American Financial Group Inc (AFG) 2002 Q4 法說會逐字稿

Good day, and welcome to this American Financial Group fourth quarter 2002 earnings results conference call. Today's call is being recorded.

With us today, we have Carl H. Lindner, Co-President of American Financial, Craig Lindner, Co-President of Financial America, Vito Periano, Senior Vice President of American Financial, and Keith Jensen, Senior Vice President of American Financial Group.

At this time, for opening remarks, I'd like to turn the call over to Mr. Keith Jensen. Please go ahead, sir.

Thank you. Good morning, and welcome to he American Financial Group 2002 fourth quarter and year-end results conference call.

If you're viewing the Webcast on our Web site, you can follow along with the slide presentation, or, if you prefer, it's in a PDF file that you can print and follow along in hard copy.

Certain statements may be made during the course of this call that may be considered forward-looking statements and will be based on estimates, assumptions and projections, which management believes are reasonable but, by their nature, inherently uncertain. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements.

Examples of such statements include statements relating to the company's expectations concerning market and other conditions; future premiums; revenues; earnings and investment activities; expected losses and the adequacy of reserves for asbestos, environmental pollution and mass tort claims; rate increases; improved loss experience and expected expense savings resulting from other recent initiatives.

Actual results could differ materially from those contained in or implied by such forward-looking statements for a variety of factors, including, but not limited to, the unpredictability of possible, future litigation, relating to a pending asbestos settlement; changes in economic conditions, including interest rates, performance of securities markets and the availability of capital regulatory actions; changes in the legal environment; judicial decisions and rulings; tax law changes; levels of catastrophes and other major losses; the actual amount of liabilities associated with certain asbestos and environmental-related insurance claims; adequacy of loss reserves; availability of reinsurance and ability of reinsurers to pay their obligations; competitive pressures, including the ability to obtain rate increases, driving patterns and other changes in market conditions that could affect AFG's insurance operations.

That being said, let me turn the time over to Carl Lindner, III, Co-President of American Financial Group.

Good morning, and thank you for joining us.

We released our 2002 fourth quarter and full-year results earlier this morning. Following my initial remarks, we'll open the lines for questions.

I'd like to start by saying that I'm pleased with our overall results in the fourth quarter and for the year. Our positive results are consistent with our previously discussed expectations. We've been realigning our business mix over the last several years and took some aggressive steps in 2002 with the initiation of the initial public offering of our agency-based personal auto business, Infinity Property and Casualty.

We believe our specialty commercial operations and Infinity's personal auto business are well positioned to benefit from the positive market conditions. The underlying business growth of our specialty businesses remain strong, and we continued getting strong rate increases of almost 30 percent during the fourth quarter.

Also this morning, we announced we entered into an agreement to settle asbestos-related coverage litigation. The resolution of this matter reduces the financial uncertainties relating to these claims, and this is the only such claim that we believe to be material.

At the conclusion of our review of operating results, we're going to have Vito Periano discuss our position, with respect to asbestos issues and reserves.

Excluding the impact of the asbestos litigation settlement, our fourth quarter operating results were 64 cents per share, which was in line with the range of analyst estimates and significantly higher than last year's fourth quarter operating results. Our net earnings, also 64 cents per share, included an after-tax charge of 28 cents per share related to the asbestos settlement offset by the benefit of the favorable resolution of certain tax matters and net investment gains.

Excluding the effects of the settlement, our property and casualty group achieved a solid underwriting profit with a combined ratio of 97. That's a three-point improvement, compared to the 2001 fourth quarter and 2.6 points better than the 2002 third quarter.

We had no significant catastrophe losses in the quarter. Overall gross written premiums were about five percent higher than the 2001 fourth quarter. Strong growth in our specialty businesses was largely offset by a decline in the personal lines. Net written premiums decreased 16 percent, compared to last year's quarter, and were impacted by further increases in the level of reinsurance, as compared to the previous year.

Before I move on to discuss our business segment results, I'd like to make a few comments about the Infinity transaction.

We embarked on the public offering of Infinity in order to provide more capital to our specialty businesses. In 2002, we made the strategic decision to simplify our company and to focus on our specialty lines. Many of our - of our specialty businesses' gross premiums are growing at 20 percent-plus. We believe the specialty group has a unique opportunity in this hard market.

The accident year combined ratio has been in the mid to low-90s over the past two years. The return on equity of the incremental business is greater than 15 percent after tax. The transaction also enables us to reduce debt, consistent with our long-term targets.

As a result of the transaction, we've received $186 million from the equity offering, before any proceeds from the underwriter's over-allotment option, and we expect to receive $55 million from Infinity's debt offering.

It frees up an additional 60 to $80 million of debt capital and allows us to pay down our line of credit and provides capital for expected double-digit growth for our specialty businesses.

We're clearly disappointed in the pricing of the offering. It was affected by the recent decline in the whole sector and, more recently, by the decline in AIG and Allstate. But we concluded that the strategy for both personal lines and AFG was still sound and that it would enhance AFG's capital and reduce leverage, thus allowing us to capitalize on the current, hard market.

Let me talk about the specialty group for a minute. Our specialty group's solid operating performance has continued throughout 2002. The group reported an underwriting profit for the fifth consecutive quarter with a combined ratio of 98.1, which was 2.7 points higher than the 2001 fourth quarter.

The 2002 quarter was impacted by higher losses in our crop division, due to the effect of Midwestern droughts and some adverse prior development in several lines. We continue to benefit from strong rate increases in many of our commercial markets. Our rate increases for 2002 averaged about 27 percent, and we expect to see the benefits of these increases in 2003.

The specialty group's gross, written premiums grew about 16 percent in the 2002 quarter over the '01 fourth quarter and about 21 percent for all of '02, as compared to '01. For 2002, the majority of our ongoing business units generated gross premium growth in excess of 15 percent, compared to the prior year. The opportunity to grow at these rates is part of the reason we've been raising capital through the IPO and certain reinsurance arrangements.

Net, written premiums for the quarter were 14 percent below the prior year's fourth quarter. In that quarter we expanded the auto, physical-damage, quota-share agreement coverings the personal auto business to include several of our specialty lines, retroactive to July 1st, 2002. This lowered our net, written premium by about $110 million.

In a very challenging industry environment, I'm pleased with the consistent underwriting profits that our California workers' comp business achieved during 2002. They've once again reported underwriting profits, which reflect the affects of the significant rate increases taken over the past three years.

Rate momentum in our overall specialty businesses is continuing, and we believe it will continue through '03 and into '04 and that there will be good growth opportunities for the foreseeable future. Standard market carriers have become more focused in on their core product lines and their underwriting standards.

As a result, we've seen significant growth in the excess and surplus lines market, with considerably higher rates. We feel we have one of the best management teams in the business, with a long history and strong expertise.

And I'd like to move on the personal group and talk a few minutes about that. As we'd indicated last year, the personal group achieved underwriting profitability in the 2002 fourth quarter. The combined ratio of 94.5 was nearly 8.8 points better than the 2001 fourth quarter and nearly 6.7 points better than the 2002 third quarter.

The group benefited from about 2.9 points of favorable prior-year development. Rate increases for all of '02 were about 10 percent. For personal groups, gross written premiums for 2002 declined about five percent, compared to 2001, driven by continuing changes in rates to achieve rate adequacy.

The auto companies have focused on growing in certain target markets that offer the greatest opportunity for profitable growth. That's been offset by intentional reductions in new business volume and certain less-profitable markets, or markets with insufficient market presence, and our decision to curtail the direct marketing efforts impacted the group's overall growth.

This group's net, written premiums for 2002 were down approximately 19 percent versus '01, reflecting the expansion in '02 of the physical-damage, quota-share agreements to include the agency business of Great American's personal lines division. The groups continue to focus on appropriate risk segmentation and proper pricing and on consolidation efforts, in order to further lower operating costs.

Now let me turn to our annuity life and health group. Statutory premiums for the fourth quarter were up 37 percent over the 2001 fourth quarter. Sales of fixed annuities more than doubled.

The weak equity market caused variable annuity sales to be considerably lower, compared to the 2001 period. However, they were the same level as the 2002 third quarter. Life and supplemental health premiums were level with the 2001 period.

Pre-tax operating earnings for the 2002 fourth quarter were lower than the 2001 period. This reflects the effects of narrower spreads in the fixed annuity operations, declines in the equity markets on the variable annuity business and adverse mortality in the life insurance operations.

The fourth quarter was - included write-offs related to deferred policy acquisition costs of the variable annuity and life insurance businesses, as well as a charge related to fixed annuities. The group continues to experience more favorable results in the supplemental health operations.

As for 2002 full-year results, our 2002 operating results were $2.42 per share, excluding the impact of the asbestos litigation settlement and tax benefits, compared to $1.55 per share in 2001. Our net earnings for the full year of $1.22 per share were impacted by the asbestos litigation settlement charge, the benefits of the resolution of certain tax matters, impairment losses in our fixed income portfolio, the majority of which were reported prior to the fourth quarter, and a goodwill write-off associated with a new accounting standard.

The property and casualty group, for the full year, reported a combined ratio of 99.9, excluding about 1.2 points related to the asbestos litigation settlement, about a four-point improvement compared to 104 reported in 2001 on the same basis as '02.

Property and casualty gross, written premiums were about 12 percent higher than '01. Both the specialty and personal groups ended the year with an underwriting profit, and the statutory premiums in the annuity life and health group grew about 25 percent in '02. However, their operating earnings declined, primarily due to the impact on their businesses of a declining equity market and a lower interest rate environment.

Let me now discuss a summery of asbestos exposures and reserves. We described the asbestos litigation in prior quarters. It involved some of the many issues in the press recently. We recognized the issue in 2001 and included it in our reserve strengthening at that time. The settlement results in some additional reserve requirement.

We're real pleased to have this matter behind us. We feel the resolution of this matter concludes the company's largest asbestos claim and the only known material asbestos matter. Excluding the effects of the asbestos litigation settlement, our three-year survival ratio for asbestos is over 22 times, which is among the strongest in the industry.

Now I'm pleased to introduce Vito Periano, the Senior Vice President responsible for our claims operation. He'll explain our current position with respect to asbestos. Vito?

Thank you, Carl. Today we'd like to provide an overview of our insurance operations, asbestos exposures and reserves.

With the settlement of our largest known asbestos claim, and the only asbestos claim that we believe has material exposure to the company, we believe it's an appropriate time to focus on our asbestos picture in a little more detail.

By way of overview, we believe our asbestos picture is sound. By way of summary and overview, the net asbestos reserves of 302 million represent management's best estimate of future asbestos exposures. With the resolution of our largest exposure, involving our policyholder AP Green, we believe that we stand in good stead.

Our policyholder profile gives us some comfort, in that it is a limited exposure dominated by small to mid-size commercial entities who are involved in few of the ongoing asbestos bankruptcies. With the three-year survival ratio, excluding the Green settlement of 22.4, our settlement - our survival ratio, as Carl said, remains one of the strongest in the industries.

Turning to our evaluation of claims, I'd like to make a few comments on how we accomplished that. We were early in the recognition of adverse asbestos trends and ahead of the curve when it came to looking at reserve strengthening. Our conservative reserve practices were confirmed in 1998 and 2001 with ground-up reviews by an outside, national actuarial firm.

These were proven through our history of proactive reserving, and we were early in the industry in the use of external actuarial and legal analysis in assessing our asbestos exposure. As we look at our historic, three-year survival ratios, those are also historically sound.

In terms of day-to-day management, we take a roll-up-our-sleeves approach to managing our asbestos exposures, through monthly review by senior claims management through databases, watching our asbestos development against actuarial trends and studies, and making sure that our centralized claims oversight empowers proactive litigation management.

Turning for a moment to our actuarial methodology, as you might expect, we used various parameters that a ground-up exposure analysis might employ, including, but not limited to, an analysis of policy limits, attachment points and assessment of Great American's share of any loss.

We looked at expense treatments, known incurred losses, and we measured our own internal data against external, professional studies of asbestos exposures. We also did a thorough analysis of our (ph) available reinsurance and took some outside, legal guidance on our AP Green matter.

Next I'd like to discuss our net, asbestos reserve development. Looking at our reserve development over the last three years, the trend is solid and, again, reflects our historical, conservative, reserving practices. Our net reserves have moved from 118.1 million in 2000 to 154.8 million - that's our net, asbestos, IBNR (ph) reserve - from 118 to 154 - and our net, total asbestos reserves from 141 in 2000 to 302 to - as of 12-31.

Our three-year rolling survival ratio, likewise, is strong, moving from 14.1 in the year 2000 to a current -approximately 24.9 on a three-year, rolling survival ratio.

I'd also like to discuss our summary reserve information. One of the things we chose to do is to provide a more granular look at how our asbestos policyholders break out in various categories and how our paids (ph) have developed, both cumulative to date and more recently.

I draw your attention to the fact that out of 247 open asbestos accounts, 219 involve paids (ph) of either less than 100,000 or no payment to date. Our total, cumulative paid-to-date indemnity is $31 million on open accounts. We believe this reflects the skewing of our book to small and medium-size accounts with relatively smaller exposures.

Looking a little more closely at the profile of our asbestos exposures, if one looks at the 247 open asbestos accounts, approximately only 12 percent of those open accounts are among Fortune 500 companies or their equivalent. Most Fortune 500 companies are claims that - companies or equivalent accounts are claims against excess or umbrella policies.

We have only two policyholders with structured payment schedules, including the AP Green settlement, and only six policyholders with coverage-in-place agreements. Our judicious use of coverage-in-place agreements is reflected by very low historical paids (ph) on this segment of our open asbestos accounts, only 14 - about $14 million. In other words, we are not hamstrung by ill-considered, long-term, coverage-in-place deals.

Looking more closely at our pending coverage litigation and bankruptcies, we have nine asbestos matters in coverage litigation, seven of which involve high-layer (ph) excess policies, one of which has settled and will see final payment in 2003. One of the primary matters of the two primary matters we have in coverage litigation has settled, as announced earlier.

We have only three policyholders in bankruptcy involving asbestos accounts, and one of those has settled. The other two involve high-layer (ph) excess exposure settlement.

Turning for a moment to our non-products exposures, we have taken - undertaken an assessment of our non-products exposures and find, mostly, these are among our small, regional policyholders. We have very few involving national or target defendants.

While we acknowledge an increase in the number of claims notices, and we understand the theory of the non-products exposure, we are not yet seeing serious translation of theory to actual exposure. We have few accounts with significant non-products exposure, none of which we believe are presently material for the company. But we remain with a watchful eye.

In conclusion, we believe our track record is sound, with a history of proactive and conservative reserving. We have an historically strong survival ratio. We retain a continued commitment to strong claims management and enjoy a profile skewed to small and mid-size commercial entities.

We take some comfort that our paid indemnity history mostly reflects the small accounts, and, finally, we believe that our coverage litigation and bankruptcy exposure is contained and well under control.

I'll be happy to answer any specific questions at the conclusions of - conclusion of Carl's remaining comments.

In summary and as for our outlook, we're pleased with the progress on our strategic focus of the specialty operations. We completed the Infinity IPO. We expect to complete the sale of the direct auto business in the second quarter. Going forward, we're now positioned as a niche player in the specialty commercial business, and we'll focus on growth opportunities in these markets.

We remain committed to our pricing and underwriting disciplines. We continue to expect meaningful price increases in the commercial markets, and, going into 2003, we're still targeting average rate increases of 25 percent or more. We plan to focus on cost reductions in our annuity and life businesses and on improving their operating earnings.

Based on our current view of 2003, our preliminary estimate of operating earnings is in the range of 2.50 to $2.65 per share. That's roughly a 12-to-13 percent return on equity - on the equity, excluding unrealized gains. I would be happy to open the session up for questions.

Thank you, sir. If you'd like to ask a question on today's call, you may do so by pressing, star, one, on your touch-tone telephone. Again, that is star, one, to signal for a question.

And if you're on a speakerphone, pleas make sure your mute function is turned off to allow your signal to reach our equipment.

Once again, that is star, one, to ask a question. We'll pause a moment assembler our roster.

We'll take our first question from Charlie Gates with Credit Suisse First Boston.

Good morning, gentlemen. Can you hear me?

Yes. We can, Charlie.

OK. My first question - could you give us or provide us with book value per share at year end and, then, book value per share adjusted for Infinity?

Book value per share at year end was 24.97. We previously announced that we expect, in the Infinity transaction, that the loss on that sale would be about $30 million. And, then, as Carl indicated earlier, I think it's relevant to think about the book value per share of the unrealized, and that's 4.69. So book value, excluding unrealized gains, is 20.28.

I'm, sorry I got lost. Basically, first of all, I should divide the 30 - the 30 is a pre-tax number?

Thirty's an after-tax number.

OK. Thirty is an after-tax number.

It would be about 43 cents, Charlie.

OK. So for Infinity, it's approximately a 43-cent loss from my $24.97.

Correct.

OK. And what was the second adjustment that I should make?

Well, the second piece that Carl highlighted is the per-share value of the unrealized that's imbedded in the equity, and that's 4.69.

The unrealized gain.

Correct.

OK. And that's $4.69 a share.

Correct.

OK. So the reality is that the stock is selling at an important discount to book value.

Correct.

And that's before any adjustment for the real estate asset, for example.

That's correct.

OK. That was the first question. The second question - can you elaborate on what the following sentence says? "The 2002 results included the impact of Midwestern droughts on the crop business and adverse development in certain lines of business that are no longer written."

So I guess there are two questions there. One - and if you said it, I apologize - what was the impact from these droughts on that crop business?

The Midwest drought in the fourth quarter was about two-and-a-half points on the combined ratio.

How does that work? I'm a farmer, basically, and my crops died, so you give me certain monies?

Yes. What you do is you buy a policy. It's under a government program called multi-peril crop insurance, and you buy a policy against a variety of named perils, including drought. And then it's both a yield and a price-per-unit calculation that's gone through to develop what the loss is that's insurable.

OK. The other question on that sentence - "adverse development in certain lines of business that are no longer written." What does that mean?

That means that, as we've announced in previous conference calls, there are some of the businesses in the commercial arena that we have exited over time, for example, the aviation business, the Massachusetts muni (ph) business and some others.

We had experienced adverse development in the fourth quarter in some of those lines, and that was between five and six points on the combined ratio in the fourth quarter.

OK. My final question at this point is - I believe Carl made the comment that he saw rate increases in the specialty lines approximating 25 percent. If I got that right, would you elaborate on that and how you see that evolving in 2003?

Sure we finished the fourth quarter with rate increases, you know, above 25 percent, and we - I think my main point is we're continuing to target about the same amount of rate increase on January renewals and, you know, in February renewals and in March. So we feel like, going into this year, we're continuing to keep the hammer down on pricing. I think that's the main point I was trying to make.

I should have let somebody else ask the question. Thank you.

We'll take our next question from Michael Smith with Bear Stearns.

Good morning. I've got two questions. First of all, could you quantify the deferred acquisition cost charge that you took against the variable annuity line and the charge that you took against the fixed annuity line?

Yes. I can. On a pre-tax basis, for the year, we took a $13.5 million charge against the variable business, and, on the fixed annuity side, it was just over $3 million pre-tax.

OK. You don't have the numbers for the quarter?

Yes. I do. For the quarter, it was - the full amount of the fixed annuity charge was in the fourth quarter, and, in the variable business, it was in the neighborhood of $8 million pre-tax.

OK. Carl, you indicated that you're going to see double-digit growth in the specialty line in '03. Presumably, this is gross, written premiums. Can you describe how this will affect the net, written premiums?

I think we feel this year, both gross and net written premiums, you know, will have, you know, strong growth.

Can you give us some idea what the expected retention will be after reinsurance in percentage terms?

If you'll forgive us a second here, I think - well, maybe one way to - the easiest way to say it, Keith, would be - you know, we'd expect our net, written premiums to, you know, grow 15 to 20 percent as well as gross, written premiums.

OK. That'd be good. Finally, are you - have you declared the direct auto business a discontinued line, or should we be factoring some premium and profitability or unprofitably into our models through the first half of the year?

From an accounting perspective, Mike, we've not treated it as a discontinued line, because it's not been a separate segment, but we're clearly, from a management perspective, treating it as discontinued. It's likely that the direct will close in the second quarter at some point, so you should include it for a portion of the year.

OK. What are the annualized premiums from that line?

About 90 million.

Ninety million - and this thing was showing a underwriting loss in 2002, wasn't it?

Yes. It was.

OK. Thank you very much.

Mike the - in terms of your percent gross to net, think in the 60-to-65 range - percent.

OK. Very good. Thank you.

Once again, if you'd like to ask a question on today's call, you may do so by pressing star, one, on your touch-tone telephone. Again, that is star, one, to ask a question. We'll take our next question from Allison Jacobowitz with Merrill Lynch.

Hi. Thanks. I just wanted to make sure I understand fully the combined ratio for the quarter in the specialty line). So to go back to what Charlie was saying, if the Midwest storms (ph) were about two-and-a-half points and if you had about five to six point of adverse development, I mean, you - it implies that the underlying results were posting about a 90 combined in the specialty segment.

How do you - if I'm right - that's the first question. And second, then, over time - over what time period do you think that might get unlocked - that this adverse development drag goes away, and we begin to see those kind of results in the specialty lines)?

I think - two things, Allison. Number one, the accident year would be a little bit higher than what you've described. I was responding to Charlie's question with respect to two, specific items, and there were a couple of offsets.

As Carl said, over the last couple of years - accident year - combined ratios have been in the low to mid-90s. And so there were in the low-90s in the fourth quarter. You know, as you track adverse development, over time you respond to it as it arises. Our expectation is that it would not continue at the same rate that it did in the fourth quarter, but it's something that we just have to deal with as issues arise.

This was - the 2002 year was actually a particularly high year, in terms of adverse development against historical patterns.

OK. Thank you.

Once again, that is star, one, to ask question. We'll take our next question from Abe Schloss with Maxim Group.

Hi, Carl. Pertaining to asbestos, have the asbestos claims the last 10 to 15 years been greater than once to two percent of total claims?

I don't believe so. This is Vito Periano responding.

Thank you.

We'll take a follow-up from Charlie Gates.

Reading again from the news release, these increases were due to significantly improved property casualty underwriting results and real estate gains. Could you opine as to what the size of those real estate gains were. That's the first question.

Then what is the approximate curing value of real estate and the approximate market value of real estate?

OK. The real estate gains for the year, Charlie, were about 23 million. That was about four million higher than in the previous year. So that's the differential that was referred to in the press release.

With respect to the unrecognized values in real estate, we have a basis in our hotels and apartment buildings of about $160 million, with an annual cash flow of 28.5 million. As we have suggested in each quarter, apply whatever multiple you think's appropriate. If you apply a multiple of nine, that would give you, rough and dirty, 100 million.

Plus we've got the air (ph) rights in New York in some undeveloped properties that we believe have a 90 to $100 million gain imbedded in them. So, in broad terms, we look at this and think we've probably got about a 200 million pre-tax, unrecognized gain.

Where was the $23 million included in the income statement?

The 23 million would be part of the operating income. Basically, the philosophy is that these real estate properties are income earning, and, so, we look at it on a lifecycle basis and include not only their operating results, but if there's a disposition of a piece of property, we include that as well.

What were the net A and E (ph) reserves at year end?

They are in the slide that ...

OK.

... was presented, but that's - let's see, that - I'm sorry. That's asbestos only. A and E (ph) I do have. Let me just look real quickly.

Our net A and E (ph) reserves at year end were $466 million.

Yes. That's right.

My final question - could one of you opine as to what's going on in California workers' compensation? I believe Carl or someone else said earlier in call that underwriting results - and maybe I got this wrong - were profitable?

Yes. We felt real good about our year this past year. We made a solid, underwriting profit in our California workers' comp business. We're - we had ended a third year of rate increase - moving into a fourth year of rat increase.

Pricing levels were around 27 percent in the fourth quarter and 23 percent for the year. And going into '03, you know, we're trying to get another 30 percent. That may not - you know, my guess is that'll be hard to do the whole year, but that's how we're approaching the market.

We began to report underwriting profits in the later part of '01, and we had a solid, underwriting profit in '02. We like what's happening, as far as the pressures on the state fund to increase rates and reduce their book of business. We think that's having a favorable impact on our business and on the industry, and, really, for the first time in several years, the business gain from the state fund outweighed the business loss to them over the past half a year, which we see as significant.

For the state fund, we're - they used to be 30 to 40 percent under our price. They've been more in the 10 to 15 percent under our price, and, because of the questions around their credibility, that's given us lots of opportunities to increase our business.

We don't see that there's any significant, new competitors in the market. Some of the national carriers seem to be waking up and, you know, getting more active. Everest Re (ph) continues to be aggressive, thought it's - Zenith (ph) and Cypress (ph) and some markets actually seem to have become more conservative here recently.

What was the phenomena (ph) - this is my last question, sir. What was the phenomena (ph) that's contributing to the state fund, basically, pulling back?

I think they've been - they've almost been out of capital.

OK.

They've lacked the capital to support the size of the business. They did the reinsurance agreement to - I think to survive, and, you know, I think they've - in order to survive, they've had to control their business and price their business more correctly.

Nice job, guys.

Thank you.

Once again, that is star, one, if you'd like to ask a question.

Mr. Jensen, there appears to be no further questions. At this time, I'd like to turn the call back over to you, sir.

Thank you very much. We appreciate all of you joining us, appreciate the questions, and, as always, we'll look forward to visiting with you at the end of the next quarter. Thank you. Bye.

This does conclude today's conference call. At this time, you may disconnect.