State Auto Financial Corporation
Q4 2014 Earnings Call Transcript

Published: 30 Apr 2015

[Operator:]

Welcome and thank you for standing by. At this time all parties are in a listen-only mode. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Today’s call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Investor Relations and Finance Director, Tara Shull.

[Tara Shull:]

Thank you, Candice. Good morning and welcome to our first quarter 2015 earnings conference call. Today I’m joined by our Chairman, President and CEO, Bob Restrepo; Senior Vice President and CFO, Steve English; Senior Vice President of Standard Lines, Joel Brown; Senior Vice President of Specialty, Jessica Buss; Chief Investment Officer, Scott Jones; and Chief Actuarial Officer, Matt Mrozek. Today’s call will include prepared remarks, after which we will open the lines for questions. Please note our comments today may include forward-looking statements, which by their nature involve a number of risk factors and uncertainties, which may affect future financial performance. Such risk factors may cause actual results to differ materially from those contained in our projections are forward-looking statements. These types of factors are discussed at the end of our press release, as well as in our annual and quarterly filings with the Securities and Exchange Commission to which I refer you. A financial packet containing reconciliations of certain non-GAAP measures along with supplemental financial information is available to all interested parties on our website, stateauto.com, under the Investors Section as an attachment to the Press Release. Now, I’ll turn the call over to STFC’s President, Chairman and CEO, Bob Restrepo.

[Robert Restrepo:]

Thank you, Tara. Good morning, everyone and thanks for joining us as we review first quarter 2015 results for State Auto Financial Corporation. I also want to acknowledge and welcome Michael LaRocco to State Auto and to the call. Michael will obviously take a much more prominent role in these proceedings following his election next week as CEO and President of State Auto. Welcome Mike. Last year our goal was to remove the many distractions and moving pieces, which match the quality of our underlying operating results. I think we were successful and the first quarter provides tangible evidence that our efforts have paid off. We’re pleased to produce a combined ratio of 94.6% and a return on equity of 12.2%. Book value per share also increased nicely to $22.05 primarily as a result of these strong operating results. Lower catastrophe losses more normal winter weather reduced large fire losses and continued strong performance in the specialty segment all contributed to an excellent quarter. In addition, RED did not impact results homeowners and other property - personal property lines are extremely profitable and our capital base remains strong. With all this in mind we were disappointed by A.M. Best’s decision earlier this week to revise our financial strength rating to A minus with the stable outlook. We think we’ve done all the right things in fixing our homeowner business and addressing RED reserves. Homeowners is now an important profit contributor to our business going forward. And we are quite comfortable with our reserve positions covering the RED programs. Retrospectively these were the two key factors in A.M. Best decision. Prospectively, we are confident that these issues are behind us. We feel very good about what’ve done and how we are positioned for future profit growth and reduced earnings volatility. Given our business mix across all three insurance segments, we expect the business impact to be minimal. And our Personal Insurance segment the only line it was disappointing was personal auto, less favorable reserve development was the reason for an uptick in our ex-catastrophe loss ratio results. We expect these results will improve as the year progresses. Earned premium prices increased 5%, loss trends remain flat and we know that as price increases earn-out in 2015 margin will improve. Otherwise we had an exceptionally strong quarter for personal lines. In the Business Insurance segment, commercial auto results were also disappointing. Less favorable reserve development and higher large losses were the major factors contributing to a higher loss ratio. On the other hand property results were significantly improved. Catastrophe losses were lower, non-catastrophe weather related losses such as frozen pipes and leaky roofs were much lower and large loss activity returned to more normal levels. In addition, our BOP experience improved significantly as a result of the underwriting and pricings actions that we put in place last year to improve results. The specialty segment continues to produce strong growth and profit. E&S property and workers compensation continued to meet or exceed our expectations. E&S casualty had another excellent loss ratio result. Loss ratios were somewhat elevated because of less favorable development, but achieved targeted levels of the profitability. Program experience was unaffected by RED. Despite that loss ratios were bit elevated due to two poor performing programs, but these were small programs. Jessica Buss will provide more color later on in our presentation. Putting aside the impact of the expired Homeowners Quota Share Treaty, personal insurance production declined. Retention is stable, the new business remains a challenge. We are beginning to see an uptick in new business in those states where we have implemented our new startup program. But it will take sometime to restore production to normal levels and overcome the residual impact of our Homeowners remediation initiatives. Business insurance premium declined modestly due to policy loss and premium seeded to the new property excess catastrophe reinsurance treaty. The prices were up 3.7%. Specialty production increased over 26% resulting from the acquisition of Partners General along with strong organic growth in the E&S casualty line. Program production also increased with the addition of three new programs booked in the latter half of last year. The workers compensation line continues to grow in a high single-digit range driven by primarily by our niche debit marketing efforts and small monoline workers compensation accounts distributed through Rockhill wholesale broker network. We’ve had a multiyear effort to diversify our business, manage risk more effectively and achieve price adequacy in our lines. All this is contributed to improved results and gives us confidence for future underwriting profitability and improved returns on equity. With that, I’ll turn you over to Joel Brown to review the quarter for both the Personal and Business Insurance segments. Joel?

[Joel Brown:]

Thank you, Bob. Standard lines produced solid profits in the first quarter driven by outstanding property results. In the first quarter personal insurance produced a loss ratio which was 3.7 points lower than the first quarter loss ratio in 2014. Personal auto was profitable, but did not perform as well quarter-over-quarter. We saw a year-over-year 3.8 point increase in the loss ratio in the first quarter. This increase was primarily driven by less favorable development a prior accident year losses compared to 2014. We are seeing an increase in our liability loss ratio impacted by non-cat non-weather results. This increase is being partially offset by continued good results and improvement in our physical damage loss ratio. Rate activity is strong for personal auto year-to-date. With approximately half of our 2015 rate changes improved, the rate change is 4.4%. The rate impact on earned premium was 5% for the quarter. Rate activity is outpacing our flat pure premium trend relative to fast track loss trends we continue to perform better than the industry most notably in the frequency area. Our personal auto book continues a favorable shift to more tendered business, lower violations and higher financial stability. We believe this positive shift is partially responsible for better loss frequency compared to industry results. Personal auto direct written premium is down for the first quarter. We continue to recover from prior year’s agency terminations, our aggressive homeowners remediation plan and efforts to improve auto profitability in five focused states. Late last year we introduced measures to stimulate additional new business production. This new pricing, which we’ve named a Start-up Discount recognizes stability factors and perspective insurers based upon their buying habits and tenure with previous insurance companies. A total of 21 of our 28 states are now active with this new rating approach. The last seven states will receive this discount throughout the remainder of the year. Although still early, we are beginning to see month-over-month new business improvement in some key states since introducing this discount. Our efforts to stabilize policies [indiscernible] was first focused on seven historically profitable states, which combined represent 42% of the company’s countrywide premium. From a new business production standpoint these seven states experienced a year-over-year written premium growth of 13% compared to the first quarter of 2014. Retention is improving year-to-date compared to 2014. In the seven stabilization states mentioned earlier we saw retention improved 3.2 points year-over-year. Homeowners continues to perform very well. In the first quarter delivered exceptional profit results. Our loss ratio in the first quarter demonstrated 11-point improvement compared to the same period in 2014. The majority of the improvement came from the non-cat loss ratio, which was 37.5% for the quarter. Catastrophe losses in the quarter were similar to 2014, but the non-cat weather improved by over five-points. Rate activity for homeowners is 4.5% for the year and the first quarter rate impact on earned premium was 7.5%. Our pure premium trend continues to be slightly negative. Homeowners premiums showed substantial growth for the quarter as the premium which was formally seeded to the quota share reinsurance treaty is coming back online. Without the impact of the quota share premiums were down for the quarter with the same factors which were impacting auto growth prior year agency terminations and the aggressive homeowners remediation plan impacting the home line. As rate increases continue to moderate given profitable loss results retention also improved for homeowners. Moving to standard business, our business loss ratio result in the first quarter was solid and produced a significant 8.2 point improvement over the first quarter of 2014. Winter weather was milder than in 2014 and we did not experience the number of large fire losses this quarter as we did in the first quarter of last year. Written premium and new business were down in the first quarter for business insurance. The commercial marketplace is stable, loss results are generally good and the rate environment is flat to low single-digits. Customers are not shopping and consequently we saw fewer new business opportunities in the first quarter. When new business opportunities are present, competition to write new business continues to increase. Despite the competition, our business insurance retention increased year-over-year by almost a point. Rate, which is measured by price per exposure, increased 3.7% for the quarter. We are pleased with this result and we continue to get solid rate yield on our smaller polices which are subject to automated underwriting and pricing. We are also experiencing pricing more consistent with our models and continue to produce higher premium increases on those accounts which have greater exposure and higher hazard potential. Rates are exceeding loss trends in business insurance. The commercial auto loss ratio was elevated by 10.8 points compared to the first quarter of 2014. The increase in the loss ratio was driven by less favorable development from prior years. Commercial multi-peril improved by over 19 points compared to the same period in 2014. As mentioned earlier in the first quarter we saw more favorable weather and a return to more normal large loss activity. Within CMP we are encouraged by the improvement of our business owners program. Last year to improve to BOP results, we increased rate, restricted eligibility and modified classes of business which could be quoted online. For the first quarter, the BOPlineperformed in line with our expectations. Fire & allied lines, other & product liability and the other commercial segment were all profitable in the quarter and each line showed improvement compared to the first quarter of 2014. I’ll now turn you over to Jessica Buss, to discuss Specialty results.

[Jessica Buss:]

Thanks Joel. Overall Specialty had a strong first quarter in terms of growth and underwriting profit. Our overall specialty loss ratio was 57.8% for the first quarter of 2015, an increase of three points over the same period 2014. Net written premiums increased 26.3% over the first quarter of 2014. E&S property as a whole continued to see rate pressure and competition driven by excess capacity in the market [even mixed] in extremely competitive market, we had an exceptional first quarter with the loss ratio of 16.2%, while we reported quarter-over-quarter net premium growth of 9.2%. The increase was driven by reduced reinsurance cost. Direct written premiums for the quarter actually declined 12.7% compared to the same period 2014 due to softening market conditions resulting in a less new business opportunities. Our first quarter 2015 results were aided by reduced cat reinsurance cost, underwriting discipline and strong broker relationships. That being said as the market continues to be competitive causing new business opportunities and rates to be under pressure, which is unlikely to change unless we have a large hurricane or earthquake event. Without an event we will continue to focus on niche opportunities at our target pricing and believe we can be continue to write a similar size property portfolio very profitably. The overall E&S casualty market has continue to plug along at flat rates with no significant market changes since year end. Our niche underwriting coupled with the acquisition of the general liability team made in the second quarter of 2014 aided to very strong first quarter results. The first quarter 2015 loss ratio of 57.8% was in line with expectation however was 9.8 points higher than the first quarter of 2014. The casualty unit at 2014 reserve take downs that were not repeated in 2015. In addition to loss ratio performance we grew premium by 46.2% for the quarter virtually all of the total quarterly growth resulted from the acquisition of our general liability team and the subsequent book rollover. Our programs unit has gained momentum on building a portfolio of small-to-medium sized programs and we continue to add and remove programs as wanted to achieve our profit goals. Program business produced a loss ratio of 71.6% compared to 66.8% for the first quarter of 2014. The increase loss ratio is attributable to two small programs which are currently in runoff due to performance issues. Our accident year loss ratio on current programs is in line with expectations and continues to improve. We consistently monitor pricing and underwriting performance on each of our programs to ensure that they are in line with established performance metrics. Quarter-over-quarter premium growth of 40% resulted from three new programs added at the end of 2014 and also organic growth in existing programs. Rate increases for the programs unit in 2015 was 6.3%. We continue to see opportunities in this unit and feel we can continue to strategically pick programs that add diversity and are accretive to our underwriting profit. Our Specialty approach to workers compensation continues to reward us for the first quarter 2015 representing the ninth continuous quarter of underwriting profit and a line in general continues to outperform expectation. Workers compensation finished the quarter with a 63.3% loss ratio, which is two-points better than the first quarter of 2014. Results continued to be aided by rate increases over the past three years reduced frequency and consistent execution of case and claims management and favorable prior year development. We achieved an overall rate increase of 2.3% on our workers compensation business in the quarter. Year-over-year growth of 8% was driven by our strategy to grow monoline business. With that, I will turn you over to Steve English.

[Steve English:]

Thanks Jessica. My comments today will be brief and touch upon on investment income, taxes and reserves. As disclosed in the supplemental schedules our net investment income dropped in the quarter over $2 million sequentially and year-over-year entirely driven by TIPS volatility caused by the inflation adjustment. While we have lowered our exposure since December 31, 2014 we continue to like the diversification, liquidity and inflation protection, TIPS provide. Over the past five years on a total return basis TIPS set performed comparably to the remaining portion of our fixed income portfolio. Of course, now that the valuation allowance has been removed our financial statements reflect the impact of taxes. The effective tax rate considers our current estimate for the year including the impact of non-taxable items such as tax exempt interest income and Dividends Received Detections. We allocate tax expense to net realized gains at a 35% effective rate with the balance reflected in operating earnings. During the first quarter of 2015 RED reserves had no impact on our results, there were no material changes for loss estimates we continue to handle the claims for the two largest programs ourselves and are seeing continued downward trends in outstanding claim counts. For the restaurant program, which is protected by the adverse development cover outstanding claim counts at March 31, 2015 were 8.18 down from 8.98 at December 2014 with 38 newly reported claims in the quarter. The trucking programs outstanding claims are at 2.10 down from 2.77 at December 31, 2014 with only seven newly reported claims in the quarter. For the other RED program outstanding claims totaled 160 at March 31, 2015. RED reserves totaled $107.2 million of which 58% related to the restaurant program. For the quarter STFC’s non-cat loss and allocated loss adjustment expense results experienced 1.5 points of overall favorable reserve development compared to the first quarter of 2014 when 5.8 points of favorable development emerged. There was no significant development on catastrophe loss reserves in the quarter. Our accident year non-cat loss ratio improved 7.4 points. Finally [indiscernible] at March 31, 2015 totals $804 million. And with that we’d like to open the line for questions.

[Operator:]

[Operator Instructions] And your first question comes from [indiscernible] with KBW. Your line is now open.

[Unidentified Analyst:]

Couple of questions here why would [indiscernible] rate increases there…

[Robert Restrepo:]

We are having [indiscernible] in and out.

[Unidentified Analyst:]

I’m sorry, is this any better.

[Robert Restrepo:]

Yes it is.

[Unidentified Analyst:]

I just wanted to know business insurance, I know the net premiums aren’t decreased this quarter I was just wondering, why that was because I know - I think shifting to larger accounts in that segment and so many from rate increases. So I just wanted to just look into add a bit more.

[Robert Restrepo:]

Yes, [Raj], I will let Joel Brown respond to that.

[Joel Brown:]

Thank you for the question. It was driven entirely by new business, our retention is up. We are still moving towards larger account business in the first quarter. Our average account size was over 5% larger, but we are just not seeing as many new business opportunities, we attribute some of that to the fact that the market is stable. There is not a lot of pain out there, a lot of people aren’t shopping, so for us it was just lack of new business that really impacted our overall premium.

[Unidentified Analyst:]

Okay, and then with the - what kind of traction are you seeing with the startup program on the auto side, personal auto side. And have you disclosed what the discount is on that program that you are offering to policyholders?

[Joel Brown:]

This is Joel again. The discount differs by state so and it also differs based upon our multitude of factors. We do offset that discount though on the overall book. So our overall premiums are not going down as a result of that discount. Overall, we are pleased with the results, we still have a long ways to go to begin to see more new business growth, but we do think the Start Up Discount is the right kind of discount, it’s actually sound and it’s attracting the type of business that we want to see which typically is individuals that have been with their previous company three years or more.

[Unidentified Analyst:]

Okay, I think the last question I had I know you unwound that the quota shares on the homeowner side. Can you explain why is the loss ratio and you have the regular - loss ratio under the quota share and then the pro forma loss ratio without the quota share, why did those differ because I’d think if you are seeded let say 75% of the premiums because you also seeded the same proportion of the losses that the loss ratio would actually stay the same. So what is that the causes the bulk of that?

[Steve English:]

Sure, this is Steve English. First not all of our states were included in that treaty, so do you get differences in the overall book and versus what was seeded and then you also have on the particular accident years are subject to this treaty and others are not, so in terms of development that comes through it can impact slightly the ratios.

[Unidentified Analyst:]

Okay, that makes sense. Thanks for the answers.

[Operator:]

And you next question comes from Paul Newsome with Sandler O’Neill. Your line is now open.

[Paul Newsome:]

Good morning, congratulations on the quarter’s results.

[Robert Restrepo:]

Good morning, Paul.

[Steve English:]

Thanks Paul.

[Paul Newsome:]

We’ll enjoy following Mike again for public, but I’ll miss you Bob. I’m sure everyone else will to. I want to ask about the other rating agencies and whether or not there was any other sense that any of the other rating agencies thought or felt similar to what A.M. Best does?

[Robert Restrepo:]

Yes, I’ll let Steve reply.

[Steve English:]

Good morning Paul, you may not have seen it, but S&P just recently removed their negative outlook on us and left the rating as is. So and many of the factors that they cited in that decision centered around the work that we had done on reshaping the homeowners book they like the fact that we put in a cat Ag this year to protect downside risk on earnings and they were also are pleased with the significant actions we took at the end of 2014 on the red business. So our rating now there is stable. Moody’s, we’ll be meeting with Moody’s later in the quarter and to be just perfectly honest they wanted to get some of Mike’s thoughts on the business. So we’ve not yet moved ahead our annual review with them, so that’s pending.

[Paul Newsome:]

Sometimes the rating agencies also will be best, will give you sort of a checklist of things that they want you to do often related to capital. Did they gave you something like that and is there kind of thoughts along what that means in terms of capital strategy for example.

[Robert Restrepo:]

I’ll let Steven - Paul our issue was in capital - very strong capital position even with all the moving pieces are referred to of the past couple of years. RSU was producing consistent underwriting profits and we spend a lot of time in our presentation and our discussions over the past year. So that’s talking about our underlying underwriting profitability, but at the end of the day their mechanisms look at and all in result and all in result - did not produced in underwriting profit over the past five years. So if we’re producing the kind of results that we’ve been producing for two years and now in the first quarter ex-RED, ex-homeowner quota share then we have a recently high level of confidence that will have that rating restored. Steve, anything to add?

[Steve English:]

No I would just point out that in their release they do highlight as one of our strength - our risk adjusted capital. So I just echo what Bob said.

[Paul Newsome:]

That’s terrific I mean obviously as one of your peers once said really is like to shoot you when you are down but looks like them may have actually shot you after you are down and back up.

[Robert Restrepo:]

Okay, thank you.

[Steve English:]

Thanks.

[Operator:]

[Operator Instructions] And your next question comes from Larry Greenberg with Janney Capital. Your line is now open.

[Larry Greenberg:]

Hi, good morning. Just staying on the A.M. Best question, I think Bob you said that you would expect only a very minimal impact in terms of the business lines that you write. Can you just elaborate I mean where might there be even if it is minimal some impact in terms of your book?

[Robert Restrepo:]

Larry now I’ll ask Joel and Jessica to comment, but just as an overview when I talked about our business mix across all three segments we tend to be very much of a small to medium size commercial account in both business insurance and specialty with the emphasis right now on small and by small I mean like under $25,000 in premium. And then in the personal lines segment, which is now less than 50 but still significant percentage of our overall book. They tended not be affected by anything unless you are getting into the B level. So in the Specialty segment it’s really no effect on workers compensation, we don’t expect any effect on our program business, but again that’s small business. We were concerned about the impact on the E&S and also concerned about the impact on our retail independent agents and wholesale broker relationships which is really core to our strength in the marketplace going forward. We’ve checked with our field, we actually had two of our reasons having agents advisory councils underway, when we made the announcement and the feedback from Clyde Fitch our Chief Sales Officer and our regional presence is actually quite positive, that they don’t see this as a reason to change their relationship or their placement habits going forward. And I’ll let Jessica talk about her feedback from the wholesale brokers in a second, but before that Joel anything to add from a personal insurance or business insurance impact standpoint.

[Joel Brown:]

The only thing I would add. Hi, Larry this is Joel. The only thing I would add is the fact that we do have a large account segment in business insurance that tends to be accounts a 100,000 and above. If we see an impact it will be most likely in that area, we haven’t heard anything yet, we’ve checked with some of our large brokers and similar to Bob’s comments having a full concern, but that’s the area that we’re keeping our eye on the most. Jessica?

[Jessica Buss:]

Yes. Hi, Larry, it’s Jessica. Yes, couple overall comments, first of all I don’t know everyone on the call remember this, but Rockhill actually started as an A minus company. And so we have experience writing most of the lines we currently write today add an A minus and all that business can be written at an A minus. I would say the largest issue we are going experience is simply a leverage by competitors and that will probably only last 30 to 100 days and it’ll quite down. So we’d be very focused on our broker relationships and customer service during that time period, but again that’s more of an optic than a real writing issue. And some of the feedbacks we’ve actually gotten is that they feel more comfortable actually being an A minus stable than this sort of looming negative outlook, so there is just no other question of whether or not the rating is going to actually be changed. By segment quickly workers compensation as Bob mentioned of course there is no issue - RTW used to write as a B, they are guaranteed by the state fund and have a very good reputation in the market. As Bob said on program don’t expect any issues there, may change some of the new things that we could have done in such as public entity or sets the programs that would require higher rating, but don’t foresee any issue. Our biggest concern was on the E&S side, on the property and casualty side. And the feedback we’ve gotten from our brokers which of course we have limited distribution model has been very, very positive I believe the works that we’ve done on broker relations has paid huge dividends in this respect. We do not expect the significant increase, we may see some pushback where accounts have a larger accounts similar to what Joel talked about especially whether our risk managers involved, but otherwise we are not expecting any sort of material impact to top line and the biggest issue again will just be noise from the competitors over the next 30 days to 180 days.

[Larry Greenberg:]

Thanks, that’s helpful. And then I don’t know if there is any color Steve that you can said on how the conversation about RED when, but that was clearly an issue that was highlighted by Best as well?

[Steve English:]

Sure, I’ll comment that and we walked Best through all the programs what we had done, what we had seen, why we did, what we did, when we did it walked them through the placement of the adverse development cover. At the end of the day I believe that while they mentioned the potential for further adverse development in their release. The primary driver was the five-year operating results and that they I believe they are more comfortable with what we’ve done on the RED reserves and perhaps what they indicated in their press release. So that would be my color.

[Larry Greenberg:]

Great, that’s helpful. And then can you give us some order of magnitude on the prior period development swings in both personal and commercial auto versus the year ago?

[Steve English:]

At this point, I’m going to stick with what we’ve disclosed Larry, and at the end of the years as our common practice will do more buy line numbers to the extent the commentary that was provided does point out that personal auto and commercial auto were two lines that were indeed affected by that.

[Larry Greenberg:]

Okay, and then lastly Jessica these two small runoff programs that did a little bit in the quarter, is that anything that will continue I mean do you continue to recognize some premiums offer that will have somewhat elevated loss ratios.

[Jessica Buss:]

Yes, Larry there were two programs as you mentioned, one of them was extremely small we have minimal to know earned premium. The other one was also small, but will not effectively terminate until 6/30/2015 it was a non-standard auto program in California. So there will be somewhat enough premium, last year I believe we wrote about $12.5 million at a 100% and then so probably about $8 million and 65% for the public company, so it’s small dollars, but there will be some more enough premium. We have implemented rate increases on that that were approved in the State of California. So I would expect the impact to be smart moving forward on that program.

[Larry Greenberg:]

Great, thank you. And I too want to extend best wishes and good luck to both Bob and Mike going forward.

[Robert Restrepo:]

Thanks, Larry.

[Joel Brown:]

Thank you.

[Steve English:]

Yes, this is Steve English. I want to just do a follow-up to [Raj] question, because there is another factor that drives those loss ratios in effect that the quota share we did not seed unallocated loss adjustment expenses and so that’s part of the primary driver. I tend to think of that in the components of cat loss, non-cat loss and ULA a separate buckets, but then want I realized on the schedules, you are looking at a change includes ULA that’s the driver out of the fact that the quota treaty didn’t seed ULA.

[Robert Restrepo:]

Thanks, Steve.

[Operator:]

[Operator Instructions] And we have no further questions at this time. I’ll turn the call back to Ms. Shull.

[Tara Shull:]

Thank you, Candice. We want to thank all of you for participating in our conference call and for your continued interest and support to State Auto Financial Corporation. We look forward to speaking with you again on our second quarter earnings call, which is currently scheduled for July 30, 2015. Thank you and have a good day.

[Operator:]

Thank you. That concludes today’s first quarter 2015 earnings conference call. Thank you for participating. You may now disconnect.