Donegal Group Inc (DGICA) 2004 Q4 法說會逐字稿

Welcome to the Q4 2004 Donegal Group conference call. My name is John, and I will be your coordinator today. At this time all our participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of the conference. [ Operator Instructions ] . I would now like to send the presentation over to your host for today's conference, Mr. Ralph Spontak, Chief Financial Officer. Please proceed, sir.

Thank you very much. Good morning everyone, and welcome to the Donegal Group, Inc. earnings release conference call for the fourth quarter and year ended December 31, 2004. I am Ralph Spontak, Chief Financial Officer, and I will be starting the conference call off by reviewing some of the key financial components of the quarterly and year to date results. I'll then turn the program over to Don Nickolaus who will as usual discuss some of the current trends we are experiencing.

Before we get going I would like to read our forward-looking statement. All statements contained that are not historic facts are based on current expectations. Such statements are forward-looking in nature and involve a number of risks and uncertainties. Actual results could vary materially. Among the factors that could cause actual results to vary materially include: the ability of the Company to maintain profitable operations, the adequacy of the Company's reserve for losses and loss adjustment expenses, severe weather, business, and economic conditions in the Company's primary operating areas, competition from various insurance and noninsurance businesses, terrorism, legal and judicial developments, changes in regulatory requirements and other risks that are described from time to time in periodic reports that the Company files with the Securities and Exchange Commission. In light of the significant uncertainties inherent in forward-looking statements, the inclusion of such statements should not be regarded as a representation by the Company or any other person. The Company disclaims any obligation to update such statements or to announce publicly the results of revision to any of the forward-looking statements including herein to reflect future events or developments. Undo reliance should not be placed on any such forward-looking statements.

With that I'd like to now review the operating results for the fourth quarter and year ended December 31. The Company's results in the fourth quarter continue the trends set throughout 2004 and are characterized by strong underwriting results and solid premium growth. Net income for the fourth quarter of 2004 was $7,224, 890 or $0.53 per common share on a diluted basis compared to $5,179,000 or $0.47 per share on a diluted basis for the fourth quarter of 2003. The net income of 7.2 million in the fourth quarter of '04 represents a 39.5 percent increase over the fourth quarter of 2003's net income.

The Company's excellent underwriting results continued during the fourth quarter of '04 with the Company posting a GAAP combined ratio of 92.7 percent for the fourth quarter of '04 compared to 93.8 percent in the fourth quarter of 2003. Net income for the full year of 2004 reached a historic high of $31,614,000 or $2.32 per share on a fully diluted basis. The year to date figures, just as a reminder, do include an extraordinary gain in the first quarter of 5.4 million or $0.40 per share on a diluted basis that resulted from some GAAP purchase accounting for an allocated Goodwill related to the Lamar's acquisition.

The Company's combined ratio for full year 2004 was 93.1 percent compared to 95 percent for the full year of 2003. Results for both commercial lines and personal lines continue to do very well with both segments posting combined ratios in the low 90s for the full year.

The Company's total revenues in the fourth quarter of 2004 increased 35.5 percent over the same period of 2003 to $75,480,000, excluding the premiums earned from the two acquisitions that took place during 2004 the Company's premiums would have grown at a rate of 9.8 percent in the fourth quarter. The Company's GAAP expense ratio in the fourth quarter was 32.5 percent continuing to reflect higher levels and incentive expenses due to the Company's low loss ratio and increased profitability.

Loss developments continue to be good with the Company's reserves from the end of '03 continuing to show strong redundancies through the end of the year. The fine operating results continued to help improve the Company's book value per share which ended the year at $18.04 per common share. Also, just as a little reminder, we had announced last week that the Company's Board of Directors has approved a 4-for-3 stock split in the form of a 33.3 percent stock dividends that will be paid to stock holders of record as of March 1, 2005. At this point I'd like to turn the call over to Don Nickolaus, President and Chief Executive Officer of the Donegal Company. Don?

Thank you, Ralph. Good morning, everybody and thank you for joining our conference call. Needless to say we are pleased with both the quarterly results and the full 2004 results. Certainly with achieving historic levels for us.

As you are, I believe all aware, in January '04 we completed the acquisition of two entities, Lamar's and Peninsula, and the full year results would clearly reflect that those have been two successful acquisitions and we're certainly pleased to have both of those entities part of the Donegal Group family of companies but also quite pleased that their results have been comparable to the overall group as a whole.

I certainly will not repeat the statistics that Ralph has referred to but certainly the levels of combined ratios that you've heard announced of 93.1 for the year and 92.7 for the quarter represent, in our judgment, a reflection of the rate adequacy that would have been put in place going back as far as late '01 into '02 and certainly the underwriting discipline that the Company has traditionally embraced and continues to embrace going forward.

As part of the discussion this morning one of the areas that I would like to cover is the area of the rate environment and the potential for rate increases which may very well be questions that folks would have. As I think we all realize that the hard market has not softened but it is not quite as firm as it was, rates and premiums are plateauing a bit in certain lines of business. However, we believe that it remains a very constructive environment in which, for the appropriate accounts that rate increases can be obtained, and in certain lines of business, modest rate increases continue to be---can be passed on. Also as a company, we are doing in personal lines, as an example, more what we are calling rate segmentation where we are charging a more appropriate somewhat higher rate for those risks that do not necessarily have a preferred to super preferred aspect to them and we are also trying to identify and reflect in our rating tiers the better rates for the most qualified as defined by underwriting criteria and also new criteria that would embrace credit and other indicia of avoidance of loss.

In the fourth quarter of '04 we rolled out our new electronic personal lines delivery system which we have identified for branding purposes as Write Pro and we are promoting it as how professional agents will be writing personal lines insurance. It is a very automated system similar to some of the automated systems of some of the very large carries. It will become the primary method, not the sole method, but the primary method by which we will automatically underwrite, rate, and issue personal lines policies. We have rolled it out in our principal, our main state of Pennsylvania, but we will be rolling it out over the succeeding months in 12---approximately 11 to 12 other states. Throughout the year 2004 and certainly in the fourth quarter we continue to put considerable emphasis on technology, investment in technology so that we would---as we would believe it to be to have a position comparable from a technology standpoint to the very largest companies against whom we compete.

In the year 2004 we appointed between 90 and 100 new agencies, not [inaudible] agencies which is again a second year of considerable growth in our distribution system. We will again in 2005 expect to be aggressive in agency appointments. May not be quite as many as '04. What we will be doing in '05 is to spend a lot of time and resources in making sure that the new agencies appointed in '03 and '05 are producing at the levels that we would expect given the passage of time, and we will devote additional resources to assist them in that regard.

On the acquisition front we continue to look for opportunities in '04. We did identify a number of potential companies and have had various discussions with various companies but certainly at this point we do not have any specific acquisition that is in any way far enough along for us to in any way discuss it, but we continue to have a considerable interest in growing our bulk of business in two ways by one policy at a time but also by acquisitions.

So at this point I would like to turn it back to Ralph and the moderator and we would begin the question and answer process.

John, would you begin the Q&A for us?

[ Operator Instructions ]. Our first question from the line of David Lewis of Sun Trust. Please proceed.

Thank you, and good morning. A couple questions. Actually, I've got a number of questions. I'll come back with some of the others. Can you take a little deeper on the pricing outlook? If we can break down kind of the personal lines versus commercial lines and even the worker's comp side of the business. That's one. And then, two, Ralph, can you talk a little bit about any changes that might have occurred in the investment portfolio in the quarter; investment income was a little higher than what I was anticipating. Are there any unusual items or are you extending the duration?

Let me start off by talking about rates and specific products. Starting with Worker's Comp, clearly Worker's Comp for us is a line of business where we continue to seek opportunities to raise rates and as you are probably also aware in most states there is a Worker's Comp rating bureau that determines the loss cost and then we as a carrier determine what our loss cost modifiers might be for the various companies that we have writing in any specific jurisdiction.

As an example we would anticipate in Pennsylvania to have a rate, a combination of loss cost modifiers and loss costs, we would anticipate in our book of business to have an approximate 4 to 5 percent rate increase in other states. It varies anywhere from being flat to up 2 percent, up 6 percent depending upon the particular jurisdiction. We make those decisions on loss cost modifiers based upon a number of factors, of course, including what our results have been in those specific states.

In Homeowner's, we as an example in some of the southeastern states are taking rate increases; in Georgia we have an 8.7 percent rate increase pending. In Tennessee we have just received about a 6-7 percent increase. In our home state here of Pennsylvania we do not anticipate a rate increase, because our results have been quite favorable. We would anticipate rate increases in Homeowner's in '05 in states such as Maryland as an example.

In Private Passenger Automobile we would anticipate that depending upon the jurisdiction we may have anywhere from flat to maybe up 4 or 5 percent in certain states. Other commercial lines of business: we are looking to get increases in the range of 3 to 6 percent depending upon the state and depending upon the particular product line. Ralph, you want to talk about the investment?

I will do that. As we have throughout the year, we continue to try to get some of the high levels of liquidity that we've been carrying since the beginning of the year invested. There is no dramatic shift in our investment policy. We continue to move more of our portfolio into tax-frees because of our very high level of taxability and very high levels of income. I think it's a trend you will continue to see. Our duration is going out just a little bit longer than it would have been but no dramatic shift in that duration especially when you look at the portfolio as a whole.

We are going out a little bit further on some new money because our liquidity is very good and our cash flow has been very positive with our portfolio well laddered, we're able to go out a little bit further and get a little bit more return on that. So, we will continue throughout '05 to shift to invest new cash into the municipal area and as maturities come along to shift more of that money into the tax-free municipal area.

Barring any unusual items, do you think that the 4.3 million of net investment income in the fourth quarter is probably a good run rate to trend off of for '05?

I would think it's a good run rate. We would, of course, hope that it would grow proportionately as our cash flow remains strong but it is a good run rate, definitely

Great. I'll come back other questions. Thank you.

Your next question from the line of Mike Grasher of Piper Jaffray. Please proceed.

Just a follow on that, investment portfolio. Your forecast for a tax rate in that investment portfolio?

I"m going to have to calculate that one for you, Mike. I don't have that one at my fingertips, unfortunately. Clearly----we are clearly moving towards the tax exempt, I believe that in the fourth quarter of this year our tax exempt income started to creep up into the high 40s. 46.7 percent of our overall investment income was represented by municipal and tax-free investment income. That compared to 41.3 percent a year ago. And that number will continue to increase.

Our goal is to get that up over 50 percent as we see high quality investments. We're not going to sacrifice the quality of our investment portfolio to do that, but as we see minor fluctuations in the markets, we're going to take advantage of that.

Okay; a couple questions for Don. You spoke about Write Pro and test market there in Pennsylvania, I believe; what kind of impact might this have on the expense ratio, how quickly that might happen and, I guess, how soon it might go out to the rest of the force. And you mentioned also that you've identified a number of companies. Are you seeing more on the Commercial line side or Personal or just a true blend?

Let's cover first the Write Pro question. We would anticipate having it rolled out to somewhere between 9 and 10 states by the end of '05 and probably our largest premium writing states we would expect to have it rolled out by the May---end of June time frame.

With regard to the use of Write Pro; at this point Write Pro is focused totally on Personal lines. We do not, and are not at this point ,not to say there won't be expense ratio savings from it, but we have not calculated expense ratio reductions based upon Write Pro. We would expect over time for some of that to be evident. But, I'll tell you what we are doing that's a little bit different than some of our large competitors . Some of our large competitors have implemented similar automated intelligence and underwriting process and have severely curtailed their underwriting staff.

We think that is a mistake, because we believe it's in our interest to grow our book of business by having Write Pro complement the underwriting staff and we would anticipate underwriting people spending more time in the field looking to transfer books of business, doing some of the traditional underwriting as it might relate to the renewal book and other issues that maybe didn't always get all the attention that maybe they would have warranted because underwriters were primarily focused on writing of new business. So, we are viewing it as taking----enabling us to take underwriting to a new level because based upon our focus as a company that's very interested in underwriting integrity and underwriting quality, we think it's the better model. Having said that, we would expect over time that there would be some savings but we have not calculated that or are we making decisions at this point based upon that anticipation.

Okay, that's helpful. And then in terms of the types of companies that you're seeing?

The type of companies we're competing against? Is that what you're saying?

No, in your comments earlier about the----you've identified a number of companies in terms of position targets or possibilities and my question basically is from all those you've taken a look at is it more Commercial, is it more Personal, is it the blend that you currently have in your existing portfolio? How does it shake out?

Thank you for that clarification. There are some of both, but I would identify them as primarily companies that are balanced between Personal lines and Commercial. And one of the things that is we have always tried to do in looking for acquisitions is that we don't want to be identifying companies for possible acquisition that are in businesses that might be Property and Casualty but that are writing business that's totally foreign to what we do. So whatever companies we're looking at they would have in terms of their book of business a similar profile to what you would find here in our own book.

Mike, this is Ralph. While Don was talking we were doing a quick calculation on the effective tax rate on the investment income and comes out to around 21 percent. And that was in the fourth quarter.

Very good. Thanks for your answers.

Your next question from the line of Beth Malone of Advest. Please proceed.

Thank you. Good morning and congratulations on the quarter. I have a couple questions. On the technology that you all are introducing, have you found among the potential acquisition candidates, is this one of the issues that these companies are facing that they're considering going with a Donegal because they haven't been able to make that infrastructure investment?

I think, Beth, that it is one of the reasons. I can't say that it is a-----that they would have identified it as a primary reason but it is certainly one of the significant issues that modest-sized companies that would be the size of companies that we might acquire. It is certainly prevalent that they are technologically challenged. But, generally most of these companies make the decision to affiliate or be acquired based upon profitability issues, based upon A.M. (ph) best rating issues, but the technology issue can be one of the reasons why they have not been able to be successful in those other very core issues. So, although they may not be identifying it as the core reason, it certainly has an important impact.

Okay. Thank you. Also on technology, are you---does this mean that---are you slicing your customer base thinner or there's more tiering as you try to identify those customers that should be charged more against those customers who are maybe overcharged based on their risk portfolio?

We are. We are doing, maybe not to the same degree, but we are doing similar slicing and segmentation that a progressive would be doing. Whereas historically we may have had 6 or 8 tiers, we now have probably in excess of 100 subtiers so that we are trying to, by price and by underwriting criteria, identify and distinguish between the good risk, the standard risk and the preferred and the superior risk.

Okay. Just two more questions here. On the---when you talk about pricing competition, the fact that you don't see the----it's not really a downturn but it is getting a little softer. We hearing from other carriers on the Personal line side, these are markets you're not in but we're talking about very troubling conversations about competition in markets like Texas, Florida, California, and could you-----maybe you could articulate why your own markets don't seem to be having the same kind of competitive issues that these other markets are having at this time.

Well, certainly on of the reasons we're not in those states that you have just named is because they have all these aberrations from time to time. I don't want to mis-state here; I am not suggesting that there isn't increased competition in our own marketplace, but----because there is. But it does not appear to be competition or softening that is extreme or that seems to be dramatically heading in the wrong direction.

Certainly companies, a lot of companies---- a lot of companies are being more aggressive in trying to write business which can have to do with coming out with new products or it can relate to various trip incentives or whatever they might be doing. But we don't see dramatic price reductions. We read the same journals that you folks do and you see that State Farm lowered their rate 2 or 3 percent or 4 percent in this state or somebody else is taking some modest rate action that might be downward, but we're not seeing evidence of it being dramatic and I think that's why we are saying that we think it continues to be a constructive environment. Now, that could change over the next month but we're not seeing any dramatic change.

Okay, and one last question, on your loss ratio that you experienced in the fourth quarter, that is an extremely good loss ratio. Are you anticipating---should we anticipate that that continue to work down in the following quarters?

As I mentioned last quarter, we're always reluctant to project lower loss ratios when you reach what is practically an all-time low for the organization. We don't see any reason why loss ratios, absent unusual weather events of course, should change dramatically from the levels they're at right now. But, to project further improvement in that is difficult when you're at an all-time low loss ratio.

Okay. Thank you very much.

But we'll work at it, Beth.

Okay. Thank you. Appreciate it.

Your next question comes from the line of Adam Klauber from Cochran, Coronia. Please proceed.

Good morning. A bit of a follow-up. Could you give us some detail on the loss ratios per your major lines, Auto, Homeowner's, Commercial, maybe a comparison of fourth quarter this year versus last year and if any reserve development is included in those loss ratios, if you could break that out.

Sure. Let me start off by talking about the loss ratios for this particular year. I think what I have right at my finger tips is actually combined ratios but I think that certainly will help you. The combined ratios in the Commercial lines of business for 2004 came in at 91.5 percent. Now, for the fourth quarter----the fourth quarter always ends up catching a little bit of aberration as we go through a much more formal review of our loss reserves in connection with our actuaries, and a number of reserves can get moved around between lines of business. So, in the fourth quarter those lines can end up showing somewhat of an aberration so I'm going to talk primarily about the combined ratios for the full year this year compared to last year.

In Personal lines for the full year 2004 the combined ratio was 92.8 percent. Now, breaking that down by sublines within the Personal lines, the Automobile line would have come in with a combined ratio of 93.7; Homeowner's at 92.9, which in the Homeowner's line of business represents certainly excellent results, probably the best full year results in Homeowner's we've had in many, many years, and that in a year that we had 4 hurricanes obviously in our operating area, although they----- for our particular book of business, the hurricanes were not significant issues. We did not get hit very hard by any one individual storm.

Within the Commercial lines, the Worker's Comp does continue to show some adverse loss development and, we've tried to very aggressively address the loss reserving issues in Worker's Comp. Multi----Commercial Multiperil continues to show very good combined ratios for the full year 2004, coming in just under 80 percent combined. Commercial Automobile also has an excellent combined ratio of just over 84 percent for the full year, so, and both of those would have represented improvements over the 2003 combined ratio numbers.

Given particularly in the Auto and Homeowner's---given very profitable and improvement in profitability; are you getting pressure from the insurance department to lower your rates or not increase your rates?

We're not getting pressure. We realize that when you have very good results, you can't expect to have insurance departments give you considerable rate increases. As an example earlier I made reference to the fact that we are not going to be filing for a rate increase in Pennsylvania for Homeowner's because we've had some very good results there.

One of the things that is important is you need to be focused on rate adequacy and you never want to let too much time go by before you ask for a rate increase, but you also need to be concerned about your credibility with the Actuarial Department of an insurance department that you shouldn't be going in asking for a rate increase when your indications do not reflect that it might be warranted.

We're not getting any pressure but we're certainly being prudent about which products and in which jurisdictions we are going in because we recognize that over the last two or three years, we have been aggressive in getting rate increases and we understand that we can't push the envelope too far. Having said that, whenever we see any signs we need additional rate to maintain profitability levels, we will not have any hesitation moving forward.

Thank you. One final question: if acquisitions----if the right opportunity does not present itself and if premium growth slows down, your capital will start to build up. What avenues would you, what would you do with your excess capital?

I think that's a hypothetical question that we thing there are two factors that we don't believe that we will be confronted with. We happen to believe that the environment for acquisitions will be good. Secondly, we don't anticipate that our organic growth will necessarily slow down. One of the things that we have built into the way we have done our regionalization, our growth on a regional basis is that we have a lot of growth potential in the southeast and the midwest and we have only begun to tap those. We as an example have not brought Commercial lines to a number of the states in the southeast and we have that plan going forward.

So we would not accept either one of those as reasonable hypothetical points. Having said that, if any of those things did occur, we believe we are responsible managers. We would certainly analyze what the appropriate option might be but would not be -- do not expect to be confronted with that dilemma.

I'd like to just reiterate what Don said, particularly related to the acquisition area, we are seeing a lot of activity as Don mentioned, we had at least preliminary discussions with a number of people this year. I would say that that would not be an issue we would even at this point give much time and effort to. If a year from now we were sitting here, nothing had happened and there were no prospects on board it might be something for consideration there, but we are seeing a lot of activity and a lot of interest in the acquisition area so it's not a major concern at this point. We have worked very hard at building our capital so that we have the dry powder in order to do good acquisitions and now we're aggressively out looking for those.

Thank you very much.

Your next question from the line of David Lewis of Sun Trust. Please proceed.

Ralph, can you go ahead and discuss your excess capital. I know you had some extra capital left over from the secondary offering and what you might further generate in 2005?

Yeah, we did have some---a little bit excess capital left over from the offering; just as a reminder to everybody as part of the offering, too, in about the same time period we were doing a couple of other things to help improve our capitalization and our ability to do acquisitions. We had done a couple of trust preferreds and we utilized a good bit of that money to pay off an existing line of credit.

We kept a couple million dollars of that at the Holding Company level in order to use that money in connection with an acquisition but probably the most significant piece of that is that we currently have an untapped $35 million line of credit. That coupled with our cash at the Holding Company level gives us between $40-50 million of funds that we could have immediate access to without making any changes of any kind to use in acquisitions. So, we would think that that position would only improve as the year goes on based upon current operations and generation of positive cash flow.

You might generate somewhere in the 10-15 million of excess capital in '05?

Might be a little more like the $5-10 million range, I think, at least for the Holding Company level.

Dave, also at the end of '04, we did infuse an additional $6.5 million of capital into Southern Insurance Company of Virginia which is the primary company that we utilize for writing business in the southeast, and we did that because we expect additional growth in that region, and we wanted to make sure that that company had all of the capital that it needed keeping in mind that there is another audience in Aldrich (ph) New Jersey that you folks look at capital one way and they look at it another.

I understand.

So, it's a balancing act and we're, I think, have done a good job of doing that over the years and we will continue to work at that.

Okay, Ralph, can you talk a little bit about persistency trends and if anything may have changed here. I know the amortization spiked up a little bit in the fourth quarter.

Persistency as far as policy counts are concerned?

Yes.

Basically the persistency accounts have been very consistent. They have been running a little above or a little below 90 percent based upon line of business. They have probably improved just slightly during 2004 over what we would have seen in previous years, and it is an important number and one we constantly review and monitor. We hope to continue to improve that line particularly---well, in both Personal lines and Commercial lines. We'd like to have both of the persistency rates into the low 90s for 2005.

And what's going on with the amortization. Is there anything else in there, is it relating to the acquisitions, because we've seen a climb on quarter-to-quarter basis throughout 2004.

That was more of an abnormality related to the two acquisitions we did earlier in the year. Some of the purchase accounting had us deferring that and then taking in pro rata. I would say that the fourth quarter represents more of a normal number than some of the prior quarters would have. It didn't really affect the bottom line. It simply affected the amortization line.

So we could kind of use that 11.2 million as a run rate----

Yeah, I think you can.

---moving forward? And, going back to one of Mike's questions, I'm not sure what he was specifically asking, but can you give us an idea, if you continue on the track of increasing the preferred or the tax preferred investments, should we assume a 29 percent tax rate?

No, the effective tax rate in the fourth quarter was just around 29. But I would expect it for the full year 2005, we would be disappointed if that effective tax rate wasn't down at or under 28 percent as we continue to move the portfolio into tax rate. Obviously, that's assuming the same types of combined ratios we have now. If combined ratios improve and the fully taxable underwriting income increases that could have-----affected that. But, our move is definitely toward driving that effective tax rate down.

Okay. And on the combined ratio you generated a 93.1 percent combined ration in 2004, and your comment about holding it level I guess would be more in line with that 93 percent.

It would be.

For the year? For 2005, the starting point?

Correct.

Okay. And, if we can just assume that you had, I don't know what normal loss ratios are but more normal ratios, how much of the expense ratio was impacted from incentive comp (ph) ?

Easily a good 2-2.5 percent of the expense ratio was -- yeah, the total expense ratio was impacted by the higher levels of incentives for agents.

And finally can you give us an idea what net written premium growth was in the fourth quarter, excluding acquisitions and any guidance that we might look for in both net written and earned premium growth in '05?

Sure. The net premium growth in the fourth quarter, excluding acquisitions, would have been around 9.5 percent so it tracks closely with what we would have been seeing in the earned premium area.

And for '05 we have a range that we have been saying that we would hope to grow our written premium by somewhere between 9 and 10.

And something in that range I assume for the earned as well.

Yes.

Great. Thanks very much.

As a reminder, ladies and gentlemen, to ask a question press star one. And your next question from the line of Victor Kauffman, a private investor. Please proceed.

Hello. One question only. That 9.8 I think you said was the organic growth and before the acquisitions?

Yes.

Can you break that out as to price versus new business?

Sure. Always a difficult number to get a handle on because of changes particularly in lines of business like Private Passenger Auto where you have people updating automobiles, adding automobiles. Our best bet, and what we've said over the last couple of quarters, is that that number is pretty much equal parts rate increase and new business.

Now, as we move forward with the ability to take larger rate increases being impacted, the 9-10 percent that we are projecting for next year, my guess---best guess would be something like two-thirds of that might end up coming from new business and a third from further rate increases.

Our goal related to rates at this point is to try to continue to have rates that keep pace with inflation as long as inflation continues to be in control we believe we can do that fairly easily, but for the full year 2004 I think a 50/50 split between increases and new business is a fair one.

Thanks. Oh, just a follow on. The two acquisitions from their base line when you took them over at the beginning of 2004, they are organic growth? Are they in line with yours? Are they less or more?

One is slightly less. Lamar's is in the neighborhood of, in '04 in the 8 to 8.5 percent. Peninsula is a little higher, somewhere around 9.5, 9.75.

Lamar's growth rate though is just about on track with what we would have projected at the beginning of the year. So, because of the lower base and we had just gone through a---re-underwriting process with them, we were projecting a slightly lower growth so that number is right in line with what we hoped to do for this year.

And now they're more like your own?

We are anticipating they would be.

Thanks very much.

Ladies and gentlemen, this concludes today's question and answer session. I would now like to turn the presentation back to Mr. Ralph Spontak for closing remarks.

All I'd like to do is thank everybody for your very good questions and your participation and your continued support of our organization. Thank you all very much.

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