Hanover Insurance Group Inc (THG) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2013 The Hanover Insurance Group, Inc. earnings conference call. My name is Aisha and I will be your coordinator for today's call. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions).

As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Oksana Lukasheva, AVP, Investor Relations.

Thank you, Asia. Good morning and thank you for joining us for our second-quarter conference call. We will begin today's call with prepared remarks from Fred Eppinger, our President and Chief Executive Officer, and David Greenfield, our Executive Vice President and CFO. Also available to answer your questions after our prepared remarks are Jack Roche, President of Business Insurance, Andrew Robinson, President of Specialty Lines, Mark Desrochers, President of Personal Lines, and Bob Stuchbery, President of International Operations and Chief Executive Officer of Chaucer.

Before I turn the call over to Fred, let me note that our earnings press release, financial supplements and a complete slide presentation for today's call are available in the investor section of our website at www.hanover.com.

After the presentation we will answer questions in the Q&A session.

Our prepared remarks and responses to your questions today, other than statements of historical fact, include forward-looking statements, including our expectations for 2013. There are certain factors that could cause actual results to differ materially from those anticipated by this press release, slide presentation and conference call. We caution you with respect to reliance on forward-looking statements and in this respect refer you to the forward-looking statements section in our press release, slide 2 of the presentation deck and our filings with the SEC.

Today's discussion will also reference certain non-GAAP financial measures such as operating income, operating income per share, operating results excluding the impact of catastrophes and development, ex-cat loss and combined ratios and accident, [here], loss and combined ratios among others. A reconciliation of these non-GAAP financial measures to the closest GAAP measure on a historical basis can be found in the press release or the financial supplement which are posted on our website as I mentioned earlier.

With those comments, I will turn the call over to Fred.

Thank you, Oksana, and good morning, everyone. Thank you for joining our second-quarter earnings call. I am pleased to report strong results this quarter as each of our business segments generated improved returns.

Operating income for the quarter was $1.05 per diluted share and $2.37 per diluted share year to date which translates to an annualized operating ROE of 8% for the quarter. Our combined ratio for the quarter was 98% which represents a notable improvement over the $1.03 for the second quarter last year despite a challenging quarter for the industry catastrophe.

Six months into the year, we are pleased with the continued progress on improving our underwriting margins and advancing our strategic priorities that will position us for stronger performance in 2014 and beyond.

I will discuss our progress on our priorities, our view on market conditions and our outlook following David's remarks.

Thank you, Fred, and good morning, everyone. We are reporting strong performance this quarter both in terms of our financial results as well as progress towards our goals.

On a consolidated basis we generated net income of $53 million or $1.19 per diluted share compared to $21 million or $0.46 per diluted share in the prior year quarter.

Operating income this quarter was $47 million or $1.05 per diluted share, up considerably from the $10 million or $0.22 per diluted share in the second quarter of last year.

At June 30, book value per share was $57.41, down 2% compared to year end 2012 and 3.6% in the quarter, reflecting the increase in market interest rates this quarter which caused a decline in unrealized investment gains.

Book value per share excluding net unrealized investment gains increased 3.4% year to date and 2% for the quarter. Our combined ratio of 98.4% this quarter compared to 103.1% in the prior year quarter. The improvement was a result of higher underwriting income in both domestic and Chaucer operations. Better underlying margins as well as favorable comparison and catastrophe losses and prior year development drove a notable improvement in domestic results.

Chaucer benefited from higher favorable prior year reserve development partially offset by a more normal level of catastrophe losses.

Pretax catastrophe losses in the quarter were $60 million or about 5 points on the combined ratio compared to $74 million or 7 points in the prior year quarter. Chaucer's catastrophe losses were approximately $13 million this quarter and included floods in Europe and Canada as well as US Tornadoes. Domestically, tornadoes, hail and flood events were $47 million.

The lower cat losses this quarter emphasized the importance of our exposure management actions especially in light of the continued increased level of weather activity.

Overall, net favorable prior-year reserve development for the quarter was $27 million or 2.5 points of the combined ratio. Chaucer generated favorable reserve development of $31 million, stemming from resolution of certain energy claims and better than expected experience in casualty and property businesses.

Chaucer's favorable development also included a benefit from foreign exchange movements, primarily the Australian dollar, that was higher than usual this quarter.

In our domestic lines we had modest reserve additions relating to personal and commercial auto -- bodily injury coverages. We also recorded modest unfavorable development in surety as our loss experience this quarter reflected the resolution of a number of points primarily in our runoff book. These additions were somewhat offset by reserve releases in commercial multiple peril and workers compensation lines.

Moving on to a discussion of accident year results excluding catastrophe losses, the underlying loss ratio in our domestic businesses improved as expected. In line with our first-quarter comments we suggest you also review our current quarter results against the full-year 2012 loss ratios given the re-estimation of the accident year loss picks we undertook in certain lines in the second half of last year.

Keeping this in mind, our Commercial Lines current accident year loss ratio was 61% compared to 61.6% in the second quarter of 2012 and 62.2% for the full year in 2012.

Our CMP loss ratio favorably compares to both prior-year quarter and full-year 2012 loss ratios due to a combination of pricing, disciplined risk selection and lower incidents of large losses. Workers compensation continued to benefit from our focus on smaller accounts, lower risk classes and rate increases.

In commercial auto, the current accident year loss ratio was somewhat higher than the full year 2012 results. We are experiencing strong pricing gains in this line. However we continue to take a cautious approach to loss picks given the bodily injury severity trends that we have seen and which are evident in industry data.

As expected, our accident year loss ratio in other Commercial Lines has improved from year-end as a result of our underwriting and pricing actions. As we continue to realize the benefit from earned premium growth and improvement in operating efficiencies, the Commercial Lines expense ratio in the current quarter was in line with our expectations. The current year expense ratio is higher than the prior-year quarter primarily due to a lower level of performance-based expenses recorded in the prior year period.

As far as topline growth is concerned, we are pleased with the overall growth of 5% achieved in Commercial Lines during the quarter given our continued mix management, re underwriting and pricing strategies. As importantly, continuing strong pricing trends and a shift to a more profitable mix gives us even greater confidence in further margin expansion in the future.

In Personal Lines, our accident year loss ratio excluding catastrophes was 62.4% in the current quarter compared to 64.1% in the second quarter of 2012 and 65.5% for the year. Both auto and homeowners has improved as we continue to earn in strong pricing increases and make meaningful upgrades to the underlying quality of our book of business.

On a topline basis, net premiums written this quarter remained even with the second quarter of last year. We continue to execute on our rate and exposure management strategies in the quarter, which resulted in lower policies in force and retention.

Moving on to Chaucer, this segment reported an accident year combined ratio excluding catastrophe losses of 97.3%. The underlying loss ratio was 56%, relatively in line with the prior year quarter and long-term averages while the expense ratio was elevated at 41%. Chaucer's expense ratio can fluctuate from one quarter to the next, based on movements in foreign exchange rates. The impact is generally modest, but at times like what we saw this quarter and in the first quarter, we could experience more significant movements.

This quarter, weakening of the Australian dollar resulted in roughly a 4-point increase to the expense ratio. This expense increase is somewhat offset by the movement in prior year reserves that I mentioned earlier.

The expense ratio through the six months of the year stands at about 38% which is consistent with our full-year outlook. Chaucer's net premiums written were $351 million this quarter compared to $330 million in the prior-year quarter, representing 6% growth. This growth is mostly attributed to the higher retained business at Syndicate 1084 that we've previously discussed. Partially offsetting the increase was a true-up in energy due to re-estimation of premiums related to exploration and construction projects following the implementation of tighter safety regulations worldwide.

Summarizing underwriting trends in all of our businesses, we are pleased with how the year is unfolding and what it means to our improving position. Chaucer continued to deliver strong performance and our underlying loss ratios in the Personal and Commercial Lines businesses are benefiting from our pricing and profitability improvement initiatives. The modest prior-year development is an improving trend and our exposure management activities are evident in our catastrophe loss experience.

Moving on to a discussion of our investment portfolio, at June 30, 2013, cash and invested assets were $7.8 billion with fixed income securities in cash representing 92% of the total. Roughly 94% of our fixed income securities are investment grade and the average duration of the portfolio is 4.2 years.

Net investment income was [$6.7 million] (see press release and slide presentation) for the quarter compared to $68.5 million in the prior-year quarter. This modest decline is the result of low new money yields.

Additionally, we recognized $13.7 million of net realized investment gains compared to a net realized loss of $3.4 million in the second quarter of last year.

The earned yield on our fixed maturity portfolio was 3.98% in the second quarter of this year compared to 4.31% in the prior-year quarter.

The increase in market interest rates this quarter drove a decline of net unrealized gains in our fixed income portfolio by approximately $123 million after taxes.

As you know, we have a conservative long-term view on our portfolio that has served us well through the years. Our portfolio turnover is low, so prevailing interest rate fluctuations will affect the market value of the fixed income securities we hold.

However, we believe we will realize the embedded value of our investments over time.

Moving on to a discussion of our balance sheet and capital, we continue to proactively work to optimize the efficiency of our capital structure, and even with the decline in net unrealized gains, we ended the quarter with a strong capital position of $3.4 billion.

During the quarter we continued to opportunistically reduced our financial leverage by repurchasing $40 million of higher coupon debt. We also repurchased approximately 960,000 shares for $47 million. On a year-to-date basis, we repurchased 1.5 million shares at a cost of $72 million or $48.03 per share which represents approximately 3% of the shares outstanding at year-end 2012.

As we are now close to completing our targeted repurchase for the year, we will continue to be opportunistic, but at a more moderate pace. We view share repurchases as an effective capital management option given the right set of circumstances. However we will continue to consider capital deployment for profitable growth and business development as the primary use of our capital.

Finally, all of our capital metrics remain in line with our internal targets and in line or better than rating agency requirements for our ratings.

With that I will turn the call back to Fred.

Thank you, David. For the first six months of 2013, we met our profitability improvement target. Given our progress and momentum, I am even more confident that we will deliver on our goals for the year and further improve performance in 2014.

I would like to comment on three of our strategic priorities for 2013 and the progress in the quarter, starting with our efforts to reduce our volatility and enhance our underwriting margins through our exposure management efforts.

This quarter we made progress on this important strategic initiative as we built on our achievements in prior periods. Over the last few years, we've made strides to improve our geographic balance and adjust our property-casualty mix.

As a result our top four states represent a progressively lower portion of our book and we increased the proportion of our casualty business in our portfolio, moving from 36% five years ago to roughly a 50-50 split today.

However, given the recent weather patterns we thought it was critical to take some aggressive but surgical actions to attack some of our property concentration risk. As we previously mentioned, we reduced about $120 million of premium in 2012 and targeted another $200 million of reductions in 2013.

Through six months we have reduced $45 million in Personal Lines, $20 million in core Commercial Lines and about $30 million in specialty.

As we look at our second-quarter results, we believe we are beginning to see the impact of these efforts as we saw reduced volatility in areas where the industry experienced elevated weather losses.

We are targeting a similar amount of reductions in the second half of the year. And while this has reduced our domestic growth rate by over 5 points, we are satisfied with the trade-offs that are proving profitability and earnings persistency these efforts are expected to deliver.

A second strategic priority for us is to execute aggressive but targeted rate actions to improve our underlying margins. We are pleased with the pricing gains we achieved this quarter. We realized pricing increases of 9% Personal Lines and 8% in Core Commercial and continued low teen increases in specialty.

We -- excuse me. In Core Commercial we continued to see strong pricing momentum. The strongest increases were in auto followed by business owners' [multiperil] policies. The only place we saw a slight moderation in pricing was in middle-market package policies where our pricing metric is affected by our exposure management actions. And as importantly we are confident that we will continue to obtain solid price increases and maintain a strong level of retention rates as we move forward in 2013.

We continue to approach price increases in a thoughtful and targeted manner that minimizes disruption to our agent and improves the overall quality of our book. We are gaining momentum with new business flow which helps drive improve growth in our Core Commercial from 4% in the first quarter this year to 8% in the current quarter.

As David mentioned, Personal Line's growth and retention reflected a decline in units from profitability and exposure management actions in both homeowners and auto. We expect this trend to continue through the rest of the year as we implement our various portfolio actions.

We also believe this will in turn result in a modest decline in our net written premium and Personal Lines in the second half of this year.

That said, we continued to see premium growth in states with partner agents targeted for growth. This helps us build a strong impetus for expansion in Personal Lines which should drive growth in 2014 as our plan exposure reductions trail off.

US specialty net written premium was relatively flat this quarter as the corrective underwriting actions in a couple of businesses continue to run their course. In many of our Specialty businesses, however, we are seeing strong new business renewals and strong pricing namely in Specialty property, professional and management liability and healthcare segments where we are offering -- or our offering continues to gain traction with the best and most sophisticated agents in the country.

To conclude our discussion around exposure management rate and growth, I would note that we are using a number of levers to improve our underwriting margins and returns as we pursue our profit improvement strategy. We believe our portfolio mix optimization, our proactive and hands-on approach to agents, and emphasis on value-added products will lead to continued improved underwriting results and more robust growth.

Finally, this was another quarter of profitable performance at Chaucer. The segment produced $37 million of pretax earnings in the second quarter and $78 million year to date. We continue to execute on our strategy of focusing our efforts on areas of the business we believe have a strong and distinctive underwriting capability which include a number of specialty areas such as marine, casualty, energy and political risk.

These lines complement our overall strategic focus on specialty capabilities and build on our portfolio of business which, in turn, provides diversity to the US weather exposures.

In conclusion, speaking about our business overall, we continue to be encouraged by the healthy pricing, stable market conditions and profitability dynamics of our business. And we are confident that our strategic initiatives are working to help us improve our underwriting performance for 2013 and into the future.

As I stated earlier, we are confident about our expectations for the balance of 2013 and we believe we are on track to deliver a combined ratio excluding cat losses in the range of 93% to 94%. Our cat -- catastrophe assumption for the second half of the year remains at 5% and with a more active third quarter than fourth quarter.

The momentum we are building this year including the quality of our business mix and rate adequacy, coupled with continued progress and traction with the best agents, make us increasingly optimistic about our ability to meet our goals in 2013 and continue to make further gains in 2014.

Operator, please open the line for questions.

(Operator Instructions). Dan Farrell, Sterne, Agee.

Good morning. First question on renewal rate increase in the quarter, can you tell us within Personal Lines what the increases were for auto and home?

This is Mark Desrochers. The auto increase was about 8% and about 10% on the home.

And a question on some of the reserve movement in the quarter. I guess just on the other commercial segment I'm thinking in your prepared remarks you highlighted charity as maybe one of the drivers. Can you comment a little bit more detail on some of the overall drivers of additions there? And specifically with surety I think you said it was a runoff book and I think in the past you said there's some visibility at the scene when those things end.

I was wondering if you could comment on how many claims or accounts might still be involved from that and how you see that progressing going forward?

Yes, I think as far as the other category it is primarily a surety adjustment. If you look at what is happening, we feel very -- actually very good about that whole category. Everything is right on plan, what we expected for the year. There's really been no surprises in any of the categories.

This was part of the runoff book. As we said at the last year, we got a lot of transparency for that. We got the bulk of it behind us last year, but we fully expect it to have some activity this year. But we are right on track for what our plan is and we feel really quite good about that business.

I don't know, Andrew, if there is anything you want to add.

I would just add two other points, Dan. One is that we manage the outstanding penal amounts and the work to complete and that effectively is our exposure. And that is coming down in a way that is very consistent with our expectations. Actually better than our expectations.

I would just say surety's lumpy, right, so the claims come through I would not read into this quarter as being any change from our prior discussions around this and our -- certainly our hope is that and our experience has been that claims will come through in one quarter and we are very aggressive on our [subro and] salvage so we would expect in later periods to be able to reclaim some of those losses.

So I would just say in general I would not overread what flowed through the financials for this quarter.

It is fair to say, then, the more recent core business within surety is performing as you would expect to be, correct?

Absolutely yes. Very much so. There's nothing that is emerging through the first six months of the year that would change our view of how that is proceeding for us.

Thank you very much. I will requeue if I have anything else.

Vincent DeAugustino, KBW.

Good morning. I was going to try to focus on some maybe longer term strategic stuff since some of the more near-term stuff seems to be going pretty well.

Mark, from -- a topic that has come up a couple times this quarter on other calls with personal auto was a shift towards lower cost models and a focus on a shift towards maybe pushing some customers through online channels and with the latter I am referring to Hartford's comments.

I am just a little surprised by this because it seems like a decade-long observation, but it has come up a couple times this quarter.

So I'm just curious how you feel about the personal auto competitive environment with maybe some potential changes going on with independent agents, focused insurers, either in the model format they are using or at least on cost structure.

And then obviously the captive agency providers are going to try to protect market share. So again, just curious of your thoughts on the competitive landscape in this space.

Let me comment on and then let Mark -- you know, we have been talking about this for a while. We have actually invested a lot in this notion of franchise value and having fewer agents that sell value and full accounts. We have moved our book, as you know, to full accounts, the platinum watch and all the investments we have made on this what I would call the value-added approach. We have seen nothing in our numbers that say that the market we are targeting has become more price-sensitive or that the shopping behavior has changed in this.

What has happened is this movement towards aggregators and lots of agents and using a commodity approach to model line has been prevalent by a lot of people in the market. And so I think those that have that approach may have seen some trends.

But if you look at our -- what is happening with us, the retention of our business with our partner agents on this type of account has gone very well.

We have been putting in pretty significant price increases and retaining the business. And so we are actually -- again, I am sure that there are segments that aren't having it. The other thing that is intriguing to know is the agency channel over a pretty long period of time has held its own. The captives have come under more stress as a share than the agency channel. Actually the agency channel has held pretty well.

So while we understand the dynamics and we understand the shift and the various channels, we are pretty bullish on our approach and, frankly, our ability to grow that business in a lot of the segments.

But to you -- to your point, this is a trend that has been going on for a while. There's obviously some growth in the direct and there's a lot more comparative rating attention particularly I would argue in this aggregation agent model which is a lot of these little agents that basically just shop [all along] policies. So I don't know, Mark, if there's comments about where we are right now.

I think the only comment I would add to Fred's point is, again, our focus on the total account value-oriented customer is probably what would differentiate us from seeing that kind of shift in the marketplace. And we have gone from probably a company that was 50-50 model line four or five years ago to our in force book today is between 70%, 75% account rounded. And I would say even the newer business that we are writing it's even a much higher percentage than that.

So, because we are focused on that part of the market, I don't think we have yet seen this kind of commoditized price pressure that some others are talking about.

That's good. To jump to Jack, can we talk about commercial auto a little bit because if I look at the commercial ex-auto core loss ratio improvement that would have been about 240 basis points. So understanding that your business is much more artisan contractor type rather than heavy trucking or passenger transport, I am just curious if there is anything that you are seeing from a loss cost trend standpoint emerging specific to commercial auto more recently. Because it seems to be somewhat of a recent industry thing that is still somewhat surprising from my standpoint just on the relative nature of, say, more lines or other lines staying more difficult at times than commercial auto.

Yes, I think your assessment of our portfolio is correct in that we tend to write a smaller average account size. We tend to have a different type fleet than some. And while we do have some artisan contractors, really, a vast majority of our fleets are actually private passengers not too dissimilar to the Personal Lines, it's just they just happened be owned by businesses or light trucks well beyond the contracted sector.

So what you heard us talk about in the past and David articulated was that mid last year we recognized that we were a little behind and that there were some severity trends we had to address in addition to some of our views of our picks. We made the proper adjustments. We continue to try to make sure that on the prior years we are staying on top of that. As you see, nothing major, but something that we feel important to stay on top of. But that as we look at 2012 and into 2013, we feel like we are substantially on top of those trends and when you combine that with pricing over the loss trends that we are predicting, we feel pretty comfortable that we are headed down the right path.

Lastly what you will see now going into the second half of the year is that the adjustments that we made last year will serve us well in terms of showing you some hopefully material improvement going forward.

Great. And then, one thing that is understandably kind of a shift in focus lately is on sequential changes in rates and what general commercial renewal rates are doing. But one of the things I'm curious about, just given your smaller commercial account focus to the point you just made and maybe some focus on contractors, are you seeing anything from an exposure standpoint more recently either positive or negative?

Exposure in terms of loss exposure or (multiple speakers) —?

Sorry, more economic exposure, payrolls, business receipts, that sort of thing.

Yes, overall, we continue to see I think what we consider to be a slow to moderate recovery, varies by sector. But certainly in certain geographies in the Southwest and in California, others are starting to see quite a pickup. We see in Michigan a nice recovery in the manufacturing sector.

So all to your point, we see that and continued improvements in our premium audit, additional premiums. We see that in enhanced renewal basis.

But overall it's hard to back through this into your underwriting performance. But the health of the business really universally through the small and midsized account is coming back and that should serve us well going forward.

And a Chaucer question. With the energy premium impact on the estimate reduction from energy lines, is that a one-time true-up or should there be some lingering impact on go-forward quarters that we should expect?

It's David. It's a premium re-estimation. We do this all the time. This quarter just happened to be a more sizable adjustment and so I would normally characterize premium estimates as they happen all the time, but the size of this one and what is happening in the market which Bob made comment on I would consider that a one-time adjustment. And I think in fact going forward should be pretty marginal.

Great. Thanks for all the color.

(Operator Instructions). Sam Hoffman, BlueCrest.

Good morning. Congratulations on the progress. I just had a question for Fred which is, obviously, you are getting a lot of improvement through the thinning which is reducing your volatility and also through pricing which is improving your margins.

What is it going to take do you think strategically to get your book of business equivalent to the benchmarks, Travelers, [to Hub] and Berkeley who are in the 95% combined ratio?

No, it is a great question. I actually think we are right on track. And to meet when you think about this 3 or 4 point additional improvement it really is a combination of all three levers that we're pulling. And I feel really good about what we have done with getting the mix of business a lot more attractive in the attractive segments. And while some of it is new, if you look at those and take the price on top of it, we are well on our way to get the margins in a sustainable place where they are much more significant.

The volatility, again, a lot of what we are doing there is just a historical thing. We have some geographies where we just have outsize concentrations and we didn't feel that we could get price that would be top quartile through this cycle and we will be able to get that. And because of our momentum in the more attractive business and the price points we are getting, that is going to shift.

I would also say that over time in our Commercial Lines, because we have some additional expenses there from our building those businesses and setting it, that we also have some expense leverage that will come over the next two years in our Commercial Lines that will get us.

But if you look at the combination of all those three, I feel really good about our ability to make a significant step forward in 2014 and then into 2015 to get the sustained returns. Because our mix is better. It is balanced, it is in the right categories. We have a nice distinctive position.

So I am more confident than I have ever been because it's this -- the portfolio is in the right place.

And again you guys that follow us know a lot of the better companies are still releasing dollars from 2003, 2004. We were not a very good company in 2003, 2004. And if you treat this type of this time of the market cycle of effectively and you get a good price for a number of [quarters] above, that serves you well not just now, but it serves you well for forward quarters. And I think we have set ourselves up just right that way.

So we are trying to be thoughtful about our picks. We are trying to be thoughtful about our pricing and we are thoughtful about our mix.

But, again, what is nice for us is we have so much momentum with our agents right now we can do this rebalancing without really slowing down our access to the best business. That is the real asset we have right now. Because so much of our re-underwriting is with the legacy agents and because of the quality of what we have got right now, the momentum has been sustained with the best agents.

So that is our goal. That is clear and it's -- we are getting within sight of what we need to do. But it is the question, right? It is the right question.

My Might other question is can you talk a bit about what is happening in the other Commercial Lines specialty in terms of your growth? I mean I know you are reducing some programs, but can you talk a bit about what you are reducing, how it should improve margin going forward and then when you expect to resume growth?

Yes, I think it has really been two parts. It has been the contract surety that we have obviously resized and the runoff business. But it is also -- and we mentioned a little bit last quarter there were some targeted programs that we felt could not get to the returns to the cycle that we wanted. There was a couple of wheels, one, and there was another one. But it was -- so we acted on it.

But the vast majority of our specialty business is well-positioned. And frankly even in our program areas, those that remain are in a great place. We are getting price and we are actually getting good market opportunities. But I -- Andrew?

Yes, I would just amplify the last point that Fred made which is that we are seeing a lot of very good market opportunities and while you can't see in the ultimate numbers the kind of growth that really does exist underlying new opportunities. There certainly is across the board across the entire spectrum every business is well-positioned.

And in fact the new business pipeline and volumes and the pricing of that is all very attractive. That said, if you decompose at the professional and management healthcare areas and particular just year over year are growing at a level that is very positive for us.

So you are giving 10%, 11%, 12%, 13% rate in those areas and yet the reductions are offsetting the growth for now. But —

But it is lumpy, right. So exactly. And obviously a couple of these programs if they are 15 or 20 mill -- I mentioned that we are getting off of I think it's this quarter it was I think $20 million, $25 million this quarter. So we they come off in a lump, if you will. As we --.

Terrific. Thank you.

Matt Carletti, JMP Securities.

It is actually [Christine Worley] for Matt. I had a quick question about growth at Chaucer specifically in the UK motor line. We had been hearing that that line was getting increasingly more competitive. So I just wanted a little more color around the opportunity that you are seeing there. I think it was up about 30% in the quarter which is pretty strong growth.

Yes, we are seeing rates fall back in the UK Motor, but it is from an all-time high and it's to be expected. The other thing that we are seeing the effect of now is the changes that we have seen in legislation particularly around LASPO, which is going to start to see some changes around referral fees, legal costs, et cetera.

So if anything the growth that we are seeing now is [year] on premium growth particularly coming from last year which was at higher levels of rates. And we are not seeing anything that we didn't expect this year. So we are still relatively positive about UK Motor.

Some of the commentary you would have seen in the press around comparing average prices a year ago to [today] tend to be at the top or end of the more extreme end of younger driver prices. And the average premiums they are quoting in those studies are a lot higher than our portfolios we write at Chaucer.

Yes so what we -- as Bob is mentioning, we have gotten a lot of rate over the last two or three years. It has moderated to some extent because of the reform. Our rate moderation is a lot less than what the market has taken because we are a specialty position and our experience there continues to be very strong. So we are feeling very good about the business. It is not something we are aggressive in or anything. A lot of it is earn in of prior rate that is helping us.

(Operator Instructions). There are no further questions in the queue at this time. I would now like to the call back over to Oksana Lukasheva for closing remarks. You may proceed.

Thanks to all of you for your participation today and we are looking forward to speaking to you next quarter.

Thank you for participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.