State Auto Financial Corporation
Q3 2007 Earnings Call Transcript

Published: 27 Oct 2007

[Operator:]

Welcome to the State Auto Financial Third Quarter EarningsConference Call. At this time, all participants are in a listen-only mode.After the presentation, we will conduct a question-and-answer session (OperatorInstructions). Today’s conference is being recorded. If you have any objection,you may disconnect at this time. Now, I will turn the call over to Mr. Terry Bowshier,Director of Investor Relations of State Auto Financial Corporation. Sir, youmay begin.

[Terry Bowshier:]

Thank you, Patrice. Good morning and welcome to State AutoFinancial Corporation’s third quarter 2007 earnings conference call. Today, I am joined by several members of STFC’s seniormanagement team. Our Chairman, President and CEO, Bob Restrepo; Chief FinancialOfficer, Steve English; Chief Investment Officer, Jim Duemey; CorporateActuary, Matt Mrozek; and our Chief Accounting Officer and Treasurer, CindyPowell. Today’s call will include prepared remarks by our CEO, BobRestrepo, after which we will open the lines for questions. Please note thatour comments today may include forward-looking statements, which by theirnature involve a number of risk factors and uncertainties, which may affectfuture financial performance. These risk factors may cause actual results to differmaterially from those contained in our projections or forward-lookingstatements. These types of factors are disclosed at the end of our pressrelease as well as in our annual and quarterly filings with the Securities andExchange Commission to which I refer you. A financial packet containing reconciliations of certainnon-GAAP measures along with supplemental financial information was distributedto registered participants prior to this call and made available to allinterested parties on our website, www.stateauto.com under the investor sectionas an attachment to the press release. Now, I’ll turn the call over to STFC’s Chairman, Presidentand CEO, Bob Restrepo.

[Bob Restrepo:]

Thank you, Terry, and good morning everyone. As indicated inour press release, which we released earlier today, our third quarter resultswere mixed. Relative to our own expectations, we saw some good news and somenot so good news. On the positive front, third quarter premium production isholding up reasonably well. Premium growth is flat, but we’re holding our ownin a very competitive market. For both personal and business insurance, newbusiness is up, retention is stable, the personal insurance prices are flat andbusiness insurance pricing per exposure is down somewhat in the mid to highsingle-digit range. Our expense ratio also continues to be pressured by flatproduction, but was helped this quarter by lower accruals for employee andagency bonus programs. During the third quarter, we also took some significantcapital management actions that included an increased cash dividend of 50% anda new stock repurchase program. In addition, State Auto Mutual announced thepending affiliation with the Patrons Group in Connecticut, allowing us to enterfour New England states. Depending on regulatory approvals, we hope to close thistransaction by the end of the year. The affiliation with Patrons once againdemonstrates the benefits of our flexible corporate structure and provides overtime shareholders with more scale, better spread of risk and reducedvolatility. Like volatility is what has characterized our results overthe last year or so. Last year, it was mostly good news. Our results in threeof the four quarters beat consensus and our own expectations. We benefited fromunusual good automobile and general liability results and fairly benign weatherexcept in the second quarter when we experienced large catastrophe losses. We also saw the benefits of reserve releases from prioraccident years and redundant reserves from prior quarter catastrophes. I meaninto 2007, we didn’t plan or expect to see much as any of these benefits. We didn’t expect to see the unusual large workers’compensation losses, which affected our second quarter results, and we alsodidn’t expect to see the significant non-catastrophe large property losses,which affected our third quarter results in both personal insurance andbusiness insurance. Large loss activity in our commercial multi-peril, othercommercial property, such as fire and allied line and homeowners far exceed ourrun rate, our normal expectations in the third quarter of last year. Pretax and net of reinsurance, large loss activity in theselines was just over $8 million higher in this quarter than the same quarter oflast year. Vast majority of these losses occurred in August and September andresulted from fire losses. We define our large loss is one that exceeds $100,000. We’veasked ourselves the same question for each segment has our underwritingchanged, are we being selective against, what impact if any has the economyparticularly here in the Midwest had on these unexpected results. The answer to each of these questions is no or none. As isour policy, we’ve evaluated each of these large looses from an underwriting,risk selection and pricing standpoint. Virtually all of the accounts have beenour book for sometime. The vast majority of these accounts, we would havewritten again on the same terms and at the same price. In addition, we see no incidence yet of the kind of fraud,arson or poor housekeeping that often accompanies difficult economic times. Infact the American air business that a deteriorating economy producesaccelerating loss activity particularly in property and worker’s compensation,but we don’t see that as a driver, at least not now. Finally, the economy looks okay in most of the states thatwe do business in. As evidence, we just wrapped up our 41st stateday meeting out in Utah. These state days give us an opportunity to meet withall of our agents who represents us in the 29 states that we currentlyoperated. It also gives us an opportunity to visit and see first ten,what the local opportunities are and what the local economic trends are. Forthe most part the economy looks pretty good. There are a couple of exceptions, particularly in our homestate of Ohio and neighboring states of western Pennsylvania and Michigan.These areas are suffering and we expect to overtime a flat or declining economywill affect our premium basis and potentially our loss ratio of results. Outside of these states though, our agents remain bullish onthe economy, but pressured by very competitive pricing and flat or decliningrevenues. Based on our analysis of economic conditions and our reviewof account quality and pricing, we think the poor personal and commercialproperty results that we experienced in the third quarter are an aberration. Year-to-date, we remain reasonably pleased with our combinedratio results and the positive response we’re getting for our agents regardingthe new products, systems and services that we’ve been implementing throughout2007. Our CustomFit personal automobile product and Net Expresspersonal insurance system are now implemented in 22 states. These statesaccount for 89% of our personal automobile premium. We’ve also begun implementing the next generation CustomFitproduct, which has over 300 pricing points. CustomFit now accounts for 17% ofour standard, personal automobile written premium. Non-standard personal auto production is up and continues toproduce healthy underwriting process. We’re also expanding our specialty farmowner business into Texas by the end of this year giving us a farm owner’spresence in 12 states. We broadened our eligibility and coverage options in ourbusiness owner BOP product, and we saw a healthy increase in new businesspolicy account and premium production in the third quarter. In addition, we completed the implementation of our new BizExpress technology in all states. Biz Express allows agents to rate claw andbegin the commercial policy issuance process on a real time basis. This is alsoa significant contributor to the increase in our BOP production. Next year commercial automobile and worker’s compensationwill also be supported by Biz Express, and will begin developing support forour commercial and multi-peril product line. Lastly, we continue to make excellent progress inintegrating the Beacon Insurance Group, which we acquired earlier this year. Aspreviously stated, we plan to bring Beacon into the pool sometime next year. We’re currently evaluation when we should make this change andwe may make other potential pooling changes, and we’ll make announcementsregarding what if any changes we’ll make in 2008 next year following our boardmeeting, which is scheduled for the first week in November. With that Terry, I will turn it back over to you.

[Terry Bowshier:]

Thank you, Bob. At this point Patrice, would you please openthe lines for questions?

[Operator:]

(Operator Instructions) Chuck Hamilton of FTN Midwest. Youmay ask your question.

[Chuck Hamilton:]

Good morning. Thank you. Quick question this morning, andlooking at your loss ratio, I know, you’ve attributed the significant increasein the non-GAAP loss ratio to your property lines, which are anything significantabout the casualty development year-over-year and prior year losses?

[Bob Restrepo:]

Nothing significant, Chuck. Last year, as I mentioned, wehad unusually good results in the casualty lines much better then we expectedand much better than we would reasonably expect given those lines. We’re stillproducing returns in both our automobile lines, as well as our liabilitieslines, which are in excess of our natural returns … rates.

[Chuck Hamilton:]

So you’re basically saying at easier your comps last year?

[Bob Restrepo:]

Yes.

[Chuck Hamilton:]

Okay. All right. And I’m sorry, I missed the explanation thegood operating expense ratio this quarter what was the primary reason for 32.7%again, but very healthy ratio compare to prior periods?

[Bob Restrepo:]

Lower accruals for bonus programs relating our employees andour agents. And as accruals were lower is that our lost ratio was higher forthe quarter.

[Chuck Hamilton:]

Okay. All right. Great. Thank you very much.

[Operator:]

Mike Grasher of Piper Jaffray. You may ask your question.

[Mike Grasher:]

Thanks. I just want to follow-up on that -- on the expensequestion if there is anything else at all that was involved with that for justa 100% accruals?

[Bob Restrepo:]

That’s a pretty much 100% of answer there.

[Mike Grasher:]

Okay. Thanks. And then could you remind us again, youmentioned that we can come into accrual, what’s the premium size on that?

[Bob Restrepo:]

As about a $50 million net premium operations total and ofcourse, when we do brings into accrual 80% of the premium expenses loses willbe included in STFC’s results.

[Mike Grasher:]

Okay. Very good. And then, Bob just to go back to your --conversation in terms of growing the business in light of the softening marketenvironment that we have, outside of acquisition what other levels might youhave or what else is on the table in terms of planning and I’m thinking aboutgrowing the business.

[Mike Grasher:]

And is there something you’re addressing through State AutoDays?

[Bob Restrepo:]

We are definitely addressing in it. In State Auto Days -- weare definitely addressing the products and the services that we are rollingout. We are also getting feedback from our agents about what we could do toimprove our sales effectiveness. When we go forward, we’re going to be looking to make somechanges in our leadership team to give us a better focus on what’s required toincrease our sales management effectiveness.

[Mike Grasher:]

Okay. And then a question for Terry. Were there any reservereleases? Or what was the development in the quarter?

[Matt Mrozek:]

This is Matt Mrozek. Outside of the catastrophes,quantifying the reserve releases for prior years in annual exercise for us. Sowe don’t have that in total. We do have on a catastrophe side about a $1.5million in the third quarter of favorable development from prior yearscatastrophes.

[Mike Grasher:]

Okay. That is helpful. And then Bob, just a final question.The competition, where is it coming from? I mean, you mentioned the smallpremium size and that. Can you talk about is it the larger regional carriers oris it larger carriers in general, or can you give us a little bit more?

[Bob Restrepo:]

In commercial lines, the primary competition that we’ve seenis from the larger-to-medium size regional companies. And by larger-to-mediumsize regional companies, I am talking about companies in the $600 million to$2.5 billion range and a lot of them are mutual insurance companies, notnecessarily public companies. A lot of them have 70% to 80% of their premium volume andcertainly most of their growth for the last couple of years in small to mediumcommercial lines. As you know, we really don’t play much in the middle market.We have a growing presence in the middle market that we don’t play at all withlarge national accounts. So the competitors we see are looking for Main Streetbusiness or off Main Street business accounts in the $10,000 to, let's say,$200,000 range. And those are medium to larger commercial or medium to largerregional companies. In personal lines, the story is a little bit different thereit tends to be large companies well known companies most of whom arepublicly-traded stock companies.

[Mike Grasher:]

Okay. And then just a follow up on mutual companiesthemselves, what is that they bring to the table or what’s the competitiveadvantage that they have against you?

[Bob Restrepo:]

They are definitely very aggressive price-wise but a lot ofthese companies have also very easy to use the technology I think one of thefall stories about large companies is that they have a technology advantage wedon’t see that. We see a lot of medium to larger regional companies thathave excellent technology and make a very easy for their agents to do businesswith them and that’s probably there are big calling card each doing businessboth from a technology standpoint and very responsive service and very quickdecision making.

[Mike Grasher:]

That’s helpful. Thank you.

[Operator:]

Beth Malone of KeyBanc, you may ask your question.

[Beth Malone:]

Thank you. Just -- I am pretty sure this is true you don’thave any exposure to the California wildfires, do you?

[Bob Restrepo:]

None.

[Beth Malone:]

Okay. I didn’t so. And could you just talk about, have youtalked about reinsurance with your reinsures you have sense of what the pricingof like you’re going to get the break there do you think?

[Bob Restrepo:]

Well, Beth we renewed our reinsurance treaty’s July 1st.

[Beth Malone:]

Okay.

[Bob Restrepo:]

We’re little off cycle and those treaties included ourcatastrophe treaty our property per risk treaty, and our liability treaty. Andwe definitely saw more favorable pricing terms and pretty much a same terms andconditions but much more favorable pricing from our buyers standpoint this yearthan what we saw last year, particularly in property.

[Beth Malone:]

Okay. And then on the acquisition front what are you seeingin terms pricing out there, do you see any incense where the sellers aregetting more reasonable and their expectations for pricing or do you see anyhelp that will improve in the near term?

[Bob Restrepo:]

Well, we kind a have a limited view that’s we are not necessarilytalking to everybody, we are looking specifically a people that have problem,that we can help solve, so specifically we are looking at smaller companiesthat tend to be under rating not because of they necessarily have poorunderwriting fundamentals but they’ve got a high cost structure or they-year-old concentrated. And in many cases, there are high cost structures becausethey are spending or ceding so much premium to buy reinsurance to try tomitigate the downside from a financial strength rating agency standpoint, sowe’re looking for people that have a problem and we try to stir clear upoptions, so that we’re not as involved in trying to out price competitors whenit comes to acquiring companies. We’re trying to -- trying to deal with companies on aone-on-one basis to the extent that we can. So from our pricing standpoint, wereally haven’t seen anything that we would consider unreasonable and of coursethe most recent transaction that we announced the pending transaction we havewith Patrons is not an acquisition. That’s a mutual insurance company, we’re affiliating,pending regulatory approvals, where we obviously experience sometransactional-related cost, but we’re really just pooling the surplus of thetwo organizations.

[Beth Malone:]

But I guess, it sounds like -- do you believe that there isgoing to be more opportunities or there are going to be more trouble companiesout there that you can look at?

[Bob Restrepo:]

Absolutely. Our pipeline is full.

[Beth Malone:]

Okay. All right. Thank you.

[Operator:]

Blake Phillips of FPK CCW. You may ask your question.

[Blake Phillips:]

Hey, good morning. I just have a quick question on therepurchase program. Are there any price levels or metrics you’re looking at,where you would get more aggressive with the repurchase, and also is there anyspecific timeframe, you’d be looking to get this done within other than, youknow, I think for two years that you’ve given yourself?

[Bob Restrepo:]

Yeah. I’ll ask -- I’m glad you asked the question. I’ll askSteve English to respond, because there are some constraints about how quicklyand how much stock we can repurchase at any given moment, Steve?

[Steve English:]

Sure. In terms of the pricing and timeframe, we really havenot set guidelines. That’s just going to depend on market conditions, it’s alsogoing to depend on whether or not we have alternative uses for the capital andwhere the share price is. In terms of the restrictions that Bob spoke of a couple ofthings people should understand is, number one, the repurchase program issubject to certain SEC rules that limit the amounts that we can buy in anyparticular day. That based on your trading volume. Presently for us it’s about20,000 shares we could buy from non-state automobile mutual shareholders. The other issue that you should be aware of is that, we willplan to observe consistent blackout dates in the program as we observe with ouremployees in regards to their share purchase activity. Those blackout periodsgenerally run beginning two weeks prior to the end of any quarter up until theday after we release earnings.

[Bob Restrepo:]

Maybe we want to clarify 20,000 shares per day?

[Steve English:]

Per day. Yes.

[Blake Phillips:]

That’s just based on volume I’m assuming.

[Steve English:]

Correct.

[Blake Phillips:]

Okay. Now, would be guys entertaining within blocks inaddition to just open markets purchases?

[Steve English:]

Yes. If the conditions were right, we will.

[Blake Phillips:]

Okay. Great. Thanks a lot.

[Operator:]

Meyer Shields of Stifel Nicolaus. You may ask your question.

[Meyer Shields:]

Pardon me. Good mornings, everybody.

[Bob Restrepo:]

Good morning, Meyer.

[Meyer Shields:]

I guess, first question. Can you give us the -- you talkabout how your reinsurance cost to go down a little bit, I was wondering withthe change in gross and premium it was for the quarter?

[Bob Restrepo:]

Meyer, as a result of reinsurance purchase?

[Meyer Shields:]

Well, I’m saying picking out the lower cost of reinsurance?

[Bob Restrepo:]

It was -- I’ll ask Matt’s to kind of, give a rough idea, butI am not sure it’s terribly material; we’ve never been, as you know, if theypurchase our reinsurance and year-over-year pricing was flattish.

[Meyer Shields:]

Down a bit.

[Bob Restrepo:]

Down a bit on the property and liability.

[Steve English:]

Meyer, this is Steve English, we’ve specifically notdisclosed the actual dollar amount of those, but the year-over-year change onacross all the programs was a net decrease, but it’s not a material amount.

[Meyer Shields:]

Okay. That’s fine. Can you give us an update in terms ofyour pricing actually from the quarter?

[Bob Restrepo:]

Sure. Personal, Bob let me turn over to you over to Matthewabout our pricing.

[Bob Restrepo:]

Overall personal is relatively flat, still earning somesmall decreases from early this year and last. Commercial lines as Bobmentioned down more in the single to mid, mid single digit range again oncommercial business in terms.

[Meyer Shields:]

Okay. You are basically keeping in line with competition.

[Bob Restrepo:]

Yes. And you know, Meyer the competition for smalleraccounts is not quite as intensives for the larger account. So when you look at the third party call like MarketScoutand they tell you about 14% to 15% price declines, we’re not seeing that butour profile attends to be the smaller account, where the discounting is lesssignificant.

[Meyer Shields:]

Right, so that makes sense. And I guess, follow-up questionif I can. Bob, when you are talking about the different growth strategy, thenthough they mention anything about agency appointment, trying to get that wasintentional or not?

[Bob Restrepo:]

It’s not intentionally, we continue to make agencyappointments, I think, we have targeted roughly 60 this year, but I would thinkour big opportunity is to improve the yield and there’s 3200 agents they werecurrently doing business that’s our primary focus. We’d liked to increase production with flocks we know assuppose to rapidly appointments with people we don’t know as well.

[Meyer Shields:]

Okay. Perfect. Thanks so much.

[Operator:]

Larry Greenberg of Langen McAlenney. You may ask yourquestion.

[Larry Greenberg:]

Good morning. Thank you.

[Bob Restrepo:]

Good morning, Larry.

[Larry Greenberg:]

Hi. Hey Bob, I mean, from your comments on reservedevelopment this year, I mean, is it a fair assumption that we should assumethat through the first three quarters reserve development is negligible eitherways? And as we tried to take down to what accident yearunderwriting ratios are doing, can you give us some thoughts on how you giveyour accident year, a ratio this year versus last?

[Bob Restrepo:]

What I can say Larry is that, as you know, until the end ofyear, we really don’t threw up and gives a precise guidance of that on prioraccident year releases. But, I can’t say as I alluded to, we came into thisyear not expecting a lot of help from prior accident years and we’re notgetting it. In terms of accident year trends versus counter year trends,we’ll be at a better position at the end of year to be clear about that but,obviously, we as well as our competitors are experiencing some margin pressure.Loss trends are fairly benign from an accident frequency -- from a frequencyseverity and pure premium basis for both personal and then commercial lines. But obviously, our pricing is down somewhat, as Matt said,and that’s putting some pressure on our accident year results. But they arevery much in line with the exception of the large property losses with somefair quarter very much in line with what we expected and very much in line withwhat we price for.

[Bob Restrepo:]

Fair enough. Thanks.

[Operator:]

Heather Hunt of Citigroup, you may ask your question.

[Heather Hunt:]

Thank you and good morning. I missed the first part of thecall, so I just wanted if you could comments on homeowners. Is it havingcontinued challenges there? I was wondering if it’s a function of higher costrepair homes, results of that went up at home prices? Will you see that inlabor and inflation and in…

[Bob Restrepo:]

We have seen definitely over the past couple of yearsincreases in labor and housing material coming out of what was pretty stronghousing market. Of course, that has all changed in the last quarter or two butthat hasn’t really been reflected in our results yet. But we account for that with our inflation guard. Weincrease property values to reflect increases in replacement cost, so we’repretty comfortable with that insurance to value and with our valuationmethodologies overall. The big change that we’ve seen this year is an increasein severity primarily coming from these large losses.

[Heather Hunt:]

And I think that, I mean, will you be adjusting pricing dealwith any of that, do you see it in any particular pockets or regions or arethere any particular trends driving that change in severity?

[Bob Restrepo:]

We’ve seen our Midwestern results those from catastropherelated wind and hail, as well as, just the fires that we’ve been having in thelast, particularly in this past quarter definitely has produced depositpictures that we’ll have CRO works out that my guess is, yes, there isdefinitely going to be a need for more pricing in our homeowner line on ourexisting book of business particularly in Midwestern states.

[Heather Hunt:]

How long do you think that will take, so that when we modelout earnings, is it maybe another two quarters of little bit of pressure inthis line?

[Bob Restrepo:]

Well, it takes we look at every line in every state everyyear, so it takes about 12 months for us to both evaluate the loss trends andimplement the pricing changes and then of course it takes a year for us to earnout whatever price change we make. So anytime we make a pricing change eitherpositive or negative it’s got a lag effect at least to 18 months.

[Heather Hunt:]

Okay. So, I guess bottom line like we see a little bit morepressure in the next few quarters?

[Bob Restrepo:]

I think that fair to assume, yes.

[Heather Hunt:]

Okay. Thank you.

[Operator:]

Paul Newsome of AG Edwards. You may ask your question.

[Paul Newsome:]

Good morning. Thanks for the call. I was wondering if youcould tell us where will be the tradeoffs or even the thought behind thebuyback versus your optimistic outlook for M&A there is obviously a naturalconflict between where you put your capital? And is the revenue -- you feelmuch rosy about the M&A situation given this year also buyback that or…

[Bob Restrepo:]

Yes. You know, I’ll let Steve to add some color, but wereally evaluated our stock repurchase program in the context of our overallcapital needs of both dividend capital and kind of M&A opportunities thatwe saw going forward. And Paul as I mentioned earlier our M&A targets tend tobe smaller companies we are obviously -- we are not going to spend this muchcapital and we are also helpful that a healthy mix of those M&A targetswill be mutual companies, such as the one we just affiliated or plan toaffiliate within Connecticut, but I’ll ask Steve to add color

[Steve English:]

Yes. Paul, I wish -- that we love to sign M&A, to put acapital work, I think, we’re recognizing of that, M&A it’s not automatic,so we need other potential deployment in the capital, we recognize the publiccompany has plenty of capital. In terms, of to add a benefit of the repurchase program oneof the things we are looking at, if you go back historically and look at theM&A, the conditions has warned to that -- one of that M&A is happen ofthe mutual side of the shop Obviously, Bob was mentioning to me mutual affiliation buteven some of the stock purchase transactions while they recognize it’s not taxefficient to the mutual company then participating in the program does shiftcapital back over to the mutual company for that M&A activity. So it’s --on the one hand it amazing and consistent, on the other hand it is consistent.

[Paul Newsome:]

All right. Thank you very much.

[Operator:]

Matthew Rohrmann of KBW. You may ask your question

[Matthew Rohrmann:]

Gentlemen, good morning.

[Steve English:]

Good morning.

[Matthew Rohrmann:]

Two quick questions. One, Steve what was the cost of theshares that you purchased in the quarter?

[Steve English:]

2.7 million.

[Matthew Rohrmann:]

Great, thanks. And of the catalog that you did have werethere any specific states where a largest portions where do that came from?

[Steve English:]

It principally was the upper Midwest, Minnesota, whichcounts in Dakotas.

[Matthew Rohrmann:]

Great. Thanks very much, guys.

[Operator:]

(Operator Instructions) Mike Grasher of Piper Jaffray. You may as your questions.

[Mike Grasher:]

Well, just a couple of follow-up for number of questions.What was a gross premium written in the quarter?

[Bob Restrepo:]

We're shuffling through paper here, Mike.

[Mike Grasher:]

Okay. The other question would be statutory surplus?

[Bob Restrepo:]

We are still shuffling through paper.

[Mike Grasher:]

Bob, were they shuffling there just a couple of question interms of the sort of, differentiating itself is there anything in terms ofproduct that you’re exploring that would be a new niche for you as we goforward?

[Bob Restrepo:]

It’s not right now, Mike, I will state from the M&Astandpoint, we’re looking for ways to reduce volatility and come up withdiverse sense, diverse and new sources of burnings that’s eventually going toenable us to require us to look at more liability or we’re in a line. Next year, we plan to put our contractor that we haven’tbeen seeing any kind of, growth in the construction market. It’s notnecessarily, we don’t have that as a huge target market for us, and the economyis down somewhat. But we have had over the years an excellent experience in ourconstruction book and we’re looking to add that on to our BOP policy. So thatwill help diversify our business in the more liability lines next year. We are also open to smaller excess and surplus acquisitionopportunities, particularly, companies with good, strong agency relationships, good underwritingfundamentals and a proven track record and managing their liability exposure aswell. I can’t guaranteethat anything is going to happen, but we are open to that possibility. Becauseof the market, we see some E&S companies thinking this might be a good timeto kind of exit or partner with a company such as us. So again,the whole notion there is to look for ways to diversify your source of earningsand reduce our dependence on Midwest and property-oriented lines. And I thinkwe’ve got numbers for you in terms of surplus and gross written premiums.

[Steve English:]

And theshuffling is over. Statutory surplus for the STFC subs was 885 million at 9

[Mike Grasher:]

Thank youfor those numbers and the color, Bob.

[Bob Restrepo:]

Thank you.

[Operator:]

At thistime, we’ve no further questions.

[Terry Bowshier:]

Okay. Thankyou, Patrice. We want to thank you all for participating in our conference calland for your continued interest and support of State Auto FinancialCorporation. We lookforward speaking with you again on our fourth quarter call, scheduled forFebruary 14, 2008, if not before. Once again, thank you and have a great day.