Question-and-Answer Session
Operator
(Operator Instructions). Your first question comes from Paul Newsome – Sandler O'Neill and Company.
Paul Newsome – Sandler O'Neil & Partners
I wanted to ask about the expense ratio and it seems to be ticking up. I would imagine that's ticking up in part of because the premium is falling and do you essentially have kind of a situation where if frequency remains stable and therefore rates remain at low levels, a scale issue that's created by the frequency benefits? And does that – is there an issue there? Are you put at a competitive disadvantage and to what expect does Advocate separately help you with that operating expense situation?
Charles Divita III
Sure, well let me give some perspective on the underlying expense structure. We've had a very stable fixed cost structure for several years now, and n fact in 2009 the underlying fixed cost structure of the organization was very consistent with 2008.
What you're really seeing in the expense is a couple of things, primarily the winding down of the recoveries of a prior guaranteed fund assessment. In 2008 it was basically doubled what it's going to be in 2009. So you're seeing that lift in the expenses because of that recovery going away.
Last year we averaged about $9.5 million in other underwriting expenses per quarter excluding the FIGA recoveries last year I think was around $10 million and we're averaging on that same basis this year around $10 million. So the underlying expenses are very stable, but the ratio itself is a combination of the lower earned premium and the winding down if you will of the FIGA guarantee recoveries.
In terms of going forward I would expect that ratio to continue around that same level that 26% to 27%, again, it's reflective of the rate environment in Florida but we don't believe that puts us at any disadvantage in the market place.
In terms of Advocate MD and its impact once the transaction is consummated they have an expense ratio that's been around in that 27%, 28% range as well and given the size of that company versus our company I don't really see that materially impacting the ratio.
John R. Byers
I would just add to that, this is John, I mean we have taken substantial expense out of the company over the last several years but we're really geared strategically for the longer term and we want to be able to take advantage of growth opportunities that we see and we have grown our policyholder accounts and we want to continue to be positioned well to do that. So we certainly haven't cut expenses to the bone because we have a longer term view.
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