Kestrel Group, Ltd. (KG) Q1 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Maiden Holdings First Quarter 2017 Earnings Conference Call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Senior Vice President, Investor Relations, Noah Fields. Please go ahead.

Good morning, and thank you for joining us today for Maiden’s First Quarter 2017 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 Pat Haveron, President of Maiden Reinsurance Ltd. 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 other 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 that 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 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 results in the first quarter of 2017 relative to the corresponding period in 2016. I will now turn the call over the call to Art.

Good morning and welcome. Following our challenging fourth quarter, results during the first quarter of 2017 have improved significantly, but is still a bit short of our expectations. Nevertheless, we are optimistic that we remain on track to achieve double-digit non-GAAP operating returns for the full year, profitable underwriting results and disciplined year-on-year growth. In the quarter, in addition to recording more conservative initial loss picks for the most recent underwriting year, we did experience a modestly higher-than-anticipated level of loss activity from prior periods, which we will discuss further. In combination, these factors resulted in a combined ratio of 100.9%. While the market environment remains challenging, gross premiums written grew 7% during the quarter with growth in both of our operating segments. During the first quarter of 2017, non-GAAP operating income attributable to common shareholders totaled $23 million or $0.26 per diluted common share, and an annualized non-GAAP operating return on average common equity of 8.7%. We’re pleased with the significantly increased run rate of investment income driven by continued growth in invested assets, and that should continue to generate enhanced net income going forward. Looking closer at gross revenues -- gross revenue growth by reporting segment. Diversified Reinsurance premiums grew 5% in the first quarter. In the U.S., we enjoyed a combination of organic and, to a lesser extent, new client growth, maintaining our focus on serving the needs of small to mid-sized regional and specialty insurance clients with an emphasis on non-catastrophe working layer business. As we have seen in the past, existing clients remain a strong source of revenue growth. In addition to growth of existing client relationships, we were successful selectively adding new business and establishing relationships that we can hopefully develop going forward. We’re also rolling out several new products and services to our customers including a predictive analytics tool to assist commercial auto clients to better select risks. We continue to leverage our competitive advantages including our long-term relationships, our efficient operating platform and our unique collateral trust, which are helping to mitigate the impact of competition. However, there were some underperforming programs that we opted to non-renew based on pricing or unacceptable terms and conditions that didn’t meet our requirements. Maintaining strict underwriting discipline is essential particularly in a challenging market. In Europe, we continue to develop our capital solutions business and we’ve been successful increasing awareness and understanding of our unique combination of reinsurance and subordinated debt, and that has resulted in meaningfully increased submission activity. That said, market competition across Europe has been intense and growth has been challenging, as companies in Europe are required to publicly disclose their solvency capital ratios due to the continued rollout of Solvency II requirements. We do expect demand to increase for our targeted capital solutions products and services. Also in Europe, we continue to develop opportunities with our local insurance partners that focus on auto OEM-branded insurance products, including personal auto and retail and financial services-branded payment protection insurance or PPI. We have been expanding our partnerships both with insurers and with manufacturers. And we’ve also been expanding our business development activities to include dealer group focused opportunities to complement our manufacturer brand programs. We’re pleased with the opportunities we are seeing and we look forward to continue to grow as we develop this unique business niche. Beyond the auto OEM marketplace, we’re also developing private label PPI solutions for other affinity groups. We expect an increase in revenue in subsequent quarters reflecting some of these opportunities. The AmTrust reinsurance segment grew 8% during the first quarter, which is below historical growth levels for AmTrust but more in line with our expectations, and it reflects continued discipline and the continued impact of 2016 acquisition activity. As you may know, AmTrust continues to build its business. But in some cases, we do not participate in certain new lines of business. As a result, our growth rates do not always match theirs. In terms of worker’s compensation, AmTrust’s largest line of business, we continue to monitor the qualitative aspects of that business and we’ve not seen any significant changes in risk profile within the lower severity smaller commercial accounts that AmTrust targets. Looking a bit further at the underwriting results for the quarter. Maiden realized total net adverse development from prior years of approximately $17 million for the quarter, with around 2/3 emanating from the AmTrust segment and 1/3 from Diversified. Beginning with the Diversified segment, adverse development totaled approximately $6 million. While still a challenging loss call, cost environment, development from commercial auto has moderated significantly in the first quarter with no material treaty excess of loss development. This is our first relatively benign quarter of commercial auto adverse development in the last 8 quarters. Our core underwriting year run rate combined ratio in the Diversified segment is 96.8%. This reflects an improved business mix with a significant reduction in commercial auto exposure as we focus our efforts on the higher-margin segments of our underwriting portfolio. Importantly, the more modest commercial auto portfolio that is underwritten today does reflect significantly improved terms, rate levels and risk selection. As of the recent impact of commercial auto develop, the balance of business underwritten in the Diversified segment has been consistently profitable over the last many years. Looking at underwriting results in the AmTrust segment. A significant portion of the higher year-on-year combined ratio emanates from higher initial loss ratios. We believe that it’s proven to recognize that underwriting volatility has been increasing and sensible to be more conservative in this challenging operating environment. In addition, we have had a relatively modest approximately $10 million of net adverse development in the quarter. But importantly, commercial auto development was essentially flat. At this point, we don’t view the current run elevated level as run rate. As I mentioned earlier, we’re focused on continuing to build our Reinsurance portfolio in a disciplined manner and to enhance underwriting performance and returns. I’d like to now turn over the call to our Chief Financial Officer, Karen Schmitt, to review the results in greater detail. Karen?

Thank you, Art, and 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 result in the first quarter of 2017 relative to the corresponding period in 2016. Maiden reported first quarter 2017 net income attributable to common shareholders of $20 million or $0.23 per share, compared to $27 million or $0.35 per share. The non-GAAP operating earnings were $23 million or $0.26 per share, compared with non-GAAP operating earnings of $28 million or $0.37 per share. Gross premiums written increased 7% in the first quarter of 2017 to $923 million. Gross premiums written in the Diversified Reinsurance segment totaled $332 million, an increase of 5% due to new business and growth of existing client relationships. In the AmTrust Reinsurance segment, gross premiums written were $591 million, an increase of 8%. Net premiums written increased 14% in the first quarter of 2017, totaling $901 million. Net premiums written increased due to premium growth in both operating segments as well as a lower proportion of premiums ceded to retrocessionaires compared to the prior period. Net premiums earned were up 15% to $709 million in the first quarter of 2017. In the Diversified Reinsurance segment, net premiums earned increased 17% to $202 million. The AmTrust Reinsurance segment net premiums earned were $508 million, up 14%. Maiden’s year-on-year increase in net premiums earned was due to lower utilization of retrocessional capacity. Net loss and loss adjustment expenses of $481 million were up 19%. The loss ratio of 67.4% was higher than the 65% reported in the first quarter of 2016. Commission and other acquisition expenses increased 14% to $222 million in the first quarter of 2017. The expense ratio decreased to 33.5% for the first quarter compared with 33.9%. General and administrative expenses for the first quarter of 2017 totaled $17 million, a 12% increase. The general and administrative expense ratio was 2.4% in the first quarter of 2015 compared to 2.5%. The combined ratio for the first quarter of 2017 totaled 100.9% compared with 98.9%, with no impact from catastrophes in 2017. The Diversified Reinsurance segment combined ratio improved to 99.9% in the first quarter of 2017, compared to 102.9%. The Diversified Reinsurance results in the first quarter last year were impacted by adverse development of U.S. commercial auto business and our treaty excess of loss business, which was not a factor in the first quarter of 2017. We did experience a modest approximately $2.5 million of adverse commercial auto development in total due to facultative auto and pro rata accounts. Another $2.5 million of adverse development occurred in our International Insurance Services personal auto reinsurance business. In particular, there was a $2 million increase in German auto reserves. We view this as a onetime adjustment of loss development tail factors. Going forward, we expect this result to normalize and improve through the balance of the year. The AmTrust Reinsurance segment combined ratio was 99.8% in the first quarter of 2017, compared to 95.3%, partially due to higher initial loss ratio on the master quota share as well as adverse development of approximately $10 million. There was no adverse development booked for AmTrust commercial auto in the quarter. The adverse development related to general liability and Worker’s Compensation lines of business in response to higher loss emergence in recent quarters. While there’s a possibility that some of the development is a reflection of recent claim process changes and a review is underway, we chose to recognize that movement as adverse development in the quarter. Net investment income for the first quarter was $42 million, a 16% increase. The $42 million includes approximately $3 million of call premium in the first quarter. Investable assets increased 1% to $5.1 billion. As of March 31, 2017, the average yield on the fixed income portfolio excluding cash is 3.29% with an average duration of 5.06 years. The new money yield on $121 million of investments purchased in the first quarter was 3.36%, with an average duration of 4.73 years, which is down from the average duration of the 6.57 years for the investments purchased last quarter. Maiden’s investing activities continue to focus on high-quality, investment-grade, fixed income securities. Including cash, the average duration is 4.86 years versus an average duration of liabilities of 3.77 years. Operating cash flow was $45 million during the first quarter. Our cash and cash equivalent position rose by $44 million to $193 million as of March 31, as compared to year-end 2016. Total assets increased 5% to $6.6 billion at March 31 compared to $6.3 billion at year-end. Shareholder’s equity was $1.4 billion, up 0.7% compared to year-end. Book value per common share was $12.19 at March 31, or 0.6% higher than December 31. As we’ve discussed previously, Maiden has 2 opportunities in 2017 to refinance debt security and preferred share that are annually paying an 8% yield and an 8.25% dividend respectively. Looking at their current trading ranges of our debt securities and recent issuances, we believe we can meaningfully lower our cost of capital. I will now turn the call over to Art for some additional comments.

Thank you, Karen. Before making some final remarks, I think it’s important to remind shareholders of the processes and controls associated with the management of all client relationships and transactions. It’s common practice and procedure to maintain active diligence of clients by carefully reviewing and scrutinizing publicly available data such as financial statements and regulatory filings along with client-developed premium loss reports in addition to conducting periodic on-site auditing of underwriting claims and accounting relating to the contracts and clients we reinsure. On a quarterly basis for each client relationship, we complete our own actuarial analysis of all active and run off business. In no instance do we accept and book our clients’ own actuary opinions but rather independently establish our own estimates. In addition, on an annual basis, our independent external [timing] actuary develops their own view of ultimate loss development for the company. This has been and it continues to be our process since the formation of the company. These controlled processes enable Maiden to actively manage and respond to poor performance, validate the accuracy of client-provided account data and most importantly, maintain balance sheet integrity. There are no exceptions to these controls and procedures. We believe this process allows Maiden to respond to adverse trends quickly, work with clients to alleviate performance issues and ensure the integrity of financial reporting. Turning now to the market. We continue to see highly-competitive conditions across the global reinsurance markets. In the U.S., commercial auto and personal auto business lines are clients that are strengthening rates following significant industry loss, cost increases and adverse development. We’re currently entertaining several expansions of existing programs and we believe that a number of our customers could benefit from the impact of contraction in this market. Non-catastrophe property, workers’ comp, general liability, umbrella and [act] and health remain competitive but stable. For Maiden, these lines continue to perform well, and we’ve generally been successful in achieving improved terms and conditions where performance has been challenging. While broker commentary suggested rate declines are moderating with price increases unlikely given the abundance of capital available in the reinsurance market, Maiden continues to navigate this challenging market by maintaining discipline and by delivering value to our customers. In the U.K., changes to the Ogden tables for auto excess exposure had very little impact on Maiden results but may provide an opportunity for us as companies with exposures to the rate change may require additional capital to meet reductions in solvency ratios caused by the new rate. In general, we expect the market to remain competitive but are excited by a number of opportunities to properly grow the business in Europe and in the U.S. Opportunities in the OEM insurance base as well as the capital solutions business have positive trajectories. We continue to emphasize disciplined growth and we will never grow for the sake of growth. Profitability is at the core of every deal we write. Loss cost remain challenging and we have increased our initial loss ratios to address the more volatile environment. Growth in invested assets and an improving yield environment will help continue to improve our net investment income. Our G&A expense ratio remains at industry-leading levels and we expect to maintain those levels going forward. And our cost of capital should also decrease this year as we refinance callable securities, which currently have coupons of 8% or more per annum at a lower rate. Despite the competitive environment, we feel positive about our prospects this year and going forward. This concludes our prepared remarks. Operator, could you please open the lines for questions-and-answers?

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

I want to just follow up on some of the reserve commentary that are made near the end of the dialogue there. So you talked about coming independently auditing your counter parties, which makes sense. And so particularly, in regard to the interest course here, you mentioned GL and workers comp with -- I think you said GL and workers comp was a source of the reserve charge that you took in the quarter as it relates to that quarter share. And so my question is, does that parallel the adverse they reported this quarter? Because I think there they had taken a charge in a casually -- only the run-off. So that might be GL but wouldn’t be comp. So just wanted to clarify that if you’re setting kind of higher pick and/or charges away from what they actually did in the quarter?

Yes, Randy, we don’t get a lot of visibility in what they’re booking and certainly heard at the same time that you heard it. There are some programs that are in run-off for GL and that was part of what we saw as well this quarter. But the $10 million was relatively modest in terms of the size of the AmTrust contract. And so those 2 lines are really where the majority of it came from this quarter.

Randy, the other thing I would say is that when you look at kind of our portfolio versus their portfolio, there are obviously a number of things in their portfolio that aren’t in ours. The runoff portfolios of the acquired entities is an example in the comps base and other lines. So it’s awful hard to look at apples-to-apples on this. What we do tend to do is look at what we see in our development and as Karen said, it’s relatively modest, we saw something in diagonal. I think she alluded the fact that there could be some claim processes that are affecting that and we’re going to be in the process of evaluating but certainly nothing to push the panic button on.

So, yes. So that was the next one. So the work changes you discussed on it, I assume those are work changes in the claims department? And that’s in your claims department, or in AmTrust?

No, we’re just seeing that development coming through in the last kind of review process. And there is some indication that there are areas where there has been some strengthening of staffing and so on that may be creating some acceleration in development. We don’t know at this point.

Again, that’s staffing at AmTrust, not at Maiden?

No. Our process remains the same. I think last year we completed over 20 audits and we were obviously on track to do the same this year.

Okay. So more claims adjusters find more claims. Is that kind of the layman’s way to understand that?

Well, or you respond more quickly to things that you see as your staffing improves.

That’s helpful. And then on your comments on workers comp, so workers comp, so reserve adequacy has kind of faded for the whole industry and a number of companies I cover. And the workers comp has kind of been the thing that’s been working. So I’d be curious, you sound like you’re more cautious on workers comp in your comments there. I was just wondering if you could just kind of elaborate a little bit on what you’re seeing there. Is it certain geographies, hazards, classes, case sizes? Where are you cautious in comp? Because I generally think of comp as being about as good as it gets right now from a reserve perspective.

We would agree with that. I think we’re more cautious in terms of kind of a forward environment. I think we’ve seen, obviously, we saw some loss cost volatility in commercial auto and as market competition continues, we just want to be maybe a bit more conservative in our views. There’s nothing we’re seeing in terms of risk selection or what we see in terms of -- let’s take AmTrust as an example, in terms of the pricing activity. All that we’re reasonably comfortable with. We haven’t seen the portfolio shift of risk. We still see really fast closure ratios on claims, which is a pretty good indicator that the AmTrust portfolio is different than the average comp book. So I think it’s more just a little, I guess given what we have gone through the last couple of years on one line of business, I think our view is we want to be a little bit more conservative across the board.

And our next question comes from the line of Matt Carletti with JMP Securities. Your line is now open.

See, Randy I think you covered the PPD quite well so I just have a few other questions. If we look at each segment backing that off, so if we take Diversified, if I’m doing my math right it’s about three points on the loss ratio there, give or take. So you have about a 97 combined accident year in the quarter. Is that, absent other movements, is that a pretty clean number? Is that a number that you feel you can get to, I’m not saying next quarter, but in the environment that’s kind of an achievable bogey? Or are there other moving pieces there that I might not be considering?

Yes, I mean that is the number without prior year development and we feel pretty good about that. That’s not, as you said, that’s not to say we’re going to get there next quarter but that’s what the current year would look like.

I would add to that, Matt, that we see mixed changes, too. It can obviously affect it, right? So if we write more of a higher loss ratio or expense ratio, we could see kind of loss ratio movement there, and even combined ratio movement given the mix. But yes, on balance, we feel pretty good about kind of the portfolio, particularly since commercial auto is so relatively small now. The other lines have been performing well for quite a while. So we feel pretty good about that.

Okay. And if I use the same logic on the AmTrust side? I mean there’s a little less in terms of points, I think about 2 points. But you take the, just shy of 100, say it’s a 98, kind of [ex] the development, that same kind of dealing would hold that that’s a comfortable level going forward?

Yes, I think that’s right. One of the things we said I think at year-end was I think in terms of our return targets and kind of operating performance, we think even at a point of underwriting margin, we can ship develop pretty solid operating non-GAAP ROEs. So we still feel that way. So I’d say looking at kind of 98 to 99-ish absent adverse develop would probably be a fair way to look at us.

Okay. And then just more specifically on the AmTrust side. The expense ratio has -- in the last 4 or five quarters kind of worked its way up, not huge, but from kind of mid-31s to just over 32. Is that -- I know that depending on where the business is produced at AmTrust, there’s different seating commissions and so forth on it. Is that mix shift that’s happening there? And it should kind of the current quarter expense side of the equation a reasonable run rate? Or is there something else going on?

Yes, Matt, that is definitely mixed. The Hospital Liability quota share has a 5% commission versus the commissions on the other business. There’s also some portions of the package policies that have a slightly higher commission. So it’s just mixed and there’s been no change in those actual expense ratios.

And then just last one. Net investment income was quite strong in the quarter and I think you guys had some opening comments on it, anything going on there besides just kind of growing assets in slightly better yields? Is the 42 million in the quarter is a reasonable starting point for a run rate?

Yes. I mean, as I mentioned, there’s $3 million of premium from bonds that had been called during the quarter. It’s kind of hard to tell whether that should be run rate or not. We’ve had $2 million last quarter but we had none in first quarter 2016. So the stronger run rate with a higher level of assets will continue. I can’t say whether we’ll have call premium every quarter or not though.

Yes, [indiscernible] without the call premium in effect [indiscernible] the run rate was up.

[Operator Instructions] Our next question comes from the line of Meyer Shields with KBW. Your line is now open.

Can you talk about the -- any changes in the percentage of your premiums coming from property lines or weather-sensitive lines? Is that changing significantly?

I know there was a fair amount of discussion on the AmTrust call from some of the property affecting their portfolio. That came significantly from segments we’re not reinsuring. So the personal lines component that came in with the public, we don’t reinsure that. The syndicates in -- at Lloyd’s and so on. We’re not reinsuring that. So no significant -- I think there is a bit of a lift in terms of just the small commercial business that they’re writing the package that as they grow that, we’re seeing a lift in overall property premium. But they’re probably smaller exposed accounts in terms of the amount of limit per account written.

Okay, so is there any reason for us to anticipate the different catastrophe loss provision in ‘17 [indiscernible]?

At this point, we’ll analyze it and look and see how it affects our 1 in 100 and our 1 in 250 PMLs. At this point, I’d say it’s premature to assume a big increase. It’s also a function of what kind of retro we, or what kind of renewing reinsurance we get on that and whether we choose to potentially ourselves buy some retro to buy it down a little bit more. So as we get more through the reinsurance and retro process, we’ll give you a little more transparency in terms of how it changes our net.

Okay, perfect. And that, I guess, it leads to my next question which is, I think Karen mentioned lower retrocession on a year-over-year basis. And I was hoping you could sort of talk about what’s driving that?

Yes, sure. So our growth rate for 2016 was a little bit lower than in prior years. And we’re expecting for 2017, it’s probably not going to exceed 10% as well. So at least initially, we pulled back the retro at 1, 1. We still have the opportunity to increase that if our growth picks up more than we’re expecting.

Okay, but this is an internal decision?

Yes, it is.

Okay, and then just finally. I appreciate your comments about refunding the preferred and the debt. We’re starting to see, I guess, sometimes [indiscernible] industry is creeping up. I don’t know if it’s enough to make a difference. But how are you thinking about the timing of that? Is there any optionality by doing it early?

Well, the first one, we would be doing at the end of June. It’s coming up. And we’ll evaluate whether or not to combine them or do something different at that point. But we’ve got one in June and one in August. So they’re both coming up pretty quickly.

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

I have a number of questions mainly just because I missed them. I just want to clarify. The reserve development, it was $17 million total, correct? And then $10 million was at the AmTrust segment?

That’s correct.

And then the remaining $7 million, I would imagine obviously is in the Diversified re. And then you gave a breakdown and that was the part I missed. What was the breakdown of that $7 million in Diversified re?

Actually, Diversified was 6, AmTrust was 10.3 and it rounds to 17. But in Diversified, we had 6.2 total and what we said was U.S. was a good chunk of that. Commercial auto was about $2.5 million, but importantly, our treaty excess of loss, which is what has really caused a lot of the problem over the last 8 quarters was not a contributor this quarter so we’re -- that we are pretty positive to hear about that. And then the International Insurance Services German auto. We made a slight adjustment to our tail factor but this is a long-standing program. We’ve got loss of years and so that actually increased our reserves by about $2 million. That’s really a onetime, I guess I’d say, a more unusual kind of change. So those were the biggest pieces and there were little bits in other places.

Okay. And then obviously, as the retention is being higher, and my question is just going to be on the Diversified re segment. Some of the increase, obviously, the growth relates to higher retention there than what you had before. But I also wanted to ask, is there anything going on line of business-wise where you’re seeing either: a, increased opportunities; and b, if you could comment it seems like some of your customers and the market in general, is they’re retaining more business as well. So where are you seeing opportunities? And where are you seeing your current customers actually retaining more?

I think that we’re cautiously optimistic about -- let’s kind of focus on the U.S. There have been a number of, I think, large auto programs that have been MGA-driven that apparently seem to be losing support. And so that is taking some capacity out of the market. Whether this is a trend that will continue, we’ll see. But we think that even without adding new customers, which we think we have opportunities to do, some of our existing customers will likely benefit from that as some of that excess capacity leaves the market. I think the Reinsurance industry is being more disciplined in the way it looks at auto. And so from that perspective, we’re cautiously optimistic. I think in terms of the retention phenomenon that you talked about. I think that’s particularly profound when you get to larger kind of companies that have wider footprints, bigger balance sheet, more access to capital. But keep in mind that our customers, by and large, are kind of small to mid-sized, they’re either private stock or they’re mutual and so for many of them, they keep fairly stable retention position. We do on occasion see companies that raise retention. In fact, sometimes we recommend they raise retention. But it’s not -- I wouldn’t say it’s a sea change movement that we’re seeing that is causing us concern about seeing an erosion into our existing kind of revenue base from there. In Europe, as we talked about, I mean, obviously the one issue there is the Ogden tables and how it affects forward pricing on both primary and excess auto and whether that creates opportunities. I think our opportunities, as we see them potentially, are the financial effect of that kind of restrengthening that’s going to have to take place on the reserve side and how companies process that in terms of their own capital needs, again, focused on small to mid-sized companies.

And then in Europe, with some of your alternative capital solutions, have you -- can you talk about any successes that you’ve had there in putting those products? I know in the past, you’ve had a lot of inquiries and you’ve talked a lot of people but it hadn’t yet transitioned into sales and premium. Can you talk about maybe where the status is today?

Yes, one of the things that is I think a phenomenon to the market is that when we develop sort of subject solutions for clients, they’re contrasting that with the cost of reinsurance and availability. And I’ve mentioned earlier that the European Reinsurance market is very competitive. And so there have been instances where we’ve had deals, we’ve brought them pretty far along, but at the end of the day, they’ve been able to find capacity in the reinsurance market in a more, let’s say, historically kind of developed approach. That said, we’re always looking at active live deals. We have some right now that we’re evaluating. I might turn it over to Pat to just embellish kind of the status of kind of where we are right now. Pat?

Sure, as Art mentioned in his remarks, with companies having to report their solvency ratios this spring, there’s been an uptick in interest in terms of whether we can provide potential solutions that they want. As Art said, that the market is very competitive and as a result, the ability to look at those deals and define sensible pricing is really the -- kind of the key determinant for us. Right now, companies tend to look at reinsurance first. Particularly the small to mid-sized companies, they have been historically dedicated reinsurance buyers, we see that continuing. But the number of opportunities continues to increase and we do think that it’ll accelerate as we go through 2017 and beyond.

Yes. So, I think we remain, we never sort of projected that we thought we’d see meteoric growth here. We’ve always said it’s going to be a measured growth. We’re not going to swing for the fences and do something crazy. We’re going to make sure that it makes economic sense for us. So half the battle is getting the deal flow, which we’re definitely seeing. But the other half of the battle is getting it, terms and conditions that generate reasonable returns for our shareholders.

And have you converted any of those inquiries and deal flows?

At this point, we’ve converted some to reinsurance opportunities with actually options for sub debt in one specific case. None of the, no active sub debt deals today.

And I’m showing no further questions at this time. So with that said, I’d like to turn the conference back over to management for closing remarks.

Thanks, everyone for joining us today. This concludes our call. We look forward to speaking with you soon. Have a great day.