ProAssurance Corp (PRA) 2014 Q3 法說會逐字稿

Good morning, everyone. Welcome to the ProAssurance conference call to discuss ProAssurance's results for the nine months and quarter ended September 30, 2014. These results were reported in a news release on November 5, 2014. That news release and the company's other SEC filings, including its 10-Q also filed on November 5, 2014, will provide you with important information about the significant risks and other factors that could affect ProAssurance's business and alter expected results.

Also, management expects to make statements on this call dealing with projections, estimates and expectations and explicitly identifies these as forward-looking statements subject to applicable safe harbor protections. The content of this call is accurate only on November 6, 2014 and except as required by law or regulation, ProAssurance will not undertake and expressly disclaims any obligation to update or alter information disclosed as part of these forward-looking statements.

Now I would like to turn the call over to Mr. Frank O'Neil. Please go ahead, sir.

Thank you, Mara. Everyone, please note that we will also be referencing non-GAAP items in our call today. Our recent news release provides a reconciliation of these non-GAAP numbers to their GAAP counterparts. Participating in today's call are: Howard Friedman, the President of our Healthcare Professional Liability Group; our Chief Financial Officer and Executive Vice President, Ned Rand; Mike Boguski, the President of Eastern Alliance Insurance Group; and our Chairman and CEO, Stan Starnes, who will start us off with some opening thoughts. Stan?

Thanks, Frank and thanks to everyone on the call for your participation and interest. This is an exciting time for our company and our industry.

Our American healthcare system continues to progress through meaningful change and we continue to find opportunities in this evolving landscape. We are positioning ProAssurance for continued success through our ongoing build-out of our insurance platforms and through our thoughtful capital management practices. Our insurance operations produced strong results and significant profitability in the third quarter and we have returned a record amount of capital through our share repurchase and dividends as we focus on meaningful value creation for our shareholders. Frank?

Thank you, Stan. Howard Friedman, the President of our Healthcare Professional Liability Group, will cover both the specialty P&C and Lloyd's segments. Howard?

Thanks, Frank. There is no question that the marketplace is highly competitive in all lines of business in specialty P&C. And given the nature of the market, I believe our ability to maintain a strong topline this quarter is a testament to our employees, the range of products we offer and our capabilities to meet evolving market needs.

Gross premiums written were down slightly in this segment, a bit less than 2% quarter over quarter. New business premiums for physicians and other healthcare providers were essentially level and new business for healthcare facilities was $2 million, an increase of $1 million over Q3 2013.

Medical technology and life sciences added $1.4 million in new business. The physician business makes up the greatest part of specialty P&C and retention is 1 point higher this quarter than in last year's third quarter. At the same time, renewal pricing in this portion of the segment was 2% higher than expiring, a 1 point improvement quarter over quarter.

Healthcare facilities saw a 2 point year-over-year improvement in retention in the quarter. We are seeing progress in a number of our joint marketing and shared risk programs. The most prominent being a relationship with Ascension, now with approximately $22 million in annualized premiums and approximately 2,700 insureds.

This includes for the first time insuring some Ascension employed physicians and facilities. CAPAssurance, another shared risk program, continues to add new business in California and adjacent states as well. I emphasize this because as we increase the penetration and importance of these shared risk efforts, we will continue to write additional high-quality business that we believe will provide opportunities we would not otherwise see.

We believe the risk sharing features of the joint programs are important because they ensure alignment of interests and the resulting level of commitment of the participants, but we recognize these arrangements also result in an increase in ceded premiums. Our cession of podiatry premium to Lloyd's syndicate 1729 also increases overall ceded premiums.

Two additional points about the shared risk business. It is generally very sticky, which allows us to build long-term relationships and create loyal policyholders. Also, these programs demonstrate to the marketplace in a very real way that we can be a meaningful partner that brings a range of services and financial strength to any program in which we are a participant.

Turning to losses, we see no change in overall loss trends in the specialty P&C segment. That's particularly true in healthcare, both in our historical business and in the larger, more complex risks that have emerged over the past four years due to market consolidation. We have maintained our underwriting focus and that has allowed us to ensure the long-term profitability of the business we have written.

Our net favorable reserve development in this segment was strong at $42.3 million, although down 14% from the same quarter last year. That's the main reason our net loss ratio was 5 points higher at 51.4%. Premiums and loss costs have been lower for the past several years and as a result, the overall pool of loss reserves is smaller.

The current accident year net loss ratio was 85.6% versus 83.1% in the year ago quarter. As we noted in previous quarters this year, this increase is primarily due to higher accruals for internal claims adjustment expenses against a lower volume of premiums earned and our recognition of administrative claims defense costs on a more current basis rather than making a true up at year end. This doesn't signify any deterioration in our specialty P&C business and I want to assure you that we continue to be as disciplined as ever in our reserving practices for the business we are writing now.

I want to highlight two emerging opportunities. The first is the introduction of ProAssurance Risk Solutions. This is a new unit led by a team of industry veterans that is focused on, as the name implies, complex financial transactions and risk financing opportunities, primarily in the medical liability and worker's compensation space. These are often runoff liabilities in M&A transactions, but they can also involve the assumption of existing liabilities in large organizations seeking to restructure capital or other transactions designed to provide financial flexibility.

I need to emphasize that these will not be frequent transactions but they can be quite large and have been historically profitable for this underwriting team. We are already seeing some opportunities and we are confident that this will be another potent weapon in our arsenal as we offer a wide variety of liability and risk financing solutions.

That's also the case with the second new product I want to mention; ProAssurance Complex Medicine or ProCxM. This is a program that enhances our commitment to large healthcare facilities that are retaining more of their own risk; generally hospitals with 750 or more licensed beds and a self-insured retention of at least $2 million.

We are working with Pro-Praxis on this program. Pro-Praxis is an underwriting agency capitalized by Cooper Gay Swett & Crawford Group, which will provide ProAssurance with their proprietary advanced underwriting analytics for these complex risks and will assist us in developing complementary insurance products to bolster the coverage these organizations require. There's quite a bit of interest in this program already.

Let's switch to the Lloyd's segment now and let me remind you that our participation in syndicate 1729, which began operations on January 1, is 58% and we are reporting on a one quarter lag with the exception of investment results and certain expenses. Duncan Dale and his team are seeing a high level of submission activity, indicating broad acceptance in the Lloyd's market due in no small part to the reputation of the team working for the syndicate. Our 58% share of syndicate 1729's net written premium was $3.9 million for the second quarter and was $24.2 million through June 30.

Duncan continues to exercise his well-known underwriting discipline and we are pleased overall with results so far. The mix of business has not changed. It's still primarily property casualty re-insurance and some direct property coverage, mostly in the US market. The syndicate's expenses are about as we expected and we anticipate loss ratios will fluctuate from quarter to quarter as the syndicate writes more business and the book begins to mature. Frank?

Thanks, Howard. Next up is Worker's Compensation and Mike Boguski. Mike?

Thank you, Frank. Eastern had another solid quarter, benefiting from continued growth in payrolls, favorable protection results across all operating territories and consistent loss trends in the traditional book of business. We are pleased with the third quarter production results. Eastern's gross premiums written were $60.3 million and direct premiums written were $58.4 million, which included premium renewal retention of 84.6% and new business writings of $12.6 million.

We achieved renewal rate increases of 2.1% and audit premiums were $2.2 million during the quarter. The calendar year net loss ratio was 66.4% with the benefit of 1.2 points of favorable development. In our traditional workers compensation business, the calendar year loss ratio remained consistent year-to-date, including favorable frequency and severity trends.

We did experience an increase in severity related claim activity in the alternative markets business, which is the primary driver of the $483,000 of negative segregated portfolio cell dividend expense in the third quarter. The combined ratio is 96.1%, which includes 2.6 percentage points of intangible asset amortization and 0.3 points of non-recurring expenses, primarily related to ProAssurance's acquisition of Eastern. We also received the benefit of 1.4 points from increased order premium in the quarter.

We continue to be proactive with our approach to closing claims. At September 30, Eastern had just 15 open claims in our traditional book of business, net of re-insurance, for accident years 2007 and prior and closed 44.8% of 2013 and prior claims in the first nine months of 2014. We continue to be pleased with the progress in our 2014 strategic plan, including continued focus on organic growth, geographic expansion and cross-selling initiatives.

We launched the Grandville, Michigan, satellite office during the quarter to further diversify the company's geographic footprint and to deliver a local service platform in the growing Michigan market. Cross-selling initiatives produced approximately 15 new agency appointments, one joint customer relationship and one new segregated portfolio cell program that will officially launch in 2015. Frank?

Thank you, Mike. We will wrap up segment discussions with our Chief Financial Officer, Ned Rand, who will discuss the corporate and consolidated results. Ned?

Thanks, Frank. Let me quickly hit a few highlights from our corporate segment. With investment related items producing the bulk of the segment's results.

Our net investment result was essentially flat quarter over quarter and year over year. Declines in our fixed income portfolio, driven by low interest rates and a reduction in our investment portfolio from our stock buyback initiatives, were largely offset by a strong performance in our alternative investments.

Operating expenses were up slightly, as we achieved about $700,000 in operational savings from a variety of small items. Those were offset by costs associated with previously discontinued operations, a one-time expense. The results are the interest expense due to the debt issuance in fourth quarter 2013 that had no counterpart in last year's third quarter. During the quarter we received a significant income tax refund as we wrapped up the dispute with the IRS that has been detailed in our past 10-K filings.

Turning to our consolidated results, the addition of Eastern has been a shot in the arm for our topline and to a lesser extent, the topline has benefited from our participation in Lloyd's syndicate 1729. Gross premiums written were up 37% over last year's third quarter to $227 million and are up 40% year over year.

Howard referenced the $42.3 million of favorable development we saw in specialty P&C and this comes from accident years 2007 to 2012, and we also saw $600,000 of favorable development from the worker's compensation segment. If you will remember from last quarter, there was approximately $400,000 of net favorable development in worker's compensation attributable to the amortization of the purchase accounting fair value adjustment of the reserves. We will continue to reflect that level of quarterly amortization over the next six years.

I want to emphasize something that Howard said. The decline in the amount of favorable development we have seen this quarter and for the year is not unexpected and is not being driven by a change in our underwriting or reserving process.

Pricing has been relatively stable over the last several years and severity continues to climb upward, currently at around a 2% rate. This, coupled with a smaller base of reserves, means that while there remains potential for further reserve development, assuming a continuation of a favorable loss environment, the absolute dollar amount of development is likely to be less.

The consolidated current accident year net loss ratio improved 3 points quarter over quarter to 80.3%, due primarily to the lower loss ratios on our worker's compensation business. However, with the quarter-over-quarter decrease in reserve development, the consolidated net loss ratio was up approximately 10 points to 56%.

Consolidated expenses warrant a mention as well as there are a number of moving parts. The majority of the increase is driven by the inclusion of Eastern and syndicate 1729. Additionally, as Stan mentioned, we are making investments in our infrastructure and our people as we evolve to meet the changing demands of the healthcare industry and these investments are pushing up the expense ratio.

In addition, our expense ratio also increased as a result of a few distinct items. One of these is also a part of that evolution, as we wrote off capitalized software costs that we no longer believe have value for our organization. This increased expenses by approximately $700,000 in the quarter. We also incurred unanticipated costs associated with previously discontinued operations that added $1.7 million in expenses to the quarter.

Our underwriting results were strong. The combined ratio was 86.6% for the quarter and 85.1% for the year to date. Operating income in the quarter, which excludes realized investment losses, was $40.1 million or $0.68 per diluted share.

Turning to the subject of capital management, in the third quarter we purchased approximately 999,000 shares at a total cost of $45 million. Since the quarter ended, we have continued to purchase shares under the auspices of our 10b5-1 plan and our year-to-date repurchases stand at 4.3 million shares at a total cost of $192 million, which leaves us with $112 million in our current repurchase authorization. The repurchases, along with the $53 million in dividends declared so far this year, mean that we have already returned more capital to investors through ten months of 2014 than we have in any single year in our history.

As we have mentioned in previous calls this year, we are confident in the value represented by ProAssurance shares and we believe the record amount of capital we are spending on our shares represents a sound investment in the future of ProAssurance. However, please be aware that in the short run, buying at these levels does hamper our ability to grow book value per share, which is up 3% since year end to $40.24. Tangible book value per share at September 30 was $34.80.

And finally, at September 30, there was $263 million in cash and short-term investments at the holding company, more than enough to support our capital management program and pursue opportunities that might arise to grow our business through M&A or other expansion. Frank?

Thank you, Ned. Stan, final thoughts from you?

Thanks, Frank. It's no secret that we take a long-term view and structure our company and our strategy accordingly. In light of our certainty that healthcare will be delivered in large part through vastly changed organizations in the future, we are augmenting the services and lines of insurance we write to meet those specialized complex risks. We are committed to fundamental change and we are investing human and corporate capital to uniquely position ProAssurance as the best organization to serve those evolved needs.

Indeed, one would be hard-pressed to find another organization that is so poised to serve healthcare with the array and scope of products and expertise that ProAssurance offers. Not only are we bringing new products to market, we are refining those we have always offered so that they are able to respond as new theories of liability emerge.

We are providing comprehensive liability insurance solutions for risks which were undreamed of a decade ago. In doing so, we are making ourselves more attractive to the different distribution channels that will be required in the future.

Our insureds today and tomorrow can be confident that we have the financial foundation, the experience and the foresight to be a trusted partner. And our investors should have the same confidence that we are not doing this in a vacuum.

We understand the need for profitability and we have a remarkable track record of maintaining that profitability and creating value for our shareholders even as our organizations evolve. We have done it before and we are proud to be doing it again today.

Now for questions.

Thank you, Stan. Mara, that concludes prepared remarks and we're ready for questions.

Thank you, Mr. O'Neil.

(Operator Instructions)

We take our first question from Matt Carletti at JMP Securities.

Thanks, good morning. I've got two questions. One relates to capital and one, more a housekeeping numbers question. On the first one, you guys obviously have been active in M&A over the years. Every year we see probably at least a few transactions, some small, some large. Any given one, sometimes it's hard to see how much capital is being deployed in any one transaction. So I guess there are two questions.

The first of which is, can you give us some idea over the longer term, two years, five years whatever kind of time horizon you might be able to comment on, on your view of how much ProAssurance capital has been deployed in growing the business whether through M&A or organically? And then secondly, an update on where you see the M&A environment today and if you still see a full pipeline of opportunities.

Matt, it's Ned. I'll take the first part of that question and then, as far as the pipeline, I'll let Stan address that. I think that's a great question. If we pick an arbitrary timeframe, maybe look back to 2010, over that time we've done four transactions for a total value of around $612 million. Over that same time period, going back to 2010, we have bought back and paid dividends totaling $677 million. So in the aggregate, approaching $1.3 billion in capital that we've deployed either through return of capital or through M&A transactions over that time period.

Matt, as to the pipeline, as you know, you can't make the transactions happen. You have to be opportunistic. These types of transactions are episodic and they occur, frankly, for reasons that are outside of our control. We spend a lot of time and effort in developing our relationships with those in this sector and we like to be thought of as the aggregator of choice, but you can't make them happen.

You just have to be available and ready and that's one reason we maintain a significant capital within the organization, is to take advantage of these opportunities as they arise. And given the fact you can't plan for them, you have to be in a position to move quickly when they come up. I think we will see activity in the years ahead. I think the changes in healthcare will propel a lot of that activity.

It's just going to be very attractive to some of our smaller mutual brethren to join with an organization who has the financial scope and the geographic reach to take full advantage of all the changes that are coming in healthcare. So I'm optimistic that we'll have opportunities in the future and again, I can't begin to tell you when they might occur, but we are ready for them when the opportunities arise.

Thanks, Stan. That's very helpful. One last numbers question for Ned. Obviously, you guys are no different than many of your peers in the quarter and investment portfolio, there's some mark-to-market headwinds that hampered book value growth.

As we sit here, it looks like a lot of that potentially could have reversed already in the fourth quarter. Can you give us a ballpark, do you have a number of what the mark-to-market mark on your portfolio would be at say, end of October or today?

If we look through the end of October, Matt, on the bond portfolio it's about a $6 million improvement, and then on our equities it's probably around $2.5 million.

Great, thanks very much.

Those are gross numbers pre-tax.

Great. Thank you and congrats on the quarter.

Thanks, Matt.

We will move now to Ryan Byrnes of Janney Capital.

Mike, I had a question on how we should think about the combined ratio in the comp segment.

Well, just from a perspective of the combined ratio and how we've looked at it through the first three quarters, obviously we've had our intangible asset amortization and purchase accounting expenses overlay the combined ratio and the one-time charges. The volatility in the SPC business, in the first two quarters benefited the company [1.15] points.

In the first quarter it was 1 point, in the second quarter it was about 1.5 points. In the third quarter when we had the volatility within the cells it added about 2.5 points back to the loss ratio. From a combined ratio perspective, normalized through those three quarters, it's really been about a 91.

Got it, perfect. Thank you.

You bet, Ryan.

We'll go now to Steve Roseberry of Surveyor Capital.

Good morning, everybody. A quick question on pricing and the physicians book. In the release it says that pricing improved and points to plus 2 versus it had been running plus 1. And similarly, the retention improved in the physicians book, I think it said 1 point. I was curious, given the rate of change in pricing and in higher retention -- I guess the question is, is this the beginning of a trend? Do you suspect that, as you look out over the next year, that pricing will be up 3 or 4 or do you think it's just a little bit of a statistical blip?

This is Howard. I wouldn't call it either one. I really don't see it in terms of being a price increase trend. We are getting some increases in areas that we feel that we need it. Podiatry book, for example, continues to have price increases due to the increased scope of practice among podiatrists and therefore some additional loss costs, which drive pricing there.

We had other areas, other states, where we had price increases in the quarter. Some of it is due to maturing of business that was written last year or the year before on a first-year claims made basis, some larger accounts that came to us and so they're moving through the claims made progression. We've gotten price increase in that way.

I think generally we do see the variation in pricing from quarter to quarter. We have a range that we normally look at, and if you look back over the past several years, anything, I'd say, between minus 2 and plus 2 for a given quarter, I would consider within the normal range and it varies based on the mix of business by state and also by type of account.

Thank you.

Next we move to Paul Newsome at Sandler O'Neill.

Good morning and thank you very much for the call. I was hoping you could talk a little bit more about some of these new investment initiatives that you've mentioned in the call, as to what specifically they are and some more details about what they say about the future of the firm.

Paul, I'd be happy to address that. I think a couple of things. Part of it is just continued investment in our existing infrastructure and maintaining that infrastructure even though when you look at our core business you are seeing a decline in premium. That human capital in particular we value highly and we're doing all that we can to hold onto that human capital.

In addition to that, we have a number of initiatives going on across the organization, typically in information technology arena. Making improvements to or updating the policy administration systems that we use across the various lines of business so that we can provide an even higher level of service to both our insureds and the agency services' insureds, I'd say is the biggest component of it.

Lastly, as we've become a larger and more complex organization with the addition, in particular, of Medmarc and Eastern, it's making sure that we have the appropriate infrastructures in place to manage and oversee the complex business that we have become.

Now, Frank is telling me I may not have answered your question. That was on the expense side. If you're talking about some of the underwriting opportunities on the healthcare professional liability side, I will let Howard address those too.

Sure, I mentioned the two things during the prepared remarks on ProAssurance Risk Solutions and also ProCxM, ProAssurance Complex Medicine. The risk solutions, as I mentioned in the prepared remarks, really focuses on financially oriented larger transactions, things like loss portfolio transfers, as an example. Hospitals that are merging or acquiring another entity may not want to take on the past liabilities and might want to close out both the known claims as well as any unreported claims, and they are willing to enter into a transaction to do that and we think that we are well suited to be able to evaluate those transactions.

We have the capital base and we have the financial ratings to provide them with the security for that. And similarly in workers comp business, you can have that type of a transaction when mergers take place. And there might have been a self-insured program or other type of employer funded programs that need to be closed out or the acquirer might desire for them to be closed out. You can also have adverse loss development protection for these programs.

These types of transactions, as we mentioned, can be large and periodic and they also may be retroactive in nature and some of them may be booked as premium and some of them may be booked as deposit accounting. So it's hard to predict, but those are the things that we see a need for in the marketplace and we are able to attract a team of people that have done this quite successfully over the years.

Then briefly on ProAssurance Complex Medicine or ProCxM, that's really what we see as an opportunity to leverage our abilities in the hospital professional liabilities space with some really unique analytics that have been developed to look at utilization and patient mix and procedure mix for the larger hospitals and where there's a large body of data and be able to not only look at the historical loss experience, but look at what's being done real-time within these entities in terms of developing the appropriate pricing. Hopefully all that has answered the question, but if not let us know.

No, that's absolutely fantastic. I have a second question that's unrelated, but a bit of a follow-up to the M&A question. The question is this: now that you have some success and history with Eastern and the Lloyd's operations, has that changed the kinds of companies that you look for when you're looking at acquisitions? Are you more likely now to buy another workers comp company or a Lloyd's or even something completely different that's outside of the medical malpractice and your traditional businesses?

This is Stan. I think we are, at the present moment, satisfied with the span of product offerings that we have. We started in 2009 to build an organization that could serve what we perceived to be the significant changes that were going to take place in the healthcare system in the United States.

The first order of business was to make certain that we could cover the entire provider spectrum. It became clear, even back then, that the provision of healthcare is going to be pushed down to lower and lower provider cost levels. That's why we bought Mid-Continent in 2009, that's why we bought PICA in 2009.

We are able to cover the entire healthcare provider spectrum. And then it became important, we felt like, to make certain that we could fill in for the market provided needs and medical products, clinical trials, genetic therapeutics. That was the reason for Medmarc. And then we felt because of the changing nature of the structures through which medicine will be delivered in the future, it was very important to have the workers comp segment.

We are very proud that Eastern is the workers comp arm of ProAssurance. Why was that important? The two hardest coverages to place in healthcare are MPL and workers comp. And with workers comp, we are able to barbell those coverages and then fill in organically as needed with our healthcare insured such as with our DNO products. I think we feel like we are well-positioned today with respect to our product offerings.

M&A activities in the future will be designed to deepen our expertise and deepen our abilities within each of those different segments. I would be surprised, although this is just a guess, if our next M&A was something other than the traditional medical professional liability carrier.

I would think that would probably be what's next. I have no idea when it's coming. But having said that, we will look at all the opportunities that are presented to us. We have to take into account the new distribution systems that will be utilized as healthcare continues to evolve in the future and that will be important to us.

All of that is a long way of saying that today, as a result of what we've done over the last eight years, we are well-positioned, indeed I would suggest to you, uniquely positioned in the healthcare field. For example, who else has such a strong record of defending insureds in the litigation that is brought against them and at the same time can provide the workers comp product for the complex organization? We are very satisfied with where we are product wise and I think we will continue to deepen that as we go forward.

Terrific, thank you for the answers and congratulations on the quarter.

Thank you.

(Operator Instructions)

We are going to take a follow-up now from Ryan Byrnes at Janney Capital.

Great. Thanks, guys. I had a question about the premium growth at Lloyd's. Obviously in the second quarter it was $21 million. It dropped down to $6 million this quarter. I realize there was some podiatry business in the second quarter, but I just wanted to see how we should think about how that business ramps up. I realize it probably will be a little bit lumpy, but can you guys help us there as to how you guys think that will grow?

I'm not sure we can give you a lot about how we think it will grow, maybe more just in terms of what we've seen so far. As you mentioned, the podiatry business came on and you talked about second and third, we'll talk about first and second because of the way we record things. Podiatry business came on effective January 1 and it gets booked for the whole year in terms of written, so that was a big portion of what was recorded by the syndicate in the first quarter.

As their business moved into the second quarter, which is a big time at Lloyd's for property renewals, the property reinsurance team did not really come on board, because of non-competes and so forth, really didn't come on board until the end of the second quarter, beginning of the third. So some of the property reinsurance business that might have been written and likely be written next year did not get written this year. And that was not unexpected, really part of the overall plan of staffing out the syndicate.

Also, the property reinsurance marketplace is quite soft right now so the pricing that they saw on a lot of submissions, even when they were in place, didn't really lend itself to writing that business. In terms of what we expect, again, we're really not in the position to project the future, but overall on the business plan we think that we are going to see a nice mix of business throughout the year that we'll continue to develop -- the underwriting staff that's fully in place right now.

And just as an example, we have about 70% of the business is in casualty. About 8% of the business is in property insurance and that's direct insurance business primarily in the US. About 18% is property capped and about 5% is other property reinsurance, just to give you a little bit of a profile of what we have.

Great, thanks for the color there. My last question is, I think that you guys just probably renewed your med-mal reinsurance treaty. We've been hearing, at least on the primary side, of people getting increased ceding commissions, basically to help expense ratios going forward. I wanted to see if you guys had any color on how your renewal went and if that could have any impact going forward?

This is the reinsurance for what we would call the traditional healthcare professional liability, the physician business and hospital business that renewed October 1. We saw some modest reductions in our cost, reductions in the margin that is built into that reinsurance program. I'd say approximately 7% to 8%. This is an excess of loss program, so it really doesn't involve ceding commissions, but we've heard about the same things you have I think in the marketplace with large ceding commissions.

But that really doesn't affect the reinsurance that we buy for that program. We were satisfied, more than satisfied, pleased with the results. We were able to expand the scope of coverages that we have to include our recently introduced directors and officers program and made some other small improvements in terms of the program as part of the renewal.

(Operator Instructions)

Mr. O'Neil, there are no further questions at the moment, sir.

Mara, thank you and thank everybody for joining us. We will speak to you next I believe in February with year end results.

Ladies and gentlemen, that concludes today's conference. Once again, thank you, everyone for joining us.