Markel Group Inc (MKL) 2006 Q2 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the Markel Corporation second quarter 2006 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Mr. Steve Markel, Vice President of Markel Corporation. Thank you, Mr. Markel, you may begin.

Thank you, Dan, and thank all of you for joining the Markel conference call. During our call today, we may make forward-looking statements. Additional information about factors that could cause actual results to differ materially from those projected in the forward-looking statements as described in the captions, under the captions "Risk Factors and Safe Harbor and Cautionary Statements" in our most recently filed Annual Report and Form 10-K, and Quarterly Report on Form 10-Q.

Again, thank you for joining us. Our program today will be much as previous quarters. After I make a couple of comments, Richie Whitt, our Chief Financial Officer, will review the financial results primarily focusing on the six months results. Tony Markel will review our operations and Tom Gayner, our investment activities. We're very, very pleased with our progress in the second quarter of 2006. Both the revenue growth to earnings and the return to underwriting profits of our international business is extremely gratifying.

Right now, the business is pretty much firing on almost all cylinders and we're very, very enthusiastic about the way things are going, and without further ado I will let Richie jump into the details.

Thank you, Steve. Good morning, everyone. I will, as Steve said, primarily focus my comments today on year-to-date numbers. I will begin with our underwriting operations followed by a discussion of our investment results and then bring the two together with a discussion of our total results for the six months.

Many of the themes for the six months are very similar to those we discussed at the end of the first quarter. Gross premium volume increased 12% to $1.3 billion for the six months of 2006. This was primarily due to growth in new products and increasing rates in certain of our catastrophe-exposed businesses. Net-written premiums increased 14% to $1.1 billion. This was due to higher gross premium volume, as well as higher net retentions and for the first six months of 2006, we retained 86% of the business, compared to about 85% of the business in 2005.

We continue to work where appropriate to increase our net retentions. Earned premiums increased 8% to approximately $1.1 billion as a result of the higher growth in net written premiums for the first six months. Our combined ratio was 90% compared to 91% in 2005. Our 2006 combined ratio of 90% includes five points of 2005 hurricane developments, or approximately $50 million. The prior-year development on the 2005 hurricanes was more than offset by favorable prior year redundancies in other areas of our business.

The largest area of favorable prior year redundancies was in our Excess and Surplus Line segment, specifically in our professional and products liability unit. I also would like to point out, as Steve did, that Markel International reported the 96 combined ratio in the second quarter of 2006 and, as he said, this represents the first quarterly underwriting profit at Markel International. We believed that for quite sometime MIN can produce consistent underwriting profits.

Our expense ratio increased to 34% for the first six months of 2006, compared to 33% in 2005. This was partially due to lower reinsurance seating commissions as we continued to increase our net retentions, and it was also due to our 2005 expense ratio enjoying a one-time benefit of $5.5 million from the sale of core products.

Turning to our investing results, average invested assets increased to $6.6 billion at June 2006 compared to approximately $6.3 billion in 2005. Net investment income increased to $132 million, compared to $118 million last year. This was due both to higher yields as well as the larger portfolio. Net realized gains were $38 million compared to $19 million last year. We have said many times expect volatility in the recognition of real live gains or losses.

Change in unrealized gains before taxes was $140 million decrease compared to $43 million decrease last year. The great majority of the decrease in our unrealized gains this year was due to higher interest rates, which reduced the market value of our fixed maturity portfolio. Bringing together our underwriting operations as well as the investment results, we ended the six months of 2006 with $167 million of net income, compared to $136 million of net income last year.

Comprehensive income was $77 million compared to $97 million last year, that decrease, again, is due to the decrease in unrealized gains in our portfolio, primarily the fixed portion of the portfolio. Net income was $16.77 per diluted share compared to $13.42 last year. And book value per share increased to approximately $180 dollars per share compared to $174 per share at year end.

I would like to make two comments related to cash flow and our balance sheet. Regarding cash flow, operating cash flows were $155 million for the first six months of 2006, compared to $250 million in 2005. This decrease was primarily a result of 2005 hurricane loss payments in 2006. In the second quarter, the effect of the 2005 hurricanes decreased significantly as payments slowed and reinsurance collections were made.

Regarding the balance sheet, I would like to quickly point out that our reinsurance recoverables have decreased by $300 million since the end of 2005. Hurricane payments and the related reinsurance checks are, obviously, a large driver of that. Also, we have had several successful commutations of reinsurance balances with some of our legacy reinsurers. At this point, I would like to turn it over to Tony to discuss the operations.

Thanks, Richie. Not a lot I can add to what Steve and Richie said. Obviously, the numbers speak for themselves and we're extremely gratified with the second quarter figures. I am just going to highlight a couple of things that I think are worth reemphasizing, or doubly emphasizing, if you would, and then, you know, allow the opportunity for the Q&A to sort of drill down and give us the opportunity to answer any specifics that you might have from an operational perspective.

But, you know, we can't focus enough on our combined ratio that Richie mentioned for the second quarter, by itself was 86% compared to 92% for the same period last year and even 94% last quarter. Our gross written premium volume for the second quarter, as he mentioned also, was 11% over the same period last year and even 3% greater than the satisfying quarter that we had first quarter of '06. And net written premium, again, for the second quarter was up 13% over the same period in '05, so, you know, for the first time in awhile as we treaded water into the teeth of sort of a mushy market, our efforts are being recognized and our -- we're jump starting growth again.

That growth has really been achieved in spite of the continuation of the spotty market that we have discussed in previous quarters. It's still stays about the same, significant rate increases continue to be achieve on properties exposed to catastrophe, but virtually every other product line is either experiencing some competitive pressures that are producing relatively flat to marginally down rate levels.

Other than the catastrophe property increases, the premium growth that we have achieved, I think, is primarily the result of the continuing maturation of some of our new initiatives, most notably of the alternative risk division, SMART, that we have discussed in the past quarters and, clearly, I think, is evidence of a continued focus on a companywide basis on marketing and client contact.

Really nothing more that I can add, again, the Q&A will give us an opportunity to add, answer any specifics you might have, but needless to say, we, we are off to what we think is a fabulous start and our confidence for the remainder of the year is still brimming, so, with that, and I will wait until the Q&A with that, I will turn it over to Tom Gayner to talk about the investment side.

Thank you, Tony. I'm happy to report that we earned modest, yet positive returns from both equity and fixed-income activities during the first half of 2006. We earned these returns despite rising interest rates, which cut results from fixed income securities and the lack of exposure to energy and commodity securities in our equity portfolio. More important than the last six months, though, are the prospects for the rest of the year and beyond. With interest rates already up, we're starting to believe that we will not face big future increases in rates.

Consequently, instead of being short in our duration, as we have been for the last 18 to 24 months we're slowly getting back to neutral and attempting to just match off against our insurance liabilities rather than maintain a shorter-than-normal duration. Additionally, we continue to focus the equity portfolio on large, high-quality, global enterprises selling at their lowest valuation in decades. Prospectively, I expect these companies to show double-digit earnings growth.

Valuations over the last six years have compressed massively and I think this process is coming to an end. Consequently, we should enjoy stock price increases at least in line with the increases in the earnings. We probably will end up getting a little more when we get into an environment where multiples are expanding rather than contracting.

Adding all of this together for Markel, we should be in a position where the 5% plus returns available from the coupon alone on the fixed income portfolio, and 10% to 12% returns are better from high-quality equities, support for return on equity goals we have oft stated. I'm optimistic we can do our part in investments to assist in compounding Markel's book value per share. And with that, I will turn it over to Steve.

Thank you, Tom. Just a couple of final comments before we open the floor to your questions. We're very pleased with the progress of the Company through the first six months of this year.

Our growth in this time has been significantly better than we would have forecasted, or than we did forecast back in December of the year, significantly better than expected, both because of stronger prices in the property markets, but also probably a little bit less competition than maybe we anticipated in some other areas and the success of some of our newer products.

Our margins continue to be very, very strong, particularly with the increasing property rates where they clearly need stronger prices. The casualty business is and continues to be under some pressure. Our current margins are strong and we believe we'll be able to hang on to those margins, certainly, certainly for the next several quarters and we will continue to exercise the underwriting discipline that Markel has always exercised.

A key element, though, is the turn around that has occurred at Markel International. As you all know, it's been a long haul since March of 2000 when we acquired Terra Nova. We've suffered significant underwriting losses in that period of time and, on the other hand, enjoyed very significant investment returns from a growing portfolio.

Most importantly, today, we have a culture in place, the book of business in place, and we believe a trend of future underwriting profits such that the international businesses are truly becoming a successful part of the Markel organization.

We truly do believe that Markel International has turned the corner on underwriting profits and this should be a trend that we see for many, many quarters into the future. Finally, as Tom points out, the near-term results in the investment world has been slightly frustrating, but we're extremely optimistic about our future prospects and we're very, very confident in our ability to compound money at a high rate over a long-term period of time in our investment activities. Between the underwriting results and the investment results we continue to be very, very bullish on the organization. With that I'd like to open the floor and respond to any questions you might have.

Ladies and gentlemen, at this time we'll be conducting a question-and-answer session. [OPERATOR INSTRUCTIONS] Our first question is coming from John Fox of Fenimore Asset Management. Please proceed with your question.

Yes, hi, good morning. I have a number of questions. First, congratulations on the London business. For Tom, just interested, Tom, on interest rates at the 10-year, I think, was 4.98 yesterday, which is still not very high, and you certainly indicated for the first time in awhile you're going to increase your duration. Can you comment on that a little bit more and what would be a neutral duration? How many more years of increase would that be from where you are now?

You know, the bandwidth on where we go with our duration tends to be pretty narrow.

Right.

If we were wildly bearish on the interest rates we would be at about 4, and if we're wildly optimistic, we would be about 5. And, quite frankly, 4.5 is as good a number for neutral as you will find, and we're sort of gradually moving back towards the 4.5 number.

Okay, so there is not much variation?

No. And it never will be because just like many other things in life, we don't, we don't know how to predict that with enough accuracy to make those kinds of bets. So, generally speaking, we just try to match off the duration with fixed income against our best estimate of what the duration of the insurance liabilities are. For the last two years, we have been a little bit on manual override in terms of keeping the duration shorter than what the liability profile would look like. But we're taking that manual override off and letting it get more natural.

Okay. Now, I have a question on the catastrophe exposure and reinsurance program you laid out in the Q, you talked about the three principles, about having underwriting profit over a five-year period, having interactive catastrophe years and underwriting profit companywide. Can you talk about how this program is different than the one that was in place last year?

Yes, I'll try to. I think what we, say going into 2003-2004, when we purchased our CAT reinsurance and when we managed or looked at our CAT exposures, we thought in the concept we would be willing to lose one quarters' worth of earnings from a catastrophe. And try to measure and manage against that. Which would be basically those underwriting profit and investment income that could be generated in that period of time.

The number of -- resulting from that, obviously proved inaccurate and as a result of, you know, the storm activity and a re-evaluation of what made sense, toward the end of the last year, both in the Annual Report and in this Quarterly Report, we laid out these three principles and fundamentally, we want every single product within the Markel organization to be able to earn solid returns on capital over a long period of time, and it's not reasonable for a product that is focused in the catastrophe market to break even in any one year.

So, for that product, I think the bogey, they could have a loss in one year, but over a five-year period of time the profit in the other four should be more than enough to offset the loss that might occur in a bad year, such the cumulative results over that five-year period of time would generate a high return on capital and enable the underwriters in that division to earn their bonuses.

Right.

And then at the corporatewide level, we would view the maximum exposure we would want to take at the Markel Corporation levels so that Markel in all events all years earns an underwriting profit. If you look back at the '04 and '05 storms, the magnitude of those storms were such that we didn't miss that target by much. And then the third principle, obviously, is that in a storm that is worse than our expectations, we would like to manage the business so that Markel's overall financial stability is not negatively affected by misjudging any one storm.

Right, Steve, given the size of the losses say from the Katrina, you know, can you even charge enough premium, you know, in certain product lines where you can make money over a five-year period of time?

We believe we can. The key is spread of risk. I mean, if your business is focused only in Louisiana, you know, you would have to do business with 700 years to cover a Katrina loss.

Right.

But if you measure your business of, you know, the entire coastal United States or even in our case we can look at it internationally and we can get a large enough spread of risk, we absolutely can and not only, that I think we can do it without buying a nickle's worth of reinsurance.

But the key is having a large spread of risk, and our problem today and what we're managing to is to, you know, there are two or three places in the world, Miami being an example, where we have a disproportionately large amount of exposure.

There are hundreds of places around the world where we don't have enough exposure and if we could write more business in those places where we're underexposed, we could manage the captive so that we make money pretty much every year. In an ideal sense, if you had enough chips on the table and there were not enough events.

Right.

So, creating that spread of risk is what is key and we're in, I think, a wonderful position to do that because we have a, you know, a larger book of business than we actually need today and we can manage it in that direction. Clearly, prices do have to increase. I mean the rates were unreasonably low going into 2003 and 2004 and they may made to go up, and they have gone up a lot this year and they may need to go up even more.

Right.

Tony, did you want to add something to that? No, I think that summarizes what we have done. Basically the, you know, we have been a terrific CAT provider for a long period of time. Up until '05, it had stood us in extremely good stead. Even including that, we have still done well over the long haul. We think it's appropriate for us to stay in it, you know.

You can't place the absolute extraordinary year from the standpoint of frequency or severity, which goes well beyond expectations. But, obviously, the last couple of years have created an environment in terms of the rating, not the rating agencies, but the modeling agencies and the actual losses coming out of those seven storms has dramatically increased expectations of both frequency and severity and prices have to go up to effectively digest those, and we think that we have accomplished that or in every other, you know, basically on our way to doing it.

We're still committed to the class and we think we can produce Markel-like results by staying in there and getting adequate price regardless of the reinsurance marketplace. I think the only other point I would add, John, is that our catastrophe business, while it's important, does probably represent less than 10% of the total, and if we were to find in a year or two that our price levels, you know, if there are no storms this year and the prices drop 50%, as they very well could, I think you will find that the prices in the marketplace could drop below the level at which we would have an interest in, you know, it might be a product that becomes a commodity in some subsets where, you know, we'll only play when the prices are high. Well, that's consistent with all of our approach on all of our products. We determine what we think we need pricewise, go like the devil to sell it, and if we can't sell it, we back out of it. So, we still feel there is a solid position for us and we spent a lot of time working on it, as you can well imagine, in the last nine months, particularly.

Okay, thank you.

Our next question is coming from David Lewis of SunTrust Robinson Humphrey. Please proceed with your question.

Good morning, this is actually Eric Saxon calling for David. Congratulations on a good top-line and bottom-line quarter. I just had a few questions. One, starting off with the reserve development in the quarter. Seems like there is a lot of moving parts and favorable and unfavorable development in each of your segments. I was wondering if you could break that down? I was having a hard time getting to the net number. I was wondering if you could break it down like year-over-year for the quarter?

Eric, I think we'll have to direct you to what you can get out of the Q for that, but in just sort of big picture, we had a very small minor amount of development on the storms actually in the ENS segment. There was a small development in the London market segment, a small development in actually redundancy coming out of the storm in our specialty admitted segment. It all added up to less than $3 million. Other than that, quite honestly, it was primarily redundancies coming out of the prior year. The Excess and Surplus Lines segment led the way in terms of those redundancies, with the lion's share of the redundancy and the lion's share of the redundancy within the ENS segment was our Shand Professional Product Liability segment. So, I think I have to direct you to what you can get from the Q there. But that really is a quick synopsis of what happened in the quarter, primarily good news and primarily coming out of ENS.

Okay, got it. Second question, let's say the 2006 hurricane season is similar to the 2005 hurricane environment when you reported, I think, about $190 million in current-year CAT losses, you know, with the changes that you made in '06, you know, in regards to reduced exposure, changes made with the structure of policies, you know, the higher deductibles, the reinsurance, can you provide a rough numerical amount or percentage of where you think CAT losses could end up if we had the same environment this year?

It's impossible to be precise about that. We believe the same magnitude of events would be resulting in significantly lower losses if they were to reoccur in '06 as they occurred in '05. And, you know, by material amount, we think they would be lower, but, unfortunately, it's unknowable and it would depend to a large extent on where and how they occurred and I do believe that it would be significantly less. But not, it's not something that anyone can know with any precision.

Right, okay. Then one last question, this is in regards to the Markel Global Marine and Energy business. How is that going to relate to Markel International, Markel London? I know you all had started that up in the second half of this year.

Eric, its focus is completely U.S. We have an absolutely solid team of marine specialists in place in London to handle, they do some U.S. businesses but the rest of the world, they were inherited as a result of the Terra Nova acquisition, so Markel Global Marine and Energy is a U.S. initiative that, candidly, has taken a little longer to get off the ground than we expected, but should start writing its policies within the next two, three weeks.

Sounds good. That's all I have, thank you.

Our next question is coming from Meyer Shields of Stifel Nicolaus. Please proceed with your question.

Thanks. Good morning. Let me start asking this, can you give any guidance in terms of the change of the net-to-growth ratio in the third quarter based on the changes in your reinsurance contract?

Probably not. Do you have any idea, Richie? You would have to gross the reinsurance cost. I don't think you should expect a huge change.

Okay, but we should anticipate, I guess, the same incremental year-over-year increase? Aside from this?

Yes, I would think so. I think we will continue to modestly work to increase our retentions where we can. I mean we're at 86% today. We do still at this point have a need to purchase some [INAUDIBLE] of reinsurance. There is not that much more to retain, so we'll keep finding spots where we can, but it will be fairly modest and incremental.

Okay. Let me switch gears for a second. I was wondering if we could get an update in terms of, I guess, any color you could add to the Canada and Spain operations?

Steve, I'm getting some real static. I'm at home, as you know. What was the question? Canada and Spain. Canada and -- . Any comments about Canada and Spain? Oh, yes. Both well off the ground. Spain, I think we've probably written $1 million or $2 million worth of premium now. Obviously, our expectations in both of those new startup operations are very, very modest. Canada probably up to about $0.5 million just getting a tow hold, but both the teams in Madrid and in Toronto are meeting expectations, and we're really excited about the long-term future and absolutely not overboard with regard to any expectations in the short-run. But a nice start in both cases.

Okay, fantastic, and one last question. Is it a fact that you're willing to write some property business in the [INAUDIBLE] region? Does that help you at all with casualty pricing or is it completely irrelevant?

There's not not much synergy there. The fact that we, obviously, to the extent that catastrophe, property catastrophe opportunities or the marketplace is contracting and we're one of the ones still in it, we leverage that with some of our producers in terms of the fact that, you know, we're giving them a market there. But, there is really not much synergy between the two.

Okay, thanks a lot.

Our next question is coming from David West of Davenport & Co. Please proceed with y our question.

Good morning. First a couple of follow-ups to prior questions. When we talked about the global Marine and energy business, Tony, given what I understand to be pretty, you know, hard pricing and maybe some capacity issues in some of those areas, could you talk a little bit more about your expectations there over the second half of this year?

Yes, David, I would suggest there is going to be very little contribution made in the second half and similar to my remarks on Toronto and Madrid, I don't want to get overbearing with regard to expectations. Clearly, you have described our market accurately, you know, with all of the issues in the Marine side we think our entry is well-timed. We're a little disappointed this has taken us this long to get it up and running as it has, reinsurance and technology support being, primarily the latter, being the main issue. But we're looking at it as a long-term play and I would not really build in any major expectations for either volume or profit in the short run.

All right, very, very good. Earlier we talked about some of the factors that caused your positive development. Most of that seemed like it came out of long-tailed businesses, the Shand Morahans and so forth. Out of what year was that? Was that mostly 2005, or was it years prior to that?

Dave, I think it's primarily the '03-'04 years. What is really happening is, obviously, we have had a pretty hard market there, '02, '03, '04, and while we saw the prices going up, you know, we wanted to be cautious, we didn't want to immediately recognize that in case other things were going on below the surface. Now as we have had a chance to see those losses develop, it's pretty clear to us that that business is very good business and we can start releasing reserves being held in those years.

Okay, great. I guess a little follow-up for Tony, as well. I guess the liability area has seen a little bit of price pressure. I take from your earlier comments, thought, you think you're still seeing terms and conditions at price levels that make good sense in some of these longer-term, some of these liability coverages.

Well, I think I specifically mentioned this in the last quarter conference call. You know us, David. We're going to -- we definitely articulate a walkaway price and even with some of the great attrition going on in the casualty side, we still feel like we're above that and doing well. But we're not -- we're not afraid to walk away if it pierces that level.

Very good. Richie, you mentioned in your comment that you did have a couple of reinsurance commutations and I think the Q said there was no material gain or loss out of those. I wonder if you could add color as to, are the current market conditions such that you think you're likely to do some other commutations in the future?

Well, I tell you what. One of the issues that kept us from doing more commutations in the past was we were working to get comfortable with the reserves at Markel International. Starting last year, we got to that point, we feel pretty comfortable, and so we started going out and talking with reinsurers of some of that old business about commutations. Yes, we will do more commutations. The thing I would tell you is we might do several one quarter and we might not do anymore for several quarters later. It's individual negotiations with each of the reinsurers and the biggest thing we want to do with those commutations is remove the credit risk. We're delighted when we can do those, not have a big gain or loss on them and get rid of the credit risk and put that money to work in the portfolio with Tom and [Betty].

Very good. Lastly, Tom, a question for you. In the Q, there was a statement that made it sound like you were holding about $40 million, there was a loss of $40 million on bonds that you weren't receiving interest on. Could you, could you talk a little bit about your fixed income securities that have below investment grade ratings?

There are two different questions you ask there. I'm not aware of any vibes that we're not receiving interest on, but I am not sure, but I'd love to follow that up. No, there is nothing like that.

Okay.

We always do have some percentage of things that are below investment grade, typically those are things that got downgraded sometime during the course of us holding them. It's been our experience that we tried to think carefully about what we were buying before we ever bought it. In the course of five, six, seven, eight, nine-year holding periods, they may go through a rough patch and get downgraded, but generally speaking our experience has been that those are money-good bonds and we end up doing just fine with them. So, that's pretty much what is going on there right now.

Okay. Thanks very much.

Yes.

Our next question is coming from Kenneth Billingsley of BB&T Capital Markets. Please proceed with your question.

Hi, guys, congratulations. Just a quick question for Tom. I know you probably -- I think you touched on this in the beginning, unfortunately, I couldn't write fast enough. I noticed the invested assets to equity is actually down from the late 2005 levels and also my calculated yield for the quarter is down from the previous quarter. I was just wondering if you could comment on that and where you believe it will probably be going?

Yes, I have not run those calculations myself. So I can't really comment on them.

Uh-hmm.

The invested assets being down to equity is a result of, you know, the unrealized losses on the portfolio so far year-to-date, about $140 million pre-tax unrealized loss in the portfolios through the first six months. That's driving probably that reduction you're seeing more than anything. Probably the other thing is cash flows are down slightly for the first six months of this year to last year, as a result of 2005 hurricane payments, so that's, that's probably the two things, and I think as we move through the year and if we can start to see rates level out, I think those two things will start to reverse. I'm sorry, what was the second part of it?

I think you covered all the bases there.

Okay.

Thank you.

I think that, the changes, drops from 3.9 to 3.8. It's not a huge movement and I think we would expect that with the cash flow improving with the volume going up and, you know, probably a slow-down in cash going out for the hurricane settlements, coupled with what we would expect to be growing investment portfolios, you should expect to see the financial leverage of the Company to be very similar going forward. It will, you know, be volatile from 3.7 to 4 maybe, but it's not going to compress.

All right, thank you.

[OPERATOR INSTRUCTIONS] Our next question is coming from Jay Cohen of Merrill Lynch. Please proceed with your questions.

Yes, good morning. I had to jump off the call for a little bit. If you handled this, just say you did and I'll read the transcript. In the ENS business, I'm wondering if you are seeing any increased evidence of standard admitted companies trying to write more of that business. I guess it's a typical stock market thing. I'm hearing bits of that. What are you seeing from that regard?

Jay, I would characterize it as typical, I mean, you know over a period of time, people dive in and dive out. I don't think the appetite of the standard markets is really anything major at this stage of the game. I think clearly they have rethought some of their positions and they are making forays into what some products had previously been, they had turned their backs on but I wouldn't overemphasize it. I think it's just a typical ebb and flow.

Great. Thanks, Tony.

Gentlemen, there are no further questions in the queue at this time. I would like to see if you have further comments?

No, Dan, I would just like to thank all the participants and all of Markel's loyal shareholders and if any further questions come up later don't hesitate to call us here in Richmond. Thank you very much and have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.