Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Michael Grasher – Piper Jaffray.
Michael Grasher – Piper Jaffray
A few questions, first of all on cancel and rewrites can you talk about any change in volume that maybe is occurring there?
J. Powell Brown
No, we haven’t seen any significant change in cancel and rewrites. I know we talked a little bit about that last quarter particularly in certain areas i.e. Southern California but we have not seen this quarter a significant uptick in cancel and rewrites.
Michael Grasher – Piper Jaffray
Would you actually say it’s actually I guess moving the other direction at this point?
J. Powell Brown
That may be a matter of perspective. We don’t hear a lot about cancel and rewrites other than the normal course of business and so therefore policies are just occurring and expiring on the normal expiration date. So, I don’t know if I would say it’s moving in the other direction I think I’d just say it’s more normal.
Michael Grasher – Piper Jaffray
Then just thinking about your commentary around exposures and rates and a lot of it being down for the most part, if you strip away that aspect of your revenue, your commission line and just think about the business that gets generated through new small business development or the lack thereof in this environment, how much would you say that your organic growth is suffering from that aspect of it alone or have you really thought about that?
J. Powell Brown
I’m going to answer the question a little differently and tell me if this addresses your question. We have said that we believe that two thirds to three quarters of the negative down draft in our business is directly a result of the economy or shrinking exposure units. The other component would be rate decreases so if you look at that, we call that the double whammy. So, depending on where you are in the country to your point, you go in to a place like Las Vegas, small business, meaning accounts that are written under $25,000 or $30,000 of premium are under incredible pressure and when I say pressure I’m not talking about existing they’re just going out of business as just an example.
But, we as a group as I said in our concluding comments, continue to write lots of new business but it’s hard to fill the hole in when you’ve got the double whammy. If you were going to take the economy out of the question, which you cannot, we would tell you that this period of time right now seems to look like 1998 and 1999. That was in a period of time where there was a gradual decline of rates, I believe if my recollection is correct, of somewhere between 4% and 7%. Exposure units right now if you believe the averages are down around 6% and if the economy is flat to up in that environment, which it was in ’98 and ’99, we grow organically. But when you have the shrinking exposure unit and shrinking rates it’s very difficult to grow organically. Does that answer your question?
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