ProAssurance Corp (PRA) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to today's conference call to discuss ProAssurance Corporation's third quarter results. Today's call is being recorded. Now for opening remarks and introductions, I'd like to turn the call over to Mr. Frank O'Neil. Please go ahead, sir.

Thank you, Audrey. I want to thank everyone for joining us this morning, sharing your morning with us. Our news release we issued Monday afternoon reporting third quarter and nine-month 2009 results, and our SEC filings, including the 10-Q filed very early this morning, include important detailed disclosures and information regarding forward-looking statements.

In that regard, please understand that many statements we make today will deal with projections, estimates, and expectations. We explicitly identify these as forward-looking statements subject to various risks.

Our actual results could differ materially from current projections or expectations. We will not undertake and we expressly disclaim any obligation to update or alter forward-looking statements, whether as a result of new information or future events, unless required by law or regulation.

The content of this call is accurate only on Tuesday, November 3, 2009, the date of its first broadcast. If you're reading a transcript of this call, please know we did not authorize it and have not reviewed it for accuracy. Thus, the transcript you're reading could contain errors that might materially alter the intent or meaning of our statements.

On the call today is our Chairman and CEO, Stan Starnes; our President, Vic Adamo; Chief Financial Officer, Ned Rand; Chief Underwriting Officer and Actuary, Howard Friedman; and our Chief Claims Officer, Darryl Thomas, is with us for any claims-related questions. Stan will start us off this morning. Stan?

Thanks, Frank, and I'll add my thanks to those of you who are taking time to be with us. Very simply, this was another superb quarter. There was a little something for everyone.

Significant contributions to the top line from acquisitions, solid contributions from our historical business, including net favorable reserve development, an improved investment result, a marked increase in book value per share, and an increase in our bottom line. We have a lot of positives to discuss with you, so Frank, let's proceed.

Okay, Stan. We'll lead off with Ned Rand today. Ned?

Thanks, Frank. Stan mentioned the bottom line, so let's start there.

Operating income is $1.58 per diluted share for the third quarter of 2009, which makes operating income for the nine months $4.08 per diluted share. Net income per diluted share is $1.67 for the quarter and $4.13 for the nine months.

Moving from the bottom line to the top line. We've added significant new premium as a result of the acquisitions we completed earlier this year. PICA contributed $43 million of new premiums to ProAssurance in the third quarter. As we've mentioned in prior calls, PICA writes about half its yearly premium in the third quarter. Our other acquisitions, Mid-Continent and Georgia Lawyers, contributed $5 million in the quarter.

For the year, new premium attributable to PICA is $57 million and $14 million from our other acquisitions. Net investment income is down slightly in comparison to the same periods a year ago, while we saw an improvement in our earnings from unconsolidated subsidiaries.

The decline in net investment income is driven by a couple of factors. We continue to earn significantly less on our short-term investment balances. In addition, our current reinvestment rate on our core fixed income portfolio is lower than the returns on those securities that are maturing.

The turnaround in the performance of our unconsolidated subsidiaries is reflective of the improvement in the investment markets. Recall it was the fall of 2008 when the real financial meltdown started, so we hope we've weathered the worst of things. Also, we moved from a $34 million realized loss position in the third quarter of 2008 to a realized gain of $7.3 million in this year's third quarter.

Looking at our key ratios, our combined ratio in the third quarter is 74.6%, down 4.4 points quarter-over-quarter; and for the year, the combined ratio is 79.1%, down a bit over 3 points compared to last year. The expense ratio for the quarter is 21.9%, essentially flat year-over-year, and up less than 1 point for the year-to-date. The current year loss ratio was 84.9% for the quarter, which is offset by net favorable reserve development of 32 points in the quarter for a net loss ratio of 52.7% against 57.5% in last year's third quarter.

For the nine months, the current accident year loss ratio was 83.5%, offset by net favorable development of 27 points for a net loss ratio of 56.6%. This is an improvement of just over 4 points from last year's nine-month results.

Return on equity is 13.9% for the quarter, more than double last year's ROE for the quarter. For the nine months, ROE is 11.9% compared to 10.5% in 2008. We're pleased to see our ROE moving back in line with our long-term goals.

As we mentioned in the news release and highlighted on last quarter's conference call, this quarter we recorded a pretax loss of $2.8 million as a result of our decision to redeem $7 million of surplus notes we acquired as part of the PICA transaction. Under the purchase accounting rules, assets and liabilities assumed in the transaction are brought in at fair value, so these $7 million in surplus notes had a fair value of $4.2 million because of credit spreads at March 31.

Our balanced stock repurchase program has also helped increase ROE, while helping increase book value per share. We purchased 41,000 shares of our stock during the third quarter at a cost of $2.1 million. Cumulative share repurchases through September 30 added $0.04 per share to our results in the quarter, and has added $0.10 per share for the year.

We were also active in share repurchases after quarter-end. Prior to entering our blackout period, we bought approximately 250,000 shares at a cost of $12.9 million. So all in, since June 30, we've bought back 291,000 shares at a cost of $15 million. We have $116 million left in our authorization, which includes the $100 million in additional share repurchase funds authorized by the Board in September.

We'll continue to weigh the best use of capital, but we'll again emphasize the fact that we will be buying all we can when our stock is at or below book value, and purchasing appropriate amounts above book value, as our evaluation of our capital needs dictates.

Book value per share increased $3.78 in the quarter to $50.50 -- the first time our book value per share has been above $50. Since year-end, book value per share is up $7.81, an increase of 18%. A $4.12 per share increase in the bottom line was the largest contributor to that year-to-date increase, and the return to a net unrealized gain position contributed $3.47 per share. Our balanced share repurchase program added $0.19 per share as well.

Capital management is a top-of-mind subject for us, and we continue to evaluate the best use of capital and look for ways to invest under the most favorable terms possible, consistent with our investment guidelines. The primary challenge is simply lower returns on the new money we're investing. But we believe the ability to access the capital markets, should we need to do so, is improving, which allows us to think more about ways to return capital to shareholders.

On the subject of investments, our entire investment portfolio updated through quarter-end is available in the Investor Relations section of our website. Frank?

Thank you, Ned. You mentioned net favorable reserve development in the quarter, so I'm going to ask Howard to start there. Howard?

Thanks, Frank. We had $42.5 million of net favorable reserve development in the quarter, with 2004 through 2006 accounting for most of the development. There was no development at PICA in the quarter.

For the year, we've had net favorable development of $98 million. The primary driver of our development continues to be severity that is lower than our prior expectations. Thus, it's pretty clear that loss trends continue at moderate levels; and while we believe it's prudent to be prepared for a return to higher frequency -- and we are -- we don't see anything on the horizon that portends a major shift in loss trends.

I would mention that one recent study found a 1 point increase in frequency in large healthcare facility claims. It's not our study and not our book of business, but if true and sustained, this could mark a move towards more historic frequency levels, albeit one that could move upward at a manageable pace. And since low frequency has been offsetting the normal rise in severity, any increase in frequency could lead others to return to more rational pricing.

Ned also mentioned the current accident year loss ratio in the quarter, which you'll notice is up 1 point over the same period last year. This is a result of bringing the PICA reserving process more in line with our historical practices.

We continue to have new business to talk about in our historical book. We're encouraged that we are finding selected areas where we are able to write new business at rates that we believe are profitable and will allow us to meet our ROE targets. Competition remains strong and there continue to be isolated pockets of business written at levels we don't think are profitable or sustainable.

Pricing sometimes varies by region with some competitors, rational in one state and not so in others. But overall, we don't see widespread ongoing price deterioration.

We are retaining policyholders at a steady level, 89% for the quarter and year in our historical book, at average renewal rates down just 3% in the quarter and 4% year-to-date. At PICA, retention is 95% for both the quarter and year-to-date. We think this level of retention in the face of strong competition says quite a bit about how our value proposition and commitment to Treated Fairly is viewed in the market. Frank?

Thanks, Howard. Vic, I'll turn to you to ask for an update on healthcare reform and McCarran-Ferguson legislation.

Thanks, Frank. Happy to do so. I'll start with the healthcare reform because that's the quickest to address. Despite compelling arguments that medical liability reform should play a meaningful role in controlling healthcare costs, it doesn't appear that will be part of any final bill.

The President has directed $25 million to be spent on pilot projects to test the effectiveness of tort reform, and there's a token mention of pilot projects in the House bill that came out last week. These actions appear to be a move to take federal tort reform off the table and curtail any further debate on the subject; in effect, ensuring it remains a state-by-state debate.

In our view, Congress should focus on the various state laws that have been working effectively for 30 years. These laws have demonstrated their ability to hold down medical liability costs and promote patient access to healthcare. The most widely cited example is the MICRA package in California, but there are other notable examples, including the tort reform packages in Indiana, New Mexico, Kansas, and Louisiana.

Frank, with respect to the proposed repeal of the McCarran-Ferguson exemptions for health and medical professional liability insurers, we believe such a move will most likely reduce competition. The repeal of McCarran-Ferguson would eliminate certain data-sharing activities, thus making it harder for new entrants to expand or compete in established markets, and may well chill existing efforts to share claims data for patient safety purposes.

The fact is that large companies such as ProAssurance rely primarily on their own data for rate-making, so we do not foresee much direct impact on us in our established markets, and we would not expect a repeal of McCarran-Ferguson to adversely affect our successful M&A strategy. Frank?

Thanks, Vic. Stan, any final remarks before we take questions?

Just a quick final comment, Frank. I remain optimistic about where we are today and where we are positioned for the future. Our results for this quarter are a reflection of the emphasis we place on the consistency and effectiveness of our operations. More importantly, they reflect our commitment to the enduring success of the organization. Treated Fairly captures this commitment and we seek to live it every day.

Our satisfaction with the third quarter, however, does not eclipse our firm belief that this is not a quarter-to-quarter business. The ultimate success of our enterprise depends on our financial strength, not just today, but five years from today and thereafter. Rarely a week goes by without some reminder of the perils of undisciplined pricing or short-sighted financial management.

Long-term financial stability and sustainable insurance profitability are very much dependent on each other. They are fundamental to this business and we remain dedicated to these fundamentals.

As a wrap-up, I want to mention our recent selection by Business Insurance as the best midsized insurance employer in the United States. To be included in the distinguished list of best places to work in insurance is quite an achievement, especially when we know that 75% of the selection criteria was based on feedback from our employees. We're confident that treating our employees fairly helps them understand the need to deliver the Treated Fairly commitment to everyone they encounter.

So, thank you to our employees, again, for a job well done. Frank?

Thank you, Stan. Audrey, we're ready for questions, if you'll open the lines.

(Operator Instructions). Mike Grasher, Piper Jaffray.

Congratulations on a great quarter here. Wanted to ask about the new business production in the quarter -- obviously, PICA contributing $40 million, but if you add in the other acquisitions, the impact of those, what was organic growth in the quarter?

Mike, it's Howard. Yes, the organic growth in the quarter on the historical book of business was relatively small. I think it was in the approximately $2 million range from -- when we break it all down. And we're pleased with that, in that we're generating some new business, but it still remains a very difficult market environment right now.

Okay. And then just your comments around favorable development, Howard, and no PICA development in the quarter. Does that imply that you did bring reserves higher?

Bring reserves higher -- I mean, overall, the overall reserve base is -- the PICA reserves for prior years did not change.

Okay.

The historical reserves for prior years came down by $42.5 million. And then, of course, we added the current accident year -- incremental reserves for the quarter. But there was no development one way or the other for PICA prior years.

Okay, thank you for clarifying that. And then final question, for Vic, just your comments -- and then maybe Stan, you want to jump in -- but your comments around the healthcare bill and talking about the pilot projects. There's also been some commentary here around the state option or an option going to the states. And part of that being that there would be some incentives for states to elect to get into the government option and even extra incentive from the standpoint of removing caps on awards.

Have you thought about that in terms of what impact that might have on severity? Or even the scenario or the possibility of that occurring?

There's no incentive to remove caps from awards. The way the House bill is fashioned, if you have a demonstration project and you want to apply for federal money for the demonstration project, that demonstration project may not include caps.

So I guess, as we look at it, if someone were going to -- and the demonstration projects are really around early offers and notice of intent to sue. So those things aren't really cap-related anyway, because those are early on in the process.

We just don't see it changing the playing field very much for the states to go in and try to get incentives. There's no amount of money identified in the House bill. And in the President's administrative actions he's talking about $25 million, so there's not a lot in it for any particular state. We just -- we really, as I said before, just view this as the way to take tort reform off the table rather than trying to really change the playing field one way or another.

This is already a state-by-state business, so that doesn't really change that.

No. No, it's -- yes. Tort law is state-by-state, not federal at this point in time.

Understood. Thank you very much.

Michael Nannizzi, Oppenheimer.

Just a question about the book of business, the ProAssurance legacy book. It looks like you entered into a few more two-year contracts in the third quarter and full-year '09 versus last year. Can you talk a little bit about that strategy and how that reconciles with your view on rate changes in upcoming years?

Mike, it's Howard again. We're doing this on a very limited basis and really in one jurisdiction. And it's a jurisdiction where we feel that the environment is very stable, has been historically stable, and where we're quite comfortable -- not only with the overall rate level but with the accounts, the specific accounts that we're offering this two-year option to.

So it's a very small portion of our overall book of business and really, a very select portion of the book of business. We don't see it as any kind of a widespread strategy, and share your implied concern there that it's not something that you would do everywhere.

Got it. Okay, so this isn't -- it's not necessarily kind of a test basis; it just happens to be a product that works well in a particular jurisdiction?

That's correct.

Okay. And in that jurisdiction, is it that other providers are offering that sort of program? Or is it something that you've done just kind of your own volition?

We've done this on our own and not aware of other providers doing it in this particular jurisdiction, although certainly, we do see it from time to time in the industry.

Great. Thank you so much, Howard. And Ned, if I could just ask a question about the portfolio. Again, we really appreciate your -- the [accusive] level of disclosure, thank you very much for that. Also, I'm not sure of this new disclosure but the net investment income by category is also really helpful.

That table highlights, obviously, the problem at the short end of the curve right now. And so I just -- just one question -- as you think about where you're investing dollars. If we are still in this environment six months or a year from now with just kind of a hole at the short end of the curve, how do you think -- how do you see your allocation to short-term or that section of the portfolio changing over time? And does that change your appetite -- would that change your appetite for repurchase activity or anything like that? Thanks.

Sure. Yes, the short end of the curve certainly is a challenge right now. And as we are looking to hold a certain amount of liquidity to deal with share repurchase opportunities and things of that nature, it can be somewhat punitive.

We are looking at other alternatives that will allow us to be more aggressive in how we invest our cash to allow us to leave lower amounts in short-term funds. We have borrowing facilities established at all of the insurance subsidiaries with a variety of Home Loan Banks that can allow us to be more aggressive in how we manage our short-term cash.

And so we continue to evaluate that; and if this persists, I imagine we'll get more aggressive and just holding less and less short-term and relying on those borrowing facilities.

And I mean, do, like, agency mortgage-backed securities that have some more periodic liquidity, is that an area where you could see placing more emphasis?

Yes, one of the challenges right now with the agency papers is that we really haven't gotten a clear signal from the federal government of where Freddie and Fannie stand. And so we are concerned that there is only an implicit guarantee of those bonds and not an explicit guarantee.

And that's further complicated by the fact that you really can't get in and underwrite the underlying credits in these pooled securities that Freddie and Fannie put together. So it makes it very difficult to invest.

We do like those securities for the exact reason you said -- they throw off cash flow; and that's certainly another thing we look at. We disclosed in our Q that between $30 million and $90 million mature in any given quarter in known maturities, known cash flows coming out of the portfolio. And then we typically have additional cash flows coming off the portfolio as well. But right now, we're really not adding to the agency side, just because of our concern about where the government stands with the agencies.

Right. Well, I -- and just one last point -- I mean, is Ginnie Mae not an option? Or is it just maybe limited? I mean, that is (multiple speakers) --?

Yes. Ginnie Mae does have an explicit guarantee and we have been buying Ginnie Mae's. The problem is that we just don't see the incremental returns coming off of Ginnie Mae's that make us want to invest there.

I see, okay, great. Okay, thank you. And then just one last question if I could about PICA. I just want to make sure I'm interpreting this correctly. So it looks like -- so the loss ratio is 81% year-to-date '09 and 88% in the third quarter.

So I guess my first question is, is that -- and I would assume that the 88% is reflected in the 81%. So, it looks like the loss ratio is a lot higher at the end of that than it was at the beginning. Is that correct? Or is that -- are we not reading something correctly?

No, I think you're reading it correctly. It's approximately a $3 million increase in the quarter to current accident year incurred losses, which then going back results in that 81% that you quoted.

And is that -- I mean, is that kind of moving toward -- I think you mentioned in the release, moving more towards ProAssurance baseline reserving philosophy. Is that -- I mean, should we start to interpret reserves or accident year loss ratios there as we do in the legacy business?

Yes. We mentioned last quarter that PICA has historically established their current accident year losses and loss ratio at a level that was historically lower than what we had done in the historical ProAssurance book of business. And historically, that PICA's was about 75% and we have been running an initial loss ratio of about 83%.

And we mentioned also last quarter that we were reviewing all that with PICA, so that we could understand how to make the two philosophies coincide in the long run and understand the two books of business.

PICA has a little bit lower historical severity volatility than we have in the MD book of business. And therefore, PICA had booked initial reserves a little bit closer to the expected loss costs than we have. And it's really a matter of, I guess, perspective looking at it -- whether the case involves an MD or a podiatric physician, the same thing can happen ultimately. But more as a matter of corporate philosophy, we've moved the booking ratio higher at PICA to reflect our overall reserving philosophy as a public company.

So we're still comfortable with PICA's historical reserves; we haven't changed that. It's really just the increase in the current year loss ratio to try to make the two approaches more consistent.

Okay. And so I mean, it looks like -- so it's kind of [102, 104] combined. But I guess the question is -- it's not that the accident year loss ratio is going up because pricing is declining; it's just a change to the reserving philosophy at PICA to more closely track how you view reserve development at the parent company.

That's exactly right.

Okay, great. Thank you.

Beth Malone, Wunderlich.

Just a question on where you see the growth opportunities going forward in the industry. Is there a change in pattern of demand that you're seeing? Is it going to remain a consolidation situation and that's how -- one of the few ways you're going to get growth in this market?

Beth, good morning. It's Stan. The fact remains that this is very much a state-to-state business. And literally, you have 50 different businesses.

The growth strategy will vary from state to state. Part of our growth strategy will be continued activities in the M&A world, again from a standpoint of discipline and from a standpoint of figuring out what makes sense for where we are. There will undoubtedly be, in certain states, opportunities for organic growth as the environment in those states evolves.

You'll have states that have fewer competitors; you'll have states that have perhaps more competitors. The pricing environment, as Howard mentioned, seems to have stabilized overall, not to say that you don't have some pockets of irrationality, because you do.

So it's really not realistic to say we have one over-arching growth strategy. We have a strategy on a state-by-state basis for how to take advantage of new business opportunities in that state, and we offer products in various states that seek to take advantage of that as well.

We've had growth in our so-called historical business at ProAssurance during 2009 that's above what we experienced in 2008. We will continue to seek those opportunities. We've had significant growth as a result of the PICA transaction and the two smaller transactions, and we will continue to seek those similar opportunities in the future.

Bear in mind that we have only about 5% of the market share in the United States, so there's plenty of room for growth. We just want to be very methodical, very intentional, and very disciplined about how we pursue it.

Okay. And then, so are you seeing any effects of the economy on the demand? Or are you seeing new competition come into the marketplace in an effort to find business because their own business isn't growing?

Beth, it's Howard. Really, I guess I wouldn't say we're seeing anything in terms of a reduction in demand. It's pretty inelastic for most physicians in terms of buying coverage and hospitals certainly, and podiatrists. So that they all really -- not only in many cases, most cases need to maintain coverage to satisfy hospital privileges, but just from a practical perspective, most professionals will not give up their liability coverage.

We had seen several years ago, as rates went up, we saw a little bit of reduction in the purchasing of higher limits, but even that has stabilized and probably has been stable really for the last few years.

The changes that I think we see in the marketplace right now revolve around physician practices being acquired by hospitals. And I think that's a fairly common event all over the country. It seems to be happening in some states more than others; but as hospitals and healthcare systems try to consolidate those patients and the source of admissions, they have once again embarked on acquiring physician practices.

As you know, many institutions did the same thing 10 to 15 years ago, only to move back out of that enterprise. So we're not sure where it's going to lead to this time.

And then one last question on the lawyer -- insurance for lawyers. Do you see the opportunity in that business being significant? Or is it just an opportunity for you to leverage the existing infrastructure that you have into a new market?

Beth, it's Vic. That was the original intent. We've been actually in this business for quite a long time, and it was to leverage the skills of the organization into another professional liability line.

We have expected, and I guess, still do expect, although it's slow-go, to see some consolidation there. Just like with the medical professional companies, there are a number of lawyer companies, as George Lawyers is, developed on a state-by-state basis. We had expected to see more consolidation among those players.

It hasn't happened yet but we're certainly interested in being a part of that when it does begin to happen, and organically expanding the lawyers' line. It's a good use of resources although it's definitely a slow-grow.

The lawyers market is competitive with lower premiums, so again, given our nature of being careful in what we do, we're not rushing to do it, but we like being in this other line.

Okay, thank you.

(Operator Instructions). Mark Hughes, SunTrust.

With respect to the McCarran-Ferguson, do any of your competitors do much data sharing?

Howard can probably answer this probably better, but I'll give it a shot. There's not much reporting to ISO, which is the traditional repository for industry data; so there's not a central place for people to report it to. I can't really comment as to the extent other folks use the data. Howard can comment better on our data.

Sure. Yes, as Vic mentions, ISO, which is the typical property-casualty industry's statistical organization that you would look at in most other lines of business, is only partially reported to by the medical professional liability industry. The larger companies tend to do so; the smaller companies historically have had exemptions and don't do so. So, the amount of data that is in the ISO database for this line of business is limited.

The one major data-sharing exercise, if you will, is related to patient safety and claims risk management data. It's not really useful for rate making. And that is the data-sharing project that the Physician Insurers Association of America has; where many of the companies who are members of the Organization submit claims data, which is then analyzed clinically and reports are produced from time to time, analyses are produced, that look for causes of loss from a clinical standpoint.

And it may well be that that aspect of it is eliminated if the exemption is lifted. So that would actually be a detriment not only to patients, but to practitioners.

There may be some of that going around. The pricing on a sequential basis down a little bit less in the quarter. How about sequentially? Was it steady?

Pretty steady. I mean, that 1 point change in the quarter, we were happy to see a slightly lower rate of decrease in our rates but it really was a very marginal difference. And as I mentioned in the earlier comments, it does vary significantly from state to state and week to week.

It seems that some competitors go on little growth spurts from time to time, and we see a pattern where one competitor may be quoting in several different states at relatively low rates, almost as if they had a quota to meet. And then we see it change back again.

All right. At what point, how long would you think you would have to have PICA in-house before you would consider, assuming that things looked good in their reserves, before you would consider favorable development?

I wouldn't think that it's a time period necessarily. We look at the reserves and we are looking at PICA's reserves in conjunction with the PICA staff on the same basis -- you know, they're semiannual. We're now on the semiannual review process. So I think when the data shows that there is justification for a reserve change, we'll make it. I don't think it's so much a matter of a certain amount of time; I think it's really just a matter of seeing the numbers.

And then a final question -- any change in tone in the courts? Obviously, the political climate is a lot different. I know the judges haven't turned over per se, but did you find that they are more responsive to plaintiffs -- people who claim they've been injured these days versus a year ago?

It's Stan. I would say again, it varies greatly from state to state. And I don't know that I would say that there is a marked, discernible change in tone from, say, nine months ago. But I also know that all the commentators, both legal and secular, expect the appointments of the current administration to be more liberal than those of the prior administration, and I expect that same sort of leaning to affect the state judicial appointments.

So changing judicial tone is not something that happens overnight, but I don't discern anything that's afoot in the country, which would make me think that the judiciary is going to become more conservative. I think if anything, it will be just the opposite.

Thank you.

(Operator Instructions) Amit Kumar, Fox-Pitt Kelton.

Thanks and congrats on the quarter. I guess, just staying on that state judicial issues, previously you've talked about challenges in the system in different states. Do you have some sort of an update as to the timing of those?

We don't. You know, it's -- each state Supreme Court moves according to its own schedule and they don't typically announce when one might expect to see a decision. It's my understanding that the Illinois Medical Tort Reform Act has been argued and submitted to the Supreme Court of Illinois, so that we could expect a decision there at any time; but again, it might be months from that. It's really entirely up to them.

There's a similar constitutional attack on the Georgia Medical Liability Act. It's been argued to the Appellate Courts in Georgia. There's a Florida Act that's not been ruled on by the Supreme Court of Florida. The actual Ohio Medical Liability Act has not been ruled on by the Supreme Court of Ohio, though a similar general tort reform act has been upheld in Ohio. So it just varies greatly from state to state.

I might remind everybody that within the past three or four months, the California Supreme Court has just affirmed portions of MICRA.

Okay, that's helpful. I guess what I was trying to think is that as and when that happens and I guess does that coincide with different state level judicial appointments? And I would imagine what sort of [subrate] that might lead us to. But I guess that's further out than anything in the near future.

I guess, just moving on to the rates, you talked about not seeing widespread pricing deterioration and I guess nothing on the horizon. As you look towards 2010 on an overall basis, I guess factoring in the credits and other adjustments, do you foresee rates being flat to modestly up compared to '09, for 2010?

I would hope so; but last year at this time, I think in response to similar questions, we foresaw a reduction in renewal pricing that was greater than what we've experienced. In other words, I think last year, we were talking about maybe down 5% or 6% and actually it's been 4% year-to-date and 3% in the last quarter.

So I think we're moving in the right direction there, but I think it's early to make a projection. I think a lot depends on the year-end results for the various companies in the sector; how the management's view of investment yields is at the time that they're really moving into the renewal season, because that's one of the key factors that I don't think has been really recognized, or taken into account, at least, across the industry. With the way yields have come down and severity has continued to gradually increase, I don't think that the pricing levels personally are sustainable for a long period of time.

Okay, that's quite helpful. Final question -- in terms of the reserve releases, I think your Q mentions or maybe the opening remarks that it was from '04 to perhaps '07. Can you just highlight what was from maybe '04 and '05, and then what was from '06 and '07? Would that be possible?

Not offhand at the moment, to be honest. I'd say that just in general terms, I think I mentioned '04 through '06 certainly as a group have the majority of it; '07 is minimal. And I really don't recall exactly the '04, '05, '06 split. But there was some from each of those years.

Okay. That's all for now. Thanks so much and once again, congrats on the results.

Howard Flinker, Flinker & Company.

I was confused by what you said about reserve releases. It sounded as if you said two contradictory things, and I was thrown off.

First, you said historical releases -- historical reserves are okay, but then there was some release or something to that effect, and I (multiple speakers) --

Are you talking about at PICA?

Yes, I wasn't sure if you were talking about PICA or the parent company itself, or both.

Yes. Just to restate -- historical, which means ProAssurance excluding PICA, we had $42.5 million of favorable development in the quarter, primarily from '04, '05, '06 and a little bit from '07 accident years. PICA, we had no prior year reserve change in the quarter.

Oh, okay. By historical, you meant the parent. I didn't know -- I thought you meant historical meant any past years of either company. That's what threw me off.

Right. We're trying to find the right terminology so everybody can understand this.

Legacy seems to have some negative connotations in some uses. So we're -- I guess by the first quarter of next year when we will quit breaking out PICA, because it's been about a year, that will go away.

Legacy wouldn't have any negative connotations if George Washington had founded your business.

No, we pay real attention to those pieces of paper with his picture on it.

All right, thank you very much.

(Operator Instructions). There appear to be no further questions at this time. Gentlemen, I'll turn things back to you.

Thank you, Audrey, and thank everyone for listening. Enjoy your holidays. We'll speak with you next year.

Again, that does conclude today's conference. Thank you for your participation.