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Maiden Holdings, Ltd. (NASDAQ:MHLD)

Q4 2012 Earnings Call

February 21, 2013, 8:30 a.m. ET

Executives

Noah Fields – VP, IR

Art Raschbaum – CEO

John Marshaleck – CFO

Patrick J. Haveron - EVP

Analysts

Randy Binner – FBR Capital Markets and Co.

Amit Kumar – Macquarie Research Equities

Robert Farnam - Keefe, Bruyette & Woods

Operator

Good day ladies and gentlemen and welcome to the Maiden Holdings fourth quarter 2012 earnings conference call. (Operator Instructions)

I would now like to turn the conference over to Noah Fields, Vice President, Investor Relations. Sir, you may begin.

Noah Fields

Good morning and thank you for joining us today for Maiden's fourth quarter 2012 earnings conference call. Presenting on the call today, we have Art Raschbaum, Maiden's Chief Executive Officer along with John Marshaleck, our Chief Financial Officer. Also in attendance is Pat Haveron, Executive Vice President.

Before we begin, I would like to note that the information presented here today contains projections or other forward-looking statements regarding future events for the future financial performance of the company. These statements are based on current expectations and future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from these expectations. We refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's annual report on form 10-K and our quarterly reports on form 10-Q.

Some of our discussions about the company's performance today will include references to both non-GAAP financial measures and information that reconciles those measures to GAAP as well as certain operating metrics and may be found in our filings with the SEC and in our news release located on Maiden's investor relations website.

I will now turn the call over to Art.

Art Raschbaum

Thank you, Noah. Good morning and thank you for joining us on today's call. This morning, we'd like to review our full-year results for 2012.

While the previously announced impact of Superstorm Sandy had a significant effect on our fourth quarter and our full-year results, notwithstanding that event, 2012 was a year of continued progress as we strengthened our capital position, expanded our invested asset base and investment earnings, enjoyed continued strong growth in premiums, increased our client base, and began to see the benefit of an improved primary insured pricing environment. Importantly, our strategy and focus remains unchanged. As a unique highly differentiated reinsurer, Maiden remained focused on effectively service the non-catastrophe reinsurance needs of our regional and specialty insurer clients.

In 2012, Maiden increased its book value per common share to $11.96 per share representing growth of 12.4% over the previous year. Despite the impact of Sandy, our full-year 2012 operating return on equity remained positive at 5.9% compared to 9.2% in 2011. Maiden shareholder's equity at December 31st, 2012, stood at just over $1 billion compared to $769 million a year ago. And it reflects both organic growth as well as the successful completion of our preferred share issuance in the third quarter. The growth in our shareholder's equity will serve to support our business development activities in 2013. And ultimately, could be used to significantly reduce our cost of capital in early 2014. As we mentioned several times in the past, the call premium that's associated with our 14% coupon trust preferred securities expires early in 2014.

From an underwriting perspective and inclusive of the impact of Sandy, our combined ratio was 99.5% compared to 98.1% in 2011. As we've stated in the past, while Maiden does not write catastrophe reinsurance business, we do write property exposed business, which can produce losses resulting from an extreme catastrophic event. While Maiden's losses were consistent with our expectation for a storm as significant as Sandy, going forward, we are committed to further reduce our aggregate exposure particularly from our excess and surplus lines property portfolio made in specialty where the majority of the loss emanated.

In contrast in our U.S treaty reinsurance portfolio, our losses from Sandy were favorable to model values. And the portfolio performed very much in line with our lower volatility strategy.

There was also a small impact to ACAC, which is captured in our current estimate. Absent this impact, our full-year combined ratio was 97.8%, an improvement from the 2011 combined ratio of 98.1%. And our operating return on equity would have been 9.4%. Importantly, this reflects a favorable trend to the prior year and improvements to the elements of the portfolio that are benefitting from primary insurer rate strengthening.

From an overall perspective, net premiums for 2012 grew from $1.72 billion in 2011 to $1.9 billion in 2012. That's an increase of 10.3%. Breaking it out by business unit, diversified reinsurance segment, which includes our U.S. underwriting unit made in RE, our international business development team, IAS, and our Bermuda reinsurance company made in Bermuda produced net premiums written of $763.5 million in 2012. That's down 4.1% compared to 2011. The reduction in diversified net written premium resulted largely from the termination of a large underperforming quota share account and to a lesser extent, from a client decision to retain more premium. As we have indicated in the past as client's balance sheets grow, their need for pro-rata reinsurance at times can diminish.

Additionally, 2011 revenue growth included one-time owner premium reserve portfolios on several accounts, but are non-recurring in 2012. Notwithstanding the reduction in written premium in 2012, through our January 1, 2013 renewal season, we've established reinsurance relationships with 17 new reinsurance clients in the U.S. And while these are relatively smaller revenue accounts, historically, we've had significant success in expanding relationships with our clients. So for 2013, we're targeting the expansion of our U.S. regional insured client base through both the development of new client relationships as well as the augmentation of established reinsurance relationships.

In our international IAS business development unit, year-on-year revenue was essentially flat. Much of our efforts in this segment continued to focus on the expansion of our auto OEM branded insurance programs. Shortly after we acquired the business, we eliminated a number of poor performing accounts. And while total revenue is flat year-on-year, the team has offset the impact of those terminated accounts with new and profitable opportunities. We recently added a business development executive in Latin America who will focus on expanding this business segment as well.

Across the IAS unit, we're evaluating a number of opportunities to increase the historically profitable credit life component of this portfolio in 2013. Going forward, one of the key growth opportunities for Maiden's IAS business is the replication of our regional and specialty folks reinsurance business as we target the needs of small to medium sized insurers in Europe. We're in the process currently of recruiting an experienced executive to lead this effort.

Our two largest clients, Am Trust and ACAC continued to enjoy healthy growth. In 2012, net premiums written for the Am Trust quota share reinsurance segment were $840.3 million. And that's an increase of $171 million or 25.6% compared to 2011, which reflects growth in all segments. While continued successful acquisition and activity drive some of the increase, importantly rate strengthening organic growth in active clients has also favorably impacted their growth. In particular, rate firming in the U.S. is benefitting growth in all of their key segments.

With the recent announced acquisitions of car care plant in Sequoia, we expect to see continued strong growth in this segment in 2013. As you may know, we're quite familiar with the car care team in Europe. Many of us work closely with them at GMAC. And we're very excited about the addition of this team and their capabilities. We're also quite familiar with Sequoia. As a long-time Maiden client, we have a deep respect for their underwriting skills and capabilities.

Finally, net premiums written for the ACAC quota share rose 15.4% in 2012 to $295.6 million compared to 2011 as they continue their nit strategy of expanding their business in select markets. Much of that growth has been generated in the agency segment of their business.

Turning now to our underwriting results, the diversified reinsurance business segment produced a combined ratio of 1025 in 2012. The majority of Maiden's Sandy loss came from the diversified segment. If we exclude the impact of Sandy, the diversified combined ratio would be 98.7 reflecting the adverse impact of our German auto quota share in 2012 at IAS, which we have discussed in previous calls. And largely recognized in the fourth quarter the impact of a large poor performing commercial auto account at Maiden RE in the U.S.

We anticipate the implementation of significant underwriting changes, enhanced claim process, and rate increase will improve the performance of the German auto quota share account in 2013. With regard to the adverse performance of the Maiden re-commercial auto account, our participation on that account had already been terminated. And we don’t anticipate continued adverse impact from this business. Recently, we completed a comprehensive out of all the remaining outstanding claims.

Going forward, we're targeting improved underwriting performance for these segments in 2013 and beyond. While I'll comment later about our January 1 renewal activity, we've made progress in improving overall rate levels across the platform.

Additionally, we're continuing to see solid growth in our lower layer, high profitable faculty to casualty business. And we anticipate further growth in this segment in 2013.

We continue to see pricing strength in Am Trust core markets. And underlying performance reflects favorable results. The Am Trust quota share segment recorded a combined ratio of 95.8% for 2012, which is well within our target expectation. And it reflects improvement from the 97.3 combined ratio in 2011.

Importantly, the impact of pricing actions is having a favorable effect on performance. The ACAC segment reported a combined ratio of 97.2% for the year compared to 97.7% in 2011. As we've discussed in the past, the ACAC contract has a variable commission feature. However, the fourth quarter combined ratio of 99.1% exceeded the upper end of that variable commission swing rate primarily as a result of Sandy related losses. We're confident that the actions that the ACAC has taken will improve the results of their business over time.

On balance, we're very pleased with our continued progress in both growing the business and enhancing our underwriting performance.

I'd now like to turn the discussion over to our Chief Financial Officer, John Marshaleck to review the fourth quarter and provide some additional details. John.

John Marshalcek

Thank you, and good morning. I’d like to spend the next few minutes reviewing some of the details of our fourth quarter results.

The net operating loss for the quarter of 2012 was 10.1 million or $0.14 per diluted common share compared to a net operating earnings of 17.2 million or $0.24 per diluted common share in the fourth quarter of 2011.

The fourth quarter of 2012 was significantly impacted by Sandy with a net decrease in earnings of 31.1 million or $0.43 per common diluted share.

Our losses for the event come mostly from our E&S Property Insurance business, Maiden Specialty. Net [inaudible] loss, loss of adjustment expenses of 364.9 million were up 68.1 million compared to the fourth quarter of 2011. The loss ratio increased by 4.8 percentage points to 75.6% versus the fourth quarter of 2011. The increase in the loss ratio is primarily attributed to Sandy.

Net premiums written in the fourth quarter of 2012 totaled 242.6 million, an increase of 8.4% compared to the fourth quarter of 2011. Our Diversified Reinsurance Segment and net premiums written of 139.1 million, down 53.5 million or 27.8% versus the fourth quarter of 2011, which is mostly due to the non-renewal of one U.S. Treaty account.

For our Am Trust Quota Share Reinsurance segment, net premiums written increased by 52.3% to 232.4 million compared to the fourth quarter of 2011 with the most significant premium increases coming from workers’ compensation.

Net premiums written from the ACAC Quota Share increased by 12.4% to 71.1 million compared to the same quarter of 2011.

Year-over-year increases in net investment income continued with 21.1 million in the fourth quarter of 2012, an increase of 22.9% compared to the fourth quarter of 2011. Total investments increased 598.7 million or 29.6% to 2.6 billion versus December 31st, 2011.

To book yield at year end 2012 on the fixed income portfolio, excluding cash was 3.48% with an average duration of 3.55 years compared to a book yield of 3.59% and an average duration of 2.78 years at the end of 2011.

New money yield during the quarter was 3.01% compared to new money yield of 3.14% during the fourth quarter of 2011. The invested asset portfolio comprised primarily of corporate bonds and U.S. Agency mortgage-backed securities. Corporate bonds now make up 52% of our invested assets with U.S. Agency mortgage-backed securities representing 38% of the portfolio.

Despite the year-over-year increase in net investment income, the linked quarter comparison shows that net investment income fell 2% compared to the third quarter of 2012. This was influenced by significant prepayments on mortgage-backed securities during the fourth quarter of 2012. This resulted in receipt of approximately $164 million in cash, which is 6.4 million more than the third quarter of 2012 and 14.4 million more than the fourth quarter of 2011.

Cash generated during the fourth quarter of 2012 was strong with operating cash flow of $51 million. This helped contribute to operating cash flow for 2012 of 319.1 million.

Maiden continued to maintain a low G&A expense ratio of 2.9% for the year ended December 31, 2012 compared to 3.5% in 2011. The combined ratio for the fourth quarter of 2012 is 103.7% compared with 98.3% in the fourth quarter of 2011. Excluding the impact of Sandy, the combined ratio was 97.3% in the fourth quarter of 2012.

Total assets increased 21.9% to 4.1 billion at December 31st 2012 compared to 3.4 billion at year end 2011. Total cash on hand at December 31, 2012 was 213.8 million compared to 303 million at the end of 2011.

Total Maiden shareholders’ equity was 1 billion, an increase of 32.1% compared to December 31st, 2011. Book value per common share was $11.96 at the end of the fourth quarter of 2012 or 12.4% higher than December 31st, 2011.

Before I turn the call back over to Art, I’d like to provide you with some details regarding our capital management philosophy.

In 2012, we continued to build our balance sheet, which is optimized to efficiently utilize capital for the benefit of the shareholder returns. Maiden’s capital base was substantially strengthened in 2012 through opportunistic and diversifying capital raises, as well as operating profits. We finished 2012 with 1.3 billion in capital. We are pleased to be able to complete two capital market transactions totalling $250 million. In March, we issued $100 million of 30-year 8% senior notes to support our growth and further strengthen our balance sheet. In August, we saw opportunity to access the preferred share market for the first time and issued $150 million of non-cumulative perpetual preferred shares.

Along with this offering, the Board of Directors authorized a common share repurchase authorization of up to $75 million. To date, we have not repurchased any common shares. However, we are always monitoring the trading in our common shares to identify opportunities in the market. The share buyback authorization provides us with an additional tool with which to manage our capital position. Separately, in November, the Board of Directors increased Maiden’s common share dividend by 12.5% to 9/10ths per share.

An important aspect of our perspective capital management activities is the potential to repurchase our 14% trust preferred securities. We therefore weigh all capital management actions, including share repurchases against the meaningful and permanent impact that we purchase the remaining trust preferred securities.

I will now turn the call back over to Art for some additional comments.

Art Raschbaum

Thank you, John. Before concluding our remarks, I’d like to spend a few minutes discussing current market conditions. In our diversified segment, we had an active January 1 renewal season. We’re seeing increasing primary insurance rates, however, as we comment before, there’s a bit of inconsistency by geography and line of business. But in general, property-exposed business, particularly loss-impacted property business has seen the greatest level of increase. But importantly, we’re encouraged by continuing signs of improvement in casualty lines. In the U.S. we’re seeing continuing rate improvements being gained at the primary client level, which over time should benefit us. We’re cautiously optimistic that our process for the balance of 2013 as we anticipate continued increased demand.

In Europe, we’re finally seeing some rate strengthening in the German Auto Market. This is our largest market for our IIS business and we’re optimistic about the future performance of the segment.

In the UK, which is our second largest IIS market, while we’re still seeing rate level increases in the personal auto market, the rate of increase appears to be slowing. To a large extent, our Infinity Auto relationships are somewhat insulated from the broader market, but clearly improving trends create opportunities for us to expand our business.

For our Am Trust segment, we expect to see continued rate level improvements in 2013, particularly in the U.S. Workers’ Comp and U.S. Commercial Line segments. For the hospital liability segment, hard market conditions continue in Italy through year end 2012 although we have some concerns of potential increased competition in 2013. We and Am Trust are collectively committed to maintaining underwriting and pricing discipline in this segment.

For AT&T, we expect the personal line segment to remain relatively stable. AT&T has been able to strengthen rate levels as necessary. In 2013, we anticipate the implementation of next-generation pricing tools which should significantly assist the company in targeting the Best business. While we don’t expect significant growth in the AT&T segment, we believe that their focus and underwriting discipline will serve us well.

On balance, we’re encouraged with the improving market environment in the majority of markets that we operate in.

Overall, 2011 was a successful year for Maiden and we continue to build out our platform and strengthen our capital position. While Sandy was a significant event for the insurance and reinsurance industry and did impact our overall performance, we believe that our results, again, highlight the lower volitility nature of our business model despite the enormity of the storm.

On a relative basis, Maiden’s storm-related losses were among the lowest in the reinsurance sector.

As mentioned earlier, we’re taking further appropriate actions to significantly reduce catastrophe-exposed elements which should mitigate exposure with a similar event in the future. Maiden’s differentiated business model is focused on delivery value to our shareholders by serving the unique needs to regional and specialty insurers while maintaining underwriting discipline, leveraging our operational and balance sheet efficiency and effectively managing our capital.

As we consider our prospects for 2013, we’re confident that we’re beginning the year from a strong foundation and with positive momentum. In 2013 we’ll continue to focus on delivering shareholder value through enhancements to our earnings streams and effective capital management activities.

This concludes our prepared remarks. Operator, could you please open the lines for Q&A, please.

Question-and-Answer Session

Operator

(Operator Instructions)

The first question is from Randy Benner of FBR, your line is open.

Randy Benner-FBR Capital Markets

Hey, good morning. Thanks.

Art Raschbaum

Good morning, Randy.

Randy Benner-FBR Capital Markets

I just have one detailed question, and I apologize if I missed it, but did you call out the amount of CAT in ACAC? Particularly, I am not trying to-could you break that out, just so we could kind of see what the underlying [inaudible] was in the first quarter?

Art Raschbaum

It was a couple million.

The rest of the balance undiversified.

Randy Benner-FBR Capital Markets

So then, the [inaudible] was still high outside of CAT activity I think in mid-quarter-is that fair?

Art Raschbaum

That is correct.

Randy Benner-FBR Capital Markets

So, what drove that?

Art Raschbaum

Well, you know, as we have seen historically, there is variability in their performance. I think they are seeing, as we saw in at least one previous quarter, some increase of verity. I think some of it is a function of their growth in select markets. I think their focus in 2013 is really kind of holding their own and strengthening pricing and being more selective in terms of their underwriting activity.

Randy Benner-FBR Capital Markets

Okay, but in general, I mean-well, okay, it was maybe a hair high, but as far the outlook-

Art Raschbaum

That's right.

Randy Benner-FBR Capital Markets

As far as the outlook there in ACAC, it seems like while there is risk in the market, as you said, the data of some of them that come on board should result-generally become more consistent in 2013. [inaudible].

Art Raschbaum

One of the issues, I think when ACAC acquired GMAC insurance personal lines was that they had some very sophisticated rating analytics that had not been, sort of integrated in their systems, so a lot of the focus has been on completing that integration, and they are at the point now where that integration is largely completed. So, we should start to see the benefit of more sophisticated multi-varying pricing.

Randy Benner-FBR Capital Markets

Understood.

If you could, just expand a little on the treaty that got lost in the diversified reinsurance segment.

I think you touched on it a little bit in your commentary, but it is a notable decline and it makes ball parking the growth rate for 2013 tough with that big dip here in fourth quarter twelve. I guess just a little more color on, was it the competition that led to the loss, if there are other large treaties that might backfill and kind of how we should think about the production there going into '13.

Art Raschbaum

Sure.

Largely, it was not competition. I would say that the large-I mentioned earlier, a quota share that did not buy as much this year, and that had a fairly significant impact on our full year revenue, and that happens. As company balance sheets strengthen, their need for quota share may reduce-it may come back at some point, but our focus is on really providing long term and responsive solutions.

With respect to, probably the largest loss, it was an underwriting decision to non-renew a fairly significant account-the commercial auto account that I mentioned performed poorly.

Then, the balance of the difference is that when we write new business, many times, there are unearned portfolios that come in with the new business. Those existed-we had a fair amount of growth as you may remember in 2011. So, there were a number of 2011 accounts that had unearned prima portfolios-those were not repeated in 2012.

So, nothing that we see, fundamentally in the underlying business tells us that we are deeply competitively disadvantaged or that we see a limitation to our ability to continue to grow. I think these are all-at points in time I think we have seen similar effects over the last several years.

Randy Benner-FBR Capital Markets

Okay.

I hear your last statement, but in general, that kind of reads like, the market is a little soft. Should we not be taking it that way?

Art Raschbaum

No. Well, I say-we have said before that in terms of large quota shares, which has generated a significant amount of revenue growth, I think the market has been more competitive for large quota shares, and we have commented on that. With that said, I do think we will have the opportunity this year to grow our business with a select number of large quota share opportunities, but it is early stages. 1-1-13 typically represents-excuse me, January 1 typically represents about 40% of our portfolio. So, a lot of our business development is focused on continuing to grow the business to the balance of the year, but it all depends on the competition and the marketplace. Our opportunity is strong. I mentioned we have seventeen new client relationships in the 1-1 renewal season.

Randy Benner-FBR Capital Markets

That is pretty significant.

Art Raschbaum

Yeah, that is probably a record for us. Although they are relatively small by size, some of those are lower layer excess accounts. That does create a placeholder for us to continue to expand our relationships with those customers. I think that is a pretty good sign for future development. By all measures, our focus is on maintaining a disciplined approach to underwriting. As we have always said, if we do not have an opportunity to develop business opportunities at what we think are reasonable returns, we are not going to support the business.

Randy Benner-FBR Capital Markets

Okay.

One other clarification-that is all very helpful-on the commercial auto non-renewal, is that the German book or is that a domestic book?

Art Raschbaum

That is a domestic book, and it is a program we had been on for several years. We noted some adverse experience over the last twelve months and we terminated that relationship.

Randy Benner-FBR Capital Markets

Is that adverse experience kind of consistent with what others have seen in the industry where it is kind of medical severity, which is probably exacerbated by attorney involvement in the claims or is it large semi-truck losses? Is there any kind of color you can give us on what they saw adverse there?

Art Raschbaum

I think it is fairly unique to that account. We have other commercial accounts that continue to perform well. In fact, I referenced our faculty to [Cassidy] business where we have a fairly good component of buffer layer excess commercial auto, which has performed extremely well-probably one of the best performing segments of our overall portfolio. So, I think there are some unique characteristics to this account that drove that experience that we do not see as prevalent across the market.

Randy Benner-FBR Capital Markets

Okay, I will leave it there. Thank you.

Art Raschbaum

Thank you, Randy.

Operator

Thank you.

The next question is from Amit Kumar of Macquarie Capital. Your line is open.

Amit Kumar - Macquarie Research Equities

Thanks. Good morning.

Art Raschbaum

Morning.

Amit Kumar - Macquarie Research Equities

Two quick questions. First of all, just going back to the discussion on capital management, and the 45 million buy back-if I think about growth expectations, your debt and tangible capital, your premium equity, would it be fairly difficult for you to divert any meaningful capital towards buy back in 2013?

John Marshaleck

This is John.

We do not anticipate, at this point with the stock price where it is, to do that. Certainly, that is something we just monitor from time to time. Obviously-and there could be some changes in the future-at this point we feel comfortable with our capital position where it is now. We certainly have other options if need be to enhance that, but it really is going to depend on the market going forward.

Amit Kumar - Macquarie Research Equities

When you say the market going forward, you mean anticipated your stock prices to go down?

John Marshaleck

No, we do not expect that at all. We have the opportunity, though with this new authorization so if something would happen, we could take advantage of that.

Amit Kumar - Macquarie Research Equities

Good to hear.

Art Raschbaum

We have always said we did not expect that we would be generated large amounts of buy back activity, and frankly the stock has performed quite well over the last several months, so from a shareholder perspective, we think that shareholder values are improving.

I think it does give us an extra tool. There have been periods of time where the market has been down in the aggregate and we followed the market and it does give us that flexibility, but I do not anticipate or foresee opportunities to aggressively use that capability.

Amit Kumar - Macquarie Research Equities

I got it. I guess, just going back to your rating, how much buffer do you have for your rating above the required capital as for A.M. Best?

Art Raschbaum

It is not quite black box. It is sort of a combination of their analytics as well as their perception of business, the business model, the management etc.

We have not had any adverse commentary from A.M. Best. They have affirmed our ratings. We are actually, hopefully moving into a position since our initial five year period has passed, we might be able to see some improvement in that rating over the next year or so, but we do not have any feedback that says we have big concerns of your capital base.

Amit Kumar - Macquarie Research Equities

Okay.

The final question, just going back to the discussion on margins from the previous questions, was there any reserve movement in this quarter?

Art Raschbaum

There was.

Overall for the year, we had a little over $20 million reserve movement. Not all of that does fall to the bottom line-there are commission adjustments that offset a substantial portion of that. There was a small amount in the quarter. We typically have that. We have a billion and seven of reserves-there is always going to be some movement up and down, so it was certainly not exceptional by any means and kind of in line with other quarters and our expectation.

Amit Kumar - Macquarie Research Equities

Okay, that is helpful.

That is all I have for now. Thanks.

Operator

Thank you.

(Operator Instructions)

The next question is from Bob Farnam of KBW. Your line is open.

Robert Farnam - Keefe, Bruyette & Woods

Thanks, good morning.

Art Raschbaum

Good morning, Bob.

Robert Farnam - Keefe, Bruyette & Woods

I want to go back and touch on the non-renewed account, again. Can you just kind of describe what your growth would have been if you take that out of the picture? I am trying to figure out what I should be expecting in terms of going forward, and if there is going to be any further impact from that account in the next few quarters.

Art Raschbaum

I am sorry, what was the second part of that?

Robert Farnam - Keefe, Bruyette & Woods

Will there be premium impact in the next few quarters and what would your growth have been in the fourth quarter if you basically normalized for that?

Art Raschbaum

I think probably about five percent in the fourth quarter would have been sort of the runway growth without that.

Robert Farnam - Keefe, Bruyette & Woods

Okay.

Art Raschbaum

I mentioned also the unearned portfolios that are not part of the year as well, so if you took out those unearned portfolios for the prior year and you took out the effect for this particularly contract as well as the decision of a client to raise, obviously we would have a pretty strong growth rate. We were accountable for the quarter and what actually happened, and at the end of the day it does not change our view about our opportunity to grow a business.

Robert Farnam - Keefe, Bruyette & Woods

Right, and in the fourth quarter this year, will there still be an impact from that one account-negative to premium?

Art Raschbaum

Yes, Bob, there will be some because, obviously the premium flows through the next few quarters.

Robert Farnam - Keefe, Bruyette & Woods

Next few quarters. Right. In terms of the G&A expenses-pretty good quarter for that. Was there anything in particular that was going on in the fourth quarter or is that-I know you look for something below four percent, and to get below two and a half percent is pretty good, so what was going on there?

Art Raschbaum

Yes. Overall, Bob, as you would expect, a component of the G&A expenses relates to our biggest component is employee compensation, and there is a variable component to that, and obviously the fourth quarter is not good performance, so there was an adjustment made in that quarter. Overall, for the year, we have seen a reduction in the G&A, which is good and then part of that is based on our volume increases as well.

So, nothing unexpected there. You would expect some adjustment with that type of performance.

Art Raschbaum

Yes, we wouldn’t expect to see the G&A at that low of level in subsequent quarters, but I think our run rate is definitely below 3.5%.

Robert Farnam - Keefe, Bruyette & Woods

Okay. Thanks, guys.

Art Raschbaum

You’re welcome.

Operator

Thank you. There are no further questions in the queue at this time. I’ll turn the call back over to management for closing remarks.

Art Raschbaum

Thank you all for joining us today and we look forward to speaking with you in the future. Have a great day.

Operator

Ladies and gentlemen, this concludes today’s program. You may now disconnect. Good day.

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