American Financial Group Inc (AFG) 2009 Q4 法說會逐字稿

Good morning. My name is Sandrell and I will be your conference operator today. At this time, I would like to welcome everyone to the American Financial Group 2009 fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. (Operator Instructions)

Now I'd like to turn the conference over to Keith Jensen, Senior Vice President of American Financial Group. Please go ahead.

Thank you. Good morning. I'm here with Craig Lindner and Carl Lindner III, the co-CEOs of American Financial Group. We're pleased to welcome to you American Financial Group's 2009 fourth quarter earnings results conference call. If you are viewing the webcast from our website, you can follow along with a slide presentation if you'd like.

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. Factors that could 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 10K and quarterly reports on form 10Q. 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.

Core net operating earnings is a non-GAAP financial measure which sets aside items that are generally not considered to be part of ongoing operations such as net realized gains or losses on investments, the effects of accounting changes, discontinued operations, significant asbestos or environmental charges and other nonrecurring items. AFG believes this non-GAAP measure to be a useful tool for analysts and investors in analyzing the ongoing operating trends and will be discussed for various periods during this call. A reconciliation of net earnings attributable to shareholders to core net operating earnings is included in our earnings release. I am pleased to turn the call over to Carl Lindner III, Co-Chief Executive Officer of American Financial Group to discuss our results.

Good morning and thank you for joining us. We released our 2009 fourth quarter results yesterday afternoon. AFG has continued to post excellent operating results even as we are faced with soft pricing, decreased commercial demand resulting from the depressed economy and fluctuations in investment valuations. I am pleased to report that for the full year 2009, our business has set new records by generating $493 million or $4.23 per share in core net operating earnings and $519 million or $4.45 per share in net earnings attributable to shareholders. The depth and breadth of AFG's specialty insurance expertise has enabled us to deliver high caliber service to our policy holders and agents and produce long-term value for our shareholders. Craig and I want to thank God for his blessings and thank our talented management team and employees for their efforts and contributions this year. I'm assuming that the participants on today's call have reviewed our earnings release and the supplemental materials posted on our website. I'll review a few highlights and focus today's discussion on key issues and our outlook for 2010.

Let's start by looking at our 2009 fourth quarter and full year results summarized on slides three through five of the webcast. Our fourth quarter core net operating earnings were $1.04 per share, the same as those in the prior year period. Full year net core operating earning operating results were up 4% over the 2008 period. The 2009 periods reflect improved underwriting results in our specialty property and casualty operations. Our net earnings of $1.38 per share for the 2009 fourth quarter and $4.45 per share for the full year were also substantially higher than the 2008 periods, primarily because of net realized gains on investments. During the fourth quarter, we recorded an after-tax realized gain of $49 million or $0.42 per share on the sale of a portion of our holdings in connection with the IPO of Verisk Analytics. We're very pleased with our returns on this investment and continue to hold approximately 6.7 million shares of class B common with a cost basis of approximately $24 million. Class B shares are convertible into class A shares on a share per share basis after the expiration of holding periods. The class A shares had a market value of $186 million at Monday's closing price. Return on equity for 2009 was approximately 17% and an annualized average return on equity over a five-year period was 12%. Both measures include realized gains and losses.

One of our important strategic objectives is to deploy our excess capital in a way that enhances shareholder value. To that end, we purchased 3.3 million shares of our common stock at an average price of $24.62 per share during the 2009 fourth quarter. We've also repurchased an additional 1.7 million shares through February 8th, bringing total repurchases since October to 5 million shares at an average price of $24.79. We believe the purchase of shares below book value is an appropriate means of increasing shareholders value. As you'll see on slide four, AFG's book value per share including all unrealized gains and losses on investments increased to $33.35 as a result of strong earnings performance, a significant improvement in the market value of our investment portfolio, and the share repurchase activity. This represents an increase of 55% from the $21.54 per share reported at the end of 2008. Tangible book value was $30.99 at December 31, 2009, up 63% from year end 2008.

Our capital adequacy, financial condition and liquidity remain strong and are key areas of focus for us especially in these times of economic uncertainty. We've maintained capital in our insurance businesses at levels that support our operations and are consistent with amounts required for our rating levels. We've spoken often about keeping some powder dry and I believe that our management team has honored that philosophy in a manner that has allowed to us manage our business cautiously yet opportunistically. At the end of the year, available cash at the parent company was approximately $200 million with excess capital more than $450 million. We anticipate continuing to generate additional capital and cash through operations during this year. Our cash and cash equivalents of $900 million in our insurance companies, along with our annuity groups and membership in the Federal Home Loan bank of Cincinnati provide us with liquidity to meet any unexpected events.

Now turning to slide six, you'll see summary results of our specialty property and casualty operations. Overall underwriting profits in the 2009 fourth quarter were excellent, generating a combined ratio of 84%, a three-point improvement over fourth quarter 2008. The largest components of this improvement included record profitability in our crop insurance operations resulting from attractive crop yields and relatively stable commodity prices. Additionally, favorable trends in used car sales prices resulted in the reversal of loss reserves in our runoff automobile residual value insurance operations. These improved results were partially offset by reduced underwriting results and Marketform's Italian medical malpractice business and several of our other businesses. We're satisfied with the overall property and casualty accident year return which is in the high teens.

We continue to focus on pricing our business to achieve appropriate returns. We simply won't write business that won't generate appropriate returns. As evidenced by reductions in top line growth in some lines. We know we'll see the results of today's pricing decisions for years to come and believe our disciplined approach will allow us to provide quality products to our insureds at competitive rates. The average renewal rates in the specialty operations during 2009 were flat compared to the prior year. The decreases in net written premiums for the 2009 periods were primarily the result of our decision to exit certain automotive related lines of business as well as changes in our reinsurance for the crop business and lower crop prices. We have an agreement under which we ceded 90% of our net premium as compared to 50% in 2008. In 2010, we'll return to the prior level of cessions.

The related profit sharing component allows us to benefit from the favorable results in this business. As I mentioned, soft market conditions and planned volume reductions in certain product lines also contributed to the premium declines. If you exclude our crop operations, the overall decrease in net written premium for the 2009 fourth quarter was about 12% and 10% for the year. Gross investment income related to our property and casualty operations was down approximately 8% for the quarter when compared to the same period last year. Primarily as a result of decreased holdings and higher yielding investments and generally lower reinvestment rates.

I'd like to discuss a few highlights from each of our specialty business groups on slides seven and eight. Property and transportation group generated excellent underwriting results during the fourth quarter, full-year 2009. Higher underwriting profits in both periods were driven primarily by record profitability in our crop operations. In addition, catastrophe losses in the property and marine operations were significantly lower for the year. The Risk Management Agency and the Federal Crop Insurance Corporation issued the first draft of the 2011 Standard Reinsurance Agreement commonly called the SRA in December of last year. Comment period closed in mid-January and a second draft was expected within the next several weeks. The current draft of the SRA includes several proposed changes to reduce revenue to participating insurers. The first policy covered by the new SRA terms will be effective July 1, 2010. So we'll have one more calendar year of business subject to the current SRA terms. Regardless of the outcome, we ultimately need to adjust our business model to align delivery costs with underwriting margins. At this point, we're early in the process and we'll know more as the 2011 SRA is finalized.

Our specialty and casualty group posted an underwriting loss for the fourth quarter of 2009 primarily due to $48 million in adverse development recorded in Marketform's Italian public hospital medical malpractice business for 2008 and prior years, which Marketform has ceased writing. Approximately one-third of this adverse development is offset by the portion of such losses attributable to noncontrolling shareholders of Marketform. Excluding Marketform's losses, the group had a combined ratio of 98% for the quarter. Other businesses in this group such as our specialty human services and strategic comp operations produced excellent underwriting profit margins. These results were more than offset by lower underwriting profits in our excess and surplus lines and general liability operations and a higher accident year losses in a book of program business. This group produced a solid underwriting profit for the year, but at a lower level than 2008. Average renewal rates for 2009 were flat compared to 2008.

Moving on to the specialty financial group, they reported excellent underwriting profits for the fourth quarter and full-year of 2009. A meaningful improvement over 2008 results. These improvements were driven by improved results in our runoff RVI business where we recorded an additional $21 million of favorable development during the fourth quarter and $90 million for the year as a result of significant improvement in used car sales prices during 2009. Earlier in 2009, AFG made a decision to exit certain automotive-related lines of business, which along with the impact of the economy on sales of other auto related products, contributed to declines in gross and net written premiums in this group. Average renewal rates for this group were up about 3% in 2009.

Our California workers comp business reported a $2 million underwriting gain for the fourth quarter and a small underwriting loss for the full year of 2009. AFG's Republic Indemnity subsidiary filed for an 8% rate increase, effective January 1, 2010, in addition to the blended 8% rate increase filed last year, effective July 1, 2009. Underwriting results continue to be affected by lower prices in a competitive environment. 2009 accident year combined ratio was 112% compared to 94% in 2008. We firmly believe that more rate is needed to achieve appropriate returns, especially as we're seeing some increases in severity trends in this business primarily related to increases in medical costs. On a more encouraging note, our average renewal rates in California were up 9% for the quarter.

Now I'd a like to move on to a review of our annuity and supplemental insurance group on slide nine. Annuity and supplemental insurance group generated pretax core operating earnings for the fourth quarter of 2009 that were approximately $3 million lower than the comparable period in 2008. Results for the fourth quarter include a $13 million pretax write-off of deferred act costs related primarily to our fixed annuity business. We recorded similar DAC write-offs in 2008 related primarily to our variable annuity business. These charges were recorded in connection with their review of major actuarial assumptions, including management's expectation of investment yields. Full-year pretax core operating earnings in 2009 were $4 million higher than 2008 results. Increased spreads in our fixed annuity lines in the first half of 2009 and improved results in our variable annuity operations were partially offset by lower results in a long-term care segment of our supplemental insurance operations.

We continue to experience strong persistency in our annuity businesses. During 2009, surrenders on our fixed annuity block were about 14% lower than last year as many of our annuities are designed with surrender protection features. We continue to move toward product designs that reward policy holders and agents for long-term persistency. We do believe the focus on healthcare reform and Medicaid cost reduction could expand demand for Supplemental health products. Statutory premiums for the fourth quarter of 2009 were down slightly from those in the fourth quarter of 2008 as increased sales of traditional fixed annuities were more than offset by lower indexed annuity sales and lower sales through the bank distribution channel. A decrease in premium is consistent with our strategy of exercising financial discipline and the pricing of our annuity products.

Now please turn to slide ten for a few highlights regarding our investment portfolio. During the fourth quarter of 2009, we recorded after-tax realized gains on investments of $40 million including the gain on the sale of a portion of our Verisk investment mentioned earlier. This gain was partially offset by the net effect of impairments and gains on sales of other investments. After-tax unrealized gains were $166 million at December 31, 2009. This number reflects a pretax unrealized gain on fixed maturities of $93 million. The vast majority of our portfolio is held in fixed maturities with approximately 92% being rated investment grade and 95% with a designation of NAIC 1 or 2. We have provided additional detailed information on the various segments of our investment portfolio in the investment supplement on our website.

Now I'd like to cover our outlook for 2010 on slides eleven and twelve. We announced yesterday that we increased our 2010 core net operating earnings to be in the range of $3.30 to $3.70 per share. Key assumptions factored into our 2010 guidance include less favorable reserve development than we recorded in 2009, underwriting profits in our crop operations, they're expected to be lower than the record results produced in 2009, a continued soft P&C market and lower investment returns. During 2009, we enjoyed the benefits of higher investment returns particularly in our property and casualty business due to opportunistic purchases of investments. For 2010, we expect the investment returns in our property and casualty business to be approximately $70 million lower than 2009 results, primarily due to the sale and runoff of higher yielding, non-agency residential mortgage-backed securities and generally lower reinvestment rates. We expect to maintain adequate rates in our specialty property and casualty operations because of our strong underwriting culture and expect to achieve a combined ratio of about 88% to 91%. That said, we're targeting modest increases and overall average renewal rates in 2010 due to competitive conditions in certain markets. We expect net written premiums in our specialty property and casualty operations to be up 10% to 12% as we return to historical levels of reinsurance sessions under our crop quota share agreement.

The property and transportation group is expected to maintain its excellent underwriting track record with a combined ratio in the 84% to 88% range. Guidance assumes accident year crop earnings at a more normal run rate, therefore lower than our record 2009 results. We expect this group's net written premiums to increase by approximately 25% to 30%, primarily as a result of higher retention in our crop operations. In 2010, we plan to include our California worker's comp results with our specialty casualty group results due to the decreasing size of this book of business. We expect the combined specialty casualty group to generate strong underwriting profit with a combined ratio in the 91% to 95% range. We anticipate net written premiums will be flat to up 3%. And we look for the specialty financial groups combined ratio to be between 85% and 88%. We project net written premiums to be down 4% to 6% due to primarily to our exit from additional auto related businesses.

Based on recent market conditions and trends, we expect 2010 full year core pretax operating earnings in our annuity and supplemental insurance group to be 10% to 15% higher than in 2009. These 2010 expected results exclude the potential for significant catastrophe and crop losses, significant adjustments to asbestos and environmental reserves, and large gains or losses from asset sales or impairments. Thank you. Now we would like to open the lines for any questions.

(Operator Instructions) We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Amit Kumar with Macquarie.

Thanks. Maybe let's start with the crop book. Can you just give us what the annual adjustment was in Q4 which reduced expenses?

A&O was decreased by virtue of the 2008 act by 2.5%. I don't know if that's what you're looking for.

Can you sort of give an absolute dollar number which reduced obviously the expense ratio to 5.3%?

I don't have the absolute number with me on A&O specifically.

Okay. Maybe I can circle back on that. Just staying on the crop book, obviously we've heard and read and talked about the changes to the SRA. Simplistically, can you give us your viewpoint regarding the proposed annual reduction, maybe refresh us as to what funds you are in the state groups and the crops, and if we were to look at the SRA draft as of today, what would be a possible EPS impact on a normalized basis?

I think that generally with what is initially proposed and what ends up being reality is so much different. We really -- we've been hard at work along with the industry really trying to hash out the industry's response and to try to hash out what might be the final forum that we're going to see in a couple weeks. Maybe in a few weeks we might be able to give you a little bit better clarity as we understand exactly what the changes are going to be in that. I guess, Keith, if you were to take a crack at, in the existing field, the way that it's proposed, the initial, probably wouldn't impact us by 25%.

25% to 30%, I think.

But, we don't expect that to be the final result. Generally, the industry hashes through things, and usually there's some compromises that are made, but we'll see.

And directionally, do you see those compromises happening this time? Because I know if you go back and look at the earlier draft, it was -- the final thing was very different, but just based on the climate this time around, do you think that you would be able to make meaningful headway in producing some of these numbers or where do you stand on that?

I would think so. And there are things that we can also do within our business --

What would those be?

Let me go back. Commissions would be a major thing that we'd look at. That's one of the things that the industry has been providing input as the people in Washington are working through the bill. I guess the other observation I'd make that makes me optimistic that there will be improvement is that this would be, if it was carried out exactly as drafted, be a fairly significant hit into an area where the national interest in terms of farm policy would tend to want to moderate it some. There's clearly going to be some adjustment. They can't make it so draconian that they dramatically affect the economics of the farmers.

Maybe I'll take this offline. I guess just moving on, can you spend -- maybe just talk about the Marketform Italian med mal adverse development? I was a bit surprised just based at least on the broader med mal trends. Was there something specific going on in that hospital book which resulted in this? Is that development now at the full policy limits? Maybe just give a bit more color on this?

Sure. I'd be happy to. This was focused, as you said, in the public hospital arena. The majority of the issues seem to be around the birthing site, the work that is done as babies are born and some of the issues that arose. We also had an issue with one TPA that was not performing and doing adequate reviews of potential claims and making initial claims adjustments. In the connection with the close out of a year of account, we had an actuarial review by a third party actuary. Went in and as they examined it found a number of issues that are being worked on. We've terminated the contract with that administrator because they were proposing a significant issue.

The other thing I'd point out, Amit, the number $48 million is what's embedded in the underwriting. Because we have minority shareholders in the agency that share in this, the net effect pretax to us is about $32 million. So it's something that we're concerned about. We continue to work aggressively on. We think that it was isolated in Italy. Our other med mal books are performing very well. This is one that we're working to get behind us.

And what was the size of the book as a percent of premium overall?

It's been put into runoff, so it's 0% of premium as we go forward.

What was the historical basis? Before it was put in runoff? What percent?

My recollection is it was about 20% of the Marketform premium.

Okay. So if I understand that correctly. You are saying it was a localized issue, and not sort of indicative of the entire Marketform franchise?

Correct. In fact, all of the other books of business in the Marketform franchise are performing according to our expectations and we're really pleased with the start-ups. As you know, when we went into Marketform, part of our objective was to take five businesses that we've done well in the US and expand their geographic region. Those processes are going quite well.

Okay. That's helpful. Just one more question and I'll requeue. In terms of capital management and obviously, you have the buyback. You have the excess capital number in the slide. How do you view this going forward in terms of making changes to the dividend payout or looking at some of the debt? I don't think it's imminent, but maybe just talk about what's the broader thought process here?

This is Carl. I think as far as plans for excess capital, capital management and that, we do want to keep some powder dry. There's some chance that you could see interest rates move back up over this next year. We want to have an appropriate flexibility both defensively and offensively to take advantage of opportunities. Share repurchases below book value would continue to be something that we think makes a lot of sense. As you know, we've started up and added -- done small to medium sized acquisitions over many years. We're continuing to look at opportunities and we'll continue to do that. So I think those would be the primary approach that we're going to take to capital management, excess capital as far as we've increased our dividend I think each of the last four years. At the end of this year we'll revisit that. We think that steady increases in dividends over a long period of time are meaningful to investors. So Craig and I understand that.

Okay. So if I understand this correctly, what's the remainder in your buyback and is it likely that it would be expanded just based on your comment on the price to book?

Yes. Keith, I think there's a million and a half --

$1.1 million left.

$1.1 million left and we have a board meeting tomorrow and we'll be asking for it to be an additional 5 million shares authorized to repurchase.

Okay. That's very helpful. That's all for now. I'll requeue. Thanks so much.

Thank you. Your next question comes from the line of Ron Bobman with Capital Returns.

Hi. I don't know if it's good morning there or not, but in any event.

Morning.

Thanks. I'm not familiar with the Cincinnati time zone relative to the east coast. I had a question about Marketform as well. I was wondering, it sounded like I think it was Carl's comment. It's really sort of aside from the Italian med mal book there's no other change to the underwriting guidelines that you're employing. I think you in effect said that.

That's correct.

Are the losses that are coming through from that book going to cause any complications or problems to close out -- I'm not sure what year it would have been closed out, 2006 or 2007 for the syndicate. Is that going to be a problem at all or no?

2007's the year in question, and that call needs to be made by the end of this month. So we'll be working that through over the next two or three weeks and making a final decision.

Okay. And then Carl, you mentioned the plan with Marketform was to sort of use it as an entree or a vehicle to sort of replicate some of the specialty lines that you write in the US. And for the most part my impression is that you sort of have the localized approach to underwriting whether it be workers comp concentrating in California, crop in certain parts of the country and presumably you have localized operations. The Marketform vehicle of sort of underwriting from London Insurance across continental Europe is a bit of a departure from that. Is that not the case or --

Well, we've hired some really top local talent that understand those markets. So I don't think it's really a departure from what our philosophy is. We've -- in the area of specie and equine and ocean marine, some of the lines that we want to expand off the Marketform platform, we've hired some highly talented individuals that have worked in and looked at business in those markets for a long time. We've had good success here this past year. We probably expect to add, I don't know, probably expect to write, Keith, $50 million to $70 million this year of the four, five expansion lines that we've set out. So far we think the loss experience looks about as expected.

Marketform, I thought used to write a little over $100 million of premium. Is it dropping down or are you just highlighting a couple subsets of the $100 million?

What he just said is additive to --

Oh, okay. Thanks a lot for the color. I appreciate it. Best of luck.

Thank you. (Operator Instructions) Your next question comes from the line of Jay Cohen of Banc of America Merrill Lynch.

Thank you. Good morning. Three topics. First a quick one. We'll start with Verisk. After your required holding period is up, will you be marking that position to market?

Jay, we're actually marking it to market now. As we would any security, we'll run that through gain loss on sale and investments at the point if it comes that we dispose of any of the shares. At this point, we're marking to market.

That unrealized gain is in your book value already?

That's correct. Just be aware that in the market we're cognizant of the fact that what we hold is not immediately saleable, so we've taken a slight discount to what the currently trading shares are. It's less than 10% discount.

Got it. Then just to follow up on the casualty business. First on Marketform. Where in your P&L is that offset related to the minority interest in Marketform?

That would be in the earnings attributable to non-controlling shareholders, the old minority interest.

Got it. Okay. And then last question this surplus. Was your statutory surplus helped at all by the change in accounting regarding valuing mortgage securities on a statutory basis?

Jay this is Craig. Yes, it was, by a number that is approaching $200 million.

That's total for the Company property casualty and life?

That's correct.

Great.

Biggest part of it on the life side because the portfolio's much bigger there.

Exactly. Great. Thanks a lot.

Thank you. (Operator Instructions) And do you have a follow-up question from Amit Kumar with Macquarie.

Just maybe some follow up cleanup questions. In terms of the adverse development, there was some other adverse development apart from the Italian med mal. Could you just sort of expand on that a bit?

The adverse development, as you said, Italian med mal was certainly a part of it. We had some modest amounts. I'm just looking down my list here to see if there's anything else that the largest other was less than $3 million. So there's a potpourri of items that went in, but the huge driver was the Italian med mal.

Okay. Maybe just going back to the guidance change. Can you sort of talk about what incrementally changed apart from the buyback?

I think probably plain and simple is probably the amount of share repurchase activity that we've had in the fourth quarter and first quarter and kind of a -- as the markets returned, the impact on the excess capital that we have to use this year towards additional share repurchases or acquisitions, et cetera.

So it's only the buyback. You're view hasn't changed whatsoever from the time of Q3 call to current?

During that time to be fair, Amit, we have finalized the ground up financial planning process for the next year. That didn't drive huge changes, but there were certainly fine tunings that took place in that process.

That's very helpful. Maybe I missed this. Can you just sort of talk about a bit more about investment portfolio and your plans for the new money?

We saw some extraordinary opportunities last year to invest in both mortgage-backed securities as well as corporates, and, frankly, the spreads on most things have tightened up fairly significantly and recently we've been derisking the portfolio. We're investing mainly in high grade corporates. The non-agency residential mortgage backed securities are running off, and frankly, the combination of those couple of things, the lower reinvestment rate and runoff of some higher unit paper is going to result in a decline and investment income.

Got it. Maybe just one final question related to that. Can you talk about what your expectations are for inflation going forward?

We would be concerned about it over the next -- if you look at over a little longer period of time. And we are doing everything that we can to prepare for the day when inflation is going to rear its head. I don't think it's going to happen any time soon, but certainly over the next two or three years, we would expect to have higher rates, and we're going to position the portfolio as best we can, and structure our annuity products as best we can to prepare for that day. I think the duration of our assets today is actually slightly shorter than the duration of liabilities. We're keeping an unusually large amount of cash in the portfolios. And the design of the annuity products, as I mentioned, is changing to give us added protection against a rise in rates.

I would just add a couple thoughts with respect to the property and casualty. You'll remember in the property and casualty business, the duration of reserves is about 2.5 years. The duration of the investments associated with property and casualty would be shorter than what they are in the annuity and supplemental businesses. So that, plus the fact that we're looking carefully at trends so that we can adjust, we just don't have a huge exposure because not much of the book is long term. So it turns over pretty quickly and we can stay on an asset and liability perspective on a pretty similar basis.

Okay. That's all for now. Thanks. Thanks so much.

Thank you. You do have a follow-up question from Jay Cohen with Banc of America and Merrill Lynch.

Just to make sure we cover this fully. The adverse development in the casualty business outside of Marketform, you said there was no major thing. Are there any trends? I think this is a pretty sensitive issue. A lot of investors and analysts that are watching the development that we've seen looking for any inflection points. I'm wondering if you look at this quarter and said gee, is there something here that's broadly speaking, somewhat disturbing from a claims inflation stand point that you need to start addressing?

I don't, Jay. When I look at this from an adverse development in the quarter, it is driven primarily by the Marketform issue, which is not an inflation indicator at all. And when I look at across the year and each of the individual quarters, there have been favorable development. Of course you can't continue with that forever, but by the same token, I don't see anything dramatic that's changing where we have been.

Very good. Thanks.

Thank you. (Operator Instructions) Thank you. There are no further questions at this time. I would like to hand the call back over to the floor for any closing remarks.

Thank you very much. We express appreciation for all of you for joining us this morning and look forward to reporting our first quarter results as the year progresses. Thank you and have a good day.

Thank you, ladies and gentlemen. This does conclude today's American Financial Group 2009 fourth quarter earnings conference call. You may now disconnect.