Earnings Call: Q4 2013

Feb 11, 2014

Greetings, and welcome to the Markel Corporation 4th Quarter 2013 Earnings Conference Call. I would now like to turn the call over to Mr. Tom Gaynor, President and Chief Investment Officer. Thank you, Mr. Gaynor. You may begin. Good morning, and welcome to the Markel Corporation 2013 Q4 conference call. My name is Tom Gayner. With me are my colleagues, Anne Walensky, our Chief Financial Officer and my Co Presidents, Mike Crowley, and Richie Witt. As always, let me remind you that during our call today, we may make 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 and on pages 5 through 7 of our press release dated February 10, 2014. 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 press release, which may be found on our website at www.marchealthcorp.com under News and Events. We're excited to tell you about the results from 2013 in a minute and we'll give you more numbers than you'll find in our phone book. The litany of numbers can have the effect of numbing you to how much work went into producing those results. Make no mistakes though, this was a transformative year for your company on several fronts. We roughly doubled the size of our insurance business with the acquisition of Ultera. We continue to profitably expand our Markel Ventures operations. We enjoyed excellent returns on our publicly traded equity investments and we protected the balance sheet from credit and interest rate risk in our fixed income operations. We look forward to giving you some details on the numbers and the activities that went into that statement. And as always, we look forward to your thoughtful questions. With that, let me turn it over to Ann. Thank you, Tom, and good morning, everyone. I promise to try to be a little briefer than the telephone box. I am happy to report that 2013 has been both an exciting and profitable year here at Marcellus. Our financial performance for the year was strong with our investing, underwriting and Markel Ventures operations all making significant contributions to our success. The challenges and the excitement generated by our acquisition of Alpera have created an environment of opportunity that is very rewarding to see. In 2013, each of our legacy underwriting segments delivered profitable growth and strong underwriting results, while the Ultera segment performed within our expectations. We have essentially completed the integration of customer facing activities and continue to make significant progress on the integration of back office systems and processes. As Tom says, we are respectful of the amount of work our associates have put forth to accomplish all that's been accomplished so far this year. Our total operating revenues grew 44% to $4,300,000,000 in 20.13 from $3,000,000,000 in 2012. The increase is due to a 48% increase in revenues from our insurance operations, which include $853,000,000 from the Alparis segment and a 40% increase in revenues from Markel Ventures. Moving into our underwriting results. In 2013, gross written premiums were $3,900,000,000 which is an increase of 56% compared to 2012. The increase was primarily due to the inclusion of $1,000,000,000 of premium from the Altaira segment since our acquisition on May 1, 2013, as well as higher gross premium volume in the Specialty Admitted and Excess and Surplus Lines segment. The increase in the Specialty Admitted segment was driven by premiums from the Hagerty Classic Auto book, which we began writing in the Q1 of 2013. Within the Excess and Surplus Lawn segment, the increase is due primarily to the impact of more favorable rates and improving economic conditions. Net written premiums for 2013 were approximately $3,200,000,000 up 46% from the prior year for the same reasons I just discussed. Net retention was down in 2013 at 83% compared to 88% in 2012. The decrease in net retention is due to the inclusion of premiums written by Ultera. Ultera has traditionally purchased more reinsurance than Markel has. Net retention in the Alterra segment for the 8 month period since acquisition was 65%. Net retention for the legacy Markel segments was up slightly at 89% in 2013 compared to 88% in 2012. Earned premiums increased 51%. The increase in 2013 was primarily due to the inclusion of $848,000,000 of earned premium from the Altair segment for the 8 months ended December 31, 2013 as well as higher earned premium volume in the Specialty Admitted and Access and Surplus Lawn segments. The increase in Specialty Admitted is due to $98,000,000 of earned premiums from the Hagerty book and continued growth as a result of the Tomco acquisition in early 20 12. Our combined ratio was 97% in both 2013 2012. In 2013, a lower current accident year loss ratio and lower expense ratio were offset by a lower prior accident year's loss ratio compared to 2012. The 2013 results were also impacted by the Ultera segment, which added just under 8 points to the combined ratio, driven in part by $75,000,000 of merger and acquisition costs and approximately $26,000,000 of catastrophe losses. The decrease in the 2013 consolidated current accident year loss ratio was due in part to the impact of catastrophes in 2012 and improved underwriting results within our Specialty Admitted segment in 2013 compared to 20 12, partially offset by an unfavorable impact from Altair's current year losses. The 2012 combined ratio 12 combined ratio included $107,000,000 or 5 points of underwriting loss from Hurricane Sandy, which occurred during October 2012. The 2013 combined ratio included $411,000,000 of favorable development on prior year loss reserves compared to $399,000,000 in 2012. Favorable development on prior year loss reserves in 2013 included $21,000,000 of favorable development on Hurricane Sandy. The benefit of the favorable development on prior year loss reserves had less of an impact on the combined ratio in 2013 when compared to 2012 due to higher earned premium volume in 2013. The decrease in the consolidated expense ratio in 2013 was driven by higher earned premiums in our excess and surplus lines, specialty admitted and London insurance market segments in 2013 compared to 2012. The impact of transaction and other acquisition related costs incurred by Alterra in 2013 was offset by the impact of the adoption of the new DAC accounting standard in 2012. Excluding transaction costs and other acquisition related expenses incurred in 2013, the inclusion of the results of operations at Ultera had a favorable impact on the expense ratio as the Ultera segment has had a lower expense ratio than Markel historically has had. As you may have noted in the press release, we are providing additional information regarding the components of other revenue and other expenses since those two line items include not only revenue and expense from our Markel Ventures operations, but also revenues and expenses from non underwriting activities included in our insurance operations. Additionally, beginning with our 2013 Form 10 ks, which we expect to file on February 28, 2014, we will provide additional supplemental financial information regarding Markel Ventures in our management discussion and analysis. In 2013, revenue from Markel Ventures were $686,000,000 compared to $489,000,000 in 2012. Expenses from Markel Ventures were $613,000,000 in 2013 compared to $433,000,000 a year ago. Net income to shareholders from Markel Ventures was $24,000,000 in 2013 compared to $13,000,000 in 2012. EBITDA was $84,000,000 in 2013 compared to $60,000,000 in 2012. Revenues and net income to shareholders from our Markel Ventures operations increased in 2013 compared to 2012, primarily due to our acquisitions in 20122013 as well as more favorable results at AMS Bakery Systems. EBITDA from our Mark Paul Ventures operations increased in 2013 compared to 2012 due in part to acquisitions and more favorable results at Parkland Ventures in AMS. Other expenses for the year ended December 31, 2013 also include $28,000,000 of expenses related to the life and annuity reinsurance business, which was acquired as part of the Alterra transaction and is included in our other discontinued loans underwriting segment. This business is in runoff and we are not writing any new life and annuity contracts. The life and annuity reserves on existing obligations are discounted using assumptions that were determined as of the date of the acquisition. Accretion of this discount is included in other expenses. Now, I'll talk a little bit about our investment results. Investment income was up in 2013 to $317,000,000 compared to $282,000,000 in 2012. Net investment income for 2013 included $74,000,000 of investment income attributable to Alpera, which was net of $58,000,000 in amortization expense from adjusting Alpera's fixed maturity securities to a new amortized cost basis at the acquisition date. Net investment income also included a favorable change in the fair value of our credit default swap of $11,000,000 as compared to $17,000,000 for 2012. Excluding the impact of Alpera and the credit default swap, net investment income for 2013 decreased compared to 2012 due in part to a decrease in our holdings of fixed maturities and an increase in cash and cash equivalents. Net realized investment gains for 20 20.13 were $63,000,000 compared to $32,000,000 in 2012. Included in net realized gains were $5,000,000 of other than temporary impairments as compared to $12,000,000 in 2012. Looking at our total results for the year, our effective tax rate was 22% in 2013 compared to an effective tax rate of 17% in 2012. The increase in the effective tax rate in 2013 was driven by higher earnings tax at a 35% rate and a smaller tax benefit related to tax exempt investment income, which resulted from having higher pre tax income in 2013 as compared 2012. We reported net income to shareholders of $281,000,000 compared to $253,000,000 in 2012. Book value per share increased approximately 18 percent to $4.77 per share at December 31, 2013 from $404 per share at year end 2012. The increase is primarily due to equity issued in connection with the acquisition of Alterra and $459,000,000 of comprehensive income to shareholders. Finally, I'll make a couple of comments about cash flows and the balance sheet. Net cash provided by operating activities was $746,000,000 for 20.13 compared to $393,000,000 for 2012. The increase was driven by higher cash flows from underwriting activities, primarily as a result of the Alpera acquisition and higher premium volume primarily in our Specialty Admitted and Excess and Surplus line segments. The increase was also impacted by higher cash flows from the Markel Ventures operations in 2013 compared to 2012. Invested assets at the Hawaiian company were $1,300,000,000 at Holding Company were $1,300,000,000 at December 31, 2013 compared to $1,400,000,000 at December 31, 2012. The decrease in invested assets at The Holding Company is primarily the result of tax paid for the Altera acquisition, partially offset by dividends received from subsidiaries and a net increase in debt. I'd like to close with a couple of comments regarding 2014. First, we continue to focus on growth opportunities and we completed our acquisition of AbbVie Protection, a U. K.-based integrated specialty insurance and consultancy group during January 2014. 2nd, in 2014, we will monitor and report our ongoing underwriting operations in the following three segments: U. S. Insurance, International Insurance and Global Reinsurance. The U. S. Insurance segment will include all direct business and facultative placements written by our insurance subsidiary Domiciled in the United States. The International Insurance segment will include all direct business and facultative placements written by our insurance subsidiaries domiciled outside of the United States including our syndicates at Lloyd's. The Global Reinsurance segment will include all of our treaty reinsurance written across the company. Results for lines of business discontinued prior to or in conjunction with acquisitions will continue to be reported as the other insurance discontinued lines segment. At this point, I would like to turn it over to Mike to further discuss operations. Thanks, Anne. Good morning. The 4th quarter results for legacy Markel North American operations were a continuation of the trends we saw in previous 3 quarters of 2013. The E and S segment had another excellent quarter with gross written premiums increasing 11% over prior year. Combined ratio for the quarter was 77.5% compared to 102% in 2012. Combined ratio for the year was 80% versus 93.7% for 2012. Again, all five regions in the E and S segment produced higher gross written premiums versus prior year continuing a trend that started in late 2012. As previously reported, Brian Sanders assumed the position of President of the E and S division on January 1st and has hit the ground running. We're very confident that he is more than qualified to fill the big shoes left by John Latham, who is still on board with Markel after leading the segment through a terrific year. Again, I'd like to take this opportunity to thank John for his excellent leadership over the past few years. I'm also pleased to announce that Wendy Hauser has been promoted to the position of Regional President for the Mid South region based in Plano, Texas outside Dallas. Wendy has been with Markel for over 5 years and previously served as manager for the wholesale marketing team. In 2012, she relocated from Richmond to Texas as Managing Director Underwriting and Production. Wendy has more than 16 years experience in the industry and we know she will do a terrific job leading that region. Recently, we held our wholesale agents binding and brokerage council meetings. These meetings are very important to us because of the candid feedback that we receive from our best producers. I'm pleased to report that the feedback was very positive encouraging and helpful in our efforts to improve operational efficiency and continuing to enhance our service and product offering to our agents. The Specialty and Admitted segment results were also excellent. The decision to exit certain lines of unprofitable business and certain specific accounts, the addition of the Hagerty business and the continued improvement at first comp all contributed to the improved results. Gross written premiums increased 22% in the quarter over prior year and increased 34% for the year versus prior year. The combined ratio for the Q4 was 88% compared to 1.07% in the Q4 of 2012 and the combined ratio for the year was 97 compared to 108 in 2012. I want to congratulate Greg Thompson, Robin Russo, Matt Parker, Don Fason and the entire specialty team on the execution of their plan to improve the specialty division results. With regards to rate, we finished the year with low single digit increase on almost all lines of business. The largest rate increases occurred in workers' compensation, casualty and management liability lines. Additionally, we saw good growth in a number of lines of business with the largest growth in spec med, environmental and miscellaneous E and O. Within our product line leadership group, we are fully staffed and well positioned to support all of our insurance divisions. We anticipate some potential rate softening in 2014 particularly in property lines. However, we believe our ability to attract new business at acceptable rate levels remains strong. Special kudos go to Tom Smith and his team in sales and marketing for the outstanding job they've done in 2013 in centralizing and coordinating our branding efforts across all divisions. Because of their excellent efforts, we are now one company with a recognizable brand that is and that is having a positive effect on all of our businesses. And finally, I want to congratulate all Markelle Altair Associates for their hard work and terrific results in 2013. I'll now turn the call over to Richie. Thanks, Mike. Good morning, everybody. I'm going to start my comments with Markel International's 2013 results and give a brief update on the Ultera integration and then talk a little bit about pricing trends. Markel International finished 2013 with an 88 combined ratio that compared to an 89 combined ratio in 2012. Both years produced strong results driven by solid prior accident year reserve releases and relatively light catastrophe losses. Even with light catastrophe losses producing double digit underwriting returns in consecutive years is a tremendous achievement. I want to congratulate William Sodivan and the entire Markel International team on another fantastic year. Markel International's gross written premium increased 3% to $914,000,000 in 2013. Areas of growth included our specialty books as well as our Singapore and Netherlands branches. We continue to explore opportunities for international expansion. We were particularly pleased to recently see Lloyd's appointment of Inga Beal as CEO and to renew Lloyd's focus on overseas opportunities. As Ann said, we closed the AbbVie deal in January of 2014. We're very excited to add the AbbVie team to Markel International. While still early in the process, the transition has been smooth. We actually began to write the majority of AbbVie's business on Markel paper on January 1. AbbVie adds unique retail products and services to our international insurance portfolio and we see opportunities to grow their already strong franchises in legal expense and professional fee protection. We also believe there's a significant opportunity to cross sell AbbVie's products with our existing retail products. Now I'd like to give a brief update on our acquisition of Ultera. It's been approximately 9 months since the deal closed on May 1, 2013. However, it feels like much longer as the integration efforts actually began in December of 2012 when we announced the deal. We've made excellent progress bringing the 2 organizations together. And with every day that passes things feel more and more like business as usual. As Dan stated, Ultera's results have largely been within our expectations. This is an important statement as our expectations for Ultera were and still are very high. Within the Ulterra segment, premium volume in the Global Insurance and Reinsurance divisions have met expectations and are in line with prior year's volume. Lines of business that will ultimately become part of Markel International and the Excess and Surplus Lines division have also performed within our expectations. With the transition to our new segments in the Q1 of 2014, we don't expect to discuss Ultera as much as we have in 2013. We will be excited however to spend more time talking about our various businesses. Finally, I'd like to give a brief update on pricing trends and our January 1, 2014 renewals. Pricing trends were very consistent throughout 2013 with modest single digit price increases in most lines of business. We have tremendous diversification at Markel and the various areas of specialty insurance marketplace in which we compete do not all move at the same pace or at times even in the same direction. Clearly, the most challenged pricing areas today are property insurance and reinsurance and casualty reinsurance. We saw significant pricing pressure in these areas throughout 2013 and in particular on January 1, 2014 renewals. As a result, our January 1 property and casualty reinsurance writings were down modestly. On the brighter side, pricing is still firm in excess and surplus and worker compensation lines of business. Our many other lines of insurance fall somewhere in the middle of these two extremes. There's much discussion and angst in the industry on where pricing trends are headed as Markel will continue to push price increases where available and necessary. And we have the discipline and diversification to walk away from underpriced or marginal business. With that, I'd like to turn it over to Tom. Thank you, Richie. As we said earlier, we're delighted to report these 2013 results figures. In our investment operations, we earned 33.3 percent on our equity portfolio in 2013, a similar return to the S and P 500. Through the 1st three quarters, we were meaningfully ahead of that benchmark in a way that surprised me. Normally in a bull market run, we would underperform the index given our conservative nature. Over the years, our best relative results tend to come about in tough times rather than when prices are moving up rapidly. In the Q4, the surprise outperformance of the 1st 3 quarters started to fade as the bull market run up did indeed start to outpace our type of steady Eddie high quality company. I have no short term market prediction, but I can tell you that we will remain oriented towards the highest quality and most dependable companies we can find as we allocate funds to equity investments. Our long term record of outperformance stands as a testament to the validity of our approach. We continue to methodically add to our equity portfolio and we expect to continue to do so. In our fixed income operations, we broke even. We are just enough in interest income to offset the declines in market values of our bond portfolio that came about from the rise in interest rates in 2013. Our legacy Markel portfolio actually earned a slight positive return, but it was not enough to offset the effect of adding the longer duration and different credit profile of Oltera portfolio on May 1, which was just about the lowest point in the year for interest rates. Given our cash and liquidity position and the fact that interest rates have risen a bit and that the yield curve has steepened somewhat, we are beginning to invest modestly in longer term fixed income securities. I would anticipate that our duration of roughly 3.5 years could move towards a more normal 4.5 years over the course of 2014. This should help our investment income line as we pick up additional yield from this action. We are especially focused on adding to our municipal securities portfolio given the opportunities we see in that market. In total, we earned 6.8% on our investment portfolio in 2013. I am very pleased with those results as they contributed meaningfully to the comprehensive income of the Markel Corporation. At Markel Ventures, total revenues rose 40% to $686,000,000 from $489,000,000 a year ago. Our share of the EBITDA from the companies rose 39% to $83,800,000 up from $60,400,000 a year ago. We continue to be very excited about the ongoing growth of Markel Ventures Companies and we are optimistic about organic growth opportunities as well as additional acquisitions. The common complaint and concern about the insurance business is that the industry is over capitalized and prices are under pressure. Well, that's true. This is my 24th year in the business and that seems to have been a true statement in about 21 out of those 24 years. Despite that, we've continued to compound the capital of Markel at rates in the teens over a long period of time, including last year and the last 5 years. I hope you don't think it's immodest of me to say that's a pretty good record, most of which was accomplished while our stock was rated underperforming. Oh well, we'll keep doing the things we do and you can keep doing the things you do. As to what we plan to do, we'll manage our existing businesses to the best of our ability with discipline and common sense. Also, given the wide and widening view that we have in the world, we're deploying capital in our existing insurance business, new insurance opportunities, publicly traded securities, privately held businesses, expansions and additions to businesses we already own and to the increasingly robust network of people we know, trust and have done business with. We look forward to continuing to report the results of these activities to you in the future. And now we look forward to your questions. With that, it can be so kind to open the floor for questions. Thank you, Mr. Gaynor. At this time, we will be conducting a question and answer session. Our first question today comes from the line of Jay Cohen with Bank of America Merrill Lynch. Go ahead with your question please. Thank you very much. I guess one request, one question. On the request, given that you are changing your reporting format and most of us model this stuff quarterly, if you're able to, if you could kind of restate your earnings going back a couple of years quarterly just so we have something to work off of going forward on the new methodology. So one request. And then the question is, we don't have a lot of detail by segment with the development, but it looks like overall your accident year loss ratio excluding cats was about the highest we've seen in, I don't know, 6 or 7 quarters. And given the some of the pricing trends in the U. S, I thought it might be heading down. Just wondering what's going on there? Jay, what's going on there is all of Alterra is the current accident year. So when you do the acquisition, there's no concept of prior year to push back to. Specifically because Altair is now fully included or more fully included in the earned premium that's been elevating it relative to the past 6 quarters? Right. Well, we're reporting a what one $18,000,000 combined on the Ultera segment. Obviously, a chunk of that is we're working on building a consistent margin of safety like we've always done in other acquisitions. So that's adding significantly to the current accident year as well. So I mean it's and as Ann said, there is no prior accident year when you buy a company. And so we've been working getting reserves in the right buckets, getting things to a confidence level that we're comfortable with. All of that's flowing through the current accident year on Ultera. Got it. Got it. That makes sense. I appreciate that. And I do remember the Markel International acquisition and there was a year or 2 where you did have elevated accident year numbers and obviously that resulted in favorable development years later, but I understand the strategy. And Jay as regards the restatement, we'll go back and restate all of the periods that we show in the reports next year. That's awesome. But is that as you go? Or can you do that ahead of time and give us kind of a runway? No. It will be as you go. Nothing you can do ahead of time to help us because otherwise we can't really model it going forward if we don't have the year before? That's not something that we're planning to do. All right. Thank you. Hi. Could you disclose the reserve development number for specialty admitted in the quarter? Papers are flipping. They are flipping papers. Next quarter, the favorable reserve development was $24,000,000 for specialty admitted and a piece of that was from Hurricane Sandy. And the other piece of that would be flowing out of the workers' comp business. Okay. And then Ultera, there was no prior year reserve development in the Q4. It was all accident year? Right. Again, there's no real prior year concept in the 1st year of an acquisition. So it all falls into the current year. Okay. And then specialty admitted, what would you say about how workers' comp is compared to last year on loss trends? Well, as we said before, we've changed our mix of business in the workers' comp. Geographically, we've moved out of Southern California in a lot of ways. We've moved into more profitable states. We've also been aggressively getting rate in a number of states. They've executed as I've said a number of times on the call exactly according to the plan to approve the results for first time. All right. Thanks. Our next question comes from the line of Mark Jewell with RBC Capital Markets. Go ahead with your question please. Yeah. Good morning. Sorry if I would just echo what Jay Cohen said earlier on, even if you had a full year number that gave us an idea of where the sector totals were for a full year basis. So it would give us a little bit better idea of understanding the comps as they develop throughout the year. My first question I guess is, Richie, you had you were commenting on the property and reinsurance and casualty reinsurance and you had said that they were down modestly. Are you referring to the price or the volume of premiums that you renewed at January 1? That was really more talking about the volume that we renewed. I mean depending on what you want to talk about the property insurance, property reinsurance, casualty reinsurance, I mean you're talking anywhere from $5,000,000 to $15,000,000 I'd say off in terms of price on average. And there's always outliers on each side of that. I mean, we saw things that were off $25,000,000 $30,000,000 and we said, no thank you. And things that we saw that were off less, we tried to get on. So but I think the other people have been saying 5% to 15% is sort of the average that pricing was off. I think that's about what we were seeing in those areas. Okay. That's helpful. And then on the prior period development, since you just gave us the specialty admitted, would it be possible for you to give us either the full year or the quarterly totals for the other three segments? Obviously, 0 was Ultera, but for I guess the London market in the E and S? Right. For E and S, it was $64,000,000 for the quarter and $30,000,000 for the quarter. 40s, 4 0? 4 0. That's correct. Okay. Thank you for that. And last question I had Tom, I just wanted to verify, I don't think there were any acquisitions in Markel Ventures that added in during the Q4 other than previously announced ones obviously to the extent that they continued there are no new ones in the Q4. Is that right? Yes. I think I'm looking Eagle closed late in Q3. So there would have been some contribution during the Q4 that would not have been there a year ago. Correct. Okay. Thank you. That's all my questions. Our next question comes from the line of Bob Farnam with KeyBanc, Incorporated. Go ahead with your question please. Thanks. Just to continue on that on the ventures question. So can we take basically take a look at the Q4 and you said as a run rate excluding the idea of having additional M and A and whatnot, but you said a comfortable run rate from there? As far as any other basis of judgment that sounds good to me. Okay. And it looked like in the Q4 the margin in ventures had dropped down a bit. Was there anything that was driving that? Most of that is just mix. I mean different businesses have different levels of profitability to them and also a little bit of seasonality, but I wouldn't read too much into it. Okay. And now that you've broken down some of the other income, the revenue on the MGA revenue looked like a drop from last year to this year. So is that what was the driver of that? So that's where we've made acquisitions of MGAs and then we start converting them to being underwritten on Markel paper. So the MGA revenue goes away and you start seeing it showing up in our underwriting results. So that will continue. And the next time we buy an NGA, it will go up a little bit and then start to come back down immediately as we put it on our paper. Right. Okay. And for the Ultera segment, I know you basically say you can't show prior year development as it's all baked in the current next year. Can you just give us an idea of ballpark what the prior year development would have been if you could have booked it as prior year development? Yeah. I don't I just don't think we have a good number to give you in that space. I think the best thing around Alpera is what Richie was sort of referencing. If you take out the transaction costs and you look at CAT, they performed in line with expectations taking into consideration that we're building some margin around their loss reserves to get them to a level of conservatism that would match ours. Yes. And I guess the other thing I'd say Bob is we've taken what let's see it was 3 quarters now. We've been using these 3 quarters to sort of get the buckets where we think they need to be. Not necessarily concerned about is the prior year, the current year, but how do we feel about the reserves on casualty? How do we feel about the reserves on workers' comp? How do we feel about reserves on reinsurance? So we're trying to line the buckets up right now. So I'm not even sure how meaningful current year prior year would be, because we're moving reserves around to get the buckets where they need to be. Right. And moving the buckets, I mean, basically has the reserve movements been as expected when you made the deal initially? Yes. I would say pretty much as we would have expected. In total, yes, in total certainly when you get down to some of those individual classes, yes, we've had to move some things around. But to this point and I may have said this last quarter, the biggest surprise has been the lack of surprises. Okay. Thank you. Very good. Thanks. Our next question comes from the line of David West with Davenport and Company. Go ahead with your question please. Good morning. Ann a couple of questions for you. On the tax rate you mentioned 22% for the year. Q4 looked quite a bit lower than that. Can you talk about what impacted the effective tax rate in Q4? Yes. I think David the biggest change in the Q4 is just going from an estimated to an actual. So I don't know that there was any specific event. It's just a matter of taking the calculation to an actual calculation. It's somewhat over accrued in prior quarters? Right. Exactly. Okay. All right. Very good. And then somewhat of a clarification, I think you mentioned the impact of credit default swap on net investment income. Did I get this right? Was it a positive $11,000,000 this year versus a positive 17,000,000 dollars last year? That's correct. Okay. Do you happen to have what the Q4 impact was? Of the credit default swap? I don't have that handy, David, but I'm happy to call you with it. Okay. Well, I can probably back it out of the I'm sure it's in the Q3. I don't think it should be a material number frankly. Okay. Very good. And then, Richie, you mentioned in your comments that you pleased with how things have developed at Altrera. With a year of integration activities, could you kind of look back and talk a little bit about where you maybe caught your biggest pleasant surprises and where you see the biggest challenges having been? Well, I think the biggest Mike or Tom might want to kick in here. I think one of my most pleasant surprises has been how well the business has held up. I mean, mean, the second you announce the deal, everybody all your competitors are going to look to see if there's some way they can take advantage of the transition that you're in the middle of. And the volume has held up extremely well. The key people that we desperately wanted to keep have stayed with us. And you would have expected some attrition on both of those items. And I would say both of those have exceeded my expectations. In terms of challenges as we continue to go forward, we have to hold on to that business. And there's a more competitive environment as we move forward. I think everybody is saying the same thing there. So we've got the challenges everybody else faces there. We've got to continue to make these people want to be part of Markel Corporation. But of course, that's a challenge we have every day with all of our employees. And then I think as Ann said, I think on the front end of the business, the client facing, I think we've got that settled down very nicely. We still have work to do to settle the dust on our processes, on our systems, sort of the back end of the business. David, it's Mike. I'd add to that. I think that the people at Altaira have done a wonderful job staying focused on their clients. And I also tell you in my travels around and involvement with a number of the large agents and brokers that we didn't do that much business with before that the reception has been terrific from the agents and brokers. And I think we've got a wonderful opportunity with the new expanded lines that we have to grow the business. And David, I'd like to add from the investment point of view. There have been several questions about the accounting of prior years and different buckets and all that kind of stuff. Well, there's one big giant bucket in the investment department called cash and that all came in with the Ultera investment portfolio. And I have been very pleased with the way that we were able to recraft the Ultera portfolio and turn some of the things that would not be going forward assets with Markel into cash and reallocate that that's a smoother and better process than might have originally been expected. The second thing I would like to point out as sort of a secondary effect of the Ultera acquisition is that the size of deals we would look at in Markel Ventures is aided and improved and increased by the total size of the Markel balance sheet. And we're just getting to look at better quality larger more substantial companies that have more runway than would have been the case in the past. That also comes about because Markel Ventures in and of itself is going down the learning curve and we learn and there are things that in retrospect I wish I would have done differently or lessons that we take, but there's just no way to get from here to there without making some mistakes and going down learning curves. But I'm very pleased with the way that that process is going and it has been accelerated by the Alterra acquisition. The third thing I think about as I look around the people at this table and I think about what we've been through personally and professionally and just sort of strap on ourselves in the cockpit in the last year to get this done. And the confidence spreads beyond the people that are just in this room. It's been a very energizing thing for the Markel Corporation and it's how stars emerge and you find out the capabilities and what people can do and that bodes very well for the future of the Marcell Corporation. Good thing is nobody threw up with the extra Gs when we strapped ourselves in the cockpit. Good to hear. Thanks so much. Our next question comes from the line of Ron He wasn't the driver. So in any event, I had a question about, I think I heard you say workers' comp and that you had some favorable development. Of course, correct me if I'm wrong. But if I'm right, could you repeat the number if you provided it? And am I right in assuming that effectively that came from the 1st comp business? It's all 1st comp, yes. It did come from 1st comp and we don't have that number broken out. Okay. And then just if I remember correctly, when you bought first comp, you also maybe somewhat in similar size. And on size. And I was wondering how this favorable development sort of compares in magnitude to the any increase that you may have done closer to the acquisition date of First Comp? And that's it for me. Thanks. Yeah. You know what Ron, it's interesting. I mean, yes, we did work on the margin of safety when we immediately upon the purchase of 1st comp. The one thing you have to remember about 1st comp when we purchased them is most of their end business was MGA business. So there really wasn't that significant a level of reserve on the purchase date. So I would tell you most of the reductions we're taking now are actually business that's been written post the acquisition. And that and we're starting to see nice redundancies come out of that business. Great. Super. Hope it continues. Thank you. Hey, thanks, Ron. Our next question comes from the line of Matthew Verry with Lean 5 Capital Management. Go ahead with your question please. Richie, you mentioned a range of experiences with rates across different lines of business. And I just want to refer back to historical experience, which has been that at times when the market is softening, you tend to experience an increasing competition from new entrants into some of your markets who've moved out of other perhaps larger markets. And so I'm thinking that when things harden people leave the specialty and excess and surplus lines and go back to their original business. So with those sort of 2 different dynamics in mind, I know different things move in different directions at different times. But are there any particular lines of business which you tend to focus on because they are bellwethers or foreshadow a broader weakening of rate across your broad portfolio? I don't know if there's any that are necessarily bellwethers. I think what we're seeing in the reinsurance market is the influx of the insurance linked capital that clearly is having an impact. And as I kind of said in my comments, actually E and S market is holding up very nicely. And we saw what we had seen during 2013 were people pulling back in the E and S market as well as benefits from the economy improving. So I think you have to look at each of the pieces of the market on their own merits. And obviously, the reinsurance market is challenged right now because of this influx of new capital. The E and S market is pretty solid and hopefully that will continue. And as I said, our other markets are somewhere in the middle. But I would say in all 5 of our divisions, we feel very good about where we sit in terms of our underwriting and our pricing. Yes. And I think, Liz, this is Mike. With regards to E and S division, I think we continue to see organic growth in the Q4, which continues to be encouraging. Okay. That's all from me. Thank you very much. Our next question comes from the line of Jay Cohen with Bank of America Merrill Lynch. Go ahead with your question please. Mr. Gaynor, there are no other questions in the queue. Would you like to make closing comments? See you next quarter. Thanks so much. Bye bye. Thank you. This will conclude the teleconference. You may disconnect your lines at this time. Have a great day.