Kestrel Group, Ltd. (KG) Q3 2016 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the Maiden Holdings Third Quarter 2016 Earnings Conference Call. [Operator Instructions] I would now like to introduce our host for today's conference Mr. Noah Fields. Sir you may begin.

Thank you. Good afternoon and thank you for joining us today for Maiden's third quarter 2016 earnings conference call. Presenting on the call today we have Art Raschbaum, Maiden's Chief Executive Officer; along with Karen Schmitt, our Chief Financial Officer. Also in attendance today is Patrick Haveron, President of Maiden Reinsurance Limited. Before we begin, I would like to note that the information presented here today contains projections or other forward-looking statements regarding future events or the future financial performance of the Company. These statements are based on current expectations and future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from these expectations. We refer you to the documents the Company files from time to time with the Securities and Exchange Commission, specifically the Company's Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q. Some of our discussions about the Company's performance today will include reference to both non-GAAP financial measures and information that reconciles those measures to GAAP, as well as certain operating metrics that may be found in our filings with the SEC and in our news release located on Maiden's Investor Relations website. Please also note that unless otherwise stated, all references to common share data in today's discussion are on a diluted share basis and comparative comments will refer to Maiden's result in the third quarter of 2016 relative to the corresponding period in 2015. I will now turn the call over to Art.

Good afternoon and welcome. In the quarter, Maiden's highly differentiated business model continues to service us well, notwithstanding their challenging operating environment characterized by continued strong competition, and a growing level of loss cost volatility. As we have drew out the year in the quarter we remained focused on maintaining underwriting discipline, while leveraging our highly efficient operating platform and balance sheet and our unique low volatility non-cat underwriting focus. We also maintained our commitment and specialised focus to serve the long-term re-insurance capital needs of our regional and especially insured clients. During the quarter we reported solid growth in year-on-year book value, investment income, underwriting income and operated earnings while reflecting year-on-year improvements in our combined ratio and our operating expense relativities. For the third quarter, we reported a return on average common equity of 11.6% and operating return on common equity of 11%. Net income per diluted share was $0.40 while operating earning per diluted share for the quarter were $0.39. Book value per share has increased 22% in 2016 on year-to-date basis, and was up 2% in the third quarter with most of the increase in the quarter attributable to earnings. Importantly, we've been able to grow our underwriting portfolio in our two reporting segments. Before I turn to business performance I would like to comment on Maiden's upgrade by AM Best to an A-rating on September 1. We are very pleased with this outcome and we believe it is a validation of the strength of our balance sheet, our long track record of stable operating performance and importantly, the strength of our business model. From a business perspective we believe that this rating increase will open doors with number of prospects, particularly in our U.S. facultative causality business. Turning now to operating performance; in the third quarter gross premium returns grew by 13% to $707 million. As you may recall, Maiden maintains a quote of share retro-sessional [ph] program which explains the majority of the difference between our gross and our net premium written. We believe that gross revenue is the best measure of our business development success. In our diversified reinsurance segment as with our previous two quarters of 2016, we continue to enjoy growth with gross premium written of $187 million, up 7%. The majority of the diversified segment growth is coming from the U.S. through both the growth of existing clients and the additional of several new client relationships. In particular, we're enjoying solid growth in our health and our pro-rata treaty businesses. Our European solvency too focused -- our capital solution business continues to attract interest and we believe that we are well positioned to entertain a significant level of submission this year-end. We continue to view this as a growth platform and we have a solid pipeline of interest following the full European conferences. Our ability to provide continuous capital perspective clients continues to be a very strong differentiator in the market and interest in our range of capital solution products is increasing. Several of the current opportunities include interest in the potential sub-debt component through our majority on-subsidiary insurance regulatory capital. Maiden's automobile OEM oriented international insurance services platform experienced a year-on-year decrease in premium written during the quarter. However, we expect several newly acquired programs to restore growth as they come online in 2017. We've also experienced a slower start to our payment protection insurance partnership in Europe. While we have been in active discussions with several opportunities, we're fighting a longer required lead time in the sales process and we're looking at ways to enhance the success of this activity with our partner and at this point we expect to begin to see some benefit in 2017. AmTrust grows written premium for the quarter totaled $520 million, which is up 15% from the prior year. Quarterly results include the first sessions of several U.S. commercial lines acquisitions. The session reflects the gross premium written in cities [ph] year-to-date. As a result, we do not yield 15% as necessarily a run rate. We believe the annual incremental run rate is lower absent significant acquisitions and as we've commented in the past net of acquisitions, we expect organic growth to be in the single digits reflecting AmTrust discipline response in a competitive market. Maiden's combined ratio has improved to 98.5% in the third quarter. We continue to see pressure on the diversified segment from adverse development in the commercial auto line of business with the third quarter combined ratio of 102.2%. However, we do believe that we've been early to recognize challenges in this line of business with aggressive on-site audits and active use of additional case reserve and we're confident that our efforts to address non-profitable contracts will benefit us in the future. Most important, our commercial auto portfolio has diminished significantly reflecting pricing discipline, as well as non-renewal actions. At the same time we are benefiting from favorable development in other casualty line such as umbrella liability, general liability and worker's compensation access of loss. The 2015 third quarter diversified combine ratio of 103.6% included a modest level of weather-related property losses which did not reoccur in 2016. Maiden's discipline in underwriting philosophy continues to drive underwriting efforts and we remain committed to focusing on profitability. The combined ratio in the quarter for the AmTrust segment was 95.9% as compared to 95.4%. In the prior year across the underwriting portfolio, we remain focused on enhancing underwriting results as of the impact of adverse commercial auto development across the portfolio; our core underwriting performances align with our expectations. And finally last month, hurricane Matthew struck along the U.S. East Coast. As you know, Maiden carefully manages its underwriting portfolio to reduce its vulnerability to catastrophic property events. While we do reinsure property lines, we're not an underwriter of property catastrophe risk and consistent with that philosophy, we currently have no reported losses from clients to date, nor do we expect the material impact from the storm. On balance, the third quarter reflects continued business growth across our various underwriting activities and we are confident that our emerging business initiatives will provide us with an opportunity to continue developing our portfolio. In the U.S., the addition of a variety of new product initiatives to assist our clients deliver increase value to their insurers such as our new equipment breakdown product in our return key highly automated umbrella liability products should help us to expand our presence with existing clients. As well as attracting new customers. We're also seeing growing demand for capital support quota shares in the U.S and abroad. Internationally are unique auto OEMs brand insurance solutions business is continuing to expand its presence with new original equipment manufacturer relationships most recently Volvo in Germany. As well as product diversification most significantly our payment protection joint venture. And finally, our unique capital solutions business in Europe, we were offering support a company in the solvency to environment. As we've said many times, we will not sacrifice profitably for revenue. In each instance our new business initiatives along with our core business activities, are focused on prudent underwriting and reflection. I'd like to now turn the call over to our chief financial officer Karen Schmitt to review the results in greater detail. Karen?

Thank you Art, and good afternoon. As Noah said earlier, unless otherwise stated all references to comment share data are on a diluted share basis and comparative comment will referred me to result in the third quarter of 2016 relative to the corresponding period in 2015. Maiden reported third quarter 2016 net income attributable to common shareholders $32 million or $0.40 per share. Compare with $22 million or $0.30 per share. Net operating earnings were $30 million or $0.39 per share in the third quarter compared with $26 million or $0.34 per share. Net premiums written totaled $691 million in the third quarter of 2016 an increase of 15%. Net premiums written in the diversified reinsurance segment totaled $179 million an increase of 9% with good organic growth in the U.S. and select new business which was partially offset by lower premiums in our international insurance services business. In the AmTrust reinsurance segment net premiums written were $512 million an increase of 18%. The AmTrust segment net written premiums for somewhat inflated in the quarter due to a one time catch up premiums from acquisition receded for the first time during the quarter. On a year-to-date basis AmTrust net premiums written, are up 6%. Net premiums earned increased by 6% to $698 million. In the diversified reinsurance segment, net premiums earned decreased 9% to $275 million. The AmTrust reinsurance segment net premiums earned was $523 million up 12%. Net loss and loss adjustment expenses of $467 million were up 5%. The loss ratio at 66.6% drop slightly from 67.2%. Commissions and another acquisition expenses increased 5% $207 million in the third quarter. The expense ratio decreased to 31.9% for the third quarter of 2016 compared with 32.4%. The diversified commission and other acquisition expense ratio decreased from 26.5% to 22.5% due to changes in the mix of quota share in excess of lost business in the U.S. as well as to the impact of lost sensitive commission adjustment. The AmTrust commission another accent -- other acquisition expense ratio increased from 31.4% to 31.9% due to business mix. General and administrative expenses for the third quarter of 2016 total $17 million a 3% increase from the prior year. General and administrative expense ratio continues to decrease reaching 2.4% in the third quarter of 2016 compared to 2.5%. The combined ratio of the third quarter of 2016 total 98.5% compared with 99.6%. The diversified reinsurance segment combined ratio was 1.02% in the third quarter 2016 and below the comparative period of 1.03%. Favorable loss reserve development in excessive loss casualty line partially offset, continued adverse development from commercial auto business. The AmTrust reinsurance segment combined ratio was 95.9% in the third quarter, compared to 95.4%. Beyond the growth in premium and moderating of our combined ratio, we continue to see strong growth in investable asset. In the quarter, investable assets grew by $223 million while our cash-on-hand at the end of the quarter totaled $434 million. The quarter does not fully reflect the income effective the new investments and we should see additional continued growth in investment income as cash carefully deployed. Net investment income for the quarter was $36 million, a 9% increase compared to third quarter last year. On a year-to-date basis, net investment income was $107 million. Investable assets increased to $5.1 billion compared to $4.6 billion at December 31, 2015. The average yield on the fixed income portfolio excluding cash was 3.2% with an average duration of 4.49 years. The new money yield on the $424 million of investments purchased in the third quarter was 2.61% with an average duration of 4.47 years. During the quarter, we continue to invest in high quality investment grade securities. Including cash, the average duration is 4.09 years versus an average duration of liabilities of 4.22 years. Operating cash flow during the quarter was $161 million. Our cash and cash equivalent position sell by $72 million to $431 million as of September 30, compared to $506 million at June 30. [Technical Difficulty]

Ladies and gentlemen, please stand by. Your conference call will resume momentarily. Once again, your conference call will resume momentarily. Thank you for your patience and please stand by.

Were we dropped off?

2016 total 98.5% compared with 99.6%. The diversified reinsurance segment combined ratio was 102.2% in the third quarter of 2016 and below the comparative period of 103.6%. Favorable loss reserves development and several excess to the loss casualty lines partially offset continued adverse development from commercial auto business. The interest reinsurance segment combined ratio was 95.9% in the third quarter of 2016, compared to 95.4%. Beyond the growth in premium and moderating of our combined ratio, we continue to see solid growth in investable assets. In the quarter, investable assets grew by $223 million while our cash on hand at the end of the quarter total $434 million. The quarter does not fully reflect the income effect of the new investments and we should see additional continued growth in investment income as cash is carefully deployed. Net investment income for the third quarter was $36 million, a 9% increase compared to third quarter last year. On a year-to-date basis, net investment income was $107 million. Investable asset increased to $5.1 billion, compared to $4.6 billion at December 31. The average yield on the fixed income portfolio excluding cash is 3.2% with an average duration of 4.49 years. The new money yield on the $424 million of investments purchased during the quarter was 2.61% with an average duration of 4.47 years. During the quarter, we continue to invest in high quality investment grade fixed income securities. Including cash, the average duration is 4.09 years, versus an average duration of liabilities of 4.22 years. Operating cash flow during the third quarter was $161 million. Our cash and cash equivalent position sell by $72 million to $434 million as of September 30, as compared to $506 million at June 30. Total assets increased 13% to $6.5 billion at September 30, 2016, compared to $5.7 billion at year-end 2015. Shareholders' equity was $1.6 billion, up 15% compared to December 31. Book value for common share was $14.40 at September 30, or 22% higher than December 31. Before I turn back the call to Art, I would like to provide you with a brief update on Maiden's capital position. On September 15, Maiden's seventh in the quarter [ph] mandatory convertible preference shares converted to common equity, increasing our common shares outstanding by just over 12 million share to $86.1 million as of September 30. This caused a decrease in our book value per share of $0.13, a decrease in operating ROE of 0.3% and a negligible impact on earnings per share in the quarter. The ROE impact is muted since the conversion occurred late in the quarter. We expect the full impact to be close to 1%. In 2017 we have two opportunities to lower our cost to capital with $100 million of 8% senior notes eligible for call on March and $150 million of eighth in the quarter preference shares available to be called on August. Depending upon our capital levels and the interest rate environment, we will likely refinance these securities at a lower rate. One final note, we are pleased that earlier this week, Maiden's Board of Directors announced a 7% increase in our common share dividend, reflecting the board's confidence and the company's earnings power at capital strength. I will now turn the call over to Art for some additional comments.

Thank you, Karen. And again, I apologize for the technical glitch. Before I wrap up today's prepared remarks, I'd like to comment on market conditions. Needless to say industry capital is abundant and it continues to grow while at the same time market demand remains relatively stable. Although the industry is beginning to experience a growing level of loss cost volatility, this has not been enough to broadly drive stronger pricing. This dynamic continues to drive increased competition throughout the global reinsurance market. We believe that the only effective way to deal with this dynamic is to provide differentiated products and remain focused on our core regional and specially insured clients and prospects. In this competitive marketplace, we do believe that this focus coupled with our strong competitive differentiators such as our operating and balance sheet efficiency, our unique collateral trust, our customized client solutions and a host of existing and developing new product initiatives along with a growing portfolio of long-term client relationships all served strength in our response to competition. Beyond many strategic differences, we believe that discipline underwriting is the key to sustainability and we're committed to maintaining that discipline. The dividend increase mentioned by Karen is a further indication of the board's confidence in our increasing earnings power and it also reflects the board's commitment to enhancing shareholder value. We remain committed to delivering returns, strengthening underwriting results and increasing value for our shareholders. This concludes our prepared remarks. Operator, could you please open the lines for Q&A?

[Operator Instructions] Our first question comes from the line of Randy Binner with FBR. Your line is open.

Hi, Randy.

Hello, Randy.

Hey. Good afternoon. I guess to start with some of the commentary about reserves, I think you mentioned you're still seeing a little bit adverse about development in the commercial auto area. Can you size that relative to where it has been and what action you're just coming from and then a little more detail on the other areas where you've seen some more favorable development? If I all got that right.

Sure. In the quarter, we had 13 million of net adverse development. Most of that, actually more than that amount is from commercial auto. So we had $23 million from commercial auto and then we have that offset by favorable umbrella and worker's comp excess, a little bit of GL excess as well. Largest syntax was in 2013 although we had some deterioration in some of the earlier years as well – just not as significant. And then we had the more recent years, technically deterioration, but more of just being a little bit more conservative in the pick, given what we're seeing in the 2013 years and some of the earlier years.

Okay. And the nature of those losses, is it similar to what we've seen or you're seeing more elevated severities as it relates to...

Yes, Randy. It is all increased severity. I think that in a number of cases, even on some of the accounts where we've gone out and done sort of independent [indiscernible] we've established expected loss cost. We've seen some additional deterioration. I think severity is clearly an issue across the marketplace. We're not unique in this respect. These are excessive loss accounts, but they're fairly short layers and they're fairly low-attaching. There is a limit to how much adverse we can get in any one account, but nevertheless, I think the same factors that we believe were driving this seem to recur and I think in some environments, it's also probably a reflection of a more active…

Right. I guess this is an issue we've been discussing for some time. Your attachments is low as you said, but it seems that it is right that the issues you are having it is not necessarily the claims they are identified developing adversely being the issue, it seems more like as you do more reviews or you get more information from the seasons that there is kind of new claims coming on it is that right way to think of this?

That’s correct. It’s really both of those things. I mean we do jip down in our audit activity to look at claim that are below our retention to see if there is anything we are missing, you know but we can’t full censors of those claims would be difficult to do so we do see some that emerge you know much later and maybe function of adverse judgments or like but you know there is clearly a severity issue, as I mentioned earlier we started repricing the business and calling the book really in 2014 and since and you know the portfolio today is really a fraction of the portfolio that existed in 2013.

Thanks. Then on you know just closing comments you mentioned that you are seeing continued elevated capacity from pricing perspective, the loss trends are increasing outside of the commercial order are there any normal business lines where you have seeing you know loss trend increasing?

There is certainly been industry commentary around personal lines. We are not seeing it as problem in our book and I think there are couple of reasons for that, some of our portfolio is nonstandard so the limits are somewhat contained. And then addition to that we do have lot responsive features on many of our code shares, actually most of our code shares that do tend to mute the effect of some of that loss activity. Beyond that, you now no other lines stand out, I guess lines that we don’t support. I think there has been a spike in professional liability areas. But nevertheless the areas we focus on it is somewhat confined to auto but we are vigilant looking at really all of our active business who ensure that we are not seeing adverse trends and if we do responding quickly to them.

Okay. I am going to do one more just in case nobody asks. The OEM you mentioned, so this is kind of the long time and the impact will be kind of in 2017 essentially but what changes by then in 2017 and how material an impact could we see from that product initiative. This is by Germany, mainland Europe auto sales right?

Well there are two elements to it. One of course is the auto point of sales and the other is payment protection insurance. And so biggest component of the two in terms of our expectation is the payment protection insurance. And so we have talked about the size of the opportunity certainly it is kind of ultimate development, could be as much as $700 million although the development of that is going to be slower than we expected it to be. I think it has been a more challenging sales process you know there are lot of moving parts and I think we got to streamline the way we go to market with our partner but we still feel reasonably optimistic about the opportunity and the ability to live a very efficient and consumer friendly product. On the automotive side, we are actively picking up new relationships both with OEMs as well as dealer groups as well as finance entities that all focus on providing branded insurance solutions to their customers so some of those we landed and they’ll be coming online in 2017 and beyond.

All right. Perfect thanks a lot.

Thanks, Randy

Our next question comes from Matt Carletti with JMP. Your line is open.

Hey thanks good morning. See here have a few questions. On diversified, I heard your comments that now a lot of growth has seen currently as US focused and lot of the European efforts have been underway and good pipeline we need to see going forward. I was hoping if you can little color on just when we do start to see that kind of what might that look like. What I mean by that is do they tend to be more chunkier acquisitions that are fewer and larger what sort of average size transactions should we expect in your kind of what sort of frequency. How might it look similar or different to your U.S. book of business?

Sure. I think that there are two components to this. And by the way congratulations for the cup.

Thank you. Not a lot of sleep last night.

In any event, the business is coming through, the capital solutions business could certainly be chunkier you know to the extent that we identify our customer and we find a responsive solution that delivers capital support. It could become rather large prodigy and some of those could include coming you know on premium reserves but again you know that’s going to be a little more erratic. We have a lot of deal flow as I mentioned earlier that’ just how much of the deal flow can bring on the books but as respect the sort of the PPI and automotive initiatives in the international insurance services that one is probably a slow ramp up because when we win an account we start to build prospectively there are no reinforced elements to it and it really is kind of a slower ramp up so that one I would see, and that’s true as well with the PPI, although the PPI perhaps a little to a lesser extent because when we come in we replace incumbent and we start participating actively on all of the new financing that the OEM generates. So it’s bit of a mixed story but you know I wish I had more of a crystal ball but I do think that in both areas we are well positioned. You know I think the question in the first the capital solution business is really can we develop responsive solutions that also generate reasonable return on capital and we are not going to undermine performance or revenue.

Got you. That makes lot of sense. Thanks for the color. And then couple of other questions. First before I have to question you, congratulations on the invest upgrade, it’s much deserved. And my question along that line is you know what is the response from your client and what do you expect the impact on the business to be. And the kind of reason I asked that is knowing that you have the collateral trust in kind of backing it seems like that would be as good as if not better than any you now any rating agency’s stamp of approval how has that been received? I know its early days.

I agree with your assessment very much though. We were at the PCI conference in Dallas last week and you know we held a cocktail hour and we had extremely positive response from all of our clients and many new prospects as well as brokers and I don’t think there was there were very few exceptions of people that didn’t raise the issue or point out how pleased they were for us. And you know particularly from the brokers where you know obviously some companies have much more kind of rigid and flexible got to be an A or else, despite the fact that we offer comparable. So we do think it opens up opportunities there and the other thing that we are doing obviously from a marketing perspective is we are looking back at all the deal flow that we have seen in those and might have had kind of an arbitrary aid you know sort of floor and we are going out and contacting them. If it’s any indication we are definitely are seeing a lot more submission flow coming in. The area probably has a greatest effect. So in our faculty to casualty business that is the one area where our portfolio where we do have national account kind of riders. So again it is individual and underrated individually but in that market place many of the big national riders have many times have more inflexible rules and they are, we have already got some increased interest from people that previously we weren’t approved list for so on balance we are pretty bullish. How much it would mean it’s kind of too early to tell you know this was the hardening market we would be more bullish about it but I do think that on the margin we can see if the submission activity is any reflection and we can hit the business I think it helps us to get to our 10% compound annual growth target next year but we will have to see how pricing behaves and competition.

Okay great. And then last one this is probably for Karen, on the investment in the cash balance on hand, I think you mentioned $434 million of cash. Kind of twofold question, one what’s the comfortable cash balance if the world was right with interest rates how much cash would you want to keep on hand and not have kind of invested and secondly is that being put to work now or you got to waiting for a potential rise in December and what might come out of that.

I think you know we don’t have an absolute number that we are looking at but I think I feel comfortable with something in the $150 million range which by the way we are getting almost that amount with interest end of every quarter with regards. It’s almost hard to go below that level anyway just because the way the cash comes in. But we are looking at some new investments, but it's a little bit slower with the expectation that rates are going to go up next month possibly. We're not jumping in very quickly, but we did make a lot of investments toward the end of the last quarter, so they're really not fully based on our third quarter numbers.

Thanks for the answers and congrats on another nice quarter and best of luck as we head into '17.

Thank you very much, Matt.

Thank you. We appreciate it.

Get some rest.

Thanks.

Thank you. And our next question comes from the line of Ken Billingsley with Compass Point. Your line is open.

Hello, Ken.

Hey. Hello, good afternoon. Just wanted to fill in with a couple of questions here. First off, from your interest book of business, as they're shifting a little bit of their business mix, how much is that impacting you? Are you seeing pretty much the same mix of business as before or you're having to make some adjustments as you look at the business that's flowing from them?

Well, keep in mind that there are some of the acquisitions that they're making that are not part of the portfolio share, maturity business and we've talked about the mortgage business in Europe and a few other acquisitions. I think as respect, the business that we saw flow through this quarter, it's all right in our wheel house. It's predominantly kind of small commercial business. No, I'm not seeing a huge shift in our mix. Karen, anything?

Yes. We could see a little bit smaller sessions from the hospital liability quota share for example and when we talked about the mix with the combined ratio that was really the main driver of that. There are very modest changes, but for the size of the account, it has been fairly stable.

Yes and I would add that what we're seeing in the hospital liability makes a lot of sense. The market is becoming more competitive and we think they're reacting prudently to it.

And then on the M&A side, AmTurst historically had done a lot of renewable rights and lately we're seeing more full company acquisitions which gets historical liability. Do you participate in that, or at have Right of First Refusal and what's your philosophy around that if you do actually did Right of First Refusal?

We do not participate on the in-force. We only participate new and forward. In our history there has probably only been one transaction where we did participate in the in-force liabilities and that was back in 2008, but no. The premises that business that's underwritten and managed by AmTrust, we're very comfortable accepting it and [indiscernible]. Many times, the economics of the acquisition deal with that one-off portfolio, we don't share those economics. It makes sense to have a cleaner break between the two.

Great. And then the last question I have is on the investment portfolio – and I missed this before in some of the numbers, but for deploying cash during the quarter, did that tend to happen at the end of the quarter? I believe, Karen, you have said that that doesn't quite reflect the cash that has been deployed. But could you maybe just give a little bit more color surrounding the timing?

Sure. Well, it occurs throughout the entire quarter, but we did have some things that didn't close until the end of the quarter and we also had some mortgage backs that had a very long lead time before they close. Even though we purchased them well into the quarter, they closed late in the quarter.

Right. I'm assuming we could expect that the yield should continue to tick higher than what we'd saw on a blended basis than this quarter as you've deployed additional cash?

It's tough to tell. Our weighted average yield for the new investment this quarter was 2.61 and we certainly like it to be higher just based upon the couple of things I've seen since the end of the quarter. It looks a little higher, but it's hard to know what's going to happen through the rest of the quarter.

I think that some of that will be influenced by what the fed does at the end of the quarter. It's a little hard to predict, but I think it served us well to sort of sit back and just part cash for a while and wait for the yield environment to improve a bit and I think the investments we made in the quarter are at stronger yields than we deployed it back in the second quarter.

And I apologize, I do have one more. Congratulations as well on the A.M. Best upgrade. Now that you're there, I believe in the past you've been operating with the anticipation of working towards that and having plenty of capital. Is there any change though, based on your discussion on having been upgraded? Is there any change in how you look at capital, or needing to look at capital? Not necessarily to get the next upgrade, but just to maintain where you are?

We've always looked at our capital position at the higher level anyway. We weren't basing our capital on an A- rating, we were basing it on an A rating. So no changes there.

The factors that really drove the rating had a lot to do with just seasoning of the business, which we were a relatively new company and we're granted an A minus day one. So with the seasoning process, we feel very good about our capital position as Karen mentioned before and we don't see significant changes the way we look at cap.

Okay. Thank you for taking my questions.

Thank you, Ken.

Thank you. And I am showing no further questions at this time. I'd like to turn the call back to Mr. Noah Fields for closing remarks.

Thanks everyone for joining us today. Apologies for the technical glitch, we will follow it with our service provider and tell you what happened [ph]. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.