Q2 2024 American Financial Group Inc Earnings Call
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Speaker Change: Good day and thank you for standing by. Welcome to the 2024 Second Quarter American Financial Group Earnings Results Call.
Speaker Change: At this time, all participants are on listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message device and your hand is raised.
Diane Weidner: To withdraw your question, please press star 1 once again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Diane Weidner, Vice President of Investment Relations. Please go ahead.
Operator: Thank you. Good morning, and welcome to American Financial Group's second quarter 2024 earnings results conference call.
Diane Weidner: Thank you. Good morning and welcome to American Financial Group's second quarter 2024 earnings results conference call.
Speaker Change: We released our 2024 second quarter results yesterday afternoon. Our press release, investor supplement, and webcast presentation are posted on AFG's website under the Investor Relations section. These materials will be referenced during portions of today's call.
Speaker Change: I'm joined this morning by Carl Lindner III and Craig Lindner, co-CEOs of American Financial Group and Brian Hertzman, AFG CFO .
Speaker Change: Before I turn the discussion over to Carl, I would like to draw your attention to the notes on slide 2 of our webcast. Some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties that could cause our actual results and or financial condition to differ materially from these statements.
Speaker Change: A detailed description of these risks and uncertainties can be found in AFG's filings with the Securities and Exchange Commission, which are also available on our website.
Carl: We may include references to Core Net Operating Earnings, a non-GAAP financial measure, in our remarks or responses to questions. A reconciliation of Net Earnings to Core Net Operating Earnings is included in our earnings release.
Speaker Change: And finally, if you are reading a transcript of this call, please note that it may not be authorized or reviewed for accuracy, and as a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statements. Now I'm pleased to turn the call over to Carl Lindner III to discuss our results.
Speaker Change: Well, good morning. I'll begin my remarks by sharing a few highlights of AFG's 2024 second quarter, after which Craig and I'll walk through some more details. We'll go and open it up for Q&A where Craig, Brian , and I will respond to your questions.
Speaker Change: I'm pleased to report an annualized second quarter core operating return on equity of eighteen and a half percent
Speaker Change: Underwriting margins in our specialty property and casualty insurance businesses were strong and higher rates increased property and casualty net investment income excluding alternatives by 15% year-over-year.
Speaker Change: Growth in the quarter was impacted by a few things including the timing of premium recognition in our crop business and some underwriting actions we've taken to proactively manage exposures in our most social inflation exposed businesses. We'll talk a little bit more about that later.
Speaker Change: Our strong operating results, coupled with effective capital management and our entrepreneurial opportunistic culture and disciplined operating philosophy, enable us to continue to create value for our shareholders.
Speaker Change: Craig and I thank God, our talent and management team, and our great employees for helping us to achieve these results. I'll now turn the discussion over to Craig to walk us through some of the details.
Craig: Thank you, Carl.
Craig: Please turn to slides 3 and 4 for a summary of earnings information for the quarter.
Craig: the g reported coord net operating earnings of two dollars in fifty-six cents per share in the two thousand and twenty-four second quarter
Speaker Change: Meaningfully higher PNC underwriting profit and higher PNC investment income, excluding alternative investments, were partially offset by lower returns in AFG's alternative investment portfolio when compared to the prior year period.
Craig: Now I'd like to turn to an overview of AFG's investment performance and financial position and share a few comments about AFG's capital and liquidity. As you can see on slide six, approximately 67% of our portfolio is invested in fixed maturities. Current reinvestment rates compare favorably to the 5% yield earned on fixed maturities in our PNC portfolio during the second quarter of 2024. In our alternative investment portfolio, both our traditional private equity investments and multifamily-related investments produced mid-single digit annualized returns for the quarter.
Speaker Change: Now I'd like to turn to an overview of AFG's investment performance and financial position and share a few comments about AFG's capital and liquidity.
Speaker Change: The details surrounding our $15.3 billion investment portfolio are presented on slides 5 and 6.
Speaker Change: Looking at results for the second quarter, property and casualty net investment income was approximately 1% lower than the comparable 2023 period.
Speaker Change: excluding the impact of alternative investments, net investment income, and our PNC insurance operations for the three months ended June 30.
Speaker Change: 2024 increased 15% year-over-year as a result of higher interest rates and higher balances of invested assets.
Speaker Change: As you'll see on slide 6, approximately 67% of our portfolio is invested in fixed maturities.
Speaker Change: In the current interest rate environment, we're able to invest in fixed maturity securities at yields of approximately 5.5%.
Speaker Change: Current reinvestment rates compare favorably to the 5% yield earned on fixed maturities in our PNC portfolio during the second quarter of 2024.
Speaker Change: The duration of our PNC Fixed Maturity Portfolio, including cash and cash equivalents, was 2.9 years, June 30, 2024.
Speaker Change: The annualized return on alternative investments in our PNC portfolio was approximately 5.1% for the 2024 second quarter, compared to 9.6% for the prior year quarter.
Speaker Change: Within our alternative investment portfolio, both our traditional private equity investments and multifamily-related investments produced mid-single-digit annualized returns for the quarter.
Speaker Change: Longer term, we continue to remain optimistic regarding the prospects of attractive returns from our alternative investment portfolio, with an expectation of annual returns averaging 10% or better.
Speaker Change: The average annual return on our alternative investments over the five calendar years into December 31, 2023 was approximately 13%.
Craig: Please turn to slide 7, where you'll find a summary of AFG's financial position at June 30, 2024. During the quarter, we returned $59 million to our shareholders through the payment of our regular $0.71 per share quarterly dividend. I now turn the call back over to Carl to discuss the results of our PNC operations. Thank you, Craig.
Speaker Change: Please turn to slide 7, where you'll find a summary of AFG's financial position at June 30, 2024.
Speaker Change: During the quarter, we returned $59 million to our shareholders through the payment of our regular $0.71 per share quarterly dividend.
Speaker Change: We expect our operations to continue to generate significant excess capital throughout the remainder of 2024, which provides ample opportunity for special dividends or share repurchases over the next year.
Speaker Change: We continue to view total value creation as measured by growth in book value plus dividends is an important measure of performance over the long term.
Speaker Change: For the six months ended June 30, 2024, AFG's growth in book value per share, excluding AOCI, plus dividends, was approximately 10%.
Speaker Change: I now turn the call back over to Carl to discuss the results of our PNC operations.
Carl: Thank you, Craig. Before we discuss property and casualty group results, I wanted to briefly cover the CrowdStrike event from a few weeks ago.
Speaker Change: We believe we have minimal loss exposure to claims related to the widespread systems outage. And I'm pleased to report that our own business operations experienced very little disruption.
Speaker Change: Turning our discussion to the quarter, I'll be referring to slides 8 and 9 of the webcast, which include an overview of our second quarter results.
Speaker Change: As you'll see on slide 8, our specialty property and cash and insurance businesses generated a strong 90.5% combined ratio in the second quarter of 2024, an improvement of 1.4 points from what we reported in the second quarter of 2023.
Speaker Change: Results for the 2024 second quarter include 2.3 points of catastrophe losses compared to three and a half points in the 2023 second quarter.
Speaker Change: Results in the second quarter benefited from 2.3 points of favorable prior year reserve development compared to four points in the second quarter of 23.
Speaker Change: We continue to feel good about the strength of our reserves and are especially pleased to see favorable prior-year development from our commercial property, agricultural, and commercial.
Speaker Change: Executive Liability, Workers' Comp, and other businesses which more than offset some adverse development in selected casualty businesses.
Speaker Change: Second quarter 2024 gross and net written premiums were up 2% and 1% respectively when compared to the same period in 2023.
Speaker Change: We continue to achieve year-over-year premium growth as a result of a combination of new business opportunities, increased exposures, and a good renewal rate environment.
Speaker Change: This growth was partially offset by the timing of later reporting of crop acreage.
Speaker Change: which affects premium recognition, and to a lesser extent, a proactive approach to managing exposures in our social inflation-exposed businesses.
Speaker Change: Taking these factors and seasonality into consideration, we expect growth and net written premiums to be a healthy 7% for the full year 2024.
Speaker Change: Average renewal pricing across our property and casualty group, excluding our workers comp business, was up 8% for the quarter.
Speaker Change: including workers comp or no rates were up 6% overall. Both measures are in line with a previous quarter.
Speaker Change: We've reported overall rate, renewal rate increases for 32 consecutive quarters and we believe we're achieving overall renewal rate increases in excess of prospective loss ratio trends to meet or exceed targeted returns.
Carl: Now I'd like to turn to slide nine to review a few highlights from each of our specialty property and casualty business groups, later reporting of crop acreage, which impacts the timing of crop premiums more than offsets the additional crop premium associated with the CRS acquisition. This timing difference is more pronounced because we experienced the opposite scenario in the second quarter of 2023 because the acreage reporting was early last year.
Speaker Change: Now I'd like to turn to slide 9 to review a few highlights from each of our specialty, property, and casualty business groups.
Speaker Change: Details are included in our earnings release, so I'll focus on summary results here.
Speaker Change: The businesses in the Property and Transportation Group achieved a 92.9 calendar year combined ratio overall in the second quarter of 2024, an improvement of 1.3 points from the 94.2 reported in the comparable 2023 period.
Speaker Change: Second quarter 2024 gross and net written premiums in this group were both 2% higher than the comparable prior year period. Year-over-year premium growth was primarily attributed to new business opportunities, a favorable rate environment, and increased exposures in our commercial auto businesses.
Speaker Change: Later reporting of crop acreage, which impacts the timing of crop premiums, more than offset additional crop premiums associated with the CRS acquisition.
Speaker Change: This timing difference is more pronounced because we experienced the opposite scenario in the second quarter of 2023. The acreage reporting was early last year.
Carl: This timing difference will reverse in the third quarter, second quarter 2024. Gross and net written premiums increased one percent and two percent, respectively, when compared to the same prior year period. Additionally, approximately two-thirds of the businesses in this group reported year-over-year growth as a result of new business opportunities, higher rates, and strong policy retention. In our public entity business, we have not renewed or reduced capacity in several programs and have generally increased the retention, you know, required for insureds.
Speaker Change: This timing difference will reverse in the third quarter, excluding crop, gross and net written premiums in this group grew by 7% and 5% respectively.
Speaker Change: At this point in the growing season, we're optimistic about the crop year.
Speaker Change: The drought monitor continues to be significantly better than the prior two years in those growing regions of the country. And while we have some areas of the country that could use more moisture, we don't have any current concerns about widespread drought affecting our crop results this year.
Speaker Change: Actually, Hurricane Beryl pushed moisture up through the Midwest, providing some relief to crops that were experiencing significant heat.
Speaker Change: While current commodity price futures pricing is lower than spring discovery prices, it remains within acceptable ranges.
Speaker Change: Overall rates in this group increased 8% on average in the second quarter of 2024, about a point lower than the pricing achieved in the group for the first quarter of this year.
Speaker Change: I'm particularly pleased with the renewal rates achieved in our commercial auto liability line of business.
Speaker Change: where rates were up 16% in the second quarter.
Speaker Change: This follows a 21% increase in the first quarter, demonstrating our commitment to achieving rate adequacy and underwriting profits in this line of business.
Speaker Change: This is our 12th year of rate increases in this line.
Speaker Change: Now the businesses in our specialty casualty group achieved an excellent 85.4 calendar year combined ratio in the second quarter of 2024, an improvement of 1.2 points from a very strong 86.6 reported in the comparable period in 2023.
Speaker Change: I'm especially pleased with the continued strength of our underwriting margins produced by our excess and surplus wines business, as well as those within our executive liability and workers' compensation operations.
Speaker Change: Second quarter of 2024, gross and net written premiums increased 1% and 2%, respectively, when compared to the same prior year period.
Speaker Change: Approximately two-thirds of the businesses in this group reported year-over-year growth as a result of new business opportunities, higher rates, and strong policy retention.
Speaker Change: i
Speaker Change: The growth in this group was partially offset by a planned measure of caution around some of our social inflation exposed businesses.
Speaker Change: which reduces the impact of significant rate increases on overall premium growth. For example, we non-renewed several large housing accounts in our social services business where we had poor loss experience.
Speaker Change: In our public entity business, we non-renewed or reduced capacity in several programs and have generally increased the retention required for insureds.
Carl: We also chose to seed more business in our excess liability business through the use of facultative reinsurance placements. Excluding our workers compensation businesses, renewal rates for this group were up approximately 7% in the second quarter, about a point lower than the first quarter. Renewal pricing in this group was up approximately 6% for the quarter, about one point lower than the previous quarter. Our specialty other group, although small, includes our internal reinsurance facility that we typically don't discuss on our earnings calls, as it is small.
Speaker Change: We also chose to seed more business in our excess liability business through the use of facultative reinsurance placements. Although these activities tempered growth, we believe these to be prudent underwriting actions.
Speaker Change: Excluding our workers' compensation businesses, renewal rates for this group were up approximately 7% in the second quarter, about a point lower than the first quarter.
Speaker Change: Overall renewal rates in this group, including workers comp, were up about 5% consistent with the first quarter of this year.
Speaker Change: I'm pleased that we continue to achieve renewal rate increases in excess of 10% during the quarter in several of those social inflation exposed businesses that I mentioned, including our public entity, social services, and excess liability businesses.
Speaker Change: The Specialty Financial Group continued to achieve excellent underwriting margins and reported an 89.7% combined ratio for the second quarter of 2024, an improvement of 5.3 points.
Speaker Change: from the comparable period in 2023.
Speaker Change: Second quarter 2024 gross written premiums were flat, net written premiums were up 3% in this group, respectively, when compared to the prior year period.
Speaker Change: Growth in our financial institutions business was partially offset by the decision to pause writing of new intellectual property related coverage in our innovative markets business.
Speaker Change: Renewal pricing in this group was up approximately 6% for the quarter, about one point lower than the previous quarter.
Speaker Change: Our specialty other group, although small, includes our internal reinsurance facility that we typically don't discuss on our earnings calls, as it is small.
Speaker Change: Over the many years this group has enabled us to corporately keep more net in certain historically profitable specialty businesses when those individual business unit leaders opt to cede more of their business.
Speaker Change: Over time, this has been a successful strategy for us.
Speaker Change: More recently, we've recorded some adverse development here that would have been otherwise attributed to our other business units, most notably those in our specialty casualty group, had they retained that risk. Of course,
Speaker Change: These results are also included in our overall second quarter of 90.5 specialty group combined ratio.
Speaker Change: For perspective, however, if the results for our internal reinsurance facility were simply pushed into the specialty-casualty results in the second quarter of this year, that group's county or combined ratio would still be under 90%.
Speaker Change: Craig and I are pleased to report these strong results for the second quarter and we're proud of our proven track record of long-term value creation.
Speaker Change: Our insurance professionals have exercised their specialty P&C knowledge and expertise
Speaker Change: experience to skillfully navigate the marketplace. And our in-house investment team has been both strategic and opportunistic in the management of our $15 billion investment portfolio. We're well positioned to continue to build long-term value for our shareholders for the remainder of this year and beyond.
Speaker Change: We'll now open the lines for Q&A on today's call, and Craig, Brian , and I'd be happy to respond to any questions.
Speaker Change: Thank you. At this time, we'll conduct a question and answer session. As a reminder to ask a question, you'll need to press star 11 and telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Michael Zaremski of BMO. Your line is now open.
Michael Zaremsky: Hey, good morning. Thanks. First question, just, you know, I guess it's kind of high level unless you want to unpack
Speaker Change: more any more details but you know clearly results overall excellent
Michael Zaremsky: But, you know, as an analyst, you know, trying to sometimes be focused a little bit on some of the...
Michael Zaremsky: The negative items or less good items. So, you know, in terms of the pulling back in certain lines of business, especially the social inflationary lines, I guess, you know, what's
Michael Zaremsky: what's changed versus, you know, a quarter or two ago that's
Michael Zaremsky: causing the pullback and you know, I guess then, you know, if you're continue to say loss
Michael Zaremsky: prices in excess of loss trend but but now you're
Speaker Change: Pulling back, you know, does that mean that you know, there are certain lines where there's either more uncertainty and loss trend or maybe right? Pricing just isn't meeting loss trend and certain social inflationary lines. Thanks
Speaker Change: Yeah, I think it's some of all the above, you know, that you mentioned. Again, you know, we fastidiously do quarter-by-quarter reviews, actuarial of all of our businesses and that.
Speaker Change: You know, we're continually adjusting.
Speaker Change: are quarterly loss ratio trends according to what we're seeing. And over the past couple of years, or even longer, in lines like commercial liability, clearly the loss ratio trends...
Speaker Change: have moved upward. I do think, you know, in certain businesses,
Speaker Change: I like the rate that we're getting, particularly the double-digit rate that we're getting in a lot of the socially exposed lines. But yeah, I think there are accounts that had at no matter what price or terms or at what price or terms the given market will accept.
Speaker Change: Our appetite, you know, may be less aggressive than other of our competitors.
Speaker Change: I do think that there is a, you know, that may be part of the reason, though, over time.
Speaker Change: You know, we really have some of the best underwriting results and returns over, as you've seen, a sheet that we've had in our deck from time to time over, you know, one year, five year, 10 year and 15 year period of time. So I think there's a reason for that.
Speaker Change: where we see that we need to make adjustments in our appetite and in a given line or given areas of our business, we're going to do that.
Speaker Change: Got it, and you might have said this just, I know commercial auto pricing had really accelerated in recent quarters to pretty high levels. Did you give us an update on kind of how that's trending currently in the portfolio?
Speaker Change: Sure.
Speaker Change: I think I just mentioned in the script that in the quarter, you know, commercial auto liability increases were about 16% on top of 21%. In our case, um...
Speaker Change: You know, when we look at year-to-date or overall commercial auto results in that, we kind of break even to a small underwriting profit overall. It's a commercial auto liability line that has a small underwriting loss.
Speaker Change: and that.
Speaker Change: So, you know, we're particularly focused, you know, with Workers' Comp, with National Interstate, you know, the business is really good.
Speaker Change: and really solid underwriting property. We're focused on the commercial auto liability part of the business.
Speaker Change: and where the loss ratio trends are higher. I think for that reason, that's why we're getting a double-digit-plus price increase.
Speaker Change: and
Speaker Change: You know I think
Speaker Change: We're also looking to make other, you know, underwriting adjustments over time. We're serious about wanting to improve.
Speaker Change: our commercial auto and particularly our commercial auto liability results.
Speaker Change: Now, you know, at a small underwriting profit break-even, we have a solid return on equity in that business. And with the workers' comp in the transportation business, you know, we're making a very good return.
Speaker Change: I think our results are probably five or six points better is what our guys would would tell me than you know the industry so
Speaker Change: But we, you know, we're an underwriting focused company and, you know, we'd like to see the commercial auto liability and the overall commercial auto, you know, at more of a solid underwriting profit in that.
Speaker Change: Does that help?
Speaker Change: Yep, that helps. And just lastly,
Speaker Change: If there were material crops...
Speaker Change: reserve releases, you know, we heard your commentary, we can see the data on, you know, the prospectively crop returns, you know, knock on wood, looking good, but
Speaker Change: If there were a material amount of crop reserve releases this quarter, is that unusual in terms of seasonality? And if so, what is the seasonality on crop, if you can remind us, releases and what happened?
Speaker Change: Yeah, Brian can can add some color on that and I can add additional color on crop here in a minute also.
Brian: So, on the profit emergence for crop...
Brian: We
Brian: tend to book.
Brian: the profit in that business.
Brian: when when the crops come out of the out of the ground and for the corn and soybeans the main products that's sort of at the end of the year.
Brian: So when we're booking our crop profit, it tends to be heavily weighted into the fourth quarter.
Brian: But there's still a lot of crop business to be settled after that. So we typically have a significant amount of reserves still up at the end of the year. And that, because we're conservative in our booking, that has tended to lead to some favorable development in the first quarter of the subsequent year.
Brian: and then sometimes with some of the products like...
Brian: area coverages and things like that. Some of that takes a little bit longer to settle. So there can be
Brian: some favorable or adverse development in the second quarter of the year, that's kind of the final settlements from the prior crop year. In this particular case, that was a little bit
Brian: higher level of favorable development this year than last year. So when we talk about favorable development in the property and transportation group, a good chunk of that's coming off of crop, and it's a little bit more than it would have been in a typical second quarter.
Brian: I'll maybe add a little bit more color on crop overall.
Carl: When you look at the corn and soybean good and excellent percentages, they're much higher, as of the latest USDA report, August 4, than what they were last year. As far as the current commodity prices, I was just looking, this morning, you know, corn's down 13.6%, soybeans, 11.7%.
Brian: When you look at the corn and soybean good and excellent percentages, they're much higher as of the latest USDA report August 4th than what they were last year.
Speaker Change: As far as the current commodity prices, I was just looking, you know, this morning, you know, corn's down 13.6%, soybeans 11.7%.
Speaker Change: And that's weighed against an average deductible excluding rainfall on our business of around 23%. So we don't have a tendency to get, you know, too concerned until you start seeing price declines of closer to 20% or so.
Speaker Change: as it would impact, you know, on your losses and that. I think additional...
Speaker Change: positive things at this point is winter wheat which is I think maybe eight or nine percent of our business is in much better much better results this year I think than the prior year the same thing with rainfall
Speaker Change: and somebody was asking me today and my brother Craig was asking me about Hurricane Debbie and you know how much that might impact on us.
Carl: We think it's probably a non-event as far as the crop business is concerned. And one particular reason is that we do record rainfall, you know, in Florida. So that actually offsets any exposure, you know, you know, that comes out of Debbie. We don't have a very, almost insignificant amount of our premiums come from the Debbie affected area. So, you know, a little bit of additional color there. Overall, again, I think we're very optimistic about the crop year. Thanks.
Speaker Change: We think it's probably a non-event as far as the crop business.
Speaker Change: And one particular reason is we do write rainfall, you know, in Florida.
Speaker Change: So, that actually offsets any exposure, you know.
Speaker Change: You know, that comes out of Debi. We don't have, we have a very, almost an insignificant amount of our premiums come from, you know, the Debi affected area in that.
Speaker Change: So, you know, a little bit additional color there. Overall, again, I think we're very optimistic, you know, about the crop year.
Operator: Thank you, one, one, for our next question. Good morning, everyone.
Speaker Change: Thank you for the insights.
Speaker Change: Thank you, one, one, for our next question.
Speaker Change: Our next question comes from the line of Gregory Peters of Raymond James. Your line is now open.
Gregory Peters: Good morning everyone. So, in one of your previous answers you spoke of the favorable development in the property and transportation
Gregory Peters: component, and I think you called out the crop impact there. I'm wondering if you could provide any color to the moving pieces of favorable development in either the casualty business or the specialty finance business.
Brian: Sure, Greg. This is Brian.
Gregory Peters: This is Brian . So in the in the casualty group, we do have net
Greg: Favorable development overall. And what we have going on there, there are things going in both directions. The workers' comp business, which has historically been a source of favorable development for us, has continued to be.
Greg: favorable, similar amounts of favorable development relative to recent quarters. The second quarter of 2023, we had a little bit less favorable development than we've had kind of in the typical quarter, but this quarter was a fairly normal quarter there.
Brian: So in the casualty group, we do have net favorable development overall. And what we have going on there, there are things going in both directions. The workers comp business, which has historically been a source of favorable development for us, has continued to be favorable, a similar amount of favorable development relative to recent quarters. In the second quarter of 2023, we had a little bit less favorable development than we've had, kind of in the typical quarter, but this quarter was a fairly normal quarter there.
Greg: There are other areas of favorable development, as Carl mentioned, and things like executive liability and some other areas. But I'll say that is a modest amount of adverse development in different business units.
Carl: particularly mentioned an excess liability business and that really is because that's the only line of business that had any kind of sort of
Carl: larger amount of adverse moment but even that wasn't a material amount overall so it's not that we have huge takedowns
Speaker Change: I'm out of the normal course in workers comp offsetting other things. It's just that there were small blips in a couple of business units
Speaker Change: across a couple of accident years in the social inflation-exposed businesses there. So, overall, we feel really good about where our reserves are and
Speaker Change: and are pleased that we have favorable development overall in that category. In the financial segment, there were ins and outs, but nothing individually material there, so we had some favorable development in some lines, some adverse in others, and it just netted down to a very small amount, but none of those are large amounts going in either direction.
Speaker Change: Okay, great. And then just maybe step back on the specialty financial segment. Gosh, it's been producing.
Speaker Change: Pretty stable results and excellent results for an extended period of time. Just curious, when you go through planning...
Speaker Change: What what does what does a bad year and specialty financial look like for you guys because I'm not sure we've really had it and You know What kind of loss events should we be on the lookout for that might trigger a less than desirable? result inside specialty financial
Speaker Change: Well, obviously, you know, a major hurricane, you know, would.
Speaker Change: would cause, you know, a year not to be as good, but one way we do business in FIS or in our lender-placed property business is a little different.
Speaker Change: and maybe Assurant or some others in that with our producers you know we have a sliding scale kind of a commission type of agreements where
Speaker Change: To a certain extent, if the loss ratio is worse in a given year, you know, some of the seating commission goes, seating commission goes down.
Brian: Conversely, if it's really great results, the seeding commission goes up. That's why I think Brian's pointed out in different years, you know, there can be an aberration in our expense ratio, you know, tied to the way that we do business and lender placed property.
Speaker Change: We kind of like that approach because it helps to limit, you know, it helps to soften your downside, you know, when you have a larger, kind of larger event years in that.
Speaker Change: So I think that would be the main thing that would be, you know, a driver there on, especially financial, because of the size of the lender-placed, you know, the lender-placed property business.
Speaker Change: That business today will be $600 million plus in gross written premium.
Speaker Change: Thanks for that detail, Carl. Maybe building on, just my last question would be,
Carl: Carl, I believe in your comments you mentioned inside the casualty business the use of some facultative reinsurance in certain circumstances.
Carl: um
Speaker Change: Maybe you could...
Speaker Change: You know, to the extent you're willing, provide us a little bit more information about what's going on with that decision and maybe from a different view, what was the pricing like? Obviously it was favorable, I guess, for you to utilize the product, but maybe you can just talk about the decision behind that and where it was used.
Brian: There are other areas of favorable development, as Carl mentioned, and things like executive liability and some other areas. But I'll say that there is a modest amount of adverse development in different business units. We particularly mentioned an excess liability business, and that really is because that's the only line of business that had any kind of sort of larger amount of adverse development, but even that wasn't a material amount overall. So it's not that we have huge takedowns out of the normal course in workers comp offsetting other things.
Speaker Change: Yeah, well, first of all, you know, overall, you know, in pricing on our, I think you're kind of asking me to address kind of the excess liability part of our business, I think. When you look at, when you look at, we have a couple of businesses that write, that are major writers of that.
Speaker Change: I'm happy that we're seeing a double-digit price increase in both of our large businesses in that.
Speaker Change: We have, you know, one of the businesses in particular has a bigger emphasis on Fortune 500, Fortune 1000.
Speaker Change: type of business. That's the business that we've seen more unfavorable, you know, loss reserve development.
Speaker Change: But in both businesses, and in that business, you know, we'd be using
Speaker Change: you know, more facultative reinsurance, maybe on certain risks, if we want to downsize our exposure, you know, risk by risk, depending on the risk profile. I think that's
Speaker Change: You know what the strategy is. Obviously, we, along with other carriers, have also been moving up the tower to, you know, potentially move farther away from risks, particularly that have heavy commercial auto liability exposures.
Speaker Change: So, you know, those would be a few examples of the kind of things that we're doing, you know, in excess liability, obviously besides price and that.
Speaker Change: Got it. Thanks for the answers.
Speaker Change: Thank you, Womelin, for your next question.
Speaker Change: Our next question comes from the line of Charlie Lederer of Citigroup. Your line is now open.
Charlie Lederer: Hey, thank you. The improvement in the specialty casualty, current X and year loss ratio, XCAT, accelerated in the quarter.
Charlie Lederer: Can you talk about what drove that, whether it's changes to prospective loss trends or if it's due to some of the underwriting actions you've taken?
Brian: Sir Carly, this is Brian .
Speaker Change: The biggest driver of the improvement in the accident year loss ratio X-Caps for casualty is coming out of our targeted markets businesses.
Speaker Change: So not only have we been getting good rate increases there and taking underrating actions in areas like our specialty human services business that we talked about last quarter, or our public entity business that we talked about last year,
Speaker Change: where we've been.
Speaker Change: making some decisions on pricing as well as
Speaker Change: as, for example, in the public entity business.
Speaker Change: insured's retention. So they were writing coverage over pooled retention.
Speaker Change: requiring higher retentions by insurance, all of that's leading to improved profitability in our targeted markets business.
Speaker Change: Offsetting that a little bit is in our workers' comp, we are being cautious in our accident year picks there. As you know, a portion of our business is in Florida where there have been rate decreases as well as we're just being cautious on costs.
Speaker Change: going forward on medical costs. So the big driver of the improvement there really is, I would say, is the underwriting actions and pricing in the targeted markets.
Speaker Change: Got it. That's helpful. Thanks.
Speaker Change: I guess I'm the top line headwind in specialty financial.
Speaker Change: Can you help us kind of think about, I guess, the runway for that, you know, the pause you mentioned in the innovative markets business, how long you see that playing out and how big of a headwind that is still over the next two or three quarters?
Brian: It's just that there were small blips in a couple of business units across a couple of accident years in the social inflation exposed businesses there. So overall, we feel really good about where our reserves are and are pleased that we have favorable developments overall in that category. In the financial segment, there were ins and outs, but nothing individually material there. So we had some favorable developments in some lines, some adverse in others, and it just netted down to a very small amount, but none of those are large amounts going in either direction.
Speaker Change: Sure, so there's a few things going on in financial. The first thing that I'll remind you of is the biggest business in there is our financial institutions business, where the lender placed insurance is. And that's a business that really started growing significantly in the second quarter of last year, and that continued on.
Carl: Well, obviously, you know, a major hurricane and others. Thank you, you know, the lender-placed property business.
Carl: Yeah, well, first of all, you know, overall, you know, in pricing on our I think you're kind of asking me to address the kind of excess liability part of our business, I think. When you look at it, when you look at, we have a couple businesses that write that are major writers of that. I'm happy that we're seeing a double-digit price increase in both of our large businesses. We have, you know, one bit one of the businesses in particular has a bigger emphasis on Fortune 500, Fortune 1000, you know, type of businesses. That's the business that we've seen more unfavorable, you know, loss reserve development.
Brian: Sure, so there are a few things going on in finance. The first thing that I'll remind you of is our financial institutions business, where the lender-in-place insurance is, and that's a business that really started growing significantly in the second quarter of last year, and that continued on to where it's more leveled off now. So in the second half of the year there, we kind of think things will not be as much growth coming out of FIS just because we had the growth last year and it's more of them maintaining it there.
Speaker Change: to where now it's more leveled off. So in the second half of the year, there we kind of think things will be not as much growth coming out of FIS just because we had the growth last year and it's more of them maintaining it there. And the innovative...
Brian: In the innovative markets business, we mentioned the pause, and that's been a small business for us. We, in our innovative markets business, write a number of different coverages, and not only IP-related coverages but also unemployment risk, as well as some environmental-related compensatory mitigation products. So where we paused in the new IP risk, that's two products, really, a patent infringement defense expense product, as well as an intellectual property title protection product. So they're not real big businesses, but when you sort of look at the financial institutions business, that growth there is significant.
Speaker Change: Markets business that we mentioned the pause and that's that's been a small business for us.
Speaker Change: We, in our Innovative Markets business, we write a number of different coverages and not only the IP related coverages, but also unemployment risk, as well as some environmental related compensatory mitigation products.
Speaker Change: where we paused in the new IP risk, that's two products really, a patent infringement.
Speaker Change: defense expense product, as well as an intellectual property title protection products. They're not real big businesses, but when you sort of look at on the financial institutions business that that's that growth there is
Speaker Change: kind of already happened that with intellectual property related coverages on PAWS that kind of makes it flat for that that segment.
Speaker Change: Okay, I guess, so in the Great American Insurance statutory statements, we kind of, there's a separate line for collateral protection. Is that, I guess, what businesses are in that? Is that just the IP business, or is that also the patent infringement business?
Speaker Change: Just curious, I guess.
Speaker Change: We probably have to look into that to figure out all the roles up in there to make sure that we give you the right answer, but maybe Diane can follow up with you on that.
Speaker Change: Later. Okay. Yep. Okay. No problem. Just lastly, I guess, can you just talk about how you're feeling about, I guess, the cat exposure and the lender place business heading into kind of, you know, peak wind season?
Speaker Change: Well, you know, we not only manage our lender-placed property business, but, you know, our exposures overall through our modeling and that.
Brian: You know we still have when you look at our 1 in 250 and 1 in 500 year You know projected average kind of hurricane exposures Brian or Diane today
Speaker Change: I mean, those would be roughly, what, two points and four points? Yeah, yeah, even a one-in-500-year event is like about 4% of shareholders' equity, so not something that's going to be overly material at AFG, should that happen.
Speaker Change: That said, you know, in our lender placed property business, we just don't, we don't lollygag around, you know, in the risks that we pick.
Speaker Change: work...
Speaker Change: where we continue with our less...
Speaker Change: desire to have coastal exposure relative to others.
Speaker Change: um
Speaker Change: You know.
Speaker Change: We try to pick accounts that would have a lower...
Speaker Change: Florida, Lower Southeast Coast, or Texas exposure generally over time.
Speaker Change: We like our profile of our business to be lower than what the industry generally is from a cat exposure. But as that business has grown tremendously over the past 18 months,
Speaker Change: Clearly, you know, it added, you know, to our exposures. We still feel comfortable, you know, with the CAT cover and the CAT bond that we have in place.
Speaker Change: and a, you know, it's 70 million dollars of reasonable retention, you know, for the risks that we write.
Operator: Thank you, woman, for the next question. Our next question comes from a line from Paul Newsome of Piper Sandler. Your line is now open.
Speaker Change: Got it. Thank you guys.
Speaker Change: Thank you, woman, for the next question.
Speaker Change: Our next question comes from the line of Paul Newsome of Piper Sandler. Your line is now open.
Paul Newsome: Good morning. I was hoping to ask a couple of maybe bigger picture questions.
Paul Newsome: One of your peers talked a little bit about, a couple of your peers talked about the challenge of talent and expanding into new fields.
Speaker Change: segments in the specially commercial world.
Speaker Change: and that perhaps it's gotten a little bit more competitive. Is that your perspective, or do you...
Paul Newsome: Have any thoughts on some of the challenges in Newtown?
Speaker Change: Have any thoughts on sort of the challenges with new talent?
Speaker Change: Well, I guess first of all, from a macro standpoint, our turnover overall as a company, you know, would be much lower than our our peers and, you know, others in general.
Speaker Change: That said, I think...
Speaker Change: You know, attract and keep good people, I think, is a continual challenge, you know, both in providing, you know, the right compensation packages, you know, within our industry and that. I think
Speaker Change: We've had a number of our 35 business units at one time or another over the past couple years where we've lost some key personnel.
Speaker Change: nothing that
Speaker Change: you know, that we couldn't, that we couldn't handle.
Speaker Change: As a company, for 20-25 years or so, we not only do business reviews of every one of our businesses strategically every couple years, we do people development reviews every year of all of our businesses.
Speaker Change: and we have, we were very fastidious about developing very specific succession plans for each of those 35 businesses with fairly detailed, you know, laying out fairly detailed
Speaker Change: ideas of how what each of the potential successors what they need to do to develop into you know being the lead person in those businesses so
Speaker Change: I think one thing that's helped us is that succession planning, you know, that we do, that could be a little bit different and more intensive than some of our peers.
Speaker Change: Right, and then another bigger picture question, maybe an update on capital management thoughts and...
Unnamed Speaker: you know, special dividends versus buybacks versus M&A, and where you sit and think about the most likely use of your future cash flow will go.
Speaker Change: Special dividends versus buybacks versus M&A and where you sit and take the most likely use of your future cash flow will go.
Craig: Paul, this is Craig.
Carl: As Carl stated in the past, they're...
Speaker Change: There's always a flow of M&A deals that our group is looking at, and as he said, we're pretty selective. We expect to...
Speaker Change: to write returns, not just a deal that is accretive.
Speaker Change: which is very easy to do with interest rates where they are today, but you're constantly looking at potential acquisitions.
Speaker Change: as you know we have a significant amount of excess capital today that
Speaker Change: is expected to build through the balance of the year.
Speaker Change: And, you know, consistent with what we've said in the past, we're always looking at possibility of share repurchases and...
Speaker Change: and additional special dividends. Probably want to get a little further along in the hurricane season before we make final decisions on that, but those are two things that we're certainly considering.
Unnamed Speaker: Francis, I appreciate the help as always.
Speaker Change: I appreciate the help, as always.
willlo: Thank you. We'll move on to our next question.
willlo: i
Speaker Change: Our next question comes from the line of Andrew Andersen of Jeffries. Your line is now open.
Andrew Andersen: Hey, good morning. You had mentioned some adverse development on excess liability. Could you talk about what accident years that was from and maybe size the magnitude there?
Speaker Change: So it's small amounts over multiple accident years, so it covers a little bit from 19 to 23, so a little bit in several of those years. It's not a huge amount overall, it's just...
Speaker Change: It's just the largest individual on the business that had any adverse development at all. So it's not a real big dollar amount. It was spread across multiple accident years.
Speaker Change: Okay.
Speaker Change: And on the IP, collateral protection product, can you talk about the frequency trends that you're seeing there, and I guess is that in reaction to increased default rates that some peers have been talking about? And if so, has there been any impact on the underlying margins or reserves?
Speaker Change: right
Speaker Change: It's a very small business for us with a limited amount of exposure. We're reacting to what we're seeing in our individual products.
Speaker Change: We're not able to comment on competitors.
Speaker Change: products of their experiences, but the losses do occur in that business if there is
Speaker Change: A default on the loan as well as a decline in the value of the collateral wouldn't cover the loan. We're reacting to the information that we have available at the time. We have strings and reserves in that area in the first six months of this year.
Speaker Change: We're monitoring it closely, but this is not a real big business for us.
Speaker Change: Thank you.
Speaker Change: so
Speaker Change: Our next question comes from the line of Meyer Shields of Keith, Booyah, & Woods. Your line is now open.
Speaker Change: Thanks so much. A couple of small questions first. Within the current level of rate increases and loss trend in commercial auto, when do you think you'll be at target margins for commercial auto reliability?
Speaker Change: That's a good question. Considering we're in our, you know, 10th or 12th year of taking rate, I would have thought that we would have been at the right margins now.
Unnamed Speaker: But, you know, with the perspective of loss ratio trends, you know, for everyone that has kind of gone up, some positive improvement.
Speaker Change: with it's we're continuing to
Speaker Change: to even maintain you know adequate and good solid returns we're having to take double-digit rate and commercial auto liability over many years so far so
Speaker Change: I wish I had a specific answer there for you. We're doing everything we can, both price and...
Speaker Change: underwriting action wise to to drive towards a underwriting profit. I'm hopeful that over the next 12 months that you know we'll see some positive improvement.
Unnamed Speaker: Okay, no, that's very helpful. The press release mentioned improved workers' compensation profitability year-over-year. Last year, obviously, there was sort of a accident year true-up and adjusted approach to reserve development. Was there any other issue translating into better profitability this year than last year in workers' comp?
Speaker Change: Okay, no, that's very helpful. The press release mentioned improved workers' compensation profitability year-over-year. Last year, obviously, there was sort of an accident year true-up and adjusted.
Speaker Change: approach to reserve development. Was there any other issue translating into better profitability this year than last year in workers' comp?
Speaker Change: i
Speaker Change: No, not really. Last year in the second quarter, we just experienced a lower level of favorable development than we did this year in the second quarter. So the second quarter of this year was more of a, what
Unnamed Speaker: It was more consistent with what's been happening in recent quarters; it's just that the second quarter of last year was a lower level of favorable development, so overall workers' comp profitability is better this year than last year because of that.
Speaker Change: It was more consistent with what's been happening in recent quarters, it's just the second quarter of last year was a lower level of favorable development, so overall workers' comp profitability is better this year than last year because of that.
Speaker Change: Yeah, as far as, you know, our overall workers' comp results through the second quarter and six months, they're excellent.
Speaker Change: I think the 20 we still think 24 accident year combined ratio will be higher than last year but still at a solid underwriting profit.
Speaker Change: And still, please, even with a 15% rate decline there in Florida...
Speaker Change: I think Summit's overall prices are down maybe 13% through six months, but...
Speaker Change: We're still projecting, even with that rate decline in Florida, a solid accident underwriting profit this year. So I think that's a positive. The comp business at National Interstate and strategic comp.
Speaker Change: the other large businesses continue to have good calendar and action year underwriting results through the first six months our california compp business is the one it has an underwriting boss through six months and
Speaker Change: Well, we are seeing some pot, you know, actually I think there, there was a
Speaker Change: a 3% price increase that we got in our book in California.
Speaker Change: You know, through the first six months, which was a positive, and we're getting some price increase in our strategic comp business. So, overall, continue to be very pleased with the excellent results.
Unnamed Speaker: you know, premiums are pretty, pretty flat, with an overall, an overall price decline, I think within within our comp business of about 3%. And so, all in all, we're in a very competitive business, you know, very happy with our workers compers, and continue to be very happy with the workers comp results.
Speaker Change: and
Speaker Change: You know premiums are pretty pretty flat You know with the with the an overall an overall price decline
Speaker Change: I think within our comp business of about 3%.
Speaker Change: and that. So, all in all, we're very in a very competitive business, you know, very happy with our workers compers, continue to be very happy with the workers comp results.
Speaker Change: And go ahead, you know, I asked.
Speaker Change: Yeah, overall perspective, loss ratio trends continue to be very favorable.
Speaker Change: You talked about the late acreage report. Given the seasonality of earned premiums for crops, does that have a significant impact on the earned side of things? I understand that root premium was delayed.
Speaker Change: It should not affect the earning of the premium. So we earn the premium in the crop business during the growing season. So what you'll find is, with our biggest products being the corn and soybeans, that most of the earned premium is in the third quarter, and that'll be consistent. So it's just a timing, almost like a flip from June to July .
Speaker Change: on the corn and soybean premium reporting so that it won't affect the earned.
Unnamed Speaker: Okay, perfect. Thank you so much.
Speaker Change: okay perfect thank you so much
Speaker Change: Thank you one moment for our next question.
Speaker Change: Again, as a reminder, to ask a question, you'll need to press star 11 on your telephone.
Speaker Change: Our next question comes from the line of Bob Farnham of J.D. Montgomery Scott. Your line is now open.
Bob Farnham: Yeah, hey there and good morning. I had a question on the excess and surplus lines market. Just trying to get an idea for the submission flow today and how the competitive environment is.
Speaker Change #100: isin that market today relative to maybe where it has been p few years
Speaker Change #102: I think some submission flow for us has been pretty consistent.
Speaker Change #103: with what it has been over the past 12 months.
Speaker Change #104: Okay, so no encroachment yet from the admitted market that you're seeing. Anything of note?
Speaker Change #105: No, I don't think we're seeing, you know, any migration back to the admitted market, you know, and that. Again, you know, we're not as aggressive on coastal property as a lot of our competitors are.
Speaker Change #105: you know, in the ENS side.
Speaker Change #105: And that, I think, you know, some of the strong submission increases that are getting reported are tied to, you know, both California, Florida, maybe even Texas, you know, property kinds of submissions and that.
Speaker Change #106: Right okay and just one one just one quick question on continuing and workers comp so it sounds like you're being conservative with your medical inflation expectations
Speaker Change #107: But have you actually seen any change in medical inflation at this point, just trying to have an idea of maybe kind of what you're seeing relative to the broader medical indices?
Speaker Change #107: yeah
Speaker Change #108: Yeah, not really, you know, at this point.
Speaker Change #109: Great. Okay. Thank you.
Speaker Change #109: Thank you, Wong Wong, for your next question.
Wong Wong: Thank you.
Speaker Change #111: Our next question comes from a line of Charlie Lederer of Citigroup. Your line is now open.
Charlie Lederer: Hey, thanks. Just a couple for Craig. I guess, why, I guess your use of buybacks is really kind of, I don't think you've done any this year, so it's slowed a little bit. I guess, can you just talk about the reason for that, just given attractive valuation?
Craig: Yeah, Charlie.
Unnamed Speaker: of repurchases. I think we've got to pick some... I think our timing's been pretty good.
Charlie Lederer: What I would say to you is if you look at our long-term record of repurchases, I think we've got to pick some, I think our timing's been pretty good.
Speaker Change #112: There have been periods when the market was soft, where we were trading at a significant discount to what we thought was the underlying value, where we
Speaker Change #112: We purchased a very large number of shares. It is something that we're constantly looking at. We do think that our stock today is trading at a discount to peers. So, I mean repurchases are something that we that we're taking a look at.
Speaker Change #113: Thanks and I guess my other question was just on the alts portfolio.
Speaker Change #114: I don't think you mentioned that the 6% guide for the year is still how you're thinking about it. I know you said 10% is kind of the longer term expectation, but I guess can you just update us on the outlook for the multifamily real estate?
Speaker Change #115: Sure, I mean, what I would say to you is...
Speaker Change #116: In the first six months of the year, we generated a 7% return.
Speaker Change #117: The multifamily piece, let me talk about at least my perspective of multifamily.
Speaker Change #117: The operations of multifamily are doing fine, even though we do have a lot of new supply in several of our markets.
Speaker Change #117: Marcus with very strong population growth, very strong job growth.
Marcus: And that's where a lot of the new building has taken place. It's probably going to take another...
Marcus: 12 months or so for that new supply to get absorbed.
Marcus: But even with the new supply, our underlying properties are doing just fine. We're projecting that the operating income for the group of properties for the year will be flattish, give or take a little bit.
Marcus: The negative marks that we incurred earlier in the year were really interest rate related.
Unnamed Speaker: is opposed to deterioration of the operations. We don't do the marks; our general partners do the marks, but you would think with the decline in interest rates... And so we're very optimistic about the long-term prospects of our multifamily portfolio.
Marcus: as opposed to deterioration of the operations. We don't do the marks. Our general partners do the marks. But you would think with the decline in interest rates,
Marcus: that certainly the bulk of any interest-related changes should be behind us.
Marcus: We're very optimistic about the longer term prospects. There's still a shortage of housing, still a very high cost of home ownership, and we're very optimistic about the long term prospects of our multifamily portfolio.
Marcus: Thanks for the call.
Speaker Change #119: Thank you one moment for our next question.
Operator: Our next question comes from the line of Michael Zaremski of BMO. Your line is now open.
Speaker Change #119: i
Speaker Change #120: Our next question comes from the line of Michael Zaremski of BMO. Your line is now open.
Michael Zaremski: Thanks, quick follow-up for Craig. Just curious, you know, I think there's the understanding that you all have been great investors on the real estate side. Just curious if you've ever sized up or are willing to share what you think, kind of the mark to market.
Speaker Change #122: gains are in your real estate portfolio that aren't reflected on kind of in your versus your carrying value if that's something you're willing to to share.
Craig: I can give you the marks on multifamily for the year.
Craig: if that's helpful.
Craig: As I said, the negative marks that we have incurred this year are not related to deterioration of the operations, it's related to higher interest rates, which
Craig: resulted in higher cap rates. That has reversed here recently, but to size things for you, in the first quarter
Unnamed Speaker: We incurred market-to-market losses of around $22 million pre-tax.
Craig: We incurred market-to-market losses of around $22 million pre-tax.
Craig: In the second quarter, it was around $2 million pre-tax.
Craig: So $24 million a year to date.
Speaker Change #123: Okay, got it. There wouldn't be any, I'm just curious, some of your peers who have also been opportunistic and real estate have
Speaker Change #124: have sold properties that they partially or fully owned and realized some very large gains that weren't marked on the balance sheet. So my question is more on that. You don't think that's...
Speaker Change #125: are reflective of some assets in your portfolio that are marked at much lower values than what their mark-to-market appraisal values might be today, if they were sold?
Unnamed Speaker: So what I would say to you is our multifamily properties are owned in partnerships. We have general partners, and they're doing a regular review of the value of the property. So those are marked-to-market on a regular basis. We do have several other real estate properties. The large ones are the Charleston Harbor Resort and Marina, and then we have a major marina right outside of Palm Beach called Sailfish Marina.
Speaker Change #126: So, what I would say to you is our multifamily properties are owned in partnerships, we have general partners.
Speaker Change #126: and they're doing a regular review of the value of the property. So those are mark-to-market on a regular basis. We do have several other real estate properties. The large ones are the Charleston Harbor Resort and Marina.
Speaker Change #126: And then we have a major marina right outside of Palm Beach, by the name of Sailfish Marina. We believe that those are on our books for significantly less than the current market value.
Speaker Change #127: Okay, got it. That's good to know. Okay, so the majority are mark-to-market and there's those properties. Okay. Thank you for the clarification.
Speaker Change #127: Uh-oh.
Speaker Change #127: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Diane Weidner for closing remarks.
Diane Weidner: Thank you all for joining us this morning and for the opportunity to share a little bit more about our story for the second quarter. We look forward to talking with all of you next quarter. Have a great day.
Speaker Change #128: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.