ProAssurance Corporation (PRA) Q3 2010 Earnings Report, Transcript and Summary

Good day and welcome to today’s ProAssurance Third Quarter Earnings Conference Call. As a reminder, today’s call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Frank O'Neil. Please go ahead, sir. Frank O’Neil: Thank you, Jennifer. Good morning, everyone. Thanks for being with us to discuss another solid quarter that extends our strong results through 2010. We issued a news release Wednesday afternoon reporting our results for third quarter and nine months ended September 30, 2010 that release along with our SEC filings, including the 10-Q filed this morning, are designed to provide you with important detailed information about our company as well as disclosures regarding forward-looking statements. We’re explicitly identifying statements we make today dealing with projections, estimates, expectations as forward-looking statements subject to various risks. This is especially true for any discussion of our proposed transaction with American Physician Service Group. These risks could cause our actual results to differ materially from current projections or expectations. 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 unless required by law or regulation. The content of the call is accurate only on Thursday, November 4th, 2010 the date of first broadcast. If you are reading a transcript of this call, please note we did not authorize it and have not reviewed it for accuracy. Thus, it may contain factual or transcription errors that could materially alter the intent or meaning of our statements. A final reminder, we’re going to reference non-GAAP items in our call today. Please refer to our recent filing on Form 10-Q and our recent news release for a reconciliation of those non-GAAP numbers to their GAAP counterparts. On the call today is our Chairman and CEO, Stan Starnes; our President, Vic Adamo; Chief Financial Officer, Ned Rand; and Chief Underwriting Officer and Actuary, Howard Friedman. We’ll start with Stan.

Thanks, Frank. The results we reported yesterday were again quite positive. The long-term approach we take to our operations and investments continues to serve our shareholders and policy holders well, and our discussion today will underscore that. Our comments on the state of our industry and our strategy to enhance our leadership position through careful growth and the disciplined use of our capital will showcase our ability to create value for our shareholders and security for our policy holders. Frank. Frank O’Neil: Thanks Stan. Ned will you give us a brief financial discussion?

Thanks Frank. Based on some of the questions we received after last quarter’s call, I’ll start again with the top line and work my way down. Gross premium written was $159 million in the quarter, a decline of $9.6 million from the prior year quarter. $6.9 million or 72% of that decline is due to the continued selective offering of two-year policies. Gross written premium was $415 million for the nine months ended September, a decline of $20 million period-over-period. But of that $20 million decline, $16.6 million or 83% was due to the effect of two-year policies. That’s why we suggest you also focus on net earned premium, where we can see the effect of the two-year policies coming into our income stream. Comparing Q3 2010 to Q3 2009, the decline was $1.7 million, just 1%. For the year-to-date, net earned premium was up $15.5 million or 4% when compared against the prior year-to-date due to the addition of PICA. If you exclude the effect of PICA, year-to-date net earned premium was down 2.6%. Moving on to investments, our net investment result in the third quarter was $34.4 million, down 15% compared to last year. Within the net investment result, net investment income was down $2.9 million quarter-over-quarter, due to lower interest rates, despite having more money to invest. You’ll note a $1.3 million loss in the equity and unconsolidated subsidiaries in the quarter, a $2.9 million change from last year’s $1.6 million gain. As we have discussed in the past, this line could be quite volatile, but we remain confident that the investments we are making here will provide excess returns over the long term. As we mentioned last quarter, we have also begun investing in Federal tax credits, and these do have an impact on our reported…

Thanks Frank. This continues to be a tough market, but one in which we were able to retain the vast majority of our business and add some new premium rates which we believe meet our criteria for long-term profitability. Retention in our consolidated physician medical professional liability book was 90% in the third quarter. Retaining that level of business in a very competitive market serves a great deal to us about the value that our insureds perceive in a ProAssurance policy and the promise of treated fairly. We wrote $8.4 million of new business in the quarter, $7.9 million of that was new medical professional liability business. I think this level of retention, especially in core states and the writing of relatively minor amounts of new business is characteristic of the market right now. Average renewal pricing on expiring premiums rose 2% in the third quarter which is a turnaround from the 1% decrease in the third quarter of 2009. The level of pricing stability in the royalty among our existing customers tells us we should be able to maintain our existing book of business when the market does turn. It should also put us in a solid position to acquire new business if competitors raise prices to compensate for what we perceive to be aggressive pricing in the past 18 to 24 months. The favorable development in the quarter continues to emerge largely from accident years 2004 through 2008. Loss costs remain lower than the estimates we used when we established the reserves for those years, due to the manageable 4% to 5% upward trend in overall severity. The other half of the loss trend equation frequency remain stable, something we’ve reported for several quarters after a long period of declining frequency. Let me spend just a minute on the loss ratio. Our current accident year loss ratio in the quarter was 86.9%, a 2 point increase over the same quarter a year-ago. This was due to small ships in the mix of business, much of it approaches of one large tail coverage policy. We booked tail policies at a higher initial loss ratio than our standard policies, due to the permanent nature of the tail coverage and the higher level of uncertainty about ultimate loss costs on this coverage. Frank. Frank O’Neil: Thanks Howard. We’ll change over and switch gears a little bit. Now, Vic, can we get an update on the progress of the proposed acquisition with American Physician Services Group?

Sure, happy to bring everyone up-to-date, Frank. We were informed yesterday that the Texas Department of Insurance has approved the transaction, so that clears the last regulatory hurdle. The transaction received early termination of the HSR waiting period in October. American Physicians or APS as I’ll refer to them, mailed their proxy statements last week in preparation for a special meeting of shareholders on November 29th. APS expects approval of the transaction given the value it will create for their shareholders. Assuming that shareholder approval we’re on track to close sometime in the first two days of December. We’re well into the integration planning and have our roadmap laid out to bring APS into ProAssurance. As in past transactions, we’ll go slowly and methodically to ensure that our customers focus parts of the APS organization remain in place and are bolstered by the financial strength of ProAssurance and energized by the additional services and products we can bring to their insurers. At the same time, we’re going to be able to learn from APS. They have a deep understanding of the Texas market with a focus on large groups that will bring experience, knowledge and value to ProAssurance. In summary, we’re perceiving as expected, Frank. Frank O’Neil: Okay, thank you, Vic. Ned, the transaction is expected to close, as Vic said, in the fourth quarter, so APS will be part of the ProAssurance financials at yearend. Can you speak a bit on how that might affect the important line items and the required accounting for transaction costs?

Yes, sure, Frank, thanks. I’d like to remind everyone that current accounting guidance requires that we expense virtually all costs associated with an M&A transaction. So costs that were capitalized in prior transactions will be expensed with APS. We estimate that we will incur between $13 million and $14 million in transaction costs related to the APS transaction, about $10 million related to banking and legal fees, and immediate executive severance will be expensed in Q4, and the reminder which is virtually all related to severance benefit will be incurred in 2011 and spread relatively evenly through the year. These costs are an addition to the $2.5 million APS has publicly estimated it will incur prior to the merger. Keep in mind that we will be adding premium to our top line for some or all of December. We can’t predict what that might be. But in December of last year, the written premium was approximately $6 million. Frank. Frank O’Neil: Thanks Ned. Stan any final comments before we take questions?

Thanks Frank. The operational parts of our business continue to perform well in the quarter, no surprises there. I think we demonstrated that we continue to be serious about effectively and efficiently managing our capital and I’m confident that our M&A strategy is born fruit with our proposed transaction with APS. As I said in our news release, it’s a strategic transaction for us, one that allows us to expand our footprint and add additional high-quality premium at a reasonable price. Achieving this kind of approach, especially in a vibrant market such as Texas is a real positive for ProAssurance. One final note, Frank, for those of you who haven’t seen the recently released Moody’s statistical handbook highlighting the 2009 results of the 100 largest US property casualty companies, I would like to share a few items with you. ProAssurance is ranked the 79th largest P&C writer, up from the 95th largest in 2008. In 2009, Moody’s reports that ProAssurance ranked first in co-written on premium and in operating ratio, second in combined ratio, and fifth in loss and LAU ratio. And all of those rankings are a repeat of our top tier performance in 2008. One other fact, Moody’s ranks us seventh among the top 100 P&C companies in the United States in recurrent on surplus or equity for 2009. I’ll take two things away from these rankings. First, the sustained performance year-over-year is a testament to the discipline with which we operate our business. And second, our performance within that top 100 underscores the success of our long-term operating philosophy. Frank. Frank O’Neil: Thanks Stan. Jennifer, we’re ready for questions now.

All right, very good. The question-and-answer session will be conducted electronically. (Operator Instructions). We’ll go to our first question from Mark Hughes with SunTrust. Mark Hughes – SunTrust: Thank you very much. On the rate increase, was it pretty broad based? Was it concentrated in just a few places? And then did you lead the upward trend or is that in line with the overall market do you think?

Hi Mark, it’s Howard. It’s really a combination of things and a lot of it really comes out of the podiatry book of business. Podiatry business has a little different characteristic in terms of competition in the market. And I think also in terms of the timing of loss changes, there has been some increase over the past several years in loss costs on podiatry that had not been seen in the MD and osteopathic physician market; in other words, their traditional or historical ProAssurance business. So podiatry rates have been increasing and that is probably most of the dynamic on the rate – on the rate increases. If you were to break it down on the ProAssurance historical rates were pretty flat and the podiatry was up, and that’s what was driving the overall. Mark Hughes – SunTrust: That historical flat rate, how's that compared to, say, first six months or last year?

I think in the – if I recall in the second quarter, we were on the historical – we were flat as well, and last year was down about a point or so. So – the – if you will on the historical physician business, the MD business rates have been relatively constant on renewal, but podiatry has been increasing. Mark Hughes – SunTrust: And then, Howard, the – you got a sequential dip, and favorable development is still very healthy but down sequentially, which runs counter to your historical trend, which was normally increases through the year. Anything we ought to read into that?

No, well, I think the thing I would read into it is the fact that we do look at this every quarter and there isn’t – and there shouldn’t be a pattern and we don’t look it forward to be a pattern, we’re really just looking at what we see in the results and how the overall collection of pieces fall together. As Ned mentioned, we had a commutation, a reinsurance commutation during the quarter which brought down the otherwise favorable development by $1.6 million. It would have been $35 million, turned out to be $33.4 million. So on that basis, without that, it would have been maybe out closer to what you were anticipating. And also I think another way to look at it is if you looked at things more in terms of percentage of prior yearend reserves, then on that basis we’re actually quite consistent with where we were last year. Mark Hughes – SunTrust: Thank you.

We’ll take our next question from Matt Rohrmann with KBW. Matt Rohrmann – KBW: Gentlemen, good morning. I just had one question related to the APS deal. I was talking to some folks yesterday that said that doctor applications in Texas had been growing about 4,000 a year and that's kind of been a record high over last five years. I'm just curious to see how long something like that could continue in the state and are you seeing that type of growth in any other states?

It’s Stan. We certainly haven’t seen that type of growth in terms of applications in any of our states. We hear anecdotally same sorts of things you’re hearing and factually we know that the number of license positions in Texas has been increasing in recent years. And that’s why this transaction is so important to us. So I hope what you heard yesterday is true. Matt Rohrmann – KBW: All right, thank you very much.

We’ll take our next question from Beth Malone with Wunderlich Securities. Beth Malone – Wunderlich Securities: Okay, thank you. Good morning. A couple of questions. On the – I know, Howard, we have this discussion quite often about the trends in the reserve development, and you've been pretty consistent in saying that it's not really predictable. However, the reserve development that you have recorded in the fourth quarter of the last two or three years has been significantly higher than the reserve development you experienced in the first three quarters of each of those years going back to at least 2007. So my question is can you explain why that might occur?

Sure. The – the process that we go through and we do as I mentioned certainly look at things on every quarter. But we have a pretty long-term view of the business as you know and you need that in this business, because things change gradually. It’s rare that you see some type of immediate change in a quarter. So we spend a lot of time at the end of the year really looking back and trying to look forward doing a more intricate, more thorough, if you will, type analysis, and that’s when we make most of our decisions trying to get the perspective of what has happened over the course of a past year. In the interim quarters, we’re looking at what kind of changes if any we’ve seen in claim closing patterns and claim average costs. We certainly look at frequency in terms of establishing the current accident year loss, but in terms of prior year development, we’re really looking at fairly limited number of cases in any given quarter. And you might say, well, we could go back and look on our rolling basis, but really the way that we’ve established our methodology and our pattern is to do a very full analysis at yearend, and that’s what we’re geared around and that's usually when we make the major decisions as to what the prior year changes and ultimate loss cost would be. So that’s probably the best answer I could give you. It’s really a matter of methodology. Beth Malone – Wunderlich Securities: Okay. Along those lines too with the acquisition of American Services, do you – is there reserving methodology comparable to ProAssurance or will there be changes to how they've been reserving relative to how ProAssurance does it?

In terms of I think the overall approach to the business, I think it’s been quite similar. We spent a lot of time looking at their reserve analysis, reserve adequacy and so forth. We were pleased with what we saw. So I don’t – I don’t foresee any significant changes APS has or AMPH has used a actuarial consulting firm for many years and has a good track record with that firm, and we’re likely in the short term to continue to get some guidance from that firm and then decide where we’re going in the future. But I don’t really expect any changes and I don’t see a need for any major adjustments. Beth Malone – Wunderlich Securities: Okay, thank you.

We’ll take our next question from Amit Kumar with Macquarie. Amit Kumar – Macquarie: Thanks and good morning. Very quickly, maybe just touching upon the investment income discussion, obviously that number fluctuates going forward. In terms of those buckets which you have, those high-yield ABS, long/short and non-public equities, is that buckets going to remain fairly constant in the near future based on the interest rates or could that change going forward?

Amit, hi, it’s Ned. I don’t know if there is one particular answer to that. Most of those investments that we make kind of outside of our core portfolio are typically with a very long-term time horizon. So the expectation is those investments are going to be 10 or more years. On the high-yield asset-backed in particular, that was a fund that actually to fund the partnership was unwound during the quarter and the assets were distribution, and so that’s actually for this quarter coming out of that bucket, and the vast majority of the security is related to that investment to the extent they were distributed to us, have been sold and we’re planning to sell them. But we are continuing to add investments under that kind of under that bucket of alternative investments, and most recently the tax credits that we mentioned and we would expect that we’re going to continue that as a tax credit over the next six to 12 months. Amit Kumar – Macquarie: Okay, that's helpful. And just moving on, going back to the broader discussion on loss costs, frequency is still stable. I'm just wondering how long do you expect that to remain stable. And maybe also talk about yesterday's or I guess day before election results in your core states, and how does that change your thought process on loss costs going forward?

Amit, it’s Stan. In terms of frequency, it’s something that we look at very closely, but we don’t make predictions about it. This historically has been a volatile line of business. And one of the reasons it has been volatile has been fluctuation in loss cost including frequency. Frequency is stable, there was a long period of decline in frequency, nobody is sure why it went down, nobody can be sure that will remain at its current level, and we don’t make any predictions about it, we just evaluate. In terms of the elections, what one would hope is that elections foretell a increasingly hospitable business environment in this country and that we will be in a position like every other business to benefit from that environment. We hope it will increase the certainty which confronts everyone trying to operate a business in this country and –because uncertainty is very much detriment to the operation of a business. If you're talking specifically about tort reform on a federal level, we certainly hope that the new Congress and the administration will endorse a meaningful tort reform to protect physicians, but we are not managing our business on the assumption that it will. There was a period of time in the earlier part of the first decade of this century in which Republican party that controlled the both houses of Congress and the White House and tort reform was not passed. So we hope it will happen; we’re not operating our business on the assumption that it will. Amit Kumar – Macquarie: And on the state level?

The state level, this will vary from state to state. And again there are a number of states that have not had a ruling yet on the constitutionality of previous enacted tort reform. And so I just you have to evaluate every state separately. I think the number one issue in most states, probably every state is the economy. And the hope is that as the economy strengthens, our business will strengthen as a consequence of that. But I don’t have anyway of presuming that there will be a new widespread endorsement of tort reform in various states. Amit Kumar – Macquarie: Got it. That’s all I have. Thanks and congrats on the results.

Thank you.

We’ll take our next question from Raymond Iardella with Oppenheimer. Raymond Iardella – Oppenheimer: Thanks. Good morning. Howard, can you give us a little bit more color, I guess, on the commutation in the quarter?

Sure, it was the commutation of a relatively small reinsurance contract that we had related to a captive arrangement with one of our large accounts. And as a result – a lot of times in commutations when you’re looking at present value and so forth, you wind up with a loss on commutation and that’s what this one was. Raymond Iardella – Oppenheimer: Got it. I mean, do you have a lot of other types of captive reinsurance arrangements or is that kind of one of your – the last of that type of business?

It’s not the last of it, but on the other hand, we don’t have a lot of them. The captive arrangements tend to come up more in the hard market or the hard portion of the market cycle, and we always tell anyone who is interested in the captive that they have to look at it for the long term. It’s not something that you get into and then easily get out of. So we do have some that are ongoing and expect to continue. This was just one where the Group decided that they would prefer to go back to first dollar coverage. Raymond Iardella – Oppenheimer: Got it, thanks. And then, if my memory serves me correct, I guess your reinsurance program was up for renewal on October 1st?

Yes, it was. Raymond Iardella – Oppenheimer: Can you give us an update I guess on terms? Were they similar and I guess pricing on the program?

Sure. Yes we did renew October 1. The structure of the program remained the same. We had some pricing improvement in our hospital and facilities access – reinsurance costs which we hope will make us more competitive in the hospital market. We had a pretty high level of interest in the program and brought down a few additional reinsurers with a small shares, but the program continues to be led by the historical lead reinsurers, Aspen, Hannover Re, Transatlantic Re, and we have a mix of both international and domestic reinsurers on the program. Raymond Iardella – Oppenheimer: Great. That’s all I had. Thanks guys.

Okay.

Our next question comes from John Grimstad with Piper Jaffray. John Grimstad – Piper Jaffray: Hi, good morning. Thank you for taking the questions. First, could you give us a brief update as to where your claim inventory stands relative to one year ago?

You know we have really said that through the year, claims inventory can fluctuate. We take a very long term view of it. So we’ll update it yearend when we can compare full year over full year, but we don’t – and aren’t prepared at this point to disclose current claim inventory. John Grimstad – Piper Jaffray: Fair enough. Next, what are your expectations for goodwill out of the APS transaction?

We are in the process of evaluating that. I would expect it will be – it is somewhere in the neighborhood of $50 million to $60 million from the transaction. It’ll depend in part on the last two months – assuming it closes early December, the last two months of operations at APS. John Grimstad – Piper Jaffray: Okay, thank you. And finally, I might have missed this, but with respect to new business written this quarter, the $7.9 million – again, I apologize if I missed it. But what are the rates looking like on that relative last year?

Well, the rates on new business are typically similar. We don’t or haven’t historically broken that out, but I would say that we’re generally charging rates on new business that are pretty similar to our renewal pricing. It just depends on the accounts that are involved in the quality of the account. John Grimstad – Piper Jaffray: Thank you.

We’ll take our next question from Paul Newsome with Sandler O'Neill. Paul Newsome – Sandler O'Neill: Good morning. Thank you for the call. I wanted to follow up on Beth's question because in your answer you said that – and I – completely makes sense to me that this business is a long-term business that you take a very measured approach towards the reserves and that the business doesn't really change very much from quarter-to-quarter. But that doesn't really square with the fact that you tend to have a really big change at the end of the year every year. So could you kind of square that with the fact that you think this is very a slow-moving business with the fact that you tend to have a really big change in your reserves at the yearend? I mean are you – how does the methodology of something, especially if you're doing accident year picked in the year, get you with a big change in reserves in the year? And I'm sorry if I'm just being thick.

That’s okay. I think the issue is, there is a process and it’s a quite expensive process that we go through, both internally and externally. We have independent actuarial consultant who does a pretty significant amount of work in terms of the reserve review and we actually do that twice a year, both – there are certainly more emphasis based on the year-end evaluation, it takes several months to do. And we actually started as of the end of the third quarter. We do a lot of work internally on the same basis. It’s really I think a matter of how much and how often we do that type of analysis. And while in theory, it could be done every quarter starting with the data from the prior quarter and looking back over the past year, we historically have reserved the full extent of that analysis to yearend, it coincides with the statutory reporting process, where we have to do much more detail at yearend than we do on the quarters. And it also is a matter of how often is the right amount of time to do that level and depth of analysis. So that’s really the basis for it. I don’t think there’s really anything really beyond that. It’s more a matter of timing, effort, and workload. Paul Newsome – Sandler O'Neill: Great. And a completely separate question back to M&A. Obviously we're left with sort of only a couple of public companies in the medical malpractice space, could you maybe just kind of refresh us now that – especially sort of post AMPH, where you think you stand from a breadth of business, spread of risk basis and where you'd like to be, and whether or not you think there's certainly more consolidation to come or not on a broad basis?

This is Stan. M&A transactions tend to be episodic and they occur not only among those organizations which are in publicly traded space, but can occur with organizations that are not publicly traded, particularly mutuals. And an example of that was the sponsored demutualization of PICA, which we closed in April of 2009. You cannot predict how or when they will occur, as I say, they are episodic. But in spite of the fact that we as an organization like business across a breadth of states, and indeed when you consider a podiatric portion of our business, we write in virtually every state, there are many organizations that are limited to one or two states. I think consolidation is likely to continue to occur, because it historically has occurred on a fairly regular basis since the 1990s. But again one cannot predict the next one or when or how. One way we diversify our risk in our core medical business is in terms of product diversification and geographic diversification and we think that’s one of the things that enables us to continue to perform well. The world of medicine is changing, integration of healthcare providers from the hospital level down to the home healthcare nurse are creating new opportunities for us, that was one of things, for example, the home healthcare nurse was what our Mid-Continent acquisition was aimed at. So we think that our geographic reach and our product reach creates real opportunities for us in the changing world of healthcare, not only through mergers and acquisitions, but through organic expansion as well. Paul Newsome – Sandler O'Neill: Okay, thank you very much. I appreciate the color.

(Operator Instructions). And we’ll take a follow-up question from Mark Hughes with SunTrust. Mark Hughes – SunTrust: Thank you. Anything you've seen regarding healthcare reform, smaller doctor practices combining with the hospitals or big health systems, either have you seen any pickup in that or do you think doctors are more serious in evaluating that now?

The New York Times reported earlier this year that 50% of the physicians in this country are employed by hospital or a hospital affiliated organization. So that indicates to me that it is picking up. There are several factors that are causing physicians to look very seriously at hospital affiliation. One are the reimbursement rates, second is what I call the bureaucratization of medicine, thing such like electronic medical records, increased regulatory burdens, and the third is the demography of medicine is changing. The confluence of all of those factors is causing physicians to take a look at hospitals. And while there were come effort at the integration in the early ’90s, by in large, that was unwell. At the time it didn’t feel particularly right to me. This feels far more permanent. Mark Hughes – SunTrust: Have you seen a pickup in that activity in your own book of business?

Yes, we’ve had physician groups go into hospital, some of which we no long insure after they go into the hospital, and some of which we continue to insure, so every one has to be handled differently. Mark Hughes – SunTrust: Right. Can you say what the effect on the current year loss ratio was from the tail policy issue that you talked about?

Yes, that’s roughly1.5 points on that current accident year loss ratio. Mark Hughes – SunTrust: Okay, great. Thank you very much.

We have a follow-up question from Beth Malone with Wunderlich Securities. Beth Malone – Wunderlich Securities: Okay, thank you. I just wanted to follow up on the comments that the Texas market seems to be more robust than many others. And I was wondering, is that – do you think that the increase in application of physicians – is that an economically driven incident? And if so, could we anticipate an escalation of that as the economy improves in general?

You know, Beth, the truthful answer to the question is, I don’t know what we can anticipate in the future. I think the Texas is a state that from what has been reported to us, the economy has done better than it has in other parts of the country. Texas also has constitutional tort reform. That is tort reform that is embedded within the state constitution of Texas, which makes it more sustainable tort reform. Perhaps, that’s had an influence on it. The time I spend in Texas, both professionally and personally, indicates to me that Texas is a state which in the future will continue to prosper and thrive, and that’s why this strategic acquisition is important to us. Beth Malone – Wunderlich Securities: Okay. And one other question for Howard; I know I don't want to beat this to death, but I will anyway. I'm just wondering in your commentary that things don't change very quickly on the reserve development side of severity or frequency trends, how does that – explain? Or maybe I didn't understand it. I'm old enough to remember when in the early 2000 – 1999, 2000, 2001, all of the med-mal companies experienced a spike in severity, I think it was, that was kind of unexpected. And was that just a freak event or am I describing it wrong because it's been so long?

Neither. I don’t think it was a one-time or the only time it’s ever happened, and I think you’re describing it more or less correctly. I think the industry did see it over a period of time though, but increase at point in time came in the form of higher claims severity, and it was something that started to buildup. I think there was some denials of it as in many cases these types of things are met with some denial as well, let’s see what happens, let’s see what happens the next quarter, it’s only after this particular state or this particular set of circumstances or claims. But I think the evidence did build up, and in our case, in the first quarter of 2000, we felt that we had enough evidence over a period of time to say that we needed to make an adjustment and reduce the amount of favorable development that we were seeing from prior years. And then, over the course of that year, and this goes back away, but you’re around them. Over the course of that year, we continued to see it and we continued to reduce the favorable development. So what I’m saying is we don’t ignore the indications going through out the year, and we certainly look at both frequency and severity every quarter. But we don’t try to make the decision for the entire book of historical loss reserves based on one quarter of information.

Howard, I think one other thing to point out, Beth, getting back to your point where you said, it seemed to happen overnight, we recognized it. And then there were questions of myriad other public companies that have since gone by the wayside, and they have said, “Oh! we don’t see it, we don’t see it,” and then it was fixed nine months – 12 months later that they did see it. So I think although it seems like it hit in an avalanche, it really built up more overtime. I think probably we were ahead of the curve. We stopped digging the hole early and started filling it before everybody else. Beth Malone – Wunderlich Securities: Okay. All right, thanks for that explanation.

Now with no further questions in the queue, I would like to go ahead and turn it back over to Mr. Frank O'Neil for any additional or closing remarks.

Thank you, Jennifer. We’ll wish everybody a Happy Holiday and we will speak to you again in February, when we announce yearend and fourth quarter results.

And that does conclude today’s conference. Thank you for your participation.