Endurance Specialty Holdings Ltd. (NYSE:ENH)
Bank of America Merrill Lynch 2014 Insurance Conference Call
February 12, 2014 12:35 PM ET
Mike McGuire – CFO
Jay Cohen – Merrill Lynch
[Call starts in progress] have with us Mike McGuire from Endurance. He’s the company’s Chief Financial Officer, been with the company for more than a decade, has been CFO since 2008 - 2005, excuse me. It’s a lot to talk about with Endurance, there’s been a lot of changes at the company and a change in strategy, and so the timing is really good to have Mike here go through the story. We’re going to do a Q&A format, so I’m going to shift over here and we’ll get going.
Okay. I guess to start, let’s talk about this, I call it the transformational plan. I might be overstating it a bit, but it’s a change with your new CEO coming in.
Is there something you need to tell me about?
Jay Cohen – Merrill Lynch
Yes. All right. Talk about the key parts of the plan, big picture, and then we can drill down talk more about it specifically.
Sure. And thank you all for joining us here today. I think your statement of speaking about Endurance and the transformational story is not an understatement of what’s been going on. At the company for really over the last eight months in particular but actually more over the last year and a half to two years. Endurance is really a story about transforming and developing particularly our insurance business. There is three critical elements as I look at our company and what we’re trying to accomplish over the next several years. The first and what would and clearly been the most visible changes externally has been the changes in the underwriting leadership of the company, starting with John Charman, our new Chairman and CEO who joined us about eight months ago.
But even before that, we had done some significant changes in our business segment leadership through the hiring of Jack Kuhn as the CEO of our Insurance Business, who joined us at the very end of 2012. And then, Jerome Faure, who joined us as CEO of our Reinsurance segment in April of last year. So, a lot of the changes to the underwriting footprint and the risk strategy of the company had started and that really had accelerated quite significantly when John joined us in the middle of 2013. And so, what’s happened since then is that we’ve had a pretty significant retooling and frankly upgrading the underwriting talent and underwriting capability of the company. You can go down the laundry list of press releases and announcements of professionals who had joined us in both our insurance and reinsurance segments over the last year and it’s a pretty impressive roster of people.
Their track records are undeniable and they have great experience and building and sustaining profitable portfolios to business. So, that is the first step of this transformation is getting the underwriting leadership and the underwriting footprint in the core product lines and the core geographies to a level that we think makes sense for the company of our size and of our aspiration. And so those are things that I think you can already observe about the experience of Endurance. We’ve got the core of our underwriting leadership in place. There will be a few teams and individuals that will join us over the coming six months or so. But, the core of that change has happened and we’re now just starting to see the impact emerge and I think that moves nicely into the second phase or second work stream of the transformation which is improving the underwriting quality of the portfolio, improving the balance the of the portfolio and diversifying the portfolio.
And so, that is really what’s in flight right now. We’ve had a good head start on the year with what we did in 2013 across both of our businesses we did of a significant set of re-underwriting activities. Our insurance business was less about re-underwriting because you need a portfolio to re-underwrite and we’re really outside of our crop insurance business did not have much of an insurance portfolio to speak in. So, the transformation of our insurance business is much more about getting the right product and distribution capabilities in-house.
And we just launched a London insurance business that is now starting to write insurance policies. And we’ve added significant skill sets into our U.S. specialty insurance operations and the professional liability classes, excess casualty classes, and some primary casualty classes as well as some marine specialty businesses. And so, those people really didn’t write a lot of business in 2013 but they’ve now are up and running, have been integrated into the company quite effectively and are getting their fair showing in the market. And we’re starting to see that profitable growth come through. And that should be much more visible as we go through 2014.
The other thing that is – in terms of that underwriting rebalancing, is looking at our catastrophe exposures. Our cat businesses has been a very strong portfolio business for us since inception. Strong performer of good profits, good margins, but that if you happen to look at any of the press out there is getting a lot of energy around, the competitive dynamic, the alternative capital coming in. And so, we’re not extending our limits capacity or risk profile in the cat space, frankly, we’re actually reducing limits and exposures, less on the gross side, but more on the net side we’re reducing.
We’ve been taking advantage frankly of the highly competitive conditions in the retro and collateralized markets by buying more retrocession protection on our catastrophe portfolio. And so, our net premiums will be coming down and our – you can see that already in our PMLs which are down substantially over the last two years. And our portfolio is now much more balanced, we’d expect to have lower volatility coming out of the portfolio and still a good margins. The other thing we’ve been doing is re-underwriting and replacing business in the U.S. Reinsurance business. We had a new team join us in the fourth quarter of last year. They brought with them some embedded relationships that enable us to drive some pretty significant new premiums in the fourth quarter in professional liability classes.
And really that was mapped by a pretty significant amount of re-underwriting that took place in our reinsurance portfolio. For the full year our premiums were little bit – grew a little bit more than flat but not much. But, underneath that portfolio, we had some very chunky premium contracts that we not renewed, that had very, very low margins and they were replaced with some new business that actually have better margins. So, even though at the very highest level, the premium levels don’t show a lot of movement, the underlying has shown some very significant improvements. And we’re doing that across the reinsurance portfolio. We’re probably 60% to 70% of the way through that kind of re-balancing effort in our reinsurance business and we should be largely completed through that by the time we get through to the mid-year renewals. But, the bulk of that churn has taken place and we should have a much cleaner picture of the business portfolio of Endurance emerge in 2014 and beyond.
The third part of the transformation that we’re undertaking is about scale to scale and cost efficiency of our operations. One of the things that new leadership gives you the opportunity to do is, is a fresh look at how you’re organized, how your structure, how your cost rolls out. And what we have done and really from the first 60 days of John Charman joining us, is really reset the infrastructure and the leadership structure of the company. They’ve eliminated some redundancies, eliminated some duplicate roles that had a very important cost saving element to it but more importantly clarified the decision making of the Executive group as well as the teams underneath. So, that not only did it create some expense savings that we’re able to then redeploy into hiring of the underwriting expansion, but it made for a much effective decision making process of the company.
And the expense side of the equation is one that will probably emerge over the next two years and we’re probably at a plateau in terms of where I’d see our expense ratios and ultimately, expense dollars for the company. And as we scale our businesses with all this new underwriting leadership we’ve brought on board, we’re going to be able to leverage our infrastructure to a much greater degree that we’ve been able to do in the past. And that by itself will create margin expansion for the company as our fixed cost base is being levered and utilized much more effectively. And so that is something that should drive margin improvement over the next two to three years.
So, those are the three ways that I would look at the transformation and it’s been quite significant. It’s hard to believe that John Charman has only been at the company for about eight months now because we have accomplished a significant amount in a very short of time that I think fundamentally resets the company how we’re positioned, how we’re viewed by the markets in general and how our brokers and distribution view the company. We are now more of a force to be reckoned with, and that will only grow as we continue to gain traction with the new underwriting leadership that we brought on board.
Jay Cohen – Merrill Lynch
It’s good answer. There is lot going on. And let me delve in a little bit on some of these points. So, first is, so you’re attracting a fair amount of people, how do you do that? I guess the skeptics in the room will say well you’re just paying more money, I know that’s not all you’re doing though. So, how are you attracting new people to the organization?
Yes. Well, clearly you need to pay market rates and we’re offering market terms to people that are joining. The one thing that has been very gratifying, as we have – we’ve been hiring underwriting leaders is that – yes you have to pay in their market rates and actually they’re fitting nicely into the compensation structure that we have at the company. But, what is been gratifying is that they’re clearly want to make sure we’re paying them a right base salary and that they have the right kind of annual bonus incentive compensation.
They’re very focused on the long term incentive equity compensation that they could also achieve as part of joining the company. And that speaks to their own view of the company and what they’re coming into, what the opportunity frankly is. They see the opportunity that we see at the company that there is a significant change that is underway at the company that will prove significantly the value and profitability of the company.
That will have a positive impact on the value of the equity and that is something that the underwriting leaders see and have a very strong influence on that, that being a success of the company. So, they want equity and that is a much better situation than saying, just give me a big salary and big bonus and cash compensation. They’re very tied into the transformational aspect of the story. And truly understand the value proposition that an equity stake in the company has. We’re not throwing it away for sure. But, at the same time we’re giving market compensation and they’re excited about participating in the equity upside that they can see very tangibly as they join the company.
Jay Cohen – Merrill Lynch
I guess the next question is just – so having covered this industry for a long time, when you have a company that shows outsized growth, big growth, and that’s kind of the plan for the insurance business the non-crop insurance business, significant growth. Often, not always, but often, it results in some sort of underwriting problem years down the road until you get really skeptical and it’s a red flag. Why should your experience be different than unfortunately some of the experience we’ve seen with others that have grown a lot.
Yes. That’s not the first kind of criticism like that, they would be thrown out for any company trying to grow. And we have been very clear at acknowledging the market conditions that we’re facing in the company. And reinsurance market conditions are more competitive as the company is focused more on insurance growth versus reinsurance, that is a positive for us as we look to grow our insurance businesses. That will be utilizing reinsurance capacity in a significant way.
And there are two checks that, that gives you, one is that, it is a huge validator for the quality of the underwriting that we’re bringing on board. We’re able to attract the reinsurance support behind it, that is a good validator. It also I think keeps you honest in terms of how you operate in the business that reinsurers audit and understand the claims activity going through and there is a nice feedback with there that you get from your reinsurers. The other aspect that I think is absolutely critical differentiator for that question of well you’re growing in a market that’s still competitive that’s the dumb thing to do. You need to look at the quality of the underwriting and the track records of the people that we’re bringing on board. That is the key and critical differentiator that you can put the blowups, recent blowups in the past. I think those were no surprises to us nor to I think most that were following the industry, the ones that have hit the proverbial wall.
And starting right at the top with John Charman has probably among the longest industry track records of any CEO in our space. And so that is step one, then you need to look down the line at the individuals running our businesses and their track records, what they have accomplished over their careers, how they have grown and shrunk businesses throughout their careers. And then look at the underwriting experience of the teams we brought on board. We’re not bringing second and third stream people into the company, we’re bringing top-tier underwriting talents and we’re paying them to generate a profits, we’re not paying them to generate premium growth, we’re paying them to generate profit and making sure that we have their underwriting focus.
And that discipline is going to – I think prevent that you call it inevitable blowups that happened with aggressive growth strategies. The second – the other thing that I think is important to think about when you look at Endurance specifically as, look at where we’re coming from, particularly in our insurance business, use professional liability is a key business line for us, yes. We – for last year we had less than $100 million of professional liability insurance premium. If you look at the track records of John, our CEO as well as Jack Kuhn, CEO of our Insurance Business, they in very recent history have run global professional liability insurance portfolios of a $1 billion plus, we have less than $100 million.
If we had a 100% growth rate in that business, we’re barely breaking the ice in terms of penetrating that market which is a very broad, very large market. And people that we brought on board are industry leaders in that market. So, that gives us a great deal of confidence that we’re not just blindly pursuing this growth because we need to grow. We have a very disciplined and focused approach to growing our portfolio businesses in areas that we have decades and decades of profitable experience. This is not us waking up and deciding that we want to be in an insurer of XYZ Specialty because it’s a flavor of the day. These are well-known people for one that’s – that our leadership has worked with over decades. But in product lines and markets that there are decades of experience in performing well. So, that is in my mind a critical differentiator for that generic statement that’s made about growing in a challenging market as a reduction flag.
Jay Cohen – Merrill Lynch
Well, one of I guess maybe issue could be that when people write new business especially casualty business historically booked at a somewhat higher loss ratio than renewal business. So, simply by the fact and you got a lot of new business coming in, will that to some extent, push up your loss ratio?
It should. The benefit of the business that we’re writing is that although it may be new to Endurance as a company, it is not new business to the people that we brought on board. So, there is great data and information that we have in terms of market data and information that should enable us to set the right kind of loss ratios for the business based on the knowledge and experience of the teams as well as the actuarial support that we have behind the business. And as I said, we’re not underpricing the market or cutting prices to get that business, we’re taking – we’re basically taking market share as oppose to trying to cut price to get a piece of the business.
And the other thing that as you think about loss ratios. The underwriting improvements that we’re talking about on the insurance side, although there is some loss ratio improvement expected because of higher quality underwriting and business mix changes. One of the most important parts of the margin expansion that we expect in our insurance business is the greater leverage of our expense base. That has equally, if not more of the positive impact on our financial forecast is the expense and margin improvement there.
Jay Cohen – Merrill Lynch
Although, you’re reinsuring some of this business away, but I guess you do get a ceding commission with a reinsurance, if it’s a quota share basis, I assume that will help the expense ratio, especially these days given the state of the reinsurance industry.
Yes. I would say if you think about our expense base, we’re going to continue making the right investments and infrastructure and underwriting talent. But we – so we’ve got the core of the leadership in place now which are obviously the highest – high dollar drivers of expenses. But then, how do you fund that growth, one we have a pretty mature infrastructure operation. So, we’ll be looking at ways to add efficiency in there whether it’s utilizing more outsourcing of low value, kind of high-processing activities, use our London operation as an example where we have zero insurance premiums over the last 24 months. But, we have a balance sheet, we have a corporate infrastructure, we have a financial infrastructure that is quite scalable and by some relatively straight forward outsourcing initiatives with some of the providers in the London market, we’ll be able to grow an insurance portfolio to $100 million, $200 million of premium with a very inconsequential impact to the expense base of the company.
And so, getting that kind of leverage is a critical part of it, and I think we’ve got the capabilities to do that. The other piece that you mentioned is the impact of utilizing reinsurance. Reinsurance markets are reasonably soft, I don’t think it’s – went to the level of panic that many of - I guess, your ilk in terms of publishing will say. But, what’s happened is that, as we’re seeing primary rates still increasing, I love it how people are running it, the positive that is rate increases into the sky is falling because the rates of price increases has decelerated. The fact is, we’re still getting rates. And so, growing in a market where we’re still getting rate are be in the rate of growth of that rate is not as big. That’s still a positive.
What’s happened with the reinsurance markets, particularly for proportional covers is that, that increase is being retained to the primary level because the ceding commissions are being expanded. And that, as an insurance company, we’re going to be taking advantage of that, so we’re getting good ceding commissions on the premiums that we place. Much of our insurance business growth will be funded by proportional reinsurance. And this is based on the competitive nature of the reinsurance market combined with the quality of the underwriting that we’re bringing on board, we’re getting great support by our reinsurers. And that expense overwrite will help keep that expense base quite flat as well.
Jay Cohen – Merrill Lynch
I guess the other way to gain scale would be to make acquisitions. Is that going to play a role?
It certainly could. Acquisitions have been an important part of our development as a company. Our crop insurance business came to us by a way of an acquisitions in 2007, our catastrophe reinsurance business back in the very early days of the company’s life came – did come to us slowly but was significantly enhanced by renewal rights transaction of LaSalle Re if you remember that name. Our U.S. reinsurance business we did a renewal rights transactions with the HartRe. Those are all things that have formed meaningful core parts of our portfolio today.
As I look forward, I think M&A is clearly an avenue for growth. And in the softening markets, if you have the right to determine leadership, you can really make a difference in terms of the M&A landscape. I think here the investment banking counterparts on the other side of your wall and your farm, they’ve been talking about the need for consolidation, I see some of them in the back of the room here today. But talking about the need for consolidation in the Bermuda market or in the P&C space in general. And based on the leadership that we have and our ability to drive change through our organization floor and organization that we could acquire, that should not be underestimated, it is something that – it is on the table for us, that we would certainly look at. But, we would – for us to do an acquisition, that’s more than say a bolt-on acquisition, would have to be something that is – it’s a strategic enhancement to the company, something that add the value to the operation, creates greater scale, has an ability to create significant efficiency and synergy to the defined operations.
And there is good – there is good combination aspect to it. Those are things that we would look at. The numbers obviously need to work and depending on how much you pay, you need to be able to justify what you pay for enhanced return on equity potential in the future. So, those are all things that go into the mix. And it wouldn’t surprise me up in the next two to three years that there might be something after that would be interesting for us. But, it’s a big market, there is lot of players out there and we’re certainly going to be driving our businesses forward, the organic opportunities are quite strong for us, that’s just based on where we’re starting from. But, if there is a way to accelerate that development by larger M&A activity, that’s clearly something that is not off the table.
Jay Cohen – Merrill Lynch
Any question from the audience, by the way? Just, got a couple questions, good. Let me start over here and we’ll move down here.
You have said that you’re taking market share and you said you were writing good business and you said that the business is properly priced. If that’s the case, and I’m not doubting you, but the business is probably coming from other very good companies, who have infrastructure in place that has been in place longer than the infrastructure you have in place and their relationships may have been in place longer. So if you’re not reducing your prices, how are you tackling this business to go to an Endurance versus whatever incumbent they may already have?
Sure. Our business is fundamentally about having the right capital, having the right products, but more importantly having the right people. If you have the right underwriting leadership that has a following the market, the business comes and I will put myself in as a financial guy has one of the bigger skeptics to that argument. But I seen it happen over the last year with starting right at the top of the company with John and with the underwriting leadership that we brought on board, their ability to demonstrate their relevance to up and down to brokers and distribution, say look we are investing in the highest quality underwriting talent, we need to see our fair sharing in submission flows of the business.
We will take the market share that we can get but at the same time, the business has been flowing to us by nature of the quality of the underwriting talents that we’ve been able to bring on board. That is been a key differentiator for us. And some of it, it’s come from the places that these individuals have come from, but an equal part has come from our company’s more aggressive pursuit of the distribution channel and making sure that we have a better seat at the table with Marsh, Aon, Willis, [Ed] on the reinsurance brokers within those organizations to make sure that we get that show. A good example for us which is the biggest example in our fourth quarter last year we hired a U.S. reinsurance team that joined us and brought with them embedded relationships and we – before these guys even joined us, we got a call from reinsurance broker and a large ceding company client that wanted to make room for us on a treaty that they replaced.
We weren’t – we didn’t aggressively pursue it, it came to us based on the embedded relationship that these individuals had. So, that is probably good and easy example to talk about but we’re seeing it across our insurance businesses as well where we are relevant now to our insurance distribution partners. We now have the ability to offer multiple products to say professional liability as a class business offering multiple products into that distribution and we’re getting that submission flow. The other piece which is probably less appreciated externally but it’s something that has been very significant for how we try and achieve a balanced relationship with the brokers is we are going to be one of the few companies, few insurance companies that are buying more of reinsurance over the next several years.
Many companies are increasing their retention, buying less reinsurance. And if you look inside the brokers, a big source of their revenue and their highest margin revenue is the brokerage commission that they earn on reinsurance that is placed and it’s one of the few companies that is going to have a larger insurance operation that is buying more in the reinsurance market, they are quite interested in pursuing brokerage of our reinsurance business. And if you’re starting your relationship management at the tops of those organization and say look we need the proper support and proper showing of the insurance business because we have a choice to make when we decide which brokers we use to buy reinsurance. And that is a point of leverage that is vastly underappreciated externally but one that we are absolutely levering to make sure that we get the right kind of showing and then we’re not formally having to say try and compete on price.
The follow-up question on M&A and the current market conditions there. What do you notice seeing in terms of I guess opportunities in the market now compared with the recent, past and how the bid off spreads are trending? And then also could you maybe talk bit more about your own criteria for acquisitions, what sort of hurdle rates you look at or accretion requirement [indiscernible].
Sure, sure. I’d say it is the – the M&A landscape hasn’t changed materially, the one key point of difference over the last 12 months has been the valuation changes that have happened in the sector. The M&A that happens before – well the M&A that’s happened over the last two years has been, I’ll just say balance sheet, non-strategic deals that you buy a company well below book value, you get rid of it and you’ve arbitraged the capital, and that – it doesn’t necessarily change the strategic footprint of the company. And so, that was a dynamic that required, I’d say an aggressive buyer with a very troubled seller and that they had to do something or forced into a transaction.
What has now changed with valuations now closer to book value, there is – I think there is less likelihood that a deal will be done clearly for the financial balance sheet that embeds that buy something meaningful book value could have accomplished. So, that raised the game for people when they’re looking at acquisition criteria. For us, we look at a number of things to drive acquisition activity. The first and primary objective is something that have to enhance the strategic footprints and profile of the company. We’re not particularly interested in doing a balance sheet take on deal just to expand the capital of the company. And acquisition for us would have to significantly expand and accelerate the development of our businesses, the footprints, the product and geographic diversification of the company and the relevance in the market.
So, that is hurdle number one which is frankly a very big hurdle. The hurdle number two which is probably multiple hurdles is, you need to look at the financial elements, if you’re going to be paying a premium to market price to book value and obviously having dilution, the tangible value or a dilution to your book, you would need to see a corresponding increase to your projected returns on equity over time. And that – the answer to the what’s the hurdle is it depends. The bigger the premium you pay, the bigger the change to the forward looking ROE you would need to have to make those numbers work. Those would be clear drivers for us. Once you satisfy, does it strategically make sense, is there good synergy amongst the companies, is there a good opportunity to reduce overlap but also gain relevance and scale in the market. Then, can you make the numbers work, can you build a case that essentially through synergies and through improved ROE essentially pays for the premium that you may have to pay in acquisition.
Jay Cohen – Merrill Lynch
We have time for one more question. Let me hit it. It’s a big business for you. We even talked about it, your crop insurance. What – what’s the outlook for 2014?
Yes. I’d say the – I’ll start with commodity prices is a big driver, commodity prices are down. So, if you just look at premium volume, that will likely be tough to grow our premium volumes in ag crop insurance this year. That being said, if you look at the underlying organic growth of the company, we would still expect to generate mid to high single-digit growth in policy accounts, we continue to gain market share. This – the crop insurance business is one that is a huge strategic value to us, we’re one of very few number of companies that operates in a primary space of this business. I don’t know of a reinsurer out there, that isn’t very antsy at trying to reinsure crop as part of their portfolio, we benefit from that where there is only a few companies that are able to buy reinsurance in that market, we’re one of them.
The other thing that is very recent news, the farm bill was finally signed into law last Friday and that essentially did what we said, it would do and what we’ve been saying we do over the last several years which was preserve the existing economics of the crop insurance, provide five years of real certainty with respect to the operating framework that we have. And actually expanded funding for crop insurance, even if you think about the farm bill which is what it essentially does, the fair bit of the funding for crop insurance. 90% of the dollars that are spent in the farm bill are nutrition programs or that’s code for food stamps.
And so, when you layer an crop insurance with food stamps, given what’s going on in Washington, it’s a political hot potato. But the farm bill was passed by the House and Senate, signed into law. And actually, although there were some cuts to some farmer subsidies, that was outside of the crop insurance program, additional funding was actually put in place to crop insurance. So, there will be an expansion of crops that are available to be covered under the crop insurance program, there is pilot programs for weather derivatives and other things that remains to be seen how that filters into the crop insurance industry but it’s a net positive from my perspective, it’s a huge positive because it removes a significant uncertainty with respect to the landscape that we have to compete in and that – we got five years of runway.
The other thing that is important is that the farm bill included what’s called the sidebar language that basically prohibits annual renegotiations of the standard reinsurance agreement. If you remember back to 2011, there were some back and forth between the industry in the USDA that the net effect was cuts to the economics for crop insurance outside of the farm bill. And the sidebar language said that any changes to the standard reinsurance agreements that are done annually throughout the next five years, need to be budget mutual. So, that is a huge positive for us that we know that there is not going to be tinkering with the margin over the next five years. So that’s a great thing for us to see that uncertainty removed.
Jay Cohen – Merrill Lynch
If you got a 60-second answer, we can do one more question. Go ahead.
Given that – they just – the ag bills just passed, does it – I understand there are pretty large subsidies to farmers to subsidize their crop insurance premiums. So, flexibly the U.S. tax payers subsidizing their insurance. So, do I conclude them – and a lot of companies are moving in the crop insurance business. So, is it reasonable to conclude that, I as a tax payer is subsidizing higher margins in that business that is going right into your pocket?
The – no the premium that…
I’m not kidding at you, but I’m just saying it.
No, I understand the question for sure. The subsidies is provided to the farmer. So, the premium that we charge is - actually the rate is determined by the government. And the rates that are charged in aggregate have to cover the losses, the actuarial losses that are determined. So, it has to be a self-funding program. What the significant portion of the subsidy is basically to incentivize all farmers to buy coverage, so that the overall cost of the program is less by getting maximum take-up rates. And so, if that subsidies of that farmer went away, it wouldn’t change our economics because the premium then we charge for the policy would be the same, it’s just a matter as the farmer paying more than what the government pays for them.
And so, that doesn’t expand our margin, it absolutely would impact how much an individual farmer would pay for their insurance. I don’t think I would align this next to Obamacare, yes. But, I don’t think there are price insensitive because this is a one government program or subsidy where the farmer and they have material skin in the game, they are paying significant premiums into the system for their risk management. And so there is some price sensitive where you’d seen in some areas where growing conditions are more volatile and more challenging like Texas or parts of the delta where just growing conditions generally are more volatile, the rates are higher.
And so, when the farmer is buying, they’re buying lower levels of coverage for higher deductible policies because of the price. So, they are – they’re not price insensitive. And clearly that subsidy is an important driver of their decision but yes they’re not price insensitive.
Jay Cohen – Merrill Lynch
We got to [indiscernible]. Would you grab him after?
Grab me afterwards.
Jay Cohen – Merrill Lynch
We’re going to move on to the next presentation. Join me in thanking Mike though.
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