Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Joseph DeMarino with Piper Jaffray.
Joseph DeMarino - Piper Jaffray
My first question is on the deterioration in the Workman’s Comp loss ratio. Would you say that is driven by higher severity and if so is that affecting prior accident years?
Bob Restrepo
Joe that was, if I remember right, a current accident year loss and it was one large loss. It is a small line and on a quarter-to-quarter basis very much influences if we have a significant loss, which we did this quarter. Beyond that the trends from a frequency and severity standpoint are largely unchanged.
Joseph DeMarino - Piper Jaffray
Okay and then what are your assumptions, or estimates, for inflation going forward and how does that factor into your reserving methodology?
Bob Restrepo
I will ask Matt Mrozek to comment on it, but our short-term prognosis for inflation is relatively unchanged, but clearly the actions we are seeing on the federal level give us a fair bit of concern about inflation and the impact on our investment portfolio as well as our reserving practices and our pricing practices. I don’t necessarily expect to see that happening in 2010, but beyond 2010 we definitely have concerns regarding the impact of inflation on pricing, reserving, as well as investment yields.
Matt, I will ask you to talk briefly about just how we assess inflation from a reserve perspective.
Matt Mrozek
As Bob said, we are conscientious about the expectation for inflation. Certainly keeping a close eye to the extent we start to see anything that does come through, but right now I would say our trends are not reflecting an up tick in inflation. Whether, as Bob said, reserving or from a pricing standpoint monitoring it very closely, expecting that there may well be increased pressure going forward in the next year and in 2011.
Bob Restrepo
Joe, I will add to that. From a pricing standpoint we are looking to get more conservative. We are in the process now of assessing different ranges of inflation and the impact on building supplies, on medical costs, and on car repairs. We probably haven’t seen significant inflation since the 80’s and early 90’s, but it tends to have a disproportionately higher impact on things that we pay for as far as the claims settlement process. So, we are trying to anticipate that in our pricing assumptions, but we are just in the middle of that right now.
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