Argo Group International Holdings, Ltd.
Q1 2013 Earnings Call Transcript

Published: 3 May 2013

[Operator:]

Welcome to the Argo Group 2013 First Quarter Earnings Call. My name is Jonan I will be your operator for today’s call. At this time, all participants are in listen-only mode. Later we will conduct a question and answer session. Please note this conference has been recorded. I will now turn the call over to Mr. George Luecke Argo Group Treasurer. Mr. Luecke you may begin.

[George Luecke:]

Good day everyone and welcome to Argo Group’s First Quarter 2013 Earnings Conference Call. Joining me today are Mark Watson, Chief Executive Officer and Jay Bullock, Chief Financial Officer. Before I turn the call over to Mark, I would like to remind everyone that Argo Group Management may make comments that reflect their intentions, beliefs and expectations for the future. Such forward-looking statements are qualified by the inherent risks and uncertainties surrounding future expectations and may materially differ from actual future results involving any one or more of such statements. Argo Group undertakes no obligation to publicly update forward-looking statements as a result of events or developments subsequent to this conference call. For a more detailed discussion of such risks and uncertainties, please see Argo Group’s filings with the SEC. With that it’s my pleasure to turn the call over to Mark Watson.

[Mark Watson:]

Thank you, George, and good morning to everyone and welcome to Argo Group’s first quarter earning’s conference call. I’ll briefly share my thoughts regarding this quarter’s highlights after which Jay Bullock, our Chief Financial Officer will add some color to the quarter’s financial results. We look forward to responding to any questions you may have during our Q&A session after that. Overall we are pleased to begin the year with a strong First Quarter relative to last year having generated $32.7 million or a $1.28 per diluted share of net income from $19.6 million dollars or $0.74 per diluted share in the First Quarter of 2012. We ended the quarter with diluted book value per share of $62.67 up 3.2% from $60.75 at the end of 2012. Our results demonstrate the success of the strategies we have employed to grow the top-line intelligently, drive more margins to our business and create a diversified platform of product and geography. This quarter we generated underwriting profits in all four of our operating segments. And with the prospect of any increase in investment income modest at best we will continue to focus on improvement in our underwriting results first. We believe that consistency of results and improved return on capital will create long-term value for shareholders. Over the last few months, we have added some great executive talent to our team. We were pleased to bring Kevin Rehnberg on board in March as President of our U.S. Insurance Operations. With more than 25 years experience in specialty lines Kevin will play an integral role in strengthening and growing the core of our franchise in the U.S. On the underwriting side, we’ve started up a New England Marine Unit within our Excess & Surplus Lines business reflecting our efforts to recruit best in class underwriting talent with the expertise and relationships to access profitable books of business. And while adding new talent to the organization is crucial to supporting growth and innovation. I was reminded the other day as I was with the executive management team with the average tenure of our leadership with the organization is growing now about 8 years. We continue to return capital to shareholders in the quarter at a measured pace. We’ve used share repurchases at a discount to book value as great investment and we are also paying dividends to our shareholders and think that those are important and recurring capital management tools. In the first quarter, we’ve repurchased $12.3 million or approximately 326,000 shares at an average price of $37.71 per share or 62% of reported book value year-end 2012. In February, we were also pleased to announce 25% increase in our cash dividend per share from $0.12 to $0.15. Over the last three years, we’ve returned over $250 million of capital to our shareholders through share repurchases and dividends. The share repurchases reflect reduction in outstanding shares of approximately 20% over that period of time. Turning to the business, in the First Quarter we produced consolidated gross written premiums of $488 million an increase of 11% from the first quarter of last year and our seventh consecutive quarter of top line growth. The growth is the function of modest but steady improvement in pricing, expansion of our existing platforms and to a lesser extent new business development. Our Excess & Surplus Lines segment and our business in Brazil were the primary drivers of gross written premium growth this quarter. With respect to the broader market conditions in which we compete we continue to experience modest rate improvement with the magnitude varying by business. In most businesses where rate is needed we are achieving our rate improvement objectives and in some cases we are exceeding them. So without a catalyst for a dramatic move in rates and given the continued declines in investment yields I am hopeful that the industry will maintain its pricing discipline and I am cautiously optimistic that this general improving market trend will continue. Regardless of the market conditions, we will continue to focus on underwriting profitability and diligently seek out profitable growth opportunities. As I mentioned, each of our operating segments generated the underwriting profits for this quarter. We benefitted from benign catastrophic activity during the quarter, continued modest favorable developments from prior years and most importantly we continue to see the benefit of past and ongoing repositioning efforts to certain of our core businesses. Our loss and combined ratios improved by 4 points year over year reflecting primarily the improved underwriting result. While our expense ratio was higher than is acceptable to us and higher than we expect to see for the balance of the year, it was impacted in the quarter by over 200 basis points as a result of higher expense for equity compensation, a reflection of the greater than 20% increase in our stock price in the quarter and then to a lesser extent changes in the accrual of deferred acquisition cost. Towards our objective of improving operational efficiency we passed some important milestones in the quarter with the development and successful launch of the first leg of our new business development platform or our technology system and completed the first quarter of fully transitioned work to some of our external business partners. We have a lot of work ahead to complete these efforts but I wanted to take a moment to say thank you to everyone who has been working on these important projects, frankly they have working their tails off for the last couple of years and we still have a long way to go. Let me briefly comment on each of our operating segments before turning the call over to Jay to discuss more details around our financials. In our Excess & Surplus Lines business, we’ve been advancing on all fronts. We’ve been adding to the depth and breadth of our teams which has enabled us to grow our top line profitably. We’ve been expanding our product lines and improving on our producer relationships in the process. Accordingly our gross written premium grew 19% in the quarter while we achieved overall rate improvements in the single digits. Much of this growth was driven by our property book reflecting increasing submissions as well as by our casualty book which was helped by demand for post Hurricane Sandy repair work. We reported a combined ratio of 95.4% compared to 91.5% in the quarter of 2012 driven in part by modest favorable prior year developments in this business this year as compared to a year ago. And commercial specialty, we reduced our topline in conjunction with re-underwriting of the portfolio to remove underperforming accounts within Argo Insurance and Trident which was offset somewhat by growth in our surety business. I think this trend will probably continue for the rest of the year. Accordingly, our gross written premium declined by 1.5% and net written premium declined by 9%. On a positive note, we’ve been able to achieve rate increases in excess of 10% at Argo Insurance and 6% at Trident on retained business. The commercial specialty segment overall reported an underwriting profit with the combined ratio of 98.6, a significant improvement over last year’s first quarter result of 107.4%. In International specialty, we achieved a gross written premium increase of 36% largely due to the build out of our operations in Brazil. Argo Re, our short-term reinsurance operation also experience topline growth. Despite a competitive property reinsurance market which saw a non loss affected accounts flat is slightly down upon rules. Loss affected accounts were up 10 to 30% depending on scale of loss. Conditions are stable to modestly improving in our excess casualty in professional liability business as well. One factor that is becoming increasingly apparent is the apparent role of non-traditional capacity within the property Cap market. With increased investor demand we’ve seen very competitive prices in the more remote layers of the reinsurance market and very attractive Cap bond issuances. For us property cat is the small part of our overall business and we will expand our contract depending on pricing and other opportunities to deploy our capital. To our alternative market capability such as our side car Harambee Re completed early this year we have the ability to react quickly as the property cap market devotes. Finally, turning to Syndicate 1200 gross written premium grew 2.4% on the quarter reflecting the competitive environment, careful risk selection and appropriate pricing. We grew net written premium by 68% reflecting increased retention as we recalibrate our reinsurance programs. Of particular, we generated a 93% combined ratio in the segment in the quarter achieving 10 points of improvement compared to the same quarter last year. Our property and specialty divisions within the Syndicate performed particularly well. Across the various books of business, rates were roughly flat with small single digit increases and decreases among the majority of our lines. Although, the Aon-Berkshire partnership has received significant press we do not expect a material impact on our Syndicate business. As to non-organic growth we continue to see a robust pipeline in acquisition opportunities and are particularly focused on adding property value of U.S. sea based businesses to complement the development of (inaudible) platform. The challenge we often face is once the U.S. property value. On the investment front, we are seeking ways to marginally increase our returns without materially impacting our risk profile and we believe we are finding ways to do so. Given our investment leverage have even incremental enhancements to portfolio returned can contribute ROE. And with that, I would like to turn the call over to our CFO Jay Bullock.

[Jay Bullock:]

Thanks and good morning everyone. As Mark pointed out positively mutual report and fairly straight forward and so I will keep my remarks brief. As outlined in our press release, we reported net after tax operating income of $0.78 per diluted share compared to $0.54 per diluted share in last year first quarter. For an increase in operating income per share of over 40%. Gross written premiums grew 10.6% to 438 million in the quarter well net written premiums grew 15.7% to 279 million. The higher increase in net written premium largely in Syndicate 12,000 reflect changes in our reinsurance program where we have combined certain treaties and in one instance produced the size of quarter share program. We have generated growth in three of our four operating segments in international specialty and Syndicate 1200. In commercial specialty we experience modest declines as we continue to repair underperforming accounts within Argo insurance and Trident. The overall growth and written premium will be reflected in an increase in net earned premiums in the coming quarters. The combined ratio for the quarter was 99.4% an improvement of 4 points from a 103.4 last year. This mainly reflected in improvement in the loss ratio of 57% from 61.3% last year. This loss ratio improvement is the result of additional rate, the underwriting changes that we’ve made across the business and continued favorable reserve development. That favorable development in the quarter totaled 4.5 million against 3.3 million for the same period a year ago. By segment, development in E&S in Excess & Surplus Lines was 5.2 million favorable driven by contract and allied medical from 2009 and prior action years. Development in Syndicate 1200 was 2.2 million favorable reflecting releases from non-Cap property reserves. Development in commercial specialty was 1.1 million net adverse reflecting adverse development in Argo insurance offset by favorable development from Rockwood. International specialty recorded just under a million of adverse development from the small amount of crop-loss development on the 2012 action of year. And finally in runoff, we recognized 0.9 million of adverse development largely reflecting commutation activity in that unit. Catastrophe losses in the quarter were modest at 1.9 million and related to the U.S. Spring storms compared to 4 million in the same period last year. Prior year catastrophe losses experienced some modest movement both up and down and as result in total were ROE were effectively flat Other reinsurance related expenses which are expenses related to our Roamer Recap launch was 5.1 million in the quarter down from 6.9 million last year as one of the two covers expired at 12/31/2012. The remaining cover which protects us against U.S. catastrophe apparels will expire at the end of 2013. We continue to consider structures such as these an important and effective component our Seeder reinsurance program. Our expense ratio have picked up slightly in the quarter to 42.4% compared to 42.1 a year ago. This quarter’s expense ratio as Mark mentioned was impacted by 5.5 million of higher non cash equity based compensation expenses related to the prior years’ quarter due to the increase in our stock price. Adjusting for this the expense ratio was just over 40%. We expect continued improvement as we gains scale and recognize benefits from pasts and ongoing efficiency initiatives. Turning to investments the overall size of the investment portfolio including cash declined $67 million in a quarter primarily due to the transfer of assets related to the over count quarter share transaction for 2009 and prior years in the Syndicate. We note again that any associated income including the income from the assets fell on our balance sheet goes to the benefit our counterpart in that transaction. The impact of this transaction combined with continued lower investment yields resulted in a decline in that investment income in the quarter of 3.5 million versus the same period last year in 600,000 as compared to the 4th quarter of 2012. The book yield on the portfolio was 3.4% this quarter down from 3.8% in the first quarter last year. We recognized pre-tax gains of 9.5 million of which 3 million came from our dividend and income producing fund investments which but for their structure would contributing to our investment income. Pretax unrealized gains increased 23.5 million in the quarter up the total unrealized gain position of 328.5 million approximately 40% is related to our fixed income portfolio and 60% is related to our equity portfolio. At March 31st our fixed income portfolio had an average rating of AA minus and an effective duration of 3.3 years unchanged from the year end. Our capital position at March 31st was approximately 1.9 billion up 33 million from year end. Both our financial and operating leverage remained modest which provides us the flexibility to respond to market opportunities. Both value per share end of the quarter at $62.67 and increased of 8.2% over the prior 12 months. As Mark mentioned in the quarter we have returned $16 million to share holders in the form of common dividends and share repurchases and have continued to participate in the market post quarter end to attend the five programs. As always we will evaluate our alternatives to deploy our capital based on risk adjuster return and we continue to buy back our shares as wanted by the availability of competing investments relative to compelling evaluation of our stock. Operator that concludes our prepared remarks and we are now ready to take questions.

[Operator:]

Thank you. We will now begin the question and answer session. (Operator Instructions). Our first question comes from the Amit Kumar from Macquarie, please go ahead.

[Amit Kumar:]

Thanks, and good morning and congrats on the quarter. Just a few questions. First of all going back to the discussion on E&S market place you talked about the Aon relationship, can you also talk about the recent chatter regarding the movement of a team from AIG to Berkshire Hathaway and how does that change your outlook or your thought process on the market place. Thanks.

[Mark Watson:]

Well Amit, it adds one more competitor to a crowded market place. Having said that, we all have a different focus or specialty if you will within E&S. I have no idea what their business plan is, but I suspect they will focus on larger accounts, if that’s the case then I expect it will have little direct impact on our portfolio, it may affect the market pricing as a whole every time new capacity comes into a market place, but we’ll have to wait and see; there’s always someone new coming into the market, I think this one just has more headline.

[Amit Kumar:]

Okay. Moving on to the discussion on prop cat you know you talked about new capital and again I realize it’s a small proportion of your total top line, when you mentioned the sidecar, Harambee Re, what are the return objectives and when do you expect to sort of deploy it and what zones it might focus on?

[Mark Watson:]

We’ll it’ll be a -- the exposure that they were putting in Harambee Re is a cross section of both our property cat insurance portfolio which is both US and international as well as our US property insurance portfolio. So, I guess it’ll be a little more weighted towards the US, but there’ll be some international exposure in there. You want to talk about?

[Jay Bullock:]

Amit when you say return objectives so let’s talk about it from two different angles, right. It’s the opportunity for us to put a bigger footprint into the market so we get fee income off of the structure which augments our primary property programs in E&S and our reinsurance business out of Bermuda both of which are some of the higher returning businesses in our portfolio. From the standpoint of the investors, I think that the return profile is similar to what competing investments offer in the market in other words sidecars that are may be more, that are directed at that higher layers of reinsurance or reinsurance by itself, that tends to be somewhere in the mid to high teens in order to attract capital today.

[Amit Kumar:]

Got it, the third question I have is the discussion on capital management. I know you’ve spent lot of time in the past, based on the stock performance you know which has been amazing, does that change your view at all going into the wind season or I guess based on the [discount evaluation] [ph] there’s still you know a lot of room for you to keep on buying back your stock?

[Mark Watson:]

Yeah, look the share price has moved up, but so as book value per share and so we’re still trading at a price where we think it’s attractive to buyback our stock, it’s not quite as attractive as it was a year ago relative to both, but it still an attractive alternative. I don’t think coming into wind season will change our mind about how much stock we do we don’t buyback with the amount of float that we have outstanding, but the amount of volume that we have right now, the number of shares that we’re able to buy back on a normal basis are pretty limited anyway.

[Amit Kumar:]

Yes. Got it, last question and I’ll re-queue. You mentioned a commutation on the run off side; can you remind us how much capital is backing at the run off entity and if possible extend on this commutation?, thanks.

[Jay Bullock:]

Right, I don’t think we’ve ever actually said a specific number, but we certainly have talked about it. Let me give you some numbers just to kind of put it in context, the total net reserves for the run off related to the old workers’ comp book are around 250 million and the total net reserves related to any sort of legacy exposures (inaudible) is less than -- I believe this is less than 60 million today, I know it’s got below 65 million, so if you think 300 million in reserves, this is probably 100 to 150 million of capital depending on your point of view that would be supporting that run off. As it relates to the commutation activity that’s a regular activity for us in that unit; it’s all related to the -- not related to the comp exposures and we quarter by quarter are knocking out various contracts, and I expect that we’ll see small movements up and down in that section - in that unit.

[Amit Kumar:]

Okay. I’ll stop here, thanks for all the answers and again congrats on the quarter.

[Mark Watson:]

Thank you.

[Operator:]

Our next question comes from Adam Klauber from William Blair & Company, please go ahead.

[Adam Klauber:]

Thanks, again good quarter. Couple of different questions. Clearly, you know real nice improvement on the commercial specialty area, your loss ratio came down materially, how much of that is due to non-cat like weather?

[Mark Watson:]

A couple of points is due to that because we did have a couple of million dollars more in cat activity last year than a year ago. If you want to add to that, Jay?

[Jay Bullock:]

I mean there was four versus two that said that was a four that unit for that quarter, for this past quarter is an expected amount of activity. Pretty close to an expected amount of an activity.

[Mark Watson:]

The biggest change was that we had less negative prior year development this year than a year ago.

[Adam Klauber:]

Okay, so excluding the weather there you are seeing significant improvement in that line of business?

[Jay Bullock:]

Well, we are getting substantial rate increases in that line of business. We’re reducing exposures where it makes sense to so we’ve got; so the combinations of those two things, eliminating the poorest performing accounts, getting rate on the rest of it, just math, I mean yeah you’ll see improvement.

[Mark Watson:]

Having said that we still have a fair amount of work to do for the remainder of this year, on those two portfolios that we’ve talked about earlier.

[Adam Klauber:]

Okay. In the Syndicate 1200 you may have said this but why was the expense ratio down so much?

[Jay Bullock:]

You know the actual underlying expenses I think which you’re going find it has to with variability in the earned premium because the actual underlying expenses were pretty much on plan.

[Mark Watson:]

Yeah, earned premium went from 71 million to 91 million so.

[Adam Klauber:]

Okay.

[Mark Watson:]

It was a function of earned premium finally catching up with the expense load.

[Adam Klauber:]

Okay, so again as earned premium stays higher expense ratio should be closer to this quarter than it was before, right?

[Mark Watson:]

Correct.

[Jay Bullock:]

Correct.

[Adam Klauber:]

Okay. In the E&S segment as I’ve talked to some people in the market sounds like one of the differences in 2013 versus 2012 was that there’s more pressure in the standard market between the small and mid-market risks pushing some of them into the E&S than there was before, do that sound right to you?

[Mark Watson:]

You know for us I think it is varied by line of business. I’m hesitating to answer that because we’ve seen such an increase in submission activity, I’m not really certain how much of that is, because we’re doing a better job of asking for business versus business is there’s not going from the admitted market to the not admitted market.

[Adam Klauber:]

Okay, that’s fair. And then finally on the capital management just following up if earnings do continue at a higher level for this year and next year, will the priority continue to be share buyback and do you consider you know as if your earnings are equaling excess capital at the same time?

[Mark Watson:]

Well, the last couple of years we’ve been paying out most of the earnings in the form other dividend or using their earnings to buy back stock.

[Jay Bullock:]

Right, as earnings grow we continue to ask question.

[Mark Watson:]

So, I was just gonna come back to an answer of that I’d give a few years ago and that is just how we think about capital, so the first thing is we think about capital to support the balance sheet. The second use of capital is to support incremental growth in the businesses that were already in and then the third use of the capital in the company is to support adjacency growth that’s not too far from our core business where we think the execution risk is low. I would have then said to the extent that we’ve opportunities for new business investments whether it’s M&A or not would be next followed by shareholder repatriation that we truly had nothing else to do with our capital. But as our share price declined you recall that I’ve flipped that order and we became much more focused on buying back stock which is why I mentioned that in my comments earlier this morning that over the last three years we’ve actually bought back $250 million worth of stock. I think that as I don’t think it’s so much of function of our share price or earnings momentum. I think it’s more a function of where do we have investment opportunities going forward. We haven’t really seen that many attractive opportunities in the last couple of years and also you heard me saying and talk about the need for us to make sure that we’ve got working what we’ve internally. So, as we start to build growth again and generate excess earnings in the short while I think we still use them to buy back stocks, particularly with if our stock is trading below book and will also look for additional opportunities prospectively as well, but I think that’s consistent with my answer to the question over the last few years as well.

[Adam Klauber:]

Great, that’s helpful. Thank you very much.

[Operator:]

Our next question comes from Kenneth Billingsley from Compass Point, please go ahead.

[Kenneth Billingsley:]

Hi, good morning and congratulations on the quarter. I have couple of questions one of them in the bigger pictures follows upon the question about compensation within the E&S market and I understand that the new players will likely go after small larger cap business, but the assumption is there’s a still some excess capital in the market place in general, what’s going to be the keep that the players are seeing competition on their books from moving down maybe into the smaller cap businesses and how do you compete with them if there’s people flowing down into your market?

[Mark Watson:]

Well, the concern we always have is that we have new entrance into our part of the market whether it’s a de-novo start up or an existing business that decides to expand their risk appetite. So, there’s nothing to stop anyone from doing that. Having said that as you right smaller account business it becomes more transactionally intensive and you have to invest in that either in technology or people and I think that’s a slightly difference business model to come after the smaller account business that we focus on.

[Kenneth Billingsley:]

Okay. And the other question I have is on the investment portfolio, you have pretty short duration at least compared some of the competitors out there, you’re talking about trend enhanced returns there what are you looking to do specifically to generate some higher returns on the portfolio side.

[Mark Watson:]

Well if you look at the evolution of our portfolio over the last few years we’ve always been in public equities, but we have a higher waiting to public equities today than we did a few years ago. We don’t think much more, but we‘ve taken more credit exposure instead of duration risk and so I think that’ll continue to look at whether or not we want to increase our waiting to some of the asset classes that we already have exposure to relative to our fixed income portfolio or even our public equity portfolio now because it’s run so much in the last year. It has performed very well and so we’re obviously looking at how we can balance all of our assets classes as well as possible.

[Kenneth Billingsley:]

I see that your equity investments to at least total shareholders’ equity as above 35% at the end of year 2012 then, the last time where you were there was you point back into that somewhere in that ’04, 05’ range how high these the your exposure, why you let that go before might have an impact whether it from radiance standpoint or just a capital standpoint for business purposes?

[Mark Watson:]

Well, our investment guidelines allow us to go up to 50%, but I think we’ll hit the speed limit. I think we’ll lighten up in the lower 40s. If we hit the lower 40s from asset appreciation, I think we’ll begin to lighten up.

[Kenneth Billingsley:]

And, last question is always you’re on the great quarter improving loss ratios gonna help move these the ROE numbers, but what is that do you see have been the key one or two things you need to do to get to that or call the magical 10% in this current market. Given the amount of capital which you have, how you get to that 10% ROE basis?

[Mark Watson:]

If you look at the drivers of ROE they are expense ratio, loss ratio and investment income. If you look at our loss ratio, I think it’s in the pretty good spot, particularly our attritional loss ratio. The challenge for us is expense ratio. We still have plenty of expense initiatives underway internally, but the two things that will drive expense ratio prospectively are the completion of our business delivery platform project that I’ve mentioned earlier as well as continuing to grow topline as long as we are growing it prudently because we’ll grow revenue faster than we’ll grow expenses, but there’s also a fourth component to economic value creation and that’s the investment portfolio itself and the unrealized gains in the portfolio. If you look at our growth and book value per share over the last 10 years which has been 10%. It’s come not just from underwriting income or investment income, but from appreciation in the portfolio as well. So I understand that ROE is an important economic driver, but what we were focused is growing book value per share and had them for a very long time. SO ROE is just one component.

[Kenneth Billingsley:]

Thank you for your answers and congratulations on the quarter.

[Mark Watson:]

Thank you.

[Operator:]

(Operator Instructions). Our next question comes from Amit Kumar from Macquarie, please go ahead.

[Amit Kumar:]

Just a few follow-ups to the previous question. When you talk about I guess books value growth being you know the – the primary focus is it fair to use an 8% book value target for 2013 which would be similar to 2012?

[Mark Watson:]

I believe Amit which you may be referring to was the target that was established by the board for the equity compensation program in 2012.

[Amit Kumar:]

Yes.

[Mark Watson:]

I think if you look at ROE across the market have some changes in investment portfolio, I think that’s the reasonable expectation remember the -- an increase in yields the vast majority of our portfolio continues to be the fixed income and increase in underlying yields of 100 basis points would trim that book value for share grow pretty quickly. So, I think that’s a reasonable expectation.

[Amit Kumar:]

Got it. Two other quick questions, on the expense initiatives discussion you talked about the completion of a business delivery platform, all has been equal if you normalize some of the noise in the expense ratio. What you think would be sort of the normalized expense ratio run rate once these initiatives are done?

[Mark Watson:]

Mid 30s.

[Amit Kumar:]

Okay. That’s helpful. And final question on I think you mentioned that crop notice, can you remind us how big is your crop book and just refresh us as to what the matrix might be surrounding that book. Thanks.

[Mark Watson:]

The crop book is very small. It is limited to -- to literally a handful of accounts within Argo Re that are all the reinsurance accounts. It’s millions of dollars of exposure not ten to million.

[Amit Kumar:]

Got it and was it trim or was it reduced compared to 2012 or was it unchanged?

[Mark Watson:]

We’ve got one additional noticed from the 2012 year that, I mean had to have something to talk about, right? It was pretty small, we had one additional notice on the 2012 year. So that…

[Amit Kumar:]

No, I wasn’t asking to you about the notice I’m asking about the size of the book you know did it go down for 2013?

[Mark Watson:]

No, it’s about flat.

[Jay Bullock:]

It’s about the same as it was last year.

[Amit Kumar:]

Got it. That’s what I was looking for. That’s all I have, thanks for the answers.

[Mark Watson:]

Thanks Amit.

[Operator:]

Our next question comes from Howard Flinker from Flinker & Co. please go ahead.

[Howard Flinker:]

Hello everybody. In support of your comments about growing book or intrinsic value, the current focus generally in the investment community return on equity is just fashionable focus there, are they more reliable and useful measures? Just keep doing what you’re doing.

[Mark Watson:]

Thank you.

[Jay Bullock:]

Thank you very much.

[Operator:]

We have no further questions at this time.

[Mark Watson:]

I’d just like to make a couple of closing comments. I think we’ve kicked up 2013 with the solid first quarter. We still have a lot of work to do though. Our focus continues to be intelligent growth, improved underwriting margin and consistent results across all of our business units. We will continue to invest in our stock and return capital to shareholders. We carefully against the risk adjusted returns of other capital usage with the investments we’ve made in our people, systems and processes. I am optimistic about the remainder of 2013 and the long-term outlook for Argo Group. I’d like to thank everyone again for being on the call today and we look forward to reporting our progress at the end of the second quarter. That concludes my remarks.

[Operator:]

Thank you ladies gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.