Everest Group Ltd (EG) 2002 Q1 法說會逐字稿

Please stand by. Good day, everyone and welcome to the 2002 first-quarter earnings release call of Everest reinsurance.

Today's conference is being recorded. At this

time, for opening remarks and introductions, I

would like to turn the call over to Mr. James

Foster, Sr. vice president of investor relations.

Please go ahead, sir.

Thank you. Good morning,

everyone, and welcome to the call. With me this

morning are Joe Taranto, our CEO, and Steve

Limauro, our CFO. Before I turn the call over to

Steve for a review of the numbers, I'll preface

our comments by noting that our SEC filings

include extensive disclosures with respect to

forward-looking statements. In that regard, I

note that statements made during today's call

which are forward-looking in nature, such as

statements about projections, estimates,

expectations and the like, are subject to various

risks. As you know, actual results could differ

materially from current projections or

expectations. Our SEC filings have a full

recitation of the risks that investors need to

consider in connection with such statements. The

company undertakes no obligation to update or

revise any forward-looking statements. Now let me

turn the call over to Steve Limauro.

Thanks, Jim, and good

morning. I'll briefly highlight our results and

then Joe and I will take questions you may have. We're very pleased to report another strong quarter of earnings with operating income after taxes of 66 million, or $1.35 per diluted share. This reflects a 23.6% increase over the

53.4 million or 1 dollar and 14 cents per diluted

share earned in the first quarter of 2001.

These excellent results stem from

continued execution of our business plan, with an

assist from strong conditions across our markets. While the strength of the conditions varies by segment, class, and market, and they remaining pockets where we believe further improvement is needed, the breadth and department of the improvement to date is very encouraging and has offered us many more profitable business opportunities. We believe that the drivers of the

hardening market, on balance, remain in place and

should lead to continued strong tenderness at

least through 2003.

We've capitalized on these conditions,

focusing our growth (inaudible) to 596 million.

Our worldwide reinsurance operations were up 36%

to 397 million, while our insurance operations

were up 56.3% to 199 million. Our U.S. reinsurance operations are up 50.3% from the first quarter of 2001, with the increase reflecting strong pricing across the property and casualty spectrum.

Our U.S. specialty reinsurance

operations were up 22.7%, reflecting continued

growth in our medical stop loss reinsurance

business which we continue to see as a solid

opportunity as well as improving markets in

marine, aviation, and surety, all of which are

coming off a difficult 2001. International reinsurance operations were up 26.2%, largely reflecting improving market conditions in most markets, and particularly for our Latin America, London, and Canadian operations.

Our Bermuda operations produced

3.5 million of premium. As we've noted before,

because of its strategies, premium for this unit

is expected to vary quarter to quarter. Still, we

are pleased with the increasing deal flow we see

through this operation. The 56.3% growth in our insurance operations reflects moderating but continued growth in California workers' compensation writings, together with growing, if still modest use of our excess and surplus lines capabilities.

We typically caution against putting too

much weight on one quarter's result, and we do so

again this quarter. Importantly, across all of

our operations, we have and will continue to

exercise disciplined underwriting. Our combined

ratio for the quarter was 99.3% compared to 103.0%

in the first quarter of 2000, principally

reflecting the lower level of catastrophe losses

incurred in 2002. Pretax investment income of 85.5 million was down seven-tenths of a percent against 2001's 86.2 million, reflecting the impact of lower interest rates, partially offset by strengthening cash flow from operations. After-tax investment income was 70.3 million, up 1.8% from 2001.

The imbedded pretax and after-tax yields

of our quarter-end portfolio at 6% and 5%

respectively were unchanged from December 2001,

and duration is down slightly to 5.1 years. As

we've noted before, realized capital gain/loss

will vary quarter to quarter depending upon

investment and tax variables. Cash from operations for the quarter was 1,106,000,000, compared to 63 million for the first quarter of 2001, including 39 million of catastrophe and unusual loss payments in 2002 versus 4 million in 2001. Cash and invested assets stand at 6.2 billion and are up 369 million from December 2001. The change mainly reflects the proceeds from our 346 million-dollar secondary offering, our 67 million-dollar decrease in the market value of our investments, and 106 million of cash flow from operations. The investment portfolio remains focused on fixed income investments, which comprise 97% of the portfolio. The average credit quality of the fixed income investments remains in the AA range.

Total assets stand at 8.4 billion, with

1.9 billion of these held in our Bermuda entities,

Everest reinsurance Bermuda and Everest Re Group

limited. Shareholders equity at 2.1 billion or $40 and 9 cents from outstanding share is up from 1.7 bun and 37.19 per share at December 2001 reflecting first-quarter results as well as the secondary offering completed in February.

Our annualized ROE stands at 14.7%, up

from 7.3% for the year ended December 31st, 2001.

The first quarter was strong and

continued to reinforce our view of our business

markets and opportunities. Our results continue

to track with the 5-dollar and 60 cents to

6-dollar range (inaudible) absent unusual loss

activity that we commented upon in February.

As we've seen in another quarter

(inaudible) to refine this further and also

discontinue discussing 2003.

Overall, we are very pleased with the

way 2002 is shaping up. The infrastructure and

franchise building we concentrated on over the

past few years has positioned us superbly and we

are strongly focused on putting our capabilities

to effective use.

Now, Joe and I will take questions you

may have.

Thank you. Today's question

and answer session will be conducted

electronically. If you do have a question, please

touch star 1 on your touch town keypad. We'll

take as many questions as time permits and proceed

in the order that you signal us. Once again that

is star 1 to ask a question. We'll take our first

question from Dave Shusseyfrom J. P.

Morgan.

Good morning, everyone.

Hello, can you hear me?

Yeah. Good morning,

Dave.

Good. Just a couple

quick questions. I mean, you mentioned that the

operating environment is very strong, you know,

terms and conditions as we see it are different

than they were a year ago, and, you know, taking a

look at the numbers, excluding catastrophes, it

looks like, you know, the loss activity is

consistent with the prior year. And you also

mentioned that in the quarter we saw some unusual

loss payment patterns. Could you just explore

that a little bit more and I guess talk about the

balance sheet and the reserving side a little bit?

Sure, Dave. The -- I

think one of the things you have to remember about

the first quarter is, you know, we -- say between

first-quarter 2001 and first-quarter 2002 is not

totally off the charts. The unusual loss payments

or unusual payment activity really reflected the

unusual losses we saw in the third and fourth

quarter last year. We basically had $39 million

of outflows, if you will, with respect to World

Trade Center, Enron, as well as cats that occurred

earlier in the year. In particular, the tropical

storm Allison. That compares to 4 million that we

saw in catastrophe loss payments in the first

quarter last year.

You know, our view of the balance sheet

at this point is that we're seeing paid losses

behave themselves. We're seeing reserves grow.

We're seeing assets grow. We're very comfortable

that, you know, the results that we're putting out

continue to have a very strong balance sheet as a

component of them.

Okay. That's -- you

know, that's fair.

I guess the second part you had

mentioned the E and S market. We haven't heard

too much about that strategy on that side of the

business. You know, is that a line that is

picking up for you? Is it growing in importance?

And what's kind of the outlook on that side?

Well, the -- you know,

the E&S market is improving quite nicely, both at

the insurance level and at the reinsurance level,

so on the reinsurance side, we certainly are

finding ourselves doing more reinsurance with E&S

companies. A lot of that is general liability.

Some of that is medical malpractice. Some of it,

on the E&O side. But mean while, our insurance

operation -- and we took the time a few years ago

to basically put together an E&S company, so we do

have an active E&S company that's authorized to do

business in most states. And there again, we're

seeing some selective opportunities in the E&S

market where we're doing it through our insurance

operations. Again, same lines: General

liability, medical malpractice.

The market today in its turmoil is just

offering some selective opportunities where we can

do some cherry-picking.

On the insurance side, it's still small

in the grand scheme of things. We may have done

20-ish or 30-ish million dollars for the quarter,

but that is something new for us. The E&S market

was not as healthy a year ago, and so we really

weren't tapping into those opportunities at that

point in time.

Great. Thank you. I'm

going to give someone else a chance here.

Okay. Moving on, we will

take a question from Peter Street from UBS

Warburg.

Good morning. I just had

a question concerning the Wall Street Journal

article today on asbestos litigation that would,

in effect, speed up the claims process on asbestos

claims. I was just wondering what impact that

might have on your Mt. McKinley operation and the

impact of the reinsurance that you have on that

business. Thank you.

Peter, I'll take that.

I confess I haven't read the article yet. I was

getting ready for the call to you folks so I'll

read it later on. So I can't comment on the

specifics of the article. There have been a

number of pieces in the general press recently

about the asbestos phenomenon and, you know, is it

speeding up, is it -- is it slowing down, speeding

up, broadening, et cetera. There are a number of

things going on simultaneously. inaudible) have

the impact tending to speed up (inaudible) other

of those have the impact of slowing down payments.

The net effect I wouldn't (inaudible) tend to

lower the. inaudible) will all of those play

out? We don't know. Many of those (inaudible) so

I will read the article and if you want to

(inaudible) later, we can. But there are

(inaudible) I'm not sure where they're going to

point out.

And at this point

(inaudible) in the payments.

And if you've just talked

about the reinsurance that you have in place on

that business. Thank you.

inaudible) mount

McKinley (inaudible) 200 million-dollar

reinsurance protection. We have (inaudible)

approximately 5 million of that, including 9 or

10 million (inaudible) this quarter, our business

of 2 million. But basically -- and that's just

coming from (inaudible) that's just reserve. You

know, that 45 million is (inaudible) two million

if you -- we've got to covered for--(inaudible)

coinsurance.

Okay.

Thanks very much.

Quick question.

Right.

Nothing from today

(inaudible) 2002.

I think that

(inaudible) achieve.

Well, the (inaudible)

those areas (inaudible) in the past (inaudible)

also in the up swing.

Okay. Tom, with respect to

the (inaudible) driving other assets and other

liabilities. We had a number of unsettled trades

at the end of the quarter, but, you know, I would

say that, you know, over the course of March, we

got probably 60 to 75 percent fully invested, and

then into early April, just cleaning up.

So it didn't quite get a full long-term

portfolio rate on it, you know, for the one month

we had it. But we're certainly up and running as

we head into the second quarter.

So with the shift, the

absolute level of the income in the second quarter

should be improved?

Absolutely, absolutely.

Okay.

As far as July

renewals, Tom, obviously it's too early. We're

not working on anything. So we just have to have

speculate. Especially if you're asking me my

opinion of the new capital. I think to a degree,

not a big degree but to some degree, we will

increase and we feel the presence of the new

capital. You know, it's a lot of money has been

raised and certainly there's an eagerness to put

that capital to use and to write business, and

some of them will be a bit better set up in July

than they were in January.

So, you know, realistically, there is

more supply there to meet the demand.

Now, having said that, their focus still

at this point in time tends to be cat business.

They are branching out to some degree from that,

but slowly, I would say. A little bit marine, a

little bit in aviation. But clearly when you

start to look at our operation where we have a

large facultative operation, that's something that

they just won't be into. Where we have a very,

very extensive international operation we won't

see new capital on that front. Where we have an

insurance operation, we won't see the new capital

for the most part at all on that front.

So my sense is logically there will be

more felt July 1, but probably mostly in the cat

side and on the treaty side.

Okay. Thank you.

We'll now go to Paul Newsome

with Lehman Brothers.

Thanks. Just a quick

question.

There are concerns by a number of the

primary companies, workers' compensation insurance

in particular is seeing some deteriorating claims

costs and inflation. Have you seen that in your

book as well, and, you know, could you -- how

might you be affected by something like that?

I would say since we've

entered the market, really the last year and a

half or so, our tracking of changes in severity,

at least in the states that we're in -- we're

really only in three states at this point -- we've

not seen any change in severity that's beyond what

we expected. You know, there's still a growth in

claims costs, some of it driven by cost of drugs,

but nothing beyond what we kind of contemplated in

terms of the changes that we thought would happen.

I would say prior to that, you know --

'96, '7, '8, and '9, there was a real spike in

workers' comp claim costs. I think it caught a

lot of people off guard. I think some are still

kind of trying to figure out how there was such a

jump. But we weren't in the market at that point

in time, and I think our own people, when we did

get into the market, did a good job of recognizing

where costs were at. So we're quite pleased with

our book. We're achieving some very, very nice

rate increases. We're still growing quite nicely

in the three states where we write workers'

compensation.

On the reinsurance side, we had not

written workers' compensation reinsurance up until

essentially this year. We thought the reinsurance

was really much too cheap. And much of that

severity did go to the reinsurance market in the

past years.

This year, our rates have changed

dramatically. Some of it was under way before

September 11th. After September 11th, it picked

up even more so. So we have written some workers'

comp reinsurance in 2002 at very, very different

terms than what was the case in 2001.

Separately, could you perhaps talk a little bit more about the sectors in markets where the pricing is still at its worst and in theory, that we should see prices improve?

Well, I think there are

parts of the casualty world where if you took a

look at the whole sector, you would still find

good portions of some of it underpriced. I'm

still cautious, to some degree, about the D&O

market. We have not touched the accountants' E&O

market. Still concerned in the lawyers' E&O.

Architects are still not quite where we'd like it

to be.

Medical malpractice, even though it's

undergoing some very severe changes, there's

still, I would say, only a small portion of the

market that we'd be willing to write.

So, you know, clearly there are still

pockets of the casualty market that one has to be

cautious about. Even on the workers' comp side,

there's many states -- we're only in three.

There's 47 that we've chosen not to go into. So even though rates are on the rise and we hope in all of those areas that I just mentioned rates will continue to rise and conditions will continue to improve, but, yeah, there's still a good portion of the U.S. casualty market, there's still the Continental European property market and the Asian property market which we see as needing more change.

Thank you very much.

You're welcome.

Our next question will come

from Susan Sebachwith Wachovia

securities.

Good morning, Joe

and Steve. I've got a couple questions. First of

all, I understand why you don't want to give

guidance yet going into the second quarter which

is the highest cat quarter, but what I was

wondering is if cat losses are really the swing

factor and not really market conditions. Because it would seem that you are way ahead of -- way ahead of budget with these growth numbers and with the cash flow numbers, et cetera. That's my first

question.

And my second question is: If you do

keep up with these growth rates, will you need

more capital to meet your budget for 2003?

And then third question is: How is the

(inaudible) of your business changing and what is

sort of the hurdle rate on that workers' comp

business as that grows (inaudible) on the

insurance side?

Let me try and tackle --

tackle the first one. I think certainly what's

going on in the first quarter results, we

certainly had better cat experience. When you

don't consider cat, though, certainly one of the

things that's still affecting us is, you know, it

is early in the year. We still are seeing a lot

of 2001 exposure run off, if you will. And as we

get through the year, you'll see more of a clear

picture of 2002.

In addition, there's certainly changes

in our mix of business, and, you know, our mix can

vary significantly quarter to quarter. But, you

know, on balance, we certainly are seeing, you

know, more opportunities in the casualty area that

would perhaps have a little bit higher combined

ratio. And so, you know, as you look at the mix,

I would say that in the first quarter you've got,

you know, some of the results, you know, really

reflecting positive cat experience, some really

reflecting the changing market conditions as you

go through the year, you'll certainly see more and

more emerging with respect to the 2002

underwriting year.

Actually, that brings up,

how is the tail of your business changing? Are

you getting into longer tail?

We are, Susan, but I

would say not in a dramatic way. At least just

yet. So I would say the tail probably 2002 versus

2001 is lengthened, but modestly so far.

With regard to your question on might we

need more capital, the answer is: Maybe.

I would say that at the growth rate that

you're seeing in the first quarter, there's a good

chance that we would want more capital. And

again, we're talking about without an acquisition,

which would only add to the -- to the

usage.\{S:SUSAN}\{S:SUSAN SEBACH}Joe, also, I was

wondering, could you -- you know, you talked a lot

about how much better the market is, and I wanted

to follow up on -- I forgot whose question, but

having to do with the new entrants in the market.

It would seem to me that you're still

seeing this huge length of quality and that these

new entrants just won't be able to come in and

take the business away, even in the cat market,

when you -- when we look at renaissance's results.

Well, I would very much

agree with that, Susan. I think we are seeing,

more than we ever have seen, people really looking

to quality and looking to the established players,

and looking to one's ratings. And so clearly, we

have a higher rating with all the agencies than --

by a good margin versus the new capital, and

you're absolutely right that when somebody puts

together their program today, they want the

highest quality.

Right.

And if the deal is

oversubscribed, the people that they lop off are

the lower quality.

Your last question was

on --\{S:SUSAN}\{S:SUSAN SEBACH}Well, if you were

to take us around selected lines of your business,

where are you seeing -- I think Paul Newsome asked

the question about where you're seeing the

greatest, you know, not rate decrease or rates not

going up as much as you like. Where are the rates

going up, you know, more than you anticipated and

what gets you excited about this market?

Well, I think it's the

areas that we've kind of been mentioning to you

that we're growing in. The -- we're still very

pleased with the property cat business.

And what are the rate

increases there?

Well, they're probably,

you know -- I'd call it 15-ish percent in 2002

versus 2001. But that was a market that I think

was starting from a pretty good starting point to

begin with, and when you go up 15% in rate, you've

probably just doubled your profit -- expected

profit margin. Workers' comp, you know, we're -- we put through another 20% rate increase in our California book. We're increasing rates in Alabama and Florida. We're obviously very pleased

about that.

The trucking business, for the first

time we're able to write -- we're seeing rate

increases in that. 40-ish, 50-ish percent, over

what it was written at that last year, keeping in

mind that we didn't write it.

Medical malpractice, again just to

survey, extreme rate increases, again that's

starting from a 2001 that was not particularly in

good shape, so sometimes those extreme rate

increases bring you to a very good spot.

Sometimes they don't.

Our medical stop loss business, we're

still getting some very nice rate increases there.

30-ish plus percent. And we like where that

business is at.

Aviation is on the upswing. So really,

the areas that we've grown in as you might expect

are the areas that we're highest on.

Let me just complete it on the -- your

question on the workers' comp hurdle rate.

You know, essentially we're looking to

write that business in today's market at an

underwriting profit. Now, so far we've booked it

to a bit of an underwriting loss. There is a

decent tail on that business, and I -- it would

generate an ROE well in excess of 15% if we do

achieve the underwriting profit. So we're very

high on that business at this

point.\{S:SUSAN}\{S:SUSAN SEBACH}Okay. Great.

Thanks, Joe.

You're welcome.

Looking forward to the

next quarter.

And moving on, we'll take a

question from Brian Wright with Bear Stearns.

I understand

you're not giving specific items for 2003 yet, but

given the improving market conditions, isn't it

reasonable to assume that the combined ratio won't

deteriorate, assuming normal losses and even

including the change in the tail?

Yeah, I would say that

it would be our expectation that the combined

ratio in 2003 would be better than the combined

ratio in 2002. And of course we're hoping for

some very good numbers in 2002, and we did publish

in the first quarter the best combined ratio that

we at Everest have ever published.

Of course that's all things being equal,

you know. An equal number of cats and an equal

number of unexpected and expected losses, 2003

versus 2002. But, yes, given the (inaudible) that

would be my expectation.

So in 2003, earnings should probably grow over 20%, given net premium (inaudible) up over 30%.

Well, as you said, we

didn't give estimates for 2003. Good try, though.

And thank you. And the next

question will come from cliff gallant with KBW.

Mr. Gallant, just one moment, please.

Mr. Gallant, your line is

now open.

Hello.

Yeah.

Cliff yes, can you hear

me.

Yes, we can.

Okay. Sorry about that.

That's okay.

Great quarter. I wanted to sort of ask you about how you view the earnings power of the company going forward in terms of, you know, what do you -- how do you view the -- sort of the return or the net present value of the business you wrote here in the first quarter?

And I ask that sort of in -- sort of in

the light of what we saw coming out of re in their

first quarter. You know, they blew away the

street estimates but, you know, being a very

short-tail cat oriented business, we saw that --

sort of the benefit of rate increases immediately

in their book and you guys being longer tail, I

just wonder how you think about what the real

return is on the business you wrote.

Well, let me just

answer that generally, cliff. And we like the

business. That's why we grew it. And we do

expect it to basically run out to combined ratios

better than what we'd been running at in -- prior

to 2002. Some of that's long tail. You're -- you

know, there is some cat business in there as well.

But at the end of the day, you know, we're not

(inaudible) that's a really small component to the

overall. But at the same time, that means that

losses, I think, for us won't be as up and down as

if you were into the pure cat side of things.

So as I kind of indicated, we booked

a -- the best combined ratio we have, and we do

expect, you know, barring unusual activity,

extreme loss activity, a general improvement into

2002 and into 2003. On the investment income side as Steve kind of indicated w he do expect the investment income component to grow and tax-wise our expectation is probably the effective tax rate, if anything, would be modestly lower than what it was in the first quarter. So you start putting all those things together and give us a continued good marketplace and maybe a few other opportunities, possibly something on the acquisitions side, I think it makes for good earnings power.

Thank you.

Thank you.

And our next question will

come from Mark (inaudible) with Solomon Smith

Barney.

A couple quick questions. Number

one, can you quantify the amount of cat business

that you actually wrote in the first quarter. And

secondly, can you tell us whether -- can you tell

us if you had any reserve -- any development on

prior-year loss reserves in the quarter, and can

you remind us what that was in the first quarter

of last year?

Just on the reserve

development, first quarter of last year was

minimal. First quarter of this year, minimal. I

did mention that, you know, we did put up a little

bit on the mount McKinley asbestos area. Just

minor movements. But really, not a great deal of

development in either quarter, Mark.

The cat business is --

it's a difficult question because some of our book

is -- does have pure cat exposure, some has

indirect or modest cat exposure. So it's very

hard for me to give you an exact number. But I

will rough out that perhaps 15% of our overall

book has some form of a cat element to it.

Okay. Great. Thank you.

Just to come in on the

development with respect to the trade center and

reiterate, you know, both the World Trade Center

exposures we booked last year and the Enron

exposures all are holding firm, so no change at

all in those numbers, Mark.

Okay. Great.

Yes. Let me just add a little

bit on the acquisitions. You mentioned it a

couple of times. Where might you look? Is this

broadening the international side, be it primary

or reinsurance?

Well, you know, we'll

look at any opportunities but reinsurance becomes

less likely unless it's something that's

complementary where we really just don't have an

operation. That could mean that it's, you know, a life operation or it's -- in a country or in a product that we're just not in right now. But

more likely might be an U.S. insurance or an

agency in the U.S. that would add to our insurance

operation.

Would you consider like an agency

and kind of book roll it in and take the business.

Yeah, we've done that

before in the building of our insurance operation

and if we could find the right situation, we'd be

happy to do it again.

Looking at workers' compensation,

what were your hit ratios there?

We probably hit on

about 20 or 25 percent of the business that we

quote on.

And what's the comparable number

12 months ago?

It probably wasn't --

wasn't too different than that. I don't believe

that that's changed too much.

And just one more question.

The -- when you stress-test your overall book to a

large catastrophe, and with reinsurance, the

purchase of reinsurance having diminished, more

cat is in there. By what percentage has your PML

increased now by?

Relative to surplus in earnings, I would say it probably hasn't increased at all because surplus in earnings are obviously -- obviously have gone up quite nicely. We have in the past, as a general rule, tried to keep the expected largest loss or the one in a hundred cat to something that would still be less than half of one year's earnings.

Great. Thanks a lot.

And we'll take our final

question from Charlie Gates with CS first Boston.

All right. I actually

have two questions.

What's -- of your

insurance ratings or workers' compensation

roughly?

I would say about 70%

of our insurance writings are workers' comp.

That's absolutely

ballpark.

Yeah. That gets you

pretty close.

Okay. That was my first

question.

Going back to I

believe your second question on your call from the

fellow at UBS Warburg, he said that the article in

the journal which you hadn't had an opportunity to

read, it focused on basically claims being paid

for asbestos or reserves being put up for asbestos

faster than might have been true in the past and

you said there were forces going in both

directions. Or one of you said that.

Yeah.

What are some of the

forces in the other direction?

A couple things,

Charlie. There are -- by other direction, I

assume you mean things that may tend to ameliorate

the liabilities.

Yeah. Or prolong it.

Yes, sir.

There are a number of

things going on and as I also said, we can't

predict exactly where they're going to go. One

thing is that there is a substantial effort being

made to get in front of Congress a piece of

legislation that would be designed to have the

effect of taking out of the system the substantial

volume of claimants who are not injured.

There is a substantial majority of the

people in the system that have no identifiable

injury, and there is a very, very broad-based

movement afoot to try to take those claims and not

pay them now, as has been happening in the past,

but simply defer them, to see if they actually

develop any injury.

That is -- there's no real secret about

that. That is something that is being worked on

now. There are, in fact, a number of major

plaintiffs' lawyers who are also supporting that

effort.

There are also a number of judges in

charge of some of the asbestos bankruptcies that

are looking at similar issues in the sense that

they understand that the past practice of simply

paying anybody that had a name and a Social

Security number, you know, is something that just

does nothing but suck the money out of all the

bankruptcy trusts. So there are a number of cases

now where there are serious discussions going on

about whether or not a similar approach to the

legislation should be put in place. Namely, take

the people who are not injured and put them on a

sidetrack to see if they do, in fact, become ill

later on.

That's also going on in individual cases

as we speak. So a lot of these things are going

on very heavily oriented towards taking people who

are not sick and saying, "We're not going to deny

you the possibility of bringing a claim, but we're

going to actually wait until you develop an

injury, if ever."

That would, from what we have seen, take

a significant amount of the current payments out

of the system and either defer them until people

get injured or, you know, we'll never see them

again. I mean, because the reality is that many

of the people who have been getting compensated

have, at most, very minor abnormalities on a chest

x-ray and frankly, most of those people will never

develop any injury.

So all of those things are going on on a

number of fronts, and any one or multiples of them

would have the effect of slowing down payments.

The fact that many of the major payers

are in bankruptcy now has obviously put some

distortions into the system in the sense that

remaining companies that haven't gone into

bankruptcy have been paying more than has been

true in the past. One of the things, frankly,

that's driving the legislative push is to try to

prevent more and more of these companies going

into bankruptcy.

As these companies that are in

bankruptcy look at how they're going to come out,

the whole question of preserving their assets and

therefore slowing down the payment stream is also

a significant part of the picture.

Thank you.

Sure.

And that is all the time

that we have for questions today. Mr. Foster, I'd

like to turn the call back to you for closing

remarks.

Okay. Thank you. Once

again, we appreciate all of you taking the time to

join us. We're here if you have any follow-up

questions, and have a good day, everyone.

Once again, thank you

everyone for joining us today. That does conclude

today's presentation.