McDonald Armstrong: Dave, this is Mac. Happy to address all of that. They’re good questions and things that we’re, frankly, encouraged about. So let me start with just casualty. We did have 2 casualty treaties renew in the quarter. And as I mentioned, they renewed at expiring terms, and we did have incremental reinsurer support, too, whether it’s supporting us from a capacity standpoint or new reinsurers coming on to the panel. Those were both, again, quota-shares, and they were for professional lines and one of our fronted casualty arrangements. So business as usual there and encouraging. And I’d say that both of those treaties continue to perform very well from a loss perspective and are building up a nice base of reserves.
As you [indiscernible] Laulima Exchange. And I think our decision there is in this current market environment from a reinsurance and excess of loss pricing, we believe we can generate equivalent returns as an attorney in fact manager as opposed to a risk bearer. And so all things being equal, if we can generate a similar level of return and not put that pressure on our balance sheet, we would prefer to do that. So the transition from Palomar Specialty to Laulima for a good portion of our book will help reduce reinsurance expense. It will help also make our program, frankly, more single-peril, which I think will result in not just lower expense as we remove expense out from exposure reduction, but also just more attractive to reinsurers, as once you get above $100 million of all-peril exposure, it’s going to really be all earthquake from an excess of loss standpoint.
So I think Laulima was just sound capital management and the ability to generate an equivalent risk-adjusted return. Not an equivalent risk-adjusted, it’s generating an equivalent return with a very different risk profile. Lastly, we do not have anything from an excess of loss renewing at 1/1. We do have a quota-share for Commercial Earthquake, and we feel very good about the success in placing that at equivalent, if not superior, economics. As I mentioned, the underlying metrics in our Commercial Earthquake book are at all-time bests. So that makes us very appealing to quota-share reinsurers. Roll, looking forward, we are very confident that our book is going to stand out to our reinsurance panel from a performance perspective, which leads us to believe that at 6/1, and I think it’s what we’re hearing at 1/1, too, is if it’s flat to modestly up, that is very digestible for us.
And so there are certainly some leading indicators that make us very confident that flat to modestly up is achievable and attainable. And I think that there are also some unique factors to Palomar that make us more confident that’s attainable.
David Motemaden: Got it. Understood. That makes sense on the reciprocal. So understood there. And then I guess, just maybe with all the changes, Chris, I heard you on lowering the attritional loss ratio outlook for this year. I guess, how should we think about it going forward into 2024 and 2025? Would you still expect continued improvement off of the full year ’23 levels?
Chris Uchida: Dave, that’s a great question. Obviously, we’ve talked about it previously, that we did expect the loss ratio to improve. I think maybe it’s improving a little earlier than we expected. But obviously, we’re happy with the results. All of our lines are performing; all of our, I guess I should say, continuing lines are performing as expected. You will notice that in the earnings release we did have some unfavorable prior period development. That was really driven by lines that we are running off. So it helps validate the decision to run off those lines. The favorable catastrophe development that you saw was actually from this year. It was the Q1 events were the primary driver of that. So the California flooding that happened earlier this year, we did have favorable development there.
So overall, we’re happy with where the loss ratio is this quarter. But we do expect some potential improvement from that, maybe in Q4 and Q1. But overall, we’re starting to get to what I would say is the bottom of that loss ratio improvement. We are still growing a lot of lines that are very, one, profitable but do have attritional losses with them. So that can be casualty. That could be Inland Marine. And so as those lines continue to grow and as we get those runoff lines out of our portfolio, I do expect to see the loss ratio tick up over time. So maybe, let’s call it, Q2-ish of next year, maybe Q3 of next year, I wouldn’t be surprised to see the loss ratio start incrementally moving back up. But it’s really going to be driven by the overall mix of those business and the growth in those lines of business.
So it’s going to happen I think as expected, but no surprises. It is not going to, as I said before, jump to 30% overnight, but it’s going to incrementally tick up and still anchored by that strong earthquake business that has a 0% loss ratio.
McDonald Armstrong: And Dave, I think a couple of points to add on, too. But I completely agree with what Chris is saying. It may modestly tick up the second half of 2024, but that will be on the heels of higher earned premium from those lines of business that are contributing a higher traditional loss ratio. So the combined, which on an adjusted basis was 70.8%, will stay relatively in line. Furthermore, the ROE will continue to trend above 20%. And furthermore, earthquake is now kind of indexing the growth rate, and we feel very good about earthquake growth into ’24, too. So there are not going to be wide vacillations, we’re very pleased with the loss ratio, and we think it’s kind of in a nice steady state right now.
Operator: Our next question comes from Meyer Shields, with KBW.
Meyer Shields: I was hoping you could outline maybe the gaps that you have for Assumed Reinsurance and the time frame for getting that started. Is that going to be [indiscernible] 1/1?
