Earnings Call: Q3 2017

Oct 26, 2017

Quarterly report

Good morning and welcome to the Markel Corporation Third Quarter 20 17 Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. During the call today, we may make forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They are based on current assumptions and opinions concerning a variety of known and unknown risks. Actual results may differ materially from those contained in or suggested by such forward looking statements. Additional information about factors that could cause actual results to differ materially from those projected in the forward looking statements is included under the captions Risk Factors and Safe Harbor and Cautionary Statement in our most recent Annual Report on Form 10 ks and Quarterly Report on Form 10 Q. We may also discuss certain non GAAP financial measures in the call today. You may find a reconciliation to GAAP of these measures in the Form 10 Q, which can be found on our website at www.markelcorp.com in the Investor Information section. Please note, this event is being recorded. I would now like to turn the conference over to Tom Gayner, Co Chief Executive Officer. Please go ahead. Good morning. This is Tom Gaynor, the Co CEO of the Markel Corporation, and it is my pleasure to welcome you to our Q3 2017 conference call. I'm joined this morning by my Co CEO, Richard Witt and our Chief Financial Officer, Anne Wiletzky. In a few moments, they will review our financial performance from the 1st 9 months of the year as well as provide some comments and updates on our insurance operations. Following that, I will return and update you on our investment and industrial operations, and then we will take your questions. Mark Twain once said, a man who carries a cat by the tail learns something he can learn no other way. I don't know if Twain was anticipating the record catastrophe losses of 2017 when he penned those words, but as a fan of his, I'm going to give him credit and foresight for brilliance with this bit of wisdom. 2017 will be a record year for catastrophes and at the moment, we've got 66 days to go before the ball drops in Times Square to call time. Catastrophes are known as caps in the property and casualty insurance industry, and it is our job to pick them up by the tail. That is what we do. In doing so, we fulfill our social responsibility and our reason for being by responding to the cats with resources to help our policyholders put their lives back together again. As we reported, we will record charges of just over $500,000,000 net of our reinsurance recoveries to pay claims to our policyholders for losses they suffered as a result of hurricanes Harvey, Irma and Maria. Additionally, we've witnessed earthquakes in Mexico and fires in California into the Q4. As I said a minute ago, 2017 is not over yet. The good news is that our policyholders can count on us to help them in their time of need. Times like these demonstrate why they bought insurance. Times like these also speak to why we manage Markel in a conservative and prudent way. We do so in order to have the ability to respond quickly and appropriately to help our policyholders get back on their feet. We keep our promises. As Twain alluded, we also learned something as we pick up these cats by the tail. Specifically, the underwriting of insurance involves gathering data and making informed judgments about the probable costs of bearing the uncertainty of future losses. In each and every event, we learn more by gathering new and expensive data and future predictions become based on more robust data, experience and judgment. Just as we have in the past, through previous record catastrophe events like the World Trade Center attack, Katrina, Rita, Wilma and others, we will learn, adapt and proceed with more knowledge as we go forward. Finally, I want to remind you as fellow shareholders that we as a company are reporting positive comprehensive income to you this morning. We've designed Markel to be a resilient and durable company that our customers, shareholders and associates can depend upon. In addition, and I do mean in addition to the $500,000,000 of catastrophe related payments we are making to our policyholders, we earned pre tax net investment income and dividends and interest payments of roughly $300,000,000 We also earned pre tax unrealized gains on our investment portfolio of over $800,000,000 We produced EBITDA of $115,000,000 at Markel Ventures so far this year. And if you total out these items, there are positive returns from 2 of our 3 engines that totaled well over $1,000,000,000 of pre tax ins compared to the $500,000,000 of pre tax outs. I also specifically used the words pre tax since there are elements of tax efficiency in these numbers that also improve our net financial circumstances. I am proud of our organization that we can create the win win situation of providing $500,000,000 of support and payments to our policyholders and increase the network of the Markel Corporation at the same time. That is the design of Markel and it is win win. It is easy to say and hard to do, but we've done so. With that, let me turn it over to Ann and Richie to give you the details on the numbers and commentary on our insurance operations. After their comments, I will turn to pickup on our Investment and Industrial business. Anne? Thank you, Tom, and good morning, everyone. Markel's comprehensive income and growth in book value for the 1st 9 months of 2017 reflect strong performance in our investment portfolio and demonstrate the value of having diversified operations. While by several catastrophes, we continue to see positive growth across several product lines. Within our Markel Ventures operations, we completed the acquisition of Costa Farms in August. Costa Farms is a Florida based grower of house and garden plants, which adds to the diversity of our portfolio of non insurance Markel Ventures companies. We're also excited about our upcoming acquisition of State National, which is expected to close in the Q4. Now let's talk about our results for the 1st 9 months of 2017. Total operating revenues grew 5% approximately $4,400,000,000 in 2017. The increase was primarily attributable to an 8% increase in earned premiums, which reflects higher earnings in all three of our underwriting segments. Starting with our underwriting results, gross written premiums were 4 $100,000,000 for the 1st 9 months of 2017 compared to $3,800,000,000 in 2016, an increase of 9%. The increase in gross premium volume was attributable to premium growth in all three of our underwriting segments. The increase in gross written premiums in the U. S. Insurance segment was attributed to growth within our program, general liability and personal lines business, as well as premiums from our new surety business. In the International Insurance segment, higher gross written premiums were due to new business in our Marine and Energy and excess liability product lines. Higher gross written premiums in our Reinsurance segment were attributable to 2 large specialty quota share treaties that were written in the Q1 of 2017, assumed reinstatement premiums attributable to the 2017 catastrophe and higher premium volume in our professional liability and workers' compensation product lines. Partially offsetting these increases was lower premium volume in our auto, property and general liability lines of business. Net written premiums for the 1st 9 months of 17 were $3,500,000,000 up 11% from last year for the same reasons I just discussed as well as a 1 point increase in retention from 83% last year to 84% this year. Earned premiums increased 8% to $3,100,000,000 for the 1st 9 months of 2017 due to higher premium in all three underwriting segments. Our consolidated combined ratio for the 1st 9 months of 2017 was 108% compared to 93% last year. The 2017 combined ratio included underwriting losses of 5 $3,000,000 net of reinstatement premiums from hurricanes Harvey, Irma and Maria and the earthquakes in Mexico or 16 points on the consolidated combined ratio. Excluding the impact of the catastrophes in 2017, our combined ratio decreased due to higher earned premiums in 2017 compared to 2016. As we discussed in the Q1, the 2017 combined ratio also includes $85,000,000 or 3 points of adverse development on prior year loss reserves in our Reinsurance segment resulting from the decrease in the Ogden rate, which is used to calculate lump sum awards on U. K. Bodily injury cases. In 2016, the combined ratio included $71,000,000 or 2 points of adverse Revenues from Markel Ventures increased to 933,000,000 Revenues from Markel Ventures increased to $933,000,000 compared to $906,000,000 a year ago. Higher revenues across our non manufacturing operations due to increased sales volume were partially offset by lower revenue in certain of our manufacturing operations, primarily attributable to one of our transportation related businesses. Net income to shareholders from Markel Ventures for the year was $38,000,000 for the 1st 9 months of 2017 compared to $50,000,000 last year. EBITDA was $116,000,000 in 20.17 compared to $134,000,000 last year. Operating expenses in 2017 include $20,000,000 of inventory losses arising from Hurricane Irma. We've not yet recognized the potential for any insurance recoveries resulting from these losses. Insurance recoveries will be recognized as income in the period in which they become more certain. Looking at our investment results, investment income increased from $279,000,000 for the 1st 9 months of 2016 to $304,000,000 this year. The increase was driven by short term investment income, primarily due to higher short term interest rates and higher dividend income due to increased equity holdings compared to the same period of 2016. Net realized investment losses were $2,000,000 for the 1st 9 months of 2017 compared to net realized investment gains of $66,000,000 last year. Net realized investment losses in 2017 included a $40,000,000 net loss in our investment in the Markel CATCo funds related to underlying losses on Hurricanes Harvey, Irma and Maria. Given our long term focus, variability in the timing of realized and unrealized gains and losses is to be expected. Looking at our total results for the year, our effective tax rate was 32% in 2017 compared to 27% a year ago. The increase in the effective tax rate from 2016 to 2017 was primarily attributable to the impact during the Q3 of having a small pre tax loss for the 1st 9 months of 2017, which magnified the effect of certain tax adjustments. We reported a net loss to shareholders of $40,000,000 for the 1st 9 months of 2017 compared to net income to shareholders of $323,000,000 a year ago. Comprehensive income to shareholders for the period was $546,000,000 compared to 6.90 $6,000,000 a year ago. And as a result, book value per share was $6.41 at the end of September 2017, an increase of 6% since the end of 2016. Finally, I'll make a couple of comments on cash flows and the balance sheet. Net cash provided by operating activities was just under $600,000,000 for the 1st 9 months of 2017 compared to approximately 3 $25,000,000 for the same period of 2016. Operating cash flows for 2017 included higher premium collections in the U. S. Insurance segment, lower claims settlement activity across all of our underwriting segments and lower payments for income taxes and employee profit sharing compared to 2016. In 2017, we also used cash of just under $600,000,000 for acquisitions, including the acquisition of Costa Farms in the 3rd quarter and SureTech in the 2nd quarter. Invested assets as a holding company were $2,500,000,000 at both September 30, 2017 and year end 2016. With that, I'll turn it over to Richie to talk more about underwriting results. Thanks, Ann. Good morning, everybody. Today, I'll focus my comments on our underwriting operations. I'll also provide an update on our CATCo operations and also a brief update on our pending acquisition of State National. Obviously, as we've heard the news for Markel's underwriting operations, Markel CATCo and the insurance and reinsurance industry as a whole is the significant catastrophic events that took place in the Q3. As Ann pointed out, our underwriting losses were 503,000,000 net of reinsurance and before tax. These are obviously meaningful losses. However, with our strong balance sheet, we're well positioned to respond to the claims of our insurers and we're also prepared to respond to our insurers and producers' ongoing insurance needs. So starting with the U. S. Insurance segment, gross written premiums were up $115,000,000 or 17% compared to the Q3 of 'sixteen. On a year to date basis, writings are up $171,000,000 or 9% to last year. Results attributable to our new Markel Surety Business added 22,000,000 of gross written premium in the quarter and 34,000,000 to the year to date premiums. Premium growth excluding Markel Surety is driven by growth in programs, personal lines, which is primarily our classic auto program and several of our general liability lines on both a quarter to date and year to date basis. Earned premiums are up 9% for the quarter and 7% year to date due to the same drivers as gross written premium increases. The combined ratio for the U. S. Insurance segment was 112 for the Q3 of 2017 as compared to 101 for the same period a year ago. The 2017 cat events added 24 points to the 2017 quarter to date combined ratio. Excluding the impact of the 2017 cats, the segment combined ratio decreased due to more favorable development from prior year loss reserves in 2017. For the Q3 of 2017, favorable prior year loss development was 88,000,000 compared to 21,000,000 a year ago. The Q3 of 2016 included 37,000,000 of adverse development on our medical malpractice and specified med lines. The year to date combined ratio was 99 compared to 95 in 2016. The 2017 cat events added 9 points to the 2017 year to date combined ratio. Excluding the impact of the 2017 CAD events, the segment combined ratio decreased due to more favorable development on prior year loss reserves in 2017. On a year to date basis, prior year redundancies were $207,000,000 for 2017 compared to $126,000,000 for 2016. This difference was largely a result of $71,000,000 of adverse development on the medical malpractice and spec med lines last year. Next, I'll go on to the International Insurance segment. Gross written premiums are up 51,000,000 19% compared to Q3 of 2016. On a year to date basis, writings are up $70,000,000 or 8% to last year. New business in our marine and energy lines during the Q3 of 2017 drove the growth in the quarter. Premium growth on a year to date basis was also driven by growth in our excess liability lines. Earned premiums are up 10% for the quarter and 6% year to date due to the same drivers that gross written premium increases were caused by. The 3rd quarter combined ratio was 136% compared to 91% for the same period a year ago. The 2017 cats added 47 points to the 2017 year to date combined. Excluding the impact of the 17 cats, the segment combined ratio decreased due to lower current year loss ratio, partially offset by favorable development on prior year losses, having a less favorable impact on the combined ratio due to higher earned premiums. So, very similar dollars, but a lower combined ratio impact due to higher earned. The lower current year loss ratio is due to the higher attritional large losses in 3Q 2016, primarily on our marine and energy lines. The year to date combined ratio was 105 compared to 95 in 2016. The 2017 cats added 17 points to the 2017 combined ratio. Excluding the impact of the cats, the combined ratio decreased due to more favorable development on prior year losses, primarily in our general liability lines and a lower expense ratio due to lower profit sharing expense and the impact of higher earned premiums on our G and A expenses. Next, I'll discuss the Reinsurance segment results. For the Q3, gross written premiums for the segment are up $33,000,000 or 17% compared to 20 16. On a year to date basis, writings are up $106,000,000 or 11 percent to last year. For the quarter, premiums were up due to increased property premiums, due to the impact of assumed reinstatement premiums from the 17 cat events. For the year, growth was primarily driven by the 2 new large specialty quota share treaties in the Q1. Anne mentioned those, they were roughly 137,000,000. Excluding these contracts, year to date premium is actually down due to reductions in our auto and general liability lines. As mentioned in previous quarters, significant volatility in gross premium volume should be expected in our reinsurance segment due to individually significant deals and the timing of renewals on multi year contracts. Earned premiums are up 26% for the quarter and 13% year to date due to similar drivers as gross written premium increase. The 3rd quarter combined ratio was 183% compared to 94% for the same period a year ago. The 17 cat events added 95 points to the 17 quarter to date combined ratio. Excluding the impact of 2017 cat events, the segment combined ratio decreased due to a lower expense ratio. The decrease in the expense ratio was driven by lower profit sharing expenses and the impact of higher earned premiums on our G and A expenses. The year to date combined ratio was 135% compared to 87% last year. The 2017 cat events added 30 4 points to the 2017 combined ratio. Excluding the impact of the cat events, the combined ratio increased due to less favorable development on prior year losses. This was partially offset by a lower expense ratio due to the impact of higher end premium on G and A expenses. Anne discussed the development on prior years is impacted by the 85,000,000 related to the Ogden rate. Excluding this impact from the year to date results, there was slightly less favorable development on prior year loss reserves in our property and general liability lines. Now, I'll make a couple of comments about the market. It feels like for the last several quarters, I've been saying the market remains competitive and not much new to report. Coming out of the Q3, I have some new things to say. The property market is clearly in transition. By that, I mean post the events of the Q3, there is clearly momentum building for rate increases. Questions that remain are how much will rates increase and how broad based will rate increases be. Our sense is the extent of rate increases will play out over the next several months all the way into next year. As the actual losses from these events are realized by companies and as we get closer to the critically important January 1 renewals, the breadth and depth of rate increases in the property market and beyond will emerge. At Markel, we are seeking rate increases on all property business. However, we're not taking a one size fits all approach. On loss free or better rated accounts, the necessary increases will be smaller. On loss impacted or relatively more aggressively rated accounts, we'll need larger increases. We also believe that rate increases are needed more broadly than just property business. We believe there is very little, if any, margin left in casualty business and that rate increases are required in casualty lines as well. The spillover effect of increasing property rates into other lines of business could take longer than finding the new higher market level for property rates, but we do believe this is going to occur. We will be actively seeking appropriate talk doesn't move market pricing, earnings and capital destruction moves market pricing. It is clear that these events represent meaningful earnings and capital destruction to the industry and the only logical response will be for companies to raise prices to more adequate levels. Next, I'd like to make a few comments about our Markel Cacto operations. They obviously were also impacted by these events. Assets under management, including funds held that will be used to settle catastrophe claims increased to $4,500,000,000 at September 2017, up from $3,400,000,000 at September 2016. As of September 2017, Markel's investment in the Markel CATCo funds was approximately 204,000,000. During the Q3, we recognized a loss of 52,000,000 due to change in the net asset value of the funds due to the estimated losses from the 3rd quarter events. Consistent with our conservative approach to managing our loss reserves, we have impacted the value of our investment in the funds based upon the higher end of Markel CATCo's previous released estimated range of results for the year. The Katco team is currently working hard to determine the extent of clients' losses and required side pockets, renew clients with appropriate rate increases and raise capital needed to meet 2018 client demand. We believe we are making good progress on all fronts, but we'll not have the full picture until closer to year end. Finally, just an update on State National. The day before our last quarterly call, we announced entering into an agreement to purchase State National. Today, I'm happy to report that this Tuesday, State National shareholders overwhelmingly approved the deal. The transaction remains subject to customary closing conditions, including one related excuse me, one remaining regulatory approval in Delaware, and we expect to close the deal before the end of Q4. We are very excited to welcome the State National team to Markel. We look forward to adding the premier fronting platform in the U. S. As well as adding a recognized leader of collateral protection insurance for credit unions and regional banks. Now, I'd like to turn it over to Tom. Thank you. Thank you, Ritchie. Markel enjoys a relatively unique position in that we have 3 powerful engines to drive this company forward. Richie described our insurance engine circumstances, and I'll pick up with our investment in Industrial Products and Services business. The investment engine produced excellent results during the 1st 9 months of 2017. We earned 17.6 percent on our equity investments through September 30. More importantly, our longer term record remains one of the finest in the investment industry. We've outperformed the S and P 500 index by more than 100 basis points over decades and this record continues in 2017. We do so at extraordinarily low costs and with a high degree of tax efficiency. Currently, we have roughly 64% of our equity capital invested in publicly traded equity securities. This is enough to give us a meaningful return in pleasant environments like what we've experienced so far this year. It is also balanced and conservative enough to provide a measure of safety and liquidity to absorb bad news and remain in a position to make positive investments in more turbulent times. In our fixed income operations, we continue to execute our strategy of owning high quality plain vanilla bonds and matching the duration of our portfolio to that of our insurance liabilities. We earned 2.8% on our fixed income holdings through September 30, and we continue to earn the coupon. There were no credit losses to report as has been the case for quite some time. That is how it should be. I'm delighted to report to you that is also how it actually is. Our Industrial Products and Services engine, known as Markel Ventures, also produced substantial positive results. We earned EBITDA of $115,000,000 versus $133,000,000 in the prior year. When you look at those raw numbers, I would suggest that you also look at a couple of additional items. 1, we recognized a $20,000,000 loss due to storm losses on inventory from Hurricane Irma. That number represents the cost of inventory that was damaged by the storm. As we point out in the 10 Q, we recognized nothing for future insurance recoveries from that loss. Let me assure you, as fellow shareholders, that we were insured for that loss and we do expect meaningful recoveries in the future. The 2 fundamental principles of accounting are conservatism and matching and the fundamental covenant of what accounting is meant to do. Those principles mean that whenever there is a choice about how to present financial outcomes, you're supposed to present things in a more conservative rather than aggressive way. You're also supposed to match revenues and expenses in the period in which they occur. I would suggest to you that this $20,000,000 of expense is about as conservative as it could possibly get. I would also suggest to you that I, as a former accountant, struggle to understand how this 3rd quarter expense comports with the fundamental principle of revenues and expenses in the same time period. When you go from the covenant of accounting principles to the contractual process of GAAP accounting, rule makers necessarily delve into definitions, processes, terms and procedures that are necessary to create actual journal entries. I'm told by our GAAP accountants that the expense of the inventory losses are certain and knowable as of the end of Q3. I'm also told that the insurance recoveries are not knowable enough or precise enough to do the other half of the journal entry where we would record a receivable on our books in anticipation of the future claim that we expect to collect. What all this means is that in the not too distant future, we should collect insurance proceeds from this loss and at that time, we will record the entire amount as income in that period with no associated expense. Secondly, we recognized $10,000,000 of expense in the period for paying out an incentive earn out from a previous acquisition. I remind you that paying an earn out greater than what we expected means that things have gone even better than we originally anticipated. Let me say plainly, that's a good thing. On the surface though, we are reflecting that unalloyed good news as an expense flowing through the income statement. In my fantasy world of GGAAP, that stands for gainer, generally accepted accounting principles, I would consider that payment a balance sheet item and a capital transaction of payment for an income producing asset rather than a period income statement expense. The good news for fans of G GAAP and GAAP is that we will all agree to the same number in the future periods. The payment has been expensed and the future expenses for the earn out will be 0, no matter how you go about accounting for the issue. Adding these two items, which totaled $30,000,000 to the reported EBITDA of $115,000,000 doesn't seem completely nuts to me. Feel free to make your own judgment about my logic. I apologize for the accounting digression, but I think it is critical to discuss this issue in order to understand and more fully appreciate the underlying economics of the business. Finally, I want to close with a reminder that at Markel, we are about the task of building 1 of the world's great companies. We do this by building a durable and sustainable win win win organization that does things for our customers, shareholders and associates rather than to them. The results of 2017 demonstrate the reality of this mission in states. First and foremost, we are responding to losses suffered by our policyholders with claims payments that we currently estimate to be more than $500,000,000 This is a win for our customers. We are there for them when they need us. This is true not just in insurance, but in our industrial operations where we built bakery equipment, car trailers, truck floors, dredges and dorm room furniture among other things, and where we provided housing, medical care, IT consultants and other valuable services to our clients. Secondly, we created a win for our shareholders with positive overall returns from our investment in Industrial Engines. Additionally, we're creating a win for our shareholders with the transformative acquisitions of SureTech and Costa Farms so far this year and expectations and we are funding these purchases without raising any equity to do so. We've built a balance sheet over the years that can respond to the highest catastrophe year ever and pay for 3 meaningful acquisitions all at the same time. Ladies and gentlemen, that's a powerful statement. Finally, as it says in the Markel style, our covenant that describes how we operate this company, we are creating a win for our associates by providing an atmosphere in which people can reach their personal potential. This is a company full of people who are creative, adaptable, continuously learning and dedicated to our customers, shareholders and fellow associates. We continue to celebrate the task of serving each and every one of these people and we take joy in doing so. We continue to travel down the path of becoming one of the world's great companies through our daily acts of service that are our jobs. Thank you for your long term support and partnership as shareholders and your provision of the financial capital required to complete this mission. With that, we look forward to your questions. Kate, if you would open up the floor for questions, please? We will now begin the question and answer session. The first question is from John Fox of Fenimore Asset Management. Please go ahead. Yes. Thank you, everyone. I have a few questions. The first one is, I guess, my only surprise in the quarter was a high rate of gross premium written, which is in the low to mid teens ex the acquisition. I'm just curious given my sense we've been in a soft market for a period of time and your disclosure in the Q about most premium rates are kind of trending down. Where are you seeing opportunity to write business at really double digit gross premium written rate? Thank you. Then I have an unrelated question. All right. Thanks, John. I'll try to tackle that one. There's no doubt the market is competitive And we've talked about it in previous quarters. There's any number of lines where we're probably shrinking or actually shrinking, but there are some areas where we found opportunities and we're growing. In London, we found a particular marine and energy program last year that we added to the book this year. And so that's coming online. That number was 0 last year and that program is coming online. It could be 50,000,000 or 60,000,000 by the end of the year. A similar thing has happened in the U. S. Where we found another program. That property was kind of a property package sort of program. And again, it's probably a $60,000,000 to $70,000,000 opportunity that's coming online that would have been 0 last year. So, we've had some nice pickups like that, very, very targeted rifle shots. And then, we're growing in other areas such as the our classic auto program. We're seeing some nice increases in our national markets over in London, which is retail business, which is then it's a stickier business. It doesn't move around as much in terms of price. And so, it's a good place to grow. So, we're I guess, I would say, we're not surprised by the growth. These are things that we kind of put in the works in 20 16, at the end of 2016 and knew they would come online during 2017. And hopefully, the goal would be each year to find a few things like that, a few gold nuggets amongst what is otherwise a fairly competitive market, at least up until now. Right. Okay. Well, I hope you're not surprised, Richie. But how do you think about the return on equity or the returns on that business that when you find these pockets, is it you think about, gee, they have a good combined ratio or you say, gee, we can write $2 of premium for $1 equity and a $90 combined and that's a good return? How do you think about or identify that's a good niche? We 1st and foremost, as we always do, focus on what we think we can write in terms of the combined. So, we're not going to bring on a program. We think we're going to have a 110 combined on it. These are programs Right. Yes. They're the programs we believe we can make an underwriting profit on. Okay, great. And then my second unrelated question is, you reported $2,500,000,000 at the holding company at the end of the quarter. Of course, dollars 900,000,000 is going out for the acquisition, the insurance acquisition. Do you guys have a kind of a minimum you'd like to have there, like a Berkshire talks about their minimum? And if so, do you need to reload that? Or can you just talk about your liquidity and kind of the minimum you'd like to have? Yes, Don, I think we're comfortable, you'll note that the balance was flat to year end and we've closed out the 2 acquisitions already year to date. We're comfortable that we can absorb the State National acquisition and still have sufficient liquidity. I don't think we feel like we have to replace that. We will, as we have always done, be opportunistic about that. So if there is some option to do that and it makes sense for us economically, we'll certainly look at it. But we're not concerned about the liquidity levels around the organization. Okay, great. And then my final question is, I understood you mentioned the Ogden rate, which I understand is going back up. Could you just either confirm that or not or and it would have any impact going forward? Thank you. There is the government has picked up the issue. The UK government has picked that issue up. And what they've really said is they will look at that rate more often. I think it had been something like 15 or 16 years since they had last looked at it and they made this rather aggressive move. I think people believe it will come back up, but that's not their biggest issue right now. I think they're focused on Brexit. So when that change occurs, we'll obviously take a look at it and see what it means for us. But that could take we believe that could take a while. They've got a lot of bigger things to deal with. Okay. I won't pencil anything in, Scott. Thank you for your attention. Yes. But it is the one thing I'll say, John, is it's interesting. The government set the rate at negative 0.75. The reality is the market has basically ignored that. And when deals are settling, when claims are settling, they're settling at something between 0 and positive one rate. So, as often is the case, the market sets the rates, the government doesn't. Right, because everyone knows you're making a positive return on fixed income and I mean, you're over reserved at minus 0.75. So, it makes sense. So it is interesting. Claims that are settling are settling in that 0 to plus 1 range. Yes, makes sense. Okay, thank you. Thanks, Dan. The next question is from Scott Heleniak of RBC Capital Markets. Please go ahead. Hi, thanks. Good morning. Appreciate the thoughts on pricing and just wondering if you see any early signs of pricing moving since the storms, anything you can share there? And is there a sense of others, I know you guys talked about casualty pricing moving. I mean everyone that we've heard has certainly talked about property and reinsurance, but do you get the sense that others are going to follow suit with that? Just anything anecdotally you can share on that front would be appreciated. Yes, sure. We're seeing the ability to raise prices on property. We are definitely seeing that ability. I would say, in terms of the market, how much and what you do on loss free accounts, what you do on non cat exposed accounts, It's a little all over the place right now. And I think but I think that will develop as we go forward. The market will kind of find a level. But we are seeing the ability to push for rate on property accounts certainly. It may take a little longer to be able to push and get rates in casualty lines and other specialty lines, but I think that's going to happen. I do believe that's going to happen, but I do believe that could take a little longer than what we're seeing right now on the property side. Okay. That's helpful. And I wanted to ask too about the California wildfires. I appreciate you guys putting the loss estimate there. And it was interesting we've heard a lot of industry loss numbers out there anywhere from a few $1,000,000,000 to $10,000,000,000 And just wondering what kind of industry loss estimate you guys might have assumed when you came up with your number for that that you might be able to share? We tried as best we could and we noted in there, this is an ongoing and developing situation. So, that range is it's got a lot of estimation to it. So, we tried to build it bottom up as best we could. I think we see those industry numbers as well. And I think we're thinking it's anywhere between a $3,000,000,000 to $6,000,000,000 or $7,000,000,000 event. And unfortunately, it's growing every day because there's still fires out there. So, that one is very tough to pinpoint right now. I can't caution enough about the volatility that could be in that number. Okay. And then expense ratio, you got the benefit from the reinstatement premiums received and lower contingents paid, I believe you guys said. So was the run rate in the quarter, was that still kind of in the 38% to 39% range, It's sort of a normalized rate if you were to take those out of there? Was there any major change in there? The expense ratio also benefited in the quarter from the increase in gross written, which I think, yes, as that comes into earned, we'll continue. So I think the run rate is likely to be 37%, 38%. Okay. All right. And just a last question on the $20,000,000 inventory loss charge for Irma. Was that specific to one particular operation or was it multiple operations? 1. 1, okay. Thank you. Thank you. The next question comes from Bob Farnam of Boenning and Scattergood. Please go ahead. Yes. Hi there. Good morning. I think just a follow-up question on Scott talking about the California wildfires. Do you get a sense whether that's going to be more of That's hard. It is really hard to say right now. It's going to hit both and in fact, it's probably going to hit more widely through our portfolio because, I mean, it's going to be classic cars, it's going to be camps, it's going to it is just all over the map in terms of where it might touch our portfolio. I don't think it will be outsized on insurance or reinsurance. I think it would be fairly well spread. Okay. All right. That was it for me. Just wanted to see if I can clarify that. Thanks. There are no additional questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Tom Ganger for closing remarks. Thank you very much for joining us. We look forward to connecting with you next quarter. Take care, everybody. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.