AFG
#Let me get that information here, <UNK>.
So here is how we look at surrender protection.
Basically, the surrender protection we have is ---+ I think you really do need to look at more than just the numbers that ---+ of the percentage of the business that has surrender charges on it.
Here's how we look at that.
First of all, we think that our business model with lower upfront commissions and lower bonuses has allowed us to maintain crediting rates for a much longer period of time, and the fact that our existing crediting rates are higher than many of our peers and we think that that bodes well in a rising interest rate environment and will help the persistency.
We have about 22% of the total annuities that have a GMIR of 3% or higher, which we think gives really good surrender protection in a rising interest rate environment given that the current GMIRs on new products is 1% on most products.
We have 6% of the annuities that have MVAs.
We have 18% that were sold with riders, so in the event that they would surrender early, we would keep all of the rider fees and they would get no benefits.
We have 51% that is inside of a surrender charge period.
And so that leaves about 3% of the business that is outside of the surrender charge period and without any other protections, so we actually feel pretty good.
We think that we are very well positioned for ---+ our preference would be a modest rise in rates, kind of a gradual increase in rates, but we think we're actually very well positioned.
To give you an exact answer to your question ---+ your original question, it's about 86% of the business today that has surrender charge protection, but in addition to that, we have protections with the other things that I just mentioned.
Commission levels going forward really are going to be a function of whether the Department of Labor rule is implemented.
If it is implemented, clearly they are coming down and you're going to see more fee-based products.
Let me see if I can get my hands on our exact commissions in different segments.
We are clearly on the low side.
Our model many years ago was changed to a consumer centric model, consumer friendly model, with smaller commissions, lower upfront bonuses, which allows us to give more value to the customer.
Let me give you ---+ in bank FIAs the average commission is 4% to 6%, bank fixed 3.5% to 5%, retail fixed indexed annuities 4.5% to 7.5%, retail fixed 3% to 7%, overall indexed annuities 4% to 7.5%, and then overall fixed and fixed indexed annuities 3% to 7.5%.
But as I said, we are on the low side compared to the industry.
We are not going to change our return expectations.
We price our product to earn between 12% and 13%.
It's different on the different products.
The products that we deem to be riskier should be priced at a higher rate of return.
The products that we deem to be the least risky, we can be on the low side of that.
On average we price to get a 12% to 13% after tax return.
I will tell you over the last three or four years with the outperformance on the investment side, we have done better than that.
This is <UNK> <UNK> and thank you for the well wishes on the quarter.
I touched on it in my comments, but what we have done is a restructuring of the entities which own Neon.
And so the restructuring relates to the liquidation for US tax purposes of the parent of our Neon operations.
And in a liquidation, you calculate your gain or loss in a liquidation by comparing the value of the assets and liabilities received upon liquidation to our investment.
In our case, the liquidation reflects the significant investment we've made in Neon and in Neon's operations to fund previous losses in the business.
So upon liquidation we are entitled to recognize a portion of those losses and recognize the benefit that's included within our financial results.
<UNK>, this is <UNK> again.
The New York contractors business has been a very tough market for a number of years, there is no question about that.
As a result, it's known as a tough class to write and has migrated from standard carriers in the excess and surplus lines market where our excess and surplus lines business has chosen to enter the business and write it at much improved rates and more restrictive terms when available.
The result that we are recognizing in the quarter includes some reserve additions to that.
I would say that it's our belief that the New York contractor business is not performing as well as we had hoped when our excess and surplus lines business entered that market.
So this reflects us backing off of the loss picks that we had previously had to a more conservative level that is reflecting the experience we see coming through.
As you know, <UNK>, there are a lot of diverse operations within our specialty casualty subsegment.
I would point towards a couple of specific factors.
The first is that Neon is in that subsegment.
And we've talked about in past quarters, with the new management team, they have gone ahead and taken a hard look at all aspects of their business.
They've exited certain lines and chosen to get into different lines to rebalance the portfolio.
So in 2016, Neon's results were typified by a significant decrease in premium.
As you look forward to 2017, Neon will grow back to the level they were at, largely in 2015, which will be therefore some amount of growth 2017 versus 2016, but effectively flat to 2015.
The second is that our workers' compensation business, which has had rate pressure in many jurisdictions, there has been a rate increase approved in Florida for our Summit operation where half of their business is in Florida.
So with that 14% rate increase we would expect to see growth in the workers' compensation business broadly.
Finally, our targeted markets business within specialty casualty, we're seeing some good opportunities on one-off for case-by-case basis to grow, and so that's incorporated in our plan for 2017.
So those are really the areas I would point to that cause us to have the premium guidance where we have it for specialty casualty.
Thank you, <UNK>.
Thank you we appreciate it.
Sure, <UNK>.
This is <UNK> again.
We started the quarter with nearly $1.1 billion of excess capital which we disclosed on our third quarter earnings conference call.
And we end the year at $950 million, so that's moved by about $130 million.
We do have $385 million of earnings, less $122 million in capital management in the quarter.
So when you take that and you net the $320 million from the National Interstate investment and the merger, if all is equal you would have expected us to have our capital reduced by, call it, $60 million.
Then with the growth of the business and the difference between that and the reduction of $128 million is really related to retention of capital as our businesses grow.
So that's perhaps a more detailed answer than you cared for.
I think you had it exactly right, which is with the strong level of earnings in the quarter, that excess capital came right back, notwithstanding the significant investment we made in National Interstate during the quarter.
That's right.
Thanks, <UNK>.
No.
We really don't report our crop business as a separate type of a number.
I can tell you that 2016 was an outstanding crop year.
Significantly better than the last five-year average for us.
It's pretty early to really make too much commentary on 2017.
Right now we expect premiums to be flat to down maybe 2%.
That's all driven by where commodity prices as they are Spring ---+ setting prices that are determined and that.
But where commodity rates are, or commodity prices are today, and when we look at the base rates, what's happening there, and we won't know what the volatility factor is until March 1, we are guessing premiums to be kind of flat to down for this year.
But obviously too early to comment about prospects for 2017.
I think in our guidance we'd be looking at a normal run rate for our crop business from a profit standpoint.
I like the position we are in.
Most of the time we're a full taxpayer.
I think, yes, we are in a position to keep the biggest part of any change in tax rates.
From a practical standpoint, we are already competing against a lot of competitors that are already tax-advantaged.
So they're already pricing their products assuming their lower tax rates, so I like our position.
If anything, we should be able to keep a big part of any corporate tax change and maybe, I would think if it benefits anybody, it is going to benefit folks like us that would have more flexibility on price.
Let's also see where these proposals on the border adjustments go and the impacts potentially on our competitors that are, right now, more tax-advantaged than us.
I think, also, from a political standpoint, my brother <UNK> pointed out, even if corporate tax rates come down, there's no political certainty long-term that they would stay down at the same level.
So I'm not sure it would be very smart for the industry to give that away.
That can always go the other way.
Thank you.
Great.
Thank you.
Thank you, Kevin, and thank you all for joining us this morning as we've discussed our year-end results.
We look forward to sharing more results with you when we share our first quarter results in 2017.
This concludes our call for today.
