Earnings Call: Q2 2013

Aug 8, 2013

Quarterly report

Greetings and welcome to the Markel Corporation Second 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 Gayner, President and CIO. Thank you, Mr. Gayner. You may now begin. Thank you. Good morning, everyone. My name is Tom Gayner and along with my colleagues Anne Wilevsky, Mike Crowley and Richie Witt, we welcome you to the Marcell Corporation's Q2 2013 conference call. Before we get started, we are required to remind you the Tate 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 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 on our website at www.markelcorp.com and our quarterly report on Form 10 Q. Thanks again for joining us this morning. We're very excited to share our report card from the first half for Markel or as I like to call it Markel 3.0 for the first half of twenty 13. The headline for the first half is that we enjoyed positive comprehensive income during the first half of twenty 13. The components driving that result include underwriting profitability in our insurance businesses, organic growth in our premium values as well as the growth derived from acquisitions, positive investment returns from our portfolio, operating profitability in our Markel Ventures businesses and organic growth in those operations as well as the growth from acquisitions. Those statements are true even after factoring in the transactional expenses incurred to put Martell 3.0 on the field. We could not be happier with our prospects and the long term opportunity competitive in this company. We've got multiple cylinders to power the economic engine and this report shows forward and the promise of how it should work in the future. While this report contains a lot of moving pieces and disparate items, we will attempt to provide as much clarity as we can around each of them and provide you with the reasons as to why we're so excited about our future. We hope you agree and we look forward to the thoughtful questions from our fellow owners of this firm as well as the questions from those who buy and sell the stock. With that as prologue, let's start opening up this lovely matryoshka doll of the report with Anne's review of our first half results. Anne? Thank you, Tom and good morning everyone. Needless to say, we've had a busy quarter with major activities focused on our May 1, 2013 acquisition of Alpara. The transaction was valued at 3 point $3,000,000,000 including $2,300,000,000 of Markel common stock and other equity considerations and 1,000,000,000 dollars of cash. The transaction resulted in approximately $560,000,000 of goodwill and intangible assets. At the May 1, 2013 transaction date, all Ultera assets and liabilities including identifiable intangible assets were set to fair value with the excess of transaction consideration over fair value allocated to goodwill. Most significant adjustments were to investments, life and annuity benefits and unpaid losses in LAE reserves. At acquisition, the amortized cost basis of maturity portfolio was reset to fair value and the difference between the estimated fair value and the par value of these securities were 552,000,000 dollars There were also fair value adjustments to losses in LAE reserves of $147,000,000 You can find details on these adjustments in Footnote 3 of our Form 10 Q. The integration process is in full swing and we are just beginning to see the benefits of our enhanced scale. Despite significant merger and acquisition costs in the period, we met our goal of generating underwriting profits on a consolidated basis for the 1st 6 months of 20 13. The legacy Martell operations had strong performance and the legacy operations performed within expectations. Our total operating revenues grew 30 percent to $1,900,000,000 in 20.13 from $1,400,000,000 in 2012. The increase is due to a 27% increase in revenues from our insurance operations, which includes $225,000,000 from the Altaire segment and a 64% increase in revenues from our non insurance operations, which we refer to as Markel Ventures. Moving into the underwriting results for the 1st 6 months of 2013, gross written premiums were $1,800,000,000 which is an increase of 42% as compared to 2012. The increase in 2013 was primarily due to the inclusion of $342,000,000 of gross written premium from the Alperis segment from May 1, 2013, as well as higher gross premium volume in the Specialty admitted is driven by premiums from the Hagerty and Tomco businesses. Within the excess and surplus line segment, the increase is due in part to the impact of more for the same reasons I just mentioned. Net retention was down in the 1st 6 months of 2013 at 86% compared to 89% in 20 12. The decrease in net retention is due to the inclusion of premiums written by Alpera from May 1, Net retention in the Ultera segment for the period was 74%. Excluding premiums written by Ultera, consolidated net retention would have been flat over the period. Earned premiums increased 29%. The increase in 2013 was primarily due to the 2013 was primarily due to the inclusion of $225,000,000 of earned premium from the Alterra segment from May 1, 2013, as as higher earned premium volume in the Specialty Admitted and Excess and Surplus Lines segments. The increase in Specialty Admitted is due to earned premiums from the Hagerty and Co businesses. Our combined ratio was 98% for the 1st 6 months of 2013 as compared to 93% in 2012. The increase in the combined ratio for the quarter was driven by a higher current accident year loss ratio and less favorable development on prior year loss reserves compared to the same periods in 2012. The results were also impacted by the Alpera segment, which added 8 points to the year to date combined ratio, primarily driven by $62,000,000 of merger and acquisition costs and $25,000,000 of catastrophe losses. Favorable redundancies on prior year loss reserves increased to $204,000,000 or 15 points of favorable development compared to $191,000,000 or 18 points of favorable development in 20 12. The expense ratio for 2012 was unfavorably impacted by the prospective adoption of the new DAC accounting standards, which increased our expenses by $35,000,000 or 3 points on the 2012 combined ratio. Next, I'll discuss the results of Markel Ventures. In the 1st 6 months of 2013, revenues from Markel Ventures were 314 $1,000,000 compared to $191,000,000 in 2012. Net income to shareholders from Markel Ventures was $11,000,000 in 20 13 compared to $400,000 in 2012. EBITDA was $40,000,000 in 20 13 compared to $19,000,000 in 2012. Revenues net income to shareholders and EBITDA from Markel Ventures increased in the 1st 6 months of 2013 compared to the same period of 2012, primarily as a result of more favorable results at AMF Bakery Systems and our acquisitions of HAPCO and Reading Bakery Systems in 2012. Turning to our investment results next. Investment income was flat in 20.13 at just under $143,000,000 Net investment income for 20.13 included $17,000,000 attributable to Alterra, which was net of $21,000,000 in amortization expense from adjusting Alterra's fixed maturity securities to a new amortized cost basis at the acquisition date. Net investment income also included favorable changes in the fair value of our credit default swap of $7,000,000 as compared to $12,000,000 in 2012. Excluding the impact of Alterra and the credit default swap, net investment income for the 1st 6 months of 2013 decreased compared to 2012 due in part to a decrease in our fixed maturities and an increase in our cash and cash equivalents. Net realized investment gains for 2013 were $30,000,000 compared to 20,000,000 dollars in 2012. Included in net realized gains were $5,000,000 of other than temporary impairments as compared to $1,000,000 in 20 12. Tom will go into further details on investments in Markel Ventures in his comments. Looking at our total results for the 6 months, the effective tax rate was 28% in 2013 compared to an effective tax rate of 23% in 2012. The increase is primarily due to the impact of including the operations of Ultera in the company's effective tax rate beginning in acquisition and anticipating a smaller tax benefit related to tax exempt investment income as a result of projecting higher pretax income for $147,000,000 in 2012. Book value per share increased approximately 12% to $4.52 per share at June 30, 2013 from $404 per share at year end. The increase is primarily due to equity issued in connection with the acquisition of Alpera and $109,000,000 of comprehensive income to shareholders. Finally, I'll make a couple comments on the cash flows and balance sheet. Net cash provided by operating activities was $240,000,000 for the 6 2012. The increase was driven by higher cash flows from underwriting activities and Markel Ventures. The increase in cash flow from underwriting activities is primarily a result of the acquisition of Alpera, which added $38,000,000 in the period and higher premium volume primarily in our Specialty Admitted and Excess and Surplus Lines segment. Higher cash flows from Markel Ventures were driven by by as a holding company were $1,100,000,000 at June 30, 2013 compared to $1,400,000,000 at December 30 1, 2012. The decrease in invested assets was primarily the result of cash paid to the Paltera acquisition partially offset by net increase in debt. At this point, I would like to turn it over to Mike to further discuss operations. Thanks Anne. Good morning. For the Q2 of 2013 for legacy Markel North America were slightly better than the Q1 of 2013. Gross written premiums for North America increased 28.9 percent for the quarter and are up 25% for the 1st 6 months of 2013. The combined ratio has improved as well. The E and S segment had another excellent quarter with gross written premiums increasing 20% year over year compared to the Q2 of 20 12 15% year to date compared to the 1st 6 months of 2012. For the 3rd consecutive quarter, all five regions of the E and S segment grew to rise. E and S segment's combined ratio for the 2nd quarter was 76.9 percent, an improvement of 9.8 points from the same period in 2012. The combined ratio for the 1st 6 months was 77.2 percent, an improvement of 14.4 points compared to 2012. Prior year losses were favorable due to higher takedowns consistent with Markel's historical practices. These excellent results reflect our continued efforts to improve efficiency and service to our agents and brokers. They also reflect our ongoing market initiatives designed to better inform our agents and brokers about our underwriting appetite. And as a result, our buying to submit ratio has increased. The Specialty Admitted segment's gross written premium increased 41% year over year for the Q2 compared 2012 and 39% for the 1st 6 months compared to 2012. This increase as Anne mentioned was driven by the Tomco and Hagerty lines of business. The 2nd quarter combined ratio for the Specialty segment was 106% or 3.4 points higher than the same period in 2012. This increase is the result of higher expenses on the Hagerty and Tomco business due to lagging earned premium. Excluding slightly better than the same period in 2012. During the quarter, we implemented a plan to exit certain unprofitable lines of business and non renew specific accounts within lines that we will continue to underwrite. This action is the result of an in-depth review that we discussed in our Q1 comments. We fully expect these actions will improve our underwriting results going forward the Specialty Division. I'd also like to point out that our 1st comp business continues to grow and the results are improving according to our original long term plan. Under Jerry Albanese's leadership, our product line leadership group has begun the process of integrating Alterra's underwriting operations into Markel. Leaders for wholesale property, large account property, professional liability, inland marine and large account casualty have been announced. In addition, the senior underwriting teams for all these lines of business have been meeting and working together to develop and implement a consistent and a coordinated approach to our business going forward. With regards to the current rate environment, overall rate increases continue at a steady pace averaging about 4% across all lines of business. I'd like to take this opportunity to congratulate and thank our Markel associates and all of the former Altair associates for their efforts during the integration process. I'm very confident in saying that we're well on our way to being 1 Markel. I'll turn the call over to Richie Witt for his comments. Thanks, Mike. Good morning, everyone. I'll start my comments with Markel International's first half results and then give an update on the Ultera acquisition. Markel International had a good first half of twenty thirteen. Gross written premiums increased about 2% to $526,000,000 Areas of growth included our specialty book as well as our Singapore and Netherlands branch offices. 2nd quarter pricing trends were largely in line with recent quarters' modest price increases. Despite some price increases, however, in areas, the market remains competitive. This was particularly so in the cat property reinsurance, professional liability, retail and equine areas. Property cat reinsurance rates began to fall in the 2nd quarter as additional competition including ILS markets markets impacted rates. Florida rates were off anywhere from 10% to 25% at June 1 renewal. And as a result, Markel International and Legacy Ultera reduced writings of Florida Business at sixonetwenty thirteen. International's combined ratio for the 1st 6 months of 2013 was a 90%. This compares to 86% in the 1st 6 months of 2012. The increase was primarily due to less favorable loss reserve development in 2013. Both years benefited from relatively light catastrophe losses. Now I'd like to give an update on our acquisition of Ultera. As Ann said, we closed the deal on May 1 and everyone remains focused on a smooth transition and realizing the potential of the new Markel. We continue to make good progress bringing the 2 organizations together. We've successfully combined our New York, Richmond and London offices at this point. We're also rebranding all operations as Markel and have and hope to have this effort completed in all major markets before the end of the year. We have kicked off our budgeting and planning process for 2014. This process is going to give all operations both new and old the opportunity to work together to lay out our strategy for 2014 and beyond. We've already had several meetings and more scheduled to provide opportunities for our people to work together to capitalize on our now expanded capabilities. While we have made tremendous strides in a very short period of time, we still have some work to do with our systems and our back office and reporting the results of legacy Ultera operations, which include U. S. Insurance, Ultera at Lloyd's Global Insurance and Global Reinsurance as our Ulterra segment and expect to continue to do this through the remainder of the year. We have several initiatives in place to make the changes in in systems and processes, which are required in order to implement a new segment reporting structure for the Q1 of 14. You're also going to note that we have included the legacy Ultera Life and Annuity book, which is in runoff in our other losses in the Q2, Ultera legacy operations are performing as expected through the first half of the year. With that, I'd like to turn it over to Tom. Thank you, Ricky. There are 3 things I hope to cover this morning. That we added as a result of the Ultera acquisition. As to item 1, I'm very pleased with our results through the first half. In our equity and fixed income portfolios, we earned total returns of 16.7% and negative 1 respectively. The total return for the portfolio was 2.5%. The equity results speak for themselves and I'm very happy with them. While equity returns always have been and always will be volatile, we've earned a double digit return on our equity portfolio for the last 24 years, a roughly 200 basis point advantage compared to the S and P 500 index. No steroids were used to achieve those results. In addition to the outperformance of the S and P 500 Equity Index, these returns produced a roughly 4 50 basis point advantage compared to the Barclays Aggregates Fixed income index. We've added value both through our allocation decision to own equity as opposed to fixed income alternatives and we've added value in our specific equity selection. We've also been very tax efficient and kept those working for the benefit of our shareholders with low portfolio turnover. In our equity portfolio, as has been the case for the last several years, we continue to predominantly own a set of high quality global successful companies. In many cases, the dividend yields process of step by step measured and selective addition to the equity portfolio through the first half. In our fixed income portfolio, we continue to maintain a portfolio of the highest credit quality that we can find and we continue to let the duration roll in. Last quarter, I repeated our belief that we remain of the opinion that interest rates were too low and that the risk of longer term fixed income commitments outweighed the rewards. During the Q2, interest rates did indeed begin to move upward a little bit and we minimized the damage that would otherwise have occurred with our short duration stance. The portfolio assets we added from the Ultera acquisition were longer duration and the combination moved our duration out when interest rates and prospective returns look better to us than they do now. The net of all this is that our fixed income portfolio could go to a Halloween party dressed as cash and pull it off. Halloween can be scary and I'm scared of what could happen to interest rates. So we'll continue to be cautious and deliberate as we redeploy the portfolio. At June 30, equities represented 44% of our shareholders' equity compared to 62% at year end. That decrease in percentage comes solely from the math of adding in the Ultera balance sheet. We invested in equities during the first half. The investment returns were strongly positive and the value of fixed income portfolio went down due to the rise in interest rates. The addition of the Ultera portfolio was a sudden de facto reallocation of investment allocations and it is appropriate for you to assume that we will methodically and opportunistically guide the equity investment percentage back up towards our historical levels over time. On to item 2. Markel Ventures operations also performed very well during the first half. Our other revenues of $330,000,000 that you see in the income statement are largely those of the ventures company. Those revenues were 50% compared to last year. Other expenses were $293,000,000 up 47% from a year ago. Now those expenses include non cash amortization and purchase accounting entries that are separate and distinct from the ongoing operational performance of the Markel Ventures Company. As such, we use EBITDA in our internal review and management of these operations. And EBITDA more than doubled to $40,000,000 in the first half compared to 19 dollars 1,000,000 in the previous year. A reconciliation of EBITDA to GAAP net income is available on our website in 10 Q. We are very happy with the underlying economic performance of our Markel Ventures Company. While the overall business environment remains extremely competitive and full of challenges, the managers and teams of the Markel Ventures Company are doing a first rate job of building their businesses. They operate with the Markel style, just like our insurance operations and the focus on market leadership, excellence, innovation and having fun while doing so is paying off. We expect to continue to add to Markel Ventures over the long term. Item 3. As was the case roughly 70 days ago when we closed on the Ultera transaction, the biggest single challenge and opportunity on the asset side the balance sheet is the future investment and capital allocation decisions that we will make with the assets we acquired as well as the cash being generated by our operations. We'll invest the money in the same way that we've invested the asset management company over the years. Specifically on the fixed income side, we will we will continue to focus on high credit quality and maintaining the duration that is shorter than our national position of matching the duration of the insurance liabilities with our bond portfolio. We will continue to do this until interest rates are higher than they are today and we feel that we are being paid appropriately to assess the risk of longer term commitments. 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 that we already own. Prices are still reasonable in many cases and we will pick up investment yield from the dividends as we go. Given the position of Markel's 3.0, we have a lot of dry powder and we look to deploy that directly as opportunities present themselves. We're in a unique and what I think is a fantastic position and that 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 decisions for Markel 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. I know that analyst reports on Markel barely address comprehensive income in their estimates and discussions about it, but comprehensive income is what we as shareholders ultimately receive as the owners of this business. As such, that is what we focus on as the stewards of this company. We're pleased to report positive comprehensive income for the first half of twenty thirteen despite the transition expenses and we are optimistic about our opportunities going forward. With that, I'd like to open up the floor for questions. Rob, if you'd like to open up the floor. Thank you. We will now be conducting a question and answer session. Thank you. Our first question is from the line of Jay Cohen of Bank of America Merrill Lynch. Please proceed with your question. Thank you. Several questions. I guess the first in the specialty admitted area, you had mentioned that there were some lines that you were exiting. I'm wondering if you can give us a sense of how big they are as we go forward if they'll have a meaningful impact on revenue growth there? There are several lines Jay, it's Mike. There are several lines. None of them among themselves are significant. I think over a 12 month period, you could see possibly a $40,000,000 reduction there in those lines of business in total all lines included. Got it. That's very helpful. And then I guess on the E and S side, the premium growth accelerated pretty noticeably from the Q1. In the Q and the call you mentioned price and economy. From a pricing standpoint, it didn't sound like the price increases accelerated at all. And the economic growth doesn't seem terribly robust. I'm wondering kind of really what's behind this acceleration? It's pretty simple, Jay. We've spent the last few years refreshing our products, improving our service to our agents. We are well past the 1 Montblanc Markel initiative that we had for the E and S operations. And quite frankly, our relationships and our efficiency and our improved products and our service to our larger wholesale brokers and really all of our wholesale brokers is paid off in significant organic growth. It's organic growth. Got it. Thank you. Our next question is from the line of Mark Dwelle of RBC Capital Markets. Please proceed with your question. Yeah. Good morning. Good morning. A couple of questions. Let me start the investment portfolio. There was the asset adjustment there and a portion of that I guess as I'm understanding the footnote is going to be amortized back through investment income. Can you just talk through the mechanics of be a drag or an offset against the investment income line? Yes. Be a drag or an offset against the investment income line? Yes. Mark, basically you have to add the acquisition date take portfolio to fair market value. And then over the life of the assets you amortize it back down to par. So it will be amortizing over the course of the duration of the portfolio, so call it 4.5 to 5 years. Yes. And Mark this is Richie. If you think about it, what you've basically done is converted the Ultera portfolio. You had a book yield coming through the P and L. Now you have the effective yield coming through the P and L with the amortization of that premium. And again just to kind of clarify slightly with the numbers. The mark on that adjustment was 552 $1,000,000 and it's that $552,000,000 that's being amortized over whatever the duration would be. Then I guess I would presume that to the extent that Tom decides to sell some of those that would accelerate that more quickly? That's correct. Okay. And then I guess likewise, I would suppose that that won't be just it's going to be a weighted duration. So some of that may stay with us for well beyond 4.5 years. That's a fair statement. It's a little hard to predict. Right. Okay. Okay. That's my first question. My second question more for Tom also staying on the investment portfolio. Is the investment income earnings in the quarter setting aside these amortizations and the addition of the Ultera portion, it seems like the legacy Markel portion was relatively lower. Were you more oriented into cash just in anticipation of the deal? Was there something was there some aspect of the positioning that would have made the I'll call it the core of the legacy run rate lower than I might would have expected otherwise? I mean we were building cash in anticipation of the transaction, but also building cash by rolling down the duration curve. So that's just a math of what interest rates are at the short end of the curve. Okay. Yes, I certainly get that. The second question related to the portfolio repositioning. I mean, I've been watching you in action for many years. I know that you'll do this opportunistically and kind of take the opportunities as the market allows. But do you have a general timeline in terms of the asset classes that came over from Ultera that may not be completely consistent with things that you've historically owned in terms of recognizing any gains or losses there? Or would you more plan to just let that mature off and then redirect the proceeds? I would say in the concept in the sort of the eightytwenty rule, 80% of it are things that we're comfortable just letting them roll off and 20% we've taken and we'll continue to take some more immediate actions. But in the eightytwenty rule context, it can roll off appropriately. Okay. All right. I guess that's my last question on the investment portfolio. One other question kind of more operationally. In one of the notes with respect to the specialty admitted business, I'm just unclear about the syntax of the sentence. It was it said there was $62,000,000 that I wasn't clear whether that related to just Hagerty premiums in the quarter, whether that was Hagerty, Tomco and any other acquisition premiums in the quarter within the specialty admitted business? It's primarily Hagerty. Okay. I will stop there. Thank you. Thank you. Our next question is from the line of Adam Klauber with William Blair. Please go ahead with your question. Thanks. Good morning. Couple of different questions. In Specialty Admitted, are the combined ratios for Tomco and 1st comp still running above the average of the segment? And are they improving from where they were last year? Yes. They both are. But keep in mind that we also continue to build the margin of safety in all those nice lines of business Hagerty, Tomco and First comp. Hagerty I mean excuse me Tomco has some extra expenses in it. The 1st comp business as I said earlier on the call is absolutely trending exactly according to plan. So we feel very good about the actions they've taken with regards to their expense ratio and with regards to the geography in which they're playing in. They obviously are running a less California business. So we feel good about that plan. And again, overall in the Specialty segment, we've taken a really hard look at all of the products that we have and all of the programs that we have in Specialty. And the plan that we put in place and initiated beginning in the Q2 is a very specific plan targeted to improve the overall profitability in specialty. So is gross comp today running is the margin better today than it was a year ago? Or is it still running high combined? Yes, it's better. Okay. Okay. That's helpful. As you take a look at the Alterra business, which you've been doing, but it sounds like you're still looking at the positioning. Do you think that business will be trimmed down over the next year or so compared to what it was last year? That's hard to say. I can tell you that in some of their lines of business in the large property, the large excess casualty, the inland marine, the large professional line, they're tracking right 1st 6 months. There's probably a few just the 1st 6 months. There's probably a few just like in our existing or legacy Markel operations, there's always lines you're looking at and maybe getting out of. But at the same time, there's things you're doing or things that are growing. So I think it's a little early to say whether we think it would trend down or trend up. Okay. But is it fair to say you're still assessing that? Or do you think you have a pretty good feel for it now? Well, I think we're looking at it as I said we're starting our 2014 planning. I mean that's where we're really going to dig into it and all leaders of the various areas ask them what they think the business plans look like for next year. So I think we'll know a lot better in the next couple of months as we work through that process. Let me just add this. I just got back from Austin Vergheer earlier in the week meeting with several of the leaders of the deep lines of the business along with our business. And 1, we continue to be very, very impressed with the talent and with those leaders and with their philosophy with regards to the line of business, which is very consistent with Markel's historically. So at stage of the game, it'd be hard pressed to say that we could feel much better about the talent that joins Markel. Okay. And then as far as the favorable reserve development just on a ballpark basis, is that pretty evenly spread over the last say 7, 8 years? Or would you say there's more in the old years versus say the last 3, 4 years? In other words what accident years? Yes. For the releases this quarter? Yeah. They were spread S was primarily in the casualty business and that was over a number of years. And within Mint, it was primarily the 2010 year. Okay. Okay. That's helpful. And then just a technical question. On the amortization of the investment income, will that increase or decrease investment income? Decreases investment income. Okay. That's what I thought. Just double checking. Thank you very much. Thank you. Thank you. Our next question is from the line of Jay Cohen of Bank of America Merrill Lynch. Please proceed with your question. Yes. Thank you. Just a quick follow-up on that last one. When you do amortize this the mark on the investments, will it show up in the net investment income? Or will it I should say it this way. If you sell some of these securities and the amortization is accelerated, does that amortization show up in realized gains or realized instance of a sale of a security, it will flow through realized. Okay. That makes sense. It doesn't always make sense. That does. The second question is on the Ultera business. As you had mentioned with Tomco and Hagerty, you go through a process once you buy something of getting that business onto your reserving methodology with which almost always is more conservative, one would argue here is more conservative. I recall in the past with Markel International that process took several years. How long would you expect that process to take with Alterra? Jay, it's Richie. You bring up Terra Nova and I'll just say that the fact that that one took longer than we expected. There was we had some issues as you'll recall at Terra Nova and that probably took us longer than we would have expected. At this point in the game and I think we said back when we were talking about the due diligence we did on Ultera, we felt pretty good with the level of reserves they had. We didn't feel like they were quite to the standard of the margin of safety that we we like to carry. So I think we're really it certainly doesn't get done in a year. But as we sit here today over the next 2 to 3 years, that's what I'm sort of thinking. That's helpful. Yes. I mean the Terra Nova deal was clearly done at a different time. So I see the difference and I appreciate the response. Thanks. No problem. Thank you. Our next question is the line of Doug Merritt with SunTrust. Please go ahead with your question. Hi, good morning. Just two quick questions. First, Mike about the workers' comp market, I know that rates across the board have been outperforming P and C rate trends. How do you see that how do you see the sustainability of those trends? And also do you feel that Markel's participation in that is sort of outperforming the market or lagging the market just based on that? The rate increases at the first comp we're getting are a little higher than some of our other lines of business. We don't see that changing in the near future, but it's hard to predict. Obviously, we'd like for it to continue for the foreseeable future and it's hard to tell. But the rate increases we are getting on first comps of business are higher than some of our other lines of business. But keep in mind we're also changing the geographic spread there too which is also positive. Okay. Thanks for that. And my second and final question, it's more of a HOPERA related question. Roughly, what was the overlap between, I guess, what used to be called the original Ultera U. S. Business on the smaller side and your Markel's E and S business? Because I know you did compete in certain areas. We did and the E and S business is being rolled into our E and S operations here. And working together to deal with any potential other lab that we have will be consistent in our underwriting philosophy there. With regards to other labs of business, as much at all. Ultera on the large casualty, the large property, the professional lines for the most part play in an area with the display. And one of the nice things we're seeing this is Richie. One of the nice things we're seeing is even where we maybe let's say we're both on an account. Well, it's a bigger organization now. So we don't immediately have to say, we have to drop one of these participations. We have a we can have a bigger appetite now with $6,000,000,000 of capital. And often what we've done is said, we're fine keeping both. Yes. That's definitely a fair point. Yes. And So and just actually as a clarification, Mike, you mentioned that you'll be rolling the Ultera the smaller Ultera E and S into the Markel E and S. For reporting purposes, will it still be in the Ultera segment though? For the rest of this year. Okay. Yes. Thanks. That's all my questions. Thank you. Our next question is from the line of David West of Davenport and Company. Please go ahead with your question. Good morning. A question for Tom. As you're facing these investment alternatives, what do you see in terms of valuation levels for public equities versus what you're seeing in the private equity market when you evaluate opportunities for ventures? I would say in the private world, prices have gone up more dramatically and more consistently across the board than would be the case in the public world. So the multiples we were paying of the things that we bought in Markel Ventures in 2008, 2009 that generally speaking is not available right now. And you'll notice we've been quiet. We haven't bought any major platforms within Markel Ventures for a while. In public markets, there tends to be more dispersion. So you'll have headlines of things that are wildly popular and wildly unpopular at the same time. So making a general statement means less in the public markets than it does in the private market. So I'd say the opportunity set is actually a little bigger on the public side than the private side as we sit right now. Thanks very much. Thank you. At this time, there are no additional questions. I'd like to turn the floor back to management for closing comments. Thank you very much. Thank you for joining us. We look forward to catching up with you again soon. Bye bye. This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.