Brown & Brown Inc (BRO) 2002 Q3 法說會逐字稿

Good morning and welcome to the Brown & Brown third quarter conference call. Before we begin, we would like to inform you that certain of the information that will be discussed during this call including answers given in response to your questions, may relate to future results and events, and otherwise be forward looking in nature and reflect our current views with respect to future events with respect to future performance. Actual events and

Welcome everyone to our third quarter results. I'm going to ask Cory Walker, our CFO, to review them and then I'll come back and give a little extra overview and then ask for questions. So Cory it's all yours.

Thanks Hyatt. The third quarter of 2002 was a good quarter and really went according to our expectations. From the earnings perspective it appears to be a hohum, same as type quarter, and for the most part it really was. But given the entire marketplace and the daily uncertainties, it's quite a testament to our employees of Brown & Brown from our outstanding producers and service reps to their staff that they grind out every day to get our new and keep our renewal business. Just in order to meet and exceed the budgets which are stretch budgets and for the last quarter they actually did a marvelous job of doing that.

It's because of them that our earnings per share for the quarter was 29 cents, up 38.1 percent from the 21 cents we had last year in the third quarter. As has been the case for the last few quarters, the earnings growth is primarily driven by our revenue growth. And our total revenues increased 23.2 percent to $110.7 million, up from the $89.8 million recorded in the third quarter of 2001. Of course, in our press release is a table that summarizes the total growth rates and the internal growth rates from our core commissions and fees which excludes the profit sharing contingency revenues and the revenues from any office of programs sold or discontinued since last year.

You may have noticed that a typo in the heading of the description of that schedule which refers to a 9-month when it really should be read as three months. The column heading there do appropriately show that it's for the quarter ended September. So I apologize for any confusion that may have given you on reading that schedule. But if you look at that internal growth schedule, total core commissions and fees for the quarter increased 26.5 percent, or $22.9 million of new commissions and fees. Of this total $13.3 million were generated from businesses that we acquired since the third quarter of last year. Therefore, the remaining $9.6 million of that growth came from internally generated organic growth, and that's 11.2 percent growth rate.

Similar to last quarter, all of our business segments contributed with positive internal growth rates. Of that $9.6 million of internal growth dollars, 43 percent of that came from our Florida retail division. 22 percent of it came from our national and western retail divisions. 16 percent came from the brokerage segment. And 19 came from the other three business segments.

Hyatt is going to talk about each one of the activities in each of our business segments. But summarizing where those growth rates are is the Florida retail, led retail growth with 15.3 percent, and that is an increase over the second quarter growth rate. National retail and western retail had a 5.2 or 5.8 percent growth rate respectively. And both of those growth rates were higher than their second quarter. Professional programs, which didn't have any acquisition activities, had a pure internal growth rate of 9.1 percent. Special programs grew at 8.9 percent. Brokerage led the company again with strong growth rate of 51.3 percent. And our third quarter administration services group had a 14.2 percent growth rate.

While our total revenues grew by 23.2 percent, our total expenses only increased 13.3 percent. Thereby allowing our pretax income to grow at a more rapid pace at 54.4 percent. All of our expense categories remain very consistent to the previous quarter, as a percentage of total revenue. And therefore I don't think I really need to walk through each one of those categories. The one exception to that, though, was a net increase of about $700,000 in our non-cash stock grant compensation line, which increased because of some vesting accelerations on some previously issued grants.

Our margins on the income before taxes and minority interest for the current year was 30.2 percent, which is up from the 24.1 percent margin recorded last year's third quarter. Then after you take out our income taxes and deductions for minority interest, our net income for the third quarter was $20.2 million, up from the $13.4 million last year's quarter. That's a 50.6 percent increase. If you look at those earnings in terms of cash, our noncash expenses of amortization, depreciation and the non-cash stock grant compensation for the third quarter of 2002 was approximately $6.8 million. And that equates to approximately ten cents per share for the quarter. And when you add that ten cents, our cash earnings for the quarter ends up being approximately 39 cents.

Since the results for the nine months ended September 30th, 2002, are also consistent with the quarterly results in terms of the growth rates and the expenses as a percentage of revenue and the operating margins, I'll dispense with regurgitating those numbers you can read in the earnings report. We're proud to say we had the $336.6 million in total revenues through nine month period and we do expect to approach the $447 million mark by year-end. That's excluding any acquisitions that may present themselves to us in the fourth quarter.

We're also proud of our year-to-date operating margins. Our margins on income before income taxes and minority interest for the nine month period was 30.5 percent. And if you exclude the interest and amortization expense, which is really what we've referred to internally as our operating margin and which is also our bogie on our 'B40' goal-that number was 34.6 percent. Just two other quick margin numbers, the traditional EBITDA margin for the nine month period would be 36.2 percent. And then if you exclude the non-cash stock grant compensation from our numbers in order to compare it with those companies that issue stock options that aren't expensed, that margin for the nine month period is actually 37.1 percent. So they're very good margins and everything is going according to plan and we had a good quarter. With that I'll turn it back over to Hyatt.

Thanks, Cory. Several things. We are very pleased with the quarter. A lot of things are going on sort of simultaneously. And I'll talk about several of those things. First of all, let's talk about internal growth. Our internal growth continues to move along. We find that the fastest growth in the retail area, of course, is in Florida retail. It moved from an internal growth rate of 14.4 percent up to 15.3. Both national and western retail have moved. Also National retail moved from three and a half percent internal to 5.2 and Western from 4.9 to 5.8. So we're very pleased with that.

Professional programs moving a little bit. Special programs was down a bit. And it's a bit of an aberration. There's a few reasons. The first reason, and these are not large numbers, but they look to be larger because of the percentage application, our partial insurance plan located in St. Louis which is a plan, a program that writes parcel post insurance on B2B, meaning business-to-business shipments. And those shipments have been down. And have been down really for the whole year. So they were down about 11 percent. And the revenues for the quarter are about $1.4 million. But the other area where we were down, and this gets caught back up, is that in RMATFI, which is our operation that specializes in small and middle sized municipalities, a great portion which are in Florida.

The renewal on the property insurance for most of those accounts is October 1. And so the yanking and jerking started about the 15th of August and it didn't conclude until after October 1, and we did very well on the renewals, as a matter of fact. But there's a lot of blood, sweat and tears laying around. But in the meantime, the attention towards new business and actually booking of renewals sort of slowed to a halt. So that's the reason that RMATFI was down. The other parts of special programs are going along very well.

In terms of the economy, we do see a little slowing here and there up state New York a little bit. Maybe a little bit out in the Washington State, California has got some blurps in it. But the bottom line is that vanilla middle market business, which is what we're primarily in, continues to move along pretty well. We are seeing a few more return premiums on audits as opposed to additional premiums on audits, not a huge difference, but a difference. And also for the last really year, year and a half, more and more business has been moving from standard markets to E&S markets. Of course even though the premium goes up, when a retail office goes from a standard to nonstandard market, the commission generally will go from, let's say, 14 or 15 percent down to maybe seven to 10 percent.

The other piece of the commission, of course, is over in the E&S area. And to the extent we would capture it in our E&S segment of our business and we keep it. However, we think that since we don't force our retail offices to do business with our wholesalers unless they it's in their best interests, we feel that probably somewhere in the neighborhood of 12 to 15 percent of the business that Brown & Brown has in the nonstandard market resides in our own E&S profit centers.

Now, that's moved up from about five or six percent a couple years ago. And we are putting special emphasis on trying to move that from that 12 to 13 percent maybe to as high as 25 to 30 percent. And there's obviously, when you look at the brokerage revenue gain, which is a little over 50 percent, you can see that they're growing the most rapidly of anything internally.

Relative to acquisitions, we're on course on acquisition. I think in house so far announced is about $33 million, $32 million. And we have a very full pipeline. We are being very careful about a couple of things. Number one, making sure that rising revenues are in fact accurately stated. And then, of course, as everyone knows, we really don't do any acquisition unless we know that out of the box we can get our margins on day one. And so we continue to follow our stringent game plan.

The question that is certainly still on the minds and the hearts of many, many people is the length and extent of the hard market. And kind of interesting, I've just returned from a meeting of the council of insurance agents and brokers up in West Virginia, White Sulpher Springs, where insurance carriers and brokers meet and talk about the state of the marketplace. One of the things that I'm very pleased about is that a large number of the companies are much more aggressive in coming after our business than they have ever been previously. And there are several reasons for that.

First reason is that in the case of many of the national carriers, there are brand new CEOs and they're looking at things on the basis of where do we make money and where do we not make money and making favor like decisions on that basis. And so one of the things that we have done, and are reflected in our numbers, is that our contingent commissions each year have been growing relative to the eligible retail premium. And of course what that means is that the insurance carriers are making a lot of money on our business. And of course it is middle market and there has been a tendency in the past for many risk bearers to look at the largest accounts and talk about those accounts when they talk about what they're writing in terms of new business. And now they've figured out that those accounts in many cases are losers. So they're looking for the cream of the crop. And we have a lot of that.

So we're very pleased with the fact that we're being pursued even more aggressively in terms of writing new business with a large number of companies. So that's a positive. The general opinion, however, in terms of the market, is that the risk bearers themselves are having great difficulty in making money in their investments. And that's not anything news to you all. Therefore, operating margins, when I'm thinking about operating margins, I'm thinking about the combined loss ratios are going to have to operate below 100 and many cases have never operated below 100. So that's a new kind of culture and a new sort of thought process.

Out of that becomes some new companies. And one of the new approaches to risk bearing is to have a highly capitalized risk bearer coming on shore with no tail for old claims. Not wanting to spend time in recruiting a broad based of underwriting talents but centralizing the underwriting talent and trying to go in and focus on certain specific areas. And in a rising market kind of creaming the market. That seems to be working in a couple three cases. Yet also means that as those people continue to grow in this particular marketplace, they're going to be coming more into the mid-market because they start at the largest, with the largest risk first. Again, good things for Brown & Brown.

So the bottom line is that looking into the fourth quarter, we're very optimistic about the fourth quarter. We're starting our rigorous review of our budgets for next year. And of course the first is due on October 15. And then the next cut on the 15th of November. And then the yanking and jerking really starts in December. And by the last week in December we'll have them all done. And I think this quarter, fourth quarter, is going to be a good quarter. And I'm kind of optimistic about next year also. So having said those things I'll be glad to open the floor for questions.

Thank you, Mr. Brown. The question and answer session will be conducted electronically. If you would like to ask a question please do so by pressing the star key followed by the digit 1 on your touchtone telephone. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star 1 to ask a question. We'll go first to David Louis withSunTrust Robinson Humphreys.

David Louis (ph): Good morning. A couple of questions. You talked about national carriers moving to the middle market for basically better performance in the business that they're underwriting. Wouldn't that ultimately put some pressure on pricing which would potentially hurt the right environment and your commissions?

It doesn't hurt commissions. But competition will ultimately force pricing down. The offset to that is that the national carriers do not have in every underwriting office necessarily a team that can expand itself or can go after our business, so to speak. So what we're trying to do is, and what they're trying to do, is match up a specific underwriter in each geographic area for two, three, four five of our offices, because what will happen if we find an underwriter that's really good we'll inundate them with business and they will have so much business they can't shake a stick at it won't be able to do work for anybody else. National carriers are used to dealing with national brokers who have centralized resources and they go to a centralized source in a home office in New York or Chicago or wherever it is and they force feed business which is not necessarily new business, it's just rolled business through regional marketing centers or what have you.

Our structure is different, and that's why the national carriers have such difficulty in penetrating us. And that's why we have such a large percentage of our middle market business with regional companies-companies that are mutuals and/or not publicly owned.

So what we're seeing is that there's going to be all of 2003 and into 2004, there's going to be some real tightness in business in the middle market. And to the extent that we're able to lash up with new underwriters who are good in certain offices and certain geographic areas, it means very good things for our offices.

Thanks for the commentary, but can you give me an idea how much of the business is now coming through E&S carriers versus a year ago that would generate a lower commission.

David, I don't know. But there is a chunk and we don't follow it that way so we don't know. But there is a chunk of it.

OK, Final question. Can you discuss in any more detail what the outlook for internal revenue growth might be for 2003? I think you've been fairly comfortable this year with kind of 10 to 12 percent range. Do you think that's reasonable for next year? And also any expectations for acquisition revenues for 2003?

Basically the growth rate, internal growth rate, based on our current view, doesn't appear to be any different. In other words, we think we can steam along at about the same level. In terms of talking to some of the members, again, as the council of insurance agents and brokers, the same kind of feeling. And some of the privately owned firms growth is a little lumpier than ours because they don't necessarily, they're not as acidious about entering into the business when it is bound as supposed to when they receive the policies, sometimes receiving the policies could be couple three months later.

So from the standpoint of looking forward, we don't see certainly any dimunition at this time in the internal growth rate. Relative to M&A, we are still very positive about that. And we're talking to a lot of very good people and have some things going on. So I think we'll do very well.

Thanks very much.

We'll take our next question from Nick Fiskin with Stephens Incorporated.

Barry McCarver (ph): This is actually Barry McCarver (ph), congratulations on the quarter.

Thanks, Barry.

McCarver (ph): Can you walk through the components of the Florida retail and tell us why is that so much higher on the internal growth side than the other two retail divisions?

Very simple, that's where the culture started. That's where we have been doing what we've been doing longest, and that's where we have the deepest team. It's all people.

McCarver (ph): Then just as a follow-up to the previous question on the acquisition pipeline. Can you comment at all about what the fourth quarter is going to look like? Is it going to be about the same as the third quarter? Are you seeing any acceleration?

Well, we don't know. Nothing is done until it's done. And so actually M and A is a little bit like going fishing. Sometimes they're biting and sometimes they're not. And so we figure that probably we'll be able to make whatever goals that we've set internally.

McCarver (ph): All right. Thanks a lot.

Did that answer your question?

McCarver (ph): I can't think of a better answer.

Our next question comes from Nick Persos from Sandler O'Neil & Partners.

First on the stock grant expense in the quarter walk me through the mechanics, is this an run rate at this level or what happened in the quarter that would -

Cory, you want to talk about that?

Nick, the run rate is more comparable to the last quarter. The reason why there was an increase in this quarter was simply some unfortunate deaths happened and in our plan whatever has been awarded to them, it is a protection for them if they become -- if they die or become disabled, they automatically vest to them. So it's part of the plan that again the people are out there working and creating their earnings for the company. But this is a protection for them and their family as they create wealth. So it was very unfortunate on a couple of these deaths. So at that time we do have to accelerate the expensing on those particular grants.

Okay. [Inaudible].

[Inaudible] he was talking about.

That was helpful. Hyatt you made some comments I didn't get the distinction. Return premiums versus something else. Maybe you can just walk me through that as well.

Sure. Workers comp, general liability and some other policies are audited policies. So there is a premium that's charged which is a deposit premium based on an estimate of either payroll or sales or what have you. And so at the end of the year, which is generally 90 days after the end of the year, an audit is made. And then additional or return premium is charged. In a growing economy, the premiums are almost always additional premiums which create additional revenue. What I was saying is that as a reflection of what's happening in the economy, we're getting more return premiums today than we were six months ago and 12 months ago.

Okay. Great. Thank you.

Our next question comes from Matthew Ross well with Legg Mason.

Good morning. Congratulations on a good quarter. A couple questions here. First of all, can you provide some feel on the ability of your producers to get policies bound. Is that changing? I know last quarter there were some issues with things being done at the last minute.

Good question and it varies all over the lot. We still see renewal pricing and terms and conditions coming in on the day before the doggone thing renews. And that's very stressful. We don't seem to see a change on that. But that's because all of the companies are being very serious about doing underwriting and saying, well, we're not going to renew this or we are going to. What has happened to us is it seems like there are fewer, at the last moment, well we're not going to do this. Which kind of leaves us in a lurch. But Matthew, that's still happening.

Two more questions, if I can. Can you talk a little bit about the Florida worker's comp market, I guess with C&A pulling out, there was some issues there. Is that settling down?

Well, C&A is not exactly pulling out. I think they're just kind of relooking at things and being a little more sensitive, as are most of the companies in Florida. There is a pending rate increase. The pending rate increase I think is 26 or five or seven percent, 22. And so we don't know whether it's going to be approved or not. But I have a feeling that at least some portion will be approved. And obviously that will be good for us.

Final question, on the acquisition front, are you having to walk away from more deals on price or not really?

No. Price is not really an issue. Earnings is the issue. If we can't get our earnings, we walk. And so I think right now, because of the rise, recent rise in revenues, it's a little cloudier as to sustainability into the future. And we're not too concerned about what someone did last year or the year before unless it's aberrationnal, what we're concerned about is how much are we going to do if they're part of us in the next 12 months and 24 months. So it's a little more difficult now than it was, let's say, two years ago, from that standpoint.

Thank you very much. And congratulations again.

Thank you.

Once again it's star 1 to ask a question. We'll go next to Hugh Warrens with JP Morgan.

Good morning, guys. Congratulations on your show this morning, Hyatt. Big ride from Orlando, I take it.

Actually, they did that in Daytona. As a matter of fact, we had a band and several things and they put us in between the announcement that there was another sniper shooting and the fact that General Electric was downgraded.

Besides that Mrs. Lincoln, how was the show? Just a couple questions. I think everybody hit on it straight out. Cory, what's the trigger on the price, is it 35 for the next reload?

That is correct.

So 35. And so I understand unfortunately why you had to take the higher level this quarter. FIU, is there any changes in FIU from a backing standpoint with what's going on in the reinsurance market now, Hyatt?

No, not at the moment. But what we have is a very broad base of re-insurers that are backing that program. And we've had a couple that have indicated these are new players that want to be included for next year. Next year is June 1. And so at the moment it's about the same as normal.

We've been watching the reinsurance industry and you see people just bolting for the exits as quick as they can right now.

Right.

The only other last question I guess is on the M&A side as you're out there. You talk about commitments and letters and you're obviously seeing more people kind of swirling around in the country. Are you seeing more numbers of banks coming in, less numbers of banks coming in at this point? I know it's a trend we've all been watching but what's your gut feel coming out of the greenbrier.

I think about the same as normal. I don't see any BB&T is the one that seems to be doing it best. And others are sort of around.

So no real new major guys popping up.

I don't think so.

That's a good thing. Thanks again. I'll let other people ask questions. And this is just another great one. Thanks, guys.

Thank you.

Our next question comes from Greg Lappin with Salomon Brothers.

The Florida rate increase proposal of over 20 percent, do you think that will work out?

I honestly don't know. Generally speaking, in the past, over a period of time, when rates truly are needed and necessary, and this one is, it has occurred. And so we are going at the moment into a change in Florida. We as of January will not have an elected insurance commissioner. We will have a chief financial officer who is Tom Gallagher who is currently the state treasurer who is also the insurance commissioner. And so there's an election coming up in November. And between November and January the something, he, Tom Gallagher, will have the ability to make decisions and he's been a reasonable person. So hopefully it will happen.

Okay. And then just a second question. What kind of volume will you have to replace as a result of the nonrenewal of Southern California positions in Florida and other maybe med-mal carriers, do you also have some other carriers that may want to sign up as an exclusive or batch of companies.

We do have other people we're talking to. And there's approximately two to $2.4 million in annualized revenue. And the nonrenewal of that program, I think, is as of -- I think it's as of February, March, April, May, sometime of next year. Maybe it's April or May. And we're moving to try to replace that. However, I will say this, the individual med-mal for doctors is about as screwed up a marketplace as I've ever seen. And so it's not easy. And it would be possible for that program, for the short-term, to go away.

Thank you.

Our next question will be a follow-up from David Louis with Sun Trust Robison Humphreys.

Can you shed a little light on the fact that some clients are trying to take higher deductibles and use other avenues to reduce the overall pain of the rate increase? Are you seeing that in your accounts or are they just paying up?

No, we are seeing that. And particularly on the large property risks, habitational specifically. Not so much condominiums. But certainly large fleets of rental apartments are. And we are seeing on some of our larger accounts the taking of deductibles on property damage and et cetera. And also deductibles in larger workers comp accounts. So yes that is occurring.

Okay. So if you were getting, let's say, on the average 10 percent rate increase on your business or 12 percent and can you maybe share what you think that range is now?

You mean on middle market renewals?

Correct.

It's still eight to 12 percent. And it varies by region and by line of business.

Just in general, I know this is more of a gut feel, but if you were getting let's say a 10 percent rate increase on average and someone is raising their deductibles, you probably on a net basis, the way I calculate it would probably only see seven percent, is that -

No, not exactly, because in that middle market that you're thinking on the eight to 12, this is vanilla business. Generally not subject to many deductibles because you don't have enough premium. So on the larger stuff is where we're seeing those deductibles being introduced and/or increased.

So you're saying you'd be closer to the 10 percent?

Uh-huh, that's right. Assuming that the that account was able to be renewed in the standard market.

I guess what I'm trying to figure out here is are you picking up share against competition in this environment? Obviously as rates rise your brokers have to run a little harder to try to capture business.

The answer is some places we are and some places we aren't.

Okay. Finally question, back to Cory on the non-cash stock grant. Quarterly run rate was in the high 700,000 and last couple quarters.

And that should be kind of the goal going forward until we issue a new set of grants at that $35 mark.

So quarterly range is somewhere around 700, 800?

That's right.

Follow-up question from Nick Fiskin with Stephens Incorporated.

Hi. It's Nick. The question is, are you sensing, to continue your analogy, do you sense there's less fish in the sea?

You mean meaningless companies willing?

Less companies willing and, more importantly, that would fit your business model where you can achieve your margins.

You're talking about acquisitions?

Yes.

Absolutely not. There's more fish in the sea, we had the biggest net in the world we still couldn't do it. There are a huge number of -- this is a broad, broad cottage industry. And so there's no way we could get around to seeing all the people that have kind of indicated they might like to talk a little here and there. It's just not physically not enough time to do it. We're not seeing any diminution in that. What I'm saying and what I was alluding to is that if someone has been growing at one or two or three or four percent and all of a sudden in the last 18 months they've grown 14 or 15 percent, what is the sustainability of that growth rate and what is the growth of the operating profit based on what our best projections are for the next 12 and 24 months. Now, that's a little different kettle of fish and so we're being very careful about that.

Thanks.

And we have a follow-up from Nick Persos with Sandler O'Neil & Partners.

Following up on the question of internal growth of Florida versus the national and western. I think you ascribed kind of the difference in performance essentially to the culture as better or more ingrained in Florida than in the newer regions.

We've been doing it forever.

I guess the question I have is just looking at kind of the first quarter trends, I guess in national and round numbers, they were at eight and kind of migrating down. Western was at 11, have been migrating down. I was just curious, is there anything else there? Is it just culture? Is it one of these fluke things with numbers, just acquisitions, accounts that came bar to working off of a low base, maybe it's a little of everything. Give us a little color there.

It's a little of everything. And one of the things that you must understand is that when we make an acquisition and they're never operating exactly the way that we operate on. And so we have a model and the model doesn't just work. It works categorically. And so you cannot change from a way of doing business for 10 or 15 years to our model overnight and it takes people. And it takes people a little while to get used to it. So that's what's happening. If you went into the west or the north or the Midwest or the Middle Atlantic and you looked at the offices that were in the best shape to adopt our model, those are doing very well. Some of the others are not doing quite so well. It just takes a little while. And sometimes we have to send in some additional people.

Okay. Thank you.

And we have a follow-up from David Louis with Sun Trust Robison Humphreys

Just a final question on the earnings outlook. I would anticipate that for 2002 shouldn't be any problem really achieving something in the $1.20 range which would be a flat fourth quarter relative to the third quarter which would also assume a modest deterioration in margin. Is that something that you're comfortable with?

Yeah, at this stage the $1.20 can be achieved if we get a reasonable amount of acquisitions in the fourth quarter. And keep in mind last year we had a pretty good quarter on contingencies in the fourth quarter that may not be there this year. So from that standpoint the margins may be slightly down, but it's not going to be -- it's not going to be really that much. So I think right now the bottom line is we're comfortable at the $1.19, $1.20 range.

On the contingencies, if you assume half of what you received a year ago, that might be a reasonable assumption or is that still aggressive?

No, I think that we are -- again, the hurricane season is still out there. But provided -- we've been lucky so far in Florida. And as long as the wind doesn't blow too hard, we should be in the -- I think last time I said about a million and a half and maybe it's up to the two to two and a half million dollar potential contingency in the fourth quarter.

Okay. And just logically, if we assume that pricing continues to go up at a 15 percent rate, let's say, 10 to 15 overall and your market continues eight to 10 percent rate increases in 2003 and I think that's reasonable given the environment, is there any reason why you wouldn't foresee just on the surface that you could show something in the 25 percent earnings growth next year which would put you close to $1.50?

Well, that all sounds logical, David, and obviously we're going to push the edge of the envelope. The answer, though, is that before we're willing to speculate on that, we need to have our budgets a lot farther along than they are. So what you've said is a logical, rational dededuction of what probably can occur. And I don't have an argument as a negative. But until we see the numbers I can't confirm or deny it.

I understand. Thanks very much.

Mr. Brown, at this time we have no further questions in the queue. I'd like to turn the call back over to you for any additional closing remarks.

Thank you for joining the call. We're very pleased with the numbers. We're looking forward to having an equally good announcement back in January. So good luck to you all and thank you very much. Bye.

This does conclude today's conference call. We thank you for your participation. You may disconnect your line at this time.

End

J. Hyatt Brown, CPCU, CLU Chairman, President & Chief Executive Officer

Jim W. Henderson, CPCU, CPA Executive Vice President

Cory T. Walker, CPCU, CIC, ARM Vice President, Treasurer & Chief Financial Officer

Laurel L. Grammig, Esq., CIC Vice President, Secretary & General Counsel

Thomas M. Donegan, Jr., Esq. Vice President & Assistant General Counsel