise.
I'll now turn the call over to Rich who will review our operations. Rich?
Richard Gergasko
Thank you, John. First let's take a look at our in-force book. For the third quarter 2010 in-force premium was 299.6 million, essentially flat when compared to the third quarter 2009. This is in contrast to our in-force customer count which increased approximately 15% during the same time period.
Similarly to preceding quarters, higher customer count do not come from premium growth but rather from a change in the mix of policyholders driven by our alternative markets in small maritime program business. In fact, our core business customer counts which excludes the program accounts decreased by approximately 10% year-over-year with the majority of the lost customers coming from the construction division.
As we've discussed previously, our in-force premium is calculated using estimated payrolls available to the underwriter at the time the account is evaluated, which is usually one to two months prior to the inception date of coverage. In a declining economy, these payroll estimates tend to be less reliable than during more robust times. Consistent with our experience over the past 24 months when the policies audited after expiration is not unusual for the payroll estimate to be high with the actual payroll coming in lower than the initial estimates.
Prior to the current economic downturn our policy typically earned out around 103% of the original estimated annual premium. For the past 21 plus months the policies have been earning out at 91% for all policies with our construction both running three points slower than the overall average. Similar to the second quarter we have experienced some improvement in this measure with policies expiring in the past six months earning at 94% of the original policy estimates but still below our historical levels.
As John indicated earlier we are seeing some signs of price resistance at the customer level. We experience a reduction in our renewal retention in each of the past two quarters which came in at 75% of accounts recorded for the second quarter 2010 and 73% for third quarter 2010. This compares to 86% and 80% for the second and third quarters of 2009 respectively.
As we discussed in prior conference calls, we priced all new -- I mean old business to achieve our return on equity targets. We will continue to walk away from an account when the market pricing does not allow us to achieve our profitability goals.
As we said in last quarter's earnings conference call, we have continued to seek higher average rates on our renewal business to offset higher claim costs and have been successful in doing so. For all policies renewing in the third quarter, the average rate change is plus 1.2% compared to plus 0.5% in the third quarter of 2009.
Similar to prior quarters, our positive overall rate change was driven by our California State Act's business where we achieved an increase above 5.4% in the quarter. Our average rate change for all California State Act policies renewing over the past 12 months is plus 10.1%. Some of you maybe aware that there are two ways we can impact our California pricing; one is by filing increased rates and the other avenue is our underwriter use of rating plans that allow us to adjust for individual risk characteristics.
As reported last quarter we saw the request rate 15.3% rate increase for the Commissioner's Office at the California Department of Insurance which was approved and became effective September 1. The quoted rate increase of 5.4% includes the impact of the rate filing in addition to the underwriters' use of rating plans. You will note that the rate filing affected our pricing for only one month during the recent quarter.
In Illinois we have continued to adhere to changes in our underwriting guidelines to drive improved results in the state. As result of these efforts we have raised rates in each of the past four quarters including a 6.6% increase in third quarter 2010 which in turn resulted in a 33% reduction in construction underwriting exposure in the state during the quarter.
Completing the rate discussion, the maritime jurisdiction average renewal rate was essentially flat and for state act of business outside of California the average renewal rate change in the third quarter was minus 1.7%.
Looking at imports premiums by state, California was again our largest at the end of the third quarter. California's portion of our overall book of business increased slightly from 47.8% as of June 30, 2010 to 49.1% as of September 30, 2010. As in the past, this change was driven by our program business specifically in the agriculture and healthcare space. However, if we normalize the price increases in California and the significant decrease in our Illinois book, the California writings as a percentage of total enforced premium would have been flat compared to last quarter.
Program business makes up nearly 30% of our total California writings, up from 21.6% at third quarter 2009. Conversely, construction decreased from 62% of our total California writings at September 30, 2009 to 54% at September 30, 2010.
With regard to our safe distribution beyond California, it should be noted that Illinois dropped from number three to number five as a result of our efforts to improve the quality and profitability of our writings there and is now 4.2% of the total enforced premium. We expect Illinois to drop out of the top grouping by the end of 2010. Louisiana remains our second largest state at 10.2% followed by Alaska at 5.6%, Texas at 4.9%, Illinois at 4.2% and Florida at 3.5%.
Another way to look at our book is by business division which provides a means for analyzing our writings by industry segment as well as distribution channel. At September 30, 2010, the industry focused divisions accounted for 78.8% of our total enforced premium, down from 88.9% at the end of the third quarter 2009. The remaining 21.2% of our current enforced writings comes from our alternative markets program business and our small maritime program.
As discussed in prior calls, the program business is produced by managing general underwriters which we more appropriately call program administrators as they have no binding authority; these program administrators representing newer distribution channel for SeaBright.
By industry segment, the enforced mix continues to be led by construction at 43.7% of total enforced premium, down from 54.1% at the end of third quarter 2009. This reduction is a result of the disproportionate impact of the economic downturn of the construction industry, our underwriting action at Illinois to reduce our construction exposure in this state and increased premium contributions from our alternative market program business. Our maritime division comprised 20.8% of our enforced business at quarter end with energy at 6.8% and wrap-ups and other miscellaneous business at 7.5%.
Let's go to Scott now for a look at our financials.
Scott Maw
Thanks, Rich. For the third quarter of 2010 SeaBright recorded net income of 5.4 million or $0.25 per diluted share compared to net income of 6.7 million or $0.31 per diluted share for the same period in 2009.
Our combined ratio was 100.3% and this quarter's results included 3.9 million in pre-tax gains from our investment portfolio. No loss reserves adjustments related to prior years were recorded during the quarter and our 2010 estimated loss and loss adjustment expense ratio remains at 64.5%. As John touched on earlier, we continue to closely monitor and manage all factors impacting reserve trends.
Net premium earned were 65.1 million at the end of Q3 2010 compared to 64.4 million in 2009 while net written premiums decreased 11.2% from third quarter 2009 to 46.8 million. The drop in written premiums reflects the continuing soft market as well as our commitment to underwriting discipline.
Our year-to-date underwriting expense ratio at quarter end is 27.9%, 160 basis points lower than the same period last year, a result of slightly higher earned premiums and continued efforts to control our costs.
Now let's review a few of the key metrics for our investment portfolio. Net investment income for the third quarter of 2010 was 5.8 million compared to 5.9 million for 2009. At September 30, 2010 our investment portfolio and cash totaled 720.9 million, an increase of approximately 81 million from December 31, 2009 driven by continued strong operating cash flows. The net unrealized gain in our investment portfolio was 30 million as of September 30, 2010.
The effective duration of the fixed income portfolio was approximately five years, relatively flat as compared to the prior quarter with a pre-tax book yield of 3.6%. The year-over-year decline in yield was driven by market conditions and gains that we have taken this year to realize a portion of our capital loss carry forwards. This gains program is nearly complete.
No fixed income securities were rated below investment grade and 93% were rated A minus or above excluding the impact of secondary insurance on the municipal bond portfolio. We continue to manage our municipal exposure to diversification by individual issuer size and by geography.
Now a quick update on our capital position; our tangible book value per share increased by 3.2% from June 30, 2010 to $16.38 and statutory surplus increased by about 1 million to 300 million over the same period. During the quarter a dividend of 5.8 million was paid by SeaBright Insurance Company to SeaBright Holdings, Inc. primarily to support shareholder dividends currently at $0.05 per share. We remain confident that our surplus is well above the minimum needed to maintain our current A.M. Best rating.
Now I'd like to share with you some important information about changes to our excessive loss reinsurance program we initiated effective October 1 of this year. As you may recall, our program -- our prior program reinsured 50% of losses on a per event basis between 500,000 and 1 million and 100% of losses above 1 million up to 85 million.
At 10/1/2010, after a deductible, the new treaty covers 100% of losses between 250,000 and 500,000, and 75% of losses between 500,000 and 1 million. Also the program now covers 100% of losses between 1 million and 100 million. We made these changes to help address the increasing frequency of higher severity claims which contributed significantly to the reserve issues we have encountered over the past year. We believe the changes to our program will provide economic benefit and risk mitigations to the rising severity of larger claims.
We expect this will reduce earned premium and increase somewhat our expense ratio going forward but we also expect that these changes will be fully offset in lower retained losses and a lower estimate of loss and loss adjustment expense ratio. We will be monitoring the impact of the reinsurance program in earnings calls over the coming year but our analysis shows that this is the right economic move given current market conditions.
I'll now turn the call back to John.
John Pasqualetto
Thank you, Scott. I'd like to share a few more thoughts before we open the call for questions. As noted earlier, SeaBright is committed to doing the right things. They are not just words, is a fundamental responsibility this management team take seriously. None of SeaBright's leadership was pleased to have needed to strengthen reserves in Q2. While this was a difficult medicine to take, more accurate and timely loss recognition is real value by reinforcing our historical strategy and to selectively raise prices were needed and better capture the correct loss trends for picture pricing decisions.
Finally our third quarter represented the return to a more normal period for us. The marketplace continued to be fiercely competitive and we foresee no real change in this condition over the next 12 months or so. Consequently we must rely on executing sound fundamentals, pricing and risk selection now more than ever. Market share is secondary to this team.
Thank you and I'll open the call to questions operator.
Question-and-Answer Session
Operator
Thank you. (Operator Instructions). Our first question comes from Mike Grasher with Piper Jaffray.
Mike Grasher - Piper Jaffray
Thank you. Good afternoon everyone. First question I guess I have is just follow-up Scott around your comments on the reinsurance program that's effective October 1, and then the deductible is that the entire 250 -- first 250, is that -- or is there something between there?
Scott Maw
So, yes its effective 10/1 and Rich can correct me but the deductible relates primarily to the 250, excess of 250, so between 250 and 500.
Richard Gergasko
Right. Exclusively to that layer Michael.
Mike Grasher - Piper Jaffray
Okay. And then I wanted to follow-up as well. The exiting year loss ratio we've taken it back down to 68.5, is that -- its sort of -- we sort of bounced around, certainly this is the lowest one I think for the year, and talk about the claim activity, any change in terms of severity that you are thinking about?
Scott Maw
The current accident year loss pick, Mike is 64.5%, which is what we established in the second quarter so there is no change there. We did take it up in the second quarter from 61.5 to 64.5 but we made no change to that this quarter.
Mike Grasher - Piper Jaffray
Okay, I was showing different calculations but we'll come back to that later. And then John, could you comment just on the -- with 50% of your booking California, can you comment on the election there with Whitman versus Brown. If Brown were to win, would that be -- how should we think about that in terms of the impact, I guess first on rate and second on the potential for claim activity?
John Pasqualetto
Well that's a difficult call. I think the current pundits suggested that Brown has pulled the margin ahead of Whitman so we've kind of factored that into our overall longer range planning in terms of our contingency with respect to Brown should he come in and kind of upset the reforms that had been so well delivered in California. So we would expect that if Brown is elected that he will be fairly responsible however. And we say that only because the economy in California is in such a deep trough that our prediction is that he's going to trade fairly lightly at least in the initial stages of what he does. But then the longer term it does augur for him adequate hedge plan to California which we have been in the process of implementing and will essentially speed up should we see changes in that direction.
As far as claim of experience is concerned, I'm more concerned about judicial decisions than I am about legislative decisions with the current unemployment rate. So that's going to be hard to predict but we wouldn't see a direct correlation between claims and Brown's election but we would see over the longer term perhaps an increase in benefits. We're okay with the increase in benefits even on the permanent disability side. As long as those changes are out front, in other words we have the ability to price and include them in our ranks. It's when they change with respect to -- retrospectively, it is a concern to us. And fortunately so far the rating law is remained in intact and no ones threatening it, so we feel we've got ability to get a go-forward rate increase at least in terms of what SeaBright might file perhaps not in terms of what an industry might file. So we have rate flexibility as long as those changes are made in front us.
Mike Grasher - Piper Jaffray
Okay, that's very helpful. I appreciate that color. It sounds like you are on top of it and I have been thinking about this for sometime.
Scott Maw
We are all over it.
Mike Grasher - Piper Jaffray
All right. And then a final question just to follow-up on the reinsurance. Is that impact that the claims on a go-forward basis only or its product claims as well?
John Pasqualetto
No. Going forward, 10/1 claims occurring after that.
Mike Grasher - Piper Jaffray
Thank you.
Operator
Thank you. Our next question comes from Bijan Moazami with FBR Capital Markets.
Bijan Moazami - FBR Capital Markets
Good afternoon, everyone. I guess you guys had a recent meeting with A.M. Best. If you could give us an update in terms of the conversation you had with how they felt about potential share buyback or excess capital. I know that you took some dividend back to the parent company but if you can give out little bit of clarity around that it would be great?
John Pasqualetto
Thanks, Bijan. The answer; we did meet with them most recently. Our experience with them is number one, our rating of (inaudible) is not in jeopardy, its in great shape, we have no issues there. Number two, we did talk about dividends both shareholder dividends and policy. Let's get to the shareholder dividends and a buyback. As far as a shareholder dividends are concerned, I think we're also in good standing there and an acceptance by the rating agency that that's a normal routine. However on the buyback, they still are (inaudible) and tend to hold us to that higher standards and we would not seen us getting any relief from that over the short term, read over the next 12 to 18 months. However, they didn't remain completely opposed to the stock buyback but we feel we're going to have to clear the degree if you will on the second quarter reserve change if all we can make any changes there. But we remain open to consistently pursuing that as an option if the timing allows.
Bijan Moazami - FBR Capital Markets
Okay. So guys will continue to have growth penalty even though you won't be growing?
John Pasqualetto
We think so but we have a chance to moderate that growth penalty. They can have two growth penalties; they've got one in terms of numbers of accounts and one in terms of premium. And on the numbers we're still showing some positive momentum but they now have recognized that the book hasn't been growing, and frankly the core business has been shrinking. So, we've got a good shot I think to give some modification to that.
Bijan Moazami - FBR Capital Markets
Okay. Since you guys got the reserve charge back in the second quarter, have you seen much of a change in the frequency or severity trend that would suggest whether you've over-reserved or under-reserved on the first initial claim frequency number?
John Pasqualetto
No Bijan, we really have and the pattern we saw earlier has been fairly consistent and was only a couple of more months of experience and not a lot you can draw from it, so stay tuned on that subject.
Bijan Moazami - FBR Capital Markets
Okay, great. Thank you.
Operator
Thank you. Our next question comes from Matt Carletti with JMP.
Matt Carletti - JMP
Hi. Good afternoon. Bijan actually has asked one of my question so just a follow-up on a numbers question for Scott. With regards to the realized gains in the quarter, am I interrupting from the capital loss carry forward comment that in terms of thinking about earnings that will be a tax free gain?
Scott Maw
If realized, but what it does Matt is it helps us realize an asset that's already on the balance sheet. So we'll -- as far as GAAP is concerned, we'll have the taxes on that gain, and in fact within our effective rate because we've already realized the benefit for GAAP and so we're going to have to realize the offset. What it does is it just takes that risk away from the tax benefit sort of being -- if we don't realize it in five years the tax benefit goes away.
Matt Carletti - JMP
Right, right.
Scott Maw
We realize the benefit. We got to -- and we took that benefit through GAAP. We had to realize the gain; we had to take that through GAAP as well. But to balance it out for tax purposes, we got to have the capital gain.
Matt Carletti - JMP
Okay. Thanks.
Operator
And our next question comes from Bob Farnam with KBW.
Bob Farnam - KBW
Hi, good afternoon. You've talked about the Paladin Managed Care and the BrightCurePDQ a bit and how it helps your operations. Can you possibly quantify that?
John Pasqualetto
Yes. We can give some quantification around, sort of impact that Paladin has had. If you recall, we got this business a few years ago, we retooled it, we provided a much more robust level systems to, and when we compare the performance of Paladin against the prior vendor the most immediate prior vendor, we gain a savings of about six points compared to the savings we received under the prior vendor. So as an example, prior vendor was receiving on bill review about 55% savings and now we've been able to improve that to about 61% savings. So that's a pretty nice little uptick.
Bob Farnam - KBW
Okay.
John Pasqualetto
As far as PDQ is concerned, stay tuned on that, we've got some metrics late in place and now its so early in its life that we have to begin to collect the data, but we'll be reporting against that.
Bob Farnam - KBW
No, that's fine. I understand. And a one numbers question, do you have operating cash flow?
Scott Maw
I think year-to-date it's 54 million.
Bob Farnam - KBW
Okay, very good. Thank you.
John Pasqualetto
Thanks Bob.
Operator
Thank you. Our next question comes from Adam Klauber with Macquarie.
Adam Klauber - Macquarie
Thanks, good afternoon. Your -- the reinsurance premium, you mentioned you are concerned about the severity on the higher, some larger losses. Could you talk about what are the two or three trends driving that severity right now?
John Pasqualetto
Well I think they have been pretty consistent in what we've provided and the trend starts with the medical primarily in California but not exclusively in California. And then the second contributor on the disability side is just the extent of case duration. Well honestly its just tougher to get people back to work, to return to work to jobs that don't exist, consequently these folks kind of hang out on workers compensation and continue to receive medical treatment later in the case that you'd otherwise expect and increases a degree and extent of litigation because as they of course stay open longer everybody gets more anxious.
So that's really the two primary drivers. One of which is really recessionary driven and then the other has been a long term trend in workers comp where the index for workers composition medical is about twice what the standard index is for the CPI on overall medical.
Adam Klauber - Macquarie
Thanks. With the current rate increase you're putting in, are you able to capture most of that trend?
John Pasqualetto
We do our best. We included in two ways; one we included in the data that we used to support the rate filing and of course really important to the collectively to the various rating bureaus. And then two we also reflected at some of our individual risk modeling with respect to the modifying the trend factor. So we're doing our best to reflect it in both the lake and in our individual rating plans. Thus my comment at the end, talked about recognizing and then kind of going to school.
Adam Klauber - Macquarie
Okay.
Richard Gergasko
One thing I would add there, we've done some work going back a couple of years, taken a look at our increase in premiums just in California and the increase in lost cost. And if you go back over that two year period, we've actually gotten more premium increases than lost cost increases. So we have been able to sort of keep up with that.
Adam Klauber - Macquarie
Okay. And so one number's question, do you have paid losses for nine months 2010 versus nine months 2009?
Scott Maw
You know we don't have that yet, we do it as part of a Q so we should have that out in the Q in 10 days or so.
Adam Klauber - Macquarie
Okay. Great, thank you very much.
John Pasqualetto
You are welcome.
Operator
(Operator Instructions). Our next question comes from Raymond Iardella with Oppenheimer.
Raymond Iardella - Oppenheimer
Hey, good afternoon, guys. I guess quick question, can you maybe talk about the commission levels you guys are paying and maybe has that changed over the past 12 months and maybe any difference between the core book and the program business?
Richard Gergasko
Yes. This is Rich Gergasko. Yes, we have seen some slight upward movement in that over the past three quarters, might have -- look at it on an average basis and so for the core book it's going to go up maybe half a point to a point. We do pay more on the program business but that's a function of the work done for us by the program administrator. We do count that as commission. So the more they do from an underwriting or loss control standpoint, the higher the payment they would get from us because they are essentially taken work off our desk.
Raymond Iardella - Oppenheimer
And can you quantify I guess the spread between the two?
Richard Gergasko
They could be upwards of probably five to six points.
Raymond Iardella - Oppenheimer
Okay, great. Thank you. And then I guess just one last number's question. Were there any retro adjustments in the quarter, premium adjustments?
Richard Gergasko
We would do both on an actual basis, I don't have the numbers here, so in terms of what we did for the policies that were up for adjustments so much or what that amount was and then we would also look at retro accrual piece which would affect the earned premium.
Raymond Iardella - Oppenheimer
Yes.
John Pasqualetto
And again those would be fairly routine quarter-to-quarter and generally if you look at the quarters its not large amounts as our -- unfortunately we'd like to write more retros and unfortunately with the soft market everybody tends to buy guaranteed cost because the rates are so attractive, our actual minaret part of the book, the retro book has been shrinking over the last couple of years. That will change if the market changes. As the rates go up people will look to take more risk and buy retros.
Raymond Iardella - Oppenheimer
Okay. Thank you guys very much.
John Pasqualetto
You are welcome.
Operator
And our next question comes from Bob Farnam with KBW.
Bob Farnam - KBW
Hi guys, just one follow up on the return to work issue. So, f there is no jobs to return to, is there anyway you can get release if the injured employee can otherwise get back to work? I mean how long can they linger on the system?
John Pasqualetto
Well I mean yes, there are some choices we've got. We actually have a program where we try and reemploy them on a non-profit basis. There is some charities that will allow us to place workers getting out of the household and into a workplace, so to get them out of there, sort of call the afternoon TV mode. But there is not a great deal we can do unless the doctor has released them for duty, and it's really the medical doctor that's really kind of holds it up. We can move toward trying to get it resolved in a situation where we got a hearing and they finalize the case but even that somewhat delayed. So, basically we're somewhat limited on what we can do there unless we can actually settle the case, and we've been doing that actually in a few instances and that's been proving to be helpful. We've also added a return to work specialist in the module of the BrightCure approach where we're actually doing more retraining for other jobs. So also we're all being employed but honestly it is somewhat limited.
Bob Farnam - KBW
All right, okay. Thanks John.
John Pasqualetto
You are welcome.
Operator
(Operator Instructions). Our next question comes from Matt Carletti with JMP.
Matt Carletti - JMP
Hi. Thanks, guys. John I just curious about Florida, I know last quarter we talked about the rate increase and you -- I think you had mentioned that you inspected the state to prove something maybe ballpark capital what the NCCI was estimating the 8.3 and it looks like they came in pretty close to that 8.
John Pasqualetto
Yes, we did better.
Matt Carletti - JMP
Did that change your thoughts in the state at all is that smaller margin not material?
John Pasqualetto
Not material, and the thing that concern is about Florida really is the excess profits tax. Unfortunately in Florida you really do well, your faced this notion of I happen to give it back based on some regulatory formula. So that is always kind of tamping our attitude throughout Florida, but it's a big state, we certainly will continue to pursue growth there on a controlled basis. Florida always has that kind of excess profits overhang situation.
Matt Carletti - JMP
Got it, thanks.
Operator
And this concludes today's question-and-answer session. Mr. Pasqualetto, I'll turn the conference back over to you.
John Pasqualetto
Thank you very much and its certainly from a management viewpoint a little easier to report on a more stable quarter and we appreciate your attention and interest, and frankly we look forward to reporting on the fourth quarter. Thank you very much.
Operator
This concludes today's conference. Thank you for your participation.
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