Selective Insurance Group Inc (SIGIP) 2003 Q3 法說會逐字稿

Good day everyone, welcome to the Selective Insurance Group third quarter earnings release conference call.

At this time, for opening remarks and introductions, I would like to turn the call over to the VP and corporate governance officer, Ms. Michele Schumacher.

Please go ahead.

Thank you.

Good morning.

Before I turn the call over to Dale Thatcher, EVP and CFO of Selective Insurance Group; and Greg Murphy, our chairman, president and CEO, I want to remind you that some of the statements made during this call are not historical facts and are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Such statements are subject to certain risks and uncertainties.

The factors which could cause actual results to differ materially from those suggested by any such statements include but are not limited to those discussed or identified from time-to-time in the filings we make with the SEC, including our annual report on form 10K and our quarterly report on form 10Q.

We do not promise to update such forward-looking statements to reflect actual results or changes in assumptions or other factors that could affect these statements.

Management will make every effort to disclose all material information in prepared remarks, which are supplemented by the investor packet and other information on the investor page of our public web site at www.selective.com.

After the prepared remarks, we will have a question and answer period.

The following corporate executives are on this call along with our speakers.

Richard Bernstein, EVP, and general counsel;

Jim Ochiltree, EVP, insurance operations;

Jim Coleman, EVP, diversified insurance services;

Kerry Guthrie, SVP and CIO;

Ron Zaleski, EVP and chief actuary;

Sharon Cooper, SVP, director of communications; and John Marchioni, VP, government affairs.

This call is being simulcast over the Internet at www.selective.com.

A replay will be available at the same site through September 5, 2003.

With that, I'll turn the call over to Dale Thatcher.

Thanks, Michele.

Good morning and welcome to our third quarter conference call.

Yesterday evening we released results for the quarter ending September 30th, 2003.

Net income increased 32 percent for the quarter to $14.7m or 53 cents per diluted share, compared with $11.1m or 41 cents per diluted share for the third quarter of 2002.

Operating income from continuing operations was up almost 40 percent for the quarter to $14m, or 51 cents per diluted share, compared with $10.1m or 38 cents per diluted share for third quarter 2002.

Operating income differs from net income by the exclusion of both realized gains and losses on investment sales and net income from our discontinued operation.

Annualizing our third quarter operating income produced a return on average equity of 8.2 percent, exceeding our 7 percent weighted average cost of capital for the second consecutive quarter.

Catastrophe losses were $13.5m for the quarter, $8.8m after tax, or 32 cents per diluted share.

This includes $6.5m after tax from Hurricane Isabelle.

For the same period last year, catastrophe losses were $2m after tax, or 7 cents per diluted share.

Our overall statutory combined ratio improved to 100.9 percent for the quarter, including 4.7 points from catastrophes.

That’s down from a 102.9 percent for the same period last year, including 1.2 points from catastrophes.

Our commercial lines operation, which represents 82 percent of premium volume, generated a statutory combined ratio of 99.3 percent for the quarter, down more than three points from third quarter 2002.

These results reflect 14 straight quarters of double-digit commercial renewal price increases, averaging 12 percent this quarter.

Commercial lines grew a strong 21 percent for the period, to $261.4m, compared with the prior year quarter.

New business increased 34 percent to $59.3m during the quarter, while retention and pointed renewal remains strong at 86 percent, up from 83 percent for the full year 2002.

Aside from the extreme weather, our commercial property line, which includes fire and inland marine, was a solid improvement driver for the quarter, posting a statutory combined ratio of 98.8 percent, or 79.2 percent excluding catastrophes.

For the same period last year, the statutory combined ratio was 94.9 percent, including 6 points from catastrophes.

Our steady progress in this line reflects strong pricing along with better insurance to value estimates across our book of business.

In addition, we have a greater percentage of low to medium hazard risks in each business class, and more risks with newer and better construction quality.

Commercial automobile registered another strong quarter with a statutory combined ratio of 92.6 percent, down 7 points from third quarter 2002.

This line has been favorably impacted by a vehicle mix which contains a smaller percentage of heavy vehicles.

Underwriting initiatives that more accurately target vehicle costs and classifications have also paid off.

Our workers’ compensation statutory combined ratio improved to 106.7 percent for the quarter, down 2 points over the same period last year.

Though not yet performing at acceptable levels, we continue to focus on improvements to this line, which represents an important component of the overall commercial package we offer our clients.

Industry-wide, workers’ compensation insurance is impacted by external factors, including a regulatory climate that makes it difficult to obtain rates in some states.

Inflationary medical costs, increasing indemnity benefits, the slow economic recovery and the declining number of carriers that exclusively write workers’ compensation coverage.

However, we believe the strict underwriting measures we have put in place over the last three years, coupled with an aggressive pricing strategy make this a more manageable line for Selective.

For example, less than 5 percent of our workers’ compensation business is unsupported by another commercial line.

Going forward, we anticipate adding almost no unsupported accounts.

Our book of business is primarily small to mid-sized employers in the low to medium hazard range.

Our mix of contractors business has improved significantly.

The number of policies written for general contractors is down 34 percent to less than 20,000, while the number of policies written for heavy contractors dropped 64 percent to fewer than 500.

We’ve also increased exposure training for field underwriters and loss control representatives on topics such as falling from heights and heavy lifting.

This training helps them better assess exposures and controls for each account.

At the same time, we’ve added more loss control professionals to work directly with clients on loss mitigation activities and safety inspections, particularly for construction.

Over the past several years, we have aggressively pursued every pricing opportunity through rate increases, credit reduction, shifting business to higher pricing tiers and limiting the use of dividend plans.

Overall, workers’ compensation pricing is up 13 percent for 2003, and up a total of 67 percent since the beginning of 2000.

Ultimately, by including this coverage as part of the overall insurance package, we are able to write more profitable commercial accounts in the aggregate.

In our personal lines operation, net premiums written increased 8 percent for the quarter to $56.1m, compared with third quarter 2002.

Our overall personal lines statutory combined ratio, including the flood operation, was 107.3 percent, including 9 points from catastrophes.

That compares with a 104.8 percent, including 1.5 points from catastrophes for the same period last year.

Our homeowners line generated a statutory combined ratio of 161 percent for the quarter, including 55 points from catastrophes.

In third quarter 2002 the ratio was 97.8 percent, including 7 points from catastrophes.

Despite aggressive pricing and underwriting plans implemented over the past two years, we remain unsatisfied with the way our homeowners business is performing.

We are continuing to take aggressive action to make this line profitable.

In addition to homeowners rate increases totaling 19 percent over the last two years, rate actions for 2003 exceed our plan in almost every territory, up 13 percent overall.

We have further tightened our homeowner underwriting criteria, which already incorporated a higher weather deductible, mold and earthquake enforcements and credit scoring.

Where allowed, we are also pursuing higher minimum deductibles for new business, and more aggressive use of credit scoring for application of policy discounts and surcharges.

Our personal automobile business is progressing as planned, posting a 7 point drop in the statutory combined ratio to 103.3 percent, compared with third quarter 2002.

The New Jersey personal automobile line generated a statutory combined ratio of 100.8 percent for the period, down more than 6 points from the same period last year.

This improvement reflects significant actions taken over the last four years, including aggressive pricing initiatives, a redesign of our rating tiers, reduced agency commissions and our work with industry and state leaderships to improve the political and regulatory climate.

As a result, average premium per vehicle increased 10 percent during the quarter compared with third quarter 2002.

The number of insured vehicles in the state has declined by about 3,000 to 108,000 since year end, 2002, and our market share is down to 2.3 percent from a high of 4.1 percent in 1997.

As we continue to earn higher premiums in pricing tier changes in New Jersey, we expect ongoing improvements in this line.

We have moved quickly to address challenges in our New York personal lines business, where regulatory challenges and the high cost of the involuntary automobile insurance market make it extremely difficult to do business.

We no longer focused on writing personal lines in the state and have taken strong actions to improve our position.

In June, 2002 and again in April of this year we implemented double-digit automobile insurance rate increases in New York.

We also negotiated a 54 percent reduction in our automobile assigned risk fee that will save more than $1m in 2004.

Personal lines agency commissions were reduced by 5 points, resulting in annualized savings of $400,000.

Additional rate increases and a second commission reduction are planned for 2004.

As a result of these New York personal lines actions, and number of vehicles in force has dropped 19 percent since year end 2002 to below 9,000, while our homeowner policy count is down about 20 percent for the same period.

As we continue to pursue aggressive rate and underwriting actions for existing personal lines business in this state, it is important to note that personal lines represent only 7 percent of our New York booked business, which is $103.9m overall.

In our eight other personal line states, net premiums written increased 15 percent for the quarter to $17.4m.

The personal lines statutory combined ratio was 130.1 percent, including 25.4 points from catastrophes.

For the same period in 2002, the statutory combined ratio was a 109.1 percent, including 1.9 points from catastrophes.

Overall pricing remains strong in these states, with homeowners pricing up 36 percent over the last three years, including 12 percent this year.

Personal automobile pricing increased 33 percent over the three year period, including an 8 percent increase so far in 2003.

We continue to implement tier changes and other underwriting actions to improve results, with a goal of maintaining a smaller but more profitable personal lines segment.

For the fiscal year ended September 30, 2003 the productivity measure of net premiums written per insurance employee increased to $662,000, up 14 percent compared with the same period last year.

Our goal is to drive productivity significantly higher, to an estimated $1m per employee by 2006, with an overall expense ratio of 28 percent.

In our diversified insurance services operation, quarterly revenue from continuing operations was $24.5m, up 15 percent over third quarter 2002.

Return on revenue from continuing operations was 7.7 percent for the quarter, compared with 5.9 percent for the same period last year.

The flood business contributed significantly to the results for the quarter.

Administrative fees from Hurricane Isabel flood claims increased revenue by almost $1m.

This accounted for almost 5 points of revenue growth and 1.9 points of return on revenue for the diversified businesses.

Overall revenue in our flood operation rose 40 percent to $7.4m.

Net income was $1.6m, with return on revenue of 21.1 percent.

In our managed care business, revenue was $5.4m for the quarter.

Net income was $0.6m, with a return on revenue of 11.5 percent for the period.

Revenue for Selective HR Solutions, provider of our human resources outsourcing product, was $11.1m for the quarter, with a negative return on revenue of 2.7 percent.

Although we had a small loss for the quarter, pricing remains strong with workers’ compensation fees up 9.5 percent and client administration fees up 6 percent year-to-date.

With interest rates beginning to edge higher, we generated an 11 percent increase in after-tax investment income for the quarter to $20.2m, up from $18.1m for the third quarter of 2002.

The increase reflected continued strong operating cash flow of $107.2m for the quarter, compared with $57.9m last year.

Our before-tax portfolio yield was 5.0 percent for the quarter, compared with 5.2 percent one year ago.

On an after-tax basis, our annualized portfolio yield was 3.7 percent, unchanged from June 30, 2003 and down slightly from 3.9 percent at September 30th, 2002.

Our effective tax rate was 27.1 percent, up from 25.5 percent a year ago, but down from a high of 27.7 percent at March 31, 2003.

We anticipate we will be out of the alternative minimum tax position by year end, which will continue to drive our appetite for tax advantage adjustments.

The timing of this shift is working to the advantage of our investment portfolio, as municipal bonds remain attractive relative to treasury securities on a historical basis.

We continue to maintain a conservative and diversified investment portfolio, with bond holdings representing 86 percent of invested assets.

About 63 percent of our debt securities are rated Triple A. Our portfolio has an average rating of Double A, with only 1 percent rated below investment grade.

We also want to remind you about the convertible securities we issued in September of 2002.

The contingent conversion feature becomes effective of our stock trades at or above $35.15 for 20 out of 30 consecutive trading days within a calendar quarter.

If that occurs, we would have to include the approximately 4m shares issuable upon conversion in our diluted share calculations.

While the possibility of conversion exists, we do not currently anticipate that actual conversion will occur until the no-call period expires in 2007.

Now I will turn the call over to Greg Murphy.

Thank you, Dale, and good morning.

I am pleased to report that despite the aftermath of the category 2 hurricane in one of our primary operating territories, we delivered solid third quarter results.

Although we anticipate that catastrophe losses for the year will be 1 point higher than our initial budget, we still expect to produce a statutory combined ratio for the full year below 102.

In addition, ongoing progress in our core commercial lines and New Jersey personal automobile business helped generate, for the first time in our company’s history, operating cash flow of more than $100m during the quarter.

Significant growth in commercial lines of 21 percent pushed overall premium volume up 19 percent for the period.

Commercial lines renewal price increases remain strong at 12 percent.

On a cumulative basis, prices are up 75 percent over the last four year period.

At our current pricing level, we are 6 points above loss trends.

Our outlook for ongoing commercial lines growth remains positive for several reasons.

One, independent agents want to grow with regional carriers, and two, Selective consistently ranks at the top of their list, with technology that rivals our national competitors, superior relationships, ease of doing business and an A plus A invest rating.

Selective’s commercial small business strategies thrive because of our [one and done] straight through processing system and our underwriting service side. [One and done] premiums reached record levels for the quarter as we currently write $100,000 a day in new business.

Our goal for 2004 is to double our [one and done] premium volume.

For the first nine months of the year, we added $14m in premium to our service center, and we estimate $6m was from our competitors.

The retention service center accounts continue to move higher as we retained about 94 percent of the premium that renewed during the quarter.

As more agents embrace the economics of our model, the amount of business and opportunities to grow our market share will only increase.

With automation seamlessly driving small business to Selective, our field underwriters are able to focus their attention on writing more middle market accounts.

Middle market new business increased 41 percent for the quarter to $48m, as our field underwriters produced about $185m in new premium per year, as they are the lynch pin in the successful relationship with our agents.

Ongoing technology enhancements also play an important role in the success of our agency relationships.

Agents have been able to online quote and enter new business with us for some time, however we recently enhanced our commercial line system, Web Class, with self-service features for policy endorsements and renewals.

We now expect agents to self-service about 40 percent of their renewal, endorsement and new business transactions online.

While we have not yet completed the technology roll out, agents are already self-servicing 27 percent of renewals, 19 percent of new business and 2 percent of policy endorsements.

Web Class clearly improves productivity for the company and the agents, providing us a competitive advantage to increase our market share.

We continue to experience steady profitable growth in our large account units, Selective Risk Manager, with a statutory combined ratio below 98 for the first nine months of the year.

We’ve added $20m in new business to date, and we are on track to end the year with more than $81m in premium volume, up from $63m in 2002.

Selective’s strategy to improve New Jersey personal automobile is delivering.

Three years of pricing and tier improvements have driven average premium per vehicle up 23 percent over 2000 premium levels.

This line now represents about 10 percent of overall premium, making it both a smaller and more profitable segment.

Flood business continues to generate strong results with revenue up 28 percent for the nine months to $18m.

This fee based operation is the one true hedge to partially offset insurance form losses, helping us recover almost 10 percent of our Hurricane Isabel losses.

We currently have 5,100 agents writing flood business countrywide, with total insured property value of more than $24b.

In addition to serving as the endorsed flood carrier for the largest independent agent group in the nation, Selective was recently named a the number one growth company for 2002 on the national flood insurance program.

For the nine months, Selective’s invested assets increased 11 percent, or $230m.

Book value per share grew 9 percent to 26.32 at September 30th, and we produced a total return to stockholders of 20.5 percent.

In closing, as a result of consistent fundamental improvements across our operation, the board of directors approved a 13 percent increase in our common stock cash dividend to 17 cents per share.

In addition, the board approved a $2.5m share repurchase program.

Barring excessive catastrophes, we anticipate for the full year 2003 net premium written growth of between 15 percent and 16 percent ahead of our previous 13 percent to 15 percent estimate.

New Jersey personal automobiles statutory combined ratio below 101, down 1 point from our earlier estimate and overall statutory combined ratio of below 102.

Diversified insurance services revenue growth at 13 percent, and a return on revenue of 7 percent, up from previous estimates of 12 percent and 6 percent respectively.

And, operating earnings for the fourth quarter 2003 between 60 cents and 75 cents per diluted share.

Thank you, and now I will turn the call back to the operator for your questions.

Thank you. (Operator instructions) We will go first to Greg Peters with Raymond James.

Good morning, everyone.

I was curious, I was going through your statistical supplement and I was hoping you could provide a little bit more detail, I know it’s a small segment, but the PEO business.

All the trends and the numbers that you are reporting seem to be going down, the new work site, the EEE, the total worksite, et cetera.

I thought maybe you could provide us some color on what is going on there.

Hi Greg, this is Jim Coleman.

What we’ve been doing with the PEO, we started the year, we’ve aggressively addressed our cost structure, we’ve been increasing our pricing on workers’ comp as well as our administrative fees, and we’ve been looking at our entire workers’ comp book and doing a lot of re-underwriting on the book.

I think that is really why you don’t see the count and co-employees that you would expect.

We are pretty much through re-underwriting now.

The price increases haven’t fully earned in, so I think as we move forward we are a lot better positioned to generate the profits we expect from this business.

I would add to that, maybe Greg, just a little more color in terms of Jim Coleman’s moved from a direct sales force to an independent agency distribution model and I think we are going to start to see the fruits of that transition, but obviously you’ve got the initial loss as a result of moving from a direct to an agent distribution model.

You’ll have to pardon me, because I didn’t catch all of your initial comments on workers’ compensation, but obviously one of your peers has been in the process of, with some bad results from workers’ compensation in other areas, that being [Harlioto Group] and I thought maybe for the benefit of us, you might share or compare and contrast what is going on at Selective with what might be happening at some of the other companies that seem to have more problematic results.

Well it’s hard for me to comment on what our competitors are doing, I can just tell you the discipline that we, when we first of all I think the key is that less than 5 percent of our business is unsupported for the better part of three or four years now, we’ve had a re-underwriting effort, particularly at the general contracting, heavy construction area.

Those units have moved down substantially as a percentage of our book.

We’ve done a lot of very aggressive loss control as we analyze many years ago what was the number one reason we were having losses in the comp area.

For instance, fall from heights.

We instituted, we have a very aggressive loss control, we have about 60-ish loss control people, most of them are fully certified, that have focused on job site inspection, have gone out to make sure that the accounts that we do write do follow the procedures that we instill.

Plus the fact that we got rid of a lot of the workers’ comp on small construction accounts where we found that they don’t follow a lot of the guidelines.

So we’ve been tight on getting price increases moving off of deferred programs, moving down our managed care credit, shifting business at a higher rate, lower rated tiers and higher rating tiers backed off of dividend plans.

We’ve been pretty aggressive all the way around.

Jim, what would you like to maybe add to that?

I think that covers the underwriting side and pricing side pretty well.

On the claims side, we just keep track of the old claims that are still open, the ones that we think could possibly blow up over a period of time, and we are very comfortable with where we are.

You guys don’t have any new systems that you are using for your workers’ compensation business, or you haven’t significantly changed the back office support on the claims functions that there are in the last couple of years, have you?

I would say that we went through our mobile claims systems several years ago and transitioned into that, and we’ve had a very stable relationship in our claim infrastructure in terms of the number of offices that we have and the management and oversight of those offices.

Great.

One final question, if I can.

Just shifting gear to big picture, could you remind us of what your ROE targets are on an annual basis, and specifically how, as we look into the crystal ball of 2004, how you might think you guys would come out in terms of hitting that target or doing better?

Well our initial benchmark is 3 points higher than our cost of capital, that is something obviously we continue to revisit.

Our cost of capital is about 7.1 percent and that cost of capital is right off -- we track the same thing as you do, right off of Bloomberg.

But you know, we have not made any forecasts for 2004 yet.

You will hear those comments probably on our year end call.

We do look for, what you see out into 2004 obviously is the higher premium level that we’ve written this year, which will earn its way into next year, plus our ability to continue to get at or above loss costs next year in terms of pricing levels, and our ongoing expense initiatives.

All of those things should start to impact our performance long term.

One thing I can add to that, Greg, is just that backing out the cost of capital with the 9 percent, which made our target 12 percent, we did indicate that we felt that we could begin to perform at that level in 2004.

We have not changed that indication.

Thank you.

That would imply though it was going where I wanted to go, which is that in the best years of the pricing market and profitability of the market, you guys will probably over-achieve relative to what your internal targets are.

Next question.

We will go next to Jeff Fineberg with JLF Asset Management.

Good morning, congratulations, guys.

Thank you.

Thank you.

I apologize, my connection wasn’t good, I did not hear all of Greg’s questions and he usually covers most of the territory, so forgive me if some of this is duplicitous.

I just wanted to understand, I believe you had a target for a 12 percent ROE, is that correct?

Our target is 3 points in excess of our cost of capital.

Obviously a couple of years ago we were at 9 percent cost of capital, which interpolated to a 12 percent ROE target.

What we indicated was that we felt that we could begin performing at that level in 2004, not that we would necessarily provide guidance that we were going to do that for the full year.

Okay.

I guess just trying to understand conceptually here, who knows when the next Isabel will come, but if we exclude that you are there already this quarter.

Just sorting of heading back to the 75 plus cents a share, which is a $3 run rate on your quarter book.

I am just trying to understand, is there anything fundamentally in the business environment that would prevent you from continuing to improve your ROE going forward?

No.

Okay.

And typically, when do you all revisit your goals in terms of ROE targets?

Because obviously the business environment evolved and you’ve talked about all these quarters with improved pricing, when would you hope to come back to us with appropriate goals?

At the end of the year.

Okay, great.

We will wait for that.

Thank you very much.

We will take our next question from Mike Dion with Sandler O’Neill.

Good morning.

How are you doing, Mike?

Good.

My question is also more I think strategic in nature, Dale I think you had indicated earlier in your remarks that 28 percent expense ratio goal was something you were looking forward to.

Based on Greg, your remarks and goals for the end of 2003 going into 2004, particularly with the earned premium that will be flowing through, do you think that you will be making significant progress to where that 28 percent sometime next year?

I think we will make continuous progress, I think you are going to start to see in the 2004 numbers, our premium written for employee moved much higher as you get the benefits of some of our technologies.

You know, to get the throughput of the comments that we made, we expect our agents to be self-servicing about 40 percent of their new endorsement and renewal activity.

When you think about bringing the walls down between the company and agent and getting it to a more seamless environment, as we hit this full throttle in 2004, you are going to start to see the benefits in that because we are going to need less people processing endorsements and renewals in our offices.

So you are going to see the benefits of that, and you are also going to see the benefits of longer term pricing and other initiatives that we have in terms of other internal projects to improve our productivity and to write more business.

Okay, great.

Thank you.

We will go next to Beth Malone with Advest.

Thank you.

Good morning, and congratulations on the quarter.

A couple of questions, you announced that you are going to initiate a share repurchase and you increase the dividend, should we assume then that the cash flows are strong enough at the level -- you are writing at 1.9X.

Should we take away that you have adequate capital and no concerns about the level of growth that you could anticipate in 2004?

That’s correct, we don’t anticipate any issues with regards to our premiums, the surplus and we are generating sufficient capital with the strong cash flows, as you indicated.

The $107m in operating cash flow this quarter, to support both the dividend increase, share buyback program on an opportunistic basis, as well as maintaining our premiums and surplus level right at about the 2:1 ratio.

Okay.

And when you are out there, as you are growing this business and the market share, I assume that you’ve been able to gain market share and I was just interested in, who do you think you are getting that market share from?

Is it smaller, less efficient insurers or are you actually starting to effectively compete because of your relationship with agents with some of the larger carriers?

Or both.

I would say the answer to that question, I mean, it’s broad-based.

The reason why agents want to do business with Selective is because of not only the relationship they have up and down, but also the ease of doing business and the fact that we are in their office with a field underwriter, a person that is able to make decisions and help them grow their business.

Not only that, but you couple it with the end to end capability that we have in our small business strategy, so now those accounts that come into an agent’s offices that are normally are not commissions that are shared with producers on those smaller accounts, they have to write to CSRs, customer service reps within an agency’s office, and they are putting that business to Selective and that small business now is flowing to us and that is another reason why some of that, I would say, is business that is probably coming from other larger carriers that used to go there before.

Our relationship and our field underwriters, I mean they are taking business that they feel meets our profile and fits the kind of appetite that we want to write, and that is coming across, it’s coming from people across the board.

As you know, a lot of agents are concerned about financial security, they are concerned about downgrades, I hear more and more of that as I talk to agents, and our A plus rating is a big factor in why they want to continue to grow with Selective.

Okay, and just two more quick questions.

On the technology, are you going to be completing the major parts of this, other than maintenance upgrades, in 2004?

That system is already done, it’s operational, it’s out in most of our agents offices and we are just completing, I would say, the final aspects of that technology roll out.

So everybody should be on board and everything throughout 2004?

Yes.

By the end of 2003.

And finally, on the cat losses that were recorded in the quarter, Isabel represented most of them.

I may have missed it, but what were the other cats that you incurred in the quarter?

From a dollar standpoint, or?

Well I saw the number, the actual cats recorded in the quarter was higher than just Isabel.

There were some other tornado losses, there were some wind storm losses, so it is kind of a mixed bag.

No single significant event, but a number of named catastrophes that did impact us.

So when you announce your hit from Isabel, you didn’t include those because they weren’t material independent of themselves?

Beth I would say because probably, we anticipate in our numbers a certain amount of weather.

I would tell you that the third quarter is probably the hardest hit in what we estimate for weather, so I think what put us well over the top was Isabel and that is the reason why we reported that.

Okay, thank you very much.

(Operator instructions) We will go next to Ira Zuckerman with Nutmeg Securities.

Could you bring us up to date on, first of all, New Jersey auto?

You’ve got new entrants coming in as well as some of the old guys coming back now that the laws have changed, and what you view the competitive situation as?

And then I’ve got a follow up after that.

Sure.

I would say that the competitive landscape, the agents are basically screaming for additional capacity to come from the market.

We don’t view that the capacity that’s come, either new capital has come into the market or capital that has come back into the market, has really changed agents desire to write their best business with us or our ability to maintain our market share.

Because Mercury is one of the new entrants, and they’ve got a reputation as being let’s say very agent friendly.

I was wondering whether that changes the environment.

Let me just add to that, Ira.

Market decisions with agents, I mean we write a four share of the commercial market in New Jersey, we write a two share of the personal automobile market.

Our positioning in terms of our relationships with agents, all the holistic things that we bring to agents are far superior to anyone else just coming in and offering one line, one product.

Can you bring us up to date on what is going on in the other states on personal lines?

Well you heard Dale’s prepared comments.

I mean, New York is a situation that we are basically just getting out of, moving down units consistently, both on the home and auto side.

Cutting commissions, putting in pretty stiff price increases.

Outside of New Jersey and New York, our automobile book continues to improve, it’s the homeowners problem which we are taking a strong look at right now.

Okay, thank you.

(Operator instructions) There appear to be no further questions at this time.

All right, Peter.

Thank you, and thank you very much.

If you have any other follow ups, please get in touch with Dale.

Thank you very much.

This does conclude today’s conference, thank you for your participation.

You may now disconnect.