Kestrel Group, Ltd. (KG) Q4 2016 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the Maiden Holdings Fourth Quarter and Full Year End 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Noah Fields, Senior Vice President, Investor Relation. Please begin.

Good afternoon and thank you for joining us today for Maiden's fourth quarter and year end 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 fourth quarter of 2016 relative to the corresponding period in 2015. I will now turn the call over to Art.

Thank you, Noah. Good morning. As we indicated in our pre-release communication several weeks ago, in the fourth quarter we have recorded a $120 million reserve charge, reflecting continued adverse development, primarily in the commercial auto line. As you know for quite some time we and others throughout the industry have continue to experience unexpected adverse loss development. In the fourth quarter, we experienced a continued unexpected level of loss development primarily emanating from the 2011 to 2014 historical underwriting years across maintenance. In the diversified segment, much of this activity was focused on an historical excess of loss portfolio and to a lesser extent our pro rata business. In the AmTrust segment we experienced adverse development, primarily in the US program segment. As you may know, AmTrust also reported an elevated level of loss development from their program segment in the quarter. Across our portfolio, the fourth quarter charge are flexible to response to incur loss development during the quarter and an overall increase in our reserves, and view the ongoing loss cost volatility. Karen will provide more details of this following my opening remarks. As a result of the reserve charge, Maiden's full your combined ratio was 103.2% and our return on equity and operating return equity were 1.6% and 1.9%, respectively. Our balance sheet remained strong with total equity of $1.4 billion, which is up slightly from year-end 2015, but it does reflect the impact of higher interest rates on the market values of our securities and a lower level of contribution from earnings in 2016. Importantly, though, absent as the adverse impact of our historical commercial auto-related adverse development, Maiden's performance would have generated underwriting profit and double-digit ROE in operating ROE for the year. Despite the challenges of the quarter and full-year, we're very pleased with both the continued expansion of our business in both the diversified reinsurance and the AmTrust reinsurance segment, gross premiums written in the quarter were up 9% from the year prior, reflecting strong business development across Maiden, absent charge, we experienced an increase in our earnings run rate driven by the continued growth in invested assets and increasing portfolio yields. And importantly, the 2015 and 2016 underwriting years reflect profitable underwriting results and a much more contained exposure to commercial auto in the diversified segment. Looking further at business development, beginning with the diverse side reinsurance segment, gross revenue in the quarter was up 8% versus 2015, while full-year revenue in the segment was up 6% from the prior year. It should be noted that the 2016 underwriting activity reflects a significantly reduced commercial auto component. Those limited account that we do write today reflect terms and conditions that are responsive to the historical development that we've seen over the last several calendar years. More broadly, we continue to see incremental growth coming primarily from our US diversified reinsurance segment, reflects both the addition of new client relationships, as well as the expansion of existing client relationships. As you may know, in our US reinsurance business, we maintain a niche focus on serving the non-catastrophe needs of regional and specialty insurers. We've guided in the past that a significant amount of growth comes from the expansion of our existing client relationships, whether that is a result of their own growth or increase in our involvement in their programs. This quarter was no exception and while we take an underwriting actions in non-renewed several accounts for pricing or underwriting reasons, we maintain the renewal retention rate in our treaty portfolio just over 90% in the fourth quarter, during our active January 1 renewal season. As indicated loss ratios across the portfolio reflect profitable 2015 and '16 underwriting year results. In our historical non-commercial auto diversified loss reserve portfolio, that continues to develop favorably. While US market conditions remain competitive, we continue to believe that our unique client focused business model, along with a highly efficient balance sheet and operating platform provides significant differentiators. Submission activity remains strong throughout the year and while hit ratios were lower than previous years, reflecting continued discipline, we were able to buy the number of new accounts. We just completed our January 1 renewal season activity and we're pleased with the outcome and while competition is challenging, in general, we found in most clients on accounts that needed underwriting and rate corrections were responsive to our revised terms. This is of course the nature of the long-term relationships that we built over many years. We continue to focus on enhancing the value of our client relationships with a growing number of support services and activities that range from regulatory compliance to predictive analytics. While Karen will provide more specific detail on commercial auto, there is clearly been a mark change in the behavior of claims severity, particularly in the trucking and public auto elements of commercial auto. There are many theories about the cause of this phenomenon, but in our view loss cost severity increases particularly in our excess of loss book have been most significant in high density geographies, like Northeast and California and litigation settlement values have grown significantly. While there are definitely behavioral factors, such as distracted driving, less experienced drivers and greater miles driven, they play an influencing role. There's been a very pronounced increase in average excess of loss settlement values at frequency. Unfortunately our diversified portfolio exposure has been significantly reduced over the last several years after rate strengthening and enhance risk selection. In the European focused business, lot of good groundwork was established that we believe positions us to carefully build both the capital solutions business and our auto OEM branded insurance products business in 2017 and beyond. In our capital solutions business we're dealing with an extremely competitive market. We entertained a significant number of opportunities over the course of the year and found a smaller number of new accounts. Most importantly, however, we made substantial progress in expanding market awareness of our highly differentiated capital solutions business which is reflected in the level of submission volume throughout the year. That said, in a highly competitive marketplace discipline is essential and there were dozens of opportunities that we attain [ph] but could ultimately not support. We're confident and over time, our strategy will serve as well. We also believe that 2017 to be something of an inflection point since company's solvency capital ratios in Europe will now be publicly disclosed. We been approached by a number of companies that are beginning to strategize approaches to protect, strengthen and manage the volatility of their solvency capital ratios and reinsurance and subordinated debt are both topics of interest. With regard to our branded auto OEM business, 2016 was a challenging year given the weaken euro. While we maintained our position with our core OEM clients, year-on-year revenue was down. On the other hand, 2016 was a very good year for forward business development, and there are a number of new programs that have been in active development both within the auto OEM space and in expanding area of retailer and financial services branded opportunities. Some of these involve branded auto insurance or payment protection insurance or PPI. You may recall that in our brand insurance model, our European-based team works with best in class insurers to develop branded consumer insurance products. Caption both fees, as well as creating reinsurance opportunities for Bermuda underwriting team. The team also works to develop PPI opportunities for our Swedish life insurance company, Maiden LF. While we hope to see more OEM PPI opportunities during the year, the team has been successful in developing new non-automotive private label PPI opportunities that should begin to ramp up later in 2017. We also expect to entertain a number of auto OEM related PPI opportunities in 2017. On balance, we believe that the diversified segment is positioned for continued disciplined growth. Our target is to expand our diversified reinsurance segment gross writings by 10% in 2017, but importantly, we will not sacrifice profitability for growth. With regard to the AmTrust segment, we continue to enjoy solid growth, and while the pace of increases moderated since the full impact of the Tower portfolio is fully absorbed, growth continues reflect incremental M&A activity, along with modest organic growth. In the fourth quarter of 2016, the year-on-year increase in gross writing was 9%, due in large part to the partial commutation we implement last year, which resulted in an unusually low Q4 premium in 2015. We see responsible underwritings and more moderate to flat growth levels in select business units, geographies and lines of business. Full year gross premiums right – the premium writings increased by 6.3%, which is a bit misleading again, since it also reflects the impact of last years commutation. It’s important to recognize that not all of AmTrust acquisitions are in the main quota share, there have been instances involving new lines of business or existing excluded activities that may choose not to participate in. We believe that AmTrust will continue to react responsibly to increase competition and absent any M&A subject to our contract, relative growth will moderate. We continue to maintain a very active risk-based audit schedule or claims, underwriting and accounting activities, interactively monitoring changes in their risk profile, under underwriting philosophy, claim processes and practices, as well as pricing. With regard to the largest line reinsured workers compensation, we see no significant changes in risk profile, as AmTrust remains focused on the lower severity, smaller commercial accounts. Just summary to AmTrust, we also have seen an elevated level of incurred loss development, primarily in their program business from commercial auto and general liability. We do not believe that the AmTrust commercial auto issues are quite analogous to the adverse trends that we've been experiencing in our US diversified reinsurance segment. As I have mentioned for Maiden's diversified segment, our ratios have chiefly come from excess of loss commercial auto with either trucking or public auto exposures related to the 2011 to 2014 underwriting years. We're not things similar level of late development for AmTrust, their commercial auto portfolio is exposed to a limited level of trucking and public auto risk. We have observed more proactive claimed actions with significant increases in pay loss in case reserves in response to the broader industry trends, in particular with in our last reporting quarters. Within the program business, we did also experienced as I mentioned some adverse development the general liability line and we've responded accordingly. Importantly, despite the adverse development, our AmTrust relationship remain profitable in 2016. In summary, despite the impact of adverse development in the reserve charge in the quarter, there are significant reasons for optimism as we continue to build our unique business. Absent the continuing issues with commercial auto, the balance of our underwriting portfolio has performed well. While we cannot ever be certain that loss cost will not drive adverse gross performance in the future, we believe we have and will continue to be responsive to issues swiftly. As a result of the level of loss cost volatility we've experienced, we'll continue to maintain relatively conservative booking ratio across Maiden throughout 2017. That said, with only a 1% underwriting margin we would expect to return to double-digit operating ROEs in the coming year. While we recognize the concern is such a large reserve charge in the quarter creates, we're committed to restoring underwriting profitability returning to double-digit operating returns in 2017 and beyond, while carefully and profitably growing our business. 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. Good morning. As Noah said earlier, unless otherwise stated, all references to common share data are on a diluted share basis and comparative comments will refer to Maiden's results in the third - fourth quarter of 2016 relative to the corresponding period in 2015. We reported a fourth quarter 2016 loss attributable to common shareholders of $75 million or $0.87 per common share, compared with net income of $25 million or $0.32 per common share. The net operating loss was $70 million or $0.81 per common share in the fourth quarter, compared with a net operating profit and $26 million or $0.34 per common share. Gross premiums written in the fourth quarter of 2016 increased 8.6% to $572 million. The diversified reinsurance segment gross premiums written grew 8% and totaled $157 million. The gross resulted from existing client accounts and revenue from new customers added throughout the year. In the AmTrust reinsurance segment, gross premiums written were $415 million. Net premiums written totaled $521 million in the fourth quarter, an increase of 7%. Net premiums earned were $616 million, an increase of 6%. Net premiums earned in the diversified reinsurance segment increased 7% to $186 million. The AmTrust reinsurance segment net premiums earned were $430 million, up 5%. Net loss and loss adjustment expenses of $523 million were up 32%. The loss ratio of 84.5% was elevated compared to the 67.8% reported in the fourth quarter of 2015' as the fourth quarter of 2016 was impacted by the significant reserve charge, due primarily to commercial auto business, which I will provide more detail on in a moment. Commission and other acquisition expenses increased 8% to $186 million in the fourth quarter. The expense ratio increased to 32.9% in the fourth quarter compared to 32.1% due to changes in the mix between AmTrust and diversified segment, as well as the diversified quota share business which have continue to increase as a percentage of their overall portfolio. General and administrative expenses for the fourth quarter of 2016 totaled $17 million, an 8% increase. The generally and administrative expense ratio was 2.8% in the fourth quarter compared to 2.7%. The combined ratio for the fourth quarter of 2017 totaled a 117.4% compared with 99.9%. In order to provide some visibility to the underlying performance of the current underwriting, if we exclude the fourth quarter reserve charge related to prior-year development, Maiden's combined ratio for the fourth quarter of 2016 would have been 97.9%. The diversified reinsurance segment was 128.3% in the fourth quarter, compared to 103.6%. The diversified segment combined ratio was negatively impacted by reserve additions of $57 million from commercial auto business. Excluding the fourth quarter reserve charge, the diversified reinsurance combined ratio would have been 98.1%. The AmTrust segment combined ratio was 108.1% in the fourth quarter, compared to 95.8%, as net adverse development of auto and general liability reserve primarily related to AmTrust's specialty program business unit, reduced profitability of the segment by $52 million. If we exclude the reserve charge in the fourth quarter of 2016, the AmTrust combined ratio would have been 96%. Additionally, in the fourth quarter we reported $11 million of adverse development in the non-operating other category, which reflects additional reserves for Maiden's former client, National General Holding Corporation. This charge reflects the results for evaluation of the remaining outstanding claims during operational and claims audit conducted in 2016. We believe we're reaching the end of the portfolio runoff, and this increase in intended to address the balance of remaining claims. I would now like to provide some additional information regarding the previously announced reserve charge. During the fourth quarter, we became aware of greater than anticipated losses relative to prior expectation, primarily in commercial auto line of business, in both of our active segments. For the diversified reinsurance segment, commercial auto and current losses were $15 million greater than expected, including both excess of loss in quota share contracts. In response to this higher emergence, we booked $57 million of additional loss as it became clear that our prior expectations were not sufficient. In the AmTrust reinsurance segment, we booked $52 million reserve charge, primarily related to $10 million greater than expected commercial auto and general liability incurred losses in the program business. Similar to our actions in diversified reinsurance, in view of the higher level of loss emergence, we increased our provision for this element of the AmTrust reserves. Finally, I'd mention, we took $11 million of charge in the other category reflecting the non-operating NGHC runoff business. As a result of this loss emergence across our underwriting portfolios, the total reserve charge at $120 million have taken in the quarter. We believe we have put these issues behind us, but is always difficult to make definitive statements about reserves and this represents our current best estimate. We are working with all of our clients to performance of these lines and have been reducing exposure, re-underwriting and raising prices as appropriate. Turning to investments, net investment income for the fourth quarter was $39 million, and a 11% increase. For the 2016 fiscal year, net investment income was $146 million, an increase of 11%. Investable assets increased 9% to $5.1 billion, compared to $4.6 billion at December 31, 2015. The average yield on a fixed income portfolio, excluding cash is 3.3% with an average duration of 5.07 years. The new money yield on the $588 million of investments purchased during the fourth quarter was 3.36% with an average duration of 6.57 years. That said, we expect our new money duration to moderate in future quarters. During the quarter, our focus remained on purchasing high quality investment grade fixed income securities and putting more cash to work as rate increase. Including cash, the average duration is 4.9 years versus an average duration of liabilities of 3.8 years. We continue to target a portfolio duration of assets to be reasonably close to the duration of our liabilities. However, this difference may change from cash to cash - from quarter to quarter depending upon the level of cash on the balance sheet at the end of the quarter. With our strong operating cash flow and very limited exposure to natural catastrophes, our liquidity risk is relatively modest. Operating cash flow was $144 million during the quarter. Our cash and cash equivalent position fell by $284 million to $150 million as of December 31, 2016, compared to $434 million at September 30, 2016, due to active investment activity during the quarter. We regularly evaluate our capital levels to ensure we have the most efficient and secured capital structure available to us, while the mark to market impact on our fixed income portfolio was significant during the quarter, our unrealized gains position is stronger than in 12/31/2015 and our capital levels remained strong. Shareholders equity was $1.4 billion, up 1% compared to December 31, 2015. Common equity at the end of 2016 was $1.0 billion, an increase of 21% compared to year-end 2015, as common equity increased following the conversion of Maiden's mandatory convertible preference shares on September 15. Book value per common share was $12.12 at December 31, was 3% higher than December 31, 2015. Last week our board recognized continue earnings power through the declaration of $0.15 per common share of quarterly cash dividend. As I've mentioned previously, we had two securities available to be called this year, which we hope to replace at lower cost. We have $100 million of 8% senior notes eligible to be called in later in the year, there are 150 million of eight new quarter preference shares available to be called. If we deem in appropriate to call the securities depending upon capital requirements and market conditions, we will notify the market as soon as appropriate. On a final note, while we expect to file our 10-K on a timely basis, there are number of audit procedures still underway and if necessary we could seek an extension should the audit not be completed before the filing deadline. Should that be the case, we will of course inform the market as appropriate. I will now turn the call over to Art for some additional comments.

Thank you, Karen. As we think about 2017, discipline will be key to restoring profitability across our underwriting platform. The landscape of winning and retaining business remains highly competitive. In the US competition remains intense, while with Maiden generally able to achieve its required rate with clients. In Europe, competition is severe, with many reinsurers focus on protecting their market share. There remains an overabundance of capital available to the global insurance markets with demand being outstripped by capital growth. With regard to changes in the US tax court under discussion, there will be some level of uncertainty throughout the year. It's at this point premature to make any definitive estimates of what if any impact this will have on Maiden, at this point we do not believe the proposed changes will significantly impact our business model, but will be responsive to any potential impact to our cost structure. We entered 2017 with the primary objective of strengthening our operating performance t through improve underwriting, invested asset growth and improving yields in our fixed income portfolio. As Karen mentioned earlier, we have a great opportunity to lower our cost of capital. Our most recent underwriting performances is already profitable. From a business development standpoint, we're focused on the disciplined expansion of our diversified business both the US and Europe. Our AmTrust relationship remain strong profitable, despite some adverse development in the quarter. Absent, significant acquisition activity, we expect favorable, but more moderate growth in 2017 and as they maintain discipline. Across Maiden, our focus is on returning to delivering double-digit operating returns on equity, producing underwriting profit, increasing earnings and book value and carefully expanding our underwriting portfolio. We will not sacrifice profitably for growth. But we do believe that our highly differentiated business model provides unique strategic platform that’s focused on delivering exceptional value to our regional and specialty insurer clients, leveraging our scale and our highly efficient business infrastructure and maintaining our market specialist [ph] orientation position as for continued disciplined growth. This concludes our prepared remarks. Operator, could you please open the lines for Q&A.

Thank you. [Operator Instructions] The first question is from Randy Binner of FBR. Your line is open.

Good morning, Randy.

Hi, Randy.

Hey. Good morning. Thanks. Hey, kind of just picking up on the end of - the commentary there, is like a details, but Karen did you mention something about the audit being ongoing and a potential delay, I didn’t know if that heard that right, is relation to 10-K or did I not hear that right?

Yes, what is said was that, we still have a number of procedures underway and if we need to seek an extension we'll let you know. As you know, it’s due tomorrow. So we're hoping to conclude if we got a full-court press, but as of this moment we are not concluded.

At this point we expect to conclude it.

Okay. What's the nature of those procedures?

I think one of the challenges this year in terms of profits is that with the reserve transaction that we took several weeks ago when we announced, that put us a little bit behind in terms of the whole process and our auditors have been responsive and working along side and working with us to conclude the audit, but it's just I think delayed a little bit in terms of where we were – where we've been at the same point historically, we're little bit behind that right now.

On the – thanks for that…

You're welcome.

On the calls in '17, has the market – so you're looking at basically you know, eight, kind of handles right now and when you're paying [ph] is the market still kind of materially better for fixed income securities that you could swap into, can you give us a little color, and we expect there because that in the past you've been able to improve your balance sheet to the benefit of the income statement you know, it's not like the old 14% prospect, but there still it seems like you could do better, can you give us any color on what you can do there?

Yes, we definitely expect that we'll be able to do better and we'll be looking – we've had some initial conversations we'll be looking to do something with those securities later when you expect.

I think its fair to say that in terms of market outlook and some of the feedback we've been received from bankers, is actually been quite positive. You know, I don't think we've lost a lot of ground. I think the spreads have narrowed a bit and so you know and the commentary from one of our bankers has been that they don't expect material changes in that – in the near future. So we're cautiously optimistic you know, we won't know until we do it, but you know we certainly expect sizable improvement in our cost to capital from both of these transactions.

Yes. And there hasn’t been any – with AM Best there has not been a shift post that reserve charge, is the correct?

They have not made any commentary about the reserve charge. We always communicate with our rating agencies in advance and we are trying to be as responsive we can to them. And I won't speak for them, but you know, we've had good constructive discussions and I think there is an acceptance that this is a line of business that’s been affecting a lot of companies and I think the recognition that you know, the actions is appropriate.

I may sneak one more and I am sure the other guys have question. But the $11.5 million reserve4 addition an the runoff Nat Gen [ph] segment, is that commercial auto -related or - and I think the answer - and I will be surprised if it is, or is that just kind of latent BI claims on auto accidents that have persisted?

Yes, Randy, what we've done, as you know, in the past we've had a little bit of movement there. This was about $1 billion portfolio of business that we assumed over that period of time and this last year we want to kind of get a definitive sense of you know how the tail, the last dollars of the remaining claims where we think there's a greater volatility, historically that’s the case, last dollars are the most unpredictable.’ So we had our claim professional from our Bermuda platform out, great cooperation from NGHC. We looked at it, you know, largely the universe of sort of claims that we felt could influence loss cost and we kind of made a sort of ground of evaluation of what that value is and that’s what this number reflects. We feel we've got it behind us, could there be a little of noise I suppose, there could, but we try to be responsive and kind of bring this to an end.

Mostly personal auto though, the subject matter…

As you know, they have a commercial auto look Randy, is a very kind of low vol, its not you know…

Yes…

It’s sort of a more business auto. So some element of portfolio include that, but I wouldn’t say that it – that’s the driver of this additional loss activity, I think its just basically large BI claims that are in the tail.

Yes, right. Okay. Thanks a lot.

You're welcome. Thank you.

Thank you. The next question is from Ken Billingsley of Compass Point. Your line is open.

Morning, Ken.

Hey, Ken.

Good morning. I want to just follow-up on – and these are kind of related to the reserve charge, its kind of how it impacts your numbers. The first one is, I know you announced on the AFSI portion that it relates to commercial auto NGL. They also mentioned that in the special program, there was a worker's comp piece in there, is that – does that have an impact on you, is that lines of businesses that you had excluded and if you could just clarify I believe you don't include non-admitted business that they write?

Yes. Thanks, Ken. We did not take a reserve charge for workers comps, it really was related to auto and general liability. When they separate out their program versus you know, their non-program is possible that a piece of workers comps developed differently than the restructurings. But when we look at our overall worker's comp from AmTrust it performing very well. In on fact, we're pretty happy with where we are with that business, particularly as California continues to improve. And the reserve charge that we took was really related more to the program auto NGL.

And as you know, I mean we do our own independent analysis. You know, we have an accurate investment [ph] analysis as well and you know we don't try to reconcile back to what their view of ultimate. The other important point is you know, in terms of the net reserve movement it could be influenced in their business by other offsetting elements or elements of runoff portfolio they've acquired that we don't participate on. So there is just a lot of - it’s hard to split point-to-point. But I think for our purposes, the action was dominantly around commercial auto NGL.

Okay. And then when I look at the diversified re-segment, I was looking just the accident year of fourth quarter of '16 versus '15 and it looks like on an accident year its running, even better year-over-year, and my question stems around and I believe and maybe I read this wrong, but on the reserve charge it also included some fourth-quarter adjustments as well in the $120 million or I guess specifically I mean, where we talking about more about the $57 million for diversified-re. So how much of that $57 million is 2016, and specifically fourth-quarter adjustments that you identified?

Yes, I mean, the diversified charge of $57 million was for act for – really underwriting years, 2015 and prior. The 2016 year is holding up, it’s you know, largely at price, but early indications are that if you know the pricing is holding and actually 2015 has really been pretty good. So there are some you know, some areas and some lines business for 2015 moved a little bit, but while the total with 2015 and prior, the vast majority of it was 2000 – really 2012 through 2014, earlier in the year some of developments that we took you know, we had 2011 was causing more of a problem, but that settled down a little in the fourth-quarter. So for diversified 2012 to 2014 the majority of it, little bit in 2011, little bit in 2015 and 2016 largely holding at this point.

Yes, the other point of that Ken is, yes, I think I mentioned earlier in my prepared remarks, but the other excess lines are actually continuing to develop well. So we've had good performance there and we're always kind of you know, being skeptic in terms of whether that performance could also be you know, find a space with latency, but we've done a lot of aggressive audit activity on that, anything can happen, but as it stands today, you know we feel pretty good about the margins that we generate in that business and continue to generate.

And no current year adjustments of significance, I mean, I hear what you're saying about 2016 is holding up well, but [indiscernible] there aren’t any current year adjustments from prior quarters within the year?

Not at current, is just that, we have been booking commercial auto higher during 2016. So we don’t – we did not adjust the prior quarters and so for 2015. We just started them higher.

And just last question to follow up, on talking about the filing of the 10-K, its told that AmTrust and NGHC both already reported, they are gong to file to delay this, does their delay have any impact on your reason you guys would be delaying?

I mean, I think our view is it, we're – it does mechanical process of completing the audit and the fact is you know, we start a little bit late. So I would say is ours is specific to Maiden and its completion of – the information is being reviewed and evaluated by our outside auditor, but we don’t – we wouldn’t suggest that there is a – there are situation as the same as either of them in that respect.

But you know, it’s not something that you are waiting on them for – it’s all your own process at this point?

It’s our process.

Okay. Thank you very much.

Thank you. The next question is from Meyer Shields of KBW. Your line is open.

Thanks. Good morning.

Good morning.

When you look back is there anything different about the current commercial auto cycle compared to past examples of lines of business underperforming, in other words, you talk about expecting your exposure, but it sounds like rates are getting better terms and condition or getting better, what point in time does this become an attractive line?

You know, it’s a great question. I mean, I think we may have comment before, we don’t shy away from it, if we can get the terms and conditions we need, but unfortunately we don’t necessarily see that – I mean, we could be out of sync with the rest the market and they are seeing opportunities to write at rates lower than us and they are writing, that's what makes it a competitive business. But from our perspective, I wouldn’t say there is a dramatic wholesale opportunity to expand our auto book. We're entertaining opportunities and kind of we're moving forward you know, as far as the preface to your question in terms of this line of business, in our history and this predates Maiden, you know, the old GMAC RE platform, we've never seen a line of business that performed this adversely and this dramatically in terms of expanded latency. You can assesses things and you can say well, you know, obviously whenever you see a development that exceed your expectations, you say you got pricing wrong, but what's happening here is I mean, the loss development characteristics that were somewhat – sort of anticipated have completely been invalidated. So we're kind of chasing the tail if you will and trying to get it right and I think some of our actions at year-end reflect the fact that obviously if we continue to see incurred development, we've got to react. So we want to be responsive to that in the most significant way that we can and be responsible. But I don't think commercial auto as - I think there are elements of the way commercial auto has been historically priced that are flawed, particularly in the environment we're in now, where you have a lot of variability in miles driven. You've got a lot of environmental factors that aren’t easily discerned in a traditional underwriting process. So what we've been trying to do is work with clients to rethink the way that commercial auto is underwritten priced and monitored and I think there is an opportunity for much more active loss control support that we and our clients provide their insureds you know, there's been you know Telematics information that's been maintained by a lot of commercial auto firms, but they are necessarily being used in tandem with the insurer to create a better risk profile. And I think that's where an opportunity is for us. That’s a long-winded answer, I hope that's responsive.

No, it is. It’s very thorough, I appreciate it. But I guess a follow up question on that, is to the extent of their environmental factors and maybe the settlements – settlements trends or something to stick on, how ratchet [ph] would be about some of these environmental factors migrating to other lines of business, it it's stemmed by of access [ph] litigation or something like that?

I think that’s a great question, I think I am not sure what the reason commercial auto is been an area focus, but there was a recent conning study that you probably read, that also tended to point to kind of the litigation trend and how it is affected settlement values in commercial auto. I think there's always a risk of that you know, depending what areas of focus kind of the plaintiff, kind of legal side is focused on, it can have a pronounced effect on the line of business. But to date we're not seeing it emerging of the lines, but we're ever mindful of it, in a lot of our audit activity, in our evaluation activity with clients is focused on trying to identify any changes in trend.

Okay. And then just final question, maybe with regard to Karen's comment about best estimates, should there be maybe an increase margin just to reflect the uncertainty around these trends?

So well, certainly in commercial auto absolutely, I mean, our pricing as we're putting forth today reflects the fact that there is volatility in that line of business. So we should react on a risk-adjusted basis to ensure that our margins are strong. Obviously our expected loss cost are calculating higher than they would have two, or three years ago because of what we've seen in terms of latency, but beyond that we need to make sure particularly excess auto that we're getting stronger underwriting margins because of that probability.

Okay. But is there a need for margin and workers comp NGL?

At this point as we see it you know, again if you look at the totality of the long-term relationship that we had with AmTrust, this has a very pronounced effect on the quarter, but in the aggregate, our combined ratios are still kind of well within tolerance. So we kind of view the year-end effect of this as certainly something that certainly has an impact on our earnings in the quarter, but on a long-term basis. I think it just reflects one, the fact they we're reacting to the adverse you know, as effectively as we can, but nothing that necessarily invalidates our view about the profitability of the business going forward and the expected margins. I mean, the margins on the AmTrust quota share have been reasonably strong for quite some time. But we spend a fair amount of time looking at individual pricing, doing spot audits of different areas of the business and in general I think we've been comfortable that kind of the reaction to competitive markets they have a lot of opportunities because of their knowledge of the marketplace that they focus on, of really kind of, you know, looks like turning the dial down in areas where there is hyper competition and leveraging areas where they think they have a better advantage and they do have some substantial strategic advantages in their operating platform.

Okay. Thank you. That’s very helpful.

You're welcome. Thank you, Meyer.

Thank you. And the next question is from Matt Carletti of JMP Securities. Your line is open.

Hey, thanks. Good morning.

Good morning.

And so a lot of ground is being covered, all got left is a numbers question, so probably for Karen, are you able to give us net reserve by what's behind the diversified business, behind AmTrust and behind others, I am just trying to - another metric to kind of put the incurred charges in relative terms?

So let me see if I understand your question, are you talking about kind of like the relative reserves between diversified and AmTrust, I am not sure…

Yes, or just the – as I know you guys kind of [indiscernible] your individual comp P&L and so forth, what is the net reserves supporting the diversified business today or at year end and then what is the net reserves supporting AmTrust today and what are the net reserves behind the runoff other business today?

I am not sure, we don’t typically kind of disclose that level of detail, I am not sure meaningful it would be quite honestly, unless you had a comparison point for it. But I would say that you know, obviously specific to commercial auto, we definitely have a much stronger reserve decision than we did a year ago. But you know, in the totality, our reserves reflect managements best estimate of the ultimate exposure.

Right. Are you able to disclose reserves that you have at a total company set aside for commercial auto book?

Yes, commercial auto represents about 11% of total reserves.

So about $3 million in total reserves roughly, it’s about 11%.

Okay. Great. That’s helpful. All right, thank you very much. And best of luck in coming years.

Thank you, Matt. I appreciate it.

Thank you. And at this time, I like to turn the call back over to Noah Fields for closing remarks.

Thanks everyone for joining us today. We look forward to speaking with you in the future. Have a great day. That concludes our call.