Employers Holdings Inc (EIG) 2008 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth quarter 2008 Employers Holdings Inc. earnings conference call.

(Operator Instructions)

I would now like to turn the presentation over to your host for this call, Ms. Vicki Erickson VP of Investor Relations. Please proceed ma'am.

Thank you Emity, and welcome to the fourth quarter and full year 2008 earnings call for Employers Holdings, Inc. Yesterday we announced our earnings results and today we filed our Form 10-k with the Securities and Exchange Commission. Our press release and Form 10-k may be accessed on the Company's website at EmployersHoldings.com, and that is accessible through the Investors link. The call is being recorded and webcast from the Investor Relations section of our website, where a replay will be available following the call.

With me today are Douglas Dirks, our Chief Executive Officer, Ric Yocke, our Chief Financial Officer, and Marty Welch , the President and Chief Operating Officer of our insurance subsidiary. Statements made not based on historical facts are considered forward-looking statements. These statements are made in reliance on the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

We believe the expectations expressed in our forward-looking statements are reasonable, risks and uncertainties could cause actual results to do be materially different from our expectations, including the risks set forth in the filings with the Securities and Exchange Commission. All remarks made during the call are current at the time of the call, and will not be updated to reflect material developments. We use non-GAAP metric that excludes the impact of the 1999 loss portfolio transfer or LPT. This metric defined in the earnings press release available on our website. Now I will turn the call over to

Thank you, Vicki. Welcome, and thank you for joining us as we review our fourth quarter and full year 2008 financial results. I'm pleased to report that last year our return on average equity, based on net income before the LPT and equity including the LPT deferred reinsurance gain was a solid 10% at year end. In addition, our book value per share grew 7.5%, from $16.21 at December 31, 2007 to $17.43 at December 31, 2008. A commendable result, given the economic downturn and turbulent capital markets that have impeded growth in shareholder value and some cases destroyed it. Our results at year-end reflect impacts from the changed economic conditions. Yesterday we reported earnings per share before the LPT, of $1.69 for the year, and $0.23 for the fourth quarter, with both of these measures lower than comparable periods in 2007.

In 2008 we recognized $11.5 million in impairments, in realized losses, primarily related to equity securities in the investment portfolio. In the fourth quarter, we recognized a non-cash OTTI of $7.2 million, primarily related to equities. Though the losses are never welcomed, we believe our losses have been minimal. And given market conditions, particularly in the fourth quarter, the performance of our portfolio with its diversified structure and quality bias have been exceptionally strong. Fourth quarter earnings reflect a premium decline in our existing business, as well as renewal premium in portions of our acquired operations most notably in Florida.

In 2008, our operations contributed a combined ratio before the LPT of 91.5%. The highest combined ratio we have reported in the last five years. The increase in the 2008 combined ratio was caused by declining rate levels in our largest markets, increased unemployment, leading to the decline in payrolls, and competitor pricing behaviors, that in many instances preclude us from writing new business with an acceptable profitability targets. A combined ratio below 100 is a stated goal for our organization. And from an industry perspective, our 2008 combined ratio of 91.5% is considered solid performance. The increase combined ratio reflects the challenge of managing nonvariable costs during a time of declining top line revenue.

With this in mind, we implemented a strategic restructuring plan in January, that will result in meaningful savings by the end of 2009 and for years to come. We raised pure premium rates 10% in California, our largest market, beginning February 1st of this year. And we will realize a 6.4% rate increase in Florida beginning April 1st. We have invested in the growth of our business with our acquisition of AmComp, that closed on October 31st last year. Based on the timing of our close the fourth quarter and full year results of operation, include only two months of acquired results, November and December.

We have included in our Form 10-k, which will be filed later today, a summary of the two month stand alone performance for the acquired operation. I would caution however that two months are not reflective of an entire year's results, because premium is not written uniformly over the course of the year. The acquisition was pivotal in implementing our expansion strategy. Especially considering the economic recession that has made organic growth so challenging. Given these difficult market conditions, we were successful in expanding our operations to 29 states, licenses to 36 states, and our appointed agencies to 1900.

We continue to market our products through existing strategic partnerships that will now have a national focus. We are actively integrating the acquired operation, restructuring the Company and consolidating corporate functions to capitalize on new and existing markets in and to achieve better economies of scale. As I mentioned earlier, in January we announced a 14% reduction in total staff, which when combined with other integration activities, will result until meaningful savings of approximately $12 million, in 2009, and $20 million to $22 million in 2010. Additionally, AM Best extended our A minus rating to our new subsidiaries, and we have seen and expect to see increase submittals from the introduction of A-rated paper our the new markets throughout this year.

In terms of capital management yesterday, our Board of Directors declared a dividend of $0.06 per share with a record dated March 11th and payable March 25th. In 2008 we repurchased approximately $14 million of our common stock. This week our Board of Directors also extended its authorization for discretionary share repurchase program through December 31, 2009. Under the program we made repurchase shares depending on many factors, including levels of cash generation from operations, cash requirements for investment in our business, repayment of debt from stock price, and market conditions. We are pleased with our performance given what has been an exceptionally challenging year for our industry. Now I will turn the call over to Ric for a discussion of our financial results.

Thank you, Doug. At year-end, our GAAP combined ratio was 85.9% and 91.5% before the LPT. For the year, our GAAP combined ratio increased 5.5 percentage points. With acquired operations accounting for 2.1 percentage points of the difference. Remainder primarily was a result of lower premium. Favorable prior accident year development was $71.7 million in 2008. Excluding acquired operations, fourth quarter 2008 prior accident year development was $3.1 million, lower than in the fourth quarter of 2007.

Our fourth quarter combined ratio was 99.1% on a GAAP basis, and 103.4% before the impact of LPT. Acquired operations had a two month combined ratio of 105.6%. As Doug already mentioned while a two month combined ratio is not meaningful increased the quarter's GAAP combined ratio by 2.7 percentage points. This was expected as the fourth quarter under writing expenses, did not include recently announced staff reductions, and other cost saving measures related to the integration and consolidation. We expect majority of staff reductions to be completed by the middle of this year.

Losses in LAE declined year-over-year, but increased $24 million in the fourth quarter, with $18.5 million of the increase related to the acquired premium. Our current year loss estimate was 68.9%. This compares with 63.8%, in 2007, with current year adjustments based largely on premium adequacy. Marty will discuss claim trends in his comments. Commission expense declined slightly year-over-year. Fourth quarter commission expense increased $4.6 million, over the same period last year.

Acquired operations contributed $3.3 million, of the increase in the current year. While favorable change in the LPT agreement, contingent commissions lowered commission expense in 2007. Underwriting and other operating expenses increased in the year and the quarter, with increases largely attributable to acquired operations. Expenses excluding the acquisition were flat in the quarter and the year, reflecting our commitment to contain cost while writing more policies. Interest expense $2.1 million in the quarter related to the notes payables for the acquisition and assumed debt. Net investment income was flat year-over-year, and $2.9 million higher than in the fourth quarter, with acquired assets contributing $3.6 million to net investment income in 2008.

2008 income taxes were lower than in 2007, primarily due to the final reversal of the liability for previously unrecognized tax benefits, including interest in reductions in preprivatization tax exempt reserves. The effective tax rate for 2008 was 9.2%, compared with 20.3% in 2007, as a level of taxable income declined relative to nontaxable income. In the fourth quarter our income tax benefit of $3.1 million, was primarily the result of lower income, and reductions in ultimate loss estimates on preprivatization reserves that were not taxable.

In 2008, insurance subsidiaries, our insurance subsidiaries paid $355 million in extraordinary dividends to the Holding Company. In October, we paid $188.4 million, for our acquired operations using cash and debt. Under the terms of the Wells Fargo amended credit facility, we are required to maintain $7.5 million in cash. Also the facility is collateralized by securities which had a fair value of $210.5 million at December 31, 2008. The first $50 million principal payment for the credit facility is due on December 31, 2009, with second payment due at the end of the following year.

In 2009, we anticipate one time integration cost of $9.6 million, including a $3 million restructuring charge in the first quarter. Our invested assets exceeded $2 billion at the end of 2008, due to the stability of our existing conservative portfolio, and the addition of high quality -- a high quality portfolio from our acquisition. At the end of the fourth quarter approximately 80% of the carrying value of investment portfolio was rated double A or better. Duration of the portfolio was 4.74, indicating a higher level of short-term investments. Tax equivalent yield of the portfolio increased to 5.52% in 2008. Excluding acquired assets, the book yield on the portfolio would have been flat.

Realized losses on investments in the quarter were $8.3 million, comprised of securities that were sold, and another than temporary impairment charge of $7.2 million. We experienced OTTI of $12.7 million for the year, primarily in equities with a decline in value occurring largely in the fourth quarter. So while we have not been completely untouched by the deterioration in the capital markets, our de minimus exposure to subprime, very limited exposure to 2006 and 2007 vintage mortgage backed securities, a high quality short duration buys in the corporate portfolio, and high underlying credit quality of our municipal bond holdings, all helped to mitigate the effects of the deterioration in the markets experienced in the fourth quarter of 2008.

One last time before I turn the call over to Marty, Going forward, Milliman will be provide our outside actuarial consulting services. Milliman has been providing consulting services for our acquired operations for over ten years. With that I will turn the call over to Marty.

Thank you, Ric. Overall premium declined during the year, largely due to lower rates in key states competitive pressures, and the impact of a slowing economy. With our emphasis on serving small businesses, we monitor economic conditions and the labor market carefully. In many markets we have seen lower estimated payrolls, upon which our premiums are based and lower numbers of jobs. We have seen certain sectors such as construction, impacted more than others. We have seen certain states impacted more than others. Nevada and Florida were impacted earlier than other states.

In California, though the states economy is struggling, the types of businesses we write there held up well in 2008. Overall, many of our targeted customer classes, such as physicians offices and lower priced restaurants, should be less impacted by the recession than other businesses, like real estate offices for example. With only two months of acquired results, California still represented 69% of our direct premiums written at year-end 2008. We expect this percentage to drop below 45%, by the end of 2009, as the acquired book works its way in to our results.

Our average policy size was $10,200 at year-end 2008. Our unit count remains strong, we achieved a 7.7% increase in organic policy count since December 31, 2007. And 35.3%, when over 9300 acquired policies are included. New business activity also remains strong in 2008. Through December, submissions, quotes and the written policies were up year-over-year. The introduction of A minus rated paper is being well-received in new markets, and we expect submissions to increase in 2009.

Retentions were down slightly in the fourth quarter, but our holding on a year-over-year basis. With our strategic partner business being consistently the strongest. Renewal rate changes are still negative, but continue to flatten quarter-to-quarter. Reported claim counts continued their downward trend, both for medical only and indemnity claims, even though policy counts continued to increase. As Doug indicated we are actively integrating our acquired operations.

Significant progress has been made in the areas of staffing, realignment of operations, and marketing initiatives which focus on the Employers brand. We now conduct business in 29 states, through five business units, four geographically aligned regions, and a nationally focused strategic partnerships and alliances business units. Each unit is responsible for production and under writing activities within its territory, and within underwriting guidances established centrally. Our Pacific region is based in San Francisco California. Our western region is based in Reno Nevada. Our Midwest region is based in Brookfield Wisconsin. And our southeast region is based in Charlotte North Carolina.

We began centralizing corporate functions in to our Reno office in January. Consolidation is planned in phases, timed to systems integration and scheduled business process activities. We anticipate the bulk of the plan to be implemented by mid year 2009. But consolidation will continue in to 2010 in the areas of finance and accounting. These structural changes will help us to achieve greater economies of scale, while reducing head count by approximately 14%. While the great majority of staff reductions were related to integration and consolidation objectives, we did make some reductions in response to current economic conditions, as we remain committed to running our business as efficiently as possible.

Breaking down the 14% staff reduction, corporate functions such as finance, IT, Human Resources and administration actually achieved a nearly 20% reduction in staff, as we eliminated redundancies across the former organizations. Field business units where the acquisition resulted in almost no overlap of operations experienced staff reductions of less than 10%. So underlying our overall staff reduction of 14%, was a deliberate plan to eliminate corporate redundancies and to adjust to current economic realities, while retaining strong field operations focused on our business. I'm quite pleased with our integration progress thus far. I am seeing a strong alignment of our management group within the operating companies, both culturally and in their commitment to achieving profitable business results. I fully expect the anticipated benefits of this acquisition to be realized. these benefits include an immediate increase in premium, greater diversification in geography, in production source and underwriting capability, improved operating scale and expense ratio improvement. I will now turn the call back over to Doug.

Thanks Marty. That concludes our prepared remarks, operator, at this point we are ready to take questions.

(Operator Instructions)

Your first question comes from Mark Hughes with SunTrust. Please proceed.

Thank you. What were the policyholder dividends in the quarter?

As we have acquired business, some of our policies are now participating, whereas previously most of our policies were guaranteed costs, and so that's a number you should expect to see going forward.

Is that something you share for the quarter? Or we will get that disclosure later?

We are looking for it right now. We will have it in a second.

Okay. Thank you. And then the -- accident year loss ratio, as we think about 2009, at year-end last couple of quarters you were around 75% or so, for the full year about 68, is one or the other of those more likely we should think about for the coming quarters?

I don't know that we can give you guidance on what the loss ratios are going to be by quarter for the balance of the year. In some of my earlier comments, some of the favorable trends are increases in rate levels in California and in Florida. So that should give us some ability to see improvements there, absent any changes the in the underlying losses.

This the Ric, and as I would say we expect that as Doug pointed out,. Now that we are beginning to see rate increases, whereas we have been adjusting upwards in the loss ratio because of -- adequacy, because of rate reductions should see abatement of that. Marty also pointed to the observation that we are seeing indications that claim counts are dropping. We are watching those closely, it hasn't yet impacted our actuarial projections, it could be expected to have a beneficial impact as well.

No material change in severity?

That looks relatively flat. We haven't seen significant changes on indemnity lines.

What tax rate might be appropriate for 2009?

We expect it to normalize that to around the 20% range.

Okay. Thank you.

Going back to the previous question, regarding dividends, that was approximately -- $2 million in the quarter.

Your next question comes from the line of Matthew Carletti with Fox-Pitt Kelton Cochran Caronia Waller.

Good afternoon. Can I could get you to expand on capital management. I think we talked last quarter and you provided your thoughts. If you could update us if it changed at all given capital levels continued to grow, the valuation of your stock and the general market has gone the other way, does that impact your thinking at all in terms of where repurchases are attractive versus where they are.

Those are all items of consideration for us, Mat. If you recall comments on our last call in November, there was such a incredible level of uncertainty around the capital markets. That not only us, but I think everybody that was holding assets was conserving cash. We still think it's critical that we maintain appropriate cash levels to the degree of uncertainty that exists in the marketplace. Also recognizing that once we are comfortable with our cash positions, and intended uses for cash in the short-term, that share repurchases are something we need to consider as part of our overall capital management.

Okay. Thinking about it, in other way are you comfortable with where your cash position is now? And if we look forward in to '09, I might have the number wrong, something like $12 million of cash flow, is that something we could look towards that might be an indicator of what kind of level of interest you might have?

This is Ric, let me mention a couple of things that that impact us and the way you would look at cash flow. In '09, we don't expect to have any further dividend, ordinary dividends coming up from the operating subsidiary to the holding company. So we are dealing with what presently exist at the holding company. While we believe that that's adequate, the things we are looking at carefully is we have on going shareholder dividends. we have the operating expenses in the holding company, we have debt principal payments, which as I mentioned earlier will begin at the end of '09. We have interest payments also on debt service coming out of the holding company.

We are are looking at all of those. Again what we currently have, that has come up by way of extraordinary dividends over the last 12 months. So we also have in the holding company fixed maturities that service collateral against the outstanding debt. Now as debt payments are made, that collateral requirement will drop, thereby we believe freeing up additional cash going forward. But that would be in the 2010 time frame. So when you look at your cash flow, from the financial statements, just understand that some of it remains at the operating level until we get to a period which will be 2010, when ordinary dividends again will be available to the holding company.

Could you just maybe give a split of what is, how much capital of the holding company right now is kind of earmarked as collateral for the bridge loan? And what is kind of free capital, in other words to operate the business end potentially return capital?

As we mentioned earlier, security was a fair value of $210 million, service collateral against the loan currently.

Okay.

And we have approximately $100 million additional free capital if you will.

Great. Very helpful, thanks very much.

Your next question comes from the line of Robert Farnam with (inaudible) company.

In terms of comp, do you have the total premium volume for the year gross and net?

Give me a second and we will come up with that. Do you have a further question.

In terms of reserve adjustments you made in the quarter, specifically what accident years were those -- did the favorable development come from?

Primarily the '05 '06 years. Primarily, I don't have a breakout in front of me. But it was generally speaking if you back to the second and third prior years that generally generating the releases.

Okay. Just a last question, can you comment on the competition you are seeing in the market? I guess some of your competitors spoken about the aggressive and irresponsible pricing that's been going on. Can you comment on what you are seeing there?

I will start with that. When I alluded to it in my comments that we are seeing some pricing behaviors, that we don't believe can possibly result in profitably under written business. One of the places we see it is in the competitive commission setting. Where commissions are maybe half to double what you would expect, 1.5 to two times what you would expect in a normalized environment. And then seeing some of it on aggressive pricing. You want to add color there?

It also point to the local markets somewhat too. When you look at California just the range in rate changes that have been filed by the carrier's competing there, some increases, some decreases really points to the fact that we are approaching inflection point there. And what is going to seem like extreme competition to some, is still being played out in other carriers of maybe not being in their own minds that aggressive. We are seeing it as spotty in the marketplace. it does get in the way sometimes but as Doug made clear at the beginning, we are certainly not going to chase those particular carriers in to a situation of being unprofitable.

Okay. That's helpful. That's all I have. If you could get the premium --

The if you look in the 10-k, there is a table included that shows selected financial data for the acquired operations from November 1 forward. The gross written premium from the acquired operations was slightly more than $23 million in gross written premium, with a earned premium in excess of $31 million.

That was just for the two months months?

That's right.

Okay. I can look those up. Thank you.

(Operator Instructions)

Your next question comes from the line of [Andrew Rickstaff] from Halpern Capital. Please proceed.

Andrew?

Andrew your line is now open.

Sorry about that. I had it on mute. Out of the $107 million of expenses that were in this quarter, 107.3, how many of those are expenses paid out of holding company cash versus out of the subsidiary where the business is done?

We are not going to have that breakdown readily available in front of us, we can certainly get that for you.

Is it mostly coming out of the subsidiaries?

I think it's fair to say mostly coming out of the subsidiaries, a small number of employees at the holding company level, and then some of the general corporate expenses that are allocated to the holding company.

Might be like five or 10,000,000 or something a quarter in that range maybe. As a fair estimate?

Annual operating expenses in the holding company are $12 million to $13 million on annual basis.

Annual basis, okay, 12 to 13, annual. Okay that helps thank you. And then so you mentioned before $100 million of cash handle all the needs outside what is already being kept as collateral, thats -- needs to cover the $13 million of annual holding company expenses. I'm sorry I missed it what else is it needed to cover?

We have been paying quarterly shareholder dividends.

Six cents a share thats 24 --.

That's a roughly $13 million per annum.

Okay. Now we're at 26 million, okay.

We have as principal payment due on December 31, of $50 million.

You have it collateralized with securities you can use for the principal payment?

Well, I need to look first to the cash I have on hand to pay that, because while it is collateralized by securities --

You're going to tie up both securities and cash for the same collateral payment that you have due on the debt?

The point is, that I do need to make the payment on December 31st, not withstanding whether I'm able to liquidate any portion of the portfolio to meet that.

That's $50 million, right?

That's 50.

Now $76 million we covered.

And here is interest payments of just under $7 million per annum.

That's 83 million. Okay I guess I'm trying to reconcile the $100 million of cash. I'm not sure if I speak for all shareholders in our desire to see buy back stock at 60% of book value, where your stock currently trades. But it feels like if you looked real hard you might be able to find some of that $100 million, really is free and clear. Even if you try to identify every possible contingency, I am just wondering why the Company isn't more enthusiastic given how acretive it is for shareholders on a book value per share basis, to buy back stock at a big discount to book value. Why is this not top priority instead it sounds like it's one of the last things you want to look to do.

I would not describe it as the last thing we want to do. I don't think our view on share purchases has changed although it is a component of overall capital management. But we certainly understand how attractive share repurchases are at a time when the company -- less than a book value (inaudible)

So why is not company not planning to purchase shares in the near term then?

We have announced that we have extended our share repurchase until the end of the year, I don't plan on providing additional comment beyond that.

My only other question would be what is the process the company would have to go through in order to obtain additional capital from subsidiaries.

It would require in the case of a dividend out of the Nevada company, the approval by the insurance commissioner of an extraordinary dividend. And that will be the case until financial statements are filed in 2010, statutory statements are file in 2010 for the 2009 year.

Is that something which you done before applied and received extraordinary dividends from Nevada.

We have.

Is there a reason why you couldn't do that again.

No legal prohibition from us doing that again. I would note where she a new commissioner Nevada whose been in office for less than two months, who replaced the commissioner who had been in office for 14 years and who we had a long standing relationship with. I am not suggesting that it can't happen but there has clearly been a change in the regulatory relationship.

Have you guys tried as of yet?

We have introduced ourselves to the commissioner at this point we made no question.

How much capital do you think you might be able to access if he proves to be somebody that's willing to let you do that sort of thing.

Well, its not really just a matter of getting commissioners approval. We also have to be mindful of of our AM best rating and implications it might have on our rating, we have to be mindful of our RBC calculations, so that we don't fine ourselves in a situation where we have unnecessary or unwanted regulatory oversight.

Andrew from a commissioners standpoint one thing that they will consider is or they for the past two years, we had extraordinary dividends of $410 million out of the Nevada subsidiary to the holding company. So any additional requests on our part will be viewed -- will be colored by that information as well.

So the fact that the level of business that you're writing is so much less -- and would be re --- capital so much more than would be required at the level of business you are writing would not be the dominant sort of fact in assessing this?

Well, just in my experience with regulators, their charge is to maintain the highest level of capital they can in the operating subsidiary. The fact that we have been able to move significant capital out of the operating company's into the holding companies where we have more flexibility shows you can do this. But there is going to be some point at which the commissioner is going to say I would prefer to see capital down in the operating company.

Okay. Thank you very much for your time.

You're welcome.

Next question comes from the line of Chris Summers with Greenlight. Please proceed.

Hey guys, I have a couple of questions. First I guess a common theme throughout the insurance industry recently has been, a lot of the investment side has been harmed causing many to think pricing should improve dramatically in 2009. I know you guys talked about 10% in California and 6.5 in Florida, just wanted to hear your guy's impression of where pricing might be headed over the next year or two across your market. And maybe talk about what your competitors capital position might be, after this market fallout compare to your own.

Well, I'll speak very generally, which is I think relative to a lot of other industries the P&C industry capital base is held up very well. I think that's a function of the conservativism in the investments overall, obviously we have done quite well in that respect. I think a bigger impact on premium levels in our segment of the business is going to be driven by payrolls. And if the economy starts to turn around, job creation returns, that will likely have a greater impact on revenues than rate increases. I think if you look across where we might be in the cycle, the key aspects California having a turn in the rates for the first time since reforms. I think California now is something like 18% of the total national workers composition market. We are going to see -- there, some firming there, I would expect to see some firming in Florida. The rest of the states from a pure rate level I think have been reasonably stable over the last two years.

Got it.

And that impact on capital, given the strength of the P&C industry's balance sheet, that's not going to be as large of driver on pricing behaviors.

Got it. My next question gets to Andrew's question a little bit. You guys have $2 billion of investment, net of reassurance reserves of 41.5 billion, what's your view of what you need to have investments relative to kind of reserves losses adjustment expenses? The regulators want you to have that much investment over your reserves? or do you need the keep assets up there, offset to the LPT agreement, what is causing the big GAAP?

Are you suggesting we would want something less than reserves in the way of assets?

Well I'm thinking of $2 billion in assets and $1.5 billion in reserves.

One of the ways to think about this, maybe not from a regulator standpoint but from a rating agency standpoint, is even though we have reinsurance that is collaterallized by a trust , there is still a very large recoverable. So when rating agencies and for that matter when regulators run their metrics against required capital, we do take a bit of a haircut there. Again even though we believe that those trusts collateralized and would be sufficient pay off the obligations, it's just a slightly higher level of acquired capital than you might other wise

Okay. So then you would disagree with those that say you're overcapitalized.

I'm speaking in the context as I understood your question the context of a rating agency and the context of a regulator, they might require more capital than somebody else might think -- given the balance sheet.

What's the b -- cards for?

I think our term numbers are about -- about 150 to 60, in that range. No that's not right. Well let me -- I don't have that at my finger tips. I will provide that later.

What's the minimum for the rating?

There isn't a minimum, we technically don't publish ranges, it's a function of where you are relative to anyone else with a A minus rating. Some of the unofficial ranges that I have seen suggest the minimum is about 135 in that range. But I can assure you it would not be our intent to manage -- to be at what we think is the bottom of that rating range..

Well, where are you relative to your peers?

Since I don't have a number I can't tell you where we are relative to the peers for 2008. Where we been in prior years is comfortably within the range.

Well we would like to follow up with you afterwards if we could.

No problem.

All right, thank you.

Next question comes from the line of Michael Nannizzi with Oppenheimer .

Hi, just a quick question, on the strategic partnerships, can you talk a little bit about how that is going, any change during the year? The type of business that you wrote in '08 on particularly like the ADP contract versus or -- any headway in extending that program in to the former AmComp markets thanks.

Two primary relationships with -- Wellpoint and ADP, continue to be very good. ADP certainly has a provider payroll services, is also experiencing impact in the recession on the small businesses they are providing payroll services to. We are certainly feeling that in some of our accounts and activities with them. We continue to explore expansion of that partnership, which has been primarily historically in California into principally Florida via our acquisition new markets that we have.

There is certainly potential for that to go in to other states as well, and we are looking at that. Our Wellpoint relationship in California continues to be strong. We are able to sell that integrated product through both the life and health agency force as well as some P&C agents that we have contracts with that also hold ANH licenses. So we are optimistic that as we go forward that, our ability to grow those partnerships as well as find additional ones, because of our now close to the national presence is going to be improved.

Great, thank you.

(Operator Instructions)

Your next question is a follow up from the line of Mark Hughes with SunTrust, please proceed.

Thank you, was there any affect from audit premium in the quarter? Any material affect?

There was no -- do you mean relative to other quarters?

That's right.

No.

And then the interest rate on the debt could you refresh me on that?

Okay. What respect?

What the interest rates.

On an annualized basis we are expecting interest expense of about $6.5 million to $7 million.

Annualized.

Right.

Okay. All right, thank you.

I will now turn the call over the management for closing remarks.

Thanks very much operator. Again thank you for joining us thank you today. As we move through 2009, we believe we are well positioned to weather the economic downturn, and are focusing resources on areas that are going to be most advantageous to us going forward particularly given our greater geographic diversity. And so we are optimistic about our ability to continue to take advantage of opportunities. With that thank you again all very much. We look forward to talking to you soon.

Thank you for your participation in today's conference. this concludes our presentation, you may now disconnect, good day