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Argo Group International Holdings, Ltd. (NASDAQ:AGII)

Q2 2014 Earnings Conference Call

August 5, 2014 10:00 AM ET

Executives

Susan Spivak Bernstein – Senior Vice President of Investor Relations

Mark E. Watson – President and Chief Executive Officer

Jay S. Bullock – Executive Vice President and Chief Financial Officer

Analysts

Dan Soe – Sterne Agee

Brett Shirreffs – Keefe, Bruyette & Woods

Amit Kumar – Macquarie Capital, Inc.

Adam Klauber – William Blair & Company

Bijan Moazami – Guggenheim Securities

Operator

Good morning and welcome to the Argo Group International Holdings Second Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Susan Spivak, Senior Vice President of Investor Relations. Please go ahead.

Susan Spivak Bernstein

Thank you and good morning. Let me add my welcome to Argo Group's conference call for the second quarter and six months 2014 results. Last night, we issued a press release on earnings which is available in the Investors section of our website at www.argolimited.com. With me on the call today is Mark Watson, Chief Executive Officer; and Jay Bullock, Chief Financial Officer. We're pleased to review the company's results for the quarter from six months as well as provide you with management's perspective on the business.

As the operator mentioned, this conference call is being recorded. Following management’s opening remarks you will receive instructions on how to queue in to ask questions. As a result of this conference call, Argo Group management may make comments that reflect their intentions, beliefs and expectations for the future. Such forward-looking statements are qualified by the inherent risks and uncertainties surrounding future expectations generally and may materially differ from actual future results involving any one or more of such statements.

Argo Group undertakes no obligation to publicly update forward-looking statements as a result of events or developments subsequent to this conference call. For a more detailed discussion of such risks and uncertainties, please see Argo Group’s filings with the SEC.

With that I’ll turn the call over to Mark Watson, Chief Executive Officer of Argo Group.

Mark E. Watson

Thank you, Susan. Good morning everyone, and welcome to our second quarter call. Argo posted solid second quarter 2014 results with net income up over 22% from the prior year. At June 30 the book value was – book value per share was $62.80 up 4.2% from March of this year and up over 13% for the last 12 months, and tangible book value per share was up even more with 15% growth.

I mentioned this first to remind everyone that growth in book value is the most important measure of how we’re doing. But even on more narrow measures we’re showing improvements in our returns. Our annualized net income return on average equity was approximately 10% and on an operating basis almost 8%. On second quarter 2014, operating earnings were $0.89 per share compared to $0.75 in the comparable 2013 quarter or an increase of 19%. For the first half of 2014 operating earnings grew to a $83 per share from a $45 in the same period of 2013 of an increase of 26%.

Net income for the first half of the year was up 28% on a per share basis from last year. So how we want to look at the results I think we’re seeing tangible improvement. For example, for the six months ended June 30 of this year our underwriting income was $28.7 million up from $7.4 million in the same period of last year and despite the decline in investment income and its impact on operating earnings, we continued to see good results from the investment portfolio, I will comment more on this in a moment.

For the quarter, we’ve produced consolidated gross written premiums of $520 million which was down 4% from the second quarter of last year. For the six months our consolidated gross written premiums were $983.2 million compared to $980.4 million for the first half of last year.

The decline in our topline is somewhat misleading as underlying growth in parts of our – underlying parts of our business is being offset by planned reductions in areas that are not meeting our profit objectives. As we’ve said in the past margin improvement takes precedents over growth in that vain we posted an improvement in the combined ratio to $95.8 million for the quarter compared to $98.3 million in the second quarter of last year.

We achieved these results even after incurring several large non-catastrophe losses totaling approximately $12 million in the quarter or 3.6 points on the combined ratio.

This is a trend we’ve seen across the industry for the quarter. And for the six month period, our combined ratio improved to 95.7 from 98.8 for the same period a year ago. During the quarter, we repurchased over 500,000 shares of stock at an average price of $46.84 for a total value of $23.9 million. We still think our franchises undervalued and view share repurchases at a discount to book value as a great investment.

Capital management has been a key part of our strategy over the last six years. We’ve returned more than $345 million of capital to shareholders. And we’ll continue investing in our stock at these prices will also stay in focused on ways to build the Argo franchise, which remains our main priority.

Turning to market conditions, as you heard others say so I am not going to elaborate too much. We’re not lacking competition and that competition has accelerated in the first half of 2014. We’re working harder to find opportunities to grow intelligently. In our book of business rates are still left overall but the pace of increase has slowed and like everyone else, we are experiencing declines in most property related accounts.

On a positive note, they are several parts of our business, where we continue achieving needed rate improvement. Perhaps this important, our retention rates and are better performing books of business remain stable as well as those we are – where we are actively working on improving risk selection.

We believe our focus on smaller accounts and only writing specialty business gives us more of an opportunity to influence the discussion on price. Let me briefly comment on each of our operating segments before turning the call over to Jay to discuss our financials in more detail.

In our excess and surplus lines business, premium on a reported basis was flat and a $175.8 million. Underlying growth in higher margin businesses is being offset by two things. First the planned reduction in our transportation portfolio as we continue to runoff the commercial auto book, this is mainly within our E&S segment. And second there is a fundamental shift occurring in the large risk property market were several companies have material increased their limits appetite and many of these risks are originated through retail brokers outside the traditional wholesale market, again this is impacting our E&S business.

Excluding transportation and property growth in our E&S company would have been up 12.5% in the second quarter and 14.8% for the first six months of the year [indiscernible] core businesses within E&S. Overall rate increases across the segment we’re up modestly with larger increases focused on certain classes. For the quarter we posted an improvement in the combined ratio to 83.4 from 93.2 in the same period last year prior year development continues to have a positive impact in our results in E&S and Jay will go into that in more detail in his discussion.

Commercial specialty, overall premium was down a modest 2.3% in the quarter. The decline in premium continues to reflect underwriting actions taken at Argo Insurance and Trident. Overall rate increases for the quarter across the segment were 3.2% with higher increases in those lines that needed that the most.

For example, at Argo Insurance rate increases averaged 8.3% across the segment representing the tenth consecutive period that the quarterly rate change exceeded 6%. We remain pleased with the strong renewal retention ratios and are working hard to identify new business opportunities. The segments combined ratio was 103.4% in the second quarter of 2014 compared to 103.8% in the same period in 2013 and was impacted by storm losses in the modest amount of our prior year development in the quarter.

You may recall in my remarks last quarter that I thought there could be a few million dollars of development. I also mention that July 1 was a big day for public entity that’s the Trident operation and that we should hit bottom in the third quarter and I still think that’s true. While gross written premium was down year-over-year and Trident, we exceeded our plans for July 1 and we’re very happy.

So all in, I would actually say commercial specialty performed about where we taught it would for the quarter and the first half of the year. Overall, gross written premiums and our international specialty segment were up 1.3% in the second quarter and 3.6% for the first six months driven by our Brazilian business. Argo’s gross partially offset by a decline in our short-tail reinsurance business.

In our emerging markets business, rates in general remain under pressure with slight declines in Brazil and professional liability offset by slight rate improvements in excess casualty. At Argo Re rates are down about 10% to 15% for many of our U.S. property exposures and as I try to remind everyone each quarter, we buy formula reinsurance than we sell. So whatever margin we are losing at Argo Re we are more than making up and the other part of our operations by reinsurance savings. So the segments combined ratio improved to an $88.9 million in the second quarter compared to $93.4 million in 2013.

Switching to London, Lloyd's right now is perhaps the most challenging broad market environment having said that we improved our margins for the quarter, finding profitable top line growth opportunities however is increasingly challenging as the market softens across the majority of classes of risks in London. On a reported basis, gross written premiums declined to 11.6% to a $163.5 million in this years second quarter compared to a year ago, this includes the impact of a large discontinued property binder account otherwise premiums would have been pretty flat.

On an underwriting basis the combined ratio improved slightly to $93.2 million from $93.4 million a year ago. The loss ratio improved 5.3 points to 51.1% in 2014 compared to the second quarter of 2013, despite the impact of an above average level of large losses including some of the property losses I referred to earlier as well as yet another couple of satellites failing to get into orbit.

Turning to our investment portfolio the performance through the first six months of the year, considering the environment continues to be strong, our gross portfolio achieved a total return of 1.8% in the second quarter bringing year-to-date performance to 2.8%. Our year-to-date financial return of a $115 million compares favorably to the flat result generated through the first six months of last year.

The duration of our core bond portfolio was 2.4 years at June 30 with the tenure US treasury yield following 20 basis points during the quarter and credit spreads at historical levels being in tight, we remain defensive toward both credit and duration right now and cash in short-term investments remain relatively high at a 11% of the portfolio. Net investment income declined by $4.7 million to $20.8 million in this year’s second quarter versus a year ago, this was driven in part by book yield comparison as reinvestment rates on market yields remain below the portfolio book yield.

And we think that this will probably hit bottom and the next two quarters as spreads between book yield and new money yields in the portfolio continue to narrow as we fund new investment strategies. We continue to focus largely on a total return approach and the expected positive impact on growth and book value per share.

In addition to the cash component of our return reported as net investment income, we realized investment gains of $7.5 million from our alternatives portfolio than otherwise would have been considered investment in core of our investment income, which is up from $3.3 million in the second quarter of 2013.

Since the beginning of 2013, we estimate the gains from our hedge funds loan or hedge fund investments were more than three times the investment income forgone by those investments.

Inclosing, the results for the first six months of this year demonstrate overall improving performance on our platform and involved work remains to make sure all of our businesses are contributing to the bottom line. We are in a much better position today than 18 months to 24 months ago, when we began our re-underwriting efforts. And we continue to focus on reporting consistent results that we generate stable returns from our shareholders.

And with that I’ll turn the call over to our CFO Jay Bullock.

Jay S. Bullock

Thanks, Mark and good morning everyone. In the first half of 2014, we continue to see validation of our efforts to increase underwriting income and grow our most profitable business lines. Mark talked about the underlying growth trends and mentioned the improvement in underwriting income. For the first half of 2014, a fourfold increase on the 2013 underwriting income result. This improvement as a result to better reselection and more effective reinsurance purchase and continued contribution from prior year action results. I’m optimistic the trends in underwriting income will continue.

One further item to note, in the most recent iteration of our Loma Reinsurance transactions, we also the terms such that the current transactions accounted for a traditional reinsurance, rather than a specific expense line. I’m taking this into account growth written premium was 4% over the prior three months period end 6% over the six month period.

On the loss side away from the current accident year, we experienced overall favorable reserve development in the quarter of $14.4 million, representing our 13 consecutive quarter of overall positive reserve development. And within our businesses E&S development overall has been favorable on each consecutive quarter since 2009. Syndicate 1200 development has been favorable for the last 10 quarters.

The largest component of this quarters release were continued strong results out of prior years in our E&S business mainly from contract and casualty lines and positive development out of several lines in Syndicate 1200, including reductions in prior year loss estimates for the Japanese earthquake and the Thailand floods.

These were partially offset by increased reserves in commercial specialty in the runoff segments. The table on the press release provides a poor breakdown for the quarter and for the six months of the year.

We posted a 2.5 point improvement in the current accident year, non-catastrophe loss ratio to 58.1%, despite having approximately $12 million in greater than expected large losses as Mark mentioned in the quarter that add 3.6%, 3.6 points to the loss ratio. And we announced there was a $4 million net loss and the special property booked and the Syndicate 1200 we add $8 million due to two large energy losses and two satellite losses on our Aerospace book.

Catastrophe losses for the quarter were again relatively modest, $4.2 million for US and European storms less than the $9.7 million incurred in the second quarter of 2013. The expense ratio was once again impacted in the quarter by the increase in the stock price driving equity compensation approximately $5 million higher than would have experienced from an expected stock price increase.

Adjusting for this and other smaller onetime items to normalizes the expense ratio to approximately 39% in the quarter. As we said before not as much progress as we like, with trending in the right direction. In the quarter, we reported $18.5 million of net realized gains, the largest contributors to the net gain for the contribution from our alternative investment as Mark mentioned. In addition to equity portfolio and gains from certain private equity and strategic investments.

For the second quarter of 2014, the effective tax rate for the group was 13.6%, the lower than expected tax rate was largely a function of greater proposition of income related to our Bermuda entities. Turning to the balance sheet. The sum of investments in cash decreased by approximately $52 million since year-end 2013.

For the six months ended June 30, total return on investment portfolio was approximately a $115 million offsetting the increase with the settlement for a reinsurance to close transaction of the Syndicate funding of the share repurchase program dividends paid in other smaller items.

Paid claims for the six months were flat with the year ago. As a result we expect cash flow to be positive in the second half of the year. And we ended the quarter with a pre-tax realized gain position of $285 million up from $251 million at the end of the first quarter of 2014.

Finally, while the reported capital structure was essentially unchanged to June 30, subsequent to quarter end, we were able to repurchase the single tranche of one of our older trust preferred securities for a discount of $0.10 on the dollar.

The phase amount of the securities was approximately $20 million and as a result we will report a $2 million gain on this rate in the third quarter.

In addition to the share repurchase activity Mark mentioned, we think this is an additional value added reduced of our capital that will be earnings accretive in subsequent periods.

Operator that concludes our prepared remarks and we’re now ready to take questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Dan Soe with Sterne Agee

Dan Soe – Sterne Agee

Hi, good morning. Just a question on the $12 million of larger losses, I just want to clarify is that $12 million larger than a normalized assumption or $12 million versus the year-ago, I just – trying to relate it to what you would expect for a normal level?

Mark E. Watson

I didn’t mean it as $12 million more than we would have expected, but there just a few things that when you added them up you are like well that’s fair amount of money, so what would we have normally have expected probably half as many.

Dan Soe – Sterne Agee

Okay. So even if you assume half, that would imply some solid underlying improvement in the last ratio, I guess my question for you is how much do you think has been driven by rate and how much by mix changes. And as we look forward in an environment, we’re pricing is moderating do you still see leverage for improvement on a loss ratio from further mix changes and underwriting changes?

Mark E. Watson

Yes, now let me think of where to begin that’s a pretty open-ended question. So you got a kind of break it down, I think that will continue to – so let me say that if you look at our loss ratio today versus year-ago or over our loss picks today versus year-ago. So beginning accident, current accident year loss ratio, they have improved year-over-year, notwithstanding how much large loss activity we’ve had. I think that we will continue to see, some improvement in our loss picks perspectively because in places where we need to get rate increases we still are.

And we’re – we continue to change our portfolio mix and move away from classes of business that aren’t is profitable. So we talked about – commercially we’ve been talking about commercial auto for the last few quarters, a couple of years ago we were talking about getting out of some of our food merchant business within Argo Insurance, if property rates come down a little bit more I can see us just writing less property. But we have, we’ve always got some investment going on that allows to bring on more new business it’s a bit, it can be a bit lumpy as we saw in this quarter. And indicate because we cancel the contract within our property group, but you know what was the right thing to do. And I’ve applaud the guys for making that decision because it does make the top line look better, but it’s the right one long-term thing to do.

So, we’re going to keep investing in new opportunities and that doesn’t always mean hiring people and making acquisitions it also means building new products from within, which we’ve been rolling out over the last few quarters within E&S. And I think that will allows us to continue improving underwriting margin both in terms of lost ratio and expense ratio.

Dan Soe – Sterne Agee

Okay. Thank you very much.

Operator

Our next question comes from Brett Shirreffs from Keefe, Bruyette & Woods.

Brett ShirreffsKeefe, Bruyette & Woods

Hi, good morning thanks for taking my question. Mark you highlighted that you’re a significant buyer of reinsurance. I was wondering if you could maybe expand on how you’re benefiting or taking advantage of the increasing level of competition in the reinsurance market right now?

Mark E. Watson

Sure. So for the last couple of years you’ve heard us talk about trying to increase the amount of net written premium and stopped seeding off underwriting profits. And we’ve done I think a pretty good job of that over the last 18 months. Now, we’re looking at a place where reinsurance pricing is coming down to a point where actually we might think about buying a little bit more. As respect contracts that we have in place today, we are getting a better seeding commission on our pro rata contracts today then when we were a year ago. So that’s going straight to the bottom line right now.

And second on our excessive loss covers, we are getting a little bit more exposure for the same price where we are getting a slightly lower price for the same exposure, and it will begin impacting the bottom line in a positive way towards the end of this year and the beginning of next year, remember there is a lag between written and earned and some of the contracts we’ve only just renewed in the second quarter.

So, right now that’s all inuring straight to our bottom line, we’re not seeing insurance pricing come down. As I said earlier for the most part, we’re still seeing great increases that for property. And I think that will continue to a newer to our benefit next year for sure.

Brett ShirreffsKeefe, Bruyette & Woods

Okay, thank you. And then just touched on the expense ratio I realized they were a few one time items and then maybe this quarter, but are you okay with it at the 39% level or a little bit elevated given that you’re seeing some significant improvement on the loss ratio side?

Mark E. Watson

The answer is yes and no. Sure, we wanted to come down and we’re working on it and I’ll talk about that in a second thing. I am focused on underwriting margin not just the expense ratio. Jay and I have been pretty adamant about us being able to get to a 95 combined ratio and we think it takes both parts to get there. As a respect to the expense ratio, if you look at our – if I just look at controllable expenses so let’s take payroll as the biggest number, that hasn’t really moved very much. We’ve been able to do more with the same amount of people with the change in mix of business our commissioned expense is up slightly, we changed some of our broker relationships and we’re paying them more to originate what we believe is better risk. So, I may feel a little bit more, but I don’t have a lower corresponding loss ratio, but of course that takes time.

So, there are lot of moving – there are lot of moving parts on the expense ratio it isn’t just overhead. Overhead is actually been pretty flat and I think I’m pretty happy with how we’re executing our strategy as long as we can continue to execute and move ahead and I think it continues to take care of itself overtime.

Brett ShirreffsKeefe, Bruyette & Woods

Great, thank you.

Operator

Our next question comes from Amit Kumar with Macquarie.

Amit Kumar – Macquarie Capital, Inc.

Thanks, good morning, congrats on the quarter. Just a quick follow-up, the first is going back to breadth question on the reinsurance purchase and usage. Can you remind us when is the biggest piece of your, I guess various reinsurance purchase renewed?

Mark E. Watson

There is not really anyone period. I guess that if I look at it – by break it down January 1 it is the largest time, but we also buy a fair amount of reinsurance that renews in May as well.

Amit Kumar – Macquarie Capital, Inc.

Got it, but I was trying to get at it, if you do choose to emphasis and many companies have been talking about utilizing cheaper reinsurance at the bottom of the cycle. I was trying to figure out if you do intend to expand on that. How should be we thinking about I guess the premium numbers going forward.

Mark E. Watson

Right, so first of all, we have to see what’s presented into us the next, I don’t think we have anything renewing in any material way between now and the 1st of January. So we’ll see what happens in the fall, but I do think that there is a possibility that we will –reverse that the trend of the last few quarters and considered buying more reinsurance. But in terms of premium – ceded premium relative to gross written premium, I think in the aggregate it would be unlikely related change more than 100 to 200 basis points.

Amit Kumar – Macquarie Capital, Inc.

That’s very helpful Mark. The only other– I guess the one other question I have is on the capital management that did the – do you intend to step back during the hurricane season and how do you think about utilizing repurchase versus how the stock has performed about 2014.

Mark E. Watson

So Jay and I always have debate this time of year of how much we should buyback during the hurricane season, which is always a debate about how much capital we think, we really have that’s excess. I think we will – I think I will prevail and I think we will buyback some stock during the hurricane season this year. As I said in my remarks earlier, I’m – if I’m just thinking about do I want to buy Argo stock or sell Argo stock at this price I think I want to buy Argo stock and I remain very bullish on our company. But that is only one way that we repatriate capital to shareholders, we also pay dividend, which we increased earlier this year. And we are also looking for additional ways to reinvest our capital over time. And I think we’ve had a nice balance of doing all three of those things over the last couple of years.

Amit Kumar – Macquarie Capital, Inc.

That’s very helpful. I guess that last question would be, why is Jay not on the same page in terms of buying back stock here?

Mark E. Watson

Well, I am going to answer for Jay – he is always more conservative than I’m and he is always trying to keep, you know how CFOs are they want to keep all the capital they can.

Amit Kumar – Macquarie Capital, Inc.

That’s all I have thanks for the answer. And good luck for the future.

Mark E. Watson

Thank you.

Operator

Our next question comes from Adam Klauber with William Blair.

Adam Klauber – William Blair & Company

Thanks, good morning everyone. And you continued to do lot of work in the commercial specialty segment result seem to have flatten now do you think that’s it will continue to see improvement over the longer term.

Mark E. Watson

Yes, I do Adam. Our last pick and Jay will correct me if I am wrong but our last pick for Argo Insurance this year is in the mid 50s. So if you think about where it was a few years ago I think we’ve improved it at about 10 points over the last couple of years. So we had a little bit of adverse development in the quarter which masks that a little bit. But I actually think that our commercial specialty business is looking pretty good right now. I don’t think we’ll see it I don’t think we’re really going to see it in the financial results for another three or four quarters but I’m pretty happy with where it is.

Jay S. Bullock

And the only thing, I would add is, it’s not too early to be optimistic, but its too early to be certain but the 2013 and 2014 last picks that vary sort of early indications that we’re getting is that those numbers are holding up pretty well.

Adam Klauber – William Blair & Company

Yes. Thanks. And then with industry clearly under more pressure today than it was a year ago, growth is more challenging and that doesn’t look to turn around anytime in the near-term at least, few acquisitions come back on the table even on the small mid size.

Mark E. Watson

Well, I would so, the answer is yes but I hesitate when I answer that question because we’re always looking at small things we just haven’t found deals that we thought we’re priced adequately that may actually drive price up more and make it more difficult to get a deal done because people start chasing growth through acquisition. So I don’t think we’re going to look any harder than we have been looking and I’m not sure that we’ll get any more deals done than we had recently which is not very many and they have been much smaller. So we haven’t talked about them very much. I don’t think we changed the way we, I don’t we Argo changed the way we do things. But we certainly are looking more now than we’re couple of years ago. And we just we haven’t found something that we thought was adequately priced to acquire.

Adam Klauber – William Blair & Company

Thanks.

Operator

Our next question comes from Bijan Moazami from Guggenheim.

Bijan Moazami – Guggenheim Securities

Good morning, everyone. I guess my first question is a follow-up to Adam’s question on commercial specialty, you have a lot of very good business sales mix up with not so good businesses in that segment, it should be a little bit more specific in terms of what are the stuff that works in that particular segment and what are the stuff that doesn’t work. And I know that in Argo Insurance you mentioned that your loss picks going to be in the mid 50 could you expand on what is contributing to that.

Mark E. Watson

I’ll start with the end I think what’s contributing is the reunderwriting that we talked about two years ago. We started working on it two years ago and then it took about five quarters. So you’re now seeing that coming through if you look at the amount of premium – net premium from both Argo Insurance and Trident that’s more than 80% of the premium on a net basis might even be as much as 90%. So those are the two sorry John Yediny the President of Rockwood will hurt me for that one, sorry, if I add up Argo Insurance and Trident and Rockwood our mining business that’s about 90% of the premium.

So Rockwood has done very well for the last several years and I think we are getting Argo Insurance on track I think we’re getting Trident on track. So when the aggregate I think we’ve got 90% of it going in the right way and Jay just reminded me that we also have our surety business within commercial specialty and its doing very well. So I actually kind of think commercial specialty is almost back to making a pretty good contribution to the bottom line.

Bijan Moazami – Guggenheim Securities

The loss reserve where did it come from, was that particular product, is that worker’s comp, is that commercial auto, what is that in that line?

Mark E. Watson

Sorry, Bijan you are talking about specifically in commercial specialty?

Bijan Moazami – Guggenheim Securities

Yes correct.

Mark E. Watson

Yes, it was little bit of GL and Argo Insurance that’s sort of one of the main products there and a smaller amount of workers comp in Trident. But and we just think what else and I mean that’s a pretty small portfolio.

Bijan Moazami – Guggenheim Securities

It is run off now.

Mark E. Watson

Yes, I think that the and as I said it’s the 2013 and 2014 years in both of those businesses across the various product lines in those businesses are looking pretty well.

Jay S. Bullock

I think the Argo insurance development came from 2010 and 2011.

Mark E. Watson

That’s right. Yes.

Bijan Moazami – Guggenheim Securities

Perfect. And one last question if I may your international specialty a big jump in the expense ratio that related to your expansion in Brazil or is that something else that has been driving data?

Jay S. Bullock

That’s exactly what it is, I mean one of the things that you’ll note in that line of business John it’s got a fairly small amount of earned premium relative to the others. So, it doesn’t take much to move the needle and we’ve allocated some additional expense into the Brazil operation as we continue to support the build out of the operation down there.

Bijan Moazami – Guggenheim Securities

Great. Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference over to Mark Watson for closing remarks.

Mark E. Watson

I’d like to thank you everyone for joining us on the call today. We look forward to talking to you again at the end of the third quarter in November. Thank you again for your time.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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