Earnings Call: Q1 2013

May 1, 2013

Greetings and welcome to the Montel Corporation First Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Gaynor, President and Chief Investment Officer. Thank you, sir. You may now begin. Good morning, everyone. This is Tom Gayner and along with my colleagues Ann Miletsky, Mike Kralik and Richie Witt, we welcome you to the Markel Corporation's 1st quarter 2013 conference call. Before we get started, we are required to remind you of the Safe Harbor provision. So here it goes. During our call today, we may make forward looking statements. Additional information about factors that could cause actual results to differ materially from those projections 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 non GAAP financial measures in the call today. You may find a reconciliation to GAAP of these matters on our website at www. Markelcorp.com and our quarterly report on Form 10 Q. Thanks again for joining us this morning. We're off to a good start in 2013, but that's really only a small part of the story. It's a big, big day around here as we've now closed the Ultera transaction and today marks the first day of a new era at Markel. We welcome our new shareholders and associates. We look forward to discussing our recent results, our plans for the future and answering your thoughtful questions about your company. With that, let's get started with Anne's review of the Q1 results. Thank you, Tom, and good morning, everyone. As I will discuss in more detail in just a minute, we are off to a great start in 2013. We've had strong underwriting results, robust investment performance and increased revenue and acquisitions and organic growth. Our favorable underwriting performance for the quarter was driven by a lower expense ratio, more favorable development of prior year loss dollars in 2013 from $733,000,000 in 2012. The increase is due to a 6% increase from our insurance operations and a 67% increase in revenues from Markel Ventures. Moving into our underwriting results. 1st quarter 2013 gross written premiums were $743,000,000 which is an increase of 15% compared to 2012. The increase in 2013 was primarily due to higher gross premium volumes in the Specialty Admitted segment. As previously announced effective January 1, 2013, we acquired Ascension Insurance Company, which underwrites insurance exclusively for Insurance Agency. Hagerty is the leading insurance provider for classic cars, vintage boats, motorcycles and automotive collectibles. Gross premium volume attributable to the new Hagerty business and Tomco, which was acquired in January 2012 contributed $63,000,000 to the Specialty Admitted segment for the Q1 of 2013. Net written premiums were approximately $663,000,000 up 14% to the prior year. Net retention was down slightly in 2013 at 89 percent compared to 90% in 2012. Earned premiums increased 7%. This increase was driven by a 19 percent increase in earned premium from the Specialty Admitted segment. Our combined ratio was 91% for the Q1 of 2013 compared to 100% in 2012. The 2012 combined ratio included $20,000,000 or 4 points of expense related to our prospective adoption of the new DAC accounting standards. Excluding the impact of this adoption of the DAC standard in the first quarter of 2012, the decrease in the combined ratio in the Q1 of 2013 was primarily driven by more favorable development of prior year loss reserves in the excess and surplus line segment and lower attritional losses in each of our 3 operating segments compared to the same period of 2012. Favorable redundancies on prior year's loss reserves increased to 78,000,000 dollars or 14 points of favorable development compared to $64,000,000 or 12 points of favorable development in 2012. Now we'll talk a little bit about Markel Ventures. In the Q1 of 2013, revenue from Markel Ventures from Markel Ventures was $4,000,000 in 20.13 compared to $200,000 in 20 12. EBITDA was 19 $1,000,000 in 20.12. In 2020. Revenues, net income to shareholders and EBITDA from Markel Ventures increased in the Q1 of 2013 compared to the same period of 2012, primarily due to more favorable results at AMS Bakery Systems and our acquisition of HAPCO in 2012. Now taking a look at our investment results. Investment income was down 19% in 2013 to just under $65,000,000 Net investment income for 2013 included a favorable change in the fair value of our credit default swaps of $3,000,000 as compared to $11,000,000 in 2012. Net realized investment gains for the Q1 of 2013 were $18,000,000 compared to $12,000,000 in the Q1 of 2012. There were no write downs for other than temporary impairments in either period. Unrealized gains increased $250,000,000 before taxes in 2013 driven by increases in equity securities. Tom will make further comments and give further detail about investments in his comments. Looking at our total results for the Q1, the effective tax rate was 24% in 2013 compared to an effective tax rate of 23% in 2012. The increase primarily due to anticipating a smaller tax benefit related to tax exempt investment income as a result of projecting higher pretax income for 2013 than in 2012. We reported net income to shareholders of $89,000,000 as compared to $57,000,000 in 2012. Book value per share increased 7% to 4.30 $1 per share at March 31, 2013 from $404 per share at year end. Finally, I'll make a couple of comments about cash flow and the balance sheet. Net cash provided operating activities in the Q1 was $56,000,000 That compares to net cash used by operating activities of $64,000,000 for the Q1 of 2012. The increase in net cash provided by operating activities during the Q1 of 2013 was driven by higher cash flows from underwriting activities as a result of increased premium volume primarily in the Specialty settlement activity as compared to the Q1 of 2012. Additionally, the 3 months ended March 31, 2013 include higher cash same period of 2012. Invested assets as a holding company were $1,600,000,000 at March 31, 2013 compared to 1 $400,000,000 at December 31, 2012. The increase in invested assets is primarily the result of our March 2013 debt issuance of $500,000,000 partially offset by the repayment of $250,000,000 of this transaction provides for both employees and shareholders of the combined company. With that, I'll turn it over to Mike to further discuss operations. Thanks, Anne. Good morning. The results for the Q1 of 2013 for North American operations were very good in a number of areas. The gross written premium for North America operations increased 20.6% year over year and the expense ratio improved in both segments. The E and F segment had an excellent Q1. Gross written premium increased 10% year over year. And once again, all five regions in the E and S segment saw an increase in the gross written premiums. This increase was driven by the growth in a number of product lines including excess and umbrella, medical, casualty and environmental. The E The expense ratio improved year over year by 5.7 percent driven by the accounting change for DAC in 2012 and a reduction in corporate allocations. Prior year losses were favorable due to higher takedowns across multiple lines in 2013 compared to 2012. Keep in mind that these takedowns are consistent with Markel's historical practices. The E and S segment continues to The E and S segment continues to improve efficiency by reducing the number of agent appointments, limiting access to certain products where prior activity has been unproductive and better educating agents about what to submit and what not to submit based on Markel's appetite and success in our target product lines. This improvement in efficiency is supported by the fact that binders increased 29% on almost the same number of quotes issued. All in all, a super quarter for the E and S segment. The Specialty segment gross written premium increased 37.2 percent as a result of booking more gross written premium for Tomco compared to the Q1 of 2012 and the addition of the Hagerty business. We began booking Hagerty premium on January 1, 2013. Excluding Tom Kell and Hagerty, the Specialty Division premium volume decreased slightly as a result of our terminating certain accident and health programs and the transfer of the garage business to the E and S segment. The combined ratio for the Specialty segment was 108.5%, which is a 4.9% improvement versus 2012. This decrease was partially due to a decrease in 1st comp loss ratio, which is the result of pricing increases and a geographical shift to more profitable non California business. The expense ratio improved to 43.2% from 47.2% in 2012. This improvement is primarily driven by the accounting change for DAC which added 4% to the expense ratio in the Q1 of 2012. Excluding Agrity and Tomco, the specialty admitted expense ratio was down 4.6 points in addition to the impact of DAT mentioned above. This is driven by lower headcount, lower private sharing costs and lower overhead charges. The expense ratio was negatively impacted by the fact that we front loaded some expenses for Hagerty. 1st comp and Tomco businesses are still in transition and we continue to build margin of safety and loss reserves in these product lines and on the Hagerty business consistent with Markel's reserving and pricing philosophy. We're currently conducting a detailed review of all specialty product lines. For those specialty product lines that need improvement I. E. Rates plans are in place or will be implemented to improve results. It's important to note that we achieved rate increases of approximately 4% on North America business with the largest increases coming in workers' compensation and property. These rate These rate increases in the E and S and Specialty segments along with some economic growth for our customers is a key factor in our premium growth. Within our product line leadership, we made several changes. We withdrew from railroad third party and taxi lines of business earlier this year. These lines have not shown progress on corrective actions and therefore we decided to stop writing this business. During the Q4 call, we mentioned moving a number of underwriters from the product line group to regional roles to be closer to our agents and brokers. This has reduced referrals added to our frontline underwriting expertise our product our product line leaders and managers have been busy with the Ultera transition and our plans have been announced. Richie will speak more to the Ultera deal in his comments. Richie? Thanks Mike. Good morning everybody. I'll start off with a few comments about Markel International's Q1 and then give an update on the Alterra integration. Markel International had a nice start to 2013. Gross written premiums increased 7% to $296,000,000 Areas of growth included our Specialty and Professional Liability divisions as well as our Singapore and Netherlands branches. 1st quarter pricing trends were largely in line with recent quarter's modest price increases. International achieved an overall average price increase of almost 3% in the Q1. Despite price increases in certain areas and many areas of the market things remain competitive, particularly in the professional liability, retail and decline divisions. International's combined ratio for the Q1 of 2013 was a 92%. This compares to 97% in the Q1 of 2012. And remember that the Q1 of 2012 included approximately 3 points for the adoption of the DAC accounting standard. The 2013 results have benefited from a slightly lower plenty of work to do to fully embed and take advantage of this system, but this is an important milestone and accomplishment for the entire international team. Moving to Alterra, to give an update on our acquisition. Since our initial announcement of the deal on December 19, this has been a constant area of intense focus for countless Markel and Ultera Associates. I want to welcome the Ultera Associates to our Markel family. We want to thank all Ultera and Markel Associates for their tireless work over the last 4 months as we've all prepared for close and made progress on the integration. It really is a testament to the bench strength at Markel and Ultera that we could work as hard as we have on the integration over the past 4 months and still produce great results in the necessarily been focused on day 1 activities. Just some examples would include large items like defining and communicating new reporting lines, client communications, website updates. We've been combining certain reinsurance protections administrative, also critically important items like e mail addresses, systems access, bank and trust account access. We arrive at the close date having made excellent progress in all areas. We're now moving our attention to longer term initiatives and making sure we have a smooth transition for our clients and our new associates. Our message for both clients and our associates is scale enhanced business as usual. Over the next several quarters, we'll continue to more tightly integrate the 2 newly created divisions of Global Insurance and Global Reinsurance as well as the business lines that are going to be merged into our excess and surplus and Markel International divisions. Similar activities are obviously taking place across all support areas. As of today's close, I'd sum up our progress is very good, but with lots of heavy lifting to do to achieve our goals for the combined operations of the New Markel. Now I'd like to turn it over to Tom. Thank you, Richie. Good morning again. My goal this morning is to cover 3 items. Item 1, the Q1 investment results and our public securities portfolio item 2, the start of the year for our Markel Ventures operations and item 3, our prospective plan for our newly expanded investment portfolio we now manage as a result of the Ultera acquisition. As to item 1, the year is off to a fine start. In our equity and fixed income portfolios, we earned total returns of 13.1% and 0.5% respectively. The total return for the portfolio was 3.5%. I am very happy with those results. While any 1 quarter essentially means the way in which those returns were earned means a great deal. In our equity portfolio, we continue to own a set of high quality global successful companies. In many cases, the dividend yields comfortably exceed what we can earn on appropriate fixed income alternatives. We also continue our long standing process of step by step measured and selective additions to the equity portfolio. In our fixed income operations, we continue to maintain a portfolio of the highest credit quality that we can find and we continue to let the duration roll in. In a repeat statement from previous quarters and now year, we believe that interest rates are too low and the risks of longer term fixed income commitments outweigh the rewards. As such, we continue to build a portfolio that increasingly resembles cash. Stay tuned for our plan on what we will do with the cash. On March 31, equities represented 65% of our shareholders' equity, up from 62% at year end. It's worth pointing out to our new and long standing shareholders that our approach in managing our equity portfolio remains quite tax efficient. With low turnover and stocks that go up over time, we now sit on an unrealized gain of $1,300,000,000 We've provided for the statements, but those taxes remain deferred until such time as we actually sell the securities and realize the gain. It's worth remembering that at a 35% tax rate, the deferred tax associated with this gain would be roughly 450,000,000 dollars I know that you all love hearing about accounting just as much as I love talking about it, but I think it's worth taking a minute to engage in a little thought experiment on this topic. Imagine if our balance sheet was only comprised of the unrealized gains in the equity investment portfolio. In that case, we would have an asset of $1,300,000,000 on the left hand side of the balance sheet and a liability of $450,000,000 for future taxes and equity capital of $850,000,000 on the right hand side. The net effect of this dynamic is that we've got the entire $1,300,000,000 working for us to shareholders on a reported equity capital base of $850,000,000 This is incredibly I'm glad to report that those balances continue to grow during I'm glad to report that those balances continued to grow during the Q1 by following the same discipline we've used to build it for decades. On to item 2. Markel Ventures operations also performed very well during the Q1 of Those revenues rose 55% compared to last year. Other expenses $192,000,000 up $52,000,000 from a year ago. Back to accounting again, those expenses include non cash amortization and purchase accounting entries that are separate and distinct from the ongoing operational performance of the Markel Ventures Companies. As such, we use EBITDA in our internal review and management of those operations. As Ann noted earlier, EBITDA more than doubled to 19,400,000 dollars in the Q1 compared to $9,400,000 in the previous year. A reconciliation of EBITDA to GAAP net income is available on our website in India. Near future. Item 3, the biggest single challenge and opportunity on the asset side of the balance sheet at this time is the future investment and capital allocation decisions that we will make with our growing cash balances, which are now augmented by the addition of an investment balances from Ultera. We'll invest the money in the same way we've invested the assets quality and maintaining the duration that is shorter than our natural position of matching the duration of the insurance liabilities to our bond portfolio. We'll continue to do this until interest rates are higher than they are today and that we feel we are being paid appropriately to accept the risk of longer term commitment. While this penalizes current investment income, it doesn't penalize it very much at today's low rates of interest across the curve. On the equity side, we have a vibrant and profitable insurance business. We have a strong balance sheet and plenty of cash. Our constraint is finding appropriate ideas and protecting and preserving the balance sheet. For now, we will continue to methodically invest in many of the same securities we already own. Prices are still reasonable in many cases and we will pick up investment yield from the dividends as we go. Given our new circumstances, we will have a lot of dry powder and we look to deploy that more aggressively as opportunities present themselves. I cannot predict when the general environment will produce an opportunity, but I'm confident that it will. As many people say about the weather wherever they live, if you don't like it, wait 5 minutes and it will change. We're in a unique and what I think is a fantastic position and that we have capital to deploy in what could be a rapidly changing environment. Rest assured that the same disciplines and thought processes we've used for decades to make those decisions remain in place. I'm optimistic about our opportunities to make positive capital allocation decisions in the coming years as well as the ultimate results for Markel shareholders. As we begin this new era at Markel, I took a moment this morning to look at our first annual report and to remind myself of what this team has accomplished for you in the years since we went public in 1986. Immediately following the public offering, we had shareholders' equity of about $16,000,000 and a total investment portfolio of approximately $30,000,000 We've been about the process of reinvesting our earnings and making sound capital allocation decisions for a long time. And I think it's fair to say the results should speak for themselves. To add one more note on a sense of perspective, the comprehensive income in the Q1 of 2013 of $257,000,000 exceeded our entire cumulative earnings during our first decade as a public company. I know that analyst reports on Markel rarely address comprehensive income in their estimates and discussions about it, But the comprehensive income is what we as shareholders ultimately receive as owners of this business. As such, it's what we focus on as the stewards of this company. It's undeniable that we face the challenge as we begin to integrate the Ultera operations into Markel and reinvest our new larger basic capital. The good news is that we've done this sort of thing before and we are excited and optimistic about doing it again now and into the future. With that, we'd like to go ahead and open up the floor for your questions. So Jeff, if you would be so kind to open up the floor. Thank you. Ladies and gentlemen, we will now be conducting our question and answer session. Our first question comes from the line of John Fox with Fenimore Asset Management. Please proceed with your question. Okay. Thank you. Good morning, everyone. Good morning, John. I have a few questions. First for Tom Gayner. You mentioned the Ultera portfolio. Do you have a sense of how long it will take to make that look more like a Markel portfolio? Yes. A lot of that really is going to methodical and just step by step. If market opportunities present themselves, we will act expeditiously, but I don't have a supervision for you. Okay. And Tom, where will you take the equities, the stock portfolio as a percentage of Markel's shareholder equity? Well, I mean, for instance, at the end of the quarter, we were at 65%. Right. That obviously goes down as you add in a bunch of cash in the Ultera capital. My goal would be to get that back to that sort of ratio and in fact go beyond that as I see good opportunities to do so. But we'll let it go down before we start to rebuild it. Okay. And then I think these other two questions are from Mike. And by the way before you start asking my question, if you have any really good ideas call me later. Okay. I will. Mike, a number of insurance companies have kind of talked about organic price increases in the Q1. I want a perspective on your business. Do you see kind of a natural increase in prices? And what that number might be? Well, as we said, we're seeing something in the range of 4% in North America now with a little more in workers' comp and property. And right now, I see that just continuing. I don't see it going up a lot from here and I don't see it continuing. I don't see it going up a lot from here and I don't see it going down. But right now, we're just kind of planning on the same kind of trends. Okay. And Rich you mentioned 3 international, so kind of low single digit. Yes. No, I think it's amazing. We talk about the different markets, but they there tends to be a lot of similarity in terms of how they move. So 3% over there, 4% here pretty consistent. Right. Okay. And then the results these are terrific results for the Q1, but especially admitted line is not terrific. And I'm just wondering your thoughts on that. Are you looking at taking different actions? Or it seems to be an outlier of the 3 segments at this point. Well, a couple of things are going on there, John. 1, in the quarter about 66% of the revenue was all of those businesses are being subjected to our conservative reserving practices for a period of time. And in addition, the expense ratio for Tomco and for Hagerty in the Q1 is high because of things that are going on there. We front loaded a lot of expenses for Hagerty. We wrote $30 something million of business, but we only earned about $4,000,000 and we've got some booking of contingencies and other things that drive that expense ratio way up in the Q1 and that will trend down during the course of the year. The expense ratio for the specialty excluding that is 38.6%. So everybody else is moving in the right direction. And 1st comp has made great strides in their ratio. And in their loss ratio, they're following the plan that we set in place for them when we acquired them in late 2010. So there are a couple of lines of business in the specialty segment that are not performing the way we would like them to do and we're taking action on those. Okay. Thank you. Thank you. The next question comes from the line of Jay Cohen with Bank of America Merrill Lynch. Please proceed with your question. Yes. Thank you. Are you going to be numbers into a new presentation? It's hard to update the model when we don't know where all the numbers are going I guess. Yes, Jay. We'll be filing an 8 ks, but it'll probably be 10 weeks from now. Okay. That's fine. Thank you very much. Thanks. Thank you. The next question comes from the line of Mark Dwelle with RBC Capital Markets. Please proceed with your question. Yeah. Good morning. A couple of numbers questions to start out with. You provided the split of the portion of the Markel Ventures revenues were in the other revenues. Could you give us the portion of the expenses that are in other expenses line that kind of marries up with that? Yes. While Anne looks for those numbers, I mean the total other revenues is off the key. She had the exact Markel's headcount number. Yes. Right. So Markel Ventures related revenues were $162,000,000 The associated expenses are about $145,000,000 $145,000,000 Thank you. And second question By the way, Mark, that includes the non cash expenses? Right, of course. EBITDA on that. Right. The second question, did you have any particular amount of catastrophe losses in the quarter? I didn't see any references and I couldn't think of any, but just thought if there were any you could highlight them. No. Nothing too far. Nothing of significance, Mark. And also obviously, we and it's in the Q, we had some takedowns actually on Sandy in the quarter. So in a sense we had a negative on that quarter. All right. And then you had mentioned somebody had mentioned in their opening remarks, I think it was you Richie, the integration of the kind of combined reinsurance platform to cover the ratio of gross to net premiums. Obviously, it's my job to figure out how many dollars of premiums you're going to add in. But I'd like to at least take a stab at the ratio if we could. Sure. Mark, what I think I'd tell you this year is we are starting to look at programs and how we can much focused on moving retentions as we are just kind of getting to fewer programs right now. So I would tell you that for 2013, if you sort of took the mix of our retention and Ultera's retention that's probably where we'll end up whatever that is in the middle. And I don't have that number to hand. And as after we kind of get through this initial phase during 2013, next year we'll start looking critically at those retention levels. And my assumption would be we'd start bringing those up some. But this year is do no harm right now. We just want to start putting things together. That's very helpful. Thanks. I'll let everybody else take a go. Thanks. Thank you. The next question comes from the line of Adam Klauber with William Blair. Please proceed with your question. Thanks. Good morning. Good morning, Adam. How would you how is the general E and S environment? Are you seeing much flow over from the standard markets? I think we're seeing some Adam. It's hard to measure. I think that we like to think that a lot of our growth is coming from the fact that we've done a much better job articulating to our producers exactly what we want. It's also a result of the last couple of years of upgrading our coverages and our forms. We're being a lot more active with our brokers in terms of being out and knocking on doors asking for the business. And so I think that's driving a lot of it as well. It's hard to put a number on what we're seeing rollover from the standard market. I think we're seeing some of that. Okay. And then as far as for the overall company your accident year loss ratio excluding cats was down by roughly 200 basis points. How much of that is due to white weather? Due to sorry, can you repeat that? How much of that is due to just weather being pretty light during the winter? It's going to be a little bit of that. There's no question. 1st quarter was a very light summer for weather. But also we were seeing the impact of modest price increases that we've gotten over the last couple of years. That's starting to help the loss ratio as well. It's probably a it's a mix of the 2. Okay. And then as far as what do you see on the loss trends in workers' comp? And I guess if you could distinguish California versus non California would be helpful. Well, the loss ratio is obviously improving at 1st comp. But you keep in mind as we've said on other calls, 1st comp has been restructuring their business and moving a lot more toward non California business and more attractive states. So their I don't have the numbers right in front of me, but their California comp business is down substantially from a couple of years ago. And the trends not only their loss trends, but their expense trends are moving absolutely in the right direction. They're managing their business just as we asked them to. The only thing I'd add to that is as you can expect, I mean, the trends in work comp sort of mirror what's going on in medical. So it's higher than the overall economy. And California as it has always been is higher than the rest of the country. But we're not seeing I don't think we're seeing anything crazy there. I think it's sort of continuation of what's been a theme. Okay. And then finally within E and S you had a pretty good sized release and I know releases are going to reserve release they're going to jump around. But was there any 1 or 2 items driving that release? The release was predominantly on casualty lines, but it was spread across several years. Our next question comes from the line of Gosnay Wooder with SunTrust. Please proceed with your question. Hi, good morning. First, Richie, just a little numbers question. I noticed the expense ratio in the London Market division had quite an improvement below 40% first time in a while. Is there anything there? Were there any particular credits? Or you're just more blocking and tackling better scale? Well, obviously, we have the DAC adjustment in the Q1 of last year. And so it's probably not as dramatic as maybe it appears on the surface. I think you're right. The underlying trend is down some. And I think it's primarily more volume. We're getting more volume and we're able to spread our fixed costs a little further. So good news. Yes. Yes, definitely. And Tom, you had a pretty comprehensive overview of how you're going to bring Ultera's portfolio around. Is there going to be any particular, I guess, for lack of a better term, liquidation events in advance of that where you definitely overweight Alterra's cash just because you would rather get something more stable to bring over to Markel or would it be more you would take the portfolio and move? I guess, as you find opportunities to up your investments on the Markel side, you liquidate the Alterra's investments on a case by case basis. Yes. The good news is that the vast majority of the Alterra investment portfolio is just fine. It's high quality fixed income investments and those will largely remain in place and that's a pretty smooth integration process. They did pursue things in the realm of alternative investments and we've already they've been very cooperative and helpful in terms of liquidating some of that ahead of the closing. That process will continue and it will take some time. There's a half life associated with that. And frankly this time next year there will still be some of that. But that is largely we want to invest more than we can right now. So we can go about whatever changes we're making on Ultera in a very methodical and orderly way. And we got plenty of cash to fund investment ideas as we have them and they're 2 distinct things. Okay. Thanks a lot. That's all my questions. Thank you. Our next question comes from the line of Ray Iredella with Macquarie. Please proceed with your question. Yes. Thanks and good morning everyone. Just I guess a quick question. Tom you spent a lot of time on the Ultera portfolio of the asset side. But maybe can you give us an update on how you're thinking about reserves for Ultera? And that I guess you have a little bit more time to take a look at them and maybe how if there's any need to bring them up to the Martell standards given the way you guys approach reserving? Yes. What I'd say there is when we did our due diligence at Alterra, we felt comfortable with the reserve levels that there was a redundancy probably not at the same level as our reserving standards, but solid reserving and that was very reassuring when we got through the due diligence. Obviously, we've been spending a lot of time with the Ultera folks over the last 4 months and nothing we haven't seen anything that would change our opinion of what we saw in due diligence. And similar to other acquisitions that we've done in the past, it will be a Tom talked about methodical process. It will be a methodical process to bring them into line with Markel's reserving standards as we go forward. And probably the best thing I would tell you in terms of purchase adjustments if you will is to look at the pro formas that were part of our debt issuance back in March. That would give you an idea of what we're talking about or thinking about doing. And I think that's pretty much in line with where our thinking is today. Okay. Thanks again. I'll take a look at those documents. Thanks. Thank you. Mr. Gaynor, it appears there are no further questions at this time. I would like to turn the floor back over to you for any concluding remarks. Well, great. Thank you very much. Thank you for joining us. We look forward to seeing you all soon. Take care. Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.