ProAssurance Corporation (PRA) Q2 2008 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to today’s ProAssurance second quarter earnings call. As a reminder, today's conference is being recorded. For opening remarks and introductions, I will now turn the call over to Mr. Frank O'Neil. Please go ahead, sir.

Thank you, Doris, and thank you everyone for joining us. Let me preface our comments by noting that both our news release issued this morning and our SEC filings include disclosures with respect to forward-looking statements. In that regard, please understand that statements we make during today's call which deal with projections, estimates, expectations, and the like are explicitly identified as forward-looking statements subject to various risks. As you know, actual results could differ materially from current projections or expectations. Our SEC filings have a full listing of the risks that investors should consider in connection with such statements. We believe you will better understand today’s remarks and our business when you understand the risks we face. We will not undertake and expressly disclaim any obligation to update or alter forward-looking statements, whether as a result of new information or future events except as required by law or regulation. The content of this call is accurate only on Wednesday, August 6, 2008, the date of first broadcast. If you are reading a transcript of this call, you should know it is unauthorized and we have not reviewed it for accuracy. Thus it may contain errors that could alter the intent or meaning of our statements. On the call today is our Chief Executive Officer, Stan Starnes; our President, Vic Adamo; Chief Financial Officer, Ned Rand; Chief Underwriting Officer, Howard Friedman; and our Chief Claims Officer, Darryl Thomas. Stan will open our remarks today. Stan, I will turn it over to you.

Thanks, Frank. Welcome everyone. We thank you for your interest. We turned in another strong quarter and are pleased with our market position in the current underwriting cycle. We continue to provide one of the most secure balance sheets in our industry and we enjoy strong customers' loyalty. While we are seeing a decline in premium that we anticipated and expected, severity remains lower than our original expectations and we continue to experience the benefit of lower frequency, all of which results in favorable reserve development and enhanced profitability. The key metrics by which we measure success, loss ratio, combined ratio and return on equity, each showed improvement in the second quarter. Our broad geographic reach gives us greater insight into the physician liability marketplace and we think this gives us a competitive advantage both when looking at organic growth as well as acquisition opportunities. Our attention to our insured and agents coupled with our effective claim strategy is allowing us to write and retain good business across our 28 jurisdictions. We will touch on our operational highlights in a moment, but first I am going to ask Ned to start with his review of the financials.

Thanks, Stan. We continue to focus our attention on the key areas that we think drive us through the soft market and into the market turn with considerable strength. As most of the trends for the quarter are equally applicable for the year to date period, I will focus my comments on the quarter. The year to date comparisons are detailed in our 10-Q, which we’ll file later this morning. As Stan mentioned, we continue to operate in a competitive marketplace and our top line was down in the quarter. Howard will elaborate more on that in a minute. But the important measure, our bottom line was up. Our net income per diluted share for the quarter was 20% higher than in the same quarter in 2007, due to the gain in net income and the effect of our share repurchases. We commuted several of the NCRIC reinsurance treaties for the years 1993 through 2005. The commutation played a part in the favorable net loss reserve development for the quarter adding $3.7 million, which Howard will also address in a minute. The favorable development also affects our reported loss ratio, which improved to 56.7% in the second quarter from 74.5% in Q2 of 2007. The expenses ratio in the quarter was 21.7%. Dollar for dollar, expenses were down in the quarter, but the decrease in premiums the denominator of the expense ration calculation pushed the ratio up. For the quarter, the combined ratio was 78.4% compared to 93.8% last year. We continue to achieve a return on equity that is in line with our goals. It was 13.7% in the quarter. Net investment income was down 7% in the quarter due to lower short term interest rates, the loss of interest income on the money spent to repurchase shares, our shift to municipal bonds and the performance of our alternative investments. The overall result from our alternative investments did rebound somewhat from last quarter. The bottom line was a gain of $1 million in that portfolio. As I mentioned on last quarter’s call, quarter-to-quarter returns on these investments can be volatile but we continue to see them as an appropriate asset class and expect them to contribute above market returns over the long run. There was a net realized investment loss in the quarter of about 5.3 million due to the recognition of 5.5 million of other than temporary impairments mainly on mortgage backed bonds. This represents a very small portion of our 3.7 billion-investment portfolio and I want to point out that the majority of the impaired bonds are still performing. However, given reservations as to the future performance of these bonds, we believe the impairments are warranted. Our shareholders interest in our exposure to Fannie and Freddie within our portfolio, at June 30, our holdings were approximately $104 million in senior debt, $9 million of preferred stock and $123,000 of common stock, as well as indirect exposure of $492 million through mortgage backed securities guaranteed by these agencies. The average rating in our government and agency bond portfolio is AAA. Book value continued its upward trend rising above $40 for the first time reaching $40.11. A couple of final notes on balance sheet related items. As we reported in our news release, we have now fully utilized our prior $150 million-repurchase authorization. In addition to redeeming NCRIC’s trust preferred debt for $15.5 million, we have purchased approximately 2.6 million shares of stock from April 2007 through July 2008. And hopefully you’ve seen the news release announcing the Board’s authorization for another 100 million. We also called for redemption of our 3.9% convertible debentures in the quarter. All of the holders elected to exercise their conversion rate and we issued 2.6 million shares of common stock to settle the conversion in early July. But remember that accounting rules have had those shares included in our diluted earnings per share calculations. The transaction does result in the addition of $112 million to shareholders equity and approximately $0.28 per share to book value although those additions are not reflected in the current result because the transaction occurred after June 30. To sum things up, I would say we continue to enjoy bottom line success as a result of the disciplined strategy we employ with regard to underwriting and pricing while we continue to maintain a sound capital base. Frank?

Thanks, Ned. You mentioned some favorable reserve development in the commutation. May I ask Howard to give us a bit more on those subjects? Howard?

Thanks, Frank. We did see favorable net reserve development in the quarter, $31.3 million bringing us to $51.3 million for the year to date. As Ned mentioned, there was a little less than $4 million in favorable development as a result of the NCRIC treaty commutation, but the majority of it comes from our regular evaluation of expected losses versus actual results. We continue to see losses developing better than our projections for accident years 2003 through 2005, and to some extent from 2006 as well. We continue to maintain conservative reserve balances and historically reserving practices that position us well given the volatility in this line of business. The commutation of the NCRIC treaties is something we’ve been considering with our reinsurers for some months. The effect of the transaction was the assumption of approximately $21 million of our ceded loss reserves in return for approximately $24 million in cash. We are estimating current year losses at 84%. Our continued conservatism stems from our desire not to be caught off guard by a sudden spike in loss trends, similar to what we saw in 1999 and 2000. As far as the marketplace, I don’t think there is much new to report from last quarter. Attracting new business is the main challenge right now for every insurer in the medical professional liability line. That said, our policyholder retention remains at what we see as encouraging level. We are at 88% year to date with renewing policies showing just a 7% decline in rate as we adjust our rate levels to reflect the reality of lower losses. Our pricing remains actuarially sound as we look to maintain our margins and collect an adequate rate per unit of risk. Frank?

Thanks, Howard. Can I get you to also talk about reinsurance?

Sure. As you may remember, our reinsurance treaties have a off cycle anniversary in October of each year, on October 1. I think it is safe to say that there is no upheaval in the reinsurance markets within our product line. So far, we are seeing reasonable discipline on behalf of the reinsures and pricing in turns as markets cycle.

Thanks, Howard. Now let’s look to Darryl Thomas for a comment on claims. Darryl?

Thanks, Frank. Nothing really stand which proclaims (inaudible). We are seeing frequency stabilizing in many states and we are not seeing total declines but these are only seeing any significant increase in frequency. (inaudible) trends remain constant at levels we believe are manageable. Beyond this, (inaudible) we continue to see our inventory of claims fall in line with the decline in frequency. It is hard to say how many claims will take the trial this year, but I know that it will be less than the 730 we trialed in 2007. I want to stress that that represents a change in our claims philosophy, but it doesn’t collectively (inaudible). Frank?

Thanks very much, Darryl. Vic, can you comment on operational developments in the quarter?

Certainly. Frank, we are always looking for opportunities to profitably grow our business and we are in the process of making some incremental moves into states adjacent to our footprint. I won’t name the states for competitive reasons, I can tell you that this will not be a quick drive to gain market share but a deliberate disciplined expansion that would emphasize our long term focus and profitability. We are also working to expand our legal professional liability book of business in an incremental manner. We’ve identified new distribution channels and hope to bring those online prior to year-end. We currently write about $10 million lawyers professional liability premiums and we like to at least double that over time. I’d like to mention a few other topics. We were very pleased to be included once again in the Ward’s list of the 50 property casualty insurance companies. It‘s the second year in a row that we’ve been recognized by Ward’s and it’s quite an honor to be selected from than 3,000 property casualty companies into this elite group. All of the companies on the final list of 50 are top quality companies and we are pleased that our record of safety for our insureds and consistent financial performance for our investors allows us to be among the top performers in our industry and to be recognized as such. Also A.M. Best affirmed the rating for our group and its insurance subsidiaries during the second quarter. I think it is significant that Best raised their outlook on ProAssurance to positive for both the group and our key insurance subsidiaries. This signals their confidence in our operational discipline and our strong capitalization. And finally on capitalization, given the strong position of our insurance subsidiaries, we’ve recently moved $100 million in dividend up from the subsidiaries to the holding companies. This can be used for capital management or M&A. This coincides with the new share repurchase authorization that was announced yesterday.

Thanks, Vic. Stan, any final comments?

Frank, at this point, in a softer market, it is great that we can report continuing success in our basic operations, which benefit for our underwriting discipline and our dedication to courtroom matters. Don’t get me wrong, I am very pleased with where we are given the business conditions, but of course, we are not satisfied. We will continue to build financial strength to benefit insureds by giving them a solid balance sheet to rely upon. And we can do that while still advancing shareholder value. We’ve demonstrated our willingness to deploy capital in a prudent but effective manner through out stock buyback and we now have a new authorization to continue that process. Let me be clear. We will be just as deliberate with this authorization as we were with our prior authorization. On the M&A front, we continue to actively seek opportunities and we see quite a number of situations that could evolve into a strategic opportunity for us. We are committed to paying top dollar for top quality companies but we are equally committed to doing real due diligence before we commit the pressures we source that is our capital. In short, I am excited about our future. We continue operating with the same long-term view that has helped us generate shareholder value since our inception. We are doing the things now to keep us strong now and will make us even stronger and hopefully bigger ten years from now. Frank?

Thanks, Stan. Doris, if you are there, we will open the line for questions?

Thank you. (Operator instructions) And we will go first to David Lewis from Raymond James. David Lewis – Raymond James: Good morning, thank you. Several question, first I guess I was under the impression as we move through 2008 you might sharpen your pencil a little bit from a pricing standpoint to try to grow new business a bit more. Is that still the plan and are you having any successes there, are you starting to see some of the benefits of improved claim severity and frequency trends?

David, it’s Howard. Well, I’d say yes. We certainly are sharpening the pencil both in terms of what we are doing in filed rates where we have made a number – quite a number of rate filings that have reduced rates, have fine tuned our territorial and classification relativities and so forth and trying to become more competitive, as well as the way that we are looking at the market and how we are competing on existing accounts and also on – all that said though, we are in a very competitive marketplace, and just because we are becoming more conscious and more focused on new business, it doesn’t mean that we have less competition. In fact, right now, I think we have more competition than ever. We have companies who are in some cases fighting to maintain their already small volume of business, other companies that are quite large and looking to grow. So, we are getting more focused on it but so is everybody else and it’s a tough battle out there everyday. David Lewis – Raymond James: And Howard you are not seeing any new players out there, I don’t believe, and maybe give me your thoughts on that, but it really is still a fairly rationale market? Wouldn’t you characteristic that to be the case?

Well, I guess everybody has their own definition of rationality, but in terms if you want to say that rationale means that we see pretty much the same competitors that we’ve seen for the past three or four years, yes. On any given day, any given account, sometimes that makes you wonder if rationality exists, but on the whole, under that set of definitions I would say yes, it is still rational. David Lewis – Raymond James: That’s helpful. And Ned, can you talk about what capital levels are at the holding company from an excess standpoint, and what additional dividends might come up in the second half from the subsidiaries?

Sure, David. I believe we hold somewhere in excess of $200 million in cash at the holding companies after this dividend that Vic mentioned. That leaves roughly $900 million in statutory surplus at the statutory company and our desire is to deploy that capital in our operations. We will continue to monitor the landscape and make decisions in the future based on what we see in the future, but the only dividend that we currently have plans for is the one that Vic mentioned. David Lewis – Raymond James: And given the premiums to capital and surplus, and you probably get another $100 million, $150 million of excess capital out of the insurance companies that obviously like to deploy through new business writing, isn’t that fairly accurate?

Funds analysis on excess capital will differ but I think that’s a fair assessment. David Lewis – Raymond James: Okay, and could somebody just talk a little bit about the M&A outlook has it gotten any more active out there, everybody seems to be looking for it, M&A opportunities and are pricing expectations rationale are still just a little excessive? Thank you.

Thank you, David; it’s Stan. There is lots of chatter in the M&A world. We see submissions on a very regular basis, many of which we’ve backed away from because we thought the pricing was irrational, others of which we backed away from because we just didn’t like the fit. We continue to actively look and we will continue to be active in that regard. Using the reported numbers that have been grown around and we look at that on a very disciplined individualized basis. We are willing to pay top dollar, but if we pay top dollar we expect to get top dollar for our shareholders. David Lewis – Raymond James: That’s helpful. Thank you.

And our next question comes from Mike Grasher with Piper-Jaffray. Mike Grasher – Piper Jaffray: Thank you. Just a couple of questions, Howard, if you could elaborate more in terms of the 27.5 million by accident year in terms of the favorable development, did most of that – I know you mentioned 2003 through ’05 and even some ’06, is most of that in the ’03, ’04 book, or are we starting to see move towards ’05, ’06?

Well, I think right now it’s still primarily in the ’03, ’04 book just by the nature of the business. The closer we get to the current period of time and the more holding claims we have and on our sale coverages and more potential for unreported whichever way we look at it, it’s always weighted to the earlier years in the group, but it is starting to move up certainly on a consistent basis into ’05 and into ’06. Mike Grasher – Piper Jaffray: Okay, are those detailed in the Q to be filed later today or can you tell us by dollar amounts where the ’03, ’04 came in?

No, I can’t right offhand and it’s really not detailed by accident year in the Q or even in the quarterly statutory filings. I mean it’s something that comes out in detail at the end of the year, so I think in general terms, if you just want to take a look at it, thinking of it weighted over the four year period but much more towards the first couple, I think that would be fair. Mike Grasher – Piper Jaffray: Okay. And then Vic, just a follow up, talking about expanding your legal professional liability, doubling that from the current $10 million over time, what kind of timeframe are we talking about if we are in by the end of the year, do you double it within the first year?

I am not sure we’ll double in the first year but certainly in a couple years we’d look to double it. We’ve had the lowest professional line for a long period of time but it’s always been relatively small and running in just a few northern states. We are activity in the process of expanding it directly and through some outside activities into a variety of other states. So it’s a little bit touch and go, but it’d certainly be I hope in a couple of years to be sitting on a more meaningful book of lawyers professional business. Mike Grasher – Piper Jaffray: All right, thank you very much.

And we will go next to Beth Malone with KeyBanc. Beth Malone – KeyBanc: Okay, thank you. Good morning. Could you talk a little bit more about the severity trends, they had been positive for a while. Can you, as it is going on, can you evaluate exactly why that’s occurring and whether those trends should continue going forward?

Beth, on severity, I guess what I’d say is, it’s been pretty stable for a while in a more favorable way than we originally anticipated for those earlier accident years when we established the rates for them. We are still seeing what I would characterize as 4% to 5% annul increases in severity on average across our whole book of business and while that’s over a period of time certainly increases and compounds the cost of losses, it’s less than what was estimated when we made the rates for ’03, ’04, ’05 and so forth. So, that’s the favorable or the positive side of it, but the fact that severity is increasing all the time is a problem. And if it were not for the drop in client frequency, it would be pushing the overall lost cost environment up and would be pushing rates up. It’s really frequency that has saved the day here for the last few years. Beth Malone – KeyBanc: And any sense of why frequency is down?

Well, there are a number of people sitting here around this table, Beth, and I suspect you get that number of answers if you ask. Nobody knows is the truthful answer. What we can say is that it has gone down in the past, it’s never stayed down. If you don’t know why something is happening, it’s hard to make a rationale argument that it’s permanent. Beth Malone – KeyBanc: Okay. An then on the reserve releases in relation to the commutations, what was – is that just a part of your consolidating NCRIC into your own organization that you commuted these policies, or did that book kind of argue for that change to take place?

I think it is some of both. Certainly we are a larger organization collectively than NCRIC would have been at this point in time as a standalone and we therefore have the bigger balance sheet that could support commuting those treaties into losses. We are also further away from the coverage years that were commuted which were really that 1993 through 2005 coverage years for NCRIC. So, we have a much better handle now on what the losses were. And we also had I guess the final point on this is we had a group of reinsures that had an interest and an willingness to commute at terms that we thought were favorable for us on an overall basis and would give us the opportunity to earn investment income on the commutation proceeds and then run off the claims. Beth Malone – KeyBanc: Okay, all right. That’s fine, thank you.

We will take our next question from John Gwynn from Morgan Keegan. John Gwynn – Morgan Keegan: Thanks. Howard, who were the principal counterparties on the commutation?

Well, I mean there was a variety, but I think the single biggest block would be the Lloyd’s Syndicate that collectively participated on the program for NCRIC. Variety of syndicates that had been ultimately consolidated into MAP, Managing Agency Partners, over the years. We also had Hannover Re as a significant buyer on it, and AXA Re, and then smaller participants we had Aspen, Markel, Transatlantic had a little piece of it and so forth. John Gwynn – Morgan Keegan: Okay. And just a technical question Howard or Ned or whoever, I think there are over, still over a 100 of those REGs out there that do med mal. Any of then that had any scale? And number two, when you – I assume most of them would have collapsed under their own weight, but when those things become available, do you acquire the administrative agent, the fee grabbing part of it, or do you get the whole thing?

John, Vic Adamo here. Each one of course is different, you have to look at it, but basically we are an underwriter. So, we are looking to at an insurance company level merge our insurance – merge anything into our insurance operations. We don’t have any particular need for a freestanding administrator of insurance companies. So, it would be integrating it into our overall medical professional liability insurance operations. John Gwynn – Morgan Keegan: Okay, thanks a lot.

(Operator instructions) We will go next to Amit Kumar from Fox-Pitt, Kelton. Amit Kumar – Fox-Pitt, Kelton: Hey, congrats on the numbers, strong quarter. Just quickly I guess going back to the investment income discussion, did this reversal come from the special situations fund, I guess we’ve talked about that in the past?

On the alternative investments, there are I guess three principal drivers of the returns in the quarter. One is the distressed debt fund; I think that’s the one you are referring to, and it did make a distribution in the quarter, and if you recall did not make a distribution in the first quarter. It also made a sizable distribution in the comparable quarter of 2007, much larger than the distribution it made this quarter. The long-short equity portfolio had a good quarter as well. The one find in that group of alternative investments that had a poor showing was the high yield asset backed portfolio, and there is still a lot of turmoil in the market with regards to that. And on that portfolio as well as the long-short equity portfolio, there is much a mark to market phenomena as anything else, because they – you kind of include those essentially accounting as if they were trading portfolios that just flows through. It’s an income item as opposed to a realized gain or loss item. Amit Kumar – Fox-Pitt, Kelton: Okay, that’s very helpful. I guess my only other question would be when you are talking about M&A and you are trying to grow your legal professional liability book, would you be looking at or would you be open to looking at M&A in that space, or is this legal thing mostly on the side right now?

No, we are open to looking at M&A in any space, so definitely that would be a possibility. The companies out there had different profiles than the medical professional companies. They tend to be much smaller and more restricted probably in their market, but definitely we would look. Amit Kumar – Fox-Pitt, Kelton: Okay. And I guess related to that, recently we have seen some deals coming from other countries in the specialty space. I know previously we’ve talked about the Bermuda and US model and even an European and US model. Have you seen any new interest in med mal companies I guess coming from new quarters, maybe from Japanese insurance companies or any other places, or is it still the same players?

A short answer to your question is no. Amit Kumar – Fox-Pitt, Kelton: Okay, that’s all I have. Thanks so much.

Thank you.

We will take a follow up question from David Lewis with Raymond James. David Lewis – Raymond James: Thank you. Howard, first for you, are you reserving for higher severity and frequency trends in your current accident year than what’s we’re kind of seeing here today is I think the comment earlier was that, I think Stan indicated that you wouldn’t expect for this to hold at these low levels at some point, it’s clearly going to turn up, so how do you kind of gauge that? Do you put a little cushion in there? I know it is an actuarial process, but give me some thoughts there, please?

I think we’ve been very consistent about doing to some extent what you are describing although not necessarily in those words. We over the years we’ve talked frequently about establishing our initial reserve estimates at 8 to 10 points above our pricing targets, and even as the pricing has moved down in conjunction with lower loss costs, we are still maintaining the same reserving philosophy. We are establishing the current accident year at 84% which is above our pricing target as we have done in prior years. So whether it’s frequency or severity, the overall loss cost is a function of it too. I think the answer is yes. David Lewis – Raymond James: Okay. And you probably won’t give me this answer but I will ask it anyway. Can you give us a sense of kind of where your reserves are today relative to the midpoint, is it continuing to be at the upper end of that actuarial range?

You are right, you ask every quarter, and we are still I guess of the same position with responses. We make our reserve estimates, we establish our ultimate losses, and reserves fall out from that estimate of what ultimate losses are, and we don’t really approach the reserving process with the intention of creating a range. We give a quite a bit of disclosure in the 10-K about that and I guess I would point you back to that. David Lewis – Raymond James: Okay, thank you. And Stan for you, are there any particular states that establish tort reform that you are any more concerned about today?

We are concerned about every state whose tort reform has not been validated by the High Court in that state. That is to stay until a particular piece of tort reform legislation has been reviewed by the highest state judicial body and validated, that is found constitutional, we remain concerned about it. So you can tick them all. There are a number of them out there that have tort reform legislation that’s not been passed on by the highest court and I would frankly be surprised if we have any Supreme Court decisions from any state between now and the election regarding the constitutionality of tort reform. David Lewis – Raymond James: And do you think there are some case fully in process that might come to state Supreme Court decision within the next 12 months?

Yes. David Lewis – Raymond James: Care to mention any of those states we should watch for?

We will watch for all of them, but the – every state, we view it locally, we look at what’s happening in the state locally. One of the components that we look at is the status of the tort reform from our own footprint. Of course, we remain very concerned about Ohio and Illinois. Ohio has had a positive decision regarding its general tort reform legislation, but the medical malpractice piece has not been specifically rule defined yet. There was a decision by Cook County circuit court that had a negative impact on the Illinois tort reform. We are told that case is on appeal, it wasn’t ours, and there is a possibility that we will have a ruling there. And of course the very important legislation in Florida has not yet been reviewed by its State Supreme Court. So, those are three states just the name of the top of the top of my head. David Lewis – Raymond James: But I guess if I think about the process that goes to appeal from the Cook County case and then that is going to take another six months probably to get up to the Supreme Court, wouldn’t it be that kind of timeframe?

I think it would be at least that kind of timeframe or maybe long. And bear in mind, the State Supreme Courts while they have aspirational goals as to how long it will take them to dispose of the case, they operate entirely on their own timeframe. And there are plenty of cases sitting in State Supreme Courts a lot longer than one would have anticipated. So it really is not something one could predict. David Lewis – Raymond James: I haven’t kept up the protocol process as far as the State Supreme Courts but with the elections coming up are there any states that may turn pro-plaintiff attorney versus maybe pro-business that we saw kind of develop over the last few years for a lot of states?

We will be watching that very closely. I think it’s a possibility in every state in which you have Supreme Court seats in play that the plaintiff bar will have preferred candidates for those seats and we will just have to watch it as it unfolds. David Lewis – Raymond James: Very good, thank you.

From SunTrust, we will take our next call from Jack Sherak [ph]. Jack Sherak – SunTrust: Hi, thanks very much. Just a question for Ned, in terms of the impairment charge of 5.5 million up from 800,000 in the first quarter, I guess just as you look through the remainder of the year, do you think that will continue to move up or do you think you’ve kind of taken all the charges you are going to take here?

That’s a hard question to answer, because so much of it is dependent upon what happens in the marketplace. A lot of people think we are only in the fourth or fifth inning of the credit crunch, and so we’ll just have to wait and see. It’s very much a circumstance-based assessment that we do, and towards the end of the third quarter, we will just have to see where we are, and a lot of it has to do just with the broader markets and where they head. Jack Sherak – SunTrust: Thank you very much.

Our next question comes from Howard Flinker with Flinker & Co. Howard Flinker – Flinker & Co.: Hi. I have two questions. One did you say Cook County or Cooked County?

I said Cook County. Howard Flinker – Flinker & Co.: I see. My second and more particularly a question about the business is that one or two specialized companies have told me that they have seen managing general agents go directly to reinsurers to start writing policies with fronting companies left on the front of it. Have you seen any of that in your business?

I am sure that there is some. We haven’t seen it directly in med mal this cycle, although we certainly saw it last time around, in the mid ‘90s, there was a fair amount of that taking place. Right now, at least in the standard physician professional liability market, I haven’t seen much of it. Howard Flinker – Flinker & Co.: And one other question that came to mind, have you guys seen AIG back away from any of your segment in your market, I repeat yet?

No, not yet. In fact they may be a little bit more interested in certain areas of the market maybe than they were two years ago, I haven’t’ seen them back away yet. Howard Flinker – Flinker & Co.: Thanks.

(Operator instructions) We will now take follow up question from Mike Grasher with Piper Jaffray. Mike Grasher – Piper Jaffray: And my question was asked and answered, thank you.

And it appears we have no further questions at this time, Mr. O'Neil. I will turn the call back over to you for any closing or additional remarks.

Doris, thank you very much for your work today. Everybody, we appreciate your interest. We will speak to you next when we report third quarter earnings in November. Thank you.

Ladies and gentlemen, that does conclude today’s conference. We thank you for your participation and hope you have a great day.