ProAssurance Corp (PRA) 2006 Q3 法說會逐字稿

Good day everyone and welcome to today's ProAssurance third quarter earnings release conference call. As a reminder, today's conference is being recorded. Now for opening remarks and introductions I would like to turn the call over to Mr. Frank O'Neil. Please go ahead, sir.

Thank you for your interest in ProAssurance this morning, for your time. We expect to discuss historical information and make forward-looking statements and projections on this call based on our estimates and anticipation of future events and results. We will not undertake, and expressly disclaim, any obligation to update or alter forward-looking statements, whether as a result of new information or future events, except as required by law or regulation.

We expect our segments today will be reasonable, but you should review the contents of the call in conjunction with the caution regarding forward-looking statements in the news release we issued today, Wednesday, November 8, 2006. Further discussion of risk factors and uncertainties about our business is contained in the Form 10-K for the year ended December 31, 2005, in the Form 10-Q we expect to file for the current quarter, and in the registration statement we filed on February 15, 2006 and updated on June 2, 2006.

The content of this call is time sensitive and accurate only on November 8, 2006 the date of first broadcast. The call is property of ProAssurance, and you may not disseminate its contents without our expressed written consent. If you are reading a transcript of this call, you should know that we have neither reviewed it nor approved it.

Our executive team is assembled for the call today -- our Chairman, Dr. Derrill Crowe; our President, Mr. Vic Adamo; our Chief Financial Officer, Mr. Ned Rand; Chief Accounting Officer, Jim Morello; our Chief Underwriting Officer, Mr. Howard Friedman; and our Chief Claims Officer, Mr. Darryl Thomas. Ned Rand will start us today with a brief overview of the financial situation.

With a great deal of financial information in this morning's release I want to highlight a few matters that I believe require additional emphasis. As I start let me remind you that the PIC Wisconsin transaction was effective August 1. That means only the month of August and September are reflected in our income statement. The full effect of PIC's assets and liabilities show up in our balance sheet.

First, let me then spotlight a few items concerning our balance sheet. We are proud to note that stockholders equity topped $1 billion for the first time this quarter, and book value per share grew by $3.41 to $32.58, in part as a result of the PIC Wisconsin transaction. That also helped to boost total assets to over $4.3 billion.

Turning to the income statement, it is clear that we're letting premium growth take a back seat to profitability as we continue to see an increase in price-based competition. For the year-to-date period gross premiums written have grown 4%, largely because of the NCRIC transaction and the boost it gave our topline early in the year. PIC Wisconsin, with only two months of activity, added $9.8 million to premiums in the quarter, not enough to offset a drop in our existing book of business.

Looking ahead, PIC Wisconsin's business will add to our premium growth and help to offset potential loss of business in non-PIC book. We will continue to insist on adequate pricing to produce our targeted ROE. But depending upon the rationality of competition, it may be that topline growth lags in the near term.

Our approach is ratified by our continuing bottomline growth. Due to our pricing and underwriting discipline and effective plan handling we produced the strong results we expect and focus on every day. Net income from continuing operations Professional Liability saw a quarter over quarter increase of $13 million, or 65%, and a year-to-date increase of $38 million, or 72% compared to the same time frame last year.

Accounting rules continue to obscure our operating cash flows. In addition to the impact of our trading portfolio purchases discussed last quarter, cash flows from operations was also reduced by the taxes we paid on the sale of MEEMIC. Together these items reduced operating cash flows by just over $100 million. Our insurance operations continue to produce strong cash flows, generating $88 million for the quarter, essentially in line with the third quarter of 2005.

There was $11 million of favorable net reserve development this quarter, bringing us to $23 million for the year. That is a good point for me to turn to Howard for a more in-depth discussion of reserves.

Our reserve development continues to emerge from prior accident years, especially 2003 and 2004. It is still a small portion of our overall loss reserves, which are $2.6 billion. I know there's curiosity as to how our reserves stack up, given the recent $217 million verdict at Tampa. While the size of this verdict is unusual, it must be evaluated in the context of our overall reserve position.

As a part of our reserving process we evaluate the likely outcomes from all excess verdicts, considering appeal and coverage issues, potential recoveries from our insurance and reinsurance program, potential settlement discussions, and our historical settlement practices. We then use this information as part of our evaluation. Based on our current analysis we continue to believe our reserves are adequate. We monitor the development on all verdicts no matter how large or small, and we make adjustments to our reserves as needed.

Let me talk a little about frequency and severity. The frequency of claims continues to moderate and we're encouraged by that trend. However, before we get too excited, we need to see if the widespread state tort reforms of the past few years are upheld in the Supreme Courts of those states.

Severity is a mixed bag right now. On one hand, within the working layer policy limits of $1 million or less, the increase in severity continues to be better than we anticipated when we initially established our reserves. But other hand is not so straightforward. There have been the well-publicized shock verdict and an increasing number of verdicts of $8 million, $10 million, or $20 million for a wide range of companies with a number of different defense philosophies.

The dangers are that as these verdicts become more commonplace, they raise what jurors think is acceptable compensation. They numb jurors to ever higher shock awards. And most importantly, they can push up frequency and severity as more people believe these kinds of awards are realistic and obtainable. We remain on guard paying close attention to rate adequacy and especially underwriting discipline.

While we're being vigilant with regard to rates, it is important to note that for some time now our rates have been at levels we believe are adequate to achieve our return goals. Thus we're not having to seek double-digit rate increases to reach our target, and most of this year's rate filings have been flat or in the low single digits, including some single digit rate decreases.

Our overall average rates on renewing policies are up 3%, both in the quarter and year-to-date across all of our states. Our retention was affected in the quarter by a departure of a 500 physician group that moved to a self-insurance program. With their departure, retention was at 80% in the quarter and at 84% year-to-date. If you strip out that event, retention was 84% in the quarter and 86% year-to-date.

Given that we face price discounting of 30% or more in some markets, we're encouraged that so many of our insureds and a number of new clients are finding value in our services. Nevertheless, given some of the pricing that we see, we know that we can be more profitable with less premium, rather than by chasing the topline.

I am now going to turn it over here to Darryl Thomas for a report on claims-related issues.

I do have an update on the Tampa verdict. Post trial motions have been denied, and we're moving forward with the appeal. Nothing unexpected there. As we said, there are many open legal issues still to be decided regarding both the merits of the case and the availability of coverage to the defendant. Based on similar cases, we believe it will be some time, probably years, before this case is ultimately resolved. Because this is an open case involving our insured, this is the limit of what we can say about this case. And I hope you'll understand it is our firm policy not to comment on any cases involving our insureds.

I do believe it is important to realize that our philosophy of defending nonmeritorious claims continues to be an overall positive for our insureds and the Company. We continue to be as successful as we have ever been in winning cases we take to trial, and we may take as many as 700 cases to trial this year. As the number of shock verdicts increases, I believe our rigorous case evaluation methods and the attention we pay to defending nonmeritorious claims will be more important than ever. Dr. Crowe, is there anything you might want to add?

Yes, Darryl. As you said, we will not talk about the specifics of individual cases, but I want to highlight the seriousness with which we are viewing the rising trend to shock verdicts. By far we win most cases we take to court, but as Howard says, these shock verdicts do concern us.

We will be diligent in our appeals. And I do expect the eventual resolution of those appeals on other coverage issues is some years away, but I want to be clear that if we ultimately have to pay any verdicts of this type beyond what we expect to pay, it will have an effect on our income statement and our balance sheet. But it will also affect our insureds and the medical community in the affected states through higher rates.

While the shock verdict are hard to ignore, they are not the majority of our trial outcomes and they haven't prevented us from having a very good year so far. Net income is up, investment income is growing, and cash flow remains strong.

I would like to touch on a few operational details. First as expected, the integration of PIC Wisconsin is going well. The local claims, underwriting, risk management operations are up to speed and coordinating with their respective functional leaders here in Birmingham. Based on the timetable that we used at NCRIC, we expect to have the systems and accounting functions at PIC Wisconsin fully integrated by this time next year.

On the subject of NCRIC, we are pleased to note that Standard & Poor's upgraded NCRIC to the ProAssurance group rating of A-. We will be meeting with S&P later this year on the group rating itself, and we have already concluded our meetings with Fitch and A.M. Best, and I am not aware of any issues of concern for the rating agencies.

I'm also pleased to report that we are finalizing our reinsurance treaty for 2007. Our brokers have signaled that we can expect to renew at essentially expiring terms and conditions. We did evaluate a wide range of retention, and in the end we decided that the trade-offs involved in raising our retention just didn't produce enough benefit to offset the risk.

Reinsurance remains a very important part of our overall corporate level enterprise risk management, including the possibility of large verdicts. So we are especially pleased to see continuing support from our reinsurers at current pricing levels. Frank, I think that is from operations. I turn it back to you.

Dr. Crowe, do you have any final thoughts you want to offer before we take questions?

Frank, I think I do. I want to sum up my thoughts on the state of the market. I have been saying for some time now that given the choice of protecting the bottomline or irresponsibly growing the topline, we would chose the bottomline. You saw evident of that in this quarter.

We do believe that PIC Wisconsin will add to our topline in a meaningful way in future quarters, but we just can't predict how competitors will react. I think the companies that have lived on low prices in the last few years will have to pay the piper sooner rather than later, and that should prevent a wholesale bottoming of the market.

We believe that the pain of the last soft market should still be fresh in everyone's mind, and I am hopeful that we won't see widespread price-based competition from established players. But I am distressed to see some instances of price-based competition coming from a few of the more established players.

In one example we saw rate decreases as high as 30%. Does that mean that the rates were 30% higher than adequate, or that yet to be tested tort reforms are guaranteed to produce results? Very unlikely. Yet that level of rate cutting was accompanied by announced goals of increasing market share, mainly through pricing.

We have also seen occurrence coverage reintroduced in certain states, despite the disastrous results that the industry has experienced in that line of business. Again, this is fairly isolated, but the drive for market share seems to be taking priority for some who should know better.

Now by no stretch of the imagination am I to say that we are seeing this type of evasive price-based competition we saw in the past, but I worry that the lessons responsible companies have learned during the last cycle are starting to be ignored, especially by management teams with short tenure and little med mal experience. I believe the experience of our management team prevents us from making these kinds of mistakes. But the current pricing approach by some of the major competitors could be setting the stage for another roller coaster ride for physician premiums, and could trigger another hard market, which plays into our strength.

Remember that when people say it is different this time, they are not speaking from experience. History has shown that a major short-term growth in market share in this business had led to problems within a few years if it is achieved through underpricing. I can't think of a single company that succeeded with this strategy. But names such as MIXX, FICO and PIE Mutual has shown what can happen when you focus on the topline and ignore the bottomline.

Frequency is down in some areas, but it is not clear why. We can say for sure that it is not concrete linked to the tort reform, because those reforms haven't yet been fully tested and some are being overturned bit by bit. Severity continues to climb, although at more predictable rates in the working layers. The mega verdicts grab headlines, but the week in and week out verdicts have not moderated. They cost more each year.

I don't want to end leaving you with the impression that all is doom and gloom, but we are maintaining our margins, and that is important because it strengthens our Company and produces strong results for our shareholders.

Our balance sheet is strong as it has ever been. We are bringing the PIC Wisconsin fully into our results in this quarter. And we expect that to be an important part of our business in the coming year. As I have said before, we like to see a little turbulence in the market because that creates opportunities for us to leverage our expertise and financial strength in ways that no one else can. This will ultimately lead to an opportunity, but the time horizons for that opportunity is not clear.

Dr. Crowe, I appreciate your comments. I'm going to ask DJ to open the lines for questions. DJ, while you're doing that, I want to reiterate our policy that we don't discuss open claims involving our insureds. I hope you'll understand our resolve in that regard. DJ, do you have questions for us?

(OPERATOR INSTRUCTIONS). David Lewis, SunTrust Robinson.

This is actually Eric Saxon calling in for David. I've got two quick questions here. I apologize if you actually mentioned this, because I have to jump off for a second. But could you provide the organic growth in the quarter on the growth premium side separate from PIC and NCRIC?

I think what we have said is that with -- well, first off, PIC provided $9.8 million of premiums in the quarter. It is getting harder and harder to discern what is organic growth with NCRIC because those policies had been renewed into other companies. For example, our Virginia policies would be written on the Medical Assurance paper, regardless of whether they a year and a half ago were NCRIC or Medical Assurance paper. The reverse would be true in Delaware. It would be either NCRIC paper or ProNational paper a year and a half ago. It is now all ProNational paper. I think it is pretty difficult for us to set that our for you.

Then my last question it is regarding your expense ratio. It looks as though it got back to normal levels in the third quarter, after reaching close to 19% in the first couple of quarters of the year. Would you say this is because of lower stock compensation expenses? I did see that the guaranteed fund assessments, those expenses were down in the quarter as well.

Yes, those are the two principal things driving it. The stock compensation expense, as we have discussed, was kind of front-end loaded, and for the quarter I think was in the [$850,000] range, that is about $100,000, and definitely lower than the prior two quarters. In addition, last quarter we had about $1 million in guaranty fund assessments and this quarter a much smaller number. Those are the two primary drivers.

Adam Klauber, Cochran Caronia Waller.

A couple of different questions. First, as far as the reinsurance program, could you give us an idea -- it sounds like you will keep the $1 million limit. How high does that reinsurance program go up to, and also do they have aggregates on it?

We have historically refrained from disclosing the limits of our reinsurance program simply because we don't want to give a roadmap to those people who might want to know how much we would be willing to pay them.

Typically you do the reserve study towards the end of the year, is that ongoing or is that coming to an end, and how is that looking?

It is ongoing. We do that evaluation as of September 30 data. It typically takes by the time everything get sorted out at least eight weeks or so, so we are in the middle of it now really. I don't have any comments on that. We will obviously on the next call.

As far as PIC, you mentioned in the release there is some seasonality. This is a weaker than usual quarter. Is first quarter our second quarter stronger than normal?

I believe that a larger portion of their business renews in the first quarter relative to the other three quarters. And then also we are impacted by the fact that it is just picking up two months this quarter. A similar pattern actually to NCRIC. And while the third quarter itself is a large quarter for them, I think first and third are the two largest -- it is largely a July renewal. We did not pick that up.

You had mentioned that you are seeing some -- it sounds like anecdotes or instances of irrational pricing. Could you mentioned which states that is happening in?

I would say all around.

It really has in quite a number of states. Ohio is certainly an example. Florida, Missouri, Illinois. Illinois is a recent one.

Finally, you are earning a very nice return, and that is resulting in obviously a buildup of capital. Any thoughts to as you go into to next year if growth is a little -- continues to be challenging and there aren't acquisitions -- there may be, but maybe if there aren't acquisitions -- what would you do with the extra capital?

I will answer. We have thought about it and we talked about it. We continue to think about it and talk about it. So far there has been opportunities that has come along to put some of this to work. I would hate to see us dissipate that capital in a manner that is not contributing to the growth of the Company and then need it back two years from now.

With the marketing and mistakes that we see companies make, we think that will be opportunities. It may take two or three years for it to show up, but we're looking. Of course, we're thinking about dividends, special dividends, buying our stock back. And we will continue to look at that and evaluate it. As you know, our book value is increasing, so multiple on the book has been decreasing and it is beginning to get to an area that may be attractive.

Greg Peters, Raymond James.

Unfortunately I'm going to have to apologize here because I missed the bulk of your opening comments. It took me forever to get in on the conference call. I don't know what happened, maybe it was my fault, but just FYI.

In light of the fact that I missed most of your comments, I guess I was curious about a couple of areas. First of all, you did highlight there were some reserve -- favorable reserve developments, albeit minor, but still some positive development in the quarter. I was wondering if you could perhaps give us some color on which accident years really this development is coming out of?

It is coming out of primarily out of accident years 2003 and 2004.

How are the -- out of curiosity, where is -- have you seen any development on a year-to-date basis out of the '01 or '02 accident years, or has that been steady-state?

It has been pretty much steady-state. As we do the full reserve analysis now using the September 30 and then the year-end data, I'm sure that we'll see movements in all the years, up or down, but there's always adjustments. But at this point in time what we have recognized through this quarter for the year has been primarily in '03 and '04.

That's great. Then on the pricing and reserving philosophy, perhaps you could give us some perspective on how you are pricing, and more importantly reserving for new business versus how you approach renewal business. I imagine you're looking at them while they are same businesses -- same type of business you look at them differently. Maybe you could provide some color there.

Really on the reserving side, first, we really don't distinguish between new and renewal business for reserving purposes. I think in other lines of business, the Personal Lines business and so forth there has been more of a demonstrated effect of having renewal business perform better than the new business. But we really haven't -- two things -- we really haven't seen that. And second I am not sure that we have the volume of data even at our size to make good predictions on that basis. We look at it on the basis that all of our business is underwritten using the same criteria and priced using the same criteria, and that is the way we reserve it.

Then turning to pricing, the difference between new and renewal business would revolve around if anything the level of credibility that we give to the claims experience of a given physician or group. And if we have had the physician for a long period of time, obviously we know exactly what the claims experience has been. If we are relying on claims analyses from other companies or loss runs or that type of thing, we give that the little lower weight and may not be as willing to recognize good claims experience as we would with our own risk.

On the pricing side, I guess pure price is just one component, but how about terms and conditions? Has there been I guess in the last 12 months or 24 months, whatever the time period you would like to use -- within ProAssurance not about the market -- has there been any erosion of terms and conditions that ProAssurance is offering their customers?

Not that I see. If anything, customers are making some of their own choices with respect to policy limits, and we have seen a reduction in purchasing of higher policy limits in some cases. Physicians dropping limits down to a lower level than they had before, or to the minimum level that might be required by their hospital or state, if the state has a regulation.

But in terms of what we're offering in terms of policy forms, exclusions, that type of thing, while we have made some changes, we really don't see any significant changes there that would affect losses or profits.

Howard, do you anticipate making -- as market conditions continue to evolve, do you anticipate any material changes to your policy form over the next say 24 months or 12 months? I guess that is a forward-looking question, and I'm not sure what you're going to be able to say, but give it a shot.

I think from the coverage perspective, no, we're always making adjustments based on whatever the last claims situation was and what we're trying to protect ourselves against, what we're trying to offer to the policyholders as new risks evolve. But I wouldn't say that we're expecting to make any significant changes.

I'm sure you commented on the large verdict in Florida, and I'm certain you probably don't want to say much about outstanding litigation. But instead of focusing just on that one particular verdict, perhaps you could provide us some numbers on the number of cases or large verdicts or verdicts beyond policy limits that ProAssurance is currently in litigation with or over. If you can -- any sort of numbers that we could sort of get a sense of what is going on. I think you did say somewhere that there were 700 cases you expect to litigate this year. And that seems to be little bit higher than where I thought the number would be for the year. Perhaps some additional color where appropriate.

I will just say at this point we're not going to really disclose that number of cases. If we have one that rises to the point where it needs disclosure, obviously we would disclose it. If you think about it in the past we have obviously been involved in those types of litigations. We've never had to pay a bad faith judgment. But they haven't reached the level where we felt disclosure was needed.

Right. From the perspective of just being on the outside looking in, is there -- has there been any change in the number of -- over the last 12 months or 24 months is there any change in the number of these large verdicts? Or how should I be thinking about this, other than what you have disclosed in the press release?

I'm looking over here at Jeff Lisenby who is our Corporate Counsel, and he's shaking his head saying no -- (multiple speakers).

Don't answer.

No, he is shaking his head saying no change in the number of those lawsuits coming in.

And also realize that we have NCRIC and PIC Wisconsin numbers in those trials as well.

Okay.

Now those are just --.

So that is new -- what you're saying there is there will be -- on an an absolute basis there is a pick up, but that is due in part to the pick up of PIC and NCRIC.

Correct.

But overall, there is really no change.

No change in what?

I think you implied that there is really no change in the number of cases out there that you are litigating.

We have cases that are added to that category, and cases that are resolved and removed from that category. And as far as the net up or down I don't know that we exactly have a count, but if we did we're not revealing that.

Okay. One last question and I will let everyone else get on. Can you talk about the legal environment? I'm sure there has been some challenges to some of the state laws. Are any particular states where some of the legal challenges -- just some of the reforms seem to have picked up enough momentum to cause you concern?

Yes, Wisconsin.

Florida? How is Florida? Florida is okay?

I don't know that we have seen any -- have we seen any action out of the Florida appellate system that has changed anything?

Too early.

Yes, it is too early for it. But you have seen Wisconsin struck down a cap law up there that was ten years old.

That was last year, right?

Yes. That had already sort of worked its way through the pricing system up there. And all of a sudden they declare it unconstitutional. This is something that can happen anywhere, anytime, anyplace. The only place that I particularly feel reasonably comfortable about where we're going is Texas, and that is because it is a constitutional amendment. But even there the [plan and bar] and the appellate courts are beginning to find ways to at least partially get around some of that constitutional tort reform.

Interesting. What about your homestate, Alabama?

Alabama is doing pretty well. We had big elections here last night.

Indeed. Thanks for your answers.

John Gwynn, Morgan Keegan.

Dr. Crowe, just following up on that last question of Greg's. Really outside of California I guess because of time, and Texas because of the constitutional amendment, all these other states are subject to reversals. Is that not correct?

That is correct. Not only that, as you well know all of this tort reform that we see is relatively new, and has had not had time to work itself through the system. Last night elections they were talking about tort reform is dead in Washington. Hell, it has been dead in Washington. You and I knew that. Where the real effort comes, or where the real possibility comes, is in state elections. I don't know how we did in most of the states last night. I know how we did here in Alabama, which was okay, not perfect, but okay. But whether or not those tort reforms hold up is going to depend on the state appellate courts.

Dr. Crowe, obviously pricing activity in this industry segment has gotten troublesome again. I guess the thing that I find most disturbing is MedPro's activity. I know you probably don't let talk about a specific competitor, but some of their rate movements have been pretty gargantuan by any standard. Although I know that their manual rates in Illinois were much higher then Ismee's and maybe this is a single state challenge, but I don't recall them being wild and crazy last time around. And they were owned by GE that is stripping the reserves at the same time.

What is your question?

I agreed with your comment that here we go again. Howard, one easy one for you. This Aon study that came out a couple of weeks ago -- do you know what I'm talking about? -- were they talked about indemnity costs actually moderating fairly materially over the past couple of three years. But LAE seems to growing at a rate that is just not sustainable, 17%. This is for the segment, not for you. But I think you are LAE costs have been going up pretty rapidly too. Is there any chance of a change in that trend?

We certainly on the indemnity side, we hope it doesn't change because we, like a lot of others, have seen indemnity at a more moderate rate -- still increasing but at a more moderate rate, which is a good sign. On the LAE side, it is a function of several things and I think it varies from company to company. In our case LAE is increasing, but it is increasing in part because we are being more aggressive at trials -- at taking more cases to trial proportionally and in absolute numbers, and that cost money.

On the general LAE increases, I think that there will have to be some reductions, or at least limits put into place, because it is potentially unsustainable if we want to keep rates at a moderate level. LAE makes up a big portion -- a bigger portion of our costs than many other companies, but even for the industry as a whole it is a big proportion. If that is going to go up at a double-digit rate, it is going to be difficult to keep rates in line and remain competitive. I don't know if Darryl wants to anything on that.

No.

(OPERATOR INSTRUCTIONS). [Rob Bowman], Capital Returns.

Somebody asked earlier about changes in rates, terms and conditions. And I think largely with respect to terms and conditions you said there wasn't much of a change. But I was curious if your Red Mountain E&S operation is sort of seeing any impact from business shifting to the admitted market? Sort of an extension of that earlier question.

Yes, Red Mountain is definitely seeing -- probably seeing the most impact in our group in terms of available opportunities. Red Mountain premium is lower -- going to be lowered this year certainly than last than it was last year as compared to the year before, because we are seeing a lot of business that was in Red Mountain that is being written at standard rates or even discounted rates by some of the competitors.

We were surcharging that business because it was below the quality of business that we saw in the general market. Doctors who had severe claims problems, or impaired physicians, or other disciplinary actions and so forth. Red Mountain is in our view a company that is going to expand and contract inversely with the market. When the market is hard, Red Mountain is going to grow. When the market is soft, it is going to shrink. And that is the strategy there.

We see it as an opportunity for us to write business when we think that the rates are such that we can profitably write that difficult business. On the terms and conditions side, there is always some adjustments because all of Red Mountain policies are customized and either deductible policies -- deductibles that are imposed on those policies or other restrictions. Those things vary more case to case I think than overall in the marketplace.

What sort of order of magnitude was Red Mountain I guess presumably off this quarter compared to the comparable quarter last year? Is that a greater swing than it was Q2 '06 versus Q2 '05, for example?

It is Ned. Our --.

Sorry, I want Howard to answer.

You want Howard to answer. Our stat statements will be out on our website as soon as we have them filed. And there will be plenty of data on Red Mountain. I don't have the particulars in front of me.

We don't have the detailed numbers by company right here right now.

Back to the periphery of runaway verdicts. What is your record in the past where you have -- the incidence of facing a runaway verdict, but then the appellate process or the passage of time and further litigation, it is sort of made a u-turn or not made a u-turn as far as ultimate payments?

Darryl, do you want to take that?

I can tell you that we have not paid a bad faith claim in the past. But one never knows going forward. But we are optimistic that we will get these large verdicts resolved within policy limits or thereabouts.

I think, Frank, you commented before from Adam's question about the reinsurance program. But the second part of his question you didn't answer, but I'm interested to know does the reinsurance program have annual aggregate limits to it?

That is part of the answer I think that Frank gave in that we really are reluctant to give out the specifics on the reinsurance program. So I think we will just leave it at that point.

I understand the implications of the litigation process and that information getting -- part of that information getting out. But I don't see how the information about whether there is aggregate limits or not is relevant to that concern.

Okay. Have you ever seen a reinsurance policy that did not have some kind of limits?

There are ones that don't.

Most of them that I have seen have some kind of limits. And naturally you would think that the ones we have some kind of limits. But we're not to going to reveal how much.

Thanks at least for that. I appreciate it.

(OPERATOR INSTRUCTIONS). It appears there are no further questions at this time. I would like to turn the call back over to our speakers for any additional or closing remarks.

That will wrap up our conference call. We will speak with you again after the first of the year. Thank you all.

That does conclude today's presentation. We would like to thank you for your participation and hope that you have a wonderful day.