American Financial Group Inc (AFG) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2005 American Financial Group earnings conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Keith Jensen, Senior Vice President. Please proceed sir.

Good morning, and welcome to the American Financial Group's 2005 third quarter earnings results conference call. If you are viewing this webcast from the website you can follow along with the slide presentation, if you would like.

I am joined this morning by Carl Lindner III and Craig Lindner, Co-CEOs of American Financial Group, Vito Peraino, Senior Vice President and Assistant General Counsel of Great American Insurance, and Ron Brichler, President of the Great American Insurance Crop Division.

Certain statements made during this call are not historical facts and may be considered forward-looking statements, and are based on estimates, assumptions, and projections, which management believes are reasonable, but by their nature are subject to risks and uncertainties. The factors which cause actual results to differ materially from those suggested by such forward-looking statements include but are not limited to those discussed or identified from time to time in AFG's filings with the Securities and Exchange Commission, including the annual report on Form 10-K and the quarterly report on Form 10-Q.

We do not promise to update such forward-looking statements to reflect actual results or changes in assumptions or other factors that could affect these statements. Many investors and analysts focus on core earnings of companies, setting aside items that are not considered to be part of ongoing operations, such as net realized gains or losses on investment, the effects of accounting changes, discontinued operations and certain non-recurring items. As such the core earnings of our insurance operations for various periods will be discussed during this call, including the results of Great American Financial Resources, our 82% owned subsidiary, which is listed on the New York Stock Exchange.

Now I'm pleased to turn the call over to Carl Lindner III, Co-Chief Executive of American Financial Group to discuss our results.

Thank you for joining us. We released the 2005 third quarter results for American Financial Group, as well as for our 82% owned subsidiary, Great American Financial Resources, yesterday afternoon. Our core earnings for this quarter exceeded expectations. Our Property and Casualty underwriting results remain strong as a result of disciplined pricing and astute risk selection. Great American Financial Resources results are stable and consistent with our outlook.

Our core earnings per share of $0.87, excluding the $0.26 per share from the Illinois coal property sale exceeded our expectations, despite the $0.33 per share of hurricane losses. The effects of the hurricanes were offset by strong operating earnings of many of our business lines, such as California Workers' Comp, transportation, inland marine, Excess and surplus and Fidelity and prime businesses. The underwriting profit of the Specialty Property and Casualty operations in the 2005 third quarter was nearly $40 million higher than in the same period a year ago.

Our net loss for the third quarter reflects the A&E reserve strengthening, which places our reserve position, as measured by the three-year survival ratio, among the strongest in the industry. This charge was partly offset by the effect of strong core earnings and the coal property sale. We still have sufficient liquidity to support the capital requirements of our insurance operations without any additional debt or equity issuances. The results of the study will be discussed in greater detail later in the call.

Now on slide four, you will see that the Property and Casualty Specialty Group reported a combined ratio of 93.3 for the 2005 third quarter, 6.1 points better than the 2004 period. The impact of hurricane losses in both periods was about 6 points. These results validate our risk management policies and our use of reinsurance to help protect the Company from such catastrophic events.

The Specialty Group's gross written premiums in the 2005 third quarter were 2% lower than the same period a year ago, reflecting the effects of the softer pricing environment and lower commodity prices earlier in the year on crop premiums. We continue to focus on maintaining underwriting discipline, and will limit or reduce volume in certain business lines to achieve appropriate returns. Net written premiums were 23% higher due to continued reductions in premiums ceded under reinsurance agreements, mainly in the crop insurance and inland marine businesses.

Our overall rates in the 2005 third quarter were down slightly, about 1% compared to the third quarter of 2004. We continue to get some rate increases within certain of our transportation operations and some casualty businesses, which were more than offset by rate decreases in our excess property, D&O, and California comp businesses.

Now I will discuss our third quarter results on slide 5, as well as the first nine months of 2005 on slide 6 for each of our specialty business groups. The Property and Transportation Group absorbed approximately $29 million of their hurricane losses in the '05 third quarter, comparable to the level in '04's third quarter. Apart from these losses, the group continued to generate strong underwriting profits, primarily in its transportation and inland marine businesses.

Even though the agricultural operations continued to contribute underwriting profits, they are lower in the 2004 period because of the drought conditions in Illinois and other Midwestern states as compared to the exceptional results reported by the crop insurance operations in the 2004 period.

Gross written premiums declined about 6% in the 2005 third quarter compared to the same period a year ago, reflecting the impact of lower commodity prices earlier in the year, which were used to determine crop insurance coverages. Also, lower volume resulting from competitive pricing in the excess property insurance operations continued to contribute to the premium decline. Partly offsetting these declines were solid volume growth in our transportation and equine lines. As I've indicated earlier, the growth in net written premiums reflects the effect of our decision not to reinsure as much of our business, principally within the crop and the inland marine operations.

Our Specialty Casualty Group is meeting our expectation for meaningful improvement. Its combined ratio for the 2005 third quarter improved to 89.4, 9.3 points better than in the 2004 third quarter. This improvement continues to be driven largely by lower unfavorable development in the executive and professional liability operations, and even stronger underwriting profits within our excess and surplus and targeted markets lines. Gross written premiums are lower for the 2005 period as we continue to focus on rate adequacy due to the softer pricing environment in some of our commercial casualty markets. We'll continue to grow several of our businesses that will limit premium levels in certain other businesses as needed to achieve appropriate levels of profitability.

During the 2005 quarter the Specialty Financial Group was not only impacted by continuing losses from the residual value business, but also the hurricanes. Our fidelity and prime, trade credit and financial institutions businesses continue to generate solid underwriting profits. Gross written premiums increased in the 2005 third quarter compared to a year earlier as growth in our profitable fidelity and prime and leased equipment operations more than offset reductions in other parts of the lender services operations.

Due to the ongoing poor results in the residual value business, we believe that this group overall will not achieve an underwriting profit until late 2006. Our California workers' comp business continued to report excellent underwriting resolves, even with significant rate reductions. Rate decreases in California averaged about 26% during the 2005 third quarter, reflecting the effect of the improving claims environment resulting from workers' comp reform.

Gross written premiums for the third quarter declined 4% compared to the 2004 period as the rate decreases more than offset volume growth. However, through the first nine months of the year such premiums are up modestly over the same period last year. We continue to believe that our lower rates, which are benefiting our insureds, are adequate to provide favorable returns.

I would also like to take this opportunity to mention that the New York Attorney General has advised that the investigation concerning legal malpractice insurance is closed. This would not preclude future inquiries, but we're not aware of any at this time.

We have addressed the effects of hurricanes on our third quarter results, and now I would like to provide some additional detail on slide seven. Our CAT cover includes property within all the AFG property and casualty companies. We retain the first $10 million of loss, 52.5% of the next 5 million, and 5% of the next $105 million.

For Katrina, we estimate $30 million of loss net of reinsurance recoveries from Katrina. These losses are primary attributable to losses subject to catastrophe reinsurance and the cost of reinstatement premiums. We still have substantial amounts of availability under our catastrophe reinsurance. In addition, we have one full $110 million reinstatement available to us. For Rita, we estimate approximately $10 million of loss, therefore the CAT cover doesn't apply. And for Wilma, it is premature to speculate as to the amounts of insured loss at this point.

We're careful to limit our underwriting of coastal property, and to ensure that we have appropriate reinsurance. As a result, our net losses for these two hurricanes were about 1% of our equity. Very modest by any measure.

Now on slide 8 and 9 let's review our Annuity, Supplemental and Life Insurance Group managed by Great American Financial Resources. As in the last eight quarters, core net operating earnings for the 2005 third quarter were above the comparable prior year period. For the first nine months of 2005 these earnings were about 14% higher than the same period a year ago, reflecting improved results in the annuity and supplemental insurance business lines.

Statutory premiums for the 2005 third quarter were about 6% lower than in the 2004 third quarter, reflecting lower single premium annuity sales, partly offset by an increase in supplemental insurance premiums. However, statutory premiums for the first nine months of the year were 7% higher than in the prior year period as a result of increased sales of single premium annuities, including approximately $100 million of fixed annuities from policyholders of an unaffiliated company in rehabilitation, who chose to transfer their funds to us in the 2005 first quarter. This group's operating performance continues to demonstrate the strength of its business lines and the benefits from operational improvements and cost efficiencies put in place over the last several years.

As previously announced this group conducted its annual review of projected costs associated with its former manufacturing operations during the third quarter. Based on information provided by environmental and other consultants, the estimated environmental exposures related to these manufacturing operations are around $15 million. Consequently this group recorded a pretax charge of $9.5 million to strengthen its environmental reserves. This equates to an after-tax charge of about $5 million at the AFG level.

On October 13 of this year, Great American Financial Resources completed the sale of the Driskill Hotel in Austin Texas, and expects to recognize an after-tax gain of $11 million for this sale in the fourth quarter, or $9 million at the AFG level. We have owned and operated that hotel since 1995. In the fourth quarter of each year this group performs a comprehensive review of its major actuarial assumptions, including management's expectation of long-term reinvestment rates. If the current interest rate environment persists through the end of this year, the Company may be required to write off deferred acquisition costs related to its fixed annuities operations. We don't believe that any such write-off will have a material impact on this group's liquidity or operations. We continue to believe this group is well positioned to pursue growth opportunities, both internally and through acquisitions, and are pleased with its solid earnings growth trend.

We previously announced that we are undertaking a review of our asbestos and environmental exposures to assess the adequacy of our reserves, and recently completed the review. If you follow with slide 10, we have undertaken periodic reviews of those reserves with the aid of a respected outside actuarial firm and specialty outside counsel. As a result of this study, we recorded a 2005 third quarter pretax charge of $179 million, net of reinsurance recoverables, resulting in an increase in asbestos reserves of $124 million and environmental and other mass tort reserves of $55 million.

As of September 30, 2005, AFG's A&E reserves were $475 million net of reinsurance recoverables. With this strengthening, our survival ratio for asbestos reserves is 21.8 times paid losses; and for A&E reserves it is 3.2 times paid losses -- 13.2, excuse me, 13.2 times paid losses. These include amounts associated with the A.P. Green settlement. Looking forward, absent a legislative solution, we plan to conduct a full review at least every other year.

I would like to introduce Vito Peraino, Senior Vice President of Great American and responsible for our claims operation, who will explain further the A&E study and our current position with respect to A&E exposures.

Today I’d like to provide an overview of the A&E study and our insurance operations asbestos exposures and reserves, beginning with slide 11. As Carl mentioned, as we have in the past we utilized a nationally recognized actuarial firm, as well as outside counsel. Our study reviewed open and closed A&E claims held at June 30, 2005 both for direct, primary, excess and umbrella business as well as for our assumed reinsurance.

For asbestos it considered nonproducts exposure, paid history, the pattern of new claims, settlements and projected development. The asbestos legal climate remains very difficult to predict. And while some progress has been made in state asbestos tort reform, that progress has been somewhat offset by increased claims costs, increased defense costs, the assertion of nonproducts theories of recovery, and an increasing number of claims against small to mid-sized insurers.

As far as the general asbestos environmental reserving environment, there has been no change in outside experts' estimates of ultimate industry exposure, or in AFG's historic premium market share since our previous 2001 study. Our payment patterns have been generally consistent with prior estimations, and we have no significant new claims.

The primary reasons for the increase in our asbestos reserves is the use by outside actuaries of evolving methodologies and developing parameters and the expense to indemnity ratios and reduced reliance on extrapolation techniques by direct business. In addition, they have refined their procedure for estimating the potential exposure under both products and nonproducts claims.

In the actuaries' view this refined approach has increased the Company's indicated ultimate losses. The actuaries are giving additional weight to claims associated with peripheral defendants. Even though no single claim presents an unduly large exposure, the increase in the number of claims notices from peripheral defendants has increased their projections of future defense and indemnity exposures.

While tort reform is helping in some jurisdictions, the legal climate in many jurisdictions continues to deteriorate with large verdict values being experienced. Expanding coverage interpretations by some courts also has led to increased exposure to some policies in certain jurisdictions.

For environmental claims this study considered projected exposure of both National Priority List, or NPL sites and non NPL sites, historic patterns of new claims, settlements and projected development. The increase in our environmental reserves is primarily due to an increase in the cleanup costs of certain sites above prior expectations and the recent unexpected increase in the number of new environmental accounts that have been reported to the Company, again, above prior expectations. In addition, projected development on a handful of accounts exceeded our 2001 estimates.

Turning to slide 12, we present a summary of our reserve development from 2003 to 2005. And as mentioned by Carl, we see an increase in our rolling three-year survival ratio, excluding A.P. Green, from 11.9 in 2003 to a current 16.8, excluding A.P. Green.

Turning to page 13 we present a stratification of summary reserve information, which I draw your attention to a couple of items. First we stratified our number of policyholders by total indemnity paid to date, and see as we did when we last presented this information that the overwhelming number of our insured have seen indemnity payments cumulative of less than $100,000 to date. And many of them, 120 of them, showing no payments -- indemnity payments to date at all. Among our large accounts we have one with -- we have two policyholders showing accumulative indemnity paids in excess of $1 million. Again, this supports our view that our exposure is primarily with smaller and non Fortune 500 companies.

Turning to Page 14 we can look at that a bit more closely. Of the 212 direct open asbestos accounts, approximately 14% are accounts from Fortune 500 companies or equivalent. And most of those exposures are claims against excess or umbrella policies. Two policyholders have structured payment schedules, including A.P. Green. And only four policyholders currently enjoy coverage in place agreements.

Turning to slide 15, to put this in further context, with respect to our direct business we have only eight matters in asbestos coverage litigation, and only three policyholders currently in bankruptcy. One, A.P. Green has settled. Two others are high layer excess insureds.

Turning to slide 16, with respect to our non products exposure, which we mentioned as a factor in our reserving, we note that mostly our policyholders are small regional companies with few national or target defendants, but we have seen an increase in the number of claims notices to the small and peripheral defendants. We have few accounts with significant non products exposure. And at this point we cannot believe any of those exposures to be material to the Company.

Turning to Page 17. In summary, we show strong survival ratios. We enjoy strong management of our A&E claims. Our profile is skewed towards small and mid-sized commercial entities. Our paid indemnity history mostly reflects and supports that small account orientation. And we have very limited involvement in coverage litigation and bankruptcies.

In closing, we continue to support the initiatives in Washington to achieve meaningful and final asbestos tort reform for the benefit of those who have manifested real medical impairment and provide some appropriate financial limits and finalities for insurers, defendants and some certainty for asbestos claimants.

I would be happy to answer any questions you have at the conclusion of Carl and Craig's remaining comments. And now I would like to turn the call over to Craig Lindner.

Turning to slides 18 through 20, I would like to spend a few minutes on our real estate operations. American Financial Group owns a diverse real estate portfolio with a market value in excess of $500 million. Some of our holdings include Chatham Bars Inn in Cape Code; La Pavillon in New Orleans; the Cincinnatian in Cincinnati Ohio; the Mountain View Grand Resort in New Hampshire; several resorts and marinas in the Chesapeake Bay area, Charleston, South Carolina and Palm Beach, Florida; apartment complexes in various cities around the country; coal properties and transferable air rights over Grand Central Station in New York City.

We believe there's substantial unrecognized appreciation in our real estate assets as illustrated on slide 20. Our income producing properties have unrecognized value of between 160 and $220 million when a market multiple of 11 to 14 times cash flow is generally applied to operating cash flows.

The unrecognized value of our undeveloped land of between 40 and $50 million includes $26 million of unrealized gain in a coal property, which we hope to realize during the fourth quarter of this year. The Grand Central air rights estimated value of 50 to $60 million is based on our most recent sales. Due to the nature of this asset, there is potential for substantial variability in these estimates.

Our real estate investment strategy is based upon our history of buying underperforming or out of favor assets, developing and managing them in-house, and selling them when we believe value has been maximized. Our real estate investments have been very successful. Over the last ten years we have generated realized capital gains of approximately $200 million from the sale of real estate assets.

Some of our recent sales include the sale of the Driskill Hotel in Austin, Texas. The hotel was acquired in 1995 and underwent substantial renovation during the past ten years, during which the annual operating cash flow increased from $500,000 to $4.1 million. The property was sold in October just several weeks ago. It closed for a price of $53 million versus a book value of about $22 million.

Another recent sale is the Point in St. Paul, Minnesota. It is a 33 story high-rise luxury apartment building with 292 units. We just completed a condo conversion which began two years ago. Total proceeds from this condo conversion were $37 million versus a book value of just under $10 million.

Going forward, the following assets are planned for sale. The Bay Club at Rocky Point in Tampa, Florida is 288 unit apartment complex that was acquired in 2001 for $7 million, plus the assumption of 20 million of debt. The condo conversion is scheduled to begin in early 2006 and is expected to be completed within 18 months. We project proceeds of approximately $55 million versus a book value of $26 million.

Let's talk about La Pavillon Hotel in New Orleans. It is a 226 room luxury hotel acquired in 1989 for $7 million. Since our purchase we've increased the operating cash flow from $700,000 to around $4 million last year. We had a letter of intent to sell this hotel at a price in excess of $50 million when Katrina hit New Orleans. Because of the storm, the sale was not completed. Today the hotel is nearly 100% occupied. We suffered very little damage in the storm. There's a lot of demand for rooms and will be in the foreseeable future. The hotel today is generating record profits. We're evaluating our options on this hotel. We believe the hotel is clearly worth more than the previously agreed upon sale price. And as we have talked before, we anticipate a sale of coal properties in the fourth quarter with a book gain of $26 million.

These recent and planned sales are in keeping with our history of real estate gains over the past ten years of approximately $200 million. We expect our investment in real estate to continue to enhance growth in American Financial Group's book value.

During the past few years we have also purchased a number of new assets. For example, earlier this year we purchased a marina in the Chesapeake Bay area of Maryland, and the Grandview -- the Mountain View Grand Resort in New Hampshire, including 1,800 acres of property surrounding the resort. Both properties have significant potential development and expansion opportunities. Our real estate group is continually looking for opportunities to add to our real estate portfolio. Now I would like to turn the call back to Carl.

We are excited about the Farmers Crop acquisition and the completion of that acquisition. And it presents an opportunity for us to expand our profitable multi-peril and crop hail insurance businesses more rapidly. And affirms our strong commitment to that business.

Now I would like to introduce Ron Brichler, Senior Vice President of Great American, who has responsibilities for a number of our specialty units including our government multi-peril crop business. Ron.

I direct your attention to slide 21. This slide shows that Farmers Crop Insurance Alliance generated $500 million of gross written premium in 2004. We expect to retain one-half of this business at a minimum. As far as the terms of the transaction we paid Farmers Alliance $17.5 million at closing. And over the next two years we will pay an additional 10% of annual premiums based on certain retention criteria. After the acquisition, we expect to be the third-largest writer of multi-peril crop insurance, and we will have improved our geographic diversification as shown on slide 22.

As far as the calculation of gross in net premium for our financial statement, we also have some sessions that take us to our net position. First we have some mandatory sessions to the Federal Crop Insurance Corporation as determined by the standard reinsurance agreement. And then we cede 50% of the residual to Munich Re, our long-term reinsurance partner.

During the last ten years we have averaged underwriting gains on our multi-peril book in excess of 10% of net premiums. And with the Farmers Crop acquisition we expect similar results from their book of business.

On slide 23, you'll see there is a geographic representation of our nine full-service crop division offices across the U.S., including the new full-service Farmers Crop offices that we picked up in the acquisition.

While there is no assurance that we will convert the entire book, we do expect that the acquisition will give us an improved spread of risk across more states and balance our book overall. Now I will turn it back to Carl.

Now I would like to wrap up with some issues that will impact the Company's earnings in the fourth quarter, as well as some key aspects of our strategic focus and outlook on slides 24 and 25.

Our fourth quarter results are expected to include after-tax gains of about $17 million for the pending sale of our remaining coal interests in Ohio and Pennsylvania, and $9 million for the sale of the Driskill Hotel. Even with the A&E charge we have sufficient liquidity and capital to support the growth of our specialty commercial businesses, and believe we're well-positioned to meet our debt to capital target of 28% in the near future. At September 30, 2005 holding company cash stood at $100 million. And we expect it to exceed $150 million at year-end. We have no borrowings under our $300 million line of credit for AFG, or $165 million for Great American Financial Resources.

Our operations will remain focused on specialty niche markets within the property and casualty, annuity, and supplemental insurance industries where we can have an advantage based on our expertise and unique products or distribution. We're going to continue to look for other opportunities to add on to our existing specialty insurance businesses like the Farmers transaction.

We will continue to focus on achieving solid returns through our pricing and underwriting focus. We expect our overall gross written premiums to be down modestly in '05. And project net premium growth to be greater than 10%. We expect underwriting profit of our overall specialty operations for the 2005 fourth quarter will remain strong and will be higher than the 2004 period. However, there is still some uncertainty as to the level of profitability in our crop insurance business, and don't expect it to be as high as in the 2004 fourth quarter. In addition, obviously it is still too early to predict the impact of Hurricane Wilma on fourth quarter results.

We have revised our 2005 core earnings guidance to between $3.55 and $3.70 per share, which excludes the benefits from our real estate sales, the A&E charges, and any potential DAC write-off. We believe rates will harden in many of our property lines as a consequence of the recent devastating storms, which we see as a positive.

Looking into 2006, we expect solid growth in net written premiums of 5 to 7%, and a continuation of the strong underwriting profits experienced in 2005. Our property and transportation premiums are expected to grow substantially as a result of the Farmers acquisition. These businesses should maintain solid underwriting margins.

Specialty casualty premiums are expected to be flat to slightly up in 2006, with stable underwriting margins. Our California Workers' Comp premiums are likely to decline as a result of the rate reductions recently implemented. While the combined ratio will increase, we still expect solid underwriting performance. Specialty financial gross premiums will grow marginally, but we don't expect underwriting profitability until the latter part of 2006. We do expect increased investment income as a result of growth in the portfolio, and some improvement in investment yield. With that we're targeting our core earnings to be between $3.70 and $4.00 per share.

Thank you. We would like to open up the lines for any questions you have now.

(OPERATOR INSTRUCTIONS). Charles Gates with Credit Suisse First Boston.

A couple of questions. One, you didn't exercise the -- I believe the pronunciation is SEDA during the quarter, did you? The standby equity distribution agreement?

No, we did not.

That was my first question. My second question -- you did a better job of explaining the real estate than I can recall. Is there any ingredient or explanation for the increased sale of properties other than seemingly interest rate is very low and real estate has gone up in value?

We are opportunistic buyers and sellers of our real estate properties. And evaluations today have -- certainly look pretty healthy. So on properties that we view as being more mature, we're looking at recognizing some of the gains.

One of you said during the call that if interest rates remain at current levels the life insurance company may be required to write off certain DAC. Could you elaborate on that?

Sure. First of all, we don't expect it to be any kind of a material number. Our assumption that we have used actuarially related to the profitability of the business over the life of the fixed annuities is that reinvestment rates would move up. Our assumption today is that in 2005 we would earn a reinvestment rate -- in other words, a new money investment return of 5.5%. In fact in 2005 we're going to exceed that 5.5%. But our assumption is that reinvestment rates will increase one-fourth of a point each year until it hits 7%. And then we cap it out then for the life of the annuities at that 7% rate.

Because of the flatness of the yield curve, if you go look at the futures market, and look at the market's prediction of how much interest rates are going to move up in the future, it would appear that -- it is something at year-end we're going to have to review to see if we need to change those assumptions. Given the recent move in rates, frankly, the assumptions that we have in place aren't far from today's forward rates. But it is something that we're going to review. Something that we do review every year end to make sure that the actuarial assumptions that we're using are in line with the market.

One of you made reference to the fact that Workers' Compensation rates I believe in California were off some 26%. When did those rate adjustments begin to flow through? I guess that was the timing of the reform bill out there. But when approximately did that occur, and how do you see that evolving from here?

We adjusted rates back in July, down some 25%. That is really what has impacted the recent quarter. We thought that, again, based off of our projected experience that was warranted. That is what is driving the decrease in the quarter.

And you would foresee that continuing at least until perhaps basically it comes up nine months from now, I guess?

Yes. Nine months from this point that will cycle through.

(OPERATOR INSTRUCTIONS). Charles Gates of Credit Suisse First Boston.

I guess the other question is, if you could talk to, or elaborate, on pricing in your other principal property casualty lines, and how you see that having been impacted by all these horrible storms?

Sure. This is Carl. Let me just start with the quarter. We are still pleased with overall with our pricing holding in the third quarter. As I mentioned, our overall pricing was down about 1%. If you exclude California comp, our pricing actually was up a couple of percent. And business by business in the third quarter, specialty property and transportation rates were up about 1%, and specialty casualty rates were up about 3%. We have talked about comp. So overall down 1% and up 2%.

Katrina will definitely impact -- have a positive impact on, we feel, on pricing going forward, particularly in many of our property businesses. Any coastal properties that we write generally have been in inland marine, crop, our excess and surplus lines businesses where there is more flexibility. So business we will be writing going forward will definitely see increased pricing.

I believe that the same increased pricing, at least from our standpoint will impact our appetite on excess property in California quake for instance. So in the property part of our business definitely going to have an impact. And that is where I think that with Wilma's losses on top of Katrina and Rita, I think that is going to have a positive stabilizing impact probably on the casualty side as well. So we see some good things coming from that. And we're in a great capital position today to take advantage as we see some opportunities.

I'm showing no further questions at this time, sir. Ladies and gentlemen, this concludes today's question-and-answer session. I would now like to turn the call back over to management for any closing remarks.

Thank you. We appreciate you joining us for this conference call. And we will look forward to reporting our full year and fourth quarter results to you in the next year. Thank you and have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.