American International Group, Inc. (AIG) Q2 2013 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the American International Group's second quarter financial results conference call. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to today's host, Ms. Liz Werner, Head of Investor Relations. Please go ahead, Ma'am.

Thank you and good morning, everyone. Welcome to AIG's discussion of our second quarter 2013 results. Speaking this morning will be Bob Benmosche, President and CEO, David Herzog, Chief Financial Officer, Peter Hancock, CEO of AIG Property Casualty and Jay Wintrob, CEO of AIG Life and Retirement. Other members of senior management are also in the room and will be available for the question-and-answer period. Before we get started this morning, I would like to remind you that today's presentation may contain forward-looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Any forward-looking statements are not guarantees of future performance or events. Actual performance and events may differ possibly materially from such forward-looking statements. Factors that could cause this include the factors described in our first quarter 2013 Form 10-Q and our 2012 Form 10-K under Management's Discussion and Analysis and under Risk Factors. AIG is not under any obligation and expressly disclaims any obligation or update any forward-looking statements, whether as a result of new information, future events or otherwise. Today's presentation may contain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our financial supplement, which is available on AIG's website, www.aig.com. Now, I would like to turn the call over to Bob.

Good morning, everybody and thank you, Liz. I am slide three. Clearly, as you can see, another, and I will underline word, another strong quarter for AIG. We continue to show consistency and we show very strong, across the board, earnings and fundamentals for all of our businesses. So two things that I know that you are focusing on that are not in the strong numbers and that is what's going on with ILFC. So let me deal with that right upfront. We are continuing to negotiate with the consortium and, keep in mind, we don't have a buyer but we have a group that is buying ILFC. So this is a very complicated transaction based on the nature of the transaction and who are the people that we are negotiating with and expecting to sell to. So we are continuing that dialog. We are continuing those discussions. We did not receive the money on time and now both sides are working on whether we, and how we continue to do this but we are focused on an IPO at this stage of the game, so that if they can come together and the money comes in, then we will proceed. If not, we are preparing ourselves for late of this year, for an IPO where we hope to be able to a deconsolidating trade with ILFC. We also renamed the SIFI during the quarter which allows us to now deal with the AIG Bank. We had retain the bank and not because we wanted to keep the bank as a business. It's less than $1 billion. So we felt, at this time, to close it but we kept it such as that we would be able to continue having the Federal Reserve in and getting started early with the…

Thank you, Bob, and good morning, everyone. As Bob mentioned, we did deliver another strong operating quarter and we importantly continue to execute on our capital management objectives. With respect to ILFC, I would add that we continue to think of ILFC as a non-core asset. It remains as a held-for-sale asset given our intent and our plans to monetize it through either sale or an IPO as Bob referenced. On the operating front, we saw solid premium growth and positive pricing in our property casualty business along with continued improvement in accident year loss ratio. Peter will talk about that in a moment. Life and retirement continued to accurately manage spread and it also benefited from strong investment returns. On the capital management front, we continue to optimize our capital structure and through the first half of the year, we have retired little over $5.5 billion in debt including $2.9 billion in face amount of debt in hybrids that we buy their tender for call or repurchase. Of the total debt that we have retired year-to-date, approximately $1.2 billion of that was associated with the direct investment book. Going forward, we will opportunistically execute on our share repurchases as well as debt-to-capital management. As Bob mentioned, we reinstituted a dividend and have a further share buyback authorization, both of which point to our positive view of future profitability and capital generation. Turning to slide four, second quarter operating earnings per share were $1.12, up 17% from a year ago. Operating ROE which excludes AOCI from equity was about 7.4% for the quarter. On a basis consistent with our long-term aspirational goals, which also excludes the deferred tax asset from equity, as we tax effect our operating earnings, the operating ROE was about a 150 basis points higher. Net income…

Thank you, David. Morning, everybody. AIG Property Casualty results in the second quarter reflect continued progress towards achieving our goals. Our second quarter results were driven by continued underwriting improvements and better than expected alternative investment returns. Turning to slide 8, net premiums written grew 4%, excluding the effect of movements in the yen and the accounting changes for the excess of loss reinsurance premiums. Price increases and organic growth initiatives, both contributed to this growth. We continue to expect modest net premium growth for the remainder of 2013, as we continue to write profitable new business. Our accident year loss ratio, as adjusted of 61.9% for the quarter, improved by 2.9 points from the second quarter of 2012 and was slightly better than trend. The improvement is due to business mix shift, continued enhanced risk selection, loss mitigation initiatives and positive pricing. Importantly, we see no signs that the trend is changing. Operating income was nearly $1.1 billion and included catastrophe losses of $316 million from flooding in Europe and the Americas as well as U.S. tornadoes and hail storms. Net unfavorable prior year reserve development for the quarter totaled $154 million net of premium adjustments largely from additional losses on storm Sandy of a $142 million. These losses resulted from higher severities on a small number of existing large and complex commercial claim notification. The increased severity was driven by a number of factors, including the extensive damage caused to properties in the downtown Manhattan Metropolitan area. On a year-to-date basis, net prior year development was favorable by $40 million if you exclude development related to Storm Sandy and was unfavorable by a $102 million including it. Turning to slide nine, commercials net premium written on a reported basis grew by 5.5% from a year ago, or 3.6%…

Thank you, Peter and good morning everyone. I am going to begin on slide 13 where you can see that AIG Life and Retirement delivered solid results this quarter with operating income of $1.2 billion up 23% from a year ago. This increase reflects growth in variable annuity fee income, effective spread management and higher investment returns. Premiums and deposits grew 24% from a year ago largely due to individual variable annuity sales which exceeded $2 billion in the quarter. Net investment income increased 5% from the year ago period driven primarily by higher returns in our alternative investment portfolio. Now this was partially offset by $84 million fair value loss we reported on our investment in PICC Group shares this quarter which we now hold slightly above cost. We continued our strategy of actively managing spreads in our interest-sensitive businesses. Our strong results this quarter enabled us to provide additional liquidity to AIG parent. And, as David mentioned, Life and Retirement paid $545 million in distributions to AIG in the quarter and $1.9 billion during the first half of the year. We are on track to meet our expected dividend payments for the full year. Assets under management grew 10% from a year ago, driven by increases across our business lines with strong account value growth in individual variable annuities and group retirement as well as additional institutional assets accumulated to our Stable Value Wrap business. Net flows increased substantially from the prior quarter and the year ago period, reflecting robust sales of variable annuities and retail mutual funds. With the recent rise in interest rates, we saw the unrealized gain position and our general account partially erode, dampening the increase in AUM in the quarter. Rising interest rates, however, have a positive impact on sales and earnings in…

Thank you, Jay. Operator, can we please open the line for questions now?

(Operator Instructions) We will take our first question from Josh Shanker with Deutsche Bank. Mr. Shankar your line is open, sir. If the line is muted, please unmute the phone line.

Sorry, hello. Yes, thank you. Good morning, everyone. As the capital return story unfolds and you get dividends from your subs, maybe ILFC closes, I am wondering in the conversations you have had with the rating agencies. What kind of mix of a debt retirement versus share repurchase are you thinking to keep in good stead with them?

We have not had that level of conservation. We go to the rating agencies when we have something specific to say we want to do but as overarching, we continue to focus on. We are taking care of the dividend doesn't mean we might want to increase that but our focus is on debt and share buybacks. But, Dave, do you want to comment?

Yes. Thanks, Bob, and good morning, Josh. As we think about our capital management where we have discussed in the past, a targeted capital structure and where we are nearing that optimal mix of debt and capital. We still do have some expensive hybrids out that are of interest to us but that will occur overtime. We have taken an approach with the agencies, with the other various stakeholders with respect to our capital management that we first raise the deployable capital, get it to the holding company, we then run through a rigorous set of internal stress tests and analytics and then we consider the best way to deploy the capital. So we do not get up in front of ourselves with respect to spending it before we get it.

Understandable, and Peter, can you talk a little bit about where you are in Sandy in terms of approaching the full limit of your deductible for the reinsurance?

We haven't disclosed the attachment point on the reinsurance but suffice it to say that we don't expect to pierce it. But on the other hand, we are not too far from it when you actually look at what we expect the ultimate to be. But where we are in terms of the remaining tail, we are about 50% settled and about a third paid, cash out the door and on the Sandy claims. But there is a still a number of repairs underway, as we speak. So it will be probably another quarter before we really get to a final number.

We will take our next question from with Paul Newsome with Sandler O'Neill.

I was wondering if you could go in just a little bit more detail in to the steps that allowed you to announce the dividend and the repurchase ? I guess I am surprised that you were able to do this before the ILFC transaction. So may be you could just talk little bit more about how that process worked in terms of discussions with the regulators as well as your own thinking? And what's left is, that's contingent if anything on capital management given the ILFC transaction?

I am not sure I understand the last question. You want to know how much more I am going to do, but I am not sure I would give you a specific answer, so let me give you a general answer. The way you look at we did it, I know you are going to think I am being pride, but I am not. The fact is, you first get your fundamentals right, make sure the company is operating well, make sure all of the buckets of risks have been accounted for and we have a very or we need to improve our stress testing, we have to improve the systems, improve the process, improve the automation to be much more industrial strength in terms of what we do. We have a process that we know works well and so you really need to satisfy yourselves as a management team that we can afford to do a capital management. That's number one. Number two, we then sit down with the rating agencies and walk through what we want to do and they give us their opinion based upon the information we provided them and the track record we are showing them and then we spend considerable time with our board of directors who want to make sure that we are not being premature and some of the things we want to do as the management team and we spend a great deal of time with the board in detail taking them through our whole capital planning process, taking them through our stress testing. For example, our stress testing is basically modeled using a lot of the information from the Federal Reserve, but as I have said before when you think about, I think it's a shame that America doesn't understand…

No. that was the terrific answer. Thank you very much. It's very helpful.

We will take our next question from with Jay Cohen with Bank of America Merrill Lynch.

A couple of questions. I guess, just a follow up on that last one. So while the Fed didn't explicitly approve this, you obviously had discussions with them prior to making this announcement.

We informed the Fed of everything we are doing of any consequence, so that they are aware of any issues we have. So they don't read about it in the paper. So yes, there are our regulator. They are in many of our meetings. They are in my of leadership meetings, attending. So this is important that you keep your regulator understanding what you are doing and you are very transparent with that regulator. So they are aware of not only this, but everything else we are doing.

That's great.

And by the way, Jay, the key is the rating agencies and right now, that's where we go and if the rating agencies said we are having some concerns with what you are doing, I can assure you, we would not have done it.

Exactly. Second question. I know the details of any prior year development will come out in the Cuba. Peter, I am wondering if you can talk excluding the Sandy development, what you saw? Were there any particular lines where there was material adverse development.

No, it's very benign. Everything was immaterial in the context of our reserves. So I don't know, Jay, if you have any bigger comments.

Yes, I certainly agree with the way Peter described it. We had some movement up and down or I guess within casualty some loss sensitive adjustments that were offset by premium accruals but outside of that, we had bit of a adverse development in a construction defect related claims out of the program that's been in run off for a number of years, largely around legal expenses but inconsequential and immaterial relative to the total.

That's great. Thank you.

And yes, we have had a slight favorable in Japan consumer.

We will take our next question from Jay Gelb with Barclays.

Can you give us a sense as how long you think it would take to complete the $1 billion buyback authorization?

I would appreciate giving you all advanced notice but we will continue to do what's prudent, and we will continue to evaluate different options and different techniques and we will let you know when we are done and we will keep you posted as we are buying back what the average price per share is.

In terms of future buybacks on top of this authorization, does the sale or IPO of ILFC need to be complete before we can expect additional buybacks through this authorization?

What I have said on one of the other question, we look at our capital, we look at our results, we look at how we are faring, we do our stress testing, we update our stress testing throughout the year and we would continue to do what we think is prudent and for AIG. So if ILFC were to close and depending upon what kind of transaction we do, we would factor it into our thinking?

Okay, and then for Peter, based on the first half results, it still appears that there is five points to 10 points of combined ratio improvement that's needed to get to that 90% to 95% calendar year goal by 2015. What's your confidence level in achieving that?

Well, I think that I listed out the various initiatives that have led to the trend in accident year loss ratio improvement that we have had now for ten quarters and I think there is no that any of those initiatives are sort of experiencing diminishing return. So, eventually, obviously, we will experience diminishing returns, but we are making a good progress on all of them. The actuaries take time to recognize initiatives that are emerging in the loss triangles, but may not be confirmed with enough statistical significance yet, so we have sort of some line of sight into the sort of future momentum. Obviously, pricing is outside of our control, but again as I mentioned, where we felt there was the greatest pricing inadequacy in the U.S. casualty lines, we have seen quite good pricing trends. And in Europe, where the pricing has been a bit softer, we already had pretty decent adequacies, so I see no change in my level of confidence that we will accomplish that target.

Great. Then in the meantime, does that also mean you have confidence in the adequacy of AIG's overall property casualty reserve position?

Yes.

We will take our next question from Jimmy Bhullar with JPMorgan.

Hi. Good morning. The first question is on the P&C business. Your expense ratio picked up a little bit, sequentially, and I think you talked in the past about expenses being elevated in the near-term as you are investing in the business, but then starting to improve sometime in 2014 and beyond. Are you still comfortable with that? Then on the ILFC transaction, I don't think there is a breakup fee. And, when you talk about deconsolidating trade, I am assuming you are implying over a 50% sale, but I just wanted to make sure that that's correct. The last question is, on the fixed annuity business. We have seen industry sale improve as rates have gone up. Your sales sequentially were actually down and your surrenders were up, not sure that's because the lock is aging or what's going on there?

As I have said before on the expenses, yes we are spending on infrastructure and a number of analytical resources, data improvements that are integral to our improved risk selection and claims handling, so we are seeing benefits in the loss ratio offset by increases in the GOE ratio and we continue to invest in acquisition costs. So, the overall expense ratio remains elevated. I would expect the GOE Ratio to come down as you point out in the sort of mid-2014 period, so a lot of the heavy lifting in terms of the investments will start to tail off. The one area though I would point out where there may be slightly more delayed expense benefits is what I announced in the comments earlier, which is the merger savings between AIU and Fuji Fire and Marine, which is a very substantial merger integration effort that will take some time to execute because of the sheer scale of it. It's between the two companies almost 6,000 people, so it's very substantial.

Jay, why don't you cover the fixed annuity comment and then turn it over to David, who will finish up with a question on ILFC?

Great. Thanks. Jimmy I think your presumption is correct. Being the largest in the fixed annuities, we probably have the biggest block is aging, and that's as expected leading to higher surrenders which because of the vast majority of those surrenders are from contracts with high guaranteed minimum interest rates, 3% and above in some cases, that's actually a very good thing from a profitability standpoint. We did see some interesting competitors come in early in the quarter and increase their sales. We stuck with our pricing discipline as we always do. Having said that, late in the quarter and through the month of July as I mentioned earlier, we have begun to see an acceleration in sales of fixed annuities now that rates have spiked up, so the block is behaving as expected, and again the vast majority what's surrendering is at high guaranteed minimum interest rates.

I would just follow up and we have said this I believe on our previous call and that is, Jay and his team are holding through a very strong discipline. Because, when you think about rising interest rates and I don't need to if you look at book values this quarter, you all understand it clearly of what can happen with rising interest rates. You don't want to have a very tightly priced fixed annuity books at these rates right now. If you do see a couple of 100 basis points rise, that will be very helpful for AIG and for Jay's business but if you have a large block of low interest rate annuities, fixed annuities in that kind of environment, you could see some expenses disintermediation. So a part of our hedging strategy is to make sure we don't have an oversized book at these levels that we have to worry about rates going up and what happened to that block. So I think right now we see rising interest rates at least for the first couple of hundred basis points is a big positive for the company.

And Jimmy, it's David, with respect to your ILFC question. As I said in my remarks, ILFC is a non core asset and we will pursue our plan to dispose of it, either through a sale or through an IPO. With respect to the sale, again you would ask about the breakup fee, the deposit is not a break up fee but we will protect our rights through that deposit. So that's all I would say with respect to that. Then, with respect to the 51%, yes, that is the level at which we see deconsolidate it and we, of course, would evaluate market conditions and valuations, et cetera, at the time of an idea to optimize the value of that monetization for the benefit of AIG and our stakeholders. So we haven't set any term in notion, but we will optimize the value.

Then protecting, I don't understand what protecting the rights on the deposit means. Maybe you could discuss?

Well, we just said, that is not as any more than that. This will protect them. It's not a breakup fee, which was your question and we will pursue our rights under the terms of the contract.

Alright, that's what I thought. Maybe if I could just ask one more. I think Peter mentioned that the actuaries are being somewhat conservative in their loss fix. So I am assuming that that's implying that there is some level of cushion in your reserving. Is that the right read? If that is the case, then how do you reconcile that with the fact that if we look at the last six quarters, you have had, I think, four of those quarters, where you had actually adverse reserve development?

What he said was, let me be really clear, that in total you see the emergence of a pattern that the actuaries are comfortable with is not a short-term lift but in fact but that's what we call vectors in math but you tend to look at it over an extended period of time, then you have a clear pattern. Until that emerges, they are not going to make some early judgments. The judgments they make or what they believe is the best estimate and the most accurate estimate based on the data that they are seeing. So they want to see more of a measurable period before they make any judgment. So that's what he said and so don't misinterpret it.

Alright, thank you.

And I would also add that the reserve adjustments that you witnessed in the last two and a half years have been largely related to older accident years and I have been talking about accident year loss ratios and the impact of new underwriting guidelines and risk selection techniques. So they will take longer to emerge. So I think they are really separate issues.

We will take our next question from Josh Stirling with Sanford Bernstein.

Thanks for having us on the call and congratulations on a good quarter and exciting news. So a question on capital returns. When you began this journey, you guided to $25 billion to $30 billion of capital management. So rough math, I think you are somewhere around $9 billion to $14 billion remaining by 2015. As you are now finally being allowed act like a normal company, should investors expect measured regular and recurring buybacks like we see at your peers or is this something where we should expect this to be very opportunistic and episodic as we have seen over the past couple of years?

I am going to turn it over to David but I would say that first, really we said dividends, capital management but our first priority is to find businesses that maybe strategic and make sense for AIG and are not close closed blocks, but growing blocks. So we like to continue to invest our money in those businesses. We are going to continue to look at the best way to deploy our capital with the stock price as you saw last night, we are at that and you have our book value and you see what's going on. Obviously as you get closer and closer to book, you want to think more carefully about what you are doing. As you get order book, you think a lot about what you want to do, so I think all of that is an over arching concept which is not new. David, wants to talk about the particulars on our aspirational goals.

Thanks, Josh. Again to recap, we have done a total to-date of about little over $18 billion. With the $13 billion of equity we did last year equity buyback, little over $3 billion of debt capital management going after some of the callable, very expensive hybrids the recent share buyback we just announced on the authorization and then the couple of years worth of the dividend they sort of add up to $18 billion. And you are right, so we have got 7 to 12 to go and I think with the fundamental foundation as we said is we have raised the deployable capital to the holding company and a very important part of that is the dividend flows that both Jay and Peter referred to is, raise the deployable capital. In addition to that, we have the ILFC proceeds that are unencumbered of the holding company and I also referenced in my comments about the tax sharing payments that in '14 should be in the $1 billion range and they grow from there and they are annual after that, so as you can see a path and we can see a path to raising the deployable capital on the net debt is input to the framework that Bob laid out in terms of how we and how the board and the various stakeholders think about how we go about deploying it. It's likely. Again, it's going to be opportunistic as we have done in the past. [It is going]. We will be prudent and I think Bob laid out a very clear framework for how we think about it and how you should think about it.

Thank you. If I might switch to Peter, as you have made a really relatively dramatic progress in accident year loss ratios and combined ratios in P&C commercial and it's great to see that playing out. The question I would ask is, as you sort of continue the journey to get to low 90s combined ratio, the consumer lines don't seem to be sort of go in the same direction and looks like maybe there is some noise in the quarter, but just generally I wonder if you can give us some more color on the relative magnitude of some of the key levers and sort of how you think about the status of the initiatives on that side of the house?

Sure. So the big noise in the quarter is the yen exchange rate, so there is a very, very portion of our consumer business in Japan, so you need to strip that out before you even think about it. There's I think some significant opportunities in Japan to improve profitability as we talked about in terms of both, the expenses but also as we reinvigorate the brand in Japan. Outside of Japan, there's another sort of one-off item that came through the loss ratio, but not net income which is in one very large extended warranty program where there is an offsetting profit sharing agreement that is not in this. It's an issue geography on the income statement, so that's a one-off adjustment you need to make when you look at the loss ratio in second quarter. Beyond that, I think that the emerging market story is very positive in terms of long-term profitability and growth, but the start up costs of that are quite substantial so that adds to the expense ratio. We have talked many times about the direct marketing business, which we feel has excellent lifetime profitability over customer relationships, but has pretty unfavorable GAAP accounting, so we want to take a measured approach to how much of that we do, but we like it from a marginal ROE point of view over the lifetime of the customer relations based on the persistency that we have been seeing in that book. So we will be doing that in a number of additional countries. So I think, in general, we see continued growth in consumer. I think we have opportunities to focus more than we do today. We operate in 90 countries. So I think that that will bring some efficiency gains and the conversions to common technology platforms will make it also more efficient.

Great, thank you. Keep up the good work.

Operator, I think since we are getting close to 9:00, we will only be able to take one more question but please reach out after the call with your additional questions and we will certainly do our best to follow up as soon as possible.

Thank you, ma'am. We will take our final question from Mark Finkelstein with Evercore.

Good morning everybody. Maybe I will start with Peter on international commercial. The numbers were just a little bit lighter than I had expected, maybe user error. But I guess the way I would frame up the question is, and I get the point about less need for rate than you have in North America, but are you satisfied with these margins? And do you feel like you need to improve them on a core basis in terms of achieving your overall targets?

I think that, again a little bit of a foreign exchange element in terms of the topline there. There is continued opportunities for streamlining technology and reaping the full benefits of legal entity consolidation. As you may know, at the end of last year we consolidated our 25 European countries in to one legal entity and that's starting to give us efficiencies but on the capital efficiency that hasn't fully come through. But in general, the international business has a better ROE because it's shorter tail, less dependent on investment income. I would say that the success of our commercial property business internationally has been very pleasing. We have seen a good take up rate about large and highly engineered property activities, further diversifying our book away from overconcentration in U.S. commercial property. So I don't know whether, Jon, you want to elaborate on your level of satisfaction with international operations?

Yes, I see an opportunity for us to continue to grow that business. Peter mentioned the FX pressure from Japan. That obviously had an impact on the topline in the quarter but we saw, outside of Japan, the rest of Asia, 18% growth in the quarter, Middle East and Africa 19% growth, 27% growth in Latin America. Obviously those are smaller parts of our overall commercial insurance franchise. In terms of pricing or rate adequacy on a major line basis, right, so if you think of it from a property casualty financial lines and specialty point of view, all of our major regions outside of the United States in those major lines cover their cost of capital currently. There are some opportunities for margin improvement and obviously there are some smaller lines that, in any given jurisdiction, have some profitability challenges that we will always be dealing with. There were some caps in the quarter, right, as well. Argentina, a modest amount in Australia, and then the flooding in Europe as well. So all those events had an impact on the bottomline in the quarter, but we think we are very well positioned outside of the United States and inside of the United States, but we see good opportunities for profitable growth throughout the rest of the world.

Okay, maybe a question on the div. I think every quarter I look at my model and what you guys produced in at least for the four or five, I feel like the div has beaten my expectations pretty widely in a lot of cases. I guess you have got 80% of the maturities coming within 2018, I think you said. Maybe the way to ask a question is, how far do you think we are from that so called intrinsic value and is there any framework for how to think about div earnings, going forward?

Brian, do you want to cover that for us as we close down the call.

Sure, I would be happy to, and again the performance of the div is not going to be linear. We have had more conditions that have us to recognize the gains you have seen over the last few quarters. As we talked about, we gave some rough ideas of what we think to pull to intrinsic is. At the end of the last quarter, we said it was around $5 billion, little under $5 billion. We had approximately 750 or so of gain and we have also sold some assets and did to the operating companies. So those, the gains and the sales of assets reduced that future upside, so if you think about it now at around $4.1 billion, $4.2 billion, that's probably where we are. But another way to think about it is, if you look at the debt capital, the NAV of the debt and you look composition of the assets, you could think about it as having roughly a 10% return on that capital over time. Again, that's probably the simplest way to think about if you are trying to model and this will come in again over time. We could have down quarters. Again, a lot of it depends on the market, but I think from the sort of 2018 period forward, you are probably looking at six to eight years before you see a bulk of that capital start freeing up and coming through.

Okay. That's very helpful. Thank you.

Thank you again for joining us this morning. Certainly, if you have any follow-up questions, please feel free to ask and we look forward to speaking with you next quarter.

That does conclude today's conference. Ladies and gentlemen, we would like to thank you for your participation. You may now disconnect.