Donegal Group Inc. (DGICB) Q4 2017 Earnings Report, Transcript and Summary

Good morning. My name is Tania and I will be your conference operator today. At this time, I would like to welcome everyone to the Donegal Group, Inc.’s Q4 2017 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Kevin Miller, Chief Financial Officer, you may begin your conference.

Thank you very much. This is Jeff Miller, Chief Financial Officer. Good morning, everyone and welcome to the Donegal Group conference call for the fourth quarter and year ended December 31, 2017. This morning we issued a news release outlining our quarterly and full year results. For a copy of that release, please visit the Investor Relations section of our website at donegalgroup.com. I will begin today’s call with commentary on our financial results. Kevin Burke, President and Chief Executive Officer will then provide his comments on the quarter and discuss our current business developments and initiatives. After our prepared comments, we will open the line for any questions you may have. Before we get started, you should be aware that certain statements made in our news release and in this conference call are forward-looking in nature and involve a number of risks and uncertainties. Please refer to our news release for more information about forward-looking statement. Further information on risk factors that could cause actual results to differ materially from those projected in the forward-looking statements is available in the 2016 report on Form 10-K that we have submitted to the SEC. You can access our Form 10-K through the Investors section of our website under the SEC filings link. We plan to file our 2017 Form 10-K on or around March 9. We provided a reconciliation of non-GAAP information as required by SEC Regulation G in the news release we issued this morning. With that, let’s move to a discussion of our quarterly operating results. While our results reflected a number of challenges that we experienced throughout the fourth quarter of 2017, we did see a number of positive trends that we believe will improve our operating performance going forward. There were a lot of moving parts during the quarter and I will attempt to clarify the impact as we go along. Our fourth quarter was highlighted by strong organic growth across our regional markets as evidenced by higher premiums for the period in both our commercial and personal lines business segments. Net premiums earned of $181.1 million for the fourth quarter of 2017 increased 7.2% compared to the fourth quarter of 2016. Net premiums written of $171.4 million for the fourth quarter of 2017 increased 5.9% compared to the fourth quarter of 2016. We expect our 2018 growth to shift toward more profitable lines of business as a result of a number of measures that we are continuing to implement. Kevin will provide more details about those measures in a few minutes. Turning to the impact of the Tax Cuts and Jobs Act that was enacted in December 2017, we reported additional income tax expense for the fourth quarter of 2017 of $4.8 million or $0.17 per diluted Class A share. This impact represented the effect of applying the reduced 2018 corporate income tax rate to our net deferred tax assets. Beginning in 2018, we expect the tax law changes to be beneficial reducing our effective tax rate and income tax expense. Net income, excluding the tax impact was $2 million or $0.07 per diluted Class A share for the fourth quarter 2017 compared to $5.6 million or $0.21 per diluted Class A share for the fourth quarter of 2016. Our combined ratio was 104.8% for the fourth quarter 2017 compared to 100.5% for the prior year quarter. The increase related primarily to an increase in our loss ratio to 72% compared to 67.1% for the fourth quarter of 2016. I will provide some additional details with respect to our fourth quarter loss experience. Weather-related losses totaled approximately $5.4 million or 3 percentage points of our loss ratio decreasing from the $7.4 million of weather related losses or 4.3 percentage points of our loss ratio for the fourth quarter of 2016. Weather-related losses were generally in line with our 5-year average for the fourth quarter. Large fire losses, which we define as individual fire losses, exceeding $50,000 were $7.7 million or 4.3 percentage points of our loss ratio for the fourth quarter of 2017 compared to $7.4 million or 4.4 percentage points for the fourth quarter of 2016. In total, net development of reserves for losses incurred in prior accident years did not have a material impact on our loss ratios for the fourth quarters and full years of either 2017 or 2016. However, favorable development of workers’ compensation loss reserves largely offset unfavorable development, commercial multi-peril, personal auto and commercial auto loss reserves. So, the impact of weather, fires and reserve development was fairly consistent with our experience to the prior year quarter. The increase in our loss ratio was primarily related to higher frequency and severity and casualty losses. You may recall from prior calls that we had unusually low loss severity in our worker’s compensation line of business for the first 9 months of 2017. In the fourth quarter, worker’s compensation losses exceeding $50,000 spiked to $10.5 million far in excess of any quarter during the last 2 years. We attribute the increase to timing variations in the occurrence of large loss activity. Favorable prior year loss reserve development partially offset the severity increase netting to an 80.7% fourth quarter 2017 worker’s compensation combined ratio and for the full year, we achieved an excellent 79% combined ratio in that line. Similar to our experience in the fourth quarters of the past several years, we noted a significant impact from seasonality in the frequency and severity of personal auto and commercial auto losses. We primarily attribute this seasonality to increase driving activity around the holidays and the outset of winter weather conditions in several of our regions during the fourth quarter. Our loss ratios in both of these lines also reflected prior year reserve development and additional IBNR reserves to mitigate the adverse development trends we have experienced in recent years. During the full year 2017, we increased our bulk IBNR reserves by 15%. That compares to an increase of 11% during 2016. The 2017 reserve increases were heavily concentrated in commercial multi-peril, personal auto and commercial auto, which were the lines where we experienced adverse reserve development in 2017. We expect our actions to strengthen reserves in these lines during the year will improve our loss experience in 2018. Our expense ratio was 31.9% for the fourth quarter of 2017 compared to 32.4% for the fourth quarter of 2016 with the decrease attributable to lower underwriting base incentive costs. Turning briefly to the balance sheet and investment portfolio, Donegal Group continues to operate from a position of financial strength adhering to a relatively conservative investment strategy intended to limit the impact of market volatility on our investment income and portfolio value. Our fourth quarter 2017 net investment income was relatively consistent with the fourth quarter of 2016. Net realized investment gains were $1.5 million for the fourth quarter 2017 compared to $321,000 for the fourth quarter of 2016. Our total investments exceed $1 billion with 90% invested in high-quality fixed security investment. At December 31, 2017, our book value per share was $15.95 compared to $16.21 at December 31, 2016. The decrease was primarily attributable to the impact of the December 2017 tax law change, which reduced our book value per share by $0.17. We expect to recoup that impact quickly through reduced income tax expense beginning in 2018. At this point, I will turn the call over to Kevin for his comments on our quarterly results in business developments. Kevin?

Thank you, Jeff. During 2017, we made progress in a number of our core objectives, while dealing with a difficult set of challenges, many of which apply to our industry as a whole. The long-term goal of Donegal Group has always been to outperform the property and casualty insurance industry in terms of service, profitability and book value growth. We are working diligently towards that goal. Our thanks goes out to our independent agents and employees for helping Donegal to respond to these challenges, including the many losses our policyholders experienced due to number of severe weather events throughout our regions in 2017. While the weather-related claims prevented us from achieving our profit objectives, we expect the fulfillment of our promise to our policyholders to be there when it matters most to generate benefits for us in the future. Unlike the first half of 2017, weather-related losses were fairly low during the fourth quarter of 2017. So, I will begin with a few comments on the increase in casualty losses. Jeff covered the spike in worker’s compensation losses. I mentioned that throughout the quarter, we continue to experience elevated loss activity within our personal commercial automobile lines of business, the underlying causes or issues that our entire industry has been confronted with over the past several years. Factors such as higher cost of vehicle repairs, increased accident activity due to distracted driving and driving activity related to positive economic growth have all cited in reasons for the sharp increase and loss cost over the multiyear period. All of those factors have so far more than offset improvements in vehicle safety and expanding implementation of accident avoidance technologies. Our number one priority is to take every available action to address our automobile challenges and bring our loss ratios down to acceptable levels. The first step in that process is restoring rate adequacy. We have historically taken a measured approach in rate increases seeking to provide a stable market for our agents and policyholders. However, we have become increasingly aware that our rate increases over the past several years have not been sufficient to keep pace with loss cost increases as a result of the factors I mentioned earlier. Further, our auto new business growth rates in several regions far exceeded our targeted goals for 2017 and clearly indicate to us that our rates are too competitive in some of those markets. We are using every tool available to us to improve our auto profitability. We are aggressively implementing rate increases and have expanded our utilization of predictive analytical tools in all of our auto lines in all the states in which we conduct business. A fresh round of commercial auto rate increases will begin to take effect in the second quarter of 2018. Rate increases for personal auto are subject to regulatory approval and while we are being more aggressive in the rate increases we have filed within the past several months, with a number of filed increases well into the double-digit percentages, it will take some time before those actions will begin to positively impact our loss ratios. We have been implementing changes in our underwriting guidelines and taking a more definitive marketing actions to slow growth in lines that are not achieving our profitability targets and ultimately to enhance our overall profitability. An example is we have placed a moratorium on writing of new personal lines policies in certain Midwestern states, where that business has generated consistent underwriting losses for us and many of our peers. This underperformance is largely due to the pervasive need for more rates in light of the propensity for extreme weather in those states. We will keep the new business moratorium in place, while we file additional rate increases and evaluate whether those markets present a viable opportunity for us to write personal lines business, profitably in the future. In spite of the challenges we faced in our automobile lines and the impact of unusually frequent and severe weather events, we achieved net income for the full year of 2017 of $11.9 million excluding the one-time impact of the December tax law change. We are pleased with the performance and the potential of our commercial lines business. For the full year of 2017, our commercial lines combined ratio was at 93.6%. Our worker’s compensation results were excellent despite a handful of large losses in the fourth quarter. Commercial multi-peril also performed to expectation when normalized for the unusual weather impacts earlier in the year and we are continuing to see opportunities to obtain modest renewal premium increases although there is increased competition for quality commercial accounts. And a number of our competitors are aggressively pursuing worker’s compensation business. Our renewal premium increases during the fourth quarter generally range in the 3% to 6%, which is consistent with past several quarters. Throughout 2017, our commercial policy retention held firmly in the mid-80% range and we believe we are in an excellent position within the marketplace to continue to profitably grow our commercial lines. Before we open it up for questions, let me conclude by reporting that we have begun to conduct our annual agency sales meetings that will continue over the next several months. And based on feedback from those meetings, we see clear opportunities to achieve commercial market share gains as we continue to strive to ship the mix of our overall business more towards commercial lines. We have a very solid management team within the home office and our field operations and they are fully engaged and ready to do the hard work necessary to achieve our business goals. With that, we will ask the operator to open the lines for any questions that you may have. Thank you.

[Operator Instructions] Your first question comes from the line of Christopher Campbell from KBW. Your line is open.

Hi, good morning gentlemen.

Good morning, Chris.

I guess my first question is just kind of on the underwriting results, so clearly personal and commercial auto aren’t going in the at least in 2017 aren’t going in the right direction, but you are going to take some rate increases in ‘18. And then homeowners and CMP, it sounded like they are softening a little bit based on the underwriting we saw and our worker’s comp remains strong, but how much longer you are thinking that the worker’s compensation like that strength will be able to subsidize the deteriorating underwriting in the other lines?

Well, Chris, we wish we knew the answer to that. We have taken aggressive steps to make sure that we retain the worker’s comp business that we have. As you said, it’s performed very positively, it’s profitable. We have increased some commission pieces for the worker’s comp, because we understand what some of our competitors are doing, but you raised an excellent point, we are very much aware that the worker’s comp business is only going to sustain that level of profitability for a period of time and that is why we have taken such aggressive steps as it relates to private passenger auto and our commercial auto lines. We have tremendous focus on those two lines of business, because we recognized at some point in time, we are not going to be able to rely on the overall profitability of the worker’s comp line. And when we see how aggressive other carriers are being with it, there is some erosion in terms of price. We recognized that, that’s an industry issue. Now, the timeframe of that Chris, I simply don’t know is it going to last another year, is it 2 years. For us, it’s not necessarily the time period it is what are we doing with these other core lines of business to ensure that we are in a position to sustain if worker’s comp becomes less profitable at some point in future.

Got it. Well, thanks Kevin. That’s very helpful. And then just digging in a little bit more on worker’s comp, I know in the press release there was a couple of large losses. Are you seeing anything on the severity side that could be giving you concerns like increasing settlement amounts? And then just in terms of your worker’s comp loss trends, how do they compare with what you are seeing in pricing in terms and conditions, because you did mention they were getting a little bit the terms and conditions were getting a little bit weaker?

Sure. This is Jeff. On the large losses in the fourth quarter as an example the one loss related to a workplace violence event, where a number of people were fatally injured and others were injured, so that was a very unusual loss. We did incur the annual aggregate deductible that applies on our worker’s comp reinsurance. So, the overall impact of that one loss was close to $2 million. There were a few other more severe worker’s comp claims that were presented to us in the fourth quarter, but nothing there indicated to us that there was some change in trends or any underwriting deficiencies. As we said in the third quarter, we were surprised at how low the severity of losses was in worker’s comp. And so we really think it is just more of a timing anomaly and if you can look at the year as a whole, the experience has been very good. There are few states where pricing is certainly an issue, where we have seen the runoff of our worker’s comp business. Michigan will be a prime example of that, where the market has become very competitive for worker’s comp. And as Kevin said, we are not necessarily changing terms and conditions our policy coverage issues there if its more tweaking of the rates, the loss cost multipliers and doing some commission changes to try to make our product as attractive to the agents and as price competitive as possible.

Great. Well that extra color, definitely – that was helpful. And Jeff, just a few numbers one, could you impact the reserve movements by product for the quarter, do you have those numbers available?

I do. As far as worker’s comp I think we had it in the release that there was a $4 million benefit from reserve development and that partially offset or almost completely offset the CMP which is $2.3 million commercial auto which is $1.6 million and personal auto which is $1.5 million.

Okay. And then just in terms of the tax rate, how should we be thinking about that going forward, those tax reform?

Sure. Obviously, it really depends on our level of pre-tax income, but if you kind of normalize our results and let’s say just for example, we had a $40 million pre-tax income amount after you account for the tax exempt interest, we would expect that our projected effective tax rate would drop in the 9% to 10% range. So we expect somewhere in the 9% to 10% reduction of our overall tax rate at that level of pre-tax income, so it would vary obviously if our income is higher or lower than that number.

Okay. And that’s from the old statutory 35% or what would be your baseline?

Yes, from the 35% to the 21%, that would be the difference.

Okay, got it. So 35% to 21%, you would be looking somewhere in that 25%, 26% range, is that a fair way?

The effective tax – well, the effective tax rate at a 35% statutory rate would have been somewhere in the 27%, 28% range under 21% tax rate we would be closer to 17% effective tax rate. I am not necessarily providing that as guidance, I am just saying as an example that’s the impact if we were able to produce a $40 million pre-tax income.

Okay, great. And then just one more, can we get an update on Mountain States, I think everything was supposed to move over I think in the last call you had mentioned everything was moves to new business and renewal business was supposed to move over on 11, so just kind of thoughts on how that transition is progressing and any updated thoughts on when those could potentially be in the DGI pool?

Chris, this is Kevin. Yes, in fact, we did hit the January 1 date, so all of new business and renewal business for New Mexico was effective and on the Donegal operating platform effective January 1, the additional states as you know that there was some business in Texas, Utah and Colorado and the schedule for those Chris is on April 1, we will be writing the Texas business on the Donegal platform. June 1 would be Utah and September 1 is Colorado. Those are still – those are all on schedule and we are making great progress. If you think about it was last May of 2017, when this was official and we merge them into Donegal mutual and evolved the acquisitions and affiliations that we have had over the years, this was the one that was done very quickly, we took fairly aggressive steps to start to cleanup the book of business and so we are in a very good position as we sit here going into 2018 and we have just recently hired a couple of senior managers for that location as well. We have the Head of Marketing that actually just started 2 weeks ago. We have the Head of Claims Operation and we have one of our Donegal home office commercial lines, underwriting managers, actually relocating out to that location. So, we have some reason for optimism that we are really infusing some talent and we have got the platform now in place to hopefully continue to grow. We have taken very aggressive re-underwriting stance in Mountain States. We felt that it was necessary to make sure that for 2017 we did everything possible to sort of clean up the book to make sure that we are in good position going forward. And every claims file has also been reviewed and so they have set reserves and again we have been very aggressive about it. So we are thinking 2018 is where we start to move forward with the organization in terms of when we would start to include it in the pool, it will be something that would definitely not happen for 2018 probably not 2019. We would take a hard look at it at the end of this year. It is definitely an 18-month, 24-month time period, where we would start to strongly consider that.

Okay. And just in terms of like the premium, so as you have been taking underwriting actions any like high level thoughts on how much premium as from I guess Mountain States statutory, like how much premium has been lost and have you seen any underwriting improvement so far?

Well, we had approximately 30% of the overall direct written premium has been non-renewed. And so we have taken some aggressive steps. The January numbers actually looked pretty good where we are starting to win some quality accounts, they are Donegal type of accounts and again we are doing this on an account by account basis. So, we think that we are in pretty good shape going forward, but it was about 30% Chris from a direct written premium standpoint was non-renewed.

Alright. Well, thanks for all the answers and good luck in 2018.

Thank you.

Your next question comes from the line of Bob Farnam from Boenning & Scattergood. Your line is open.

Hi there and good morning.

Good morning Bob.

I guess when you look at the overall book personal plus commercial, did you see the rate changes that you are getting be in excess of loss cost trends. I understand it’s not – it’s falling short in the auto side, but when you look at your overall book, how do you see – I guess I am trying to figure out how to model the kind of the core loss ratio going forward if your back off it all the catastrophes and development out?

Sure, Bob. This is Jeff. I will take a shot and then Kevin can certainly chime in. We made the commentary about the auto where we are playing catch up somewhat there. On the other lines, I think we expect that our loss ratios are keeping pace with the loss cost increases, especially in the other commercial lines. Worker’s comp of course as we have already talked about is starting to soften and although we have cushion in that line, that line has obviously subsidized our underperformance and others. So, we would say that we expect to continue to be able to write worker’s comp profitably. And as we have – I think Kevin mentioned it normalizing for weather in CMP, we haven’t seen a significant increase in loss costs there and we are continuing to take renewal price increases. Homeowners, I think we are in good shape there. We believe that we are continuing to take some rate increases depending on the geography. Those areas have been hit harder by hail losses for taking a higher percentage increase. We are looking at some of the areas, some of the regions where we have gotten hit from a property loss perspective and tightening up on some underwriting criteria. So, we think that everything we are doing will puts us in good shape for 2018 and into 2019. On the auto side, it’s just going to take some time, because until we can get those rate increases filed, make some other adjustments to our rating structure etcetera, it takes a while for that to work its way through to the earned premiums, but we have a clear path and we are hitting it hard.

Right, okay. And the increased use of the predictive analytical tools, maybe you can provide more color into that as to what you are expecting from these tools to be able to do it for your underwriting?

Absolutely. One of the items that we very aggressively implemented third, fourth quarter of last year Bob, was looking and applying our risk index scores. And we have got a model that we have used. The good news is that there is a lot of confidence in this model, because we have seen the results of it as we piloted it and there is a lot of confidence in it. The challenge for us is we just simply can’t – seem to get it implemented quick enough, we are aggressively doing it. And so what’s going to be happening is that I am going to give you example as it relates particularly as private passenger auto that entire book of business for all new private passenger auto business that’s coming in is getting scored and basically it’s getting scored from 1 to 10. The scoring of it isn’t necessarily the fact that it is bad business if you score in the 8, 9 or 10 it’s really a pricing sensitivity tool. So, it may not be a bad risk, but it’s under-priced. And so what we have done is we have taken a very aggressive approach by region that all new business that’s coming in and getting scored in the let’s say the 8s, 9s and 10s that it is deferred to the underwriter and the underwriter then has to take a deeper dive and really look at the risk and apply appropriate rate. That’s the most simplistic example that I have. On the commercial lines side, all new business for commercial auto is being scored as well as well as the current book of business. And by mid-April, we will have the entire commercial lines auto book scored. And again what it’s doing is it’s really refining our ability to price this business. We have regulatory guidelines that we have to follow as you know by state and they vary and we are pushing in terms of what we can do with those various scores of 9s and 10s and I think the aggressive approach that we are taking with it will definitely start to yield some results. At our core, when you look at our core book of business, it performs relatively well. If this remaining 12% or 13% of our private passenger auto book, where we are winning accounts, but we are winning big, we are winning in terms of its underpriced business. And the fact that we have got this predictive analytics program in place and the fact that we are accurately scoring this business and then taking action on it, I feel as though that’s going to definitely provide some benefits for us in the coming months and quarters.

Right. Do you see that you see your retention ratio dropping a bit just because of the kind of the rate increases going to some accounts that may not have realized that they were underpriced?

Yes, we are definitely seeing that especially as it relates to the 9s and 10s, we are seeing a significant drop in the policies that we are writing that are in those scores and we are pushing a lot of those depending on the state, but most states we are pushing those higher rated or higher scored business into our most highest price tier, which we would – it’s almost like a nonstandard tier. When recording any new business, it automatically goes into those tiers and we are not winning a lot of that business because of the higher price. So, we believe that we are going to see some decline in our overall retention, which we view as a good thing, because we want to make sure that we are doing everything to keep the business that is appropriately priced, but to do everything we can to shed business that is underpriced and to not write anymore of it in especially, in states where we have just had very poor loss experience.

And we have built that into our business plan for 2018 knowing that we would definitely have some retention pieces there and we are hoping to augment that with the commercial business, which again we have been winning a lot of those accounts and we have had overall some very good results.

Right. And when you – it sounds like kind of the underwriting criteria that you are looking for particularly in the Midwest as you re-underwrite that book or call some of those risks, do you see is it meaningful enough to actually have a benefit to your kind of expected catastrophe losses or weather-related losses?

Yes, I think that’s an ancillary result of doing what we have done by putting that moratorium on all new business. As you can imagine, Bob, we sit back and we look at rate indications, we look at what our competitors are doing before we actually file any rates per state. And we got to a particular number of Midwest States. Jeff and I and others realized that for the time being in order to really get to an area where we may achieve rate adequacy, we cannot add any additional policies to the book of business. We need to take aggressive rate, continue to monitor it and those are the sorts of aggressive steps I think that we haven’t necessarily done in the past, we absolutely think it’s the right thing to do at this particular time as we sort of refine the overall book of business.

And Bob, this is Jeff, just to add to that, your question is right on point, because the one state that I am thinking of in the Midwest, we had significant cat losses that drove up the reinsurance costs for the other states in that Midwest region. We do have a separate reinsurance program for cat losses in that region and our prices went up in 2018 as a result of that activity. So, it’s not just this performance in that one state that’s impacted it’s actually the cost of doing business in the other states. So that’s really what drove our decision to really cutback.

Right, okay. And how have the independent agents been taking this news that you are going to be raising rates more aggressively than you have maybe in the past?

Bob, they have heard it I think from every other carrier, right. We just had one of our agency sales meetings, one of the largest ones that we have yesterday last evening and I was there. And we talked in detail about what we need to do as an organization relating to private passenger auto and there were many, many agents, we had over 100 agents at that meeting that were sort of hearing me and nodding their head as we were going through their presentations. So they understand. It truly is an industry wide issue and it’s not an excuse for us internally. We need to do some very aggressive things to get our private passenger auto and commercial auto back in line and we are going to do that, but as an industry, I just looked at some results from 2016 I will be curious as to what 2017 shows, but just on the private passenger auto, the average combined ratio was at 105.9, I will be curious to see what 2007 as an industry shows up and so the agents are not surprised by any of these actions.

Got it. Okay. Thanks, gentlemen.

Thank you.

Your next question comes from the line of Jamie Inglis from Philo Smith. Your line is open.

Good morning guys.

Good morning.

I am trying to get some additional information on what we were just talking about, I mean, if you look at sort of Donegal’s traditional approach and you talked about it a minute ago or before about sort of measured rate increases as you will. And juxtapose against the growth rates which you have seen, which is at a too high. And I am wondering what’s the genesis of all that, I mean, is it a few agents pushing business toward Donegal, is it a few markets that are bumping up rate increase substantially for driving business towards Donegal or sort of a general market position that you find yourselves to be in?

It’s probably a couple of items and Jeff, please feel free to chime in on that. We have got things like the comparative radar, which is a good example. Automation in our industry particularly in personal lines is a wonderful thing, but it could also harm you, because the more automated you become and if you use a comparative radar and you have a particular product that is in this case under-priced that we do not have rate adequacy. What it does is it really creates a very quick way for an agent to place business with you based on rate right away and sometimes that’s very difficult to get a handle on. So, the automation pieces, is in this particular example has not been helpful. It is where we find ourselves, one of your last comments was is it where you find yourself in the marketplace, we have built a very, very solid agency base, a very loyal agency base and they really do look to place business with us whether it’s commercial lines or personal lines. And when they see that we have in some cases very, very competitive rates. Those agents are really motivated to send business our way. At one point, we were incentivizing agents on the personal lines side of the business. We do not do that in 2018. There are no incentives in terms of continuing to bolster that book of business until we take these corrective measures. So, it’s really a combination of our number of items and that’s why the marketing piece of this, it’s not just taking rate, marketing piece of this is that our field marketing representatives are working with the independent agents directly per agency to look at the number of policies that are coming in, in private passenger auto, are they rounded accounts in terms of making sure they are matched with the homeowners’ policy and if we have runaway growth in any particular agency that those marketing reps are handling that at the agency level. All of those corrective measures that we have put in place we are sure that they are going to provide some benefits for us this year.

The only thing I would add to that Jamie is that this is not a problem that’s pervasive throughout our book there are pockets of either regions or particular products in certain areas where our loss experiences is not good. That’s not to say that there are, we have a lot of very good performing personal lines accounts and if we – it’s one of those 80/20 rules, where 20% of the business that’s providing 80% on the losses, it’s maybe not quite exactly that percentage, but the point is that there is a small percentage of our overall book that’s really contributing to those losses. And so if we are able and successful to manage that 20% of the business or 15%, 20% that is underperforming, the remainder of the book is performing extremely well is appropriately priced and we are trying it as we are taking these rate actions to make sure that we are protecting the portion of our book that is actually performing well and priced appropriately.

Great, okay. Thanks a lot. Good luck.

Thank you.

Thank you.

And there are no further questions at this time. I turn the call back over to the presenter.

Thank you. We thank everyone for joining the call today. We look forward to speaking to you again in April after the release of our first quarter results. Thank you everyone.

Thank you.

This concludes today’s conference call. You may now disconnect.