Question-and-Answer Session
Operator
(Operator Instructions) Our first question will come from Bijan Moazami with FBR.
Bijan Moazami - Friedman, Billings, Ramsey & Co.
A number of questions, housekeeping items, Joe you mentioned how much investment you have in CDOs and other kind of securities? You mentioned that in prepared remarks; I didn’t quite catch it.
Joseph S. De Vita
It’s $11.9 million in the combination of collateralized mortgage obligations, adjustable rate mortgages and asset backed securities. That’s about 2.4% [inaudible] -
Bijan Moazami - Friedman, Billings, Ramsey & Co.
And do you know the average credit quality of those assets?
Joseph S. De Vita
Pardon?
Bijan Moazami - Friedman, Billings, Ramsey & Co.
The average credit quality of those assets?
Joseph S. De Vita
Oh, I don’t have that available but we can certainly get it for you.
Bijan Moazami - Friedman, Billings, Ramsey & Co.
That would be great. And I assume that the increasing goodwill relates to that acquisition you made in December, right?
Joseph S. De Vita
That’s correct.
Bijan Moazami - Friedman, Billings, Ramsey & Co.
Now some larger, bigger picture questions, so John, what are you seeing out there in terms of decreasing frequency in severity trends? Obviously you’ve decided to keep your rates flat in California. Do you see a continuation of decreasing frequency in severity? I assume that level of reserve releases that you had success that these trends are continuing pretty strongly.
John G. Pasqualetto
Yes, the answer to that question in a simple way. The only exception to the severity piece is obviously what takes place on the medical side.
Bijan Moazami - Friedman, Billings, Ramsey & Co.
Do you see recession as being a benefit or a negative for you guys?
John G. Pasqualetto
There’s two things I would say about a recession and one is that it most informs observers that are aware although it would appear to be counterintuitive, a recession doesn’t necessarily equal an increase in reported claims and then that stems from the fact that in a recessionary environment when workforces are reduced they tend to keep the more seasoned employee and thus they tend to be a safer employee and two some of the marginal claims that would otherwise be reported don’t get reported because if the worker is concerned about perhaps having a job to return to once they go out on disability. And studies have been done over the years that support that notion. The exposure on recession is really more of a credit exposure so we have to make sure that at the end of the day that their credit function is up to speed.
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