Argo Group International Holdings, Ltd.
Q3 2013 Earnings Call Transcript

Published: 5 Nov 2013

[Operator:]

Welcome to the Argo Group 2013 Third Quarter Earnings Conference Call. My name is Cliff and I will be your operator today’s call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I would now like to turn the call over to Ms. Susan Spivak Bernstein, Senior Vice President and Investor Relations. Susan you may begin.

[Susan Spivak Bernstein:]

Thank you Cliff and good morning. Thank you and good morning. Welcome to Argo Group’s conference call for the third quarter 2013. Last night we issued a press release on third quarter earnings which is available on the investor section of our website at www.argolimited.com. With me on today’s call is Mark Watson, Chief Executive Officer and Jay Bullock, Chief Financial Officer. We are pleased to review the Company’s results for the quarter as well as provide you with management’s perspective on the business. As the operator mentioned this call is being recorded and following managements opening remarks, you will receive instructions on how to queue in to ask question. As a result of this conference call, 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 generally 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 I’m pleased to turn the call over to Mark Watson, Chief Executive Officer of Argo Group.

[Mark E. Watson III:]

Thank you Susan and good morning everyone. Welcome to Argo Group’s third quarter earnings conference call. I’ll briefly share my thoughts regarding the quarter’s highlights after which Jay Bullock will add some color to the quarter’s financial results. And then we look forward to taking any questions that you might have during the Q&A portion following our remarks. We’re pleased to report our results for the third quarter, having generated $31 million or $1.12 per diluted share of net income, which is up from $13.4 million or $0.47 per diluted share in the third quarter of 2002. Our third quarter 2013 operating, earnings were $0.80 per share, compared to $0.54 per share in the comparable 2002 quarters, an increase of 48%. We produced consolidated gross written premiums of $495.1 million an increase of 2% from the third quarter of last year. And for the nine months, our consolidated gross written premium was up almost 9% over the prior year. This growth is despite the fact that we continue to implement planned reductions in the select lines that are not meeting our profitability objectives, as margin improvement remains a more important than growth. In that vein we saw improvement in our underwriting results, posting a combined ratio of 97.5% for the quarter, this is an improvement from the 102.4% in the third quarter of 2012. For the nine months, our combined ratio improved to 98.3% from 102.7% for the same period in 2012. A particular note is the improvement in our commercial specialty segment where our efforts to return to our core areas of expertise at Argo Insurance have had a positive impact on our financial results. The underwriting margin improved despite a few non-recurring items in our run-off unit that totaled approximately $9 million. For the Group as a whole, we ended the quarter with diluted book value per share of $57.38 up 3% from $55.73 at June 30 and up 4% for the first nine months of the year. Growth for the first nine months of the year has obviously been impacted by improvements in the value of our – excuse me, impacted by moments in the value of our investment portfolio while our bond portfolio recovered modestly, our cap portfolio did very well and we’ll talk more about that in a little bit. Turning to market conditions, have you heard others say, we’re not lacking competition, notwithstanding a meaningful amount of dislocation over the past 12 months. While it’s too early to determine the effect of this dislocation, we believe opportunities will exist to continue to grow intelligently. In our book, rates are up overall in the low single-digit range and significantly more than that often mid double-digit in several lines where we needed to see rate improvement. Perhaps as important, we’re achieving the expected retention rates in both our well performing books of business and those where we are actively working on improving risk selection. We believe our focus on smaller accounts and on writing only specialty business gives us the opportunity to influence the discussion on price. Let me briefly comment on each of our operating segments before turning the call over to Jay to discuss our financials in more detail. Our Excess & Surplus Lines business grew premium by 5.8% in the third quarter. While we continue to focus on drilling our higher margin businesses as alluded to earlier this quarter’s growth was offset by planned reduction of premium in our transportation portfolio. We’ve stated in the past that we will not see growth at the expensive profitability and our actions in the transportation line we believe demonstrate this discipline. E&S posted an improvement in the combined ratio to 82.2% from 95% in the 2012 third quarter. In particular, this segment benefited from the relatively benign loss environment of the past several years as evidence by significant favorable reserve development. I do want to take the opportunity to congratulate Art Davis who was promoted during the quarter to the Head of this segment. Art’s been in like Argo since our acquisition of Colony in 2001 and he most recently led our E&S contract division, which has been one of our more profitable business lines. We are excited about Art’s vision and leadership for this segment and at the same time, I also want to congratulate Mike Fleischer formerly our Chief Underwriting Officer for E&S who has now been promoted to the Chief Underwriting Officer of all of our U.S. operations. Mike’s success in improving underwriting margin in this unit over the past several years made the decision to elevate his role logically and we look forward to Mike’s influence across our business line of our U.S. operations. As I mentioned earlier, I’m very pleased with the results in our commercial specialty segment in the third quarter. We’ve worked hard over the last 12 months to improve the results in two business units and we are beginning to see the impact of our actions. The segments combined ratio improved to a profitable 91.4% this year from a 113.1% in the 2012 third quarter. As expected we saw a decline in gross written premium which is a direct result of removing underperforming accounts in both of our books of business. This decline was partially offset by modest growth in other business units. We continue to achieving rate increase where need and remain positive about the prospects for this segment in 2012. Our international Specialty segment achieved an increase of 14.3% in gross written premium primarily driven by continued growth in our Brazil business. As our Excess Causality and Professional Lines businesses mature, they will present more modest opportunities for future growth given the competitive environment. The results in our Property Catastrophe business reflecting impact of alternative capital filling this space however we still see attractive opportunities in the space in which we compete look for us to increase the size of our sidecar in 2014. While catastrophic events were less frequent and sever than expected in the third quarter, it was not a loss free period; results for the quarter reflect 9.3 million in cat loss stemming from floods in Canada and hailstorms in Germany. Rounding out our southern [ph] discussion as Syndicate 1200, while gross written premiums were flat net written premiums were up 6% as we take more risk net. This unit delivered another quarter of solid underwriting results. You can imagine this is particularly rewarding given the challenges of a few years the benign on increased competition we expect to see modest growth in this unit over the coming 12 months and we continue evaluating new initiatives and I’m encourage by the direction which this unit is heading. We are please with the performance of Argo’s investment portfolio in the third quarter and I would like to come back to that. As most investor knows, the macro environment for fixed income has been challenged with interest rate uncertainty driven by economic indicators, U.S. Federal Reserve action or inaction and the turmoil in Washington. And I’m not sure that’s over. This quarter these factors made for a rally in treasuries in corporate bonds, positive momentum in the equities and a drop in the U.S. dollar relative to major currencies. With that backdrop Argo’s portfolio recovered most of the decline experienced in the second quarter, we continue to manage or bond portfolio defensively with respect to duration and in fact the duration declined to 3 years at the end of the third quarter compared to 3.5 years at the end of the previous quarter. Net investment income was $24.1 million in the third quarter down $4.8 million quarter-over-quarter, our book yields has continued to compress with falling rates over the past 2.5 years. During the third quarter our book yields was also impacted by our emphasis on total return objectives which are most consistent with maximizing shareholder value. That said, the observed rate of decline in investment income as decelerated over the trailing four quarters. As rates continue to rise we will have the opportunity to reinvest at greater yields, we expect to reach an inflexion point in book yield by mid-2014, but of course that depends on what actually happens with interest rates. From a capital perspective, we maintain a measured phase of return of capital to shareholders in the quarter. While our stock prices moved up quite a bit this year, we continue to think our franchise is under valued [ph] and still view share repurchases as a great investment. In the first nine months of this year, we’ve repurchased approximately 948 – 998 of shares as an investment which is about 4% of the 2012 year-end share base at an average price of $40.80 for a total value of $38.7 million. In the third quarter we purchased $8.6 million or about a 195,000 shares for an average price of $44.23. As discussed previously, we slowed our repurchase activity during the peak of Hurricane season, we expect activity to return to recent levels through the balance of the year, always stretched against other alternative to deploy our capital and in fact today, we reauthorized a new $150 million share repurchase plan. In summary, we’ve had a solid first nine months for 2013, we continue to focus on intelligent growth and margin improvement, this should produce consistent profitability across our business units at the same time we continue to invest in our stock and returned capital to our shareholders with the investments we’ve made in our people, systems and processes 2013 results continue to show sequential improvement, we still have a lot of work to do, but I think we’ve really set the stage now for 2014 and 2015. With that I’ll turn the call over to our CFO, Jay Bullock.

[Jay S. Bullock:]

Thanks Mark and good morning everyone. I’ll take everyone quickly through some additional detail on the financials and then open it up to Q&A. As Mark has already been through the growth by segment, I’ll highlight some of our improving trends, all elements of our current accident year showed improvement in margin, while we continue to benefit from positive development from prior accident years, away from current period cat losses in prior year development, our accident year loss ratio improved by over 3% from the first nine months of 2012 as we continue to see the impact of rate and underwriting initiatives. This was most pronounced in our Commercial Specialty segment as we continue to achieve and in some cases exceed rate targets and benefit from initiatives around reselection. In addition, our expense ratio showed just less than 1% improvement over the same nine-month period in 2012, even including the effect of the increased equity compensation expense incurred as a result of the increase in our stock price during the first nine-months of the year. Rate increases, better risk selection and a continued focus on efficiencies are producing the desired effect on our operating margins. At the same time, the growth we’ve generated in the first nine-months of the year is putting our capital base to more effective use. These are all part of the team’s focus on generating improving returns on capital. Away from the current accident year we experienced overall favorable reserve development in the quarter, representing our tenth consecutive quarter of favorable – overall positive reserve development. Total prior year development for the Group was $4.2 million in the quarter, and E&S positive development was $12.4 million and was primarily from accident years 2009 and prior. In Commercial Specialty, modest adverse development of $300,000 was the result of the positive results in Rockwood, offset by Argo Insurance and Trident. And International Specialty the result of positive $1.2 million was a net effect of favorable short-tailed and Bermuda long-tailed casualty, partially offset by a small adverse movement in our Brazilian operation. In Syndicate 1200 the positive results of $600,000 was the net of small positive movements in property offset by some minor movements in our Liability segment. In run-off $9.7 million of unfavorable development was comprised of $5.7 million in our specialist run-off driven by an increase in defense costs for claims for in general liability policies written on a direct basis, $2 million of unfavorable development related to legacy medical malpractice claims and the extortion of few structured settlement defacements [ph] and $2 million unfavorable development due to the settlement of late reported Hurricane, Katrina claim. As Mark mentioned, our catastrophe losses were largely from outside the U.S. as we posted losses from the Canadian floods and German hailstorms. In total cat losses through the nine-months we’re just slightly less than experienced in the first nine months of 2012. Finishing up any thoughts on the income statement, the effective tax rate for the quarter was 6%, which reflects the increase in income out of our Bermuda domicile, the impact of a tax benefit in the U.K. as a result of the currency translation of that business into local currency, offset by our U.S.-based income. Year-to-date our effective tax rate was 16%, which is closer to our current long-term expectation of 20%. Turning to investments, the overall size of the investment portfolio including cash decreased by approximately $105 million, through the first nine-months of the year, this is the net effect of the loss portfolio transfer we enter into at the end of the last year. A decline in value of the bond portfolio as interest rates have risen, share repurchases and dividends offset by income and the positive cash flow in the business as we continue to find ways to grow at a reasonable pace. The impact of our lower investment yields reallocation of the portfolio of the certain strategies targeted towards total return, rather than income, and modest shifts in portfolio duration resulted in a continued decline in net investment income this quarter, down approximately $1 million from the prior quarter. The book yield on the fixed income portfolio was 3.1% this quarter, compared to 3.2% in the second quarter of this year. We recognize pre-tax realized gains of $9.1 million, included in those gains was approximately $7 million from our equity strategies as we took the opportunity to reduce some position slightly in the strong market conditions we saw in the quarter. Also included in our realized gains of $29.7 million for the first nine months of the year, is approximately $9 million from strategies we’ve invested in, over the past 24 months. That would otherwise have been accounted for as investment income. We ended the quarter with an unrealized – with a pretax unrealized gains position of $252 million up from $225 million at June 30, but down from $305 at the end of the year. Our equity position at September 30 was approximately $1.5 billion and our total capital was approximately $1.9 billion. Both our financial and operating leverage remained modest, which provides the flexibility to respond to market opportunities. We’ve returned $12.6 million to shareholders in the form of common dividends and share repurchases in the quarter as Mark had mentioned. As always we evaluate all alternatives to deploy our capital and continue to buyback shares as warranted by the availability of completing the investments relative to the compelling valuation of our stock. Operator that concludes our prepared remarks and we’ll now take questions. Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from the Ken Billingsley from Compass Point. You may go ahead.

[Kenneth Billingsley:]

Good morning, congratulations on the quarter.

[Mark E. Watson III:]

Thank you.

[Kenneth Billingsley:]

I wanted to – just want to ask a couple of questions about – from a pricing standpoint, I believe you mentioned risk selection is what maybe driving it, can you just talk about how you are adopting to what’s going on from a competitive standpoint and for top line growth and where you think you will be looking for that next stage or opportunities to grow premiums given the fact that you are shedding some lines.

[Mark E. Watson III:]

Yes, so Ken we have been doing this now for a few years depending on the portfolio. For the business that we want to keep on the books just about everything continues to grow and depending upon on line of business that may mean 5%, it could mean 15%. We are getting rate increases across the board for accounts that are already well [ph] priced, rate increases are modest single-digits for portfolios where we needed to take some underwriting action where we’ve talk about the rate increases have been – could be as much as 20% plus, but for every – the only place we are seeing that we’re – the only place that we’re not seeing rate improvement right now would be on some of the professional lines where there is still a substantial margin and/or in the property cat business, which is starting to see the additional capacity coming into the marketplace. So that’s been flat to down 10% for the last few months and our top line as a result has been pretty flat there as compared to prior years. So, also keep in mind that for the most part we’re focused on small account business that’s certainly true in the U.S. and we’ve seen less price volatility for the small account business than we have for the larger account business. It’s much more expensive for brokers to move the business around and the acquisition cost where all-in acquisition cost is much more expensive so it’s tough to be too competitive in that marketplace.

[Kenneth Billingsley:]

And on retentions and I know you mentioned this in prepared comments, is this a expectations that higher retentions going forward at these levels or maybe even at higher to help reduce the expense ratio?

[Mark E. Watson III:]

Well, I look, I mean I don’t think we want to see – I mean our retention levels are pretty good already and I think I mentioned in my remarks earlier that notwithstanding some of the rating action that we’ve taken, we’ve seen our retention levels stay fairly flat, there is always some business that’s you look at every year and you go maybe that doesn’t really fit our risk parameters. So I don’t think we ever want to see a 100% retention rate, but for our best performing books of business the retention rate is still 90%, I mean I think that’s about as good as what we want it to be. Obviously for some of our more traditional E&S business, the retention ratios are between 50% and 60% that’s by design, and that’s what you would expect there to be.

[Kenneth Billingsley:]

So this is about where you guys expect it to remain.

[Mark E. Watson III:]

Yes, we actually have across the board, our retention rates I think are higher today than they have ever been in the company and that’s been true now for the last few quarters. So I’m really pretty happy with where the retention rates are.

[Kenneth Billingsley:]

And if you are not taking them higher and I did see obviously there was improvement in the expense ratio, I believe that’s been at place where you guys have continued to work on. How do you get that expense ratio down even another 100 basis points or so at this level at this point?

[Mark E. Watson III:]

Yes, so if you go back to and think about my comments for the last couple of years, certainly two years ago. We were much more focused on making sure that we had the loss ratio correct in getting that inline and if you look at our loss ratio today on an attritional basis or even all-in, I think we are doing pretty well. The challenge for us now is the expense ratio and that there is two things that solve that and I think I have talked about them a little bit in the last couple of calls, the first is continuing to complete our technology initiative that we think will give us a bit more scale, it will reduce some expense, but mainly it allows for more scale without adding expense. And the second thing is our ability to keep prudently growing our business and we think that we will continue growing the revenue stream faster than non-acquisition expenses and that will lead to a lower expense ratio and it is coming down, remember and I think Jay said this in his remarks that a lot of what is driving the expense ratio, certainly for the first nine-months of – for the first six months of the year was equity compensation expense, because of variable accounting issues, but keep in mind that that’s a non-cash charge and its probably a good problem to had our share price move up so much in the first half of the year.

[Kenneth Billingsley:]

Sure and then the – from a growth perspective, given that you talked about the rate increases that you did see across most of your lines of businesses, it appears that maybe you were letting some more business go than what you were getting from a rate increase standpoint. Can talk about maybe those lines a little bit more, about what…

[Mark E. Watson III:]

Yes, so that’s particularly true in commercial specialty where the top line was down from you know – I think this quarter a year ago it was about 145 in this time that was about 139 million or 140 million. So it wasn’t a huge decline and but if you look at it on the policy count basis, it was probably down not quite 10% to close but because of the rate increase that we were getting, the actual top line didn’t drop as much. In E&S we saw policy count go up and we saw rate go up, but again that was massed by the decline in transportation business that we wrote for the quarter and probably we will see that again in the fourth quarter. So the core businesses that we want to keep is growing nicely, both because of policy count and rate, but we would rather continue focusing on underwriting margin right now and I appreciate that if we kept our renewable rates up on all of the books of business, our top line would be more robust and that would help the expense ratio, but I’m still much more focused on the loss ratio than the expenses ratio. As long as we can keep focusing on that, I really do believe the expense ratio will take care of itself. If you go back and look at our portfolio 10 years ago, we had the same challengers and it took us a couple of years to work out the expenses ratio challenge, but we got there. And I think the best way to get there is to do it methodically instead of quickly and we’ve seen recently what’s happened with some of our competitors that tried to get there quickly and I would rather take our time and do it right.

[Kenneth Billingsley:]

Very good. Just last quick question for Jay here and then I’ll re-queue. I missed this on the duration; did you say that your duration is down three years from 3.5 years last quarter?

[Jay S. Bullock:]

Yes, that’s right.

[Kenneth Billingsley:]

And what did you do to try down that quickly in one quarter?

[Jay S. Bullock:]

I mean it was really more about the – its kind of what I said last quarter, we’ve compressed the duration somewhat, right. So if you look at the distribution of bonds, we’re going to get an average duration. So that means some of that spread is what was driving the longer duration, we’ve simply taken some of the longer bonds out, it’s not that more – its really not much more complicated in that.

[Mark E. Watson III:]

Yes, so when the market rallied in the third quarter, we took a hard look at anything that had a duration over ten years and liquidated a substantial amount of it.

[Kenneth Billingsley:]

Okay great. Thank you.

[Operator:]

Our next question comes from Amit Kumar from Macquarie. You may go ahead.

[Amit Kumar:]

Thanks and good morning, just a few quick I guess follow-up questions. Going back to the discussion on, I guess, capital management versus pricing, there’s a pace of capital management change at all or does it remain opportunistic at current price to book levels?

[Mark E. Watson III:]

Well I think the biggest – there’ve been two things that have regulated the pace at which we buyback stock. The seasonality of our business, so I think we all tend to slow down a bit during the cat season. And also our float, we have more floated today than we did a year ago, or I should say trading volume. So, we’re able to buy – I think at going forward we’ll be able to buyback a little bit more stock, if we would like to, certainly that’s our intention. But as you point out, we tend to be pretty opportunistic about buying our stock and I think it’s still as I said in my remarks a good value and that’s where we’ve been putting a lot of our excess capital. But I also as I think I’ve said in the last couple of calls, we do want to make sure that we’ve got enough capital to support the balance sheet and the working in a growth in the company today and then perhaps some other short-term opportunities. So I think we’ve done a good job of balancing all of those competing interests and that’s why we reloaded the stock buyback plans today with another $150 million.

[Amit Kumar:]

The other question I had is, there have been some losses in Q4 including the question [ph] and then you had the Spanish surety losses. Can you possibly sort of talk about your exposure to those, or maybe its too early?

[Mark E. Watson III:]

Well, let me deal with them in reserve order. Our Surety business is largely a U.S. Surety business. Now we do have support for our clients outside of the U.S., but generally speaking our U.S. clients and so you’ve learned that – you learn never say never, but we don’t think we have any exposure to the recent ruling in the Spanish surety situation. It is kind of early on the storm and I expect that we’ll see some small losses out of that, but I don’t think – if you look at it on the scale, the German hailstorm, for example, where we had around about $4 million, $5 million, that kind of gives you a sense as to how that might scale and if you go back to [indiscernible], which I guess is a couple of years ago now, our exposure to that was pretty modest.

[Amit Kumar:]

Got it that’s helpful. And I guess the final question and you addressed this partly in the previous discussion. Just going back to I guess the aspiration goal for a double-digit ROE by 2015, when you sort out look at the trends in Q3 do you get the sense that perhaps you could get there sooner or is it too early?

[Jay S. Bullock:]

I think given the macro environment, it’s, I think it would be challenging to get there sooner. We have more competition today than we did a year ago or two years ago, hard to believe. The interest rate environment remains very low, we would have thought by now interest rates would have begun moving back up. And as you’ve seen, we’re repositioned our portfolio and frankly we have a much better investment portfolio today than we did before. But the majority of it is still in fixed income. And there is just not a lot of yield to be had at the moment. And if we look at the growth and book value per share, which is what we focus on, most of the growth and book value per share has come from the investment portfolio. And I think that’s going to continue to create a headwind for us with interest rates where they are. Not just us, for everyone. So I don’t think, our challenge to some extent getting there is macro with more competition and interest rates. But look, we keep plugging in the head and we’re doing better today than a year ago and much better than two years ago and I’m much more optimistic today than I was a year ago.

[Amit Kumar:]

Absolutely, but your expectation hasn’t changed, is that fair that you will still hit…

[Mark E. Watson III:]

Here is what I would say, my expectation probably has moderated slightly, because there is more competition today and interest rates have stayed lower, than I thought they would be a year ago at this time.

[Amit Kumar:]

Got it.

[Mark E. Watson III:]

So all of a sudden interest rates more up, then yes, but if they stay lower for an extended period of time, I think it makes it difficult for any of us to get there.

[Amit Kumar:]

Yes, yes. That clarification is very helpful. That’s all I have for now. Thanks for all the answers.

[Mark E. Watson III:]

Thank you.

[Operator:]

Our next question comes from Bijan Moazami from Guggenheim. You may go ahead.

[Bijan Moazami:]

Good morning everyone. Question for Mark and a follow-up for Jay. Mark could you comment on the transportation book, how big is it, why is there a problem there? Is it a pricing issue, is it loss cost trend? And for Jay if you can talk about the Run-off business how much reserves is left in there, how fast it’s running off and why we had so many different charges coming up from that segment. Thank you.

[Mark E. Watson III:]

So, there is a not a problem in the transportation business, we just don’t think – it’s just not meaning our underwriting returns. So we are pealing off I don’t – I forget what the exact number is, but the whole portfolio is somewhere between $50 million or $60 million and maybe will run-off $5 million or $10 million. Its noting more to it than that we are always paring something, it’s just a get portfolio management and probably most of that’s coming out of New York and New Jersey only because we don’t have a lot of California exposure or perhaps we would be talking about that as well. So I’m just explaining why we are not growing quite as quickly as we otherwise would be in the quarter. I don’t see a problem with it at all; it’s just not meeting our underwriting returns.

[Jay S. Bullock:]

Yes on the run-off side John, I would look at the result from the quarter and look at two of them as aberration. So in total, we’re down to less than $60 million on A&E and were under $200 million on the comp run-off and as you know the comp run-off has been running very steady for a long-time, but last time we made a negative adjustment to the comp book was 2003. So that one is really just a very slow and steady payout, the A&E goes up a little bit and maybe we see some slightly better trends here or slightly worse trends there, that was about $5.5 million. The other two were…

[Mark E. Watson III:]

Well you know just to jump in; if you look at some of our competitors that had similar exposures on our balance sheet they have made some adjustments too, but...

[Jay S. Bullock:]

So it’s substantially larger adjustments in the quarter. Yes.

[Mark E. Watson III:]

Yes, so I mean I don’t view this as a trend to continue, that’s a one-off charge that we took and frankly they don’t happen very often.

[Jay S. Bullock:]

Yes, I think the Katrina claim is unfortunate,, they happen, they have in litigation for several years and just – when it gets the claimant and then the other one was an issue that we new could develop its $2 million that’s something that we spent of a lot time on, but had to do with some structured settlements from a company that was no longer viable and its behind us and there is not like there is another bucket of those out there that we’ll have to be dealing with.

[Bijan Moazami:]

Great thank you.

[Operator:]

And it’s showing we have no further questions at this time.

[Mark E. Watson III:]

Well I would like to thank everybody for joining us on our call today, as I said earlier in my remarks, I think we had a pretty good quarter certainly compared to a year ago and two years ago. We still have a lot of work to do and I think we’re just now setting the stage to hopefully improve again in 2014 and 2015 and I look forward to talking to you all at the end of the next quarter. Thank you and that concludes our remarks.

[Operator:]

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