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Meadowbrook Insurance Group, Inc. (NYSE:MIG)

Q2 2014 Results Earnings Conference Call

August 06, 2014, 09:00 AM ET

Executives

Karen M. Spaun - SVP and CFO

Robert S. Cubbin - President and CEO

Analysts

Randy Binner - FBR

Bijan Moazami - Guggenheim

Kenneth Billingsley - Compass Point Research

Brian Rohman - Robeco Investment Management

Mark Dwelle - RBC Capital Markets

Robert Farnam – Keefe Bruyette & Woods Inc.

Operator

Greetings, and welcome to the Meadowbrook Insurance Group Second Quarter 2014 Earnings Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Karen Spaun, Chief Financial Officer for Meadowbrook Insurance Group Inc., Thank you, Ms. Spaun. You may begin.

Karen M. Spaun

Thank you, and welcome to Meadowbrook Insurance Group’s second quarter 2012 earnings conference call. Bob Cubbin, our President and CEO will lead off the call with a review of our 2014 outlook and overall capital position. I will then follow with a review of the financial results. The call will conclude with a question-and-answer session.

During this call we may make certain statements relating to future results and expectations. These statements constitute forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. We therefore must state actual results may differ materially from those projected and may involve risk and uncertainties that are outlined in our Forms 10-K and 10-Q that are filed with the SEC. Please note Meadowbrook undertakes no obligation to update or revise any forward-looking statement. If you have not received a copy of our earnings release it is currently available on our website, meadowbrook.com or you may give me a call and I will be happy to e-mail a copy to you.

Now I’ll turn the call over to Bob Cubbin to provide some perspective on the quarter and outlook for the year. I’ll then come back and provide you with some more detail on the results. Bob?

Robert S. Cubbin

Thank you, Karen and good morning everyone. On our last call we discussed the actions we have been taking to improve our underwriting performance and drive overall profitability going forward. Our second quarter results reflect the continued impact of those actions which helped to grow book value by 7.5% since September 31 of 2013.

For the second quarter we recorded modest favorable previous year reserve developments, increased statutory surplus and increases in both net income and net operating income on a year-over-year a basis. While we still have work to do our results for the first six months, combined with our outlook for the year give us confidence that we remain on track to deliver results within the previously announced 2014 guidance, although most likely at the lower end of that range.

We remain focused on our key priorities, including improving our risk profile, attaining stability in our loss reserves and premium volume, strengthening our capital position and continuing to serve our customers and support our partners and agents. Our accident year combined ratio excluding the impact of the policy issuance fee was 100.9%. The 2014 accident year loss ratio was tempered by a higher, more conservative selection within the standard actuarial method in consideration of the inherent risks associated with estimating the most current accident year. It also reflects the slightly higher seasonal level of short term claims activity in the second quarter.

Based on accumulated impact of the actions we have taken to achieve rate increases, improve our underwriting and terminating underperforming business we believe our efforts are having the desired impact and we will return to an underwriting profit in the second half of 2014. Our results continue to show stability through the first half of 2014. Our workers compensation book experienced favorable reserve development led by the California business segment.

The 2013 accident year for all lines also showed favorable signs as it continues to mature. The more favorable reserve indications reflect the effectiveness of earned rate changes, underwriting improvements we have taken and the termination of underperforming areas of business we began in 2012. The 2014 accident year indications reflect additional measurable improvement beyond the 2013 accident year. Overall reserves on terminated business remain stable in the quarter.

Our gross written premium was $178.7 million for the second quarter, down from $234 million in 2013 primarily due to our decision to terminate or reduce volumes in certain areas. We’ve benefited from the continued loyalty exhibited by our production partners. This loyalty has resulted in our ability to stabilize their premium as well as secure additional rate increases where needed and continue to see new business in mature proven programs and segments.

We remain selective in both underwriting existing accounts and new business. We also continue to achieve pricing in excess of loss ratio trends which should result in improved margin. Our statutory surplus continued to strengthen as we ended the quarter at approximately $508 million of statutory surplus in our insurance company subsidiary.

We also reduced our gross and net premium written leverage to 1.6 to 1 and 1.2 to 1 respectively. This level of balance sheet strength should give us the platform for future profitable growth. Our commission and fee income remains strong and net investment income performed in line with expectation even in a prolonged low interest rate environment. Based on the results for the first half of the year we expect gross written premiums for the full year to be between $740 million and $760 million.

We expect the combined ratio to be between 99 and 100 for the second half of the year with the expense ratio including two percentage points related to cost of the quality issuance. This increase in expenses will be partially offset by an improvement in the loss ratio as we earn rate increases achieved in 2013 and 2014 which are expected to be approximately 8% on net earned premium for the year. This will impact us with our expected loss ratio to trend up about 2% on a composite basis for the full year.

In addition, the full year impact of the business terminated in 2012 will improve our loss ratio in 2014 by 2.4 points. At these levels we expect net operating income to be between $25.5 million to $27.5 million or between $0.51 and $0.55 per share for the full year 2014. The remedial actions that we have taken over the last 21 months are having the designed effect and we expect to continue to benefit from those actions in the coming quarters. The challenges that we have faced [inaudible] and the efforts of our associates and our partners have been unparalleled. We are grateful to have such a strong, loyal and committed team working together to return our company to profitability.

With that let me turn it over to Karen to walk you through some of the details for the quarter.

Karen M. Spaun

Thanks Bob. As Bob mentioned, our Q2 results reflect the impact of actions we have undertaken over the past several quarters. As you saw in our release we generated net income of $5.8 million or $0.12 per share and net operating income of $3.6 million or $0.07 per share. Both our gas combined ratio and our accident year combined ratio were 103% for the quarter. The GAAP loss and LAE ratio was 66.8% of the second quarter of 2014 compared to 82.7% in 2013. The accident year loss and LAE ratio was 66.8% for the second quarter of 2014 compared to 67.6% in 2013. The improvement reflects the elimination of Swiss Re Quota Share agreement that was terminated effective September 30, 2013.

Let me provide you with a bit more color on the drivers behind the 2014 accident year of loss and LAE ratio. The current accident year benefited from lower earned premium on business that was terminated as a part of our 2012 capital initiatives. This business added 2.2 points to the 2013 accident year loss and LAE ratio versus 0.4 points in 2014. The current accident year loss and LAE ratio also benefited from earned rate increases of 10.3% which are approximately 8.5 percentage points in excess of loss ratio trends and improved our 2014 loss and LAE ratio by 4.5 percentage points.

These -- improvements were offset by a slightly higher level of short tail lines claims activity in the second quarter of 2014 and a more conservative loss ratio selection for 2014 accident year. This selection reflects a more conservative expected loss ratio within the standard actuarial methods and it’s based on the inherent risk associated with a less mature accident year.

Consistent with our expectation the expense ratio increased to 36.2% for the second quarter of 2014, compared to 33.3% in the second quarter of 2013. This increase was primarily driven by the expense associated with the use of an unaffiliated A rated insurance company for policy issuance which added 2.1 percentage points to expenses ratio. In addition the impact of the planned decrease in earned premium associated with our actions to exit under-performing business added approximately 0.9 percentage points to the expense ratio.

Net investment income was $11.2 million in the second quarter of 2014 compared to $11.8 million in 2013. The decrease was driven primarily by lower reinvestment yields. Pretax profit from net commissions and fees in the second quarter of 2014 was flat at $2.6 million compared to the second quarter of 2013.

General corporate expenses, amortization and interest expense for the second quarter were $5.9 million in 2014, compared to $5.5 million in 2013. The 2014 results reflect increased professional service fee. Lastly, our book value increased 7.5% since December of ’13.

With that I will open the call to questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). Our first question comes from the line of Randy Binner with FBR Capital Markets. Please proceed with your question.

Randy Binner - FBR

Hey, good morning, thanks. I just wanted to kind of key in on Bob on your comments that you are going to return to underwriting profitability in the back half of the year. I guess just numerically to hit that guidance you need to do a little bit better than a 100 combined all-in and is that -- I am just clarifying that and is that 100 going to including the front end fee that you had?

Robert S. Cubbin

Yeah, we are targeting to be 99 to 100 including the front fee for the second half of the year.

Randy Binner - FBR

So the expense -- then the expenses ratio has got to get better I guess by 100 basis points versus where it ran in the first half, I guess. As you are running you know kind of north of 31% is there an initiative or something you can do on the expense ratio on the back half to get it lower?

Robert S. Cubbin

We have been working to get the expense ratio lower. So we really think that at this point we will start to see more of that benefit in the second-half of the year and also see a lower loss ratio in the second-half of the year. It did have some seasonality in the first quarter -- excuse me in the second quarter on the short tail lines that we only except to see them in the second half of the year. So marginal improvements in each of those areas.

Randy Binner - FBR

Okay. So I have two follow-ups. First I guess on the loss ratio, the accident year loss ratio was 66.9%. Was that -- how much of that was -- you said there is seasonality I am assuming that was like weather and maybe it's the -- where there is more traffic accidents, I guess maybe how much was that on the 56.9% versus just being kind of more proactive in your loss fix?

Robert S. Cubbin

Much more it’s been proactive on the loss fix. The seasonal aspect of the short tail lines was in a couple of different areas. It was the result of physical damage in the marine. But those are sort of -- some of that is weather-related, some of that is just normal activity that you see increases in the agricultural areas during the quarter. So that was a much smaller portion of the higher pick for the accident year. More of it was related to the fact that we -- it’s a less mature accident year and so we have taken a higher level of expected loss ratio for that current year. So much more of it was related to that.

Karen M. Spaun

The other thing Randy, if you look at the year-to-date loss ratio that's probably a better reflection than just the second quarter because of the short-term claim activity and we were a little bit more conservative in the second quarter on the current accident year.

Randy Binner - FBR

Okay, got you. I guess it’s more like a maybe a 65% going forward and then I guess that would make the expense ratio at 35%. And how does that -- I guess just the mechanics of how does the expense ratio then kind of drop a 100 basis point in the back half. What mechanically is happening there -- I know you mentioned there were initiatives but kind of more specifically?

Karen M. Spaun

We haven't disclosed guidance between the expense ratio and the loss ratio. So we expect to be around a 100. We look at the overall combined ratio because of mix of business between commissions and between loss ratio does have some impact.

Randy Binner - FBR

Okay.

Karen M. Spaun

If you look at the loss ratio somewhere between, say 66, I mean 64 and 66 and the expense ratio between say 35 and 36.

Randy Binner - FBR

Understood. And then just I’d like to talk about operating comps nobody else kind of gets on that. Could you just kind of an update on where kind of where kind of your accident year loss fix are coming in relative to you kind of loss cost trends, so pricing on the loss cost trend, I guess is what I’m asking. And also kind of how 863 is coming through on California. Just kind of update on where profit margins are moving in the Californian comp book?

Robert S. Cubbin

We're happy to address that. The loss ratio trend is still somewhere for the California comp is still somewhere around 2%, maybe slightly under that. Written rate increases in California on a year-to-date basis are little over 9%. So margins continue to look better there. There was a recent -- I think yesterday even WCRID public meeting that talked about the 863 and our understanding is that they have done everything we are seeing and it's going to come in pretty much as we have expected. So the reforms, different reforms are having different effects maybe then everybody expected, but the overall impact seems to be consistent with our prior expectation.

Randy Binner - FBR

Which is sort of very marginal improvement in loss kind of, is that right?

Robert S. Cubbin

Yes. But also as you know we did reduce our premium volume in the LA territory pretty significantly and so that should benefit us even more.

Randy Binner - FBR

Okay. Great. Thanks a lot.

Operator

Thank you. Our next question comes from the line of Bijan Moazami with Guggenheim. Please proceed with your question.

Bijan Moazami - Guggenheim

Good morning Bob and Karen.

Robert S. Cubbin

Hi, Bijan.

Bijan Moazami - Guggenheim

I have a tough time understanding your loss ratio effects. So you got a 8.5% rate increase in excess of loss strength, you got a whole bunch of business that you normally -- economic activities obviously improving, is that having an impact on workers comp? What did you guys see in the quarter that led you assume a higher loss ratios. And by that I mean you know some of the business within mature but you knew that about a year ago, six months ago, three months ago. So I guess was there anything in the number that would suggest then taking up a higher loss and did that have anything to do with commercial auto?

Robert S. Cubbin

It’s did not have anything to do with commercial but the way we have been trying to look 2013 and 2014 is that we want to ensure we don’t have future unfavorable developments as much as possible. So we are trying to limit potential for that those most current accident years to have unfavorable development. So in light of what happened to us in previous quarters we have decided to book a higher expected loss ratio unlike otherwise might be implied by the reference to the numbers that you gave, it’s the earned rate in excess of loss ratio trend. So we are picking a higher expected loss ratio just to make sure and you can’t never be sure but increase the likelihood that we will not have unfavorable development.

Bijan Moazami - Guggenheim

Thank you.

Operator

Thank you. Our next question comes from the line of Ken Billingsley with Compass Point. Please proceed with your question.

Kenneth Billingsley - Compass Point Research

Good morning. I want to just follow-up on premium growth prospective, what lines of businesses are you still seeing opportunities and are there some lines that you are wishing to write maybe -- you are not as competitive, or you are not able to generate the growth. If you kind of talk about where your premium growth will be going in the second-half and then the 2015?

Robert S. Cubbin

Yeah, we don’t really expect growth year-over-year in the second-half of ’14 but in to 2015 we certainly are positioning our self to be able to profitably grow. The areas that we like are the areas that we have been able to continue to get substantial rate increases to our California workers comp book. We took the pain previously and we got the rates up and that book of business looks to be potentially very valuable going forward and an area we think we can show some growth in. If we get any kind of exposure base increase on top of the rates we have gotten in an even a slight economic upturn that should be very beneficial to us.

The areas that we have been kind of continuing to get rate increases on and take underwriting actions are on the liability in current areas, particularly we have reduced some exposures to certain parts of the business over the last 12 months or so. So I would the liability line we are reducing that from an underwriting perspective and getting rate increases there. So I think Ken it’s really regional and specific to programs that we see profitability in. We obviously are trying to limit the amount of growth in the programs where we have to use the policy issuing carrier because that does add a level of expense. So the areas that we are writing on our traditional Meadowbrook company are where we are targeting some growth for 2015.

Kenneth Billingsley - Compass Point Research

And the lines that you are targeting what is your retentions, what are your retentions with the customer looking like today versus a year, a year and half ago?

Robert S. Cubbin

Well actually the retentions on existing business have remained pretty stable. We went through a little bit of transition last year at this time because of all the trust and the change in the rating but that seemed to settle down in 2014. It looks to me like overall the existing business retentions remain in line with our expectations.

New business hit ratios in certain areas are better and in certain areas they are worse. So we are trying to manage that as part of what we look at as you read -- we want to make sure the retention rate per year excluding your hit ratios on new business don’t go up because otherwise you might be getting adversely affected by the market or they change dramatically to tell you other things. So we are monitoring that pretty carefully but pretty much in line with our expectations at this point.

Kenneth Billingsley - Compass Point Research

All right. And then on the funding side what percentage of premiums are being fronting at this point?

Robert S. Cubbin

It’s remained pretty steady at around 40%.

Kenneth Billingsley - Compass Point Research

So even with the decline on the gross side and your premium to gross retention ratio moving up to 82% it’s 40% of that is being fronted.

Karen M. Spaun

It’s approximately somewhere around $300 million. So depending what base you are looking at that the percentage will follow.

Kenneth Billingsley - Compass Point Research

Okay. And is that down from last -- the percentage is that down from last quarter or is that fairly consistent?

Karen M. Spaun

The level is pretty consistent.

Kenneth Billingsley - Compass Point Research

All right. And the last question on the investment portfolio, I believe you made a shift in where you are allocating your investments, I believe moving more into equity and preferred is one, could you just confirm that and then maybe what the expectation of what you are doing with that portfolio and what kind of expectations we should see going into 2015?

Karen M. Spaun

We have approximately $100 million allocation to equities, high yielding dividends and that’s really we will target to keep that level of equities. And right at this point in time we don’t expect any changes to that allocation.

Robert S. Cubbin

Yes and one of the thing that we do Ken is add that -- that portfolio has appreciated in value, we have to rebalance it so we have realized some gains there and that’s close to the realized gains as suppose to the operating income.

Kenneth Billingsley - Compass Point Research

And is that going to be a fixed percentage of the portfolio, or is it a fixed dollar amount?

Robert S. Cubbin

At this point it’s a fixed dollar amount but on a quarterly basis will depend on what we allocate to that.

Kenneth Billingsley - Compass Point Research

All right, thank you for taking my questions.

Robert S. Cubbin

Thanks Ken.

Operator

Thank you. Our next question comes from the line of Brian Rohman with Robeco. Please proceed with your question.

Brian Rohman - Robeco Investment Management

Good morning.

Karen M. Spaun

Good morning.

Brian Rohman - Robeco Investment

A couple of questions, first of all, the fronting arrangement, is there any day like as to when you might get out of that?

Robert S. Cubbin

As soon as we re-attain our A minus rating then we would have time to exist that.

Brian Rohman - Robeco Investment Management

Is there any way there -- to have any expectation on when that might happen, how long a process like that takes?

Robert S. Cubbin

It really depends on how the underwriting results pan out over the next few periods but there is really no hard and fast rule. If there was we’d be happy to share that with you.

Brian Rohman - Robeco Investment Management

Yeah, good. Next question the book value increase, just looking at the balance sheet stockholders equity over the last six months looks like $32 million - $33 million, about half of that increase is explained by net income, how’s the other half come about?

Karen M. Spaun

Unrealized gain appreciation.

Brian Rohman - Robeco Investment Management

Okay. So, it is in the bond portfolio?

Robert S. Cubbin

Yeah.

Brian Rohman - Robeco Investment Management

Pardon?

Karen M. Spaun

Realized over the next year…

Robert S. Cubbin

Yeah, and then it is -- correct.

Brian Rohman - Robeco Investment Management

Okay, fine. Few more questions. So in the tax talking about three months and then six months year-to-date or past three months and then six months year-to-date, you have how roughly talked about deleveraging and impact of anticipated reduction in earned premium, first six months at 1.5 points to the combined and over the last three months it added 0.9 points to the combined ratio. So the deleveraging impact I guess losing business is coming down. Could you explain why it’s coming down?

Karen M. Spaun

The impact -- we executed on a number of expense initiatives in the first quarter. So you are seeing that that impact. So that 0.9 is really net of the expense initiatives.

Brian Rohman - Robeco Investment Management

So is that sort of following up on your comments to Randy’s question earlier that next 12 months or so you should see a 100 to 150 basis points improvement in the expense ratio?

Karen M. Spaun

As I said with Randy we really look at the targeted combined ratio. So there is a mix of business shift that can impact the expense ratio and the loss ratio. So somewhere between 35 and 36 expense ratio is reasonable to expect.

Brian Rohman - Robeco Investment Management

Last question, just this, Bob your quote we will remain committed and has been exploring potential strategic options, not currently identified that it would be in our shareholders’ best interest. Are you still retaining I think it was [Willis] Consulting on the M&A side of your business?

Robert S. Cubbin

We have relationship with a number of different investment banks and we do still work with Willis.

Brian Rohman - Robeco Investment Management

So are these discussions ongoing or are they sporadic or have they stopped in general?

Robert S. Cubbin

We continue to have discussions with potential strategic partners.

Brian Rohman - Robeco Investment Management

All right. Okay. All right thank you.

Robert S. Cubbin

Thank you, Brian.

Operator

Thank you. Our next question comes from the line of [inaudible] Capital Markets. Please proceed with your question.

Unidentified Analyst

Good morning. Most questions have been asked and answered and I thank you guys for stabilizing the business and you sort of executed on the stabilization. I would say just sort of speaking out loud maybe you can follow-up that next year, if indeed you grow and prior year reserves remain sort of intact and stable. I would think you would be able to have a conversation with the rating agency and maybe get upgraded. Would you think that would be a possibility some time in '15?

Robert S. Cubbin

We keep it in pretty steady contact with the rating agencies. So we continually provide them information and data on how the business is performing. So that will be a kind of continuous process.

Unidentified Analyst

Okay. Great, thanks guys.

Robert S. Cubbin

All right. Thank you Glenn.

Operator

Thank you. Our next question comes from the line of Mark Dwelle with RBC Capital Markets. Please proceed with your question.

Mark Dwelle - RBC Capital Markets

Hey good morning. A few questions, are there any losses in the quarter that you are characterizing or would characterize as catastrophe losses?

Robert S. Cubbin

Not really. Some of them are within that short tail lines obviously weather is a factor. But we're not really singling out anything there. There was a lot of storm activity but some of that is seasonal and it's just part of what happens.

Mark Dwelle - RBC Capital Markets

A lot of your competitors have been kind of highlighting or targeting an amount that they are viewing as sort of non-cat weather, what you are describing as seasonal. So you are not interested in kind of quantifying that a little bit just the runrate?

Robert S. Cubbin

We haven't in the past but we will look at whether or not that makes sense. You need a lot of data points and we're not a big property writer.

Mark Dwelle - RBC Capital Markets

Sure.

Robert S. Cubbin

The predictability of that would be less.

Mark Dwelle - RBC Capital Markets

It wasn't really so much for the predictability of it, it was to get closer to just doing a core operating runrate. So that's fine.

Robert S. Cubbin

We will look into that Mark to see if that's possible or if that's if we think that will be helpful to people to understand.

Karen M. Spaun

Mark I think if you look at the year-to-date result for that run-rate it's a little bit more indicative.

Mark Dwelle - RBC Capital Markets

Okay, second question or second topic. Within the reserve release the net of $0.1 million favorable, which is a good total and sort of similar to what it was on the first quarter. I would expect there is adds and deducts, are there any particular lines that are seeing any additions or accident years that are seeing any additions than which are then being offset by obviously releases in other areas that are resulting in the net $0.1 million favorable?

Robert S. Cubbin

We really commented on the favorable coming out of workers comp that line of business has seen very favorable indications than the prior accident years. As we commented also we are still getting rate increases and taking underwriting actions on the liability line of business. So the liability occurrence in particular. Hence these are older accident years that we have talked about in the past, 2011 is a year that we had more unusual adverse results than in any other accident year for liability occurrence. And then ’12, ’13 and now ’13 with underwriting changes and finally getting rate increases that exceed loss cost trends we are seeing in more current accident years the liability occurrence other improve.

Mark Dwelle - RBC Capital Markets

Okay. You had commented on taking a higher loss pick in the second quarter, which I think given the trends and history is absolutely prudent. Why wouldn’t you be continuing that in the second-half of the year, if you found it necessary to do it relative to the first-half of the year?

Karen M. Spaun

Mark, when you just look at the specific quarter, you have the short tail lines and if you move an accident year that’s why you are looking at the year-to-date is a better indicator is if you move a forecast loss ratio up or a selection for the accident year in one quarter it’s moves up the previous quarter off. So that level of conservativeness is still built into the second-half of the year.

Mark Dwelle - RBC Capital Markets

Should I infer from that comment, just for clarification that the accident year pick that you took in the second quarter is effectively truing up a little bit of the first quarter. So call it an inter year development or thru-up whatever way you want to describe it and that’s the balance of the year is going to kind of maintain that overall level around for mix and so forth.

Karen M. Spaun

We just have a claim, as Bob indicated that the short tail lines did have same claims activity. So that did have a little bit f impact there and the other thing that you continue to see is and you’ll continue to see improvement in the second-half of the year, is the earn rate increases are continuing to outpace the loss ratio trends.

Mark Dwelle - RBC Capital Markets

Sure.

Karen M. Spaun

So you are going to have continued improvement over the year on the accident year combined ratio as those rate increases earn out.

Mark Dwelle - RBC Capital Markets

That makes sense. That concludes all my questions. Thanks.

Robert S. Cubbin

Thanks Mark.

Operator

Thank you. (Operator Instructions). Our next question comes from the line of Bob Farnam with KBW. Please proceed with your question.

Robert Farnam – Keefe Bruyette & Woods Inc.

Yes, hi there and good morning. The premium leverage metrics continue to come down do you see that bottoming at some point or are you looking for a specific target there and do you expect that to maybe increase in 2015 if these are to grow?

Robert S. Cubbin

Yeah, we do think that has slowed down and is bottoming out. 2015 we will be looking to incrementally increase premium volume in the areas of business and programs that are performing well. So yeah, that would be our strategy for 2015 because that at these surplus level with this balance sheet strength we certainly have the capacity to add profitable new business.

Robert Farnam – Keefe Bruyette & Woods Inc.

All right. And the investor are going be concerned about that number going back up again and assuming that things are profitable and stable you are okay with ratcheting that up a little bit?

Robert S. Cubbin

We believe that they will be. I mean we are at a very conservative level at this point with 1.2 to 1 on a net written to surplus basis. We think that’s very conservative and we would have at a modest growth rate we shouldn’t have an issue with that.

Karen M. Spaun

And we continue to generate statutory profits as well as really if you look at our statutory surplus it’s up to $508 million at June 30th and that’s up from I think $488 million at year end and from $426 million a year before. So we have increased our statutory surplus tremendously only less than a half of that increase is coming from capital initiatives, when we raise capital with convertible debt. More than half of that is coming from statutory earnings as well as just some of the non-admitted changes and limitations that you have associated with statutory surplus.

Robert Farnam – Keefe Bruyette & Woods Inc.

Right.

Karen M. Spaun

So most of that increase is earnings or earnings related.

Robert Farnam – Keefe Bruyette & Woods Inc.

Right, good. Okay, thank you.

Operator

There are no further questions at this time. I’d like to turn the floor over to management for closing comments.

Robert S. Cubbin

Yeah, thank you all for your attention. We appreciate it. Karen and I will be here if there are any follow-up questions that we can answer. Thank you.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Source: Meadowbrook Insurance Group's (MIG) CEO Robert Cubbin on Q2 2014 Results - Earnings Call Transcript

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