ProAssurance Corporation
Q1 2008 Earnings Call Transcript

Published: 29 May 2008

[Operator:]

Good day, everyone and welcome to today's ProAssurance Corporation 2008 First Quarter Results Conference Call. As a reminder today's conference is being recorded. And now for opening remarks and introductions, I would like to turn the call over to Mr. Frank O'Neil. Please go ahead.

[Frank O'Neil:]

Thank you, Allen. And thanks everyone for joining us. Let me preface our comments by noting that both our news release which we issued this morning, and our SEC filings include extensive disclosures with regard to forward-looking statements. In that regard, you should understand that statements we make during today's call, which deal with projections, estimates, expectations, and alike are explicitly identified as forward-looking statements subject to various risks. As you know, actual results could differ materially from current projections or expectations. Our SEC filings have a full listing of the risks that investors should consider in connection with such statements. When you understand that the risk or when you understand the risk we face, we believe you will better understand today's remarks and our business. We will not undertake and we expressly disclaim any obligation to update or alter forward-looking statements whether as a result of new information or future events, except as required by law. The content of this call is accurate only on Wednesday May 7, 2008, the date of first broadcast. We don't authorize any transcripts, nor do we review them for errors. So if you are reading a transcript of this call, it may have mistakes that could alter the intent or meaning of our statements. On the call today is our Chief Executive Officer, Stan Starnes; our President, Vic Adamo; Chief Financial Officer, Ned Rand; Chief Underwriting Officer, Howard Friedman; Chief Claims Officer, Mr. Darryl Thomas and Jim Morello, our Chief Accounting Officer. Stan will open our remarks today. Stan?

[Stan Starnes:]

Thanks Frank. Welcome everyone and thanks for your interest. We had a solid quarter operationally. In fact, it was one of the best first quarters in our history. Although the top line did decline, as we explained it would. As you will hear, we retained a higher percentage of insured's than in past quarters. We've seen key ratios continue to improve. We've responded appropriate to a favorable loss climate. Our balance sheet continues to strengthen and we have grown book value. We are pleased with our operational results, but we also see opportunities for improvement, which we intend to exploit in the months ahead. We did see a decline in our investment result in the quarter and Ned will provide you some details in a moment. I do want to emphasize that we continue to maintain a very conservative investment portfolio. Overall, our soft market strategies are in place and are working. On balance, I find far more positives in our results than negative and I am pleased with the $35.9 million we made for our stockholders. Ned, how about a more detailed look at the numbers?

[Ned Rand:]

Thank you, Stan. Let's look at the many areas where we made gains over the first quarter of last year. We believe there is no substitute for a strong balance sheet and we note that book value per share was up 3% and is now at $39.80 per share. Stockholders equity total investments and total assets are all higher than at the end of 2007. Our combined ratio improved year-over-year, moving down a little more than two points, despite an up tick in our expense ratio. Our focus on the expense line helps us keep most operational expenses flat or down, but we are evaluating those expenses against the smaller premium base. Those factors combined to move the expense ratio higher in the first quarter than in Q1 of last year. Our operating ratio, which includes our investment returns showed an improvement of almost 5.5 points. While net income was essentially flat, our net income per diluted share was up 2% as we reduced the number of shares outstanding for our share repurchase program. From April 30, we have repurchased approximately 1.5 million shares of our stock, the total spend on those shares is $77.8 million. After those repurchases and the $15.5 million spend to redeem the NCRIC debt last year, we have $56.7 million remaining in our authorization to repurchase shares and redeemed debt securities. We will continue to be opportunistic and prudent in our repurchase of shares. We are continuing to evaluate interest rates in the capital markets, as we determine how or if we will call the convertible debt when that window opens for us this summer. As Stan mentioned, we did see a decline in our investment results compared to last year. This is largely attributable to two investments. The first is part of our equity investment strategy. It's $14 million investment in a long short fund. Because we carry this as an investment in an unconsolidated subsidiary, changes in the market value of the fund close to earnings much the way a trading portfolio would. This fund has been returning about 30% per year for us, but saw an 11% decline in the first quarter. The second investment was in a special situations debt fund, where we have approximately $25 million invested. We carry this investment on a cost basis and report distributions from the fund to the extent they are not gains on return of capital as investment income. Given the turmoil in the credit market, the fund decided not to make a distribution in the quarter. This compares to a distribution of approximately $1.7 million in the first quarter of 2007, which is on the high side of that fund's quarterly distribution, which will vary from quarter-to-quarter. As a further reference point, total distributions from the fund for 2007 were $6.3 million. We make investments like these because they are generally non-correlating with our business and the rest of our investment portfolio. That means we will see small surprises but upside and downside from time-to-time. These investments have provided good returns in the past and we believe they will do so in future. A note about our investment portfolio of disclosures. Several of you have commented positively on the level of detail we've provided in our investor presentation since late last year. We are updating that disclosure with first quarter data and expect to file new slides next week prior to some investor meetings. But the key is that there are no major changes from previous filing. Frank?

[Frank O'Neil:]

Thanks Ned. We did receive some benefit in the quarter from favorable net reserve developments. I’m going to ask Howard to comment on that as well as pricing and loss trends. Howard.

[Howard Friedman:]

I'm happy too Frank. Favorable net reserve development was $20 million in the quarter as our analysts determine that severity trends continue to come in below initial projections. This is primarily from accident years 2003 through 2005 with some contributions from 2006 as we begin to get a better handle on that more recent data. The story in the marketplace is that pricing continues to be soft although not at the levels we saw in 1999 and 2000 and loss costs continue as expected. Gross premiums written were down in the quarter and the year-over-year decline was about 13.5%. With many of our loss projections continuing to show a downward trend, we are responding with appropriately lower rates on renewal business premiums were down about 7% as compared to the first quarter last year. We are retaining 89% of our expiring business compared to 85% in Q1 of 2007. The difficulty at this point in the market is in acquiring new business against price based competition as we emphasize underwriting discipline and pricing integrity. We are still pricing to maintain our margins and collecting an adequate rate per unit of risk. There is really nothing new to report with regard to loss trends, frequency continues to be moderate in most states but is no longer declining. In addition to our focus on underwriting and pricing we are maintaining the same initial level of reserving as we have in the past. We continue to see companies that believe these current loss trends represent a new paradigm and are establishing their loss fix accordingly. I want us to be on the record as doubting the permanency of today's loss trends, given the historical ups and downs of the cycle. Frank?

[Frank O'Neil:]

I'll note that Howard and along those line I would like to ask Darryl Thomas to tell us what he sees in claims now that we're well into 2008. Darryl how are claims stacking out?

[Darryl Thomas:]

Frank our claims inventory continues to decline. As we mentioned in our prior call last year we tried 733 cases for our insured's and 528 trials. I expect that number will fall in 2008, because the number of cases being filed has been declining for a few years. We simply don't have as many claims in our inventory. However no matter what the claims inventory we will maintain our devotion to our physicians and our commitment to their defense in the court room. One other brief note, in last quarter's call and in several presentations we have mentioned that a new day of transparency appears to be coming to medicine with regards to malpractice claims and outcomes. We've seen more evidence of this in the past few years. There is a proposal for greater access to claims data in North Carolina and the Florida Supreme Court's January ruling on the patient's right to know law is expanding access to outcome record. Consequently our willingness to offer the insured an unfettered right to a claims defense that gives them best chance to clear their name, continues to be a strong selling point with our clients and potential clients. We would also point out that last week a lower court of Georgia, struck down the state's $350,000 cap on non-economic damages. This was a center piece of Georgia's tort reforms and we are told that that decision will be appealed to the Georgia Supreme Court. This decision like last years lower court decision striking down Illinois damage cap underscores the need for caution in today's environment and accounts for our unwillingness to give presumptive credit in our rates to untested legal reforms. Frank?

[Frank O'Neil:]

Thanks Darryl. Stan do you have any final comments you want to make before we take questions?

[Stan Starnes:]

I want to reemphasize our belief that the way through the soft market is to maintain underwriting discipline, and continue to build a stronger balance sheet. There are those who are willing to voice an opinion about whether the soft market might end and when it might end, but the truth is that no one really knows. I do believe the loss picture would change. It's done so in every medical liability insurance cycle back to the seventies when we first started tracking this line of insurance. My goal is to bring ProAssurance out of the soft market with dry powder to take advantage of the mistakes we believe that others are making today. Too many companies are making bets on the current claims environment that we think are unfounded. If for example severity were to pick back up, the affect would ripple back to every open claim on the books. Darryl's point about the potential loss of damage caps in Georgia and Illinois highlights the reasons we are always guarding against downside surprises. If potential damages are uncapped, the lower or higher awards in those states will draw lawsuits like moths to a flame. The same could hold true nationwide if the plaintiff bar becomes embolden by a change in the political climate after the election. The point is this, trees don’t grow to the sky forever, and frequency has never stayed low forever either. We believe that some level of skepticism is warranted when analyzing claims data and the loss picks being developed by companies that believe toady’s climate is permanent. No one can give you a concrete answer as to why frequency is down, and when you don’t know why something is happening, you better not count on it for ever. I can tell you from more than 30 years in the court room that patient frustration and dissatisfaction with unexpected outcomes drives people to lawyers offices, and that only going to get worse as healthcare becomes more expensive and we are forced to make choices about who will be covered and at what expense. So that's another reason to be wary. With all of that being said, we do think there are opportunities out there. We're identifying a few small markets and lines of business where we may add new business this year, but those won't be enough to move the needle much if at all, but it will set a foundation for internal growth when the market hardens. Obviously, I don't want to tip our hands and we're reporting the gains, when and if they occur. We continue to believe there is a better avenue for growth through M&A transactions, and there is a greater sense that one or more of those deals may come forward in the market this year. While M&A opportunities are sporadic, there does seem to be more activity in this area that we're seeing over the last two years. There is no assurance that the right opportunity will come along, but you can be assured that we are actively evaluating what is happening in the marketplace. And Frank, a final note. This will be the last conference call for Jim Morello, our Chief Accounting Officer and Treasurer. Jim is retiring at the end of June after more than two decades of dedicated service to our company, our insurers and our shareholders. Jim has served in a number of capacities since he joined Mutual Assurance in 1984. Jim, we'll miss you and the contributions to our enterprise, and I want to take time to say publicly, on behalf of everyone, thanks for all you've done. Frank?

[Frank O'Neil:]

Well done, Jim. Thank you. Allen, we will take questions now, please.

[Operator:]

Thank you, gentlemen. (Operator Instructions). And first we will hear from Amit Kumar from Fox-Pitt.

[Amit Kumar:]

Thanks, good morning. I guess, just going back to the investment income, Delta, do you have some sort of a number how much it is as of now, like obviously it must have reversed a bit. Do you have that number handy?

[Ned Rand:]

Ned, are you asking basically what the April result is?

[Amit Kumar:]

Yes.

[Ned Rand:]

I can't give you specifics, but I can tell you that in both instances, we've seen improvements.

[Amit Kumar:]

Okay.

[Stan Starnes:]

You might explain why?

[Ned Rand:]

I'm sorry?

[Stan Starnes:]

Explain why we can't give --

[Ned Rand:]

Oh, I'm sorry. One is, the -- that the funds are private funds. We can't disclose specific information about this funds without their permission and the funds are not in a position to want to do that right now, I guess is the main reason. The other is that they do hard closes on quarters since software closes on months, and so we just have less data on this one.

[Amit Kumar:]

Okay. And I guess, okay, that is somewhat helpful. Just moving on in terms of, there was some comment in the press release regarding the expense control, can you just expand on that a bit?

[Ned Rand:]

Sure, Ned. A couple of things, obviously, as we enter into new software market and we see premiums decline, we're going to see the expense ratio go up and so we are doing everything we can to control expenses. I think probably, as you would understand, the largest component of our expenses is our people. And one thing we don't have to intend to do is layoff people, because we do have stand that we want to keep our powder dry for -- when the market does harden. So with that in mind, we do have a normal level of attrition within the organization and as we see, people leave through that normal level of attrition, we challenge the need to replace that position to see if we can redistribute work loads differently in the organization. And beyond that it just really gets to sort of -- kind of watching your nickels and dimes.

[Amit Kumar:]

Okay, that's helpful. And I guess, just going back to the investment income is, has there been any change in your thought process going forward. There have been a lot of companies which have missed earnings based on this delta and some of them have gone back and looked at, what they thought was less of a correlation, but especially how the markets are right now. Some retooling might be necessary, have you sort of, are you sort of reevaluating your position on this or not?

[Ned Rand:]

First let's put things in perspective. We've got a investment portfolio in excess of $3 billion and the two investment funds we are talking out total, right at about $40 million. So, one, I think it's just important to put into perspective the funds we're talking about 95% of our portfolio is AA, for investment grade, fixed income portfolio and there is no plans to really change that. As far as the things we are doing our alternative investments, I guess we see it slightly different and we see a lot of opportunities out there, because people are pulling out of investments and they are doing, so we think the distressed prices and so, we see more opportunities to increase investment and not increase them dramatically, but to take bigger positions with some of these investments rather than to run away from them.

[Amit Kumar:]

Okay. That’s helpful. The stock is down 7%, I think obviously the investment income volatility creates some sort of often over hang. So, that’s why I was wondering if you had changed any thought process. But, I guess just moving on to the M&A scenario. You briefly touched upon it, saying that you are seeing some changes. Can you just expand what sort of companies we are talking about? Is it I guess smaller companies or Bermudians, or foreign companies thinking about it?

[Stan Starnes:]

Amit this is Stan. The activity we’ve seen has been essentially domestic activity and it is across the board in terms of size. And I’m not in a position to talk about any specifics, but just to say to you that there seems to be more activity then there was a year ago, more activity than reportedly there was two years ago. But it's wide ranging, a variety of different companies, variety of different sizes.

[Amit Kumar:]

Okay. That’s all I have for now. Thanks so much.

[Ned Rand:]

Thank you.

[Operator:]

And next we’ll hear from David Lewis from Raymond James.

[David Lewis:]

Thank you and good morning.

[Ned Rand:]

Morning Dave.

[David Lewis:]

Can we talk a little more about pricing pressures, you are down some percent in the first quarter. Do you think that’s going to accelerate on the decline side? And then, what are you seeing from a competitive pressure standpoint, FPIC mentioned on their call couple of days ago that AIG has got a little more aggressive on the large doctor groups, are you running into them?

[Stan Starnes:]

I’ll tell you what. I’ll do the, I’ll do the AIG question. We polled our folks out in the marketplace and basically AIG as you know could be a force in the market when and where they want to be, but when we ask our field people, they say that AIG doesn’t seem to be going after the small practices, David. So they really are not a factor in our core business. They did say they’d seen them on one or two really large clinics and practices where people tend to chase large premium dollars with little regard for underwriting the component risks. So, we are aware that they are around, but not really a major problem. Howard, you want to talk about other prices?

[Howard Friedman:]

Sure David. The pricing in general, I would think we are going to continue to see more or less the same type of pricing activity going thorough the next couple of quarters at least as we saw in the first quarter, just based on what's happening in the marketplace now. As Frank mentioned AIG really isn't the issue for us in any great way, it's really just the existing competitors that continue to look for growth at lower and lower prices and what we’ve done as I mentioned I think in the prior call, our rate filings for the first half of 2008 will probably result in continued rate declines in the same kind of range that we see in the first quarter. As we go through the year, we have different phase come up to review, different anniversary dates, we'll be looking at those, but I don't really see any thing in a dramatic change in the near future.

[David Lewis:]

Howard, I have got you. Can you give us any thought on kind of where your current reserve levels are relative to the midpoint of the actuarial range?

[Howard Friedman:]

Not any more than we’ve ever done. We’ve always declined to disclose reserve range issues or reserve range numbers. We do say and historically have said that we feel that our reserves are very adequate and that we are evaluating them on a regular basis, but we don't provide details as far as ranges.

[David Lewis:]

Yeah. The reason, I asked that Howard, it just seems that your company is probably continue to be a little more conservative than may be some of the other players and that may be based on Stan's comments that clearly we don't to assume that claims frequency trends going to continue in a downward fashion. So, I don't know if you can add anything to that?

[Howard Friedman:]

Well, I think couple of different things. One is the reserve themselves are not directly effected by where frequency is going. I mean, other than the small proportion of our reserves that relate to tail coverage and the old occurrence business and a little bit of a occurrence business that we might have at PIC Wisconsin, the frequency and the future doesn't affect the reserves that are established. It's really severity related issues that affect reserves, and the favorable development that we've seen over the past couple of years has really been driven by the fact that the claims severity has continued to be lower on average than we originally projected in the rates and therefore what we projected when we established the reserves. So, as long as we don't see a major change in severity, then I don't expect different kinds of reserves results than what we've been seeing in the past couple of years.

[David Lewis:]

That’s helpful. And then finally for you, the expense ratio, ticking up, I guess we would have anticipated. Do you think that's going to continue to tick up over the next few quarter's?

[Ned Rand:]

David, it’s hard to tell but, if we continue to see modest premium declines, I would expect that it would tick up a little bit. One thing to keep in mind, we talked about this last year in the first quarter is that, some component of the expensing of stock options gets accelerated under the rules for expensing a stock options. Those are options that are issued to retirement eligible employees or expensed in the period in which they are issued, and that for us is Q1, so there is $700,000 to $800,000 expense that runs through the first quarter that would not be recurring in the later quarter's of the year, and beyond that I don't see any significant changes in kind of the run rate of expenses.

[David Lewis:]

That's helpful thank you.

[Operator:]

And next we'll hear from Mark Hughes from Suntrust.

[Mark Hughes:]

Thank you very much. Any particular strategy to account for the improved retention in the quarter, nice job sequentially year-over-year should that continue?

[Howard Friedman:]

Hi this is Howard again. Well I think it’s the combination of some things, one is, is we have made some rate changes as we mentioned. We had rate reductions in several states and price is always an issue out there. Secondly we've done, I think quite a bit more in terms of working with our agents and with our insurers directly to reinforce the message, reinforce the value of the company to them. What we are doing, that’s quite a bit different, we think than other companies in the market with respect to our claims process and our risk management. And in general, just trying to provide the most efficient, fastest service that we can particularly to our agents, and that's what agents are really looking for in the marketplace or market space where we use agents. Often times the response time that a company provides to the agent is much of an issue in terms of keeping the account as anything else, because the agents can then get onto work on their next account or in their other business. If anybody has anything else to add?

[Stan Starnes:]

You might mention source of those rate changes, it's not a competitive driven.

[Howard Friedman:]

As we mentioned earlier that we take the rate changes as we see the data come in and we continue to see, as we mentioned previously frequency staying at a very moderate level, lower than it was several years ago, may be not going down any further. But certainly lower, and as we average that in, that results in a lower target price for us. So we’ve been able to pass that along.

[Mark Hughes:]

Got you. Then just with respect to the frequency flattening out, why now and any changes in any specific markets that have caused the flattening or any specific specialties, what do you think is behind that?

[Howard Friedman:]

Well, I mean, it can't go down forever. I guess it's probably the first response that I would have. Frequency in a number of states has dropped considerably over the past few years and while we are not sure why, we knew it wasn’t going to zero. So it does get to a point where there are a number of true negligent situations out there, plus there are other cases that are going to be filed in any event and you do get to a point where it flattens out. Our contention over the past several years is that this is a temporary phenomenon that we don't completely understand and as Stan mentioned in his prepared remarks, we don't know why it's happening and therefore we don't necessarily believe that it's going to continue. So we maybe seeing some signs that it's starting to head in the other direction, we don't have any data to specifically show that yet other than the decline has stopped.

[Mark Hughes:]

Thank you.

[Operator:]

(Operator Instructions). Next we'll hear from John at Morgan Keegan.

[John Gwynn:]

Good morning. Ned, the net investment income that you show in your release, that's exclusive of the equity accounting activity on the limited partnerships, right?

[Ned Rand:]

Yeah. There are two lines on the income statement. There is net investment income, and then there is the equity and earnings of unconsolidated subsidiaries and they are exclusive of one and other.

[John Gwynn:]

Okay. The decline in, let's call it, regular net investment income, is that driven by tax-exempt activity, or?

[Ned Rand:]

There is really I guess three things, tax-exempt activity is one of them. Of the two investments I talked about in my prepared remarks, the special situations debt fund, that income does flow through net investment income. So, on a comparative basis, the first quarter of last year, there was $1.7 million of distribution there versus zero in this quarter. And I guess the other thing that has a modest impact is just a decline in short-term rates had a modest impact on investment income, probably brought investment income down by around $600,000.

[John Gwynn:]

Okay. And on the equity accounting on limited partnerships, is it $39 million that you have in that investment category?

[Ned Rand:]

Hold on one second, I'll get you the exact number $45 million.

[John Gwynn:]

45 million. And is any of that activity delayed reporting?

[Ned Rand:]

We do have something that are on a one month delay, but we do get data from them and if there were anything material we would run it through in the current quarter.

[John Gwynn:]

Okay. So, no quarterly delays then?

[Ned Rand:]

Yeah, no quarterly delays.

[John Gwynn:]

Okay. And on your realized losses, how much of that was OTTI?

[Ned Rand:]

Just one second, we'll pull that up. Small amount, I want to say less than $1 million off the top of my head. So let me verify that. Yeah, about $900,000 --

[John Gwynn:]

Of the $1.04 million?

[Ned Rand:]

Yes.

[John Gwynn:]

Okay. And Howard, I realize everyone is mystified by frequency, but quite frankly, if the State Supreme Courts continue to overturn caps, you're going to have an increase in frequency, right?

[Stan Starnes:]

Certainly expect that in those situations. Yeah.

[John Gwynn:]

Okay. Thanks a lot.

[Ned Rand:]

Thanks John.

[Operator:]

And next we'll hear from Beth Malone from KeyBanc.

[Elizabeth Malone:]

Hey, thank you and good morning. Could you talk a little bit about the timing of reserve development, because it appears that in the first half over the last couple of years, it's been last and then it builds over the years. Is there anyway to predict how that's going to flow on that to help us out there?

[Howard Friedman:]

This is Howard. No, there really isn't any good way to predict. I think what any company sees or at least certainly the way that we approach it. We do reserve reviews as we said previously on a semi-annual basis. Basically using data at the end of the first quarter which provides some guidance for mid year and then again, using data at the end of the third quarter which sets the foundation for the end of the year. So, our end of year analysis is always the most thorough and the most time consuming and therefore we make typically make the largest changes at that point in time. As we go through the year, particularly in the first quarter, we have limited, very limited new information. This is not as we've always said, quarter-to-quarter business, so having come off the year end analysis we have a limited amount of new information in the first quarter which we try incorporate as we go through the year. We generally get more information. We do the mid year reserve analysis. So, I think it's just a natural process. Whichever way things are going they tend to accumulate or develop further as we get more information and move through the year. But no, we're not making any predictions in that regard.

[Elizabeth Malone:]

Okay. And then on the pricing, could you talk a little bit more specifically, like what are you seeing in Michigan for example?

[Howard Friedman:]

Well, back again to more of our philosophical approach, we don’t typically talk state-by-state. But I guess, I will say on pricing in general, we are seeing great deal of price competition, no question about it. We see many of the companies both the established competitors and some of the, you would call newer entrants to the market, clearly looking to maintain market share just by writing more business at lower prices. Therefore, as you would expect reducing the rate for each unit of risk that they are writing. We're doing the same to some extent, where we think is justified as a result of our rate analysis, but just generating more premiums by an ever increasing number of increasing number of risk isn't our approach to the marketplace.

[Elizabeth Malone:]

Okay. Thank you.

[Operator:]

And next we'll hear from [Al Karpstein from Meadow].

[Al Karpstein:]

Thank you. Actually, Beth just asked my question on the timing of reserve releases, thank you.

[Operator:]

(Operator Instructions) And next we'll hear from [Ron Rodman from Capital Returns].

[Frank O'Neil:]

Morning, Ron.

[Ron Rodman:]

Hi, good morning everybody. Ned, you gave it to us on the special situations fund for the swing Q1 '07 versus Q1 '08. I think it was the $1.7 million last year and zero this year. Could you do the same for the other noteworthy fund?

[Ned Rand:]

Yeah. Just one second, Ron, let me see if I can get my hand on that.

[Stan Starnes:]

While they are looking, if you got any other questions?

[Ron Rodman:]

Well, actually I have a related question that may require some digging. I was curious in this current quarter Q2 '08, if you look back to Q2 '07 and maybe you look across the other alternatives that you are in, I assume as well, were there any sort of noteworthy returns that quarter that we should, whatever, sort of be increasingly focused on about an upcoming month-over-month, quarter-over-quarter swing?

[Howard Friedman:]

Ron, in answer to your question, in the first quarter of last year that particular investment returned a positive about $867,000 I believe. And answer to your second question --

[Ron Rodman:]

I'm sorry, before you go on to the second quarter, how about the Q1 '08 number for that second fund?

[Howard Friedman:]

Q1 '08 number was a loss of about $1.6 million.

[Ron Rodman:]

Okay. And I'm sorry ---

[Howard Friedman:]

And I think it's important to realize, that that's largely mark-to-market stuff, it's not necessarily realized gains or losses by the funds, but the accounting is the mark-to-market accounting on that. The amounts can vary from quarter-to-quarter, I don't know that we’ve got any particularly quarters that were big anomalies.

[Ron Rodman:]

But, I guess in contrast, if I look at the $45 million of investments in these tow funds, you made 2.5 million bucks approximately 5% last year, they weren't disasters this year at all but just the swing of a strong first quarter last year compared to this quarter.

[Howard Friedman:]

Right, the second quarter of '07 was a seasonally strong quarter for both those funds. The third quarter of last year was not a great quarter for those funds and the fourth quarter last year was more of a normal quarter for those funds.

[Ron Rodman:]

Okay and I have got sort of small question, curious to know whether you did any buybacks in April and if you could refresh us? Do you just sort of having a what I call an ordinary buyback program that basically allows you to buyback stock outside of blackout windows or do you have sort of the supplemental, where is that 10B5 or something --

[Howard Friedman:]

We do not buy during black-Out.

[Ron Rodman:]

Okay

[Stan Starnes:]

Ron, I think in the news release we disclosed the number grew March 31, beginning here to --

[Ron Rodman:]

I saw that, I was curious --

[Stan Starnes:]

And, I guess the through April 30th we had repurchase 1.5 million. So, it will be the difference between --

[Ron Rodman:]

Oh, that's in there, okay.

[Howard Friedman:]

Yeah, that was in our prepared remarks.

[Ron Rodman:]

Okay I missed that, sorry. 1.5 first --

[Stan Starnes:]

That's total throughout the whole buyback.

[Howard Friedman:]

Ron, just, to reiterate it, through April 30, 1.5 million shares that we have repurchased in total or $77.8 million.

[Ron Rodman:]

And it's 1.5 for the first four months of this year or since the…

[Howard Friedman:]

Since we started the buyback.

[Ron Rodman:]

Okay, okay. Thanks a lot guys and best of luck.

[Howard Friedman:]

Thanks Ron.

[Operator:]

(Operator Instructions). And we have a follow-up from Amit.

[Amit Kumar:]

Hey, thanks, real quick. I know some of your peers talk about their policy holder account and I might have missed this in your prepared remarks. But do you have that number?

[Stan Starnes:]

Well, Amit we generally don't disclose the exact number. I would say though that our policy holder account decreased of the core business positions and hospitals decreased roughly in proportion to the loss of premium, meaning that the unit or the dollars per unit risk stayed up.

[Amit Kumar:]

Okay. That was it. That's very helpful. Thanks so much.

[Operator:]

It does appear that we have no further questions. I would like to turn it back to you for closing remarks.

[Frank O'Neil:]

Thank you Alan and thanks everybody for joining us. We will speak to you next quarter. Thanks again, Jim Morello. Good bye.

[Operator:]

And that does conclude today's conference. We do thank you for your participation and ask that you enjoy the remainder of your day.