Kestrel Group Ltd (KG) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Maiden Holdings second-quarter 2011 earnings conference call. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference may be recorded.

I would now like to turn the conference over to Mr. Pat Haveron, Executive Vice President of Maiden Holdings. Sir, you may begin.

Thank you. Good morning, everyone, and thank you for participating in Maiden's second-quarter 2011 earnings conference call. With us today we have Art Raschbaum, Maiden's Chief Executive Officer, along with John Marshaleck, our Chief Financial Officer.

Before we begin I would like to note that any forward-looking statements on this call are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, and these forward-looking statements are based on the Company's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that the actual developments will be those anticipated by the Company.

Our actual results may differ materially from those projected as a result of significant risks and uncertainties including non-receipt of expected payments; changes in interest rates; the effect of the performance of the financial markets on investment income and fair value of investments; the impact of competition and pricing; changes in demand for the Company's products; the effects of general economic conditions and unusual weather-related activity; adverse state and federal legislation and regulations and the regulatory investigations into industry practices; developments relating to existing agreements; heightened competition; changes in pricing environments; and changes in asset valuations. Of course the Company undertakes no obligation to publicly update any forward-looking statements except as may be required by law.

Some of our discussions about the Company's performance today will include reference to both non-GAAP financial measures and information that reconciles those measures to GAAP, as well as certain operating metrics that may be found in our filings with the SEC and in our news release located on the investor relations website. With that I will turn it over to Art.

Thank you, Pat. Good morning. The second quarter of 2011 was a successful quarter on a variety of fronts, and it reflects continued solid progress in the development of Maiden Holdings' highly differentiated business model, focused on the non-catastrophe reinsurance needs of regional and specialty insurers.

In the quarter, we improved our capital efficiency by replacing $107.5 million of our 14% coupon trust-preferred securities with 8.25% 30-year senior debt. We continue to see strong growth across our business segments, reflecting the full integration of our International business, growth and expansion of our AmTrust reinsurance relationship, and continued success in expanding our US underwriting portfolio.

And importantly, we experienced continued growth in investment income. Despite our previously announced weather-related losses stemming from the unprecedented frequency and severity of storms across the US in the quarter, we generated an underwriting profit.

From a balance sheet perspective, our book value remains above 2010 year-end levels, with book value per share at $10.52, notwithstanding the fact that by repurchasing a significant portion of the higher coupon trust-preferred securities we realized nonrecurring charges reflecting both the call premium and accelerated amortization of the trust-preferred discount. Our book value also benefited from strong unrealized gains of $18.3 million in the quarter and $21.8 million year-to-date, along with favorable operating earnings, which provide a partial offset to these debt-related costs.

We are confident that Maiden is well positioned to continue to deliver increasing value to our clients and our shareholders. Confirming that confidence, last night we announced an increase in our quarterly dividend, which I will discuss shortly.

For the quarter, net income largely reflects the impact of the nonrecurring costs associated with the repurchase of the trust-preferred securities and, to a lesser extent, the impact of weather-related losses, both previously announced. These items resulted in a net loss for the quarter of $24.4 million or a loss of $0.34 per share.

Of course subsequent quarters should reflect an improvement in earnings levels, reflecting the reduction in our debt cost of capital. This reduced cost will translate to an annualized incremental earnings benefit of $0.08 per share.

The impact of weather-related losses, as previously reported in our 8-K release earlier in the month, was $9.5 million or $0.13 per share. Our operating earnings -- which exclude the impact of nonrecurring items including the debt refinancing, but include the impact of weather-related losses -- totaled $11.2 million or $0.15 per share.

Excluding the weather-related losses, operating earnings in the quarter totaled $20.7 million or $0.28 per share. In comparison in the second quarter of 2010 our operating earnings totaled $21.2 million or $0.30 per share.

From a revenue perspective, the second quarter reflects strong growth in both the Diversified and the AmTrust segments. It also reflects continued success in expanding existing relationships and developing new client relationships. Year-over-year written premium in the quarter totaled $437 million as compared to $313 million in the second quarter of 2010.

In the Diversified segment, which as you may know includes our US underwritten and our International underwriting portfolios, the increase reflects benefit from the addition of the personal auto reinsurance-oriented International reinsurance portfolio acquired in late 2010, and both organic growth from existing clients and the benefit of several new accounts generated in the first quarter in the US. Written premium in this segment is $158 million versus $136.7 million in 2010.

Importantly, in our US subsidiary Maiden Re, we just completed our July 1 renewal season; and we successfully expanded a number of existing client relationships and also established several new client relationships. The US team through that process remained focused on maintaining underwriting discipline while delivering value to your regional and specialty insurer clients. This successful July 1 activity should benefit subsequent quarters.

Internationally, we successfully migrated business to Maiden. The Maiden International insurance services team is actively working to expand existing relationships and to develop new customers.

In the AmTrust segment, written premium for the quarter totaled $216 million. That is up $107.3 million or 98% from the prior year. While this growth reflects an increase in AmTrust's overall business, it is significantly driven by the addition of the AmTrust European hospital liability business.

You may recall that in early 2010 we commented on our decision to not reinsure AmTrust's expansion into this business. At that time, AmTrust International correctly identified very favorable pricing and underwriting conditions in the Italian hospital liability market as well as an experienced underwriting team.

While we believed that the opportunity was significant and that AmTrust's approach was found, we elected to pass on the opportunity, given the limited amount of available historical experience and our limited knowledge of the market. We did commit at the time to continue to evaluate the opportunity; and throughout the year, AmTrust has very generously provided us with a window on the development of the business.

In the first quarter, our Maiden Bermuda underwriting team completed a comprehensive review. We have now elected to reinsure 40% of the European hospital liability business.

Unlike our broader AmTrust Quota Share, we have elected to maintain an annual renewal process. But this contract also contains a lower ceding commission of 5%. That reflects the fact that premiums are ceded net of the original acquisition costs.

We anticipate that this business will perform at a level consistent or better than the broader AmTrust portfolio. We have agreed to assume the unearned premium portfolio, which has resulted in a significant level of premium growth in the quarter.

Approximately $75 million was ceded to Maiden for the quarter, of which $45.7 million of that is the unearned premium portfolio. Absent the incoming portfolio, we expect the written volume from this segment to stabilize at a lower level in the remaining quarters of this year.

We are very pleased to be providing support for this segment of AmTrust's International portfolio.

For the ACAC US personal commercial auto reinsurance segment, in the quarter year-on-year premiums ceded were down slightly from $67.2 million in 2010 to $62.5 million this year. But full premiums to date for this segment are up from $89 million in 2010 to $126.5 million in 2011. That reflects the fact that the contract incepted in March of 2010, and this year we're benefiting from a full year of this transaction.

On an aggregate year-to-date basis, net premium written for the first six months of 2011 totaled $886.5 million, as compared to $624.3 million. That is an increase from $242.1 million or 38.8% over the first six months of 2010.

While this reflects solid growth in the first six months, we caution against annualizing that number. We have mentioned in the past historically the third and fourth quarter written premium levels are lower than the first six months. In addition a significant amount of our US portfolio incepts in January 1.

Also, with the impact of the incoming AmTrust unearned hospital liability portfolio in the second quarter, this will be particularly true. Consistent with revenue trends, earned premium reflects growth across the portfolio by segment and in the aggregate.

From an underwriting perspective, absent the impact of weather-related losses our Diversified business is performing within expectation. For the quarter, the Diversified combined ratio was 100.3%; net of the weather-related losses, the loss ratio was 94.8%. Importantly, despite the weather-related losses in the quarter our year-to-date combined ratio in this segment remains profitable at 97.5%.

In reviewing the impact of weather losses on the quarter, it is important to recognize that Maiden's performance was impacted less by loss severity and more by the significant frequency of loss activity. As we have stated in the past, our property-oriented contracts that we underwrite generally contain occurrence limitations. Activity in the quarter really stems from the unusually and historically high frequency of severe storms from non-catastrophe reinsurance contracts.

The AmTrust segment reflected a loss ratio of 97.9% versus 95.5% during the same quarter of 2010. Much of that difference is attributable to late-developing casualty losses from the runoff of the pre-acquisition UBI portfolio.

Absent those losses, the loss ratio would be relatively stable. That stability was enhanced in the quarter by an improvement in the terms of the ceding commission structure of the AmTrust reinsurance contract.

For some time, we have commented on the shift in business mix and its impact on our AmTrust segment combined ratio. This stems from the fact that our ceding commission allowance is applied uniformly across all ceded premiums.

We have noted a change in business mix that has resulted in an increase in the mix of higher loss ratio, lower expense ratio, specialty risk and extended warranty business ceded to Maiden. While our loss ratio has moved up over the last several quarters, our expense levels have remained fixed.

As we do on many fronts, we have had both very productive discussions with AmTrust to correct for this anomaly. We just recently reached agreement to alter the ceding commission downward by 1 percentage point effective April 1. In addition, beginning in the first quarter of 2012, the ceding commission rate will be adjusted quarterly as necessary based upon an agreed-upon calculation that reflects underlying business mix changes.

Along with this beneficial change, we have also mutually agreed to extend the current contract term by an additional year, while maintaining a three-year renewal cycle. This ensures AmTrust continuity of reinsurance support.

As we have stated on many occasions, we significantly value our relationship with AmTrust and the spirit of cooperation. I think this change in the contract terms is further evidence of the value and also that spirit of cooperation.

The ACAC treaty performance held within the swing commission levels at a combined ratio of 96% before overhead allocations. On an aggregate basis, Maiden's combined ratio for the quarter stood at 99.8% versus 96.3% for the prior-year quarter.

Net of the impact of weather-related loss activity, our combined ratio was 97.2%. For the first six months of the year the combined ratio is 98.4% compared to 96.7% in 2010.

Looking at overall market conditions and broadly speaking, we believe that the market in the second quarter was relatively flat for non-catastrophe business in our target market. Competition in the sector remains stable, and we are not yet witnessing any signs of contraction in the market. We have also not witnessed a dramatic change in demand.

On the other hand, as a result of the frequency of weather losses in the quarter, we do believe that many primary companies have been significantly impacted by the losses without the benefit of their catastrophe reinsurance programs. As the year progresses it is possible that companies on our target market may seek some level of additional capital support.

As we have stated before, we will continue to maintain our disciplined approach to underwriting. In looking at this year's revenue growth ours is really driven by a full year of our profitable multiyear ACAC contract; continued growth in our multiyear AmTrust segment; and in our largest segment, Diversified, we are benefiting from the impact of our International acquisition late last year; and in the US, significant growth from existing client relationships and to a lesser extent select addition of new clients.

Our target business and focus remains oriented around the non-catastrophe needs of regional and specialty insurers and, importantly, the underwriting activity of the quarter should support the growth in our asset base, earned premium, and underwriting profit in the future.

I would like to turn the discussion over now to John Marshaleck, our Chief Financial Officer, to review some of the key financial metrics for the quarter and also to provide a bit more detail on the impact of the nonrecurring charges that relate to the debt issuance. John?

Good morning and thank you for participating in our second-quarter conference call. As Art talked about in his remarks, there are a number of events impacting Maiden in the quarter. I would like to take a few minutes and add some further details about these events.

Our senior note offering had a meaningful impact on our financial results this quarter and on our June 30 balance sheet. As you know, on June 24, 2011, we secured $107.5 million of senior debt with an interest coupon of 8.25%. The proceeds were used to redeem an equal amount of our 14% trust-preferred securities on July 15, 2011.

As a result, the timing difference between the closing of the senior note offering and the repurchase of the trust-preferred securities creates some temporary fluctuations on the balance sheet. The net proceeds of the senior net offering increased investable assets, while we had both pieces of debt outstanding at June 30. This will adjust in our third-quarter balance sheet.

As we previously announced, we recorded $15.1 million of repurchase expense in the second quarter which represents the 14% call premium on the trust-preferred securities. This had a negative impact of $0.21 per share for the quarter.

In addition we recorded approximately $18.5 million in accelerated amortization of the trust-preferred debt discount which we previously announced, along with the amortization of $1.8 million issuance cost on these securities in the quarter.

The accelerated amortization, a noncash expense, had a negative $0.28 per share impact in this quarter. The total nonreoccurring EPS impact of the debt refinancing is $0.49.

During the quarter our investable asset base grew by $141.7 million to $2.44 billion. The investable asset base is a significant driver of our overall profitability. Our investment earnings from our investable asset base increased to $19.8 million during the quarter, up 5% from $18.9 million in the second quarter of 2010.

For the first six months of 2011, our net investment income was $39 million, up 6.9% from $36.9 million in 2010.

As I noted earlier, some of you increased investable assets is temporary and is a result of the debt refinancing. However, total assets have increased by $310.7 million or 10.4% in the first six months of 2011, reflecting our strong premium growth. As a result, combined with positive operating cash flow for the quarter of $30.2 million, we expect investable assets to continue to grow in the remainder of 2011, continuing to strengthen our investment income run rate.

Our investment strategy did not change in the quarter, and we continued to invest in government agency and investment-grade corporate bonds. Our fixed maturities portfolio had a duration of 3.61, which was slightly lower than at 3/31/2011. This compares to our loss reserve duration of 4.7.

The average investment yield on the portfolio was 3.99% ay 6/30/2011, down slightly from 4.0% at 3/31/2011. Adjusting for the debt redeemed on July 15, our debt-to-capital ratio remains stable at 23.5%.

Our shareholders' equity at June 30, 2011, was $759.6 million, up from $750.4 million at 12/31/2010.

Now a few comments about our income statement. We saw increases in net earned premium in all segments, in line with the premium written increases Art mentioned in his comments. Our net earned premium for the quarter was $367.8 million as compared to $283.8 million in the first quarter of 2010, which is an increase of 29.6%.

Our net earned premium for the six months of 2011 was $714 million, up from $547 million in the first six months of 2010, which is an increase of 30.4% year-over-year. The largest increase in earned premium came from the ACAC segment, which increased $40.9 million in the quarter year-over-year.

The reinsurance contract for this business incepted in the first quarter of 2010, and the second quarter of 2010 results for this business were not at full run rate, as this contract was written on a new and renewal basis and did not include any unearned premium portfolio. In the second quarter of 2011, the earned premium increased to our expected full run rate.

In the AmTrust segment, earned premium also increased by $34.6 million, primarily in the special risk subsegment, which includes $19 million from the European hospital liability quota share.

I would like to make a few comments about the components of our combined ratio. The net loss and loss adjustment expense ratio increased to $67.7 million in the second quarter of 2011 from $61.8 million in the second quarter of 2010. 2.5 points of this increase was caused by the weather losses during the quarter, with the balance related to the business mix change and the International earnings in the quarter.

The commission and acquisition ratio decreased to 28.6% in the quarter from 31.2% in the second quarter of 2010. This decrease was a result in the business mix change and in the International business earned in the quarter.

The general and administrative expense ratio increased slightly to 3.5% in the quarter from 3.3% in the second quarter of 2010. This increase is due primarily from the acquisition of the International business. This business has a higher expense component, which is partially offset by the fee income revenue generated.

For the first six months of 2011, our net loss and loss adjustment expense ratio was 65.4%, which is up from a 63.1% in 2010, which was again impacted by the weather losses which increased the loss ratio by 1.3 percentage points.

Our general and administrative expense ratio was 3.5% for the first six months of 2011, up from 3.3% in 2010. Again, this ratio is impacted by the International business.

The other insurance revenue of $2.2 million recorded in the quarter and $6.8 million for the first six months of 2011 is a result of the International business acquisition. The expenses associated with this business are included in the general and administrative expense category. The acquisition of the International operation took place in the fourth quarter of 2010, and therefore we did not have any insurance revenue in 2010.

Our annualized operating income for the quarter was $11.2 million. Our operating income for the second quarter of 2010 was $21.2 million. For the first six months of 2011 our operating income was $31 million, as compared to $37.4 million for the first six months of 2010.

Our operating return on equity for the first six months of 2011 was 8.3%, down from 10.8% for the first six months of 2010. Even with the weather losses for the quarter, we had annualized operating return on equity of 5.9% for the second quarter of 2011. I'll now turn it back over to Art for some closing comments.

Thank you, John. Well, our results reflect the impact of the nonrecurring charges that are associated with our new lower coupon debt and the impact of a historically high frequency of weather events in the quarter. We believe that we have also improved our earnings outlook. The impact of the senior note offering will strengthen steady-state annual earnings by $0.08 per share.

Importantly, we will offset the cost of the trust-preferred securities call premium associated with the repurchase in less than the time remaining before the expiration of the call payment. You may remember that was a very important metric for us, to ensure that this transaction was shareholder friendly.

With $152.2 million of the 14% coupon trust-preferred securities remaining, we will continue to seek solutions that reduce our debt cost of capital in the most shareholder-friendly manner possible. Continued growth in assets should ultimately also drive increased levels of future invested assets and investment income at current yields.

Underwriting performance remains profitable and, absent the impact of weather losses, essentially on target. Over time growth in writing should translate into increased underwriting income as well.

Finally, yesterday our Board of Directors increased our quarterly dividend to $0.08 per share, effective for shareholders of record on October 3 of 2011. That is an increase of $0.01 per share or 14% from our prior quarterly dividend.

It reflects the Board's commitment to enhancing shareholder value. That is consistent with our past actions of increasing our dividend as earning levels of the Company rise.

At Maiden we continue to maintain our focus as a highly differentiated reinsurer serving the non-catastrophe needs of regional and specialty insurers. In doing so we are confident that we can continue to deliver more stable underwriting and operating results than the broader industry.

As always, we remain committed to delivering exceptional products and services for our clients and significant value to our shareholders. Thank you very much, and with that I will turn it back over to Pat.

Okay, operator, at this point we would be willing to entertain questions.

(Operator Instructions) Bob Farnam, KBW.

Hi there. Good morning. Am I hearing right that all the catastrophe losses happened in the Diversified Reinsurance segment?

That is correct.

Okay. Going to the Italian medical malpractice business, can you remind us how this compares to US medical malpractice and what the claim tail is on that type of business?

It is a claims-made contract. We find that sort of loss development characteristics are much shorter than US medical liability. The legal system is quite different as well.

As we looked at the pricing embarrassment, there has definitely been a significant shortfall in capacity in that market. I think AmTrust has done a very good job of responding to that opportunity.

Brought on a very experienced, capable group. Gentleman that we had evaluate the business has familiarity with US medical liability business and felt very comfortable about the opportunity and the performance characteristics of the business as well.

Okay. Sounds like -- was there any reserve development during the quarter?

There was not.

Overall?

This is John Marshaleck. There was not.

Okay, great. Thanks.

Beth Malone, Wunderlich Securities.

Thank you. Good morning. Just a couple questions. On the changes that you made to the AmTrust relationship, I am assuming that that ceded commission change is going to contribute more -- that it's going to make that arrangement more profitable to Maiden.

It should allow the combined ratio to settle to more of the normalized level. We have seen it inch up the last few quarters; but our expectation is that it will help contribute to improved performance in that segment.

Okay. Then on the reinsurance agreement with ACAC, there wasn't any weather-related effect to ACAC's book?

They did experience weather losses, as did AmTrust. But it was contained within the expected level of activity and in their pricing. It did not have a significant effect on their combined ratio.

Remember, too, that in the ACAC contract we have the benefit of a variable experience-adjusted commission feature.

Okay, also on the restructuring of the note, as you pointed out there are some timing issues that make that more favorable to do sooner rather than later. Is there a point in time, do you know, when once we get to, say, November and you haven't done any further restructuring it is unlikely you will till --? It won't be value-added to do it, and you just wait until the premium charge is gone in 2013?

Well, I think you correctly point out that there is a diminishing return as you get further down the road a bit. That said, we are going to continue our efforts to look for efficient solutions.

But as time passes, it becomes more complex. Because to get to the same level of target efficiency, and in order to comply with our view that it needs to offset the -- the cost needs to be offset by the interest variable over the remaining period of the call, it requires a lower coupon to do that as time passes on.

So as time passes it does certainly affect that. That said, we are not stopping our efforts to look.

Okay. Then just a clarification on the Diversified Reinsurance group, the pricing you saw for the quarter was basically flat?

Yes, I mean on the business we wrote it met our expectations. I think the general commentary would be that on renewal accounts, where we needed additional rate because of experience, we were generally able to get it. We held the vast majority of our renewal accounts.

Then in the new business that we brought on we felt good about the performance criteria. Some of that was auto-related, and I think that is one area in the primary sector where there has been some pricing power that we have seen. That is really selectively different markets in the auto space.

But in terms of the reinsurance sector, we still think that competition remains at similar levels. And remembering that not focusing on the cat market, we don't generally participate in the rate movements there. But we were satisfied what we saw.

The other important point I think about our growth in the quarter is that a lot of that quarter is coming from exactly where we want it to come from. It is coming from the acquired businesses. It is coming from expansion of existing relationships and, in looking at growth, expansion of existing relationships where you already understand the business and how it's managed, and have a better appreciation of loss cost is actually something that we think is desirable.

As far as the new client account activity, as I said before, it is meeting our price expectations. We, as I have always said, in software markets we fight harder to write -- find business that we are comfortable writing, but we did have some success at 7/1.

Then we have seen some indications that workers comp rates are stabilizing. It may actually be one of the few places that we are seeing some price improvement. How much of your book is exposed to workers comp?

I don't have the exact percentage, but less of the book is exposed to workers comp than maybe at historical levels. But remember that the AmTrust relationship obviously has a fairly significant component of workers comp.

We believe that we will benefit by rate activity that they are seeing. They have seen a number of markets where rate strengthening is occurring, and we think that will benefit.

While we do have a handful of other client relationships with comp exposure, it is not the dominant line that we write in the Diversified segment.

Okay, all right. Well, thank you.

Randy Binner, FBR Capital Markets.

Great. Thanks. I guess I would pick up on what Beth was asking about. She was asking about, I guess, opportunities.

From a pricing perspective I think you had fleshed it out. But maybe from another perspective, what is your capacity to potentially add business outside the existing structures?

It seems, at least from our perspective, the way we are modeling forward premiums, that it gets a little bit tight as measured by premiums to capital, or premiums to GAAP equity. So just wondering if we can get some kind of parameters around how much you can unwrap -- ramp up on the operating leverage side.

Yes, I first of all recognize that our statutory balance sheets are the important balance sheets here in terms of insurance or reinsurance premium written. Those balance sheet stand at about $1 billion.

We clearly had a significant growth in the first six months. The next six months I think there are a number of factors that should result in a lower premium level; and that has been a historical cycle.

I mentioned earlier on the call that we do see more of 1/1 business than we do see 7/1 business. So that affects the US component of the Diversified portfolio.

In addition to that, one of the things that is significantly affecting our revenue growth in the first six months is the ACAC contract, because last year it incepted in March; so we are benefiting from the additional two months. For the balance of the year, that should stabilize in terms of year-on-year growth.

Then, the International business, which is another new component, as we approach the fourth quarter we will start to see less of a premium lift because we will see the benefit of some of the premiums involved in the acquisition in late 2010.

As far as the balance sheet, this quarter obviously it didn't grow as fast as it has in previous. But we believe that with the trust-preferred securities repurchase completed and the new debt onboard that should increase our ability to strengthen the balance sheet going forward.

We have an internal metric we look at, although it is not absolute because really capital allocation is a function of the underlying risk. A lot of our growth has come from auto which obviously is a line of business that typically is a bit more levered to capital. But we look at a rough rule of about 1.5 to 1. And we are at this point comfortably below that level on a statutory basis, we believe on a full-year basis.

Okay. That is helpful. Thank you for that.

I guess the other question would be -- she got you on -- well, just to understand it better, so the ceding commission change. Clearly that is favorable to your income statement. You said I guess you quantify it around a more normal combined ratio.

So is that 96%, 97%? What would be a more normal run rate combined ratio at -- post this ceding commission adjustment?

Well, if you look at the previous year, I think for the June 2010 quarter for the AmTrust Quota Share, we were running about 96%. So I think we will settle down. Let's say in terms of the quarter itself it was worth about probably about $1 million of reduced commission or let's say additional premium to offset a loss ratio.

Right on. Perfect. Thanks so much.

Ryan Byrnes, Macquarie.

Thank you, good morning, guys. Just one quick question on -- just maybe a little more color on the loss ratio uptick in the AmTrust Quota Share. Obviously you mentioned it was maybe from some development in the UBI casualty losses. Just wanting to see if you could add a little more color to that. Thank you.

Yes, when AmTrust acquired the UBI business, there was an in-force portfolio. Maiden assumed that portfolio.

It is whittling down now, so there is a bit more noise that occurs as you get to the smaller universal losses. So we saw some case reserve activity; nothing that causes us great concern on a longer-term basis on that runoff. But it is the noise that can occur in runoffs when you are down to small levels of remaining losses.

Great. Thank you.

Thank you, sir. Now I would like to turn it back to Mr. Pat Haveron for further comments.

Thank you, operator. This completes our second-quarter earnings conference call this morning. We thank you again for participating on our call. We look forward to speaking with you again on future calls. Have a good day.