PMA Capital Corporation Q1 2008 Earnings Call Transcript

PMA Capital Corporation (PMACA)

Q1 2008 Earnings Call

May 2, 2008 8:30 am ET

Executives

William E. Hitselberger - Executive Vice President and CFO

Vincent T. Donnelly - President and Chief Executive Officer

Analysts

Matt Rohrmann - KBW

Scott Heleniak - Ferris, Baker Watts

Beth Malone - KeyBanc

Dan Schlemmer – FPK

Peter Horn – Gates Capital

Presentation

Operator

Welcome to the PMA Capital first quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the call over to William Hitselberger, Executive Vice President and CFO of PMA Capital Corporation.

William E. Hitselberger

Good morning everyone, and thank you for joining us for PMA Capital’s First Quarter 2008 Earnings Conference Call. Joining me on the call is Vince Donnelley, PMA Capital’s President and Chief Executive Officer. Before we begin, I have an important reminder for you about our earnings release.

Our earnings release and statistical supplements, which are available under the Investor Information section of our web site at www.pmacapial.com provides detailed reconciliation of our operating income by business segment to our net income computed under Generally Accepted Accounting Principles.

Although operating income does not replace GAAP net income, operating income is the financial measure that we use to evaluate and assess the performance of our businesses. As we define it, operating income is GAAP net income excluding net realized investment gains and losses and the results from discontinued operations.

Today, Vince and I will be discussing PMA Capital’s first quarter 2008 financial results. Following our prepared remarks, Vince and I will be available to take questions.

As a reminder, any comments that we make regarding future expectations, trends and market conditions, including premiums, revenue, earnings, cash flow, pricing, loss cost trends, and returns on equity are forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from our current expectations. These factors are described in cautionary statement disclosures in our most recent reports on Form 8-K and Form 10-K furnished with the Securities and Exchange Commission, including our Form 8-K dated May 1, 2008, which contains our First Quarter 2008 Earnings Release.

With that, I’ll turn the call over to Vince.

Vincent T. Donnelly

I would like to start by discussing the company’s performance in the first quarter of 2008, and after that, Bill will speak in detail to our operating results and our financial condition. We are pleased with our results in the first quarter of 2008, especially in relation to the current challenges in the insurance sector.

We have made continued progress in profitably growing our insurance business in an increasingly competitive environment and are excited about the continuing robust growth and improved profitability of our fee-based businesses. Our achievement in our ongoing operations included the following, at the PMA Insurance Group, we increased operating earnings by 25% in the first quarter of 2008.

Direct premium production excluding premium adjustments and fronting premiums increased 2% to $146.6 million, compared to $143.4 million in the first quarter of 2007. The combined ratio improved to 94.5%, compared to 98.2% for the first quarter last year.

In our fee-based businesses, revenues increased to 14% of our total revenues in the first quarter of 2008, compared to 7% in the same period last year. We also continued to show strong organic growth at PMA Management Corp. with 16% growth in the quarter, and Midlands’ profitability was in line with our expectations in the quarter, and in April, consistent with our objective of increasing our service-based business, we entered into an agreement to acquire Webster Risk Services, a Connecticut-based Workers’ Compensation TPA with $6 million in annual revenues.

We intend to operate this business as a division of PMA Management Corp. We are excited about the acquisition of Webster. We think it is a very good geographic and business fit with our PMA Management Corp business. Webster specializes in providing Workers’ Compensation claims and risk management services to healthcare systems and municipalities principally in Connecticut.

PMA Management Corp currently produces very little services revenues in Connecticut but is very strong in Pennsylvania, New Jersey, and New York. The service cultures of both organizations are very similar, and we look forward to continued growth at both of these entities after we close this transaction which we expect to occur in June 2008.

We previously announced the execution of a definitive stock purchase agreement to sell our run-off operations, and we will continue to work with a buyer to deliver all of the required information to the regulators to obtain approval of the transaction. We are pleased with the continued positive momentum in our business into 2008. Let me provide some additional details in particular about the PMA Insurance Group business.

The PMA Insurance Group grew profitably and increased premium production despite increasingly competitive market conditions in all of our marketing territories. We continued to maintain our underwriting standards and differentiate ourselves from our competitors by delivering a high-quality level of service.

For business written in the first quarter of 2008, our pricing on rate-sensitive Workers’ Compensation business decreased by 6%. Nationally, according to the Council of Agents, Insurance Agents, and Brokers, first quarter 2008 Workers’ Compensation pricing decreased by 12%. Two states in particular that have accounted for the majority of our overall pricing decreased first quarter were New York and Florida.

For business written in the first quarter of 2008, our pricing on rate-sensitive Workers’ Compensation business decreased by 25% in New York and by 17% in Florida. The pricing reductions in both New York and Florida are mainly driven by manual loss cost changes filed by the respective rating bureaus for those states and we believe are consistent loss trends in each state. These two states combined represent about 12% of our overall rate-sensitive Workers’ Compensation business written in the first quarter of 2008.

Our pricing on rate-sensitive Workers’ Compensation business written outside of New York and Florida decreased by 3%. Earlier this year, the Pennsylvania Insurance Department approved a 10.2% reduction in loss cost which became effective on April 1, 2008. While this will result in lower filed loss costs in Pennsylvania, we will continue our practice of underwriting our business with a goal of achieving a reasonable level of profitability on each account.

We do not expect that the filed loss costs will result in a reduction in premiums in Pennsylvania equal to the level of the loss cost reduction based on our current view of the experienced modification factors and potential future experience of our book of business. PMA will continue to determine its business pricing through scheduled charges and credits that we file and use to limit the effect of filed loss cost changes.

We also believe that the loss cost change should not significantly affect the profitability of our loss sensitive book of business which represents about 42% of our Pennsylvania Workers’ Compensation business.

Although our direct premium production was up, direct premiums written for the quarter were down due to higher return premium adjustments of $13 million, primarily for retrospectively rated policies that we write for our loss-sensitive accounts and a reduction in fronting premiums of $10 million. The premium adjustments primarily related to favorable loss experience on loss-sensitive products with insured shares in the underwriting result of the policy.

Over 40% of our Workers’ Compensation business is written on a loss-sensitive basis, and in these types of policies, the customer shares in the underwriting result of the policy both favorable and unfavorable with us. A return of premium represents favorable loss experience on these accounts and provides us with a greater degree of certainty in achieving our profit margin on an account by account basis.

Fronting premiums decreased due to the previously discussed termination of our agreement with Midwest Insurance Companies in March 2008. Although this termination resulted in a decrease in direct premium written, this business improved our expense ratio by 90 basis points in the quarter, and will continue to have a positive impact on our operating results in 2008 as we will continue to earn fee income until the underlying policies expire.

We entered into a smaller fronting agreement in February 2008 and expect to enter into more of these programs in the balance of the year. The combined ratio at the PMA Insurance Group improved 3.7 points in the quarter compared to the same period last year. The improvement in the combined ratio for the first quarter of 2008 compared to a year ago was primarily the result of a lower expense ration and to a lesser extend lower loss and loss adjustment expense and policy holder dividend ratios.

Given the seasonality of our business, our first quarter combined ratios have historically been lower than the subsequent quarters and full year ratios. The improved loss and loss adjustment expense ratio was primarily due to favorable development in our loss-sensitive business which was largely offset by the previously discussed retrospective premium adjustments.

Pricing changes coupled with payroll inflation for rate-sensitive Workers’ Compensation business were below overall estimated loss trends. Our current loss and loss adjustment expense ration remain consistent between periods as we continue to benefit in 2008 from changes in the types of Workers’ Compensation products selected by our insureds. We’ve estimated our medical cost inflation to be 6.5% in the first quarter of 2008, compared to our estimated 8% in the first quarter of 2007.

The medical cost inflation rate has declined due to our enhanced network and managed care initiatives. As I commented in prior periods, we continue to focus on maximizing our preferred provider network, individualized case management, prescription drug cost containment programs, and the evaluation of charges incurred outside the preferred provider network. We continue to be encouraged that these containment techniques have tempered the impact of medical inflation and continue to contribute to an improved loss ratio.

Before turning the discussion over to Bill, let me say that we are pleased with our progress in the first quarter of 2008, which we achieved in an increasingly competitive market place. Although our first quarter results are typically stronger than the other quarters due to the seasonality of our business, we still believe we are on target to achieve a return of equity of between 5.5% and 6.5% on our ongoing businesses in 2008.

I’ll now the discussion over to Bill for a more detailed look at the operating results as well as a review of our capital position.

William E. Hitselberger

In the first quarter of 2008, we reported net income of $6.8 million or $0.21 per diluted share compared to net income of $3.3 million, or $0.10 per diluted share for the first quarter of 2007. After-tax operating income increased to $7 million or $0.22 per diluted share for the first quarter of 2008, compared to $4.2 million, or $0.13 per diluted share in the same period last year.

In my discussion of segment performance, I will focus on the operating results. Please see Page 3 of our earnings release for the reconciliation of segment operating results to GAAP net income. Now I’d like to turn to the specific results of the PMA Insurance Group.

PMA Insurance Group reported pre-tax operating income of $13.6 million for the first quarter of 2008, compared to $10.9 million for the same period last year. Direct premium production increased 2% for the first quarter compared to the same period last year. However, direct written premiums for the first quarter of 2008 were down due to higher return premium adjustments of $13.3 million primarily from retrospectively rated policies that we write for our loss-sensitive accounts and lower premiums on fronting arrangements.

Direct premiums written were $140.6 million for the first quarter of 2008, compared to $161 million for the first quarter of 2007. Fronting premiums were $8.1 million in the first quarter of 2008, compared to $18 million for the same period a year ago. This decrease was due to the termination of our agreement with Midwest.

Excluding fronting business, we wrote $35 million of new business in the first quarter of 2008, compared to $39 million during the same period last year. Our renewal retention rate on existing workers’ compensation accounts for the first quarter was 85%, compared to 86% for the same period in 2007.

Net premiums written for the first quarter were $114 million, compared to $126 million during the first quarter of last year. Ceded premiums written decreased in the first quarter of 2008, compared to the first quarter of 2007. The decrease was primarily due to lower premiums ceded under the Midwest agreement, which was partially offset by an increase in the amount of workers’ compensation business sold to captive accounts, where a substantial portion of the direct premiums are ceded.

GAAP combined ratio for the first quarter of 2008 was 94.5%, compared to 98.2% for the same period in 2007. The improvement in the combined ratio for the first quarter of 2008, compared to the same period last year, was primarily the result of a lower expense ratio, and to a lesser extent, lower loss and LAE and policyholder dividend ratios.

Our expense ratio for the first quarter of 2008 decreased by 2.8 points compared to the first quarter of last year. Fees earned under our fronting arrangements reduced the ratio by 90 basis points for the current quarter compared to 50 basis points for the first quarter in 2007, as the ceding commissions on this business reduced our commission expense. The expense ratio also benefited from a reduction in premium based state assessments.

The improved loss and LAE ratio was primarily due to favorable development in our loss-sensitive business which Vince described earlier. The policyholder dividend ratio was lower for the first quarter of 2008, than in the same period last year. The prior year period reflected better loss experience, which resulted in larger dividends on participating products where the policyholders may receive a dividend based, to a large extent, on their own loss experience.

Net investment income was $9.1 million in the first quarter, compared to $9.6 million in the same period last year. The decrease was due primarily to a lower yield of about 20 basis points.

Now I’d like to comment on the results of our fee-based business. For the first quarter of 2008, fee-based business reported pre-tax operating income of $2.2 million, compared to $793,000 for the same quarter last year. The increase primarily related to the inclusion of Midlands results in 2008.

For the first quarter of 2008, total revenues in the fee-based businesses increased to $17 million, up $9 million from the same period last year. The increase in revenues related primarily to the acquisition of Midlands which accounted for $8 million of this growth and also revenues from PMA Management Corp. which increased 16% for the quarter, compared to last year.

The total increase in revenues primarily reflected higher claims service revenues of $4.4 million and commission revenues of $4.3 million. As Vince mentioned, we expect to close the Webster acquisition in the second quarter, and on an annual basis, we expect per share earnings to increase by about $0.02 as a result of this transaction.

Now, I’d like to comment on our discontinued operations. Our discontinued operations, which consist of our former reinsurance and excess and surplus lines businesses, recorded an after-tax loss of $2.4 million for the first three months of 2008, compared to an after-tax loss of $1.5 million for the same period in 2007.

The first quarter loss in 2008 was the result of a $2.6 million after-tax charge for adverse development in our discontinued operations, which contractually reduces the amount of cash and contingent consideration that we receive at closing. The expected cash to be received has been reduced to $6 million, as well the value of the contingent consideration has been reduced to a face amount of $6 million. On our balance sheet, we have recorded only the expected cash amount, and now I’d like to turn my attention to our overall financial condition.

Book value as of March 31, 2008, was $12.08 per share, compared to $11.92 as of December 31, 2007. The increase in book value per share was primarily due to net income and partially offset by a change in the net unrealized position on our investment portfolio. The unrealized position on our available for sale asset portfolio decreased by $0.05 per share as a result of gains that we realized in the quarter which were partially offset by an increase in the portfolio value due to lower interest rates.

We continue to review our investment portfolio in light of recently changing market conditions, and we determined that no write-offs were necessary for any sub-prime or credit-enhanced securities. The fair value of our total invested assets from continuing operations was $798 million at March 31, 2008. The portfolio’s average credit quality was AAA-, containing substantially all investment grade securities, and has a duration of 3.8 years.

Of the $798 million, $20 million, or 3% were residential mortgage-backed securities whose underlying collateral was sub-prime or alternative A mortgages. The $20 million which includes $18 million of alternative A collateral and $2 million of sub-prime collateral had an estimated weighted average life of 3 years, and $7 million of the $20 million balance was expected to pay off within one year. The securities had an average credit quality of AAA.

The portfolio also holds securities with a fair value of $20 million, again 3% of the portfolio, whose credit ratings has been enhanced by various financial guarantee insurers. Of these credit-enhanced securities, $15 million were asset-backed securities, none of which had asset-backed CDO exposures. The securities had an average life of 3.9 years, and the securities’ underlying collateral has imputed internal credit rating of A.

Approximately 45% of our reinsurance recoverable balances of $819 million is collateralized, and 4% of these recoverable balances are due to PMA for losses that we’ve already paid. We have just about $27 million in cash and short-terms investments at our holding company at March 31, 2008. We believe that our current funds combined with our other capital sources will continue to provide us with sufficient funds to meet our foreseeable ongoing expenses and interest payments.

In 2007, we used excess cash at our holding company to grow our fee-based businesses and to buy back common stock, and we will continue to evaluate strategic uses of excess capital at our holding company.

Statutory capital for the PMA Insurance Group was $344 million at March 31, 2008, compared to $335 million at the end of 2007. The PMA Insurance Group has the ability to pay $29.2 million in dividends during 2008 without the prior approval of the Pennsylvania Insurance Department.

The statutory surplus of PMA Capital Insurance Company, our wholly-owned run-off reinsurance subsidiary which is being reported as discontinued operations, was $41.1 million at March 31, 2008, compared to $47.6 million at December 31, 2007. This concludes our prepared remarks.

Vince and I will now welcome any questions.

Question-And-Answer Session

Operator

(Operator Instructions) Your first question comes from Matt Rohrmann - KBW.

Matt Rohrmann - KBW

What are the margins like at Webster?

Vincent T. Donnelly

I’d say Matt that margins at Webster are very similar to the margins that we see at PMA Management Corp. The business at Webster is very, very similar to what we do at PMA Management Corp. They specialize in Workers’ compensation TPA business.

The return of revenue is probably about 10% to 11%. Their specialty is municipalities and healthcare systems. We like the business because it’s going to be in Connecticut; its geographic expansion for us, and we think we can help them build out their platform. They do primarily workers’ comp.

We think we can introduce them to liability lines of business which we do TPA services for, which they don’t do right now, and I think we can help them expand their current business with their customers, and also we can use them to start growing our business in the eastern part of New York as well as in Connecticut.

Matt Rohrmann - KBW

In terms of the debt that has the restrictive buyback covenants on it, where does that stand?

William E. Hitselberger

We actually retired all that Matt in January 2008, and as part of that retirement, we lifted all the restricted covenants.

Operator

Your next question comes from Scott Heleniak - Ferris, Baker Watts.

Scott Heleniak - Ferris, Baker Watts

You mentioned the fronting agreements you announced in February this year. Just wondering if you could comment on that one, and you said you might do similar ones again this year, can you talk more and give more color on that?

William E. Hitselberger

Again, the one thing that we did is last year our agreement with Midwest generated premiums of about $60 million for us. We expect the fronting arrangement that we have in place today with a small carrier that’s Utah based, we expect those premiums to be about 20% to 25% of that $60 million.

So again, the way we earn revenues is as that company writes and earns business, we receive a fee for that business. We have been in contact with several other carries that would like to utilize some of our capacity, and we continue to have discussions with those carriers.

We’re pretty confident that we will be replacing most if not all of the volume that was generated for us by Midwest during the remainder of 2008 with some additional carriers, and to be honest with you Scott, I personally feel a little bit better having that capacity allocated to two or three different carriers versus having it allocated to one carrier.

Scott Heleniak - Ferris, Baker Watts

But these will all be small. Would they be the size of Midwest?

William E. Hitselberger

Well, not when we get them signed up. I think there are a couple that have capacity to become as big as Midwest. Again, I think we need to make a business decision as to whether we would be comfortable acceptable that much capacity from one carrier. One thing, I think, we learned is that it’s nice to earn fee revenue. I think we feel a lot better if that fee revenue is diversified.

Scott Heleniak - Ferris, Baker Watts

On the expense ratio, it came in a little bit low. The acquisition expenses were quite a bit lower than the year ago, and I know some of that was just the Midwest teething commissions. Was there anything that was dramatically different?

William E. Hitselberger

The other thing that was dramatically different, Scott, was probably we’re a couple of million dollars lower in state premium-based assessments year-over-year in the first quarter of 2008 versus the first quarter of 2007. We’ve seen a little bit lowering, there were some I’d call one-off item that occurred in the first quarter that probably won’t recur for the rest of the year, but I think on average that we would expect to see the premium assessment rate be lower by anywhere from 50 to 70 BP on a year-over-year basis.

Scott Heleniak - Ferris, Baker Watts

Do you have the unfavorable reserve development number for the workers’ comp business?

William E. Hitselberger

What happens is on a statutory basis we’ll show favorable reserve development. We had $13 odd million of retro adjustments; that number will probably be $9 million or so on a statutory basis.

Again the P&L benefit of that is going to be neutral because we’re returning premiums, and actually the overall change associated with the retro is probably a slight negative to our business because we are taking down earned premiums, we’re taking down the prior year’s losses incurred that we booked on that business, and then we take down some acquisition costs associated with that business, so there’s a net negative margin associated with that. We’ve looked at it. We think that’s probably about $0.02 in the first quarter.

Operator

Your next question comes from Beth Malone - KeyBanc.

Beth Malone - KeyBanc

Can you just give us a little bit more color on what the acquisition environment for fee-based business is? It would appear that with pricing in the market weak that more and more companies would like to try and acquire fee-based or managed fee-based businesses. And also your targets all workers’ comp related or would you be looking at traditional property/casualty type TPAs or for other types of businesses?

Vince Donnelley

In the TPA market, there are really three categories. There are some jumbo companies. The major players, Gallagher Bassett, Crawford, and people that. Then there is a fair amount of regional players, like the PMA Management Corp., and then I think there are lots of smaller TPAs ranging anywhere from the size of Webster down to a million or two million dollars, so there are lots of them, and there are certainly opportunities out there, and we continue to look for those types of opportunities.

In terms of other lines of business, I point to Midlands. Forty percent or so of the business in Midlands is and we acquired them last year as a TPA primarily in non-workers’ compensation. Their TPA business is complex casualty claims and they are doing business for one-in-market companies, Bermuda-based companies, and some of the E&S companies that supplements infrastructure in the United States.

Our focus has always been to try to continue to expand within our expertise, and that’s why we’re particularly excited about Webster. I think in addition to what Bill said before in his answer to a question is we see one of the advantages we bring to a Webster-size company is our technology capabilities. I think many of the smaller TPAs are challenged in terms of continuing to invest.

For example, we’re a fully imaged claim operation, and so we certainly intend to convert Webster over to that and take advantage of some of the operational efficiencies that will occur there. And we do have non-comp capability as Bill said, and we’ll be able to bring that to bear in Webster’s customers. We think a lot of their existing customers we may be able to cross-sell and also generate new opportunities because they will not only have workers’ comp capability, but other capabilities.

William E. Hitselberger

With respect to the other part of your question, the overall market, there’s a fair amount of M&A activity out there on both sides on insurance side and the fee-based side. We’re certainly not a looker on the risk-bearing side. We think we have enough exposure to risk-bearing business with our PMA Insurance group, and as Vince mentioned, there’s a fair amount of people that are looking for perpetuation plans for their individuals or to take advantage, as Vince mentioned, of larger companies’ technology capacities that don’t exist at the smaller company level.

Operator

Your next question comes from Dan Schlemmer - FPK.

Dan Schlemmer – FPK

Your expense numbers are pretty favorable based on primarily the state assessments in the C business. First of all, did I hear you right that you are saying the assessment portion on a go-forward basis we should be looking at is 50 to 70 BP lower than the historical norm, did I hear that right?

Vincent T. Donnelley

That’s fair, Dan. That’s what we’ve seen so far, and we have no reason to believe that that’s going to change.

Dan Schlemmer – FPK

And can you also comment on just the fee business and really the aggregate expense amount on a forward-looking basis? What’s a reasonable run rate, whether it’s this quarter that’s the right benchmark or the more historical slightly higher, or somewhere in between?

Vincent T. Donnelley

I’d say that what we would see is the fee-based businesses had, of our operating expenses, about $14.5 million, and the return on revenue for the fee-based businesses was about 13%. I’d say the return on revenue we would expect it to range anywhere from 10% to 13%.

It’s probably a little bit higher in the first quarter because I think in the first quarter Midlands’ mix of revenue relative to commissions versus TPA revenues used a little bit more heavily to commission revenue, and commission revenues are a higher margin business at Midlands, so I’d say the range is anywhere from 10 to 13, and it ended up being closer to 13 in the first quarter.

Operator

Your last question comes from Peter Horn - Gates Capital.

Peter Horn – Gates Capital

I’ve been a shareholder for about 18 months, and you have done a great job in the transition of your business, but I’m curious why you haven’t been more aggressive in repurchasing shares considering you are so oversold.

Vincent T. Donnelley

I think last year we bought back $10 million worth of stock. That’s a conversation that our board continued to have with respect to the relative value of buying back shares. I think we tend to take a look at capital as holding company cash availability and I think you can make a very logical argument looking at the capital that’s invested in our insurance operations and saying looking at it a from a risk-based capital perspective or from a best capital adequacy ratio perspective that we’re overcapitalized there as well.

The only thing I’m cautioning you in terms of that analysis is that the rating agencies have their own expectation with respect to capital. Having said that, I think we certainly can and do look forward to taking some capital in the form of dividends from our insurance operations as we continue to generate excess capital at our holding companies, and we think we can generate that excess capital not only from dividends from the insurance company, but from tax payments as well.

Our tax situation is such that with our NOLs, we will see cash at the holding company from the insurance companies, but we won’t be a cash tax payer to the federal government. So between dividends, between tax payments from the insurance operations and between tax payments from our fee-based businesses as well as the free cash flow that that business generates which are not restricted in terms of dividend availability, we do believe we are going to generate excess capital as a holding company.

I appreciate your comment. I think that we continue to and we will continue to evaluate the most effective use of the excess capital that we do expect to generate at the holding company, and I’ve said before there’s a universe of options that range from either buying down debt, returning money to shareholders in the form of either stock buybacks or dividends, investing in new operations or investing in our insurance operations.

I think that we’ve come to the conclusion that options 1 and 4 aren’t really viable for us. We think our debt leverage is reasonable right now, and we agree with you that there’s no reason to make additional cash contributions to our insurance operations. So it really comes down to a matter us making evaluations as to whether it makes sense for us to look at service operations and/or to continue to buy back shares in the open market.

Peter Horn – Gates Capital

Right, but considering the discount to book value, I can’t imagine how it’s a better use of money than buying back shares, and going forward for the rest of the year, without giving any specific guidance, what level can we expect on the buyback?

Vincent T. Donnelley

I can’t tell you that there’s any buyback until our Board would approve something, so at this point, Peter, we don’t have any authorization. We exhausted the $10 million authorization that we had last year with purchases that we made last year. I think as we continue to provide information to our Board of the excess capital that we expect to have at the holding company, I think the Board will look at that and make an evaluation as to what they think is the right course of action.

I think the other thing is, we do have a sale agreement with respect to the run-off operations. Personally, I think most of us will feel better once that sale agreement is finalized and approved by the state because that certainly also provides an additional level of comfort with respect to free cash flow availability at the holding company.

Operator

This concludes the question-and-answer portion of the call.

William Hitselberger

Thank you very much everyone for listening to the call.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: [e-mail]. Thank you!