Kestrel Group, Ltd. (KG) Q4 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Maiden Holdings' Fourth Quarter 2017 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Bill Horning, SVP, Investor Relations. You may begin.

Thanks, Glenda, and good morning. Thank you for joining us today on Maiden's Fourth 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 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 discussion 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 and may be found in our filings with the SEC and in our news release, based on our Maiden's Investor Relations website. Please also note that unless otherwise stated, all references to common share data in today's discussions are on a diluted share basis, and comparative comments will refer to Maiden's results for the fourth quarter of 2017 relative to the corresponding period in 2016. With that, I'll turn the call will over to Art.

Thank you, Bill, and thank you for joining us for today's call. For many quarters now, we've observed and responded to adverse loss reserve development, initially in our diversified segment and aiding from the U.S. commercial auto line and then from various elements of the interest segment. While our results are clearly disappointing for the quarter and for the full year, we focused our fourth quarter reserve activity on more aggressively responding to the loss emerging we have -- emergence we have seen in the previous quarters, with the objective of restoring forward profitability in 2018 and beyond. The total amount of recognized development in the fourth quarter was $171 million, with $139 million of that emanating from the AmTrust segment. The most significant amount of the development recognized in 2017 and in particular, the fourth quarter, focused on the AmTrust segment. As we've commented in previous quarters, we've observed elevated levels of loss emergence, primarily across the U.S. casualty lines, including Worker's Compensation, general liability and auto and predominantly, in the 2014 through 2016 underwriting years. Our claims reviews continue to confirm a significant level of operational improvement, which, we believe, could explain much of the elevated emergence. In the fourth quarter, however, as we observed continued increased case reserves, we chose to recognize all of the movement observed at average development and further adjusted our loss development assumptions to reflect the more conservative outlook. Despite this movement, the interest account does remain profitable on an inception-day basis. In the Diversified segment in the quarter, development of $32 million was primarily due to a more conservative view of two previously terminated commercial auto accounts, where we similarly observed adverse prior period development in the previous quarter. Unlike the past commercial auto loss development observed in the last seven years, which was more systemic and focused dominantly on our excess of loss trading portfolio, activity on these two accounts was much more specific to client account underwriting and claim management. For one of those accounts, significant strengthening in the client's case -- claims reserve process has been necessary. While for the second account, the reliance on third-party claim administrators has driven late in reporting and in turn, adverse loss development. Our reaction to both of these accounts was, again, more aggressive in response to prior and fourth quarter activity. Historical Diversified results, excluding commercial auto, have been profitable and since 2015, the commercial auto portfolio has significantly diminished in size. Overall, while we can never be absolutely certain that future adverse development will not emerge, our intention this quarter was to respond to observed development in a more conservative manner. Despite the impact of loss development in the quarter and throughout the year, our expectation is that recent underwriting years will be profitable. Operationally, we've enhanced processes to better identify and react to both client operational changes as well as elevated loss development much sooner. This also enables underwriting to act faster in response to unexpected development. We believe that this is enhanced the stability of the more recent underwriting years. We recognized that in uncertainty, triggered by a loss development is impacting investor settlement, and we're absolutely focused on returning to profitability recognized in the performance is the most important catalyst to investor confidence. One final note regarding Maiden's adverse development. We have evaluated a number of potential adverse development cover structures over the last several months, but we recently concluded that the cost as well as the transaction accounting provides little real benefit to Maiden and its shareholders. Karen will provide more detail on the quarter and annual results. But needless to say, that a full year net loss of $199 million is unacceptable. Notwithstanding the impact of loss development, there are a number of favorable trends, which we believe will benefit performance in 2018. Strategically, we believe that we are on track to see profitable growth in our Diversified portfolio in 2018. For the full year 2017, in our U.S. business, we did see some pressure on revenue, which reflects continued discipline in the form of nonrenewal activity, some due to adverse account experience and some due to competitive pressures. Overall, year-on-year gross premium written were essentially flat and were affected by certain onetime adjustments in the fourth quarter. Despite the impact of reunderwriting competitive pressures, the U.S. Diversified component is well positioned for both organic growth and new client development. Clients, particularly in the personal auto sector, continue to enjoy growth and a favorable pricing environment, and we continue to see growing interest in a number of our new product initiatives and continue our efforts to leverage our growing involvement in the insure-tech sector. We're actively working to introduce many of our clients to new technology-oriented service providers that are focused on risk management, predictive analytics, enhancing operating efficiencies, strengthening [indiscernible] loss cost as well as enhanced distribution. Internationally, our Affinity Reinsurance Business, or IIS, experienced a year-on-year reduction in premium, significantly reflecting a restructuring of an existing relationship, which will benefit Maiden in 2018. IIS was successful in signing a number of new payment-protection insurance affinity clients in the Nordics and enhanced the revenue opportunity for branded auto insurance in Germany. All told, these opportunities should translate to substantial growth this year in the Diversified segment. Early first quarter activity has been very strong, with significant new business bound, post January 1. And finally, our European Capital Solutions business, we enjoyed a very strong January run rate renewal period with the addition of several significant client relationships. On balance, we believe that even with continued focus on discipline, we expect to see strong growth in this segment of -- for 2018. In the AmTrust segment, we observed a modest decline in the gross premiums written, reflecting their previous underwriting decisions made in the programming segment, continued reduction in the European Hospital Liability writings and more modest growth from the small-account commercial business. Overall, we anticipate a continued moderation and as AmTrust has stated in the past, there is a potential that our client will desire to negotiate a reduction in the quarter share, following the growth in capital that will be created from the expected proceeds of the partial sale of their feed businesses. As we've indicated, should that occur, we will certainly look at all available options to enhance shareholder value, as required capital for the segment will drop over time. This would also help to better balance the overall mix between the Diversified and the AmTrust segments. As you know, AmTrust founding shareholders recently announced their plans to take the company private. While there has been speculation for some -- from some that Maiden could similar be acquired by our founding shareholders, we have no such plans currently underway. Finally, as Karen will also detail, our investment income run rate continue to grow in 2017. Within our current portfolio, we believe that we can achieve double-digit operating returns on equity and more importantly, enhanced earnings per share, with only nominal underwriting income reflected in our more conservative initial expected loss ratios for 2018. I'd like to now turn the call over to Karen who will provide more details on the quarter. Karen?

Thank you, Art, and good morning. As Bill said at the outset of this today's call, unless otherwise stated, all references to common share data are on a diluted common share basis, and comparative comments will refer to Maiden's results in the fourth quarter and full year of 2017 relative to the corresponding periods in 2016. Last night, Maiden recorded a fourth quarter 2017 net loss attributable to common shareholders of $134 million or $1.59 per diluted common share compared to net loss attributable to common shareholders of $75 million or $0.87 per share. The non-GAAP operating loss was $139 million or $1.65 per diluted common share compared with a non-GAAP operating loss of $70 million or $0.81 per share. For the full year 2017, Maiden reported a net loss attributable to common shareholders of [indiscernible] share compared with non-GAAP operating income of $17 million or $0.22 per diluted common share in 2016. Gross premiums written in 2017 were $2.82 billion compared to $2.83 billion in 2016. Net premiums written increased by 4% in 2017 to $2.76 billion from $2.65 billion. Net premiums earned in 2017 were $2.73 billion, an increase of 6.4%. For the year, gross written premiums were $823 million in Diversified and just under $2 billion in the interest reinsurance segment, both essentially unchanged from the prior year. The combined ratio for 2017 totaled 111.3% compared to 103.2%. For the full year, the Diversified reinsurance segment's combined ratio was 107.1% compared to 109.4% in 2016. And in 2017, the combined ratio in the AmTrust segment was 110.8% compared to 98.4% in 2016. Adverse development was the main driver of the higher combined ratio for the year, with the loss ratio increasing from 70.6% to 78.8%. The expense ratio is 32.5% versus 32.6%, and the general and administrative expense ratio is 2.6%, the same as last year. Focusing, once again, on the just-concluded fourth quarter. Maiden's gross premiums written were $556 million compared to $572 million in the fourth quarter last year, a decrease of 2.7%. In the Diversified Reinsurance segment, gross premiums written totaled $139 million, a decrease of 11.5%, primarily due to a restructuring of programs in our European Affinity business, underwriting nonrenewals earlier in the year as well as a weaker premium quarter from a few large accounts. In the AmTrust Reinsurance segment, gross premiums written were $418 million, essentially unchanged from the fourth quarter of last year. We expect to see continued moderation in growth from AmTrust relative to previous quarters due to lower program volume business. We expect that the Diversified Reinsurance segment growth should outpace the AmTrust segment growth in the foreseeable future. Net premiums written totaled $560 million in the fourth quarter, an increase of 7.5%. Net premiums earned were $658 million, an increase of 6.8%. In the Diversified Reinsurance segment net premiums earned increased 7.4% to $200 million. In the AmTrust Reinsurance segment, net premiums earned were $459 million, an increase of 6.7%. Net loss and loss-adjusting expenses in the fourth quarter were $615 million, and due to reserves strengthening an increased 18% compared to one year ago. Accordingly, the fourth quarter 2017 loss ratio increased to 93.1% compared to 84.5%. Commission and other acquisition expenses increased 5% to $195 million. The expense ratio declined to 32.4% compared to 32.9% in the fourth quarter. General and administrative expenses for the fourth quarter totaled $18 million versus last year's G&A of $17 million. The general and administrative ratio was 2.8% in the fourth quarter, the same as prior year. The combined ratio for the fourth quarter totaled 125.5% compared with 117.4% last year. The Diversified reinsurance segment combined ratio was 108.7%, down from 128.3% in the fourth quarter last year. The Diversified segment results were impacted by adverse development of $32 million in the fourth quarter compared to $59 million of adverse development in the fourth quarter last year. Absent the adverse development, the Diversified segment combined ratio would have been 92.9% in the fourth quarter due to a reduction in cat estimates, following the third quarter's storm activity. The combined ratio in the AmTrust Reinsurance segment was 131.1% in the fourth quarter compared to 108.1% in the fourth quarter of 2016. The AmTrust Reinsurance segment combined ratio was impacted by $139 million of net adverse development, primarily in workers' comp and general liability and to a lesser extent, in commercial auto liability. Excluding the adverse development, the AmTrust segment combined ratio would have been 100.8% in the fourth quarter, reflecting the higher booking rates in this segment for the current year. Investment results continue to improve, with fourth quarter 2017 net investment income of $43 million, an increase of 11%. Investment income for the year grew by 14%. Investable assets grew by 9% year-on-year to $5.5 billion and the average yields on the fixed income portfolio, excluding cash, were 3.1%. The duration of Maiden's total invested assets, including cash, was 4.4 years as of December 31 compared to the duration of liabilities at the same time of 3.6 years. In the fourth quarter, we added an additional investment manager within our same-investment strategy and as a result, our securities purchased increased to $628 million, with a weighted average yield of 2.84% and an average duration of 4.57 years. Our investment focus remains on high-grade corporate debt and government-sponsored security. Cash and cash equivalents were $192 million at December 31 compared to $314 million at September 30. Total assets were $6.6 billion at December 31 compared to $6.3 billion at year-end 2016. Shareholders' equity was $1.23 billion compared to $1.36 billion at the end of 2016. Book value per common share was $9.25, down from $12.12 at the end of the prior year. Maiden's official -- efficient capital structure is generally not compatible with maintaining an active share repurchase program. But from time to time, we may buy back shares when it creates value for our shareholders. In the fourth quarter, Maiden repurchased a total of 1.7 million common shares at an average price of $6.50 per share. This brought our full year repurchases to $3.7 million common shares at an average price of $6.84 per share. Maiden has had a long-standing share repurchase plan in place to opportunistically buy back common shares in the event that market value of Maiden shares is viewed by the company as irrationally dislocated from our book value. We've had the opportunity to buy back shares at a significant discountable value during the fourth quarter. As of December 31, we had approximately $75 million remaining in our current share repurchase authorization. And as we announced in the press release last night, our board authorized our common -- our quarterly cash dividend, $0.15 per common share, payable on April 16. Addressing the recent U.S. tax reform, the new regulations will also taxation an affiliate reinsurance between operating affiliates, subject to thus taxation and non-U.S. affiliates. While these transactions were not significant for us, there may be some changes to our contractual relationship between U.S. and Bermuda reinsurance companies. We believe that it worse these changes will be neutral to our P&L. Finally, we are in the process of completing our first part of a delayed. Our expectation is that we will have a clean opinion with no material weaknesses, and that we will file our Form 10-K on time tomorrow. I will now turn the call over to Art for some additional comments.

Thank you, Karen. Before my closing remarks, I'd like to add some comments on overall market conditions. There are a number of primary right-level monitoring services that are reporting incremental improvements on year-on-year rate levels in most lines of business in the U.S. From a reinsurance market perspective, we see the overall market remaining competitive, particularly in our lower-volatility market segment. On balance, we were well able to typically secure rating improvements where necessary. However, as I mentioned earlier, there are a number of accounts where competitive pricing pressure as well as subpar account performance resulted in nonrenewal. As we typically do this time of year, we're seeing a significant number of developing and indiscernible opportunities in the U.S. market, and we're optimistic about chances to expand the portfolio and customer base. In fact, we're experiencing some of the strongest opportunity for quite some time. The greatest area of demand are coming in our accident health and personal auto lines. Internationally, we continue to see growing demand from our capital solutions business across European markets, and we've also seen a significant level of activity as well as markets that are implementing Solvency II outside of Europe. While we're starting from a relatively small base, we found a number of new contracts that will substantially increase both our written premiums and our active claim account. Now overall, we expect continued strong deal flow. We do see a bifurcated market in which the more transactional business remains highly competitive, while in the more carefully structured customized capital support market, we're finding some success in developing differentiated solutions. And finally, in our IRS affinity solutions business, we continue to see a fairly stable competitor set of companies that focus on the affinity market with good opportunities for Maiden to differentiate. The primary insurer pricing environment for the unique affinity relationships that we maintain is somewhat insulated from market pricing pressures, and favorable pricing and loss cost trends are being observed in several of our key markets. We expect to see a significant increase in written premium from a number of new programs bound in the fourth quarter with a number of additional opportunities in developments. Across Maiden, we continue to believe that our niche market focus, our value-added differentiation, our collateralized reinsurance solutions and our highly efficient operating platform remain powerful differentiators. As we look ahead to 2018, we believe the steps taken in the fourth quarter position Maiden for a return to profitability. While there can always be some level of variation in loss emergence, we do not expect anything of the magnitude of the actions we've taken in the fourth quarter. Going forward, we're focused on returning to more stable underwriting performance and overall profitable results. We believe that even with modest underwriting profitability, our ability to produce double-digit returns on equity and strong premiums measure for our shareholders is realistic. Our invested asset base has continued to grow and importantly, our run rate investment income has also strengthened. But notwithstanding the reserve actions and the reunderwriting process that have been implemented, we're also actively engaged in efforts to develop and implement further initiatives and strategies aimed at strengthening value to our shareholders. We're committed to do whatever is necessary to deliver greater value. We're also committed to ensuring that our clients have the best security, strongest customer support and creative solutions for their reinsurance capital needs. And as always, we sincerely appreciate the continued efforts of the Maiden team to strengthen performance and deliver value to our customers. This concludes our prepared remarks. Operator, could you please open the lines for questions and answers?

[Operator Instructions]. And our first question comes from the line of Matt Carletti from JMP Securities.

Two questions. I guess, maybe starting with the reserve addition in the quarter. Art, you alluded to that, with a good part of it was looking back at the actions you've taken earlier in the year and adding an additional level of conservatism to it. Can you give us a little better feel for how much of what we saw in Q4 was related to loss emergence that was worse than expected that you actually saw in Q4, kind of, versus what you thought in Q3? And how much was just looking back at the 3 quarters and just saying, "We're going to add a higher level conservatism here to, kind of, put it behind us and move forward."

Yes. Thank you, Matt. It's kind of a -- I'll turn it over to Karen for the details. But one of the things I would say about loss emergence is that when process change is taking place in a claim organization, emergence could be -- could result from accelerating of case reserving. It could result in accelerating of claims closer. We've seen some effect of that. So if we have, from time to time, tried to take adjustments from those process changes. But in the quarter, we essentially have the assumptions that everything that emerged was developmental, which is more conservative than the way we viewed it in the past. And Karen, I'll turn it over to you.

Yes, Matt, every quarter, we're putting out the number that we feel is our best number. However, when we look at operational changes, and we see higher average case reserves, there comes a time when we expect that the -- those changes start to reverse in the data. We expect to see lower development rather than higher development because of all of the increase in the case reserves. That still has not happened in a lot of the segments that we're looking at. So as we looked at, we felt we needed to be more conservative. I don't know that I could identify for you, kind of, what that split is versus what we would've done had we not had that more conservative look, it's kind of altogether. But I think the issue is that there are much higher case reserves on a good chunk of the AmTrust book. And we're really trying to establish where those will ultimately play out. And it's more complicated than in our -- perhaps, on most of our diversified book, just because of the very significant operational changes.

Understood. And along those lines, I know, in the 10-K, there's some reference to their being effectively a loss ratio cap on part of that business. Can you explain that in a little detail? And are we close to that at this point for part of the business, or are we still ways away from it?

Yes. That is in the program segment, including workers' comp for most of those years. The loss ratio cap starts at 81.5% and goes to 95% loss ratio. So we are not into that quarter. We still have some amount that we would incur before we hit the quarter. But it is protection from an -- if things really flow up with that business.

Okay. And then just had a couple of quick ones. With the result in the quarter, I guess, about a capital that went away, has there been any dialogue with A.M. Best in terms of how they're feeling, or how you're feeling about prospects for maintaining a rating or chances of a rating downgrade? And along those lines, if it were to come to a downgrade, how would you see the impact on your business?

No, that's a fair question. Obviously, we're in constant dialogue with all of our constituencies, rating agencies as well as our regulators. We're not at liberty to communicate the details of our discussion. I'd say, with the kind of activity we've seen, certainly, there's a risk of a downgrade. I think an important differentiator in our business model is -- and we've done this since pre-Maiden days, is we've collateralized the obligation for clients. And they're collateralized to the full expected ultimate. And so repeatedly, we've had many customers that have remained very focused and committed to us because of that collateral. We see no change in that process. Obviously, we operate as a company at an A- level for a longer period of time than we've operated at an A level, and we were still able to build and grow the business. Now obviously, it creates some noise and some challenge, and I think that there may be some prospects that are less comfortable, just strictly by the rating, if there is a downgrade. And -- but others, I think, we've had a long-standing, strong relationship, and we'll do everything in our power to ensure those customers will continue to add value and continue to establish full-value collateral for them. We see no -- nothing limiting our ability to collateralize future obligations as well. So hope that's a fair answer for that.

Yes, absolutely. And last one, just if you could, kind of, give updated thoughts around sustainability of the dividend. Obviously, I saw the press release last night, and the board declared it and obviously, I would assume that they need the results of the quarter at that point. And also, understand what you said in the past that this is noncash-type items. But is there any reason to think that these $0.15 a quarter dividend would be to change going forward, given what's happened?

Clearly, the decision to issue a $0.15 dividend in the quarter is as much reflection as what is expected than what would occur in the quarter. I think there is confidence in our ability to strengthen earnings in the first quarter and beyond, and I think that motivated their decision. They look at it as they should, quarter-to-quarter, looking at, sort of, capital looking at the performance of the business and the underlying trends. We're going to do everything in our power to ensure that our profitability strengthens and that we have the power to continue to provide a dividend, but it is a quarter-to-quarter decision. And I think they felt comfortable, based on the actions we took at the end of the year, that profitability will be restored in '18.

And our next question comes from the line of Randy Binner from B. Riley FBR.

So on the charge in the AmTrust quarter share, I guess, my perception -- well, first of all, you attributed -- at one point in the press release, it said that it was primarily related. So this would be the charge in the AmTrust quarter share that totaled $143 million. I think at some point in the press release, it said, it was primarily workers' comp. But then I think I heard in the call that it's workers' comp and GL. Can you size the workers comp element of that $143 million?

Yes. Workers' comp was about $85 million of the total, and general liability was about $34 million of the total. So those are the 2 biggest pieces for Q4. Those are also the 2 largest pieces for the full year.

And work comp had not been a feature of reserve activity in that quarter share previously, correct? They're not notable, and I running that correctly?

Well, it has not been the largest piece for sure. There's been some small moment, but remember, this is our largest line and its our largest block of reserve. So in proportion, it's definitely been a very small movement in prior quarters. So this 1 is definitely more substantial.

I think, Karen, for the full year, there was roughly another $40 million in previous quarters, if you total it up, of workers' comp, is that fair?

Yes, yes, that's fair.

So there has been [indiscernible] in this quarter.

And then in all of that, that was in the '14 to '16 accident years?

Predominantly.

Predominantly.

And what kind of loss ratio development in workers' comp are you seeing for those accident years? Like, is it moving up 2% or 6% or 4%?

Yes, I don't think I have that with me right in the, were going to have to get back to you.

Well, we can follow up off-line. Okay. So that's helpful. So I guess, what's changing though I understand the say again?

I was going to say, it does by underwriting years, obviously, the amount of movement, but again, as Kevin said, given the magnitude of the assumed portfolio, even -- especially into 2014 to 2016 years, which include the [indiscernible] business, those moments were not super dramatic, but...

Yes, it's a big -- it's our largest line, it's not going to be a huge business, but it is significant enough. And we can -- I can get those numbers.

Okay, we can follow up more on that later. I guess, just kind of jumping off more over to the operating. So assuming that AmTrust returns more of its business, which I don't believe they stated that that they intend to and you mentioned as a possibility, how should I think about operating expenses, kind of, overhead expenses Maiden going forward and how scalable that could be of potentially could be significantly lower premium base?

Well, certainly the earnings price will continue to generate income for some time, right? Because as you know, it's a pretty good chunk of our invested asset base. We're not contemplating, edition on those liabilities, they would stay on our balance sheet. So clearly, if -- and I think that the amounts that have been suggested that I have heard something like 25% with the ability to potentially forward adjust. So I think that's observant without dramatically affecting our earnings trajectory. Obviously, we had to look at our expense structure. And to be honest, we are actively going to a rationalization expense structure, anyway. So I think over time, those expenses would right size. We would certainly hope that we continue to see a positive trajectory on Diversified, which could hopefully, begin to offset some of that. But while -- I think in the short term, we have an expense and balance we'd be working actively reduced to improve the relativities.

Yes. In order to AmTrust segment, we specifically allocate about a 0.2% expense ratio. And then we some corporate overhead, just a little over points of shirts pitching of the units. So that's the piece that would obviously would be a little higher than a point if that business were to shrink. But it's not like we have a big allocation of expense to the AmTrust segment.

Yes. The other important point, when we price our business in the diversified segment, it's fully loaded for the actual expenses in the segment. We're not sharing the subsidy of the efficiency through the AmTrust account for the balance of the portfolio.

Okay. And then with the buybacks in the quarter, was that funded from holding company liquidity? I mean...

Pardon? Yes.

But what is your year and holding company liquidity after the buybacks?

Yes. I'm going to have to get that for you as well.

Okay. I guess, the last one I'm sure there'll be other questions. You mentioned kind of, strategic and shareholder initiatives and that adverse development come to be it's too expensive so what else, is it, what else would it be other things that you might look at?

I would say that everything's on the table. I mean, we'll certainly look at. How we allocate, whatever capital is allocated to and whether were generating appropriate returns, we look at structure. We look at any potential opportunity to enhance shareholder value. That's pretty broad. But I think given, while we are confident that the forward results of the business will improve and then we can generate strong returns and forward enhancement of the portfolio, I think it's a good time to kind of certain think of everything we have today and what we can do to kind of strength in the value proposition to our shareholders.

[Operator Instructions]. And our next question comes from the line of mere shields from KBW.

I was hoping you could talk a little bit about, I guess, the underwriting results, excluding the reserve charges over the course of the year. It seems like we saw some deterioration in the AmTrust segment, which I'm assuming, that hopefully you can confirm the correct, is incorporating those -- the same levels of conservatism into the AmTrust accident year 2017 results?

Yes. Actually, we what did during 2017, was we raised our initial expected loss ratio for interest. We've wasted a little bit earlier in the year, but we -- at the year, when we took the reserve charge, actually strengthened the full year 2017. So that's why, when you look at what that ratio is, excluding prior year development, so it's still over 100. It's because the fourth quarter actually includes some elevation of Q1 through three for 2017 as well.

And I would add to that, that Diversified is also as a high booking rate as well.

Yes.

Okay. So at a lower rate, that was my next question, obviously, those [indiscernible]...

Yes. Diversified, you may remember the third quarter, we booked $20 million for cats. It was soon after all of the offense and we look at models, really didn't have anything reported from customers at that point in time. And we made what turned out to be a very conservative estimate of what we ultimately need for those cat. So well we booked $20 million, we ended up being able to release $15 million of it. So that's really the anomaly in that quarter. So cat on a full year basis was really a nonevent for Maiden, but we were elevated in the third quarter and then had some reduction in fourth quarter.

Okay, perfect. That makes sense. And then my last question, you talked about the initiatives and the solid growth book so far in the first quarter. Is that going to have the meaningful year-over-year impact in the expense ratio within Diversified?

No, it shouldn't. I think not much different than, kind of, then our, kind of, total normalizing in the diversified capital solutions business, that could pretty much -- has similar, sort of, expense relative is that the rest of our business have. In the international services business, but actually has fairly low, sort of, execution cost associated with the, it's our own this division channel and we don't pay third-party brokers to produce that business. It is its own -- we have our own it distribution channel, if you will. So I don't think -- and action, if you look at where things are going there, I think that most likely, I think there great opportunities are coming from the international elements from the diversified. So in terms of, kind of, G&A or acquisition expense, it actually should benefit the average.

And I'm showing no further questions over the phone lines at this time. I'd like to turn the call back over to Bill Horning for closing remarks.

Thank you, Glenda. That concludes our call for today. We thank you all for joining us. Have a great day.