Kestrel Group Ltd (KG) 2016 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the Maiden Holdings third-quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder this conference call is being recorded.

I would now like to introduce your host for today's conference Mr. Noah Fields. Sir you may begin.

Thank you, good afternoon. Thank you for joining us today for Maiden's third-quarter 2016 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 Patrick 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 that the Company files from time to time with the securities and exchange commission, specifically the Company's annual report on form 10K and our quarterly reports on form 10-Q. Some 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 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 result in the third quarter of 2016 relative to the corresponding period in 2015.

I will now turn the call over to Art.

Good Afternoon and welcome.

In the quarter Maiden's highly differentiated business model continues to serve us well, notwithstanding a challenging operating environment characterized by continued strong competition and a growing level of loss cost volatility. As we have throughout the year, in the quarter we remain focused on maintaining underwriting discipline, while leveraging our highly efficient operating platform and balance sheet and our unique low volatility non-underwriting focus.

We also maintained our commitment in specialist focused to serve the long-term reinsurance capital needs of our regional and specialty insured clients. During the quarter we reported solid growth in year on year book value, investment income, underwriting income, and operating earnings, while reflecting year on year improvements in our combined ratio and our operating expense relativities.

For the third quarter we reported a return on average common equity of 11.6% and an operating return on common equity of 11%. Net income per diluted share was $0.40, while operating earnings per diluted share for the quarter were $0.39. Book value per share has increased 22% in 2016 on a year-to-date basis and was up 2% in the third quarter with most of the increase in the quarter attributable to earnings. Importantly, we've been able to grow our underwriting portfolio in our reporting segments.

Before I turn to business performance, I would like to comment on Maiden's upgrade by A Invest to an A rating on September 1. We are very pleased with this outcome and we believe it's a validation of the strength of our balance sheet, our long track record of stable operating performance, and importantly the strength of our business model. From business perspective, we believe this rating increase will open doors with a number of prospects, particularly in our US facultative casualty business.

Turning now to operating performance, in the third quarter, gross streams written grew by 13% to $707 million. As you may recall Maiden maintains a quota share retroscessional program, which explains majority of the difference between our gross and our net premiums written. We believe that gross revenue is the best measure of our business development success.

In our diversified reinsurance segment, as with our previous two quarters of 2016, we continue to enjoy growth with gross premiums written of $108.7 million up 7%. The majority of the diversified segment growth is coming from US through both the growth of existing clients and the addition of several new client relationships. In particular we're enjoying solid growth in our accident and health and our prorated treaty businesses.

Our European solvency too focused on capital solutions business continues to attract interest and we believe that we are well positioned to entertain a significant level of submissions this year end. We continue to view this as a growth platform, and we have a solid pipeline of interest following the fall European conferences. Our ability to provide a continuum of capitals perspective clients continues to be a very strong differentiator in the market and interest in our range of capital solutions products is increasing.

Several of the current opportunities include interest in a potential subdebt component through our majority-owned subsidiary, Insurance Regulatory Capital. Maiden's automobile OEM-oriented international insurance services platform experienced a year on year decrease in premiums written during the quarter; however we expect several newly acquired programs to restore growth as they come online in 2017.

We've also experienced a slower start to our payment protection insurance partnership in Europe. While we have been in active discussions with several opportunities, we're finding a longer required lead time in the sales process, and we're looking at ways to enhance the success of this activity with our partner. But at this point, we expect to begin to see some benefit in 2017.

AmTrust gross written premium for the quarter totaled $520 million, which is up 15% from the prior-year. Quarterly results include the first sessions of several US commercialized acquisitions. The session reflects the gross stream of written and ceded year to date. As a result, we do not view 15% as necessarily a run rate. We believe the annual incremental run rate is lower absent significant acquisitions and as we've commented in the past, net of acquisitions we expect organic growth to be in the single digits reflecting AmTrust disciplined response in a competitive market.

Maiden's combined ratio has improved to 98.5% in the third quarter, we continued to see pressure on the diversified segment from adverse development in the commercial auto line of business with a third-quarter combined ratio of 102.2% However we do believe we have been early to recognize challenges in this line of business with aggressive on-site audits and active use of additional case reserves and we're confident that our efforts to address nonprofitable contracts will benefit us in the future.

Most importantly our commercial auto portfolio has diminished significantly, reflecting pricing discipline as well as nonrenewal actions. At the same time we are benefiting from favorable development in other casualty lines, such as umbrella liability, general liability, and workers compensation excess of loss. The 2015 third-quarter diversified combined ratio of 103.6% included a modest level of weather-related property losses, which did not recur in 2016.

Maiden's disciplined underwriting philosophy continues to drive underwriting efforts and we remain committed to focusing on profitability. The combined ratio in the quarter for the AmTrust segment was 95.9% as compared to 95.4% in the prior-year, across the underwriting portfolio we remain focused on enhancing underwriting results absent the impact of adverse commercial audit development across the portfolio, our core underwriting performance is in line with our expectations.

Finally, last month hurricane Matthew struck along the US East Coast. As you know Maiden carefully manages its underwriting portfolio to reduce its vulnerability to catastrophic property events. While we do reinsure property lines, we are not an underwriter of property catastrophe risk. And consistent with our philosophy we currently have no reported losses from clients to date, nor do we expect to materially impact from the storm.

On balance, third-quarter reflects continued business growth across our various underwriting activities and we are confident that our emerging business initiatives will provide us with an opportunity to continue developing our portfolio. In the US, the addition of a variety of new product initiatives to assist our clients delivering increased value to their insured such as our new equipment breakdown product and turnkey highly automated umbrella liability products should help us to expand our presence with existing clients, as well as attracting new customers.

We're also seeing growing demand for capital support quota shares in the US and abroad. Internationally our unique auto OEM branded insurance solutions business is continuing to expand its presence with new original equipment manufacturer relationships most recently Volvo in Germany, as well as product diversification, most significantly our payment protection insurance joint venture.

And finally our unique capital solutions business in Europe where we are offering support to companies in Solvency II environment. As we have said many times, we will not sacrifice profitability for revenue. In each instance our new business initiatives along with our core business activities are focused on prudent underwriting and risk selection.

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

Thank you Art and good afternoon.

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 the third quarter 2016 relative to the corresponding period in 2015.

Maiden reported third-quarter 2016 net income attributable to common shareholders of $32 million, or $0.40 per share, compared with $22 million for $0.30 per share. Net operating earnings were $30 million, or $0.39 per share in the third quarter, compared with $26 million, or $0.34 per share.

Net premiums written totaled $691 million in the third quarter 2016, an increase of 15%. Net premiums written in the Diversified Reinsurance segment totaled $179 million, an increase of 9%, with good organic growth in the US and select new business, which was partially offset by lower premiums in our international insurance services business.

In the AmTrust Reinsurance segment net premiums written were $512 million, an increase of 18%. The AmTrust segment net written premiums are somewhat inflated in the quarter due to a one-time catch-up of premiums from acquisitions that were ceded for the first time during the quarter. On a year-to-date basis AmTrust net premiums written are up 6%.

Net premiums earned increased by 6% to $698 million. In the Diversified Reinsurance segment net premiums earned decreased 9% to $175 million. The AmTrust Reinsurance segment net premiums earned were $523 million, up 12%. Net loss and loss adjustment expenses of $467 million were up 5%. The loss ratio of 66.6% dropped slightly from 67.2%. Commissions and other acquisition expenses increased 5% to $207 million in the third quarter. The expense ratio decreased to 31.9% for the third quarter of 2016 compared with 32.4%.

The diversified commission and other acquisition expense ratio decreased from 26.5% to 22.5%, due to changes in the mix of quota share in excess of loss business in the US, as well as to the impact of lost sensitive commission adjustment. The AmTrust commission and other expense ratio increased from 31.4% to 31.9%, due to business mix.

General and administrative expenses for the third quarter of 2016 totaled $17 million, a 3% increase from the prior year. General and administrative expense ratio continues to decrease, reaching 2.4% in the third quarter 2016, compared to 2.5%. The combined ratio for the third quarter of 2016 totaled 98.5%, compared with 99.6%. The Diversified Reinsurance segment combined ratio was 102.2% in the third quarter 2016 and below the compared to period of 103.6%.

Favorable loss reserve development in excess of loss casualty lines partially offset continued adverse development from commercial auto business. The AmTrust Reinsurance segment combined ratio was 95.9% in the third quarter, compared to 95.4%.

Beyond the growth in premium and moderating of our combined ratio, we continue to see strong growth in investable assets. In the quarter investable assets grew by $223 million, while our cash on hand at the end of the quarter of $434 million. The quarter does not fully reflect the income effect of the new investments and we should see additional continued growth in investment income as cash is carefully deployed.

Net investment income for the quarter was $36 million a 9% increase compared to third quarter last year. On a year-to-date basis net investment income was $107 million. Investable assets increased to $5.1 billion, compared to $4.6 billion at December 31, 2015. The average yield on the fixed income portfolio excluding cash was 3.2% with an average duration of 4.49 years. The new money yield on the $424 million of investment purchased in the third quarter was 2.61% with an average duration of 4.47 years.

During the quarter we continue to invest in high-quality investment-grade securities. Including cash, the average duration is 4.09 years versus an average duration of liabilities of 4.22 years. Operating cash flow during the quarter was $161 million. Our cash and cash equivalents position fell by $72 million to $431 million as of September 30, as compared to $506 million at June 30.

Your conference call will begin -- resume momentarily. Once again, your conference call will resume momentarily. Ladies and gentlemen, please stand by, your conference call will resume momentarily. Thank you for your patience and please stand by. (Operator Instructions)

Where we dropped off.

--2016 totaled 98.5% combined with -- compared with 99.6%.

The Diversified Reinsurance segment combined ratio was 102.2% in the third quarter 2016 and below the comparative period of 103.6%. Favorable loss reserve development and several excess of loss casualty lines partially offset continued adverse development from commercial auto business.

The AmTrust Reinsurance segment combined ratio was 95.9% in the third quarter 2016 compared to 95.4%. Beyond the growth in premium and moderating of our combined ratio we continue to see solid growth in investable assets.

In the quarter investable assets grew by $223 million, while our cash on hand at the end of the quarter totaled $434 million. The quarter does not fully reflect the income effect of the new investments and we should see additional continued growth in investment income as cash in carefully deployed.

Net investment income for the third quarter was $36 million, a 9% increase compared to third quarter last year. On a year-to-date basis net investment income was $107 million. Investable assets increased to $5.1 billion compared to $4.6 billion as of December 31.

The average yield on the fixed income portfolio excluding cash is 3.2% with an average duration of 4.49 years. The new money yield on the $424 million of investment purchased during the third quarter was 2.61% with an average duration of 4.47 years.

During the quarter we continue to invest in high-quality investment-grade fixed income securities. Including cash, the average duration is 4.09 years versus an average duration of liabilities of 4.22 years. Operating cash flow during the third quarter was $161 million. Our cash and cash equivalents position fell by $72 million to $434 million as of September 30, as compared to $506 million at June 30.

Total assets increased 13% to $6.5 billion of September 30, 2016 compared to $5.7 billion at year end 2015. Shareholders equity was $1.6 billion up 15% compared to December 31. Book value per common share was $14.40 at September 30, or 22% higher than December 31.

Before I turn back the call to Art, I would like to provide you with a brief update on Maiden's capital position. On September 15 Maiden's 7.25 mandatory convertible preference shares converted to common equity, increasing our common shares outstanding by just over 12 million shares to a 86.1 million as of September 30.

This caused a decrease in our book value per share of $0.13, a decrease in operating ROE of 0.3% and a negligible impact on Earnings per Share in the quarter. The ROE impact is muted since the conversion occurred late in the quarter. We expect the full impact to be close to 1%.

In 2017 we have two opportunities to lower our cost of capital with $100 million of 8% senior notes eligible for call in March and $150 million of 8.25 preference shares available to be called in August. Depending upon our capital levels and the interest rate environment, we will likely refinance the securities at a lower rate.

One final note, we are pleased that earlier this week Maiden's board of directors announced a 7% increase in our common share dividend, reflecting the board's confidence in the company's earnings power and capital strength.

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

Thank you Karen, and again I apologize for the technical glitch.

Before I wrap up today's prepared remarks I would like to comment on market conditions. Needless to say industry capital is abundant and it continues to grow while at the same time market demands remains relatively stable. Although the industry is beginning to experience a growing level of loss cost volatility, this has not been enough to really drive stronger pricing.

This dynamic continues to drive increased competition throughout the Global Reinsurance markets. We believe that the only effective way to deal with this dynamic is to provide differentiated products and remain focused on our core regional and specialty insured clients and prospects.

In this competitive marketplace we do believe that this focus, coupled with our strong competitive differentiators such as our operating and balance sheet efficiency, our unique collateral trust, our customized client solutions, and a host of existing and developing new product initiatives, along with growing portfolio of long-term client relationships all serve to strengthen our response to competition.

Beyond these strategic differences we believe disciplined underwriting is the key to sustainability and we're committed to maintaining that discipline. The dividend increase mentioned by Karen is a further indication of the board's confidence in our increasing earnings power, and it also reflects the board's commitment to enhancing shareholder value.

We remain committed to delivering returns, strengthening underwriting results, and increasing value for our shareholders.

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

(Operator Instructions)

Randy Binner, FBR.

Good afternoon. I want to -- I guess just to start with some of the commentary about reserves. I think you mentioned you are still seeing little bit adverse development in the commercial auto area. Can you size that relative to where it has been and what actions you are coming from, and then more detail on the other areas where you've seen some more favorable development if I got all that right?

Sure. In the quarter we had $13 million of net adverse development. Most of that -- more than that amount was from commercial auto. We had $23 million from commercial auto.

And then we had that offset by favorable umbrella and workers comp excess a little bit of GLX as well. Largest impact was in 2013 although we had some deterioration in some of the earlier years as well just not as significant. And then we had the more recent years -- technically deterioration but more of just being a little bit more conservative in the pick given what we're seeing in the 2013 years and some of the earlier years.

Okay. And the nature of those losses, is it similar to what we've seen where you are seeing more elevated severities? As it relates to -- .

Yes Randy. It is all increased severity. I think that in a number of cases -- even on some of the accounts were we have gone out and done independent file reviews and we've established expected loss cost we've seen some additional deterioration. I think severity is clearly an issue across the marketplace and we're not unique in this respect.

These are excess of loss accounts but they are fairly short layers and they're fairly low attaching. There is a limit to how much adverse we can get in any one account. Nevertheless I think the same factors that we have believed were driving this seemed to recur and I think in some environments it is also probably a reflection of a more active plaintiffs bar.

Right and I guess this is an issue we've been discussing for some time. The attachments were low as you said but it seems it is a right that the issues you are having is not necessarily the claims you're already identified developing adversely being the issue. It seems more like as you do more reviews or you get more information from decedents that there is new claims coming on? Is it right way to think of this? It's kind of bowling through the book.

It's really both of those things. We do dip down in our audit activities to look at claims that are below our attention to see if there's anything we are missing but we cannot -- full census of all those claims will be difficult to do. We do see some that emerge much later and maybe a function of adverse judgments or the like but there is clearly a severity issue. As I mentioned earlier we have started repricing the business and culling the book really in 2014 and since. The portfolio today is really a fraction of the portfolio that existed in 2013.

Thanks. Then, a closing comment, you mentioned that you are seeing continued elevated capacity from pricing perspectives, that the loss trends are increasing. Outside of commercial auto, are there any notable business lines where you are seeing loss trends increasing?

There has certainly been industry commentary around personal lines. We are not seeing it as prevalent in our book and I think there are couple of reasons for that. Some of our portfolio is nonstandard so the limits are somewhat contained. And then in addition to that we do have loss responsive features on many of our quota shares. Actually, most of our quota shares that do tend to mute the effect of some of that loss activity.

Beyond that, no other lines stand out. I guess lines that we don't support, I think there has been some spike in professional liability areas but nevertheless the areas we focus on, it is somewhat confined to auto but we are vigilant looking at really all of our active business to ensure that we are not seeing adverse trends and if we do responding quickly to them.

Okay I'm going to do just one more just in case nobody asks this, but the OEM, you mentioned you can -- this has had a long lead time and the impact would be in 2017 potentially. What changes by then in 2017? How material an impact could we see from that product initiative? I think this is a German -- this is in Germany? This is like mainland Europe auto point-of-sale stuff.

There are two elements to it. One of course of the auto point-of-sale and the other is payment protection insurance. And so the biggest component of the two in terms of our expectation is the payment protection insurance. And so we've talked about the size of the opportunity certainly in its ultimate development could be as much as several hundred million dollars. Although the development of that is going to be slower than we expected it to be.

It is -- it has been a more challenging sales process. There are a lot of moving parts and I think we've got to streamline the way we go to market with our partner. But we still feel reasonably optimistic about the opportunity and the ability to deliver a very efficient and consumer friendly product.

On the automotive side, we are actively picking up new relationships both with OEMs as well as dealer groups as well as finance entities that all focus on providing brand insurance solutions for their customers. Some of those we have landed and they will be coming online into 2017 and beyond.

Alright perfect. Thanks a lot.

Matt Carletti, JMP.

Thanks, good morning. I have a few questions. On diversified, I heard your comments that a lot of the growth we're seeing currently is US focused and a lot of the European efforts have been underway. Good pipeline but maybe we'll see going forward. I was hoping to give a little color on just when we do start to see that, what might that look like? What I mean by that it is, do they tend to be more chunkier acquisitions that are fewer and larger? What sort of average size transaction should we expect? And what sort of frequency? How might it look similar or different to your US book of business?

Sure. I think there are two components. By the way, congratulations to the Cubs.

Thank you, not a lot of sleep last night.

In any event, the business that's coming through the capital solutions business could certainly be chunkier. To the extent that we identify a customer and we find a responsive solution that delivers capital support, it could become a rather large quota share and some of those could include incoming honored premium reserves. But again that is going to be a little more erratic.

We have a lot of deal flow as I mentioned earlier. That's just how much of that deal flow can bring on the books. But as respect to the PPI and automotive initiatives in international insurance services, that one is probably more of a slow ramp up because when we win an account we start to build prospectively.

There are no enforce elements to it and it really is kind of a slow ramp up. That one I would see -- and that is true as well with the PPI although the PPI perhaps, a little bit to a lesser extent because when we come in, we replace an incumbent and we start participating actively on all of the new financings that the OEM generates. So it's a bit of a mixed story.

But I wish I had more of a crystal ball but I do think in both areas we are well-positioned. I think the question in the first, the capital solutions business is really can we develop responsive solutions that also generate a reasonable return on capital? We're not going to undermine performance for revenue.

Got you. That makes a lot of sense. Thank you for the color.

A couple of other questions. One is first before ask the question, congratulations on the invest upgrade it's much-deserved. And my question along that line is what has been the response from your clients and what do you expect the impact on the business to be? The reason I asked that is knowing you have the collateral trust backing, it seems like that would be as good if not better than any rating agency stamp of approval.

How has that been received? I know it's early days.

I agree with your assessment. Very much so. We were at the PCI conference in Dallas last week and we held a cocktail hour and we had extremely positive response from all of our clients and many new prospects as well as brokers. I don't think there was -- there were very few exceptions of people that did not raise the issue and point out how pleased they were for us.

And particularly from the brokers where obviously some companies have much more rigid inflexible got to be an A or else despite the fact we offer collateral. So we do think it opens up opportunities there but the other thing we're doing obviously from a marketing perspective is we're looking back at all the deal flow we've seen and those that might've had an arbitrary A floor and we're going out and contacting them. If it's any indication, we definitely are seeing a lot more submission flow coming in.

The area that it probably has the greatest effect -- in our facultative casualty business that is the one area of our portfolio where we do have national account kind of riders. It's again, it's individual certificate, they're priced individually and underwritten individually. But in that marketplace, many of the big national riders have many types have more inflexible rules. There we have already gotten some increased interest from people that previously we were not on the approved list for. On balance we're pretty bullish.

How much it will mean it's too early to tell. If this was a hardening market we would probably be more bullish about it but I do think that on the margin we can see if the submission activity is any reflection and we can hit the business I think it helps us to get to our 10% compound annual growth target next year. But we will have to see how pricing behaves. And competition.

Okay great. Last one, this is probably for Karen. On the investments and the cash balance on hand, I think you mentioned $434 million of cash.

Twofold question, one, what is a comfortable cash balance if the world was ripe with interest rates how much cash would you want to keep on hand and not have invested? And secondly is that being put to work now or are you waiting for a potential rise in December and what might come out of that?

I think we don't have absolute number that we're looking at but I feel comfortable in the $150 million range which by the way we're getting almost that amount from AmTrust at the end of every quarter regardless. It's almost hard to go below that level anyway, just because the way the cash comes in.

But we are looking at some new investments but it's a little bit slower with the expectation that rates will go up next month possibly and we are not jumping in very quickly. But we did make a lot of investments toward the end of the last quarter so they're really not fully baked into our third-quarter numbers.

Okay great Thank you for the answers and congrats on another nice quarter and best of luck as we head into 2017.

Thank you very Matt, appreciate it, get some rest.

Ken Billingsley, Compass Point.

Good afternoon. I wanted to fill in with a couple of questions. First off from your AmTrust book of business as they are shifting a little bit of their business mix, how much is that impacting you. Are you seeing pretty much the same mix of business as before? Are you having to make some adjustments as you look at the business that is flowing from them?

Keep in mind that there are some of the acquisitions that they are making that are not part of the core quota share. The surety business and we talked about the mortgage business in Europe and a few other acquisitions.

I think as respects the business we saw flow-through this quarter, it is all right in our wheelhouse. It was predominantly small commercial business and so -- I'm not seeing a huge shift in our mix. Karen anything?

We did see a little bit smaller session from the hospital liability quota share for example. We talked about the mix with the combined ratio that was really the main driver of that. They're very modest changes but for the size of the account it's been fairly stable.

I would add that what we're seeing in the hospital liability makes a lot of sense. I mean the market is becoming more competitive and we think they are reacting prudently to it.

And then only M&A side, AmTrust historically has done a lot of renewal rights and lately we're seeing more full-company acquisitions which hits the historical liability. Do you participate in that or do you at least have right of first refusal? And what is your philosophy around that if you do actually get right of first refusal?

We do not participate on the enforce, we only participate new and forward. In our history there's probably only been one transaction where we didn't participate in the enforce liabilities, and that was back in 2008. But no.

The premise is that business that's underwritten and managed by AmTrust, we're very comfortable accepting it. Many times the economics of the acquisition deal with that portfolio. And we don't share those economics. It makes sense to have a cleaner break between the two.

Great. Last question I have is on investment portfolio, I missed this before and some of the numbers. For deploying cash during the quarter, did that tend to happen at the end of the quarter? And then I know you, I believe Karen you said it doesn't quite reflect the cash that has been deployed. Could you give a bit more color surrounding the timing.

Sure. It occurs throughout the entire quarter. We did have some things that did not close until the end of the quarter and we also had some mortgage backs that had a very long lead time before they closed. Even though we purchased them well into the quarter they closed late in the quarter.

So the expectation is -- I'm assuming we can expect that the yield should continue to tick higher than what we do what we saw on a blended basis than this quarter as you've deployed additional cash?

It's tough to tell. Our weighted-average yield for the new investments this quarter was 2.61. We certainly like it to be higher. Just based on a couple things I've seen since the end of the quarter it looks a little higher but it's hard to know what is going to happen through the rest of the quarter.

I think some that will be influenced by what the Fed does it the end of the quarter. It's a little hard to predict but I think it served as well to sit back and park cash for a while and wait for the yield environment to improve a bit and I think the investments we have made in the quarter are at stronger yields than had we deployed it back in the second quarter.

And I apologize, I do have one more. Congratulate you as well on the A-invest upgrade. Now that you are there, I believe in the past you have been operating with anticipation of working toward that and having plenty of capital. Is there any change though based on your discussions and having been upgraded, is there any change in how you look at capital or needing to look at capital, not necessarily to get the next upgrade, but just to maintain where you are?

We've always looked at our capital position at a higher level anyway. We weren't basing our capital on a A-minus rating. We're basing it on an A rating. So no changes there.

The factors that really drove the rating had a lot to do with the seasoning of the business which we were a relatively new company and we were granted an A-minus day one. It's still just the seasoning process. We feel very good about our capital position as Karen mentioned before. And we don't see significant changes in the way we look at capital.

Good, thank you for taking my questions.

I'm showing no further questions at this time. I'd like to turn the call back to Mr. Fields for closing remarks.

Thanks everyone for joining us today, apologies for the technical glitch. We will follow up with our service provider to determine what happened. Have a great day.

Ladies and gentlemen thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.