Maiden Hldgs' CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.20.14 | About: Maiden Hldgs (MHLD)

Maiden Hldgs Ltd (NASDAQ:MHLD)

Q4 2013 Results Earnings Conference Call

February 20, 2014, 08:30 AM ET

Executives

Arturo Raschbaum – President, Chief Executive Officer

John Marshalek – Chief Financial Officer

Noah Fields – Vice President, Investor Relations

Analysts

Randy Binner - FBR Capital Markets

Alex Lopez – Portales Partners

Bijan Moazami – Guggenheim

Kenneth Billingsley - Compass Point Research & Trading

Robert Farnam - Keefe Bruyette & Woods Inc.

Matthew Carletti - JMP Securities

Operator

Good day ladies and gentlemen and welcome to the Maiden Holdings Fourth Quarter 2013 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder today's conference call is being recorded. I would now like to turn the call over to your host, Mr. Noah Fields. Please go ahead.

Noah Fields

Good morning and thank you for joining us today for Maiden's fourth quarter and year-end 2013 earnings conference call.

Presenting on the call today we have Art Raschbaum, Maiden's Chief Executive Officer, along with John Marshalek, our Chief Financial Officer. Also in attendance is Karen Schmitt, President of Marian REIT and 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 or 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 reference to both non-GAAP financial measures and information that reconciles these measures to GAAP as well as certain operating metrics that may be found in our filings with the SEC and in our news release located on Maiden's investor relations website. Please also note that unless otherwise stated, all references to common share data in today's discussion are on a diluted share basis and comparative comments will refer to Maiden's results in 2013 relative to the corresponding period in 2012.

I will now turn the call over to Art.

Arturo Raschbaum

Thank you, Noah. Good morning and welcome. I am very pleased to report strong results for the fourth quarter and for the 2013 year with favorable trends across every key metric. For the year we generated record operating earnings attributable to common shareholders of $87.5 million and diluted earnings per common share of $1.18 while improving our year-over-year combined ratio to 97.5%, down from 99.5% in 2012 and delivering an improved operating return on common equity of 10.5% for the year. Our focus remains on delivering value for all of our stakeholders as we continue developing our highly differentiated reinsurance business supporting the non-catastrophe needs of regional and specialty insurance companies.

We have improved underwriting margins and grown premium writing while at the same time, significantly reducing our exposure to extreme volatility from large catastrophic property event following the sale of our excess and surplus lines property business in 2013. Our financial strength continued to improve with the successful completion of two capital markets transactions with an eye to supporting our growing business and lowering our cost of capital.

In mid-January we repaid our 14% coupon trust preferred security. Going forward operating returns and net income will benefit materially as Maiden's forward cost of capital improves. Investment income has continued to grow as a result of increasing invested assets that are associated with the growth in our underwriting portfolio and our capital base.

In short, we believe that Maiden's efforts in 2013 position us well for continued profitable growth and importantly strengthening operating returns. In an increasingly competitive environment for high quality reinsurance programs we significantly benefited from growth in existing relationships while successfully expanding new client relationships, increasing net premiums written by 10% to $2.1 billion in 2013.

While our year -on year-net premium written grew by 10% in fact we had a core premium growth rate of 22% from continuing operations which excludes the NGHC quota share that was discontinued on August 1 and the divested E&S property business as of May 1. The majority of the premium increase in 2013 has come from our largest client AmTrust, which ceded $1.2 billion of premium to Maiden that was an increase of 39%. Much of AmTrust's premium growth has resulted from continued rate level increases in the U.S. for most lines of business with worker’s compensation experiencing the most substantial increase.

Combined ratios from the AmTrust quota share segment are essentially in line with the 2012 year with a combined ratio of 95.7% versus for the year compared to 95.8% in 2012. Our active client diligence process which includes underwriting accounting and claims auditing, actuarial reviews and other activities give us confidence in the high quality of the business we are receiving from our largest client. We expect continued profitable growth at AmTrust with the addition of the renewed business associated with the recently announced Tower Renewal Right transaction which is expected to close later this year.

In addition to the favorable dynamics in the AmTrust segment we are very optimistic about the continued prospects for our diversified business segment which includes our U.S. based reinsurance subsidiary Maiden Re and the non-AmTrust business underwritten at Maiden insurance in Bermuda which includes the business developed by our international insurance services platform.

Although premium volume in this segment was down by 0.5% in 2013 if we exclude the loss of premiums following the renewal like sale of E&S property business in the diversified segment our net premiums written would be up approximately 2.4% for 2013 with a growing trend line as our fourth quarter growth rate reflects largely from the expansion of existing relationships as well as the addition of several new client relationships throughout the year. While we’re not suggesting that the 20% growth rate is our formal run rate we do believe that there is a positive revenue trend in our diversified segment.

Over the year in the U.S. net premium growth from active client relationships was 7% and our active treaty client count in our diversified treaty segment increased to 99 from 92 on January 1, 2013. Importantly with the divestiture of our E&S property business Maiden’s exposure to catastrophic losses as measured by one-in-250 year [current] probable maximum loss as of December 31, 2013 has dropped 59% to $27.8 million or 3.4% of common shareholders equity notwithstanding our growth in premium.

We believe that this reduction both positions us to enhance earnings stability and will also enable us to continue to provide stable terms and conditions for our clients. While we are not immune to the impact of natural hazard catastrophes we believe that our more modest exposure significantly reduces volatility.

In the fourth quarter of 2013 the diversified segment net premiums written grew by nearly 25% reflecting successful marketing efforts. Throughout the year we have experienced elevated in-force premium levels. This of course represents a measurement of the ultimate premium that we expect to generate on all in-force accounts which typically serves as a good indication of written premiums trends.

We’re pleased with growth from our existing customers as well as the addition of several new client relationships continued to drive enforce premium growth during the fourth quarter. As you may remember, last year we increased client count with new business at January 1 albeit at a relative modest premium level per account as we had expected at January 1, 2014 we were able to increase our share in 10 of the 17 new accounts from last year.

The combined ratio for the diversified segment was 97.6% for the full year which is of course a dramatic improvement from the full year 2012 results of 102.5% as you may recall the 2012 year was adversely affected by the impact of Sandy in the fourth quarter as well as higher than targeted results from our international business largely driven by adverse performance in our driven auto business.

I am pleased to say that not only have we dramatically reduced North American cat exposure but in addition we are enjoying favorable underwriting trends in the U.S. and in the German auto segment reflecting significant underwriting actions that were taken in the prior year. We will continue to work towards further improving our combined ratio by continuing to take action on underperforming accounts, continuing underwriting discipline and continuing the expansion of high margin segments such as our specialty facultative business in the U.S.

In the U.S. Maiden Re’s client focus was recognized in an industry survey conducted in 2013. In that survey Maiden Re was rated best for ease doing business by Cedants in the most recent Flaspöhler Survey. Maiden Re also received the highest scores among all the insurers for client-orientation and value-added services. Maiden received the top score in three of the categories evaluated in the survey that's the largest number of top scores for any reinsurer.

These type of rankings are encouraging to us and we believe they reflect our efforts to deliver differentiated products and services to our clients. We believe that it is discontinued orientation around delivering on our core value proposition to our customers and prospects that has helped to drive new business opportunities and increase shares from existing customers.

From a balance sheet perspective we are always evaluating our capital position and looking for ways to improve our financial strength and flexibility. In the past year we raised over $300 million in two transactions. At the beginning of October we issued $165 million of 7.25% coupon mandatory convertible shares to support the growth in our reinsurance business.

In November we took the opportunity to pre-fund the repurchase of our 14% coupon trust-preferred securities with the offering of $152.5 million, 7.75% coupon 30 year senior notes. As of January 15 of 2014, we retired the trust-preferred securities which will reduce our cost of capital by lowering interest expenses by approximately $9.5 million on an annualized basis.

I will now turn the call to John Marshalek, our Chief Financial Officer to review the fourth quarter financial results within more details. John?

John Marshalek

Thanks Art and good morning. As Noah said earlier, unless otherwise stated all references to common share data are on a diluted share basis and comparative amounts will refer to Maiden's results in 2013 relative to the corresponding period in 2012.

Net operating earnings for the fourth quarter of 2013 were $23.3 million or $0.30 per diluted common share compared to the loss of $10.1 million or $0.14 per share diluted common share. Please note that, when calculating the diluted earnings per share the quarterly dividend on mandatory convertible preference shares should be added back to the earnings. Net income attributable to Maiden common shareholders was $20.8 million or $0.27 per diluted common share in the fourth quarter of 2013, compared with the net loss of $10.3 million or $0.14 per diluted common share. It is important to note that, pre-funding the trust repurchase reduced net income in the quarter by $1.2 million but it is excluded from our operating cost given the one-time nature of the funding cost.

In the fourth quarter of 2013 net premiums written totaled $246 million an increase of 0.7%. Net premiums written in the diversified reinsurance segment were up 25% to $174 million. The growth in the diversified segment's premium was the result of organic growth of existing client accounts as well as the addition of client relationships.

The AmTrust Quota share reinsurance segment, net premiums written increased by 18% to $275 million, and that was driven primarily by continued rate increases in lines of business such as workers compensation. As of August 1, 2013 our contract with NGHC was canceled and is in run off position and we are no longer receiving net new premium.

In the fourth quarter of 2012, Maiden wrote net premiums of $71 million in the NGHC quota share segment. Excluding the divested E&S property business and the terminated NGHC Quota share Maiden's net premiums written in the fourth quarter of 2013 increased 22%. Net premiums are $491 million increased 3% or $12 million. Earned premiums decreased 2% in the diversified reinsurance segment to $189 million, reflecting underwriting actions taken in 2013 and the sales of company's E&S property business. AmTrust Quota share reinsurance segment earned premiums were up 23% to $264 million. The NGHC Quota share segment earned premiums were $39 million in the fourth quarter of 2013 down 47%.

Net investment income of $25 million in the fourth quarter of 2013 increased 20%. Total investments of $3.2 billion increased $546 million or 21% compared to the year-end 2012. The average yield on the fixed income portfolio excluding cash was 3.48% with an average duration of 4.64 years. This compares to an average yield on the fixed income portfolio at the end of 2012 of 3.48% with an average duration of 3.55 years. The current duration of our loss reserve is 4.2 years.

General and administrative expenses for the fourth quarter of 2013 totaled $15 million compared with $11 million. The general and administrative expense ratio increased to 2.9% in the fourth quarter of 2013 versus 2.4% largely reflecting increased variable compensation cost driven by improved results. Combined ratio for the fourth quarter of 2013 totaled 97.3% compared with a 103.7% in fourth quarter of 2012. If we exclude the losses from Superstorm Sandy in the fourth quarter of 2012 the combined ratio would have been 97.3%, same as in the fourth quarter of 2013.

Total assets increased 13.9% to $4.7 billion at the end of 2013 compared to a $4.1 billion at the end of 2012. Shareholders’ equity was $1.1 billion, up 11% compared to December 31, 2012. Book value per common share was $11.14 at the end of the fourth quarter of 2013 or 2% lower than at September 30, 2013 largely due to the unrealized changes in the value of the fixed income securities.

Total capital at the end of 2013 which includes our senior notes and trust preferred securities as well as our stockholders’ equity is $1.6 billion. This compares to $1.4 billion at December 31, 2012. However on January 13, 2014, we’ve redeemed all the remaining $126 million trust preferred securities. On a pro forma basis, following the repurchase of the trust preferred securities our total capital was $1.5 billion.

Also as a result of the redemption of the trust preferred securities in the first quarter of 2014 Maiden will incur an additional one-time non-cash charge of $26 million, which represents the accelerated amortization of originally issued discount associated with trust preferred securities.

As we have previously announced Maiden issued $165 million of 7.25% mandatory convertible preference shares in October 2013. The issuance of the convertible shares has a significant impact from our fully diluted weighted average number of common shares. As you will see in our most recent income statement, our fully diluted adjusted weighted average number of common shares for the fourth quarter of 2013 was $84.5 million. This compares to 73.2 million in the fourth quarter of 2012. Increased number of diluted shares is a result of the issuance of a mandatory convertible shares.

As we issued the convertibles on October 1, 2013 weighted average conversion for the fourth quarter includes fully diluted impact. However for the year, the full year 2013 the weighted average computation lessens this impact. For the full year, adjusted fully diluted weighted average number of common shares were 76.4 million.

I’ll now turn it back over to Art for some additional comments.

Arturo Raschbaum

Thank you, John. The U.S. reinsurance marketplace remains highly competitive. Declines in brokers negotiating for better pricing insurance, while our non-catastrophe focus has insulated us from some of the most significant competitive pressures in the sector, even in our target segment the market remains competitive. We believe that despite the competitive market, our lower operating cost, greater capital efficiency and importantly our client centric business strategy as well as our many long standing client relationships will serve as well.

We’re focused on providing differentiated value and support to our clients. Importantly as we've stated in evidence many times before we’ll not grow our portfolio solely for sake of growth. Disciplined underwriting remains essential. At the primary insurer level, pricing has continued to increase in the U.S., although the rate of increase has moderated. As always there is a lack of consistency with rate levels varying by line of business and geography, but in general the trends remain positive.

At January 1, 2014 we saw premium growth in our U.S. treaty business from new business written as well as the increased writings from existing customers resulting in about a 7% year-over-year increase. Of course we’re early in the year and this number is likely to change based on new business acquired as well as renewal activity over the balance of the year. But at this point, yes we’re pleased.

In Europe, several weather losses from hail and flood impacted the market and resulted in increased property pricing at 1/1. Fortunately for Maiden our business was not significantly impacted by these losses. In terms of auto insurance rates prices have risen in the UK by about 5% and between 5% and 10% in Germany which are our two largest markets in our international insurance services business.

We believe that the market will remain favorable over the next 12 months for that segment and overall we believe that Maiden is well positioned to enhance operating performance and continue the expansion of the underwriting portfolio. We’re focused on expanding our product offerings in our core market segments. As an example last year we enhanced our umbrella liability capabilities to assist our regional clients in addressing their client needs and this year we’re focused on further enhancing the value that we provide to our clients.

We’re actively also working our plans to enhance our global capabilities. While our European expansion which was predicated on increased small to mid-sized insurer demand driven by the implementation of risk-based capital standards or Solvency Two has been delayed we believe that concern in interest is again growing with a focus on implementing new standards in 2016.

We plan to strengthen our capabilities to provide meaningful capital solutions. As always we will maintain a disciplined approach to underwriting which is the cornerstone of everything we do. Importantly we will continue our efforts to effectively manage risk and volatility across our platform, both on the liability and the asset side.

Our balance sheet is strong and well positioned to drive enhanced returns; we’re committed to leverage our key competitive advantages including our low cost operating platform, our efficient balance sheet, our client centric operating platform. Our differentiated business model will continue to be a key driver of our success. Importantly, our key operating objectives remain unchanged.

We’re focused on improving our underwriting performance towards our combined ratio target of 96%, continuing to enhance operating returns on equity towards our medium term goal of 15%, maintaining our G&A operating expense relative base of 3% on premium or less and achieving compound annual growth rates of 10%.

In closing I would like to thank the entire Maiden team for their efforts in making 2013 a successful year. Importantly our clients for placing their trust and confidence in Maiden and of course our shareholders for their continued support.

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

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Randy Binner with FBR.

Randy Binner - FBR Capital Markets

Good morning, thanks. Good morning, Art. I guess I just want to talk about diversified reinsurance growth and kind of what worked there this quarter because that’s pretty big part of the story, so I guess I would pick up. You said you increased share with kind of 10 of 17 key accounts. I just want to get a sense of kind of, if the opportunities you captured this quarter and kind of the better trend do you see for the rest of the year is it more on the U.S. business, is it more in the European business.

I think OEM has been a big focus over there. So just trying to get a little bit better view of geography and product type of what’s working better essentially for diversified this year versus the last couple?

Arturo Raschbaum

Sure. Let me first point out the fourth quarter did include some comparisons to a relatively low based from the previous year. As I said earlier we don't at this point anticipate that run rate will continue. We still see a positive trend as I talked about we see about a 7% year-on-year kind of one-one growth rate. The areas where we are seeing growth our facultative business in the U.S. has been expanding, that’s really our highest margin business segment.

We have seen a fair amount of our growth coming from core client relationships that are expanding. Now about half of our growth seems to come from the growth of sort of core clients. And I think that you commented about the new clients growing those relationships. I was really referring to 1/1/14 period where we had the opportunity to again look at those accounts and offer to expand our position and we were able to do that on majority of those accounts.

So I think the other aspect you talked about the international, we did see a little bit of growth there. Our outlook for this year is cautiously optimistic. We are developing relationships with other manufacturers which should allow us to diversify our customer base and you know we continue to see good penetration levels in Germany on the business there and as I mentioned before good pricing trend. But I would say that if you look at 2014 from a diversified perspective, probably a realistic view would be to kind of look at our 10% compound annual growth target as kind of the reasonable target to shoot at for this year.

As I mentioned it's a very competitive market. We saw a lot of submission probably a record number versus previous years, but we had to pick very carefully the ones that met our requirements and on a relative hit basis we are probably a bit lower hit basis but still produce net growth.

Randy Binner - FBR Capital Markets

Okay. Thanks for that. And just one other comment on your -- you said that pricing was better because of some weather related activities last year. There has been certainly UK floods, I think other Euro storm activity so far in first quarter. So I mean is that something that might affect Maiden or is that something that's kind of had any real time impact to keep pricing still firm there?

John Marshalek

We kind of have a perfect situation in the sense that so far we are not seeing that adverse impact in our results and clearly the primary market is having the strengthened pricing to shore up their performance because of those cats. So we do see 5% to 10% premium growth levels in Germany and roughly 5% in the UK so I think that helps us in the pricing environment and fortunately up to this point we are not seeing any adverse effect there.

Randy Binner - FBR Capital Markets

All right, great. Thanks.

John Marshalek

Thank you.

Operator

Next question comes from Alex Lopez from Portales Partners.

Arturo Raschbaum

Good morning Alex.

Alex Lopez – Portales Partners

Good morning guys and congrats on the year.

Arturo Raschbaum

Thank you.

Alex Lopez – Portales Partners

Yeah. I guess kind of sticking with the notion of perspective growth, can you just share your thoughts on AmTrust's Tower acquisition and its impact on Maiden?

Arturo Raschbaum

I think as that transaction closes and we see effect of the renewal lives transaction taking place that we expect to participate under our typical 40% quota share structure and at this point we are not involved in the assumption of the existing unearned which AmTrust is involved in and we feel like the fact that it is the business is coming over to AmTrust it will be underwritten under their business with their pricing, their efficient platform and their technical skills. We feel pretty comfortable about that business moving over.

I think the question remains is what the size of that portfolio will be at that point but we feel pretty comfortable about our ability to absorb that.

Alex Lopez – Portales Partners

And just one last question, what are your thoughts on retrocession? I think does it make sense given your business mix and is it appealing to you?

Arturo Raschbaum

I'd say that it's always an option for us, for instance if we needed a lever to help to support the growth of our business that's always available, but for the most part unless absent sort of a leverage concern, typically unless it improved our economics, it probably doesn't make sense for us. And given the fact that we have such a low net cat P&L and we do this retrocession in a number of areas to a small extent we use it in some of our umbrella liability business in the U.S. and a couple of other places and we might even have some specific retrocession that we do in some of our accounts.

But by in large, retrocession isn't a big part of our business model at this point.

Alex Lopez – Portales Partners

Thanks.

Arturo Raschbaum

Thank you.

Operator

The next question comes from Bijan Moazami from Guggenheim.

Bijan Moazami – Guggenheim

Good morning everyone. A number of questions, first on the AmTrust book of business, they are growing their small commercial accounts, their on a relative basis warranty business is shrinking as a percentage of what they do. You guys get a flat feeding commission from them. Now if that percentage of the P&C business from them is going be growing for you guys, would that mean that your loss ratio is going to drop, because obviously the P&C business has a higher expense ratio at an lower loss ratio and warranty business has a lower expense ratio and higher loss ratio.

Arturo Raschbaum

So that's a good question. I mean I think we have seen sustainable underwriting results there and if that trend continues obviously has a beneficial effect on our overall results. You are correct. In fact, as you know we simply waive the adjustment, the feeding commission adjustment because we saw the trend being dominantly focused on the small commercial business. So we will see how the business develops prospectively but the point you are making is a fair one and we believe that it suggests at least that we will continue to see good performance on the AmTrust business going forward.

Bijan Moazami – Guggenheim

Again a follow up on the Towers business I understand that the business going forward from Towers is gone be very attractive. But how do you thought about how the feeding commission is gone work on the UTR transfer. Because obviously what you pay AmTrust is very different than what AmTrust is going to be paying Tower?

Arturo Raschbaum

I’m sorry, I probably didn't clarify that. At this point we’re not participating on the UTR transfer.

Bijan Moazami – Guggenheim

Okay, great. And then finally last question for John, you said that the share count for 2014 will be 76.4. So the pro forma book value adjusted for the payoff of the troughs is it going to be 10.80 or is it going to be different?

John Marshalek

Not quite following you with the 10.80…

Bijan Moazami – Guggenheim

Because you paid the troughs on January 15, so the equity is going to drop by $26 million. So if I would have assumed that the transaction would have taken place on December 31 what will the book value be 10.80?

John Marshalek

I would be reduced, yes by that, yes.

Bijan Moazami – Guggenheim

Okay.

John Marshalek

There's certainly that impact, but now when you look at the book value, fully diluted shares don’t impact the book value because at this point they would be anti-dilutive.

Bijan Moazami – Guggenheim

Okay. Then, what would be the basic share count going forward in 2014. So you gave us a diluted, what is the basic share count?

John Marshalek

Well the basic share count on the financial statements going forward at December 31 is 72.6 million for the book value computation. And then as you reported out that’s different than the earnings per share computation, I know it's a bit confusing this quarter because of the way the convertible security came on.

Bijan Moazami – Guggenheim

Okay, perfect.

John Marshalek

Yes.

Bijan Moazami – Guggenheim

Okay, perfect. And the last question is that there was an increase in the commission payout. So if I look at the commission and other acquisition expenses there were some movement there. Is there is a change in feeding commission or is it just the way the accounting works or is there some kind of that change in the dynamics of that mix of shift, shift in mix of business?

John Marshalek

That’s really just related to the business exchange, Bijan there is really not change in the basic assumption for the business itself. It depends on the business mix that number will fluctuate, but obviously we’ve priced some accounting [book] at combined ratio.

Bijan Moazami – Guggenheim

That’s all I have. Thank you.

John Marshalek

Thank you very much.

Operator

Our next question comes from Ken Billingsley with Compass Point.

Arturo Raschbaum

Good morning Ken.

Kenneth Billingsley - Compass Point Research & Trading

Good morning. I just wanted to ask were there any reserve releases or adjustments during the quarter?

John Marshalek

Now there, again this is John. They were very minor for the quarter, overall for the year we’re going to have a very minor positive reserve release, but again it’s relatively insignificant.

Kenneth Billingsley-Compass Point Research & Trading

And then, I know I’ve asked this question on some other calls, but just a clarification. When we look at the AmTrust and what their loss ratio is on a blended basis, do you guys tend to have a loss pegged for what you retain, that tends to run 50 to 80 basis points lower. Can you talk about what you are alluding or what you’re not covering that allowed you to have a loss ratio pegged at below what AmTrust is putting at?

Arturo Raschbaum

First of all Ken I mean we established our loss [fix] independently as we do with every client. And we’re comfortable with the fix that we’ve established. There are certainly elements of AmTrust business that as you know we don’t reinsure but I don’t know what the loss fix on those segments actually are. So at it stands today they there are some of the professional lines that we don’t participate on today the first down profit we don’t participate on. Those are a couple that come to mind.

Kenneth Billingsley-Compass Point Research & Trading

And I believe that you might have answered this with -- be John’s question, but just following up the expense ratio itself from on the acquisition side for AmTrust, it’s increased steady throughout this year, but it’s higher. And is that primarily just a mix of business?

John Marshalek

Yeah that’s true Ken. It's a mix of business and then in the prior year we still had the impact of that adjustable commission impact. So it’s really and certainly the mix of the business impacts that. That's by far the biggest piece.

Arturo Raschbaum

I will add that in the hospital liability segments we have a different feeding commission than we do for the...

John Marshalek

Yes we have a much lower feeding commission on hospital liability and then depending on the premium and in this quarter of the year that has an impact on that ratio.

Kenneth Billingsley-Compass Point Research & Trading

Last question is from a capital standpoint obviously the capital rate at the end of the year, is the growth that's coming out of the diversified segment was higher than we expected and I know that you still haven't given expectations for 2014 is on a blended basis the capital that you raised anticipate the premiums that are likely to flow from the diversified and the AmTrust Tower deal or we [inaudible] capital market

Arturo Raschbaum

We think we are in a pretty good position from a capital standpoint and we look at a ratios at year-end and kind of project how we expect to grow we think we have enough, we are comfortable with the capital of today and obviously if there is more significant growth than we anticipate which would be good problem and we have to do that. But at this point, we feel pretty comfortable where we're at.

Kenneth Billingsley - Compass Point Research & Trading

So how high do you feel the debt ratio will be adjusted?

John Marshalek

Well, we look at our statutory we use our capital as a statutory proxy. It not exact so I don't have exact statutory number but the $1.5 billion of capital related to the $2 billion of writings is about 1.3 ratio and again these are very high level ratios. So keep in mind they are at high level and we have been operating a little bit above that in the past. So we feel, in the past we have been about 1.5.

So we have some I think ability to grow the premium base on that. We look at a GAAP basis and same type of ratios or higher but the same type of relationships exist there. But I think we are pretty comfortable going into 2014 with the capital we have today.

Operator

Can we move on to the next question?

Kenneth Billingsley - Compass Point Research & Trading

Yes. Please go ahead.

Operator

Our next question comes from Bob Farnam with KBW.

Arturo Raschbaum

Hi, Bob.

Robert Farnam - Keefe Bruyette & Woods Inc.

So with your ability to continue to invest your cash should we expect that the investment yields would be going up from here? And that's part of the question. The other part of the question is basically the new money rates versus what has been expiring? Just give us an idea of what, how they compare.

Arturo Raschbaum

It's hard to project about where we are on rates. We would hope they would go up. We thought they were going and they did go up in the fourth quarter although it seems like now they've leveled off a little bit. It's really, really hard to project that. The new money rate is 3.4% very close to where we are at on the overall portfolio. Again we really can't do much more than work with the cash we have invested as quickly as we can and we have done that.

We saw the big increase in investable assets in the quarter. We are just going to try to keep the portfolio invested as best as we can and rates will obviously have a bearing…

John Marshalek

I would say that from our perspective, Bob we are not anticipating a significant expansion yield but that doesn't -- in our view put a damper on our view that earnings can grow this year because our invested asset base is growing as well. So we are making not taking any assumption on expected investment yield.

Robert Farnam - Keefe Bruyette & Woods Inc.

Okay. And a numbers question. I don't recall you provided it but operating cash flow?

John Marshalek

The operating cash flow for the year was a little over $360 million. So approximately a $100 million in the quarter a little over that of positive cash flow for the year and the quarter.

Robert Farnam - Keefe Bruyette & Woods Inc.

Okay. Thanks.

John Marshalek

Thank you.

Operator

Our last question comes from Matt Carletti from JMP Securities.

Arturo Raschbaum

Hi, Matt.

Matthew Carletti - JMP Securities

Thanks. Good morning. Most of my questions have been asked and answered. Just one kind of a follow on to Bob's in terms of investments. Obviously end of the year kind of at a high point for cash balance about $140 million which makes sense given some of the capital raises. What's a comfortable kind of cash, run rate cash level for you, how much of that is yet to be put to work?

Arturo Raschbaum

Most of it been put to work. I think the comfortable level is the 100 to 150 range, but a lot of that really depends on the timing of cash flow. But that's what we kind of target. We did have a Trups repayment in January, so we have to keep some cash available for that and obviously we have a more normalized cash position going forward. But I think if you use 100 to 150 range is that's our kind of our target.

Matthew Carletti - JMP Securities

Okay. Perfect. Thanks a lot and congrats on a nice quarter and year.

Arturo Raschbaum

Thank you, Matt.

Operator

And there are no further questions at this time. I would like to turn the conference back to our host for closing remarks.

Arturo Raschbaum

Thank you everyone for joining us today. We look forward to speaking with you in the future. Have a great day.

Operator

Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.

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