Kestrel Group Ltd (KG) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Maiden Holdings fourth-quarter 2014 earnings conference call. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to introduce your host for today's conference call, Mr. Noah Fields. You may begin.

Good morning and thank you for joining us today for Maiden's fourth-quarter and year-end 2014 earnings conference call. Presenting on the call today, we have Art Raschbaum, Maiden's Chief Executive Officer; along with Karen Schmitt, our Chief Financial Officer. Also in attendance today is Pat Haveron, President of Maiden Reinsurance Limited.

Before we begin, I would like to note that the information presented here today contains projections or other forward-looking statements regarding future events or the future financial performance of the Company. These statements are based on current expectations and future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from these expectations. We refer you to the documents the Company files from time to time with the Securities and Exchange Commission, specifically the Company's annual report on Form 10-K and our quarterly reports on Form 10-Q.

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 and may be found in our filings with the SEC and in our news release located on Maiden's investor relations website. Please also note that unless otherwise stated, all references to common share data in today's discussion are on a diluted share basis and comparative comments will refer to Maiden's results in 2014 relative to the corresponding period in 2013.

I will now turn the call over to Art.

Thank you, Noah. Good morning, welcome, and thank you for joining us today. I'm very pleased to report Maiden's continued strong performance in the fourth quarter and year ended December 31, 2014. In the quarter and throughout 2014, we made significant progress in continuing to profitably expand Maiden's highly differentiated lower volatility-oriented business model.

Last night, we reported operating earnings of $118 million for the full year 2014 compared to $87.5 million last year. Maiden's operating return on equity for the year increased to 13.6% from 10.5% in 2013.

We began 2014 with the repurchase of the 14% coupon trust deferred securities in January, which immediately improved our cost of capital and enhanced profitability. Growth of our investable assets helped drive the 28% increase in net investment income during the year, despite headwinds from falling interest rates.

These factors, coupled with Maiden's ability to leverage underwriting results with our efficient operating structure and our optimized balance sheet, are helping Maiden continue to strengthen operating return on equity, operating income, and investment income. Importantly, throughout the year, we saw healthy organic growth from core relationships across the platform, which we believe set the stage for continued expansion. We are focused on continuing to build our business in a disciplined fashion as we continue to execute our lower volatility reinsurance strategy in 2015 and beyond.

Premium growth during 2014 was strong. In the case of AmTrust, the exceptional growth resulted primarily from continued organic growth, the renewal rights transaction with the Tower Group, and rate increases in US workers compensation business. During 2014, AmTrust's net premiums written increased 38%. Premiums also grew in the diversified reinsurance segment, with a year--n year increase of 11%.

In the US diversified segment, Maiden saw growth from existing clients, reflecting both our increased participation on renewal programs, new programs from existing clients, and also growth in their businesses. Our US business also added a number of new client relationships throughout the year.

In Europe, we saw growth in our OEM business. This is auto manufacturer-oriented consumer products, reflecting expansion of existing relationships. Importantly, we are in negotiations with a number of new OEM manufacturer client prospects, which we expect to come online later in 2015.

And then as mentioned last quarter, one area of investment and potential growth being generated from our Bermuda-based team targets small- to midsized insurers in Europe who can benefit from some combination of subordinated debt and reinsurance. With our partner insurance regulatory capital, we can offer clients unique support encompassing traditional non-cat reinsurance and capital solutions in the form of subordinated debt, which receives full equity credit from regulators in Europe.

Our focus is on assisting insurers to meet the potentially more stringent capital requirements in Europe resulting from Solvency II. However, we believe that our opportunities extend beyond Europe, as a risk-based capital standards expand globally.

This has been an area of investment in 2014 and we are committed to build this business in 2015. And to that end, we have already begun to entertain opportunities and we expect the pace of opportunities to accelerate in 2015 and beyond.

Turning now to underwriting profitability, for the year, we reported a combined ratio of 98% compared to 97.5% in 2013. Our AmTrust business was better than target, resulting in a combined ratio of 95.4%, with net earned premiums increasing 39% year on year to $1.4 billion.

AmTrust continues to benefit from strong pricing in lines of business such as small account, lower hedge, and workers compensation, particularly in states like California.

We continue to see very stable performance across the AmTrust segment.

In our diversified reinsurance segment, the combined ratio for the year was higher than target, largely due to the impact of property losses during the year, some adverse commercial auto performance issues, and to a lesser extent, changes in business mix. Importantly, we've taken the necessary actions to either eliminate underperforming accounts or improve prospective terms. These items accounted for 1.6 percentage points of the diversified reinsurance segment combined ratio.

In Europe, our international insurance services business performed better than target, as past corrective actions and a lower expense base have improved our margins.

One of the key drivers of our strong return in 2014 was the contribution from investment income. We've been successful deploying cash into productive investments throughout the year, adhering to our lower volatility fixed-income investment strategy. And despite lower interest rates, we were able to increase investment income by 28% to $117 million.

Before I turn the call over to Karen, there are a couple of important points I'd like to cover. First, during the fourth quarter, we were impacted by adverse development in our former National General Holdings Corporation, or NGHC business segment, that resulted in a $6.5 million nonoperating loss.

This segment, which is in runoff, experienced an elevated level of case reserve activity and in the third quarter. And as a result, we've increased our ultimate expected loss to reflect that. Now on a relative basis measured over the life of our NGHC relationship, which generated historical assumed premiums of $921 million, the program remains profitable.

Secondly, I'd like to point out that in support of our continued profitable growth, we've entered into a quota share transaction with a highly rated well-capitalized reinsurer, which will result in $150 million to $250 million of retroceded premium in 2015. This contract will provide additional capital support to Maiden.

I'd like to now turn the call over to our Chief Financial Officer, Karen Schmitt, to review the fourth quarter in greater detail. Karen?

Thank you, Art, and good morning. As Noah said earlier, unless otherwise stated, all references to common share data are on a diluted share basis and comparative comments will refer to Maiden's result in 2014 relative to the corresponding period in 2013.

For the fourth quarter of 2014, Maiden reported net operating earnings of $35 million, or $0.44 per diluted common share, compared with $23 million, or $0.30 per diluted common share. Net income attributable to Maiden common shareholders was $28 million compared to $21 million. Net premiums written in the fourth quarter of 2014 totaled $602 million, an increase of 35% compared to the fourth quarter of 2013.

The diversified reinsurance segment's net premium written totaled $168 million, a decrease of 3%. The diversified reinsurance segment premium levels were down slightly as a result of elevated premium levels in Europe due to promotional offers in 2013 that were not repeated this year. We are pleased with the 11% growth in this segment for the full year.

In the AmTrust Reinsurance segment, net premiums written increased by 58% to $434 million due to continued rate increases in workers comp as well as new business from the Tower Group renewal rights transaction. For the full year, AmTrust premiums increased 38%. Net premiums earned of $608 million increased 24%.

In the diversified reinsurance segment, net premiums earned increased 16% to $219 million. The AmTrust Reinsurance segment net premiums earned were up 48% to $389 million.

The net loss and loss adjustment expenses of $396 million in the fourth quarter of 2014 were up 20%. The loss ratio of 64.8% was lower than the 66.8% reported in the fourth quarter of 2013.

Business mix changes between AmTrust and diversified segments distort loss ratio comparisons. With AmTrust being entirely quota share, we see higher expense and lower loss ratios compared to diversified, which is a mix of quota share in excess of loss business.

As a result, our focus is on the overall combined ratio. The combined ratio for the fourth quarter of 2014 totaled 98.6% compared with 97.3%. The diversified reinsurance segment combined ratio was 99.7% in the fourth quarter of 2014, up from 97.0%, and 98.7% for the full year, up from 98.1%.

The elevated diversified reinsurance segment combined ratio was driven by higher-than-expected loss activity in our commercial auto and excess property treaty segments and to a lesser extent, a change in business mix. We continue to take underwriting actions as appropriate, with some accounts being restructured or terminated.

The AmTrust Reinsurance segment reported a combined ratio of 94.8% in the fourth quarter of 2014 compared to 96.2%, and 95.4% for the full year versus 95.8% in the prior year.

As reported last quarter, the Company revised its structure of its reportable segments, with the results of the operations of the former NGHC quota share segment and the remnants of the excess and surplus lines business being included in the other category. The combined ratio for the other category was negatively impacted by elevated loss reserve estimates from the former NGHC quota share segment and to a lesser extent, additional legal expenses associated with the runoff of the E&S property business. This category added 1.2 points to the combined ratio for the quarter and 0.6 points to the combined ratio for the full year.

In the fourth quarter, we had record net investment income of $32 million, an increase of 25%. The average yield on the fixed-income portfolio, excluding cash, is 3.46%, with an average duration of 4.54 years.

The new money yield on fixed maturities in the fourth quarter was 1.93%, with an average duration of 3.96 years. The book yield fell in the fourth quarter of 2014 due to increased pay down activity in our mortgage-backed securities portfolio as well as fewer opportunities for higher-yielding securities in a declining yield environment. Including cash, the average duration is 4.07 years versus an average duration of liabilities of 4.40 years.

Total investments increased 9.5% to $3.5 billion compared to year end 2013. Operating cash flow was $652 million for the year ending December 31 compared to $366 million in the prior year.

Cash and cash equivalents increased from $273 million at December 30 to $393 million at the end of the fourth quarter. Total assets increased 9.6% to $5.2 billion at December 31, 2014, compared to $4.7 billion at year end 2013.

Shareholders' equity was $1.2 billion, up 10.4% compared to December 31, 2013. Book value per common share was $12.69 at the end of 2014 or 13.9% higher than December 31, 2013.

I will now turn the call over to Art for some additional comments.

Thank you, Karen. Before I continue, I'd like to just correct a comment I made earlier about the size of the quota share. I believe I said $150 million to $250 million. It is $150 million to $200 million. So apologies for that.

We continue to operate in a very competitive environment and while there is continued evidence of enhanced competition in the US primary market, we continue to believe that AmTrust remains well positioned to grow in its niche business segments, such as a small account workers compensation.

During the fourth quarter, we observed evidence of their ongoing pricing power in the workers comp segment. We've also observed there are geographies in the US that are becoming more competitive and we've seen AmTrust respond in a disciplined manner.

In the reinsurance sector, both the US and Europe are mature markets, with competitors ranging from large multinationals, who may focus a portion of their attention on our target market, to smaller more specialized reinsurers. Fortunately, Maiden is very unique in the markets in which we operate, because we are structured to specifically meet the needs of our target small- to midsized insurer prospects and clients, who require capital and appreciate the high touch and specialized services that Maiden provides.

Our low volatility focus enables us to use capital more efficiently, while our highly efficient operating platform provides a comparative cost advantage over many competitors.

In the US, we had a successful January 1 renewal season, which, when we typically renew about 40% of our domestic US diversified reinsurance portfolio, we benefited from continued organic growth and renewal clients and added seven new clients, despite the competitive environment. We remain disciplined, staying close to clients and ensuring that we deliver value to clients as our primary differentiator, rather than using price as a competitive lever.

We're also maintaining our focus on expanding the higher-margin components of our portfolio, such as elements of our facultative casualty and regional client umbrella liability business. Despite the increasingly challenging market environment, we continue to feel confident that our competitive advantages and our specialist strategies will serve us well. Importantly, we expect continued organic growth from existing relationships, which drove over half of our 2014 revenue growth in diversified.

In Europe, we continue to target the OEM market and have successfully positioned ourselves for new business in 2015 and beyond. With commitments from new clients and expanded relationships with our existing insurer partners, we believe that 2015 will be a very productive year in this segment, with most of our opportunities developing in the second half of the year.

I've mentioned our international expansion, focused on providing capital solutions in advance of risk-based capital standards. We expect to entertain a number of opportunities in the lead up to Solvency II implementation in 2016. And we believe that we are well positioned to deliver meaningful solutions in the regional and specialty insurer market.

Overall, we are very pleased with Maiden's performance in 2014 and we believe that 2015 will continue to see improved earnings power, benefiting from the strong profitable AmTrust growth that we saw in 2014, a lower cost of capital, strong investment income, and improved underwriting results following measures taken in 2014, particularly in the US diversified reinsurance book.

Our focus continues to be on profitable growth, improved underwriting, and enhancing shareholder returns. And importantly, our specialty focus and differentiating strategy of serving the non-catastrophe needs of regional and specialty insurers remains unchanged.

This concludes our prepared remarks. Operator, could you please open the lines for Q&A?

(Operator Instructions) Randy Binner, FBR.

I wanted to talk a little bit more about this retro deal. I guess there's two questions. One, if you could share who you did the deal with, that would be interesting.

And then more importantly would be how we should think about it impacting the income statement. And my supposition is that it's going to help you on the balance sheet by basically keeping your operating leverage at a similar level as it is now, because you're not going to be writing those premiums. But if you give up those economics, curious how to think about the income statement impact.

Right. Good question. Thank you. Well, the -- we've had a long-standing strategic relationship with a partner on our European business, Allianz. And they are our reinsurance partner on the quota share.

And in terms of sort of how to look at that, we've always said that we want to make sure that we have a strong balance sheet, and obviously, the ability to absorb profitable growth. And we think this is a tremendous tool to help us continue to do that.

It also actually confirms our view that we believe that retrocessional capacity is a viable option for us as we look at capital solutions. We believe that this particular transaction in terms of kind of the relative effect, we think that our 2015 key metrics, the effect will be immaterial in terms of our performance and so on.

Karen, is there anything you'd like to add to that?

The major impact, obviously, will be on the top line, the premium growth. But this is a strategic quota share for us and we don't expect major changes in earnings as a result of it for 2015.

Okay. Well, can you explain that more, though, because that's just -- that seems like really a good deal to get the capital relief without losing the earnings. So is there a mechanism or some further color you can give to just give us kind of confidence on that on how the income statement gets impacted?

I guess the other follow-up is, is this kind of a one-and-done deal? Or is it sounding like retro might be an ongoing solution for potential operating leverage challenges?

Well, to address your first question, this was written at fair terms with a strategic partner. When we look at it, though, we are looking at it as compared to other options to raise capital, to support our continued profitable growth.

The contract was written for a single year. However, we anticipate working with them to renew the contract next year, assuming that it works for both parties.

All right. So I'm going to try one more time. So maybe the way to think about it is if your operating leverage was going to keep moving higher, you were going to have to raise some kind of capital, whether it was debt or equity anyway. So relative to that potential impact, this is negligible. Is that the right construct?

That's correct. I mean, we view this as an accretive transaction. We looked at other sort of capital options. We think it is the most cost-effective option that was available to us.

And we think it actually is a very sort of customizable, very effective tool. And as I said before, I think it validates our -- we've been saying for quite a while over the last year that we are looking at that opportunity. So it's nice to see it come to fruition.

Sure. I'll just try to ask one more before I get in the queue. Just on the OEM. And so it sounded like there's two opportunities in Europe that are going to materialize in second half of 2015 -- OEM and Solvency II.

And those are issues or kind of opportunities, really, that you've talked about for a while. So I guess I'm looking for color on how much more material those would be now versus in the past. And if they really will be something that would be noticeable on the top line for the Company overall.

Yes, I would say that with respect to the OEM opportunities, we'll see some effect of that at the end of this year. We think over the long term, they will be very noticeable top line.

We see some very significant opportunities to expand relationships and continue to build that business. I can't give you a dollar amount at this point, but we think it's certainly material to that segment of our business.

With respect to the sort of international expansion oriented around sort of capital needs, we are getting good reception in the market and we are working with customers. We feel confident of our ability to kind of develop business opportunities.

And to the extent that we do develop them, and quota share is part of that solution, they could be sort of chunky transactions. But it's a little premature to estimate what that level will be. But we do feel like if we are doing our job, we'll see revenue and profitability from that, certainly in the last six months of this year.

And that's anticipating an implementation date of -- what is it for your clients? Is it like end of 2016 or end of 2017 for smaller companies over there?

It's January 1, 2016. Now it's kind of interesting, too, because as you begin to talk about capital with customers, we find a lot of times, some assume may be less of an issue. Some of these companies may be having maybe other opportunities to expand their business and are looking for partners.

So it's not entirely motivated by Solvency II, although it's the catalyst to begin the discussion. So there's always the possibility that Solvency II could be pushed off, although we don't see that happening. But we don't believe that it reduces our opportunity. I think this is a permanent approach that we'll take to the market.

All right, thanks so much.

Ken Billingsley, Compass Point.

Just I do have one follow-up on the quota share before I move my other questions. I'm assuming this is across the whole Company. It's not segmented any longer to just the diversified business. Is that correct?

Yes, the quota share includes sessions of both active segments and it's really designed to maintain the current proportions of AmTrust to diversify.

Okay. And since you talked a lot about a second half growth with some of the OEM and the Solvency, are you expecting some outsized growth in the first half of the year from either AFSI -- I'm asking that specifically, since you already mentioned Europe in the second half of the year.

I would say that obviously, there is still premium to flow related to the Tower transaction, probably in the next couple of quarters. So we do anticipate some growth. Can't really put an exact number on it. I know that they've given some thoughts on that in their call. So we do expect to continue to see growth there.

As far as our US diversified business, I think that the headwinds are probably the strongest there in terms of the competitive environment. That said, we definitely are active and busy right now entertaining opportunities. It's just a question of how many of those will meet our performance criteria.

As we've said before, we don't really alter our performance criteria over market cycles. We focus on generating a reasonable return for the capital we deploy.

But to the extent that we are actively talking to a lot of prospective clients, that's a good sign of the diversified segment. But the other two are more a function of just how we ramp up those opportunities.

And given your comment on keeping the AFSI mix in check, is the ceding commission you receive in line with what you are paying? Or given the current market conditions, is it a little -- maybe a little bit -- is there a premium?

I would say we think it's fair. I'll put it that way. We really aren't disclosing the specific details of that contract. We think it's a strategic tool for us.

Great. Let me just move on. And this is maybe just a technical question that from reading through the press release and the comments on the call, it's -- you are talking about the diversified loss ratio and how there was an issue there from the combined ratio running higher.

But when you look at the loss ratio itself, it did look like it improved quarter over quarter. The combined ratio was up 2.7 percentage points, but I believe the loss ratio itself was down 3.5 percentage points.

Could you talk about what you were maybe trying to say in the press release that maybe I missed? Since the loss ratio was actually better, but you talked about the fact that you have commercial auto and excess property treaty running worse than expected.

Sure. In the diversified segment, we have a mix of quota share and excess of loss business. So if we are writing a quota share, we are going to have a big ceding commission, which is paying those companies back for the acquisition expenses that they incur. The excess of loss business we really just have brokerage, so it's a much smaller acquisition cost.

So if you're -- for a quota share book of business, you're going to have commissions, possibly, in the 30%s. And excess of loss, your commission acquisition expense could be [10%] or thereabouts.

So the mix is really important. Whenever you are looking at diversified, you really have to look at the combined ratio. The components really are not that meaningful, because depending upon how much business is in those two segments, it really distorts any kind of comparison to loss ratio or expense ratio.

So when we say diversified is underperforming, we are saying on a combined ratio, it's not where we need it to be.

Okay. I understand. So it was 30% on the quota share submitted business?

I'm using that really as a broad -- I mean, every quota shows different. But you are going to see for quota share business, you are going to see acquisition costs in the high [$20 millions] to low [$30 millions].

And on excess of loss business, because you are really just paying -- the business that we produce through brokers we are paying brokerage. The business that is direct, we have no acquisition cost on excess of loss. So those expenses are going to be a lot lower.

So when you average together premiums coming from those two different segments, it really causes a lot of distortion. So we really always ask you for particularly for diversified to look at combined ratios.

But even when you look at Maiden overall, depending upon how much AmTrust business we have versus diversified, that really makes a difference, too, because AmTrust is all quota share. So you have the higher expense ratio from AmTrust and the lower loss ratio, of course. Does that make sense?

The other question I have on the NGHC, the $7 million of losses that developed. You said that was from the third quarter. Is that correct?

We saw some increased case reserves coming through our statements from the third quarter. So as we evaluated those reserves and looked at our position, we booked the increase. It was $6.5 million into the fourth quarter.

And are there -- obviously more claims can come in, but you haven't written any premiums in there for a while. Do you see any other legs that can impact that segment, the other segment, now as you are reporting it?

It's always possible. But that segment should settle out pretty quickly, we think. It's relative to the other business that we write. It's pretty short tail business that we would expect. It really can't drag on very much longer.

Barring obviously any surprise, should it, in most cases, be put to bed by like the second quarter of this year? Any major issues should've developed by then or could this last through the end of the year into 2016?

Well, I guess the one thing I would caution, in the E&S property, we do have -- we still have a number of claims from Superstorm Sandy and those things are going to take a long time to settle out. We did book some additional legal expenses related to those.

I don't expect all of those claims to settle by the end of the year. And as we get new information on them, if we need to make a change, we certainly will. But at this point, we feel like we are properly reserved for the entire segment.

But outside -- but, again, on the NGHC side, that -- most of that exposure should be pretty well wrapped up this year by midyear?

I would expect so. Certainly by the end of the year, but possibly by midyear.

Okay. Last question I have and I'll turn it over. On the investment side, just on our -- the way I calculate the yield, it looked like the yield was a little bit higher than last quarter.

Is there anything -- and I know you talked about a little bit about your yields were, but is there anything different on the investment front that's going to keep that yield as a whole running higher? It looks like you've expanded the duration on new money, given the lower yield, but is there anything different that maybe we need to build into our model to assume higher yields than maybe what the market is showing?

Our book yield actually went down a little bit. From 3.56% to 3.46%. And some of the new money came in a little bit lower. The one thing that was a little bit different during the fourth quarter is we did have call premium from some bonds of about $2 million in the fourth quarter. We had $1 million of that in the prior quarter, so maybe $1 million elevated from that standpoint.

But we are holding a lot of cash. And as we invest the cash, the run rate will increase from that as well. But we are being pretty selective in how we make those investments.

During the fourth quarter, we found more opportunities in some of the shorter duration instruments. And we're just looking at it very carefully. It's a tough environment to be investing.

There's been no fundamental change in the investment philosophy over the last few quarters?

No, not really. We did pull duration down a little bit in the last quarter. But philosophically, no, no changes.

Ken, as we said, we are sitting on a bit more cash and I think that's a function of the environment we are in today. And we think that's prudent to do. And as Karen correctly said, we'll look for the right opportunities to deploy it, but we're not uncomfortable with that level of cash, given where rates are.

Does that -- I mean, I imagine we could assume that maybe cash could even go a bit higher over the next quarter or two, given where rates are sitting.

It depends what the environment is, Ken.

Okay. Very good. Congratulations on the quarter. Thanks for taking my questions.

Vincent DeAugustino, KBW.

Just a couple follow-ups. Again, on the diversified expense ratio, I just want to make sure I'm understanding that correctly. Is there any seasonality with the business mix between order share and XOL that we should be thinking about?

And then just to confirm that I heard it correctly, we also had 1.2 points of the E&S legal drag that fell into the diversified expense ratio bucket this quarter as well.

The E&S, we had about $1 million of loss in that bucket for legal expenses. On the seasonality, there can be seasonality. It's a little lumpy, really, and it really just depends on which contracts we write and when they incept. And relative sizes. So yes, that --

When we write an excess contract, typically, we have an upfront premium that we establish. And so that -- and then it earns out kind of pretty stably. Quota shares are sort of reporting basis. So you can get more volatility in the reporting. So we do get a bit of noise that occurs.

Mostly what you'll see occurring at 11 are a lot of the excess of loss accounts that get booked that are 11 and those have a more stable pattern. The quota share is a little more unpredictable.

Okay. And then -- thank you for that. And if I recall, Allianz itself has some OEM-focused business strategies there. So I'm just curious if there are any concerns with possibly reinsuring with a competitor? Or maybe you could help me understand what they do versus what you do differently and if that overlap is a concern at all.

Well, if you think of our model there, Vincent, what we -- we do not -- we are not a primary company in Europe. We have a team that is quite expert at working with OEMs to develop consumer-branded insurance products -- you know, of many of those auto life-related products sort of credit life.

And they find local partners, local insurers, who have capabilities and we think can deliver the best product to the consumer. And it may not be a surprise to know that one of those partners has been Allianz for many years in our relationship in Germany.

And we find them to be a formidable company and one that can really deliver value to our clients. They are not the only insurer we have a partnership with, but they are certainly an important one.

That is the sort of the beauty of this model is that we are kind of creating the opportunity for ourselves by managing the distribution and managing the product development alongside our insurant partner. So sort of on the contrary, it's actually -- there may be opportunities for us to work closer with Allianz on a broader basis.

Okay. Sounds pretty complementary there. And then just the last one. Just sorry to beat the retro deal question. I know you guys look at all the options kind of on the table and I'm assuming this one provided the best economics.

But just curious if there was a lot of demand from the alternative market versus the more traditional route with Allianz?

We actually didn't spend a whole lot of time with the alternative market. Our preference was to develop a relationship with a very established company with a strong balance sheet.

That's not to say that the alternative market isn't an option for it and it's not something -- we will pursue it in the future. But we really view this quota share as a strategic tool and it was important for us to establish that with someone we knew and understood and understood us.

Okay, all right. Thanks very much. Best of luck, guys.

Matt Carletti, JMP Securities.

Just a quick one. The down premiums in diversified year over year were credited to one-time increases a year ago and you are up due to promotional offers. Can you quantify how much you kind of view that one-time piece as being? And I apologize if I missed it in the opening comments.

Great, Matt. We didn't actually quantify it. It's probably in the range of $4 million to $5 million, somewhere in that area. What happens is that -- so there is the normal distribution process, where products are sold at the point-of-sale in the dealerships.

But in addition to that, from time to time, the manufacturers will actually launch programs, where they sort of link the insurance with the sale of the vehicle more closely and those can come at sporadic times. In the previous year, there was a push at the end of the year with one of our OEM clients and that's really what drove that.

So it's hard to time those and predict them perfectly. But it doesn't suggest to us, in our view, that that's a prolonged affect that we are going to see in that segment.

Got you. That's very helpful. Thank you and congrats on a nice year and best of luck this year.

I'm not showing any further questions at this time. I'd like to turn the conference back over to Noah.

Well, that concludes our call for today. Thank you to everyone for joining us and we look forward to speaking with you in the future. Have a great day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.