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ProAssurance Corporation (NYSE:PRA)

Q2 2014 Earnings Conference Call

August 6, 2014 10:00 a.m. ET

Executives

Stan Starnes – Chairman, President and CEO

Frank O’Neil – SVP and Chief Communications Officer

Howard Friedman – President, Healthcare Professional Liability Group

Mike Boguski – President, Alliance Insurance Group

Ned Rand – EVP and CFO

Analysts

Mark Hughes – SunTrust Robinson Humphrey

Ryan Barnes – Janney Capital

Paul Newsome – Sandler O’Neill

Amit Kumar – Macquarie

Matt Carletti – JMP Securities

Operator

Good day and welcome to the ProAssurance Second Quarter Conference Call. Today’s conference is being recorded.

At this time, I’d like to turn the conference over to Mr. Frank O’Neil. Please go ahead.

Frank O’Neil

Thank you, Kelly and good morning everyone. Thanks for joining us to discuss ProAssurance’s results for the six months and quarter ended June 30, 2014 as reported in our news release of August 5, 2014. We expect to file our quarterly report on form 10-Q later today. The news release and the 10-Q, along with our other SEC filings, will provide you with important information about the significant risks and other factors that could affect our business and alter expected results. Also, we’re going to be making forward-looking statements on this call dealing with projections, estimates and expectations and we explicitly identify these as forward-looking statements subject to Safe Harbor protections reserved for those statements.

The content of this call is accurate only on August 6, 2014 and except as required by law or regulation, we will not undertake and we expressly disclaim any obligation to update or alter information disclosed as part of these forward-looking statements. We will be referencing non-GAAP items in our call today. Our recent news release provides a reconciliation of these non-GAAP numbers to their GAAP counterparts.

Participating in today’s call are Howard Friedman, the President of our Healthcare Professional Liability Group; our Chief Financial Officer and Executive Vice President, Ned Rand; Mike Boguski, the President of Eastern Alliance Insurance Group; and our Chairman and CEO, Stan Starnes, who will start us off with some opening thoughts. Stan?

Stan Starnes

Thanks Frank, and thanks to everyone on the call for your interest. We turned in a strong second quarter in the face of a very competitive environment in all of our operating segments. Our topline grew 52% in the quarter and is up 42% for the year, with the addition of Eastern Alliance Insurance Group, which is also contributing to our future success by opening new avenues for growth in our healthcare professional liability business. We are reporting results in our Lloyd’s segment for the first time and have been pleased with the reception of the syndicate since its entry into the Lloyd’s market. We remain solidly profitable and continue to enhance shareholder value through meaningful share repurchase and growing book value per share.

Frank O’Neil

Thanks, Stan. We’re going to start with Howard Friedman to touch on highlights in the Specialty P&C and Lloyd segments, then we’ll hear from Mike Boguski on workers’ comp and Ned Rand will wrap up with a discussion of the results in our corporate segment and will provide a summary of our consolidated financial position. Howard, you’re up first.

Howard Friedman

Thanks, Frank. I’ll echo Stan’s comments about the competitive nature of the market right now. Our Specialty, Property and Casualty topline is down approximately 7% for both the quarter and year-to-date. I’ll break down the quarter. Just know that the same general trends are at work for the six months.

Specialty P&C is our largest operating segment and Physician Premiums are the largest component. Physician Premiums were $75 million in the quarter, a decline of $9 million or 10%. We retained 89% of expiring Physician Premium in the quarter and average renewal pricing on physician business was 1% higher than expiring.

Premiums from healthcare facilities declined 17% to $9 million. This may be the most competitive portion of the Specialty P&C business. In both the physician and facility lines, we have given up business in situations where we don’t believe the market pricing supports the risk that we would be insuring.

Premiums from other healthcare providers, dentists, chiropractors, and allied health professionals were up 10% to $7 million. And another competitive line, Medical Technology and Life Sciences product liability grew premiums 8% to $10 million. Total new business in Specialty P&C was $7 million. The four largest components were physicians at $3 million and approximately $1 million each in facilities, medical technology and Life Sciences and legal Professional.

Turning to losses, overall loss trends have not changed. We make adjustments based on regular actuarial evaluations and fluctuations within certain States or territories. But we see nothing that tells us that the loss environment is changing. The combined ratio for Specialty P&C was 80.4%, up 1.6 points quarter over quarter.

As I explained last quarter, we have recorded a higher current accident year net loss ratio. For second quarter 2014, it was 86.6% compared to 83.7% a year ago. As we noted then, this doesn’t mean that the underlying business is deteriorating. The year over year increase is primarily attributable to a higher accrual for internal claims adjustment expenses against a lower volume of premiums earned and the more current recognition of administrative claims defense cost rather than waiting until year end to make these true-ups.

Likewise, the expense ratio was higher, reflecting both the effect of relatively constant expense dollars across a lower and [head] earned premium base in 2014, and lower amortization of deferred policy acquisition costs for our Medmarc business in 2013 due to purchase accounting.

On the subject of the shared risk programs such as Certitude and CapAssurance, we continue to see real benefits in adding new business in attractive markets. We are now approved in eight States with the Ascension Certitude program and are on track to expand it into several more by year end. Total Certitude premiums are $17 million on an annualized basis. Outside of the Certitude program, we are further developing a relationship with Ascension and have begun ensuring some of their employed physicians in the third quarter.

I’ll turn now to our Lloyd segment, representing the results of our 58% participation in Syndicate 1729 which began operations on January 1. Remember with the exception of investment results and certain expenses, we are reporting on a one quarter lag. The syndicate has been quite active and has written $20 million in premiums, primarily property causality reinsurance and some direct property coverage mostly in the US markets. With the expected startup expenses, the segments net operating loss was $1.3 million in the quarter and $2.2 million year to date. Frank?

Frank O’Neil

Thanks Howard. Next up is workers’ compensation and Mike Boguski, the President of Eastern. Mike?

Mike Boguski

Thanks, Frank. This was another solid quarter for Eastern as we continued to see benefits from new business in expansion States, additional premiums from increasing payrolls and a steady loss environment. As in Specialty P&C, workers compensation continues to be highly competitive, but we believe our targeted underlying strategy, strong agency relationships, value added service platform and selective geographic footprint, are helping us grow premiums. Quarter over quarter the company’s topline increased 14% to $55 million, including $12 million of new business. The competitive market and our commitment to underwriting discipline resulted in premium retention of 83% in the quarter.

Pricing and renewal business increased approximately 2%. The calendar year loss ratio was 62.4% with a benefit of 1.9 points of favorable reserve development, mostly from our alternative markets business. The combined ratio was 93.2% which includes 2.7 percentage points of intangible asset amortization and 1.3 points of one time professional fees and non-recurring expenses primarily related to ProAssurance’s acquisition of Eastern.

We continue to be successful in our proactive approach to closing claims. At June 30, Eastern had just 17 open claims in our traditional business net of reinsurance for action at years 2007 and prior and closed 32.2% of 2013 and prior claims in the first six months of 2014.

We continue to be pleased with the strong pipeline of opportunities within the alternative markets book of business, particularly from healthcare organizations that want to control cost for their two most difficult to place and expensive insurance lines, workers’ compensation and medical professional liability. Through the segregated portfolio cell structure at Eastern Re, we will be able to place both of these insurance lines into a single segregated portfolio cell program, leveraging ProAssurance’s combined expertise in medical professional liability and workers’ compensation.

We are currently working on cross selling medical professional liability to existing healthcare related workers compensation segregated portfolio cell programs, in addition to proposing our new program opportunities. We recently received a commitment for a new combined medical professional liability and workers’ compensation segregated portfolio cell program that is expected to commence in early 2015. We’re pleased with the integration of Eastern into ProAssurance, and the results we’re achieving and the groundwork we’re laying for future success continues to reinforce the rationale for the transaction. Frank?

Frank O’Neil

Thank you, Mike. We’ll wrap up our discussion this morning with Ned Rand discussing corporate and consolidated results. Ned?

Ned Rand

Thanks, Frank. Let me quickly hit a few highlights from our corporate segment which is primarily reflective of investment-related items. Our net investment result was up slightly in the quarter as we saw positive returns in a number of our alternative investments. Net investment income, which captures the results of our fixed income and equity portfolios, was $30 million, down approximately 10% from the year ago quarter, and driven by lower average investment totals in our fixed income portfolio.

As we have diversified our overall investment portfolio, we have been reinvesting less in fixed income securities. This, coupled with the repayment of our revolving credit facility last year, the payment of dividends and the funding of our stock buyback program, has reduced the size of this portfolio. And underlying all of this is the low interest rate environment affecting every insurance company.

Turning now to the consolidated numbers. The positive contribution of Eastern Mike highlighted accounted for solid growth in our topline. Gross premiums written were $187 million in the quarter, up $64 million or 52% quarter-over-quarter, and Eastern was the driver of that gain. Net written premiums were up by a similar percentage to $169 million due again to the addition of Eastern. You’ll note that ceded premiums are also up significantly 45% due mainly to the addition of Eastern, and the shared risk programs Howard highlighted, as well as the session from PICA, the Lloyd's syndicate we mentioned last quarter. P

Partially offsetting that increase in ceded premium was the effect of our quarterly evaluation of reserves on our swing-rated reinsurance treaties. That reduced ceded premiums by $3 million, approximately the same as in the second quarter 2013.

Consolidated gross losses in the quarter were $104 million, an increase of 34% over last year’s second quarter, and primarily due to the addition of Eastern. We recognized $42.2 million of net favorable reserves development for the quarter – for the second quarter of 2014, 10% higher than the same quarter of 2013. $41.3 million was from Specialty P&C, primarily from action years 2007 to 2011. The remaining $900,000 was from the workers’ compensation segment. I should point out here that approximately $400,000 of the favorable development in workers’ compensation in the quarter is attributable to the amortization of the purchase accounting fair value adjustment of the reserves. We’ll be amortizing that over six years at about $400,000 a quarter.

The consolidated current accident year loss ratio was 80%, almost four points lower than the year ago quarter, primarily due to the lower loss ratio on the Eastern business. The effect of the reserve development I just mentioned was 5.6 points less than in last year’s second quarter. So the end result was a consolidated net loss ratio of 56.1%, almost two points higher than the second quarter of 2013.

The underwriting expense ratio was up three points quarter over quarter. And again this is primarily the result of the lower premiums in Specialty P&C, combined with the amortization and one-time expenses in workers’ compensation that Mike mentioned. The end result is a consolidated combined ratio of 85.7%, which is 4.7 points higher than the year ago quarter.

Our net income was $50 million essentially unchanged from second quarter 2013. Net income per diluted share was $0.84 for the quarter, a year over year increase of 4% which is a direct result of our share re-purchase activity.

Operating income in the quarter was $41million or $.069 per diluted share. We continue to see value in our shares. In the second quarter we purchased approximately 900,000 shares at a total cost of $39 million. We purchased approximate 442,000 shares at a cost of approximately $20 million after quarter end under the auspices of our 10b5-1 plan. So till the close of trading yesterday August 5, our year-to-date repurchases stand at 3.1 million shares at a total cost of $141 million, which leaves us with $162 million in our current re-purchase authorization. As I mentioned last quarter, we believe our shares are a solid value at current prices and represent a sound investment in the future of ProAssurance, but I do want to point out that buying at these levels does hamper growth and book value per share. Book value per share has grown 3% since year end to $40.23 and the quarter end tangible book value per share was $34.84. Frank?

Frank O’Neil

Thanks Nate. Stan, will you wrap us up please?

Stan Starnes

Thanks, Brian. We are pleased that we continue to successfully confront the challenges of a very competitive workers comp market and an NPL market that is as competitive as we have ever seen. That’s been our operating model since we were founded. We have always been ahead of the curve, and we have always kept the best interest of our policy holders and our shareholders, front and center.

The Ward Group recognized that again this year, naming ProAssurance for the Ward’s 50 list for the 8th straight year, finding that we are one of the 50 best property and casualty insurance companies out of more than 3000 in the United States. Eastern was a separate company during the measurement period and they were named to the list as well, the 3rd year in a row for Eastern. That tells me that we are doing something right and we will continue doing the right thing as we prepare for our future where our financial strength and operational experience will allow us to maintain the leadership position we have established.

And finally, Frank I suspect some remember that I was to be on the Baltic Sea this week celebrating my 35th wedding anniversary. The good news is that I will still be celebrating my 35th anniversary, but as it turns out, this just wasn’t the right time to be out of the country.

Now for questions.

Frank O’Neil

All right, Stan, Thank you. Carey, that concludes our prepared remarks. We’ll be ready for questions now. Thank you.

Question-and-Answer Session

Operator

(Operator instructions) and we’ll take our first question from Mark Hughes with SunTrust.

Mark Hughes – SunTrust Robinson Humphrey

Thank you. It sounds like you’re starting to see some momentum in the cross sailing. Can you discuss maybe the potential pipeline, the size of the pipeline, where you think it might be material in the coming quarters?

Stan Starnes

I’ll let Mike respond to that from the comp end. The size of the pipeline, if you look at it at least on a theoretical basis is enormous. But as you know we pay far more attention to quality than we do quantity and we’ll take those opportunities and evaluate them one at a time as they arise. Howard sees it from the medical point of view. Mike sees if from the company point of view. I’ll let each of them comment. Howard?

Howard Friedman

Sure. As Mike had mentioned in the prepared remarks, we see opportunities with existing Eastern workers comp clients who are in the healthcare area, particularly in some of the long term care segments of the business where the existing insurance that have workers comp or are thinking about workers comp in the captive arrangements are also now seriously thinking about professional liability and that’s just the captive operations. The general or regular business, standard market business also provides a lot of potential and we’re going to try to mine that as well for opportunities. I’ll let Mike comment too. Mike?

Mike Boguski

Yes. We’re pleased with the pipeline. In alternative markets it does take a while to develop those opportunities and bring them to fruition because it’s a bit of a more complex product. But we’ll see -- it’s really too early to tell on financial impact for this year, but I know we have some very nice opportunities lined up for 2015

Mark Hughes – SunTrust Robinson Humphrey

You think it could add a few point to growth in 2015?

Mike Boguski

I don’t think we are willing to forecast that, Mark.

Mark Hughes – SunTrust Robinson Humphrey

Okay. In workers comp, any change in the competitive environment, any bigger players getting back in the market? Your pricing was up 2%. How do you think that’s going to play out if you were to prognosticate over the next few quarters? What would you think the trends would be?

Mike Boguski

We’ve had a -- thank you, Stan. First of all from an industry perspective, there’s been a pretty nice reduction in the NCCI combined ratio for private carriers. That came down to about 101 for 2013. And I think probably the biggest difference you’ve seen in the last couple of years is the larger stock carriers have reentered. If you look back three or four years there were some larger stock carriers and countrywide carriers that had reduced their workers comp exposure. So, we are seeing that competition come back into the marketplace. Our rates have been sustainable approximately 2% this year. I will note though that we’ve had some consistent rate increases over the last three years. In 2011we had 2.5%, 2012 3.7% and 2013 4.8%. We are pleased with the compounding effect of that and we do believe that 2% level is available for the remainder of the year. And I just saw a report today, MarketScout had workers comp up about 1% in July this year. So we are pleased where we are at on that generation of rate on the book of business.

Operator

We’ll take our next question from Ryan Barnes with Janney Capital.

Ryan Barnes – Janney Capital

I had a question on the Lloyd segment. Obviously the growth has started there. Just wanted to dig a little deeper and just see what you are writing there. I think you mentioned it was some US reinsurance, but just wanted to figure the business mix there between property causality and Medmarc. And then secondly when should we expect that segment to I guess hit breakeven?

Howard Friedman

This is Howard. I think the – I’ll give you just a general description of the business mix. I don’t have the exact percentages here in front of me. It is a combination of property causality business. On the property side we have direct property business that is written. Some of it is written on a risk by risk basis. Some of it is written under binding authority. In other word where a particular producer in the US has the authority within certain underwriting criteria to put the syndicate on a risk. There’s also property reinsurance business, either pro-risk or property catastrophe coverage and the property cap businesses as you would expect could be coastal, could be earthquake.

On the casualty side, it’s a mix of general liability, some of which is written on a direct individual risk by risk basis and some as participants on excess of loss reinsurance treaties. There’s healthcare professional liability mostly written on an excessive loss treaty basis and workers comp also on a excessive loss treaty basis. And again as we mentioned most of it is US business. There is some international and of course the syndicate also is assuming 35% of the podiatric PICA business that is written as part of ProAssurance. 35% of that is ceded to the syndicate as well this year. That’s kind of a general breakdown and maybe in the future we can provide a little bit more detail as far as the mix.

Ned Rand

And Ryan, on your question about breakeven, I would not expect to see anything breakeven this year with the operations. We are being very conservative on how we are handling expenses with the syndicate and we are not capitalizing any of the underwriting salaries this year given the startup nature of the enterprise. And so you’ve got premium being earned but expenses being incurred or recognized as they incur. So that’s going to be a drain on results. We’d look to break even hopefully sometime next year and of course that all depends on the loss environment and where loss is. But from an expense standpoint, we should begin to see some stabilization in 2015.

Ryan Barnes – Janney Capital

Great. Thanks for the color on that, guys. And then my last question is in the core NPL market, you guys noted a couple of times that it's some of the most – I guess most competitive market you’ve seen in a while. You noticed the pricing was – the competition was serious. But I just wanted to put that against rates up 1% and your retentions still on the high 80s.Just wanted to see how to think about those comments together.

Stan Starnes

Sure. Ideally, our retention would be in the -- if the market was I think much less competitive or as it was several years ago, we would see retentions above 90. That would be our desire. The increase in rate is coming from I think the selectivity on the accounts. If you go back to the first quarter of this year, our retention was a few points lower. So I think overall, what we’re seeing in the market right now is just a tremendous amount of interest on the part of all the carriers to retain the business that they have. There is constant pressure loss of business to – on the physician side to acquisitions of physician practices by hospitals and other healthcare systems that are pulling physicians in and taking them out of the private market on the facility side in addition to the great deal of competition that comes not only from the Specialty carriers but from some of the larger commercial carriers.

We have consolidation of facilities. So again, they are moving to larger self-insured retentions and pulling premium out of the market. We do everything that we can to retain the business, and most of that is based on selling the value and the services that we provide, risk management, claims handling, advisory services and so forth. So I don’t think it's really a contradiction. I think it's a matter of a lot of work to try to keep the business and a tremendous amount of courting to try to write what amounts to a relatively small amount of new business.

Ryan Barnes – Janney Capital

Okay, great. And then just one quick follow up on that. I think you guys also noted that the segregated cell capabilities, has that been able – has that cross sell worked at all yet in the medical malpractice segment? And just want to see if that can be – help stem some of the revenue declines.

Stan Starnes

It has not produced any premium on the books yet, although there are definite and clear prospects. And we mentioned one in the earlier remarks that we are very confident about bringing on some points in the near future, probably in early 2015 for that one in particular and others either before or after that. On the medical professional side, it has to be kind of a forward thinking type of group that is going to retain risk now given the competitive nature of the market. Obviously when the market was harder, there was a lot more interest in retaining risk in order to offset rising premium. Right now with the competitive nature of the market, there is a little less of a need to do that, but at the same time, we keep telling people that it's a good time to get started because when the market does eventually turn, they will be happy that they did.

Operator

We’ll now take our next question from Paul Newsome with Sandler O’Neill.

Paul Newsome – Sandler O’Neill

Good morning and thanks for the call. Congratulations on the quarter. I want to ask a little bit of a big picture question. We have a pretty soft market in the reinsurance market. And I’d just like to hear your thoughts on how that may affect your business, particularly if there are parts of your business that are -- either benefit from lower reinsurance prices or could be harmed by competition if the reinsurance market starts promoting MGAs and such at lower rates and that sort of thought. Do you have any thoughts on that?

Stan Starnes

I think the short answer is all of the above. A soft reinsurance market has an impact on reducing our cost. It also can operate as an enabler at least over the short time. We are very, very qualitative as I mentioned a moment ago with respect to our risk selection and if we can’t get an adequate price for the risk, it doesn’t make any sense to our other policy holders or our shareholders to write that risk. There is clearly some amount of dislocation in the reinsurance market primarily being fueled by alternative sources of capital. And that will wash over into the primary business in the very ways that you suggest. But I don’t think it requires any diversion on our part from what we regard as our real strength which is looking after our physicians and employers and other policy holders. I might let Howard comment on that from his standpoint.

Howard Friedman

Sure, we are now both a buyer and a seller of reinsurance in the different segments. And on the buying side I think as Stan said we do benefit and expect to benefit further as we go through our overall reinsurance renewal process. But on the seller side with our Lloyd segment, I think that we could have -- if the market was harder, we could have written more premium. I think Duncan Dale who leads that operation for us is -- I would not say disappointed by any means. He’s quite happy to be in the market, but he certainly sees the softness of the market and is being very selective in what he is writing. And would like to be able to see opportunities that were at a higher relative price level and that may mean that we write a little bit more in the causality side as compared to the property side because most of this alternative capital that Stan mentioned is in the property market right now.

Stan Starnes

Mike, do you want talk a little bit about what you’ve seen on the terms and reinsurance for your workers comp business?

Mike Boguski

Yeah. We’ve been very pleased. We just finished our May 1, 2014 reinsurance renewal and we saw some attractive rate reductions, some in all layers. And this has happened over the last two years. We’ve also received I think overall better terms and we are able place some higher limits. We placed $150 million over $40 million limit at attractive terms which will really help us as we go to underwrite healthcare businesses as there’s aggregation of exposure in that business from and employee base. Overall believe it will benefit the business and be slightly helpful to margins in 2014 and 2015 as long we are able to maintain our pricing standards.

Operator

(Operator Instructions) We’ll now take Amit Kumar with Macquarie.

Amit Kumar – Macquarie

Just two or three quick follow up questions. The first question goes back to the question on the Lloyd’s business. I think you mentioned 35% is the podiatry piece. Excluding that, what is the biggest piece because you talked about several lines and I couldn’t write this down, but what would be the biggest piece apart from that?

Stan Starnes

In a general sense, and again not having the numbers right in front of us, the biggest piece would be the property business and of that I believe the property or risk business would be the largest component. But don’t have it right here to verify that for you.

Amit Kumar – Macquarie

That’s okay and that’s property per risk coming out of US, right?

Stan Starnes

Yes.

Amit Kumar – Macquarie

Okay. That is a clarification. Sorry about that. The two other quick questions I had was in the opening comments on the reserve discussion were there any moving parts i.e. if there’s any modest adverse development which was offset by positive development or generally everything looked fine on that front?

Stan Starnes

The one area where we had a very small amount of adverse development as in the lawyer’s professional line and it was quite small, almost rounding error on the whole thing. Everything else they’ve made up basically was positive development. We had small increase in our reserve for excess of policy limits losses also. But both of those pieces were combined 5% maybe of the total.

Amit Kumar – Macquarie

Got it. That’s helpful. The final question I have is that recently there was a press release coming out of Ascension which named Stan as one of the directors on the Ascension Board of Directors. I was just curious, how does that, how should we think about -- longer term, how should we think about the relationship with Ascension going forward. Thanks.

Stan Starnes.

Thank you, Amit. First it was an honor that Ascension added me to its board of directors. We learn a great deal from Ascension and I hope from time to time Ascension is able to learn something from us. The organizations have found ways that are very mutually beneficial to work together and I think that will continue along that line in the future. As Howard mentioned in his remarks, we‘ve begun insuring some of the Ascension employee physicians. I think it’s a sign of what happens in this country in health care as we continue go through sort of at the macro level an integration process. And it’s just an example of two organizations working together on a complementary basis.

Operator.

(Operator instructions). We’ll take Matt Carletti with JMP Securities.

Matt Carletti – JMP Securities

Thanks, Good morning. First question is probably for Ned. I think, Ned, at the risk of misquoting you, I think in the past you said the kind of -- I don’t want to call it target leverage, but maybe leverage up to which the rating agencies will be comfortable with would be something in the 0.9 premium to surplus level. I guess my first question is, as the mix and business changes as facilities comes down, med products grow, obviously workers comp is a bigger piece of the pie now, should we be thinking about a different leverage number in terms of being the limit or the threshold?

Ned Rand

Matt, I think you need to really look at it on kind of line of business basis. If you take the NPL line that we write, that 0.9 to 1 I think probably still a pretty good proxy. Workers comp we believe we can write on a more levered basis, something like 1.2, 1.25 to 1. The products liability business is probably at the 0.9 to 1 or maybe a little less than that even given the potential volatility with that line. And the leverage in our view is really geared against that volatility. The more volatile the potential line is, the less premium we’re going to write against the surplus. So I do think looking at it on a line of business basis is how you need to approach it.

Matt Carletti – JMP Securities.

Okay, and I guess if I tie that together with -- so it sounds like in total, now that workers comp is a reasonable piece of the total, from just looking say rough numbers, let’s call it a quarter, the overall target or threshold leverage probably is little higher than it was in the past. Does that or the continued competitive market that sees you holding the line and letting some premiums go, does that change your idea of where you guys want to be on leverage at the moment ? Would you push the leverage a little bit higher given those two factors or you’re pretty comfortable with the kind of the buyback pace you’ve running at? Thanks.

Ned Rand

I don’t really think it changes our perspective today. So we remain comfortable with where we are in our buyback program. We continue to hold sufficient capital to support the business that we are writing and sufficient capital in reserve to support opportunities. I don’t think any big change there right now.

Operator.

And we do have a follow up from Amit Kumar.

Amit Kumar – Macquarie

Thanks. Just very quickly going back to your opening remarks, has there been any -- this question is for Stan. Has there been any discussion on I guess the future at some point like a succession plan? I can’t recollect if you’ve talked about that in the past.

Stan Starnes

You’re talking about a succession plan for executive management?

Amit Kumar – Macquarie

Say that again? My connection was bad. What was that again? To you. This is for Stan, yeah.

Stan Starnes

For me?

Amit Kumar – Macquarie

Yes, for you. Sorry.

Stan Starnes

I’m here today. Our board looks at succession planning very seriously. And on a routine basis and every year I have a discussion with the board as to what my plans are and what the board’s plans are. And we’re very frank and we’re both very comfortable with where each other stand on the matter. The fact of the matter is that when you’re 65 years old, I guess your health can change on a dime, but thus far I’ve avoided most of the major things that can happen to you and my plans are unlimited. But the board does look at succession and looks at it from every angle, whether I’m here another 10 years or whether I’m here another 10 minutes.

Amit Kumar – Macquarie

Got it. I hope you’re here forever.

Stan Starnes

I wouldn’t bet on that.

Amit Kumar – Macquarie

Thanks for the answers. No comment. Thanks for the answer.

Stan Starnes

I doubt my wife shares that hope either.

Operator

Gentlemen, it appears we have no further questions at this time,

Frank O’Neil

All right, we will speak to everybody in November when we discuss third quarter results. Thanks for joining us.

Operator

Once again, that does conclude today’s conference. Thank you for your participation.

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