BERKLEY W R CORP — Call Transcript 2011

Good day, and welcome to W. R. Berkley Corporation's fourth quarter 2010 earnings conference call. Today's conference is being recorded. The speaker's remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words, including, without limitation, believes, expects or estimates. We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates, or expectations contemplated by us will in fact be achieved. Please refer to our annual report on Form 10-K for the year ended December 31st, 2009, and our other filings made with the SEC for a description of the business environment in which we operate and the important factors that may materially affect our results. W. R. Berkley Corporation is not under any obligation, and expressly disclaims any such obligation, to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise. I would now like to turn the call over to Mr. William R. Berkley. Please go ahead, sir. Good evening. I wish I could tell you my prognostication for the quarter was wholly accurate. I can't. It actually looked like I would be, in fact, telling you how accurate I was as we went into October and November. December popped that balloon quickly when the world got more competitive and prices, in fact, came down as everyone rushed off to meet their budgets and shoot for volume. What looked like a quarter of some at least significant or at least measurable price increases that seemed to be the start for the first two months of the quarter ended with very modest, probably three tenths of a % decrease in pricing. We were pretty pleased with our quarter. We continue investing in opportunities around the world and in the U.S. I'll talk about all the overview of what we're doing and opportunities we see at the end. First, Rob will talk about our operating results. Okay. Good evening, everyone. Market conditions remained challenging during the fourth quarter. Some of the areas of most significant competition during the period included professional liability, excess workers' compensation, and casualty facultative reinsurance. While the list goes on from there, these are some of the hotspots. It is not all doom and gloom. There is an ever-increasing number of encouraging signs that change for the industry is not far off. We continue to observe an inconsistent yet growing number of carriers adjusting their underwriting behavior. The real potential leverage will come when the general industry-wide anxiety about inadequate rates converts into action. It remains our belief that this point of inflection is approaching. Additionally, the fourth quarter provided further evidence of a strengthening U.S. economy. This trend has been validated through improved audit premiums as well as midterm endorsements of additional units of exposure. These data points clearly indicate that the relatively recent pressure on our insured's revenues and payrolls is in fact easing. Net written premium for the fourth quarter came in at $919 million. This is an increase of 11% over Q4 2009. The growth came predominantly from our international and specialty operations. International growth was mainly a result of a series of strategic decisions the group made some time ago. Our investment in growing economies with sound underlying fundamentals in such regions as Australasia, South America, and the Nordic region of Europe are paying off. Additionally, our Lloyd's Syndicate continues to have success in developing its presence in both a cautious and thoughtful manner. While on the topic of international, I should mention we do not envision the Australian floods in January of this year having a material impact on the group. Increased writings amongst our specialty companies were by and large spread across several of the startups in the segment. Much of this traction has occurred due to our ability to provide holistic solutions to our insurers as opposed to a monoline offering. Several of the operations are focused on industries that have not been as adversely impacted by recent economic woes. While clearly this level of growth might, in isolation, raise a warning flag, we remain comfortable with the quality of both the risk selection as well as the pricing of the portfolio. As mentioned in the past, this confidence is achieved through the faith we have in our management teams, combined with our technical data and rigorous internal audit process. The group's price monitoring indicates that rates were down less than half of 1% in the group while maintaining a renewal retention approaching 80%. The combined ratio for the fourth quarter was a 92.6. Our loss ratio was a 69.8, which includes one point of storms. Storm activity was impacted by an unusual hailstorm during the month of October in, of all places, Phoenix, Arizona. The expense ratio was a 34.3, which represents a modest improvement over the corresponding period last year. We would anticipate this improving trend to continue as our earned premium grows, and consequently, we are able to leverage. This, we are not naive to the realities of the current situation. It is our belief the company's full year 2010 accident year combined ratio is approximately 100. On to reserves. Maintaining reserve adequacy remains a top priority for the group. We continue to believe that an appropriate level of caution in selecting loss picks is advisable. Our speculation over the past several quarters regarding a potential uptick in frequency would appear to be well-placed. Additionally, inflation remains a wild card as to whether it will eventually return to historic levels. The redundancies we have recognized over the past several years may suggest the group has erred on the side of caution in selecting loss picks. However, we continue to believe a belt and suspenders approach to managing the business is appropriate given the leverage that exists in some of the unknown variables. Undoubtedly, the market remains challenging. The combination of current rate levels, modest investment returns, threats of inflation, and a shift in frequency trend has dramatically changed the landscape from what it was just a few years ago. However, these fundamentals have now become a reality that is driving industry participants to pause and ultimately, we believe, will change their behavior. The potential double leverage of an improving U.S. economy, along with a hardening insurance market, is not a possibility that should be casually overlooked. However, if our speculation as to a shift in the market conditions is wrong, the company remains well-positioned to continue to deliver satisfactory returns going forward. Thank you. Thanks, Rob. Gene is going to now go through the financials, then I'll tie it all together, hopefully. Okay, thanks, Bill. Well, Rob already covered the change in premiums, I'll just mention a couple more numbers in that regard regarding our startup companies, which are the new units that we started since 2006. Of the $91 million increase in overall premiums this quarter, $60 million, or about two-thirds, was from these recently started companies. For all of 2010, these companies wrote $600 million, which is right at 16% of our total premiums. With respect to our underwriting results, our overall combined ratio was 94.1, and all five of our business segments reported combined ratios under 100. We had favorable reserve development of $55 million, or 5.6 loss ratio points in the quarter. That gives us favorable reserve development of $235 million for all of 2010, up from $191 million in 2009. Most of the favorable reserve development in the quarter and the full year was in the specialty and regional segments. It was primarily for the five preceding accident years, more than half of it being in the Other Liability business. As Rob said, on an accident year basis, That gives us a combined ratio of 100%. That's an accident year loss ratio of 66, including two points of storms and an expense ratio of 34. Our net loss reserves and cash flow were both down modestly in the quarter. That's due in part to two reinsurance commutations that we completed in the fourth quarter. These transactions resulted in a $79 million decrease in cash flow, a $60 million decrease in loss reserves, and an insignificant book gain. Cash flow before the commutation payments was running slightly ahead of net income at $139 million for the quarter. Net investment income was $131 million, down $8 million or 5% from the prior year quarter. The decrease was attributable to the arbitrage account, which reported a profit of $3 million, down from $11 million a year ago. The average annualized yield on the rest of the portfolio was 4.1%. The average duration of the fixed income portfolio was 3.6 years at year-end. Unrealized investment gains were $516 million at year-end. That's up from $338 million at the beginning of the year. In addition, we reported realized gains of $34 million in income from investment funds of $5 million in the fourth quarter. Foreign currency losses were $8 million in the quarter. Although that's not too significant, I thought I'd explain to you why we do see this type of activity from time to time. We generally match our foreign currency denominated assets and liabilities. FX gains and losses tend to offset one another. For financial statement purposes, there's an anomaly where FX gains and losses on investments are reported as unrealized gains and losses on the balance sheet, at least until those investments are sold, whereas FX gains and losses on liabilities are reported immediately on the income statement. In this quarter, we had an FX loss on our Australian liabilities as a result of the strengthening of the Australian dollar in this accounting treatment. Stock repurchases were approximately equal to our net income again this quarter. We bought back 4.8 million shares in the quarter at an aggregate cost of $130 million. We purchased 17 million for all of 2010, or 11% of our outstanding shares at the beginning of the year. That gives us a net income ROE of 14.1% for the quarter and 12.5% for the full year, and an increase in our book value per share of 14.3% in 2010. Thanks, Gene. Overall, we were pretty pleased with the quarter. I think that if you managers, in part because we do believe the trend in frequency could adversely impact everyone's expectation for losses. We have a bit more of a concern about inflation on some of the longer tail lines of business. We look ahead, we do see opportunities to invest money in off-center kinds of investments. Example would be municipal bonds that are backed by corporate security. We were able to buy, round numbers, $10 million of municipals backed by a corporate credit. The corporate credit traded for the same maturity, 150 over the comparable treasury, because they were packaged as a municipal, we got the yields tax-free, and we got them at 450 basis points over, in fact, the comparable treasury yield. That was because nobody wanted to have any label of municipal on them. Those kinds of opportunities exist, and we continue to see them. We're willing to find and buy things that people think look ugly, but when you delve through the appearance, are much higher quality securities. We continue to have a number of teams of people coming in to talk to us, offering us opportunities. We look at them. We obviously have a larger share of the marketplace, covering lots of niches, so there aren't as many things that are attractive, but we still continue to meet a number of outstanding people, and we're searching globally for those great teams of people where we think we can build franchise value. At this point in time, we believe those opportunities will continue, and everything we see in the cycle are things are, in fact, beginning to change. There's no question about pricing. There is more discipline in lots and lots of areas. Not every place. We still, on occasion, lose business at huge discounts from what we think the adequate pricing is. It's now unusual as opposed to everyday occurrences. We think that most of the people we do business with, the agents and brokers, are searching for people who they know will be in business a year or two or three from now. That's a very important thing. Our relationship off, we continue to see opportunities, and we would be surprised if the pricing changes do not continue and that 0.3% pricing decline doesn't turn into price increases. Obviously, the key element is how do we manage our business? We wouldn't be doing anything different if prices went down 3% this year or up 3%, 5%, or 7% or 10%. The difference is we'd probably be able to write more business if prices were higher. With that, John, I'd be happy to take people's questions. ladies and gentlemen, at this time, if you have a question or comment, press the star, then one key on your touch tone telephone to queue up for a question. Again, ladies and gentlemen, if you have a question or comment, press the star, then one key to queue up for a question. We'll take our first question coming from Ken Billingsley. Ken, please go ahead. Good afternoon. Congratulations on the quarter. Thank you. One of the questions on the pricing that you were mentioning. I know it's hard to put a number on new business, but when you talked about the pricing, is that just on renewal business or based on comparable policies that you would write? Our pricing metrics attempt to look at new business and make comparable renewal business. It's on all business across the board, new and renewal. The answer is price measurement in this business is not as exact as you'd like it to be because terms and conditions vary slightly, coverage is very slightly, you may add a deductible, you may make slight changes. To the best of our ability, it includes new and renewal business aligned to be at the same level. In your experience then, would the renewal business be holding up a little bit better based on your comments about brokers wanting to partner with someone that's going to be around, and is it the new business that is a little bit more competitive? According to our actuaries, it's virtually the same. Virtually the same. I would say in the marketplace, though, that people who shop every year are the price shoppers. I would probably say to you that the consistency of renewal that people have, the vast majority of that business stays with you for an extended period of time. The business that moves around is moving from one company to the next company, it's always moving, searching for price. Very good. Just one other question before I re-queue. On the reinsurance business, can you talk about you going forward? With there being capital in the marketplace, if the economy exposure units start to increase, if you have the capital on the primary side, are you going to see that maybe the reinsurance side of the business may not do as well on a hardening market if it's a slow economic recovery? Do you have any comments on that side? I'm not sure I understand what your question is. Could you try? If the economy rebounds and your exposure units increase and you have the opportunity to write more business, will primary companies continue to hold on to more of their business as opposed to utilizing reinsurers going forward? Will that impact your reinsurance business? Our reinsurance business is not really an across-the-board reinsurance business. We do business with smaller, specialized companies, where we have relationships. By and large, I don't think it'll particularly impact us as much. We're particularly well-capitalized. I think the most interesting thing that's going to happen is, in fact, smaller, high-quality companies are going to need reinsurance more as the market changes. I think it probably will give us, for the kind of customers we do business with, really a competitive advantage. I would add, I think across the board for the very large reinsurers, your statement is likely to be more true. Okay. You said your focus is more on some of the smaller insurers that will not have as much access to capital. Yeah. I think that our average reinsured is a company with less than $1 billion of surplus and is a company that buys reinsurance because it's a necessary part of their financial strategy. Could you give any comments on why there's been, on an LTM basis, that the premiums have declined there? Is it a focus of the pricing, or is it- You're talking about our reinsurance business? Yes, sir. Go ahead. The reason why the premiums have declined is because, well, really twofold. One, quite frankly, the reinsurance market, believe it or not, has actually become more competitive over the last 12 months. Consequently, we're willing to walk away from business if we think that we are not going to get an adequate rate for our capacity. Secondly, obviously, there are many ceding companies out there that are looking for ways to bolster their top line, and one of the easy ways to do that is to increase your retention. I would add a third piece, that is, we really enforced our view that reinsurance is a partnership venture, that really means a number of very large companies who don't view reinsurance in that way don't fit as places where we should use our capital. Bill, again, congratulations on the quarter. Thank you. Okay. Thank you. We'll take our next question coming from Joshua Shanker. Good afternoon, everyone. Hello, Josh. Bill, I know that you're a pretty smart buyer of reinsurance, and you're also a player in the Australian market. Given that you maybe don't have a dog in that fight, maybe you can tell us what's going on with the losses there in the first quarter. Well, first, I should say that. My lawyer's looking at me carefully now, Josh. First, we do not have big losses. We're not a property writer, and we think we have quite modest losses from the floods. We expect, at least in the ordinary course, to have reasonably modest losses from the Cyclone, although obviously, event we have not heard any information about. As a matter of what business we do, we're not a property writer. The reason we're not a property writer is because lots of parts of the world have extremely low prices for property exposures. The reason for that is because the exposure and consistency of loss for U.S. wind and English European wind was such that companies try to diversify their capital exposures. They try to write global exposures, and the prices for those global exposures have become very low. When we looked and entered the Australian market, everybody thought the kind of limits we were prepared and could afford to put down made no sense because people bought wind protection, catastrophe protection of $1 billion, $2 billion, $3 billion, $5 billion of protection. We look at our company, and we're talking about putting maybe a $10 million line down, maybe a $20 million line. It just doesn't make any sense in that marketplace. There are lots of places in the world, Australia being one, where the scale of the property reinsurance market for catastrophes was huge. The prices were relatively low, and the requirements to play were very, very high. We would expect the losses to be quite substantial. I think it alone would have had an impact on the market, but not be what I call dramatically market changing. I think that the cyclone, in addition, could have real adverse impact, and it could really make quite a difference. The magnitude of the reinsured losses is certainly going to be in the multi-billions of USD. How many events are we talking about here? I'm not an expert at defining events. I think it would have to be at least two. Okay. Well, thank you very much. Yes, sir. Okay. Thank you. We'll take our next question coming from Vinay Viswanathan. Please go ahead, Vinay. Hi, good evening. The accident year loss ratio has stayed very favorable for the last three years, and it's been relatively flat. Should we start to see an uptick in that for next year, that's for 2011, since pricing has been flat, and your comments on frequency and severity trends? First, we didn't say anything about severity trends. We said something about frequency trends. At least I listen to what I say. The fact is that our accident year loss ratio is conservative compared to all of my competitors. In fact, I actually must say we really look like we're pretty crummy underwriters compared to everyone we compete with. I'm not sure I would think it will get significantly worse because I think we've tried to take into consideration those trends, which means we're always looking ahead. If we were to see severe inflation start to develop, yes, you'd be correct. Because of how we have our loss picks, which is a waterfall process, we always have somewhat of a cushion because going back four or five years, we were more cautious than we thought we were. That caution, even though we try to wean it out as we see those years develop, it takes time because you don't want to be so aggressive that you overstep. We've done that. The only advantage of being old is you've seen it happen before, and I can promise you it is probably the only advantage. We're not going to make that mistake again. I can't tell you that our accident year loss ratio will get worse. I think we've been a little more cautious than we might have been. I wouldn't reach that conclusion. I wouldn't discount it either. It's not an unreasonable thing to think, but we've had a lot of favorable development, and my guess is that those past loss year picks may still result in the more recent years being more cautious than they should have been. Okay, that's great. You mentioned about frequency trends. If you could just elaborate on that'd be helpful. Thank you. All right. I'm going to have Rob talk about that. Go ahead, Rob. Yeah. Without getting into too much detail, we are seeing early signs of frequency having in all likelihood bottomed out for the casualty lines. I'm not talking about comp, I'm not talking about property. I'm talking purely certain casualty lines. We are seeing, once again, frequency. It would appear as though it's bottomed out and it's starting to move up. However, while it's not racing up, it is certainly a shift in direction from what we've seen over the past several years. I think that goes with the prior question also. I think that we weren't as optimistic about declining frequency as a number of our competitors, and they proved to be right, and we were too cautious. We now see those things changing and, again, we may be a little ahead of the curve, but there's no question directionally about that change. Sure, fair enough. One last question, if I may, on the expense ratio. This year, that was 34% roughly. Do you think with higher on premiums next year that it could go to roughly the 33% that it was in 2009? The answer is we can't give you a single number, just like we can't tell you what a particular number is. We've always had the view that having the best people in this business gives you a huge competitive advantage. If in any year or two your expense ratio was out of line, we were prepared to live with that. I think as the cycle turns, the expense ratio will go down dramatically because a big part of that pushing expense ratio is additional operating units that haven't fully utilized that achieved scale with the number of people we have. We think with the numbers of people we have, we can really grow dramatically without any really consequential increase in our overhead. I would hesitate to choose a number at this point. Okay. I'll feel a lot better after I have another quarter or six months under our belt. Prediction. My facts were all right, but the people's state of mind and my facts weren't aligned. Okay. Thank you. Yes, sir. Thank you. We'll take our next question coming from Jay Cohen. Jay, please go ahead. Thank you. Most of my questions were answered. I have two other ones. The first is the alternative markets business. The premium growth jumps around quite a bit quarter to quarter. Can you talk a little bit about what's happened there and what drove the growth in this particular quarter? Well, there's some things that are happening there, a couple of different things. There's some accounting things, and then there's some business things. I'm going to let Rob talk about the business things, and then Gene will talk about some of the accounting things, and then I'll probably try to screw things up totally. Go ahead, Rob. Hey, Jay. I think the simple answer to your question is that the growth in the quarter was predominantly coming out of our A&H business. That was really the major driver in that segment. The only thing I would add on the accounting change, Jay, if you're looking at the net written, you're going to see the growth that Rob's talking about and where it came from. It looks to be a little bit higher on a growth basis, that's because I think we may have talked about this before. We service this assigned risk plan business, and part of the way that's done is you actually put it on your paper and then reinsure it back to these NCCI pools. It goes in and out on a growth basis. We had been writing some of that business on regional paper, some of it was in the regional segment. We've been moving it over to the alternative market segment because that's where the servicing is done. You're seeing some of that business move out of the regional segment into the alternative market segment. It's not business that we keep net. There's a lot of noise because of this change in where we write the business, but in fact, none of that sticks with us. It's all business for assigned risk plans that come in and go out, comes in on a growth basis, and it goes out. The real growth that you're seeing is the accident and health business, which is mainly stop loss business, and it's in the A&H business. Just to follow up on that, as I look at 2011, presuming that the A&H business has gained a little bit of traction, should we see kind of another up year? Not wanting any details as far as how much up, but would you expect that premium to be up in 2011? Jay, I think obviously our expectations are that that business is going to continue to grow and develop over a period of time. There are no guarantees as to what the market is going to be tomorrow. Assuming that the market continues to cooperate, we will try and find ways to grow that business. We have gotten some terrific new people there, and we think that's a good opportunity for us. Great. The second question was on exposure growth. You're the, I guess, the third company I've heard that suggested things look like they're bottoming and beginning to improve from an exposure standpoint. I guess my question is that good? If the price per unit of risk is inadequate or hasn't budged much, does growing your exposures help or is it in fact possibly a negative? I think the answer is that if you're getting an adequate rate and you're making a decent margin, exposure growth, and assuming you're actually charging for that additional exposure growth, it's a good thing. If you're underpricing the business and not making a reasonable margin and you think you're going to make it up on volume, you're probably going to be disappointed with the outcome. Got it. Okay. No, I see where you're coming from. Very good. Thank you. Okay, thank you. We'll take our next question from Meyer Shields. Please go ahead. Thanks. Good afternoon, everybody. Good afternoon. Bill, you mentioned, and I think you said that for years, that you view reinsurance as a partnership, so you don't shop around for cheaper reinsurance. No, we have partners, and we have shoppers. There's a big chunk of our core business where we look for partnerships for long-term. There's opportunistic things that you buy because the market's soft. There's layers. I think when we sell reinsurance, we're interested in finding the partnership relationships, not the opportunistic ones. Okay. Sorry. That makes more sense. When you talk about how it's becoming less common to lose business, does that have any combined ratio implications going forward? Does that have any, I'm sorry? Combined ratio implications. I know in personal auto, there's this expectation that business will season favorably. I don't know if we can extrapolate from that to your casualty lines. I think that by and large, stability in the business improves the outcome because you understand the business you're writing, you understand what it is, and experience with customers lets you better tailor the product, especially if you're in the specialty area where you better understand the exposures. I would say that longer relationships result in better results. The answer is, in the long run, the higher the retention, the better your combined Okay. Gene, if I can just throw one question your way. Do I understand the FX impact as saying that there's a $0.03 hit on an accounting basis, but not on an economic basis? Yeah, right. That $0.03, $8 million went to the income statement, and we do have assets in Australian dollars that appreciated as a result of the strengthening of the Australian dollar, and that went through equity into unrealized gains. In essence, unrealized gains and losses offset the loss of the $0.03. If it went the other way, we'd show the $0.03 gain and we'd have an unrealized loss. Accounting rules are such that they don't always enhance one's ability to understand what's going on in the business. This is the case here. We match our currency for the most part in the cheapest way we can, which is in the investment portfolio. If we have $10 million of liability in X currency, we'll try to have $10 million of assets invested in that currency. The consequence, however, from a financial point of view, is that it comes through our income statement if it's up or down, and it goes into our balance sheet going the other way, so it's not matched in how it appears. Okay, thanks. That's very helpful. Thank you. Our next question is coming from Robert Farnum. Bob, please go ahead. Hi. Thanks. Good evening. The regional expense ratio went up a bit, like about one point. I'm wondering if that's related to the shift in the assigned risk business from there to the alternative markets? No. I think it's just that earned premiums were down. Yeah. Okay. Maybe a question for Rob. With the excess workers' comp competition being up, is that competition from existing carriers or is that from new that are coming into that market? Predominantly from existing carriers. The greatest level of competition is coming from an isolated number of carriers, some that have been in the marketplace for many years and others who have entered more recently, it would not appear as though they have the command of the subject matter that they might. You have to understand about this business, because it's such a long tail, there's only one critical assumption here, that critical assumption is how you want to assume your interest rates. You make optimistic assumptions about returns, you can justify almost any price at all. We think that that's always a danger, this is a line of business that many companies have come and gone. Okay. Very good. Thank you. Okay. Thank you, sir. Our next question is coming from Michael Nannizzi. Michael, please go ahead. Thank you. Thanks for taking my question. Just a question about the new business. Could you talk a little bit about whether or not that increase is coming from either more exposures on existing policies, new policies to customers that maybe just had only one or two coverage types, or how much is completely new business? I just have one follow-up. Thank you. Rob? Well, it's a mix of both. Many of the startups, they do not have a large portfolio to begin with, even though it's building. It's really a combination of all the categories. It is our efforts to offer, as I suggested earlier, a multi-line solution as opposed to a monoline solution to some of these customers. In addition to that, it certainly is these businesses getting more traction, reforging those relationships that they may have had at prior organizations. There certainly is a renewal book for many of these companies at this stage that continues to build. Got it. When you think about the producers that are producing that business, relative to their old books, wherever they were before, is that new business to them, or is it really kind of, as you say, new business to you just because they're resetting those relationships? I think typically what it is a group of people that have longstanding relationships with both insureds as well as the distribution system, and they have a following, if you like. Some percentage of the business that they may have had at a prior employer would seek out the opportunity of doing business with them again, merely because it still is somewhat of a people business and relationships make a difference. Got it. Great. Thank you. Then I just had one question on investment income and the arbitrage accounts. Where would you like to see those accounts or that segment of the portfolio generate returns? Where do you think that can get, and do you expect that you'll continue to keep your allocation to that business in this environment? The answer is we've had a consistent good return in that business based on our investable assets. There's no question in the past couple of years, there's been more volatility. When I talk to the guy who runs it for us, and I complained to him about more volatility, he said to me, "What?" is you all extrapolate when I have a good month and make X, you then tell me I should make X every month. If you look at what I do over a year, it's pretty consistent. He's right. He's met the bogey we generally set, which is he only gets rewarded based on how much we do over the risk-free rate of return plus a bogey. We've been able to do that. It's a very liquid portfolio. We have lots of liquidity. I think that if we had just an overwhelming number of opportunities that gave us great returns, we would probably face the decision of how are we doing there. Right now, I can't find returns that give us anything approaching what we get in the arbitrage account. From our point of view, we got 6, 7, 8% a year, over a long time, and there were years where we got 15, 18, 20% a year. For us, it's a good return. We're happy with what they do. We've known them. They've been with us for more than 20 years. We value that consistency, that relationship, and how they do. It's not something we have to worry about now because I'm not overwhelmed with wonderful investment opportunities, Michael. Fair enough. Thanks so much, Bill. Just one last one, if I could, just broader. In the lines that you, and I think, Rob, you'd mentioned lines that are very competitive and others that are maybe more attractive. In the competitive ones, what has to happen for pricing to improve there? Is it loss trend or capital, or is it just that some people have to decide at some point that they shouldn't be writing the business or they can't really write the business? What's the path in those overly competitive markets to get to what you would consider to be adequate pricing? Thank you so much for answering all my questions. I will let him answer first. I'll add my comment. Okay. I think the answer is, what needs to occur is losses. The losses from poor decisions that have been made are going to have to come through. Whether they actually are fully experienced or the actuarial analysis just points in that direction of reality, once that comes into focus, people will become scared, and their behavior will change. Whether they will elect to take a different approach in how they price and select risk, or whether they will choose to withdraw altogether, my ability to predict is no better than anyone else's. Oftentimes, it depends how deep a hole they have dug themselves in. If it's deep enough, they may throw their hands up and run away from it altogether. If they've just injured themselves modestly, they may decide to try and find ways to adjust and carry on. I think that one of the things, Michael, that everyone has to recognize is that those fundamental things that change business behavior are fear and greed. Pricing models change when fear overcomes greed. Fear overcomes greed is the point in time when you can't hide, in this case, from reality. Be it pricing trends, be it paid losses, be it someone going bankrupt. When Reliance and Frontier went bankrupt, what everyone else who was competing with them said is, "There could be me. Everyone decided they better change their behavior or there would be them. I think that's what you're really talking about. My guess is we've got a few people out there, some of them of some size, that are way too aggressive. Then there's a lot of companies who are doing okay. Whether they're doing as well as they say or not, they're not going to go out of business, but the management is going to say, "It's not worth it anymore. I'm going to have to do something different." In the meantime, you've got to get to that point where you're afraid your results will be so bad that that overcomes your desire just to grow and write more business because the risk is too much. Whether it's declining surplus, operating losses, a lack of investment opportunities, whatever, that fear has to enter the psyche of the management of the enterprise. Got it. Great. Thank you so much for the answers. Thank you. Our next question is coming from Amit Kumar. Amit, please go ahead. Thanks, good afternoon. I guess just two quick follow-up questions from your previous comments. You talked about Australia. Can you sort of talk about the other hot spot, in terms of Egypt and Middle East? I mean, it's too early, does this sort of alter buyer behavior, does this even end up becoming a big deal for the marketplace? You know, it's rare that I hesitate to talk about almost anything. I think that it's very hard to say what this all means. I think that there are some really fine companies and businesses in that whole territory. I think the lack of stability and uncertainty is very great. It's a part of the world that's undergoing change, and I think it's hard to predict where and how that change comes out. We'd have to sit back and from our point of view, it's sort of sit and wait and see. And- I think in all likelihood, things will get more difficult before they get better, however. Do you have any exposure through Lloyd's to Middle East? I'm sure we have some, no, we don't think there'd be anything of kind. Nothing consequential. Okay, that's helpful. Just one other question. Going back to the growth in your international book, obviously we've seen a meaningful double-digit growth over the past three or four quarters, and I know you mentioned Australia and Nordic regions and South America. Does that growth sort of taper off as we head further into end of 2011, 2012, or do you think that it's such a big enough market that growth can be sustained going forward? I think it is unlikely that the growth rate that we have seen in this quarter will continue on for an extended period of time. Having said that, obviously when you're operating in economies that on their own have a great deal of momentum, you benefit from participating. I think you also have to remember when you're small, to start with, you don't have to add a lot of business to have a significant percentage growth. Those businesses aren't giant businesses, and while in some markets they're significant for the marketplace, overall, when examining the marketplace, we're not that large a participant. Okay, that's very helpful. One quick question, if I may. Just on your comment on the buyback, I think you mentioned the buyback equal to the income in the quarter. Just based on your comments regarding the pricing perhaps getting modestly better than what it was previously, do you think it changes your view on capital management going forward, or it sort of stays the same in the near future? What I want to be sure is that we don't get short of capital. The one thing we've seen in the past two years is that capital markets aren't as predictable as they were, as we thought they were at least a couple of years ago. While we would like to buy back stock and buy back stock as aggressively as we can, we want to be sure we maintain enough powder that we can grow for a year or 18 months or two years without the need to raise additional capital. We're not quite as aggressive as we might be. Historically, when the cycle turns, you've always been able to raise capital at attractive prices. On a historic basis, I probably should be more aggressive in buying back stock. I've been in this business a long time, and I've never seen what happened in capital markets in the past couple of years, so I don't want to base my life on those long-term histories, and we've made a commitment to our marketplace that when business is well-priced, we will never turn it down. We're going to continue to use whatever we earn to buy back stock and maintain our capital ratios that we have lots of flexibility, and we want to be sure that's the case. That may be slightly more cautious than I should be, but when you're my age and you see things you never saw before, you at least have a good enough memory to last you for a couple of years. Got it. That's all. Thanks so much. Thank you. Thank you. We'll take our next question from Scott Frost. Scott, go ahead. Just to clarify, I want to make sure I heard you correctly on Australian exposure. Are you saying that you expect the Cyclone Yasi coupled with the previous flooding could have a real adverse impact on the industry, but due to your business profile, neither is expected to affect your results in 2011? Is that accurate? What I said is, I don't think it'll have a material impact on our results. Okay. All right. Thank you. Thank you. Our next question is from Brian Meredith. Brian, please go ahead. Yeah, good evening. Most of my questions have been asked, but just wanted to follow up on quickly, Bill. Talking about the whole capital management situation and then trying to be conservative with leverage. Typically, you said your high-end debt to cap is 35%. How close do you really want to get to that? I think you're around 32% right now. We're at 32%, including preferred. Gotcha. Yep. I think that it would be unusual for us to take on any more debt than we have now. Unusual is a funny word because we're in an environment that things happen. I think that our capital count is better than most people thought at year-end, and I would expect we'll continue to have some positive surprises for people. That being said, I don't think we're going to push that edge any further unless some unusual thing happens that would cause us to reconsider. I think we've got about as much leverage as we're planning to have at the moment. Great. Thank you. Thank you. We'll take our next question from Michael Grasher. Michael, please go ahead. Thank you. Good evening. Congratulations on your quarter here. Follow-up from previous question just on the improving exposure units. Can you highlight particular lines of business that that's occurring in or that may be occurring in? Then also, if it's related to any particular region of the country? It really isn't, Michael. I think that the point we were trying to make is, unlike prior periods, the general economy's improvement is resulting in positive audit premiums, is resulting in additional premiums for policies and new business. It's not any one place here or there. It's not anything that's dramatic. It's just generally across the board. The additional units of exposure, it's a small number. It's between one and 2%. It's not something that's going to knock your socks off. I wish it would, but it isn't. Understood. Thank you. Thank you. Our next question is from Jay Cohen. Jay, go ahead. Yeah, just one quick follow-up. When you talked about the higher frequency that you were seeing, or I shouldn't say higher, the stabilization of frequency. Does that make you rethink the loss picks or did you already account for that in your loss picks anyway, so it doesn't necessarily make you change those picks? No. As I said, I think we already take into consideration the trend of flattening or increasing loss picks. It's already built in. That probably is one of the reasons we have higher accident year loss ratios, because we've already anticipated that. Got it. Thanks. Thank you. Our next question is from Vinay Viswanathan. Vinay, please go ahead. Hi. Just to follow up on a numbers question. Just wondering what the dollar amount of your net investment income from fixed maturity securities were this quarter? Just one second. Somebody's going to look in the sheet of paper because I don't know that off the top of my head. I think it was $131 million. Just fixed income alone is $128. Right. Just curious why that increased so dramatically from last quarter when I think it was $123 million. Increase. Yes. There is an increase there. I think the average, I'd have to double check. If you want to give me a call, I'll get back to you. It may have to do with the allocation of the investments to some extent, I don't have that right offhand. Okay. Thank you. Thank you. We have one final question at the moment coming from Meyer Shields. Please go ahead. Thanks. I was just hoping to throw in a couple questions on the segments. I was wondering whether Gene could break down the $55 million reserve development. Yeah. We basically do that. If you want those details, you could give Gene a buzz either later tonight or in the morning. Okay. Happy to do that. Is there any significance to the fact that we're seeing a divergence of combined ratio by segments more than we've seen over the past few quarters? I think more than anything else, it just happens to be where the development happens to come. It's not the underlying accident year loss ratios. Ex-storms are much more stable than what you'd see on a reported basis. Okay. That's perfect. Thanks so much. Okay. At the moment, I'm showing no further questions. Okay. Thank you all very much. I appreciate your spending some of your evening time listening. I know you'll be busy tomorrow, so have a good evening.

Speaker 8: Good day, and welcome to W. R. Berkley Corporation's fourth quarter 2010 earnings conference call. Today's conference is being recorded. The speaker's remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words, including, without limitation, believes, expects or estimates. We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates, or expectations contemplated by us will in fact be achieved. Please refer to our annual report on Form 10-K for the year ended December 31st, 2009, and our other filings made with the SEC for a description of the business environment in which we operate and the important factors that may materially affect our results. W. R. Good day, and welcome to W. good day and welcome to w R. r Berkley Corporation's fourth quarter 2010 earnings conference call. berkley corporation's fourth quarter 2010 earnings conference call Today's conference is being recorded. today's conference is being recorded The speaker's remarks may contain forward-looking statements. the speaker's remarks may contain forward-looking statements Some of the forward-looking statements can be identified by the use of forward-looking words, including, without limitation, believes, expects or estimates. some of the forward-looking statements can be identified by the use of forward-looking words including without limitation believes expects or estimates We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates, or expectations contemplated by us will in fact be achieved. we caution you that such forward-looking statements should not be regarded as a representation by us that the future plans estimates or expectations contemplated by us will in fact be achieved Please refer to our annual report on Form 10-K for the year ended December 31st, 2009, and our other filings made with the SEC for a description of the business environment in which we operate and the important factors that may materially affect our results. please refer to our annual report on form 10-k for the year ended december 31st 2009 and our other filings made with the sec for a description of the business environment in which we operate and the important factors that may materially affect our results W. w R. r Berkley Corporation is not under any obligation, and expressly disclaims any such obligation, to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise. I would now like to turn the call over to Mr. William R. Berkley. Please go ahead, sir. Berkley Corporation is not under any obligation, and expressly disclaims any such obligation, to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise. berkley corporation is not under any obligation and expressly disclaims any such obligation to update or alter its forward-looking statements whether as a result of new information future events or otherwise I would now like to turn the call over to Mr. William R. i would now like to turn the call over to mr william r Berkley. berkley Please go ahead, sir. please go ahead sir

Speaker 12: Good evening. I wish I could tell you my prognostication for the quarter was wholly accurate. I can't. It actually looked like I would be, in fact, telling you how accurate I was as we went into October and November. December popped that balloon quickly when the world got more competitive and prices, in fact, came down as everyone rushed off to meet their budgets and shoot for volume. What looked like a quarter of some at least significant or at least measurable price increases that seemed to be the start for the first two months of the quarter ended with very modest, probably three tenths of a % decrease in pricing. We were pretty pleased with our quarter. Good evening. good evening I wish I could tell you my prognostication for the quarter was wholly accurate. i wish i could tell you my prognostication for the quarter was wholly accurate I can't. i can't It actually looked like I would be, in fact, telling you how accurate I was as we went into October and November. it actually looked like i would be in fact telling you how accurate i was as we went into october and november December popped that balloon quickly when the world got more competitive and prices, in fact, came down as everyone rushed off to meet their budgets and shoot for volume. december popped that balloon quickly when the world got more competitive and prices in fact came down as everyone rushed off to meet their budgets and shoot for volume What looked like a quarter of some at least significant or at least measurable price increases that seemed to be the start for the first two months of the quarter ended with very modest, probably three tenths of a % decrease in pricing. what looked like a quarter of some at least significant or at least measurable price increases that seemed to be the start for the first two months of the quarter ended with very modest probably three tenths of a % decrease in pricing We were pretty pleased with our quarter. we were pretty pleased with our quarter We continue investing in opportunities around the world and in the U.S. I'll talk about all the overview of what we're doing and opportunities we see at the end. First, Rob will talk about our operating results. We continue investing in opportunities around the world and in the U.S. we continue investing in opportunities around the world and in the u.s I'll talk about all the overview of what we're doing and opportunities we see at the end. i'll talk about all the overview of what we're doing and opportunities we see at the end First, Rob will talk about our operating results. first rob will talk about our operating results

Speaker 11: Okay. Good evening, everyone. Market conditions remained challenging during the fourth quarter. Some of the areas of most significant competition during the period included professional liability, excess workers' compensation, and casualty facultative reinsurance. While the list goes on from there, these are some of the hotspots. It is not all doom and gloom. There is an ever-increasing number of encouraging signs that change for the industry is not far off. We continue to observe an inconsistent yet growing number of carriers adjusting their underwriting behavior. The real potential leverage will come when the general industry-wide anxiety about inadequate rates converts into action. It remains our belief that this point of inflection is approaching. Additionally, the fourth quarter provided further evidence of a strengthening U.S. economy. This trend has been validated through improved audit premiums as well as midterm endorsements of additional units of exposure. Okay. okay Good evening, everyone. good evening everyone Market conditions remained challenging during the fourth quarter. market conditions remained challenging during the fourth quarter Some of the areas of most significant competition during the period included professional liability, excess workers' compensation, and casualty facultative reinsurance. some of the areas of most significant competition during the period included professional liability excess workers' compensation and casualty facultative reinsurance While the list goes on from there, these are some of the hotspots. while the list goes on from there these are some of the hotspots It is not all doom and gloom. it is not all doom and gloom There is an ever-increasing number of encouraging signs that change for the industry is not far off. there is an ever-increasing number of encouraging signs that change for the industry is not far off We continue to observe an inconsistent yet growing number of carriers adjusting their underwriting behavior. we continue to observe an inconsistent yet growing number of carriers adjusting their underwriting behavior The real potential leverage will come when the general industry-wide anxiety about inadequate rates converts into action. the real potential leverage will come when the general industry-wide anxiety about inadequate rates converts into action It remains our belief that this point of inflection is approaching. it remains our belief that this point of inflection is approaching Additionally, the fourth quarter provided further evidence of a strengthening U.S. economy. additionally the fourth quarter provided further evidence of a strengthening u.s economy This trend has been validated through improved audit premiums as well as midterm endorsements of additional units of exposure. this trend has been validated through improved audit premiums as well as midterm endorsements of additional units of exposure These data points clearly indicate that the relatively recent pressure on our insured's revenues and payrolls is in fact easing. Net written premium for the fourth quarter came in at $919 million. This is an increase of 11% over Q4 2009. The growth came predominantly from our international and specialty operations. International growth was mainly a result of a series of strategic decisions the group made some time ago. Our investment in growing economies with sound underlying fundamentals in such regions as Australasia, South America, and the Nordic region of Europe are paying off. Additionally, our Lloyd's Syndicate continues to have success in developing its presence in both a cautious and thoughtful manner. While on the topic of international, I should mention we do not envision the Australian floods in January of this year having a material impact on the group. These data points clearly indicate that the relatively recent pressure on our insured's revenues and payrolls is in fact easing. these data points clearly indicate that the relatively recent pressure on our insured's revenues and payrolls is in fact easing Net written premium for the fourth quarter came in at $919 million. net written premium for the fourth quarter came in at $919 million This is an increase of 11% over Q4 2009. this is an increase of 11% over q4 2009 The growth came predominantly from our international and specialty operations. the growth came predominantly from our international and specialty operations International growth was mainly a result of a series of strategic decisions the group made some time ago. international growth was mainly a result of a series of strategic decisions the group made some time ago Our investment in growing economies with sound underlying fundamentals in such regions as Australasia, South America, and the Nordic region of Europe are paying off. our investment in growing economies with sound underlying fundamentals in such regions as australasia south america and the nordic region of europe are paying off Additionally, our Lloyd's Syndicate continues to have success in developing its presence in both a cautious and thoughtful manner. additionally our lloyd's syndicate continues to have success in developing its presence in both a cautious and thoughtful manner While on the topic of international, I should mention we do not envision the Australian floods in January of this year having a material impact on the group. while on the topic of international i should mention we do not envision the australian floods in january of this year having a material impact on the group Increased writings amongst our specialty companies were by and large spread across several of the startups in the segment. Much of this traction has occurred due to our ability to provide holistic solutions to our insurers as opposed to a monoline offering. Several of the operations are focused on industries that have not been as adversely impacted by recent economic woes. While clearly this level of growth might, in isolation, raise a warning flag, we remain comfortable with the quality of both the risk selection as well as the pricing of the portfolio. As mentioned in the past, this confidence is achieved through the faith we have in our management teams, combined with our technical data and rigorous internal audit process. The group's price monitoring indicates that rates were down less than half of 1% in the group while maintaining a renewal retention approaching 80%. Increased writings amongst our specialty companies were by and large spread across several of the startups in the segment. increased writings amongst our specialty companies were by and large spread across several of the startups in the segment Much of this traction has occurred due to our ability to provide holistic solutions to our insurers as opposed to a monoline offering. much of this traction has occurred due to our ability to provide holistic solutions to our insurers as opposed to a monoline offering Several of the operations are focused on industries that have not been as adversely impacted by recent economic woes. several of the operations are focused on industries that have not been as adversely impacted by recent economic woes While clearly this level of growth might, in isolation, raise a warning flag, we remain comfortable with the quality of both the risk selection as well as the pricing of the portfolio. while clearly this level of growth might in isolation raise a warning flag we remain comfortable with the quality of both the risk selection as well as the pricing of the portfolio As mentioned in the past, this confidence is achieved through the faith we have in our management teams, combined with our technical data and rigorous internal audit process. as mentioned in the past this confidence is achieved through the faith we have in our management teams combined with our technical data and rigorous internal audit process The group's price monitoring indicates that rates were down less than half of 1% in the group while maintaining a renewal retention approaching 80%. the group's price monitoring indicates that rates were down less than half of 1% in the group while maintaining a renewal retention approaching 80% The combined ratio for the fourth quarter was a 92.6. Our loss ratio was a 69.8, which includes one point of storms. Storm activity was impacted by an unusual hailstorm during the month of October in, of all places, Phoenix, Arizona. The expense ratio was a 34.3, which represents a modest improvement over the corresponding period last year. We would anticipate this improving trend to continue as our earned premium grows, and consequently, we are able to leverage. This, we are not naive to the realities of the current situation. It is our belief the company's full year 2010 accident year combined ratio is approximately 100. On to reserves. Maintaining reserve adequacy remains a top priority for the group. We continue to believe that an appropriate level of caution in selecting loss picks is advisable. The combined ratio for the fourth quarter was a 92.6. the combined ratio for the fourth quarter was a 92.6 Our loss ratio was a 69.8, which includes one point of storms. our loss ratio was a 69.8 which includes one point of storms Storm activity was impacted by an unusual hailstorm during the month of October in, of all places, Phoenix, Arizona. storm activity was impacted by an unusual hailstorm during the month of october in of all places phoenix arizona The expense ratio was a 34.3, which represents a modest improvement over the corresponding period last year. the expense ratio was a 34.3 which represents a modest improvement over the corresponding period last year We would anticipate this improving trend to continue as our earned premium grows, and consequently, we are able to leverage. we would anticipate this improving trend to continue as our earned premium grows and consequently we are able to leverage This, we are not naive to the realities of the current situation. this we are not naive to the realities of the current situation It is our belief the company's full year 2010 accident year combined ratio is approximately 100. it is our belief the company's full year 2010 accident year combined ratio is approximately 100 On to reserves. on to reserves Maintaining reserve adequacy remains a top priority for the group. maintaining reserve adequacy remains a top priority for the group We continue to believe that an appropriate level of caution in selecting loss picks is advisable. we continue to believe that an appropriate level of caution in selecting loss picks is advisable Our speculation over the past several quarters regarding a potential uptick in frequency would appear to be well-placed. Additionally, inflation remains a wild card as to whether it will eventually return to historic levels. The redundancies we have recognized over the past several years may suggest the group has erred on the side of caution in selecting loss picks. However, we continue to believe a belt and suspenders approach to managing the business is appropriate given the leverage that exists in some of the unknown variables. Undoubtedly, the market remains challenging. The combination of current rate levels, modest investment returns, threats of inflation, and a shift in frequency trend has dramatically changed the landscape from what it was just a few years ago. However, these fundamentals have now become a reality that is driving industry participants to pause and ultimately, we believe, will change their behavior. Our speculation over the past several quarters regarding a potential uptick in frequency would appear to be well-placed. our speculation over the past several quarters regarding a potential uptick in frequency would appear to be well-placed Additionally, inflation remains a wild card as to whether it will eventually return to historic levels. additionally inflation remains a wild card as to whether it will eventually return to historic levels The redundancies we have recognized over the past several years may suggest the group has erred on the side of caution in selecting loss picks. the redundancies we have recognized over the past several years may suggest the group has erred on the side of caution in selecting loss picks However, we continue to believe a belt and suspenders approach to managing the business is appropriate given the leverage that exists in some of the unknown variables. however we continue to believe a belt and suspenders approach to managing the business is appropriate given the leverage that exists in some of the unknown variables Undoubtedly, the market remains challenging. undoubtedly the market remains challenging The combination of current rate levels, modest investment returns, threats of inflation, and a shift in frequency trend has dramatically changed the landscape from what it was just a few years ago. the combination of current rate levels modest investment returns threats of inflation and a shift in frequency trend has dramatically changed the landscape from what it was just a few years ago However, these fundamentals have now become a reality that is driving industry participants to pause and ultimately, we believe, will change their behavior. however these fundamentals have now become a reality that is driving industry participants to pause and ultimately we believe will change their behavior The potential double leverage of an improving U.S. economy, along with a hardening insurance market, is not a possibility that should be casually overlooked. However, if our speculation as to a shift in the market conditions is wrong, the company remains well-positioned to continue to deliver satisfactory returns going forward. Thank you. The potential double leverage of an improving U.S. economy, along with a hardening insurance market, is not a possibility that should be casually overlooked. the potential double leverage of an improving u.s economy along with a hardening insurance market is not a possibility that should be casually overlooked However, if our speculation as to a shift in the market conditions is wrong, the company remains well-positioned to continue to deliver satisfactory returns going forward. however if our speculation as to a shift in the market conditions is wrong the company remains well-positioned to continue to deliver satisfactory returns going forward Thank you. thank you

Speaker 12: Thanks, Rob. Gene is going to now go through the financials, then I'll tie it all together, hopefully. Thanks, Rob. thanks rob Gene is going to now go through the financials, then I'll tie it all together, hopefully. gene is going to now go through the financials then i'll tie it all together hopefully

Speaker 3: Okay, thanks, Bill. Well, Rob already covered the change in premiums, I'll just mention a couple more numbers in that regard regarding our startup companies, which are the new units that we started since 2006. Of the $91 million increase in overall premiums this quarter, $60 million, or about two-thirds, was from these recently started companies. For all of 2010, these companies wrote $600 million, which is right at 16% of our total premiums. With respect to our underwriting results, our overall combined ratio was 94.1, and all five of our business segments reported combined ratios under 100. We had favorable reserve development of $55 million, or 5.6 loss ratio points in the quarter. That gives us favorable reserve development of $235 million for all of 2010, up from $191 million in 2009. Okay, thanks, Bill. okay thanks bill Well, Rob already covered the change in premiums, I'll just mention a couple more numbers in that regard regarding our startup companies, which are the new units that we started since 2006. well rob already covered the change in premiums i'll just mention a couple more numbers in that regard regarding our startup companies which are the new units that we started since 2006 Of the $91 million increase in overall premiums this quarter, $60 million, or about two-thirds, was from these recently started companies. of the $91 million increase in overall premiums this quarter $60 million or about two-thirds was from these recently started companies For all of 2010, these companies wrote $600 million, which is right at 16% of our total premiums. for all of 2010 these companies wrote $600 million which is right at 16% of our total premiums With respect to our underwriting results, our overall combined ratio was 94.1, and all five of our business segments reported combined ratios under 100. with respect to our underwriting results our overall combined ratio was 94.1 and all five of our business segments reported combined ratios under 100 We had favorable reserve development of $55 million, or 5.6 loss ratio points in the quarter. we had favorable reserve development of $55 million or 5.6 loss ratio points in the quarter That gives us favorable reserve development of $235 million for all of 2010, up from $191 million in 2009. that gives us favorable reserve development of $235 million for all of 2010 up from $191 million in 2009 Most of the favorable reserve development in the quarter and the full year was in the specialty and regional segments. It was primarily for the five preceding accident years, more than half of it being in the Other Liability business. As Rob said, on an accident year basis, That gives us a combined ratio of 100%. That's an accident year loss ratio of 66, including two points of storms and an expense ratio of 34. Our net loss reserves and cash flow were both down modestly in the quarter. That's due in part to two reinsurance commutations that we completed in the fourth quarter. These transactions resulted in a $79 million decrease in cash flow, a $60 million decrease in loss reserves, and an insignificant book gain. Cash flow before the commutation payments was running slightly ahead of net income at $139 million for the quarter. Most of the favorable reserve development in the quarter and the full year was in the specialty and regional segments. most of the favorable reserve development in the quarter and the full year was in the specialty and regional segments It was primarily for the five preceding accident years, more than half of it being in the Other Liability business. it was primarily for the five preceding accident years more than half of it being in the other liability business As Rob said, on an accident year basis, That gives us a combined ratio of 100%. as rob said on an accident year basis that gives us a combined ratio of 100% That's an accident year loss ratio of 66, including two points of storms and an expense ratio of 34. that's an accident year loss ratio of 66 including two points of storms and an expense ratio of 34 Our net loss reserves and cash flow were both down modestly in the quarter. our net loss reserves and cash flow were both down modestly in the quarter That's due in part to two reinsurance commutations that we completed in the fourth quarter. that's due in part to two reinsurance commutations that we completed in the fourth quarter These transactions resulted in a $79 million decrease in cash flow, a $60 million decrease in loss reserves, and an insignificant book gain. these transactions resulted in a $79 million decrease in cash flow a $60 million decrease in loss reserves and an insignificant book gain Cash flow before the commutation payments was running slightly ahead of net income at $139 million for the quarter. cash flow before the commutation payments was running slightly ahead of net income at $139 million for the quarter Net investment income was $131 million, down $8 million or 5% from the prior year quarter. The decrease was attributable to the arbitrage account, which reported a profit of $3 million, down from $11 million a year ago. The average annualized yield on the rest of the portfolio was 4.1%. The average duration of the fixed income portfolio was 3.6 years at year-end. Unrealized investment gains were $516 million at year-end. That's up from $338 million at the beginning of the year. In addition, we reported realized gains of $34 million in income from investment funds of $5 million in the fourth quarter. Foreign currency losses were $8 million in the quarter. Although that's not too significant, I thought I'd explain to you why we do see this type of activity from time to time. Net investment income was $131 million, down $8 million or 5% from the prior year quarter. net investment income was $131 million down $8 million or 5% from the prior year quarter The decrease was attributable to the arbitrage account, which reported a profit of $3 million, down from $11 million a year ago. the decrease was attributable to the arbitrage account which reported a profit of $3 million down from $11 million a year ago The average annualized yield on the rest of the portfolio was 4.1%. the average annualized yield on the rest of the portfolio was 4.1% The average duration of the fixed income portfolio was 3.6 years at year-end. the average duration of the fixed income portfolio was 3.6 years at year-end Unrealized investment gains were $516 million at year-end. unrealized investment gains were $516 million at year-end That's up from $338 million at the beginning of the year. that's up from $338 million at the beginning of the year In addition, we reported realized gains of $34 million in income from investment funds of $5 million in the fourth quarter. in addition we reported realized gains of $34 million in income from investment funds of $5 million in the fourth quarter Foreign currency losses were $8 million in the quarter. foreign currency losses were $8 million in the quarter Although that's not too significant, I thought I'd explain to you why we do see this type of activity from time to time. although that's not too significant i thought i'd explain to you why we do see this type of activity from time to time We generally match our foreign currency denominated assets and liabilities. FX gains and losses tend to offset one another. For financial statement purposes, there's an anomaly where FX gains and losses on investments are reported as unrealized gains and losses on the balance sheet, at least until those investments are sold, whereas FX gains and losses on liabilities are reported immediately on the income statement. In this quarter, we had an FX loss on our Australian liabilities as a result of the strengthening of the Australian dollar in this accounting treatment. Stock repurchases were approximately equal to our net income again this quarter. We bought back 4.8 million shares in the quarter at an aggregate cost of $130 million. We purchased 17 million for all of 2010, or 11% of our outstanding shares at the beginning of the year. We generally match our foreign currency denominated assets and liabilities. we generally match our foreign currency denominated assets and liabilities FX gains and losses tend to offset one another. fx gains and losses tend to offset one another For financial statement purposes, there's an anomaly where FX gains and losses on investments are reported as unrealized gains and losses on the balance sheet, at least until those investments are sold, whereas FX gains and losses on liabilities are reported immediately on the income statement. for financial statement purposes there's an anomaly where fx gains and losses on investments are reported as unrealized gains and losses on the balance sheet at least until those investments are sold whereas fx gains and losses on liabilities are reported immediately on the income statement In this quarter, we had an FX loss on our Australian liabilities as a result of the strengthening of the Australian dollar in this accounting treatment. in this quarter we had an fx loss on our australian liabilities as a result of the strengthening of the australian dollar in this accounting treatment Stock repurchases were approximately equal to our net income again this quarter. stock repurchases were approximately equal to our net income again this quarter We bought back 4.8 million shares in the quarter at an aggregate cost of $130 million. we bought back 4.8 million shares in the quarter at an aggregate cost of $130 million We purchased 17 million for all of 2010, or 11% of our outstanding shares at the beginning of the year. we purchased 17 million for all of 2010 or 11% of our outstanding shares at the beginning of the year That gives us a net income ROE of 14.1% for the quarter and 12.5% for the full year, and an increase in our book value per share of 14.3% in 2010. That gives us a net income ROE of 14.1% for the quarter and 12.5% for the full year, and an increase in our book value per share of 14.3% in 2010. that gives us a net income roe of 14.1% for the quarter and 12.5% for the full year and an increase in our book value per share of 14.3% in 2010

Speaker 12: Thanks, Gene. Overall, we were pretty pleased with the quarter. I think that if you managers, in part because we do believe the trend in frequency could adversely impact everyone's expectation for losses. We have a bit more of a concern about inflation on some of the longer tail lines of business. We look ahead, we do see opportunities to invest money in off-center kinds of investments. Example would be municipal bonds that are backed by corporate security. We were able to buy, round numbers, $10 million of municipals backed by a corporate credit. The corporate credit traded for the same maturity, 150 over the comparable treasury, because they were packaged as a municipal, we got the yields tax-free, and we got them at 450 basis points over, in fact, the comparable treasury yield. Thanks, Gene. thanks gene Overall, we were pretty pleased with the quarter. overall we were pretty pleased with the quarter I think that if you managers, in part because we do believe the trend in frequency could adversely impact everyone's expectation for losses. i think that if you managers in part because we do believe the trend in frequency could adversely impact everyone's expectation for losses We have a bit more of a concern about inflation on some of the longer tail lines of business. we have a bit more of a concern about inflation on some of the longer tail lines of business We look ahead, we do see opportunities to invest money in off-center kinds of investments. we look ahead we do see opportunities to invest money in off-center kinds of investments Example would be municipal bonds that are backed by corporate security. example would be municipal bonds that are backed by corporate security We were able to buy, round numbers, $10 million of municipals backed by a corporate credit. we were able to buy round numbers $10 million of municipals backed by a corporate credit The corporate credit traded for the same maturity, 150 over the comparable treasury, because they were packaged as a municipal, we got the yields tax-free, and we got them at 450 basis points over, in fact, the comparable treasury yield. the corporate credit traded for the same maturity 150 over the comparable treasury because they were packaged as a municipal we got the yields tax-free and we got them at 450 basis points over in fact the comparable treasury yield That was because nobody wanted to have any label of municipal on them. Those kinds of opportunities exist, and we continue to see them. We're willing to find and buy things that people think look ugly, but when you delve through the appearance, are much higher quality securities. We continue to have a number of teams of people coming in to talk to us, offering us opportunities. We look at them. We obviously have a larger share of the marketplace, covering lots of niches, so there aren't as many things that are attractive, but we still continue to meet a number of outstanding people, and we're searching globally for those great teams of people where we think we can build franchise value. At this point in time, we believe those opportunities will continue, and everything we see in the cycle are things are, in fact, beginning to change. That was because nobody wanted to have any label of municipal on them. that was because nobody wanted to have any label of municipal on them Those kinds of opportunities exist, and we continue to see them. those kinds of opportunities exist and we continue to see them We're willing to find and buy things that people think look ugly, but when you delve through the appearance, are much higher quality securities. we're willing to find and buy things that people think look ugly but when you delve through the appearance are much higher quality securities We continue to have a number of teams of people coming in to talk to us, offering us opportunities. we continue to have a number of teams of people coming in to talk to us offering us opportunities We look at them. we look at them We obviously have a larger share of the marketplace, covering lots of niches, so there aren't as many things that are attractive, but we still continue to meet a number of outstanding people, and we're searching globally for those great teams of people where we think we can build franchise value. we obviously have a larger share of the marketplace covering lots of niches so there aren't as many things that are attractive but we still continue to meet a number of outstanding people and we're searching globally for those great teams of people where we think we can build franchise value At this point in time, we believe those opportunities will continue, and everything we see in the cycle are things are, in fact, beginning to change. at this point in time we believe those opportunities will continue and everything we see in the cycle are things are in fact beginning to change There's no question about pricing. There is more discipline in lots and lots of areas. Not every place. We still, on occasion, lose business at huge discounts from what we think the adequate pricing is. It's now unusual as opposed to everyday occurrences. We think that most of the people we do business with, the agents and brokers, are searching for people who they know will be in business a year or two or three from now. That's a very important thing. Our relationship off, we continue to see opportunities, and we would be surprised if the pricing changes do not continue and that 0.3% pricing decline doesn't turn into price increases. Obviously, the key element is how do we manage our business? There's no question about pricing. there's no question about pricing There is more discipline in lots and lots of areas. there is more discipline in lots and lots of areas Not every place. not every place We still, on occasion, lose business at huge discounts from what we think the adequate pricing is. we still on occasion lose business at huge discounts from what we think the adequate pricing is It's now unusual as opposed to everyday occurrences. it's now unusual as opposed to everyday occurrences We think that most of the people we do business with, the agents and brokers, are searching for people who they know will be in business a year or two or three from now. we think that most of the people we do business with the agents and brokers are searching for people who they know will be in business a year or two or three from now That's a very important thing. that's a very important thing Our relationship off, we continue to see opportunities, and we would be surprised if the pricing changes do not continue and that 0.3% pricing decline doesn't turn into price increases. our relationship off we continue to see opportunities and we would be surprised if the pricing changes do not continue and that 0.3% pricing decline doesn't turn into price increases Obviously, the key element is how do we manage our business? obviously the key element is how do we manage our business We wouldn't be doing anything different if prices went down 3% this year or up 3%, 5%, or 7% or 10%. The difference is we'd probably be able to write more business if prices were higher. With that, John, I'd be happy to take people's questions. We wouldn't be doing anything different if prices went down 3% this year or up 3%, 5%, or 7% or 10%. we wouldn't be doing anything different if prices went down 3% this year or up 3% 5% or 7% or 10% The difference is we'd probably be able to write more business if prices were higher. the difference is we'd probably be able to write more business if prices were higher With that, John, I'd be happy to take people's questions. with that john i'd be happy to take people's questions

Speaker 8: ladies and gentlemen, at this time, if you have a question or comment, press the star, then one key on your touch tone telephone to queue up for a question. Again, ladies and gentlemen, if you have a question or comment, press the star, then one key to queue up for a question. We'll take our first question coming from Ken Billingsley. Ken, please go ahead. ladies and gentlemen, at this time, if you have a question or comment, press the star, then one key on your touch tone telephone to queue up for a question. ladies and gentlemen at this time if you have a question or comment press the star then one key on your touch tone telephone to queue up for a question Again, ladies and gentlemen, if you have a question or comment, press the star, then one key to queue up for a question. again ladies and gentlemen if you have a question or comment press the star then one key to queue up for a question We'll take our first question coming from Ken Billingsley. we'll take our first question coming from ken billingsley Ken, please go ahead. ken please go ahead

Speaker 13: Good afternoon. Congratulations on the quarter. Good afternoon. good afternoon Congratulations on the quarter. congratulations on the quarter

Speaker 12: Thank you. Thank you. thank you

Speaker 13: One of the questions on the pricing that you were mentioning. I know it's hard to put a number on new business, but when you talked about the pricing, is that just on renewal business or based on comparable policies that you would write? One of the questions on the pricing that you were mentioning. one of the questions on the pricing that you were mentioning I know it's hard to put a number on new business, but when you talked about the pricing, is that just on renewal business or based on comparable policies that you would write? i know it's hard to put a number on new business but when you talked about the pricing is that just on renewal business or based on comparable policies that you would write

Speaker 12: Our pricing metrics attempt to look at new business and make comparable renewal business. It's on all business across the board, new and renewal. The answer is price measurement in this business is not as exact as you'd like it to be because terms and conditions vary slightly, coverage is very slightly, you may add a deductible, you may make slight changes. To the best of our ability, it includes new and renewal business aligned to be at the same level. Our pricing metrics attempt to look at new business and make comparable renewal business. our pricing metrics attempt to look at new business and make comparable renewal business It's on all business across the board, new and renewal. it's on all business across the board new and renewal The answer is price measurement in this business is not as exact as you'd like it to be because terms and conditions vary slightly, coverage is very slightly, you may add a deductible, you may make slight changes. the answer is price measurement in this business is not as exact as you'd like it to be because terms and conditions vary slightly coverage is very slightly you may add a deductible you may make slight changes To the best of our ability, it includes new and renewal business aligned to be at the same level. to the best of our ability it includes new and renewal business aligned to be at the same level

Speaker 13: In your experience then, would the renewal business be holding up a little bit better based on your comments about brokers wanting to partner with someone that's going to be around, and is it the new business that is a little bit more competitive? In your experience then, would the renewal business be holding up a little bit better based on your comments about brokers wanting to partner with someone that's going to be around, and is it the new business that is a little bit more competitive? in your experience then would the renewal business be holding up a little bit better based on your comments about brokers wanting to partner with someone that's going to be around and is it the new business that is a little bit more competitive

Speaker 12: According to our actuaries, it's virtually the same. According to our actuaries, it's virtually the same. according to our actuaries it's virtually the same

Speaker 13: Virtually the same. Virtually the same. virtually the same

Speaker 12: I would say in the marketplace, though, that people who shop every year are the price shoppers. I would probably say to you that the consistency of renewal that people have, the vast majority of that business stays with you for an extended period of time. The business that moves around is moving from one company to the next company, it's always moving, searching for price. I would say in the marketplace, though, that people who shop every year are the price shoppers. i would say in the marketplace though that people who shop every year are the price shoppers I would probably say to you that the consistency of renewal that people have, the vast majority of that business stays with you for an extended period of time. i would probably say to you that the consistency of renewal that people have the vast majority of that business stays with you for an extended period of time The business that moves around is moving from one company to the next company, it's always moving, searching for price. the business that moves around is moving from one company to the next company it's always moving searching for price

Speaker 13: Very good. Just one other question before I re-queue. On the reinsurance business, can you talk about you going forward? With there being capital in the marketplace, if the economy exposure units start to increase, if you have the capital on the primary side, are you going to see that maybe the reinsurance side of the business may not do as well on a hardening market if it's a slow economic recovery? Do you have any comments on that side? Very good. very good Just one other question before I re-queue. just one other question before i re-queue On the reinsurance business, can you talk about you going forward? on the reinsurance business can you talk about you going forward With there being capital in the marketplace, if the economy exposure units start to increase, if you have the capital on the primary side, are you going to see that maybe the reinsurance side of the business may not do as well on a hardening market if it's a slow economic recovery? with there being capital in the marketplace if the economy exposure units start to increase if you have the capital on the primary side are you going to see that maybe the reinsurance side of the business may not do as well on a hardening market if it's a slow economic recovery Do you have any comments on that side? do you have any comments on that side

Speaker 12: I'm not sure I understand what your question is. Could you try? I'm not sure I understand what your question is. i'm not sure i understand what your question is Could you try? could you try

Speaker 13: If the economy rebounds and your exposure units increase and you have the opportunity to write more business, will primary companies continue to hold on to more of their business as opposed to utilizing reinsurers going forward? Will that impact your reinsurance business? If the economy rebounds and your exposure units increase and you have the opportunity to write more business, will primary companies continue to hold on to more of their business as opposed to utilizing reinsurers going forward? if the economy rebounds and your exposure units increase and you have the opportunity to write more business will primary companies continue to hold on to more of their business as opposed to utilizing reinsurers going forward Will that impact your reinsurance business? will that impact your reinsurance business

Speaker 12: Our reinsurance business is not really an across-the-board reinsurance business. We do business with smaller, specialized companies, where we have relationships. By and large, I don't think it'll particularly impact us as much. We're particularly well-capitalized. I think the most interesting thing that's going to happen is, in fact, smaller, high-quality companies are going to need reinsurance more as the market changes. I think it probably will give us, for the kind of customers we do business with, really a competitive advantage. I would add, I think across the board for the very large reinsurers, your statement is likely to be more true. Our reinsurance business is not really an across-the-board reinsurance business. our reinsurance business is not really an across-the-board reinsurance business We do business with smaller, specialized companies, where we have relationships. we do business with smaller specialized companies where we have relationships By and large, I don't think it'll particularly impact us as much. by and large i don't think it'll particularly impact us as much We're particularly well-capitalized. we're particularly well-capitalized I think the most interesting thing that's going to happen is, in fact, smaller, high-quality companies are going to need reinsurance more as the market changes. i think the most interesting thing that's going to happen is in fact smaller high-quality companies are going to need reinsurance more as the market changes I think it probably will give us, for the kind of customers we do business with, really a competitive advantage. i think it probably will give us for the kind of customers we do business with really a competitive advantage I would add, I think across the board for the very large reinsurers, your statement is likely to be more true. i would add i think across the board for the very large reinsurers your statement is likely to be more true

Speaker 13: Okay. You said your focus is more on some of the smaller insurers that will not have as much access to capital. Okay. okay You said your focus is more on some of the smaller insurers that will not have as much access to capital. you said your focus is more on some of the smaller insurers that will not have as much access to capital

Speaker 12: Yeah. I think that our average reinsured is a company with less than $1 billion of surplus and is a company that buys reinsurance because it's a necessary part of their financial strategy. Yeah. yeah I think that our average reinsured is a company with less than $1 billion of surplus and is a company that buys reinsurance because it's a necessary part of their financial strategy. i think that our average reinsured is a company with less than $1 billion of surplus and is a company that buys reinsurance because it's a necessary part of their financial strategy

Speaker 13: Could you give any comments on why there's been, on an LTM basis, that the premiums have declined there? Is it a focus of the pricing, or is it- Could you give any comments on why there's been, on an LTM basis, that the premiums have declined there? could you give any comments on why there's been on an ltm basis that the premiums have declined there Is it a focus of the pricing, or is it- is it a focus of the pricing or is it-

Speaker 12: You're talking about our reinsurance business? You're talking about our reinsurance business? you're talking about our reinsurance business

Speaker 13: Yes, sir. Yes, sir. yes sir

Speaker 12: Go ahead. Go ahead. go ahead

Speaker 11: The reason why the premiums have declined is because, well, really twofold. One, quite frankly, the reinsurance market, believe it or not, has actually become more competitive over the last 12 months. Consequently, we're willing to walk away from business if we think that we are not going to get an adequate rate for our capacity. Secondly, obviously, there are many ceding companies out there that are looking for ways to bolster their top line, and one of the easy ways to do that is to increase your retention. The reason why the premiums have declined is because, well, really twofold. the reason why the premiums have declined is because well really twofold One, quite frankly, the reinsurance market, believe it or not, has actually become more competitive over the last 12 months. one quite frankly the reinsurance market believe it or not has actually become more competitive over the last 12 months Consequently, we're willing to walk away from business if we think that we are not going to get an adequate rate for our capacity. consequently we're willing to walk away from business if we think that we are not going to get an adequate rate for our capacity Secondly, obviously, there are many ceding companies out there that are looking for ways to bolster their top line, and one of the easy ways to do that is to increase your retention. secondly obviously there are many ceding companies out there that are looking for ways to bolster their top line and one of the easy ways to do that is to increase your retention

Speaker 12: I would add a third piece, that is, we really enforced our view that reinsurance is a partnership venture, that really means a number of very large companies who don't view reinsurance in that way don't fit as places where we should use our capital. I would add a third piece, that is, we really enforced our view that reinsurance is a partnership venture, that really means a number of very large companies who don't view reinsurance in that way don't fit as places where we should use our capital. i would add a third piece that is we really enforced our view that reinsurance is a partnership venture that really means a number of very large companies who don't view reinsurance in that way don't fit as places where we should use our capital

Speaker 13: Bill, again, congratulations on the quarter. Bill, again, congratulations on the quarter. bill again congratulations on the quarter

Speaker 12: Thank you. Thank you. thank you

Speaker 8: Okay. Thank you. We'll take our next question coming from Joshua Shanker. Okay. okay Thank you. thank you We'll take our next question coming from Joshua Shanker. we'll take our next question coming from joshua shanker

Speaker 5: Good afternoon, everyone. Good afternoon, everyone. good afternoon everyone

Speaker 12: Hello, Josh. Hello, Josh. hello josh

Speaker 5: Bill, I know that you're a pretty smart buyer of reinsurance, and you're also a player in the Australian market. Given that you maybe don't have a dog in that fight, maybe you can tell us what's going on with the losses there in the first quarter. Bill, I know that you're a pretty smart buyer of reinsurance, and you're also a player in the Australian market. bill i know that you're a pretty smart buyer of reinsurance and you're also a player in the australian market Given that you maybe don't have a dog in that fight, maybe you can tell us what's going on with the losses there in the first quarter. given that you maybe don't have a dog in that fight maybe you can tell us what's going on with the losses there in the first quarter

Speaker 12: Well, first, I should say that. My lawyer's looking at me carefully now, Josh. First, we do not have big losses. We're not a property writer, and we think we have quite modest losses from the floods. We expect, at least in the ordinary course, to have reasonably modest losses from the Cyclone, although obviously, event we have not heard any information about. As a matter of what business we do, we're not a property writer. The reason we're not a property writer is because lots of parts of the world have extremely low prices for property exposures. The reason for that is because the exposure and consistency of loss for U.S. wind and English European wind was such that companies try to diversify their capital exposures. They try to write global exposures, and the prices for those global exposures have become very low. Well, first, I should say that. well first i should say that My lawyer's looking at me carefully now, Josh. my lawyer's looking at me carefully now josh First, we do not have big losses. first we do not have big losses We're not a property writer, and we think we have quite modest losses from the floods. we're not a property writer and we think we have quite modest losses from the floods We expect, at least in the ordinary course, to have reasonably modest losses from the Cyclone, although obviously, event we have not heard any information about. we expect at least in the ordinary course to have reasonably modest losses from the cyclone although obviously event we have not heard any information about As a matter of what business we do, we're not a property writer. as a matter of what business we do we're not a property writer The reason we're not a property writer is because lots of parts of the world have extremely low prices for property exposures. the reason we're not a property writer is because lots of parts of the world have extremely low prices for property exposures The reason for that is because the exposure and consistency of loss for U.S. wind and English European wind was such that companies try to diversify their capital exposures. the reason for that is because the exposure and consistency of loss for u.s wind and english european wind was such that companies try to diversify their capital exposures They try to write global exposures, and the prices for those global exposures have become very low. they try to write global exposures and the prices for those global exposures have become very low When we looked and entered the Australian market, everybody thought the kind of limits we were prepared and could afford to put down made no sense because people bought wind protection, catastrophe protection of $1 billion, $2 billion, $3 billion, $5 billion of protection. We look at our company, and we're talking about putting maybe a $10 million line down, maybe a $20 million line. It just doesn't make any sense in that marketplace. There are lots of places in the world, Australia being one, where the scale of the property reinsurance market for catastrophes was huge. The prices were relatively low, and the requirements to play were very, very high. We would expect the losses to be quite substantial. I think it alone would have had an impact on the market, but not be what I call dramatically market changing. When we looked and entered the Australian market, everybody thought the kind of limits we were prepared and could afford to put down made no sense because people bought wind protection, catastrophe protection of $1 billion, $2 billion, $3 billion, $5 billion of protection. when we looked and entered the australian market everybody thought the kind of limits we were prepared and could afford to put down made no sense because people bought wind protection catastrophe protection of $1 billion $2 billion $3 billion $5 billion of protection We look at our company, and we're talking about putting maybe a $10 million line down, maybe a $20 million line. we look at our company and we're talking about putting maybe a $10 million line down maybe a $20 million line It just doesn't make any sense in that marketplace. it just doesn't make any sense in that marketplace There are lots of places in the world, Australia being one, where the scale of the property reinsurance market for catastrophes was huge. there are lots of places in the world australia being one where the scale of the property reinsurance market for catastrophes was huge The prices were relatively low, and the requirements to play were very, very high. the prices were relatively low and the requirements to play were very very high We would expect the losses to be quite substantial. we would expect the losses to be quite substantial I think it alone would have had an impact on the market, but not be what I call dramatically market changing. i think it alone would have had an impact on the market but not be what i call dramatically market changing I think that the cyclone, in addition, could have real adverse impact, and it could really make quite a difference. The magnitude of the reinsured losses is certainly going to be in the multi-billions of USD. I think that the cyclone, in addition, could have real adverse impact, and it could really make quite a difference. i think that the cyclone in addition could have real adverse impact and it could really make quite a difference The magnitude of the reinsured losses is certainly going to be in the multi-billions of USD. the magnitude of the reinsured losses is certainly going to be in the multi-billions of usd

Speaker 5: How many events are we talking about here? How many events are we talking about here? how many events are we talking about here

Speaker 12: I'm not an expert at defining events. I think it would have to be at least two. I'm not an expert at defining events. i'm not an expert at defining events I think it would have to be at least two. i think it would have to be at least two

Speaker 5: Okay. Well, thank you very much. Okay. okay Well, thank you very much. well thank you very much

Speaker 12: Yes, sir. Yes, sir. yes sir

Speaker 8: Okay. Thank you. We'll take our next question coming from Vinay Viswanathan. Please go ahead, Vinay. Okay. okay Thank you. thank you We'll take our next question coming from Vinay Viswanathan. we'll take our next question coming from vinay viswanathan Please go ahead, Vinay. please go ahead vinay

Speaker 10: Hi, good evening. The accident year loss ratio has stayed very favorable for the last three years, and it's been relatively flat. Should we start to see an uptick in that for next year, that's for 2011, since pricing has been flat, and your comments on frequency and severity trends? Hi, good evening. hi good evening The accident year loss ratio has stayed very favorable for the last three years, and it's been relatively flat. the accident year loss ratio has stayed very favorable for the last three years and it's been relatively flat Should we start to see an uptick in that for next year, that's for 2011, since pricing has been flat, and your comments on frequency and severity trends? should we start to see an uptick in that for next year that's for 2011 since pricing has been flat and your comments on frequency and severity trends

Speaker 12: First, we didn't say anything about severity trends. We said something about frequency trends. At least I listen to what I say. The fact is that our accident year loss ratio is conservative compared to all of my competitors. In fact, I actually must say we really look like we're pretty crummy underwriters compared to everyone we compete with. I'm not sure I would think it will get significantly worse because I think we've tried to take into consideration those trends, which means we're always looking ahead. If we were to see severe inflation start to develop, yes, you'd be correct. Because of how we have our loss picks, which is a waterfall process, we always have somewhat of a cushion because going back four or five years, we were more cautious than we thought we were. First, we didn't say anything about severity trends. first we didn't say anything about severity trends We said something about frequency trends. we said something about frequency trends At least I listen to what I say. at least i listen to what i say The fact is that our accident year loss ratio is conservative compared to all of my competitors. the fact is that our accident year loss ratio is conservative compared to all of my competitors In fact, I actually must say we really look like we're pretty crummy underwriters compared to everyone we compete with. in fact i actually must say we really look like we're pretty crummy underwriters compared to everyone we compete with I'm not sure I would think it will get significantly worse because I think we've tried to take into consideration those trends, which means we're always looking ahead. i'm not sure i would think it will get significantly worse because i think we've tried to take into consideration those trends which means we're always looking ahead If we were to see severe inflation start to develop, yes, you'd be correct. if we were to see severe inflation start to develop yes you'd be correct Because of how we have our loss picks, which is a waterfall process, we always have somewhat of a cushion because going back four or five years, we were more cautious than we thought we were. because of how we have our loss picks which is a waterfall process we always have somewhat of a cushion because going back four or five years we were more cautious than we thought we were That caution, even though we try to wean it out as we see those years develop, it takes time because you don't want to be so aggressive that you overstep. We've done that. The only advantage of being old is you've seen it happen before, and I can promise you it is probably the only advantage. We're not going to make that mistake again. I can't tell you that our accident year loss ratio will get worse. I think we've been a little more cautious than we might have been. I wouldn't reach that conclusion. I wouldn't discount it either. It's not an unreasonable thing to think, but we've had a lot of favorable development, and my guess is that those past loss year picks may still result in the more recent years being more cautious than they should have been. That caution, even though we try to wean it out as we see those years develop, it takes time because you don't want to be so aggressive that you overstep. that caution even though we try to wean it out as we see those years develop it takes time because you don't want to be so aggressive that you overstep We've done that. we've done that The only advantage of being old is you've seen it happen before, and I can promise you it is probably the only advantage. the only advantage of being old is you've seen it happen before and i can promise you it is probably the only advantage We're not going to make that mistake again. we're not going to make that mistake again I can't tell you that our accident year loss ratio will get worse. i can't tell you that our accident year loss ratio will get worse I think we've been a little more cautious than we might have been. i think we've been a little more cautious than we might have been I wouldn't reach that conclusion. i wouldn't reach that conclusion I wouldn't discount it either. i wouldn't discount it either It's not an unreasonable thing to think, but we've had a lot of favorable development, and my guess is that those past loss year picks may still result in the more recent years being more cautious than they should have been. it's not an unreasonable thing to think but we've had a lot of favorable development and my guess is that those past loss year picks may still result in the more recent years being more cautious than they should have been

Speaker 10: Okay, that's great. You mentioned about frequency trends. If you could just elaborate on that'd be helpful. Thank you. Okay, that's great. okay that's great You mentioned about frequency trends. you mentioned about frequency trends If you could just elaborate on that'd be helpful. if you could just elaborate on that'd be helpful Thank you. thank you

Speaker 12: All right. I'm going to have Rob talk about that. Go ahead, Rob. All right. all right I'm going to have Rob talk about that. i'm going to have rob talk about that Go ahead, Rob. go ahead rob

Speaker 11: Yeah. Without getting into too much detail, we are seeing early signs of frequency having in all likelihood bottomed out for the casualty lines. I'm not talking about comp, I'm not talking about property. I'm talking purely certain casualty lines. We are seeing, once again, frequency. It would appear as though it's bottomed out and it's starting to move up. However, while it's not racing up, it is certainly a shift in direction from what we've seen over the past several years. Yeah. yeah Without getting into too much detail, we are seeing early signs of frequency having in all likelihood bottomed out for the casualty lines. without getting into too much detail we are seeing early signs of frequency having in all likelihood bottomed out for the casualty lines I'm not talking about comp, I'm not talking about property. i'm not talking about comp i'm not talking about property I'm talking purely certain casualty lines. i'm talking purely certain casualty lines We are seeing, once again, frequency. we are seeing once again frequency It would appear as though it's bottomed out and it's starting to move up. it would appear as though it's bottomed out and it's starting to move up However, while it's not racing up, it is certainly a shift in direction from what we've seen over the past several years. however while it's not racing up it is certainly a shift in direction from what we've seen over the past several years

Speaker 12: I think that goes with the prior question also. I think that we weren't as optimistic about declining frequency as a number of our competitors, and they proved to be right, and we were too cautious. We now see those things changing and, again, we may be a little ahead of the curve, but there's no question directionally about that change. I think that goes with the prior question also. i think that goes with the prior question also I think that we weren't as optimistic about declining frequency as a number of our competitors, and they proved to be right, and we were too cautious. i think that we weren't as optimistic about declining frequency as a number of our competitors and they proved to be right and we were too cautious We now see those things changing and, again, we may be a little ahead of the curve, but there's no question directionally about that change. we now see those things changing and again we may be a little ahead of the curve but there's no question directionally about that change

Speaker 10: Sure, fair enough. One last question, if I may, on the expense ratio. This year, that was 34% roughly. Do you think with higher on premiums next year that it could go to roughly the 33% that it was in 2009? Sure, fair enough. sure fair enough One last question, if I may, on the expense ratio. one last question if i may on the expense ratio This year, that was 34% roughly. this year that was 34% roughly Do you think with higher on premiums next year that it could go to roughly the 33% that it was in 2009? do you think with higher on premiums next year that it could go to roughly the 33% that it was in 2009

Speaker 12: The answer is we can't give you a single number, just like we can't tell you what a particular number is. We've always had the view that having the best people in this business gives you a huge competitive advantage. If in any year or two your expense ratio was out of line, we were prepared to live with that. I think as the cycle turns, the expense ratio will go down dramatically because a big part of that pushing expense ratio is additional operating units that haven't fully utilized that achieved scale with the number of people we have. We think with the numbers of people we have, we can really grow dramatically without any really consequential increase in our overhead. I would hesitate to choose a number at this point. The answer is we can't give you a single number, just like we can't tell you what a particular number is. the answer is we can't give you a single number just like we can't tell you what a particular number is We've always had the view that having the best people in this business gives you a huge competitive advantage. we've always had the view that having the best people in this business gives you a huge competitive advantage If in any year or two your expense ratio was out of line, we were prepared to live with that. if in any year or two your expense ratio was out of line we were prepared to live with that I think as the cycle turns, the expense ratio will go down dramatically because a big part of that pushing expense ratio is additional operating units that haven't fully utilized that achieved scale with the number of people we have. i think as the cycle turns the expense ratio will go down dramatically because a big part of that pushing expense ratio is additional operating units that haven't fully utilized that achieved scale with the number of people we have We think with the numbers of people we have, we can really grow dramatically without any really consequential increase in our overhead. we think with the numbers of people we have we can really grow dramatically without any really consequential increase in our overhead I would hesitate to choose a number at this point. i would hesitate to choose a number at this point

Speaker 10: Okay. Okay. okay

Speaker 12: I'll feel a lot better after I have another quarter or six months under our belt. Prediction. My facts were all right, but the people's state of mind and my facts weren't aligned. I'll feel a lot better after I have another quarter or six months under our belt. i'll feel a lot better after i have another quarter or six months under our belt Prediction. prediction My facts were all right, but the people's state of mind and my facts weren't aligned. my facts were all right but the people's state of mind and my facts weren't aligned

Speaker 10: Okay. Thank you. Okay. okay Thank you. thank you

Speaker 12: Yes, sir. Yes, sir. yes sir

Speaker 8: Thank you. We'll take our next question coming from Jay Cohen. Jay, please go ahead. Thank you. thank you We'll take our next question coming from Jay Cohen. we'll take our next question coming from jay cohen Jay, please go ahead. jay please go ahead

Speaker 4: Thank you. Most of my questions were answered. I have two other ones. The first is the alternative markets business. The premium growth jumps around quite a bit quarter to quarter. Can you talk a little bit about what's happened there and what drove the growth in this particular quarter? Thank you. thank you Most of my questions were answered. most of my questions were answered I have two other ones. i have two other ones The first is the alternative markets business. the first is the alternative markets business The premium growth jumps around quite a bit quarter to quarter. the premium growth jumps around quite a bit quarter to quarter Can you talk a little bit about what's happened there and what drove the growth in this particular quarter? can you talk a little bit about what's happened there and what drove the growth in this particular quarter

Speaker 12: Well, there's some things that are happening there, a couple of different things. There's some accounting things, and then there's some business things. I'm going to let Rob talk about the business things, and then Gene will talk about some of the accounting things, and then I'll probably try to screw things up totally. Go ahead, Rob. Well, there's some things that are happening there, a couple of different things. well there's some things that are happening there a couple of different things There's some accounting things, and then there's some business things. there's some accounting things and then there's some business things I'm going to let Rob talk about the business things, and then Gene will talk about some of the accounting things, and then I'll probably try to screw things up totally. i'm going to let rob talk about the business things and then gene will talk about some of the accounting things and then i'll probably try to screw things up totally Go ahead, Rob. go ahead rob

Speaker 11: Hey, Jay. I think the simple answer to your question is that the growth in the quarter was predominantly coming out of our A&H business. That was really the major driver in that segment. Hey, Jay. hey jay I think the simple answer to your question is that the growth in the quarter was predominantly coming out of our A&H business. i think the simple answer to your question is that the growth in the quarter was predominantly coming out of our a&h business That was really the major driver in that segment. that was really the major driver in that segment

Speaker 3: The only thing I would add on the accounting change, Jay, if you're looking at the net written, you're going to see the growth that Rob's talking about and where it came from. It looks to be a little bit higher on a growth basis, that's because I think we may have talked about this before. We service this assigned risk plan business, and part of the way that's done is you actually put it on your paper and then reinsure it back to these NCCI pools. It goes in and out on a growth basis. We had been writing some of that business on regional paper, some of it was in the regional segment. We've been moving it over to the alternative market segment because that's where the servicing is done. The only thing I would add on the accounting change, Jay, if you're looking at the net written, you're going to see the growth that Rob's talking about and where it came from. the only thing i would add on the accounting change jay if you're looking at the net written you're going to see the growth that rob's talking about and where it came from It looks to be a little bit higher on a growth basis, that's because I think we may have talked about this before. it looks to be a little bit higher on a growth basis that's because i think we may have talked about this before We service this assigned risk plan business, and part of the way that's done is you actually put it on your paper and then reinsure it back to these NCCI pools. we service this assigned risk plan business and part of the way that's done is you actually put it on your paper and then reinsure it back to these ncci pools It goes in and out on a growth basis. it goes in and out on a growth basis We had been writing some of that business on regional paper, some of it was in the regional segment. we had been writing some of that business on regional paper some of it was in the regional segment We've been moving it over to the alternative market segment because that's where the servicing is done. we've been moving it over to the alternative market segment because that's where the servicing is done You're seeing some of that business move out of the regional segment into the alternative market segment. It's not business that we keep net. You're seeing some of that business move out of the regional segment into the alternative market segment. you're seeing some of that business move out of the regional segment into the alternative market segment It's not business that we keep net. it's not business that we keep net

Speaker 12: There's a lot of noise because of this change in where we write the business, but in fact, none of that sticks with us. It's all business for assigned risk plans that come in and go out, comes in on a growth basis, and it goes out. The real growth that you're seeing is the accident and health business, which is mainly stop loss business, and it's in the A&H business. There's a lot of noise because of this change in where we write the business, but in fact, none of that sticks with us. there's a lot of noise because of this change in where we write the business but in fact none of that sticks with us It's all business for assigned risk plans that come in and go out, comes in on a growth basis, and it goes out. it's all business for assigned risk plans that come in and go out comes in on a growth basis and it goes out The real growth that you're seeing is the accident and health business, which is mainly stop loss business, and it's in the A&H business. the real growth that you're seeing is the accident and health business which is mainly stop loss business and it's in the a&h business

Speaker 4: Just to follow up on that, as I look at 2011, presuming that the A&H business has gained a little bit of traction, should we see kind of another up year? Not wanting any details as far as how much up, but would you expect that premium to be up in 2011? Just to follow up on that, as I look at 2011, presuming that the A&H business has gained a little bit of traction, should we see kind of another up year? just to follow up on that as i look at 2011 presuming that the a&h business has gained a little bit of traction should we see kind of another up year Not wanting any details as far as how much up, but would you expect that premium to be up in 2011? not wanting any details as far as how much up but would you expect that premium to be up in 2011

Speaker 11: Jay, I think obviously our expectations are that that business is going to continue to grow and develop over a period of time. There are no guarantees as to what the market is going to be tomorrow. Assuming that the market continues to cooperate, we will try and find ways to grow that business. Jay, I think obviously our expectations are that that business is going to continue to grow and develop over a period of time. jay i think obviously our expectations are that that business is going to continue to grow and develop over a period of time There are no guarantees as to what the market is going to be tomorrow. there are no guarantees as to what the market is going to be tomorrow Assuming that the market continues to cooperate, we will try and find ways to grow that business. assuming that the market continues to cooperate we will try and find ways to grow that business

Speaker 12: We have gotten some terrific new people there, and we think that's a good opportunity for us. We have gotten some terrific new people there, and we think that's a good opportunity for us. we have gotten some terrific new people there and we think that's a good opportunity for us

Speaker 4: Great. The second question was on exposure growth. You're the, I guess, the third company I've heard that suggested things look like they're bottoming and beginning to improve from an exposure standpoint. I guess my question is that good? If the price per unit of risk is inadequate or hasn't budged much, does growing your exposures help or is it in fact possibly a negative? Great. great The second question was on exposure growth. the second question was on exposure growth You're the, I guess, the third company I've heard that suggested things look like they're bottoming and beginning to improve from an exposure standpoint. you're the i guess the third company i've heard that suggested things look like they're bottoming and beginning to improve from an exposure standpoint I guess my question is that good? i guess my question is that good If the price per unit of risk is inadequate or hasn't budged much, does growing your exposures help or is it in fact possibly a negative? if the price per unit of risk is inadequate or hasn't budged much does growing your exposures help or is it in fact possibly a negative

Speaker 11: I think the answer is that if you're getting an adequate rate and you're making a decent margin, exposure growth, and assuming you're actually charging for that additional exposure growth, it's a good thing. If you're underpricing the business and not making a reasonable margin and you think you're going to make it up on volume, you're probably going to be disappointed with the outcome. I think the answer is that if you're getting an adequate rate and you're making a decent margin, exposure growth, and assuming you're actually charging for that additional exposure growth, it's a good thing. i think the answer is that if you're getting an adequate rate and you're making a decent margin exposure growth and assuming you're actually charging for that additional exposure growth it's a good thing If you're underpricing the business and not making a reasonable margin and you think you're going to make it up on volume, you're probably going to be disappointed with the outcome. if you're underpricing the business and not making a reasonable margin and you think you're going to make it up on volume you're probably going to be disappointed with the outcome

Speaker 4: Got it. Okay. No, I see where you're coming from. Very good. Thank you. Got it. got it Okay. okay No, I see where you're coming from. no i see where you're coming from Very good. very good Thank you. thank you

Speaker 8: Okay, thank you. We'll take our next question from Meyer Shields. Please go ahead. Okay, thank you. okay thank you We'll take our next question from Meyer Shields. we'll take our next question from meyer shields Please go ahead. please go ahead

Speaker 6: Thanks. Good afternoon, everybody. Thanks. thanks Good afternoon, everybody. good afternoon everybody

Speaker 12: Good afternoon. Good afternoon. good afternoon

Speaker 6: Bill, you mentioned, and I think you said that for years, that you view reinsurance as a partnership, so you don't shop around for cheaper reinsurance. Bill, you mentioned, and I think you said that for years, that you view reinsurance as a partnership, so you don't shop around for cheaper reinsurance. bill you mentioned and i think you said that for years that you view reinsurance as a partnership so you don't shop around for cheaper reinsurance

Speaker 12: No, we have partners, and we have shoppers. There's a big chunk of our core business where we look for partnerships for long-term. There's opportunistic things that you buy because the market's soft. There's layers. I think when we sell reinsurance, we're interested in finding the partnership relationships, not the opportunistic ones. No, we have partners, and we have shoppers. no we have partners and we have shoppers There's a big chunk of our core business where we look for partnerships for long-term. there's a big chunk of our core business where we look for partnerships for long-term There's opportunistic things that you buy because the market's soft. there's opportunistic things that you buy because the market's soft There's layers. there's layers I think when we sell reinsurance, we're interested in finding the partnership relationships, not the opportunistic ones. i think when we sell reinsurance we're interested in finding the partnership relationships not the opportunistic ones

Speaker 6: Okay. Sorry. That makes more sense. When you talk about how it's becoming less common to lose business, does that have any combined ratio implications going forward? Okay. okay Sorry. sorry That makes more sense. that makes more sense When you talk about how it's becoming less common to lose business, does that have any combined ratio implications going forward? when you talk about how it's becoming less common to lose business does that have any combined ratio implications going forward

Speaker 12: Does that have any, I'm sorry? Does that have any, I'm sorry? does that have any i'm sorry

Speaker 6: Combined ratio implications. I know in personal auto, there's this expectation that business will season favorably. I don't know if we can extrapolate from that to your casualty lines. Combined ratio implications. combined ratio implications I know in personal auto, there's this expectation that business will season favorably. i know in personal auto there's this expectation that business will season favorably I don't know if we can extrapolate from that to your casualty lines. i don't know if we can extrapolate from that to your casualty lines

Speaker 12: I think that by and large, stability in the business improves the outcome because you understand the business you're writing, you understand what it is, and experience with customers lets you better tailor the product, especially if you're in the specialty area where you better understand the exposures. I would say that longer relationships result in better results. The answer is, in the long run, the higher the retention, the better your combined I think that by and large, stability in the business improves the outcome because you understand the business you're writing, you understand what it is, and experience with customers lets you better tailor the product, especially if you're in the specialty area where you better understand the exposures. i think that by and large stability in the business improves the outcome because you understand the business you're writing you understand what it is and experience with customers lets you better tailor the product especially if you're in the specialty area where you better understand the exposures I would say that longer relationships result in better results. i would say that longer relationships result in better results The answer is, in the long run, the higher the retention, the better your combined the answer is in the long run the higher the retention the better your combined

Speaker 6: Okay. Gene, if I can just throw one question your way. Do I understand the FX impact as saying that there's a $0.03 hit on an accounting basis, but not on an economic basis? Okay. okay Gene, if I can just throw one question your way. gene if i can just throw one question your way Do I understand the FX impact as saying that there's a $0.03 hit on an accounting basis, but not on an economic basis? do i understand the fx impact as saying that there's a $0.03 hit on an accounting basis but not on an economic basis

Speaker 3: Yeah, right. That $0.03, $8 million went to the income statement, and we do have assets in Australian dollars that appreciated as a result of the strengthening of the Australian dollar, and that went through equity into unrealized gains. Yeah, right. yeah right That $0.03, $8 million went to the income statement, and we do have assets in Australian dollars that appreciated as a result of the strengthening of the Australian dollar, and that went through equity into unrealized gains. that $0.03 $8 million went to the income statement and we do have assets in australian dollars that appreciated as a result of the strengthening of the australian dollar and that went through equity into unrealized gains

Speaker 12: In essence, unrealized gains and losses offset the loss of the $0.03. If it went the other way, we'd show the $0.03 gain and we'd have an unrealized loss. Accounting rules are such that they don't always enhance one's ability to understand what's going on in the business. This is the case here. We match our currency for the most part in the cheapest way we can, which is in the investment portfolio. If we have $10 million of liability in X currency, we'll try to have $10 million of assets invested in that currency. The consequence, however, from a financial point of view, is that it comes through our income statement if it's up or down, and it goes into our balance sheet going the other way, so it's not matched in how it appears. In essence, unrealized gains and losses offset the loss of the $0.03. in essence unrealized gains and losses offset the loss of the $0.03 If it went the other way, we'd show the $0.03 gain and we'd have an unrealized loss. if it went the other way we'd show the $0.03 gain and we'd have an unrealized loss Accounting rules are such that they don't always enhance one's ability to understand what's going on in the business. accounting rules are such that they don't always enhance one's ability to understand what's going on in the business This is the case here. this is the case here We match our currency for the most part in the cheapest way we can, which is in the investment portfolio. we match our currency for the most part in the cheapest way we can which is in the investment portfolio If we have $10 million of liability in X currency, we'll try to have $10 million of assets invested in that currency. if we have $10 million of liability in x currency we'll try to have $10 million of assets invested in that currency The consequence, however, from a financial point of view, is that it comes through our income statement if it's up or down, and it goes into our balance sheet going the other way, so it's not matched in how it appears. the consequence however from a financial point of view is that it comes through our income statement if it's up or down and it goes into our balance sheet going the other way so it's not matched in how it appears

Speaker 6: Okay, thanks. That's very helpful. Okay, thanks. okay thanks That's very helpful. that's very helpful

Speaker 8: Thank you. Our next question is coming from Robert Farnum. Bob, please go ahead. Thank you. thank you Our next question is coming from Robert Farnum. our next question is coming from robert farnum Bob, please go ahead. bob please go ahead

Speaker 9: Hi. Thanks. Good evening. The regional expense ratio went up a bit, like about one point. I'm wondering if that's related to the shift in the assigned risk business from there to the alternative markets? Hi. hi Thanks. thanks Good evening. good evening The regional expense ratio went up a bit, like about one point. the regional expense ratio went up a bit like about one point I'm wondering if that's related to the shift in the assigned risk business from there to the alternative markets? i'm wondering if that's related to the shift in the assigned risk business from there to the alternative markets

Speaker 3: No. No. no

Speaker 12: I think it's just that earned premiums were down. I think it's just that earned premiums were down. i think it's just that earned premiums were down

Speaker 3: Yeah. Yeah. yeah

Speaker 9: Okay. Maybe a question for Rob. With the excess workers' comp competition being up, is that competition from existing carriers or is that from new that are coming into that market? Okay. okay Maybe a question for Rob. maybe a question for rob With the excess workers' comp competition being up, is that competition from existing carriers or is that from new that are coming into that market? with the excess workers' comp competition being up is that competition from existing carriers or is that from new that are coming into that market

Speaker 11: Predominantly from existing carriers. The greatest level of competition is coming from an isolated number of carriers, some that have been in the marketplace for many years and others who have entered more recently, it would not appear as though they have the command of the subject matter that they might. Predominantly from existing carriers. predominantly from existing carriers The greatest level of competition is coming from an isolated number of carriers, some that have been in the marketplace for many years and others who have entered more recently, it would not appear as though they have the command of the subject matter that they might. the greatest level of competition is coming from an isolated number of carriers some that have been in the marketplace for many years and others who have entered more recently it would not appear as though they have the command of the subject matter that they might

Speaker 12: You have to understand about this business, because it's such a long tail, there's only one critical assumption here, that critical assumption is how you want to assume your interest rates. You make optimistic assumptions about returns, you can justify almost any price at all. We think that that's always a danger, this is a line of business that many companies have come and gone. You have to understand about this business, because it's such a long tail, there's only one critical assumption here, that critical assumption is how you want to assume your interest rates. you have to understand about this business because it's such a long tail there's only one critical assumption here that critical assumption is how you want to assume your interest rates You make optimistic assumptions about returns, you can justify almost any price at all. you make optimistic assumptions about returns you can justify almost any price at all We think that that's always a danger, this is a line of business that many companies have come and gone. we think that that's always a danger this is a line of business that many companies have come and gone

Speaker 9: Okay. Very good. Thank you. Okay. okay Very good. very good Thank you. thank you

Speaker 8: Okay. Thank you, sir. Our next question is coming from Michael Nannizzi. Michael, please go ahead. Okay. okay Thank you, sir. thank you sir Our next question is coming from Michael Nannizzi. our next question is coming from michael nannizzi Michael, please go ahead. michael please go ahead

Speaker 7: Thank you. Thanks for taking my question. Just a question about the new business. Could you talk a little bit about whether or not that increase is coming from either more exposures on existing policies, new policies to customers that maybe just had only one or two coverage types, or how much is completely new business? I just have one follow-up. Thank you. Thank you. thank you Thanks for taking my question. thanks for taking my question Just a question about the new business. just a question about the new business Could you talk a little bit about whether or not that increase is coming from either more exposures on existing policies, new policies to customers that maybe just had only one or two coverage types, or how much is completely new business? could you talk a little bit about whether or not that increase is coming from either more exposures on existing policies new policies to customers that maybe just had only one or two coverage types or how much is completely new business I just have one follow-up. i just have one follow-up Thank you. thank you

Speaker 12: Rob? Rob? rob

Speaker 11: Well, it's a mix of both. Many of the startups, they do not have a large portfolio to begin with, even though it's building. It's really a combination of all the categories. It is our efforts to offer, as I suggested earlier, a multi-line solution as opposed to a monoline solution to some of these customers. In addition to that, it certainly is these businesses getting more traction, reforging those relationships that they may have had at prior organizations. There certainly is a renewal book for many of these companies at this stage that continues to build. Well, it's a mix of both. well it's a mix of both Many of the startups, they do not have a large portfolio to begin with, even though it's building. many of the startups they do not have a large portfolio to begin with even though it's building It's really a combination of all the categories. it's really a combination of all the categories It is our efforts to offer, as I suggested earlier, a multi-line solution as opposed to a monoline solution to some of these customers. it is our efforts to offer as i suggested earlier a multi-line solution as opposed to a monoline solution to some of these customers In addition to that, it certainly is these businesses getting more traction, reforging those relationships that they may have had at prior organizations. in addition to that it certainly is these businesses getting more traction reforging those relationships that they may have had at prior organizations There certainly is a renewal book for many of these companies at this stage that continues to build. there certainly is a renewal book for many of these companies at this stage that continues to build

Speaker 7: Got it. When you think about the producers that are producing that business, relative to their old books, wherever they were before, is that new business to them, or is it really kind of, as you say, new business to you just because they're resetting those relationships? Got it. got it When you think about the producers that are producing that business, relative to their old books, wherever they were before, is that new business to them, or is it really kind of, as you say, new business to you just because they're resetting those relationships? when you think about the producers that are producing that business relative to their old books wherever they were before is that new business to them or is it really kind of as you say new business to you just because they're resetting those relationships

Speaker 11: I think typically what it is a group of people that have longstanding relationships with both insureds as well as the distribution system, and they have a following, if you like. Some percentage of the business that they may have had at a prior employer would seek out the opportunity of doing business with them again, merely because it still is somewhat of a people business and relationships make a difference. I think typically what it is a group of people that have longstanding relationships with both insureds as well as the distribution system, and they have a following, if you like. i think typically what it is a group of people that have longstanding relationships with both insureds as well as the distribution system and they have a following if you like Some percentage of the business that they may have had at a prior employer would seek out the opportunity of doing business with them again, merely because it still is somewhat of a people business and relationships make a difference. some percentage of the business that they may have had at a prior employer would seek out the opportunity of doing business with them again merely because it still is somewhat of a people business and relationships make a difference

Speaker 7: Got it. Great. Thank you. Then I just had one question on investment income and the arbitrage accounts. Where would you like to see those accounts or that segment of the portfolio generate returns? Where do you think that can get, and do you expect that you'll continue to keep your allocation to that business in this environment? Got it. got it Great. great Thank you. thank you Then I just had one question on investment income and the arbitrage accounts. then i just had one question on investment income and the arbitrage accounts Where would you like to see those accounts or that segment of the portfolio generate returns? where would you like to see those accounts or that segment of the portfolio generate returns Where do you think that can get, and do you expect that you'll continue to keep your allocation to that business in this environment? where do you think that can get and do you expect that you'll continue to keep your allocation to that business in this environment

Speaker 12: The answer is we've had a consistent good return in that business based on our investable assets. There's no question in the past couple of years, there's been more volatility. When I talk to the guy who runs it for us, and I complained to him about more volatility, he said to me, "What?" is you all extrapolate when I have a good month and make X, you then tell me I should make X every month. If you look at what I do over a year, it's pretty consistent. He's right. He's met the bogey we generally set, which is he only gets rewarded based on how much we do over the risk-free rate of return plus a bogey. We've been able to do that. It's a very liquid portfolio. We have lots of liquidity. The answer is we've had a consistent good return in that business based on our investable assets. the answer is we've had a consistent good return in that business based on our investable assets There's no question in the past couple of years, there's been more volatility. there's no question in the past couple of years there's been more volatility When I talk to the guy who runs it for us, and I complained to him about more volatility, he said to me, "What?" is you all extrapolate when I have a good month and make X, you then tell me I should make X every month. when i talk to the guy who runs it for us and i complained to him about more volatility he said to me "what?" is you all extrapolate when i have a good month and make x you then tell me i should make x every month If you look at what I do over a year, it's pretty consistent. if you look at what i do over a year it's pretty consistent He's right. he's right He's met the bogey we generally set, which is he only gets rewarded based on how much we do over the risk-free rate of return plus a bogey. he's met the bogey we generally set which is he only gets rewarded based on how much we do over the risk-free rate of return plus a bogey We've been able to do that. we've been able to do that It's a very liquid portfolio. it's a very liquid portfolio We have lots of liquidity. we have lots of liquidity I think that if we had just an overwhelming number of opportunities that gave us great returns, we would probably face the decision of how are we doing there. Right now, I can't find returns that give us anything approaching what we get in the arbitrage account. From our point of view, we got 6, 7, 8% a year, over a long time, and there were years where we got 15, 18, 20% a year. For us, it's a good return. We're happy with what they do. We've known them. They've been with us for more than 20 years. We value that consistency, that relationship, and how they do. It's not something we have to worry about now because I'm not overwhelmed with wonderful investment opportunities, Michael. I think that if we had just an overwhelming number of opportunities that gave us great returns, we would probably face the decision of how are we doing there. i think that if we had just an overwhelming number of opportunities that gave us great returns we would probably face the decision of how are we doing there Right now, I can't find returns that give us anything approaching what we get in the arbitrage account. right now i can't find returns that give us anything approaching what we get in the arbitrage account From our point of view, we got 6, 7, 8% a year, over a long time, and there were years where we got 15, 18, 20% a year. from our point of view we got 6 7 8% a year over a long time and there were years where we got 15 18 20% a year For us, it's a good return. for us it's a good return We're happy with what they do. we're happy with what they do We've known them. we've known them They've been with us for more than 20 years. they've been with us for more than 20 years We value that consistency, that relationship, and how they do. we value that consistency that relationship and how they do It's not something we have to worry about now because I'm not overwhelmed with wonderful investment opportunities, Michael. it's not something we have to worry about now because i'm not overwhelmed with wonderful investment opportunities michael

Speaker 7: Fair enough. Thanks so much, Bill. Just one last one, if I could, just broader. In the lines that you, and I think, Rob, you'd mentioned lines that are very competitive and others that are maybe more attractive. In the competitive ones, what has to happen for pricing to improve there? Is it loss trend or capital, or is it just that some people have to decide at some point that they shouldn't be writing the business or they can't really write the business? What's the path in those overly competitive markets to get to what you would consider to be adequate pricing? Thank you so much for answering all my questions. Fair enough. fair enough Thanks so much, Bill. thanks so much bill Just one last one, if I could, just broader. just one last one if i could just broader In the lines that you, and I think, Rob, you'd mentioned lines that are very competitive and others that are maybe more attractive. in the lines that you and i think rob you'd mentioned lines that are very competitive and others that are maybe more attractive In the competitive ones, what has to happen for pricing to improve there? in the competitive ones what has to happen for pricing to improve there Is it loss trend or capital, or is it just that some people have to decide at some point that they shouldn't be writing the business or they can't really write the business? is it loss trend or capital or is it just that some people have to decide at some point that they shouldn't be writing the business or they can't really write the business What's the path in those overly competitive markets to get to what you would consider to be adequate pricing? what's the path in those overly competitive markets to get to what you would consider to be adequate pricing Thank you so much for answering all my questions. thank you so much for answering all my questions

Speaker 12: I will let him answer first. I'll add my comment. I will let him answer first. i will let him answer first I'll add my comment. i'll add my comment

Speaker 7: Okay. Okay. okay

Speaker 11: I think the answer is, what needs to occur is losses. The losses from poor decisions that have been made are going to have to come through. Whether they actually are fully experienced or the actuarial analysis just points in that direction of reality, once that comes into focus, people will become scared, and their behavior will change. Whether they will elect to take a different approach in how they price and select risk, or whether they will choose to withdraw altogether, my ability to predict is no better than anyone else's. Oftentimes, it depends how deep a hole they have dug themselves in. If it's deep enough, they may throw their hands up and run away from it altogether. If they've just injured themselves modestly, they may decide to try and find ways to adjust and carry on. I think the answer is, what needs to occur is losses. i think the answer is what needs to occur is losses The losses from poor decisions that have been made are going to have to come through. the losses from poor decisions that have been made are going to have to come through Whether they actually are fully experienced or the actuarial analysis just points in that direction of reality, once that comes into focus, people will become scared, and their behavior will change. whether they actually are fully experienced or the actuarial analysis just points in that direction of reality once that comes into focus people will become scared and their behavior will change Whether they will elect to take a different approach in how they price and select risk, or whether they will choose to withdraw altogether, my ability to predict is no better than anyone else's. whether they will elect to take a different approach in how they price and select risk or whether they will choose to withdraw altogether my ability to predict is no better than anyone else's Oftentimes, it depends how deep a hole they have dug themselves in. oftentimes it depends how deep a hole they have dug themselves in If it's deep enough, they may throw their hands up and run away from it altogether. if it's deep enough they may throw their hands up and run away from it altogether If they've just injured themselves modestly, they may decide to try and find ways to adjust and carry on. if they've just injured themselves modestly they may decide to try and find ways to adjust and carry on

Speaker 12: I think that one of the things, Michael, that everyone has to recognize is that those fundamental things that change business behavior are fear and greed. Pricing models change when fear overcomes greed. Fear overcomes greed is the point in time when you can't hide, in this case, from reality. Be it pricing trends, be it paid losses, be it someone going bankrupt. When Reliance and Frontier went bankrupt, what everyone else who was competing with them said is, "There could be me. I think that one of the things, Michael, that everyone has to recognize is that those fundamental things that change business behavior are fear and greed. i think that one of the things michael that everyone has to recognize is that those fundamental things that change business behavior are fear and greed Pricing models change when fear overcomes greed. pricing models change when fear overcomes greed Fear overcomes greed is the point in time when you can't hide, in this case, from reality. fear overcomes greed is the point in time when you can't hide in this case from reality Be it pricing trends, be it paid losses, be it someone going bankrupt. be it pricing trends be it paid losses be it someone going bankrupt When Reliance and Frontier went bankrupt, what everyone else who was competing with them said is, "There could be me. when reliance and frontier went bankrupt what everyone else who was competing with them said is "there could be me Everyone decided they better change their behavior or there would be them. I think that's what you're really talking about. My guess is we've got a few people out there, some of them of some size, that are way too aggressive. Then there's a lot of companies who are doing okay. Whether they're doing as well as they say or not, they're not going to go out of business, but the management is going to say, "It's not worth it anymore. I'm going to have to do something different." In the meantime, you've got to get to that point where you're afraid your results will be so bad that that overcomes your desire just to grow and write more business because the risk is too much. Everyone decided they better change their behavior or there would be them. everyone decided they better change their behavior or there would be them I think that's what you're really talking about. i think that's what you're really talking about My guess is we've got a few people out there, some of them of some size, that are way too aggressive. my guess is we've got a few people out there some of them of some size that are way too aggressive Then there's a lot of companies who are doing okay. then there's a lot of companies who are doing okay Whether they're doing as well as they say or not, they're not going to go out of business, but the management is going to say, "It's not worth it anymore. whether they're doing as well as they say or not they're not going to go out of business but the management is going to say "it's not worth it anymore I'm going to have to do something different." In the meantime, you've got to get to that point where you're afraid your results will be so bad that that overcomes your desire just to grow and write more business because the risk is too much. i'm going to have to do something different." in the meantime you've got to get to that point where you're afraid your results will be so bad that that overcomes your desire just to grow and write more business because the risk is too much Whether it's declining surplus, operating losses, a lack of investment opportunities, whatever, that fear has to enter the psyche of the management of the enterprise. Whether it's declining surplus, operating losses, a lack of investment opportunities, whatever, that fear has to enter the psyche of the management of the enterprise. whether it's declining surplus operating losses a lack of investment opportunities whatever that fear has to enter the psyche of the management of the enterprise

Speaker 7: Got it. Great. Thank you so much for the answers. Got it. got it Great. great Thank you so much for the answers. thank you so much for the answers

Speaker 8: Thank you. Our next question is coming from Amit Kumar. Amit, please go ahead. Thank you. thank you Our next question is coming from Amit Kumar. our next question is coming from amit kumar Amit, please go ahead. amit please go ahead

Speaker 1: Thanks, good afternoon. I guess just two quick follow-up questions from your previous comments. You talked about Australia. Can you sort of talk about the other hot spot, in terms of Egypt and Middle East? I mean, it's too early, does this sort of alter buyer behavior, does this even end up becoming a big deal for the marketplace? Thanks, good afternoon. thanks good afternoon I guess just two quick follow-up questions from your previous comments. i guess just two quick follow-up questions from your previous comments You talked about Australia. you talked about australia Can you sort of talk about the other hot spot, in terms of Egypt and Middle East? can you sort of talk about the other hot spot in terms of egypt and middle east I mean, it's too early, does this sort of alter buyer behavior, does this even end up becoming a big deal for the marketplace? i mean it's too early does this sort of alter buyer behavior does this even end up becoming a big deal for the marketplace

Speaker 12: You know, it's rare that I hesitate to talk about almost anything. I think that it's very hard to say what this all means. I think that there are some really fine companies and businesses in that whole territory. I think the lack of stability and uncertainty is very great. It's a part of the world that's undergoing change, and I think it's hard to predict where and how that change comes out. We'd have to sit back and from our point of view, it's sort of sit and wait and see. You know, it's rare that I hesitate to talk about almost anything. you know it's rare that i hesitate to talk about almost anything I think that it's very hard to say what this all means. i think that it's very hard to say what this all means I think that there are some really fine companies and businesses in that whole territory. i think that there are some really fine companies and businesses in that whole territory I think the lack of stability and uncertainty is very great. i think the lack of stability and uncertainty is very great It's a part of the world that's undergoing change, and I think it's hard to predict where and how that change comes out. it's a part of the world that's undergoing change and i think it's hard to predict where and how that change comes out We'd have to sit back and from our point of view, it's sort of sit and wait and see. we'd have to sit back and from our point of view it's sort of sit and wait and see

Speaker 1: And- And- and-

Speaker 12: I think in all likelihood, things will get more difficult before they get better, however. I think in all likelihood, things will get more difficult before they get better, however. i think in all likelihood things will get more difficult before they get better however

Speaker 1: Do you have any exposure through Lloyd's to Middle East? Do you have any exposure through Lloyd's to Middle East? do you have any exposure through lloyd's to middle east

Speaker 12: I'm sure we have some, no, we don't think there'd be anything of kind. Nothing consequential. I'm sure we have some, no, we don't think there'd be anything of kind. i'm sure we have some no we don't think there'd be anything of kind Nothing consequential. nothing consequential

Speaker 1: Okay, that's helpful. Just one other question. Going back to the growth in your international book, obviously we've seen a meaningful double-digit growth over the past three or four quarters, and I know you mentioned Australia and Nordic regions and South America. Does that growth sort of taper off as we head further into end of 2011, 2012, or do you think that it's such a big enough market that growth can be sustained going forward? Okay, that's helpful. okay that's helpful Just one other question. just one other question Going back to the growth in your international book, obviously we've seen a meaningful double-digit growth over the past three or four quarters, and I know you mentioned Australia and Nordic regions and South America. going back to the growth in your international book obviously we've seen a meaningful double-digit growth over the past three or four quarters and i know you mentioned australia and nordic regions and south america Does that growth sort of taper off as we head further into end of 2011, 2012, or do you think that it's such a big enough market that growth can be sustained going forward? does that growth sort of taper off as we head further into end of 2011 2012 or do you think that it's such a big enough market that growth can be sustained going forward

Speaker 11: I think it is unlikely that the growth rate that we have seen in this quarter will continue on for an extended period of time. Having said that, obviously when you're operating in economies that on their own have a great deal of momentum, you benefit from participating. I think it is unlikely that the growth rate that we have seen in this quarter will continue on for an extended period of time. i think it is unlikely that the growth rate that we have seen in this quarter will continue on for an extended period of time Having said that, obviously when you're operating in economies that on their own have a great deal of momentum, you benefit from participating. having said that obviously when you're operating in economies that on their own have a great deal of momentum you benefit from participating

Speaker 12: I think you also have to remember when you're small, to start with, you don't have to add a lot of business to have a significant percentage growth. Those businesses aren't giant businesses, and while in some markets they're significant for the marketplace, overall, when examining the marketplace, we're not that large a participant. I think you also have to remember when you're small, to start with, you don't have to add a lot of business to have a significant percentage growth. i think you also have to remember when you're small to start with you don't have to add a lot of business to have a significant percentage growth Those businesses aren't giant businesses, and while in some markets they're significant for the marketplace, overall, when examining the marketplace, we're not that large a participant. those businesses aren't giant businesses and while in some markets they're significant for the marketplace overall when examining the marketplace we're not that large a participant

Speaker 1: Okay, that's very helpful. One quick question, if I may. Just on your comment on the buyback, I think you mentioned the buyback equal to the income in the quarter. Just based on your comments regarding the pricing perhaps getting modestly better than what it was previously, do you think it changes your view on capital management going forward, or it sort of stays the same in the near future? Okay, that's very helpful. okay that's very helpful One quick question, if I may. one quick question if i may Just on your comment on the buyback, I think you mentioned the buyback equal to the income in the quarter. just on your comment on the buyback i think you mentioned the buyback equal to the income in the quarter Just based on your comments regarding the pricing perhaps getting modestly better than what it was previously, do you think it changes your view on capital management going forward, or it sort of stays the same in the near future? just based on your comments regarding the pricing perhaps getting modestly better than what it was previously do you think it changes your view on capital management going forward or it sort of stays the same in the near future

Speaker 12: What I want to be sure is that we don't get short of capital. The one thing we've seen in the past two years is that capital markets aren't as predictable as they were, as we thought they were at least a couple of years ago. While we would like to buy back stock and buy back stock as aggressively as we can, we want to be sure we maintain enough powder that we can grow for a year or 18 months or two years without the need to raise additional capital. We're not quite as aggressive as we might be. Historically, when the cycle turns, you've always been able to raise capital at attractive prices. On a historic basis, I probably should be more aggressive in buying back stock. What I want to be sure is that we don't get short of capital. what i want to be sure is that we don't get short of capital The one thing we've seen in the past two years is that capital markets aren't as predictable as they were, as we thought they were at least a couple of years ago. the one thing we've seen in the past two years is that capital markets aren't as predictable as they were as we thought they were at least a couple of years ago While we would like to buy back stock and buy back stock as aggressively as we can, we want to be sure we maintain enough powder that we can grow for a year or 18 months or two years without the need to raise additional capital. while we would like to buy back stock and buy back stock as aggressively as we can we want to be sure we maintain enough powder that we can grow for a year or 18 months or two years without the need to raise additional capital We're not quite as aggressive as we might be. we're not quite as aggressive as we might be Historically, when the cycle turns, you've always been able to raise capital at attractive prices. historically when the cycle turns you've always been able to raise capital at attractive prices On a historic basis, I probably should be more aggressive in buying back stock. on a historic basis i probably should be more aggressive in buying back stock I've been in this business a long time, and I've never seen what happened in capital markets in the past couple of years, so I don't want to base my life on those long-term histories, and we've made a commitment to our marketplace that when business is well-priced, we will never turn it down. We're going to continue to use whatever we earn to buy back stock and maintain our capital ratios that we have lots of flexibility, and we want to be sure that's the case. That may be slightly more cautious than I should be, but when you're my age and you see things you never saw before, you at least have a good enough memory to last you for a couple of years. I've been in this business a long time, and I've never seen what happened in capital markets in the past couple of years, so I don't want to base my life on those long-term histories, and we've made a commitment to our marketplace that when business is well-priced, we will never turn it down. i've been in this business a long time and i've never seen what happened in capital markets in the past couple of years so i don't want to base my life on those long-term histories and we've made a commitment to our marketplace that when business is well-priced we will never turn it down We're going to continue to use whatever we earn to buy back stock and maintain our capital ratios that we have lots of flexibility, and we want to be sure that's the case. we're going to continue to use whatever we earn to buy back stock and maintain our capital ratios that we have lots of flexibility and we want to be sure that's the case That may be slightly more cautious than I should be, but when you're my age and you see things you never saw before, you at least have a good enough memory to last you for a couple of years. that may be slightly more cautious than i should be but when you're my age and you see things you never saw before you at least have a good enough memory to last you for a couple of years

Speaker 1: Got it. That's all. Thanks so much. Got it. got it That's all. that's all Thanks so much. thanks so much

Speaker 12: Thank you. Thank you. thank you

Speaker 8: Thank you. We'll take our next question from Scott Frost. Scott, go ahead. Thank you. thank you We'll take our next question from Scott Frost. we'll take our next question from scott frost Scott, go ahead. scott go ahead

Speaker 13: Just to clarify, I want to make sure I heard you correctly on Australian exposure. Are you saying that you expect the Cyclone Yasi coupled with the previous flooding could have a real adverse impact on the industry, but due to your business profile, neither is expected to affect your results in 2011? Is that accurate? Just to clarify, I want to make sure I heard you correctly on Australian exposure. just to clarify i want to make sure i heard you correctly on australian exposure Are you saying that you expect the Cyclone Yasi coupled with the previous flooding could have a real adverse impact on the industry, but due to your business profile, neither is expected to affect your results in 2011? are you saying that you expect the cyclone yasi coupled with the previous flooding could have a real adverse impact on the industry but due to your business profile neither is expected to affect your results in 2011 Is that accurate? is that accurate

Speaker 12: What I said is, I don't think it'll have a material impact on our results. What I said is, I don't think it'll have a material impact on our results. what i said is i don't think it'll have a material impact on our results

Speaker 13: Okay. All right. Thank you. Okay. okay All right. all right Thank you. thank you

Speaker 8: Thank you. Our next question is from Brian Meredith. Brian, please go ahead. Thank you. thank you Our next question is from Brian Meredith. our next question is from brian meredith Brian, please go ahead. brian please go ahead

Speaker 2: Yeah, good evening. Most of my questions have been asked, but just wanted to follow up on quickly, Bill. Talking about the whole capital management situation and then trying to be conservative with leverage. Typically, you said your high-end debt to cap is 35%. How close do you really want to get to that? I think you're around 32% right now. Yeah, good evening. yeah good evening Most of my questions have been asked, but just wanted to follow up on quickly, Bill. most of my questions have been asked but just wanted to follow up on quickly bill Talking about the whole capital management situation and then trying to be conservative with leverage. talking about the whole capital management situation and then trying to be conservative with leverage Typically, you said your high-end debt to cap is 35%. typically you said your high-end debt to cap is 35% How close do you really want to get to that? how close do you really want to get to that I think you're around 32% right now. i think you're around 32% right now

Speaker 12: We're at 32%, including preferred. We're at 32%, including preferred. we're at 32% including preferred

Speaker 2: Gotcha. Yep. Gotcha. gotcha Yep. yep

Speaker 12: I think that it would be unusual for us to take on any more debt than we have now. Unusual is a funny word because we're in an environment that things happen. I think that our capital count is better than most people thought at year-end, and I would expect we'll continue to have some positive surprises for people. That being said, I don't think we're going to push that edge any further unless some unusual thing happens that would cause us to reconsider. I think we've got about as much leverage as we're planning to have at the moment. I think that it would be unusual for us to take on any more debt than we have now. i think that it would be unusual for us to take on any more debt than we have now Unusual is a funny word because we're in an environment that things happen. unusual is a funny word because we're in an environment that things happen I think that our capital count is better than most people thought at year-end, and I would expect we'll continue to have some positive surprises for people. i think that our capital count is better than most people thought at year-end and i would expect we'll continue to have some positive surprises for people That being said, I don't think we're going to push that edge any further unless some unusual thing happens that would cause us to reconsider. that being said i don't think we're going to push that edge any further unless some unusual thing happens that would cause us to reconsider I think we've got about as much leverage as we're planning to have at the moment. i think we've got about as much leverage as we're planning to have at the moment

Speaker 2: Great. Thank you. Great. great Thank you. thank you

Speaker 8: Thank you. We'll take our next question from Michael Grasher. Michael, please go ahead. Thank you. thank you We'll take our next question from Michael Grasher. we'll take our next question from michael grasher Michael, please go ahead. michael please go ahead

Speaker 7: Thank you. Good evening. Congratulations on your quarter here. Follow-up from previous question just on the improving exposure units. Can you highlight particular lines of business that that's occurring in or that may be occurring in? Then also, if it's related to any particular region of the country? Thank you. thank you Good evening. good evening Congratulations on your quarter here. congratulations on your quarter here Follow-up from previous question just on the improving exposure units. follow-up from previous question just on the improving exposure units Can you highlight particular lines of business that that's occurring in or that may be occurring in? can you highlight particular lines of business that that's occurring in or that may be occurring in Then also, if it's related to any particular region of the country? then also if it's related to any particular region of the country

Speaker 12: It really isn't, Michael. I think that the point we were trying to make is, unlike prior periods, the general economy's improvement is resulting in positive audit premiums, is resulting in additional premiums for policies and new business. It's not any one place here or there. It's not anything that's dramatic. It's just generally across the board. The additional units of exposure, it's a small number. It's between one and 2%. It's not something that's going to knock your socks off. I wish it would, but it isn't. It really isn't, Michael. it really isn't michael I think that the point we were trying to make is, unlike prior periods, the general economy's improvement is resulting in positive audit premiums, is resulting in additional premiums for policies and new business. i think that the point we were trying to make is unlike prior periods the general economy's improvement is resulting in positive audit premiums is resulting in additional premiums for policies and new business It's not any one place here or there. it's not any one place here or there It's not anything that's dramatic. it's not anything that's dramatic It's just generally across the board. it's just generally across the board The additional units of exposure, it's a small number. the additional units of exposure it's a small number It's between one and 2%. it's between one and 2% It's not something that's going to knock your socks off. it's not something that's going to knock your socks off I wish it would, but it isn't. i wish it would but it isn't

Speaker 7: Understood. Thank you. Understood. understood Thank you. thank you

Speaker 8: Thank you. Our next question is from Jay Cohen. Jay, go ahead. Thank you. thank you Our next question is from Jay Cohen. our next question is from jay cohen Jay, go ahead. jay go ahead

Speaker 4: Yeah, just one quick follow-up. When you talked about the higher frequency that you were seeing, or I shouldn't say higher, the stabilization of frequency. Does that make you rethink the loss picks or did you already account for that in your loss picks anyway, so it doesn't necessarily make you change those picks? Yeah, just one quick follow-up. yeah just one quick follow-up When you talked about the higher frequency that you were seeing, or I shouldn't say higher, the stabilization of frequency. when you talked about the higher frequency that you were seeing or i shouldn't say higher the stabilization of frequency Does that make you rethink the loss picks or did you already account for that in your loss picks anyway, so it doesn't necessarily make you change those picks? does that make you rethink the loss picks or did you already account for that in your loss picks anyway so it doesn't necessarily make you change those picks

Speaker 12: No. As I said, I think we already take into consideration the trend of flattening or increasing loss picks. It's already built in. That probably is one of the reasons we have higher accident year loss ratios, because we've already anticipated that. No. no As I said, I think we already take into consideration the trend of flattening or increasing loss picks. as i said i think we already take into consideration the trend of flattening or increasing loss picks It's already built in. it's already built in That probably is one of the reasons we have higher accident year loss ratios, because we've already anticipated that. that probably is one of the reasons we have higher accident year loss ratios because we've already anticipated that

Speaker 4: Got it. Thanks. Got it. got it Thanks. thanks

Speaker 8: Thank you. Our next question is from Vinay Viswanathan. Vinay, please go ahead. Thank you. thank you Our next question is from Vinay Viswanathan. our next question is from vinay viswanathan Vinay, please go ahead. vinay please go ahead

Speaker 10: Hi. Just to follow up on a numbers question. Just wondering what the dollar amount of your net investment income from fixed maturity securities were this quarter? Hi. hi Just to follow up on a numbers question. just to follow up on a numbers question Just wondering what the dollar amount of your net investment income from fixed maturity securities were this quarter? just wondering what the dollar amount of your net investment income from fixed maturity securities were this quarter

Speaker 12: Just one second. Somebody's going to look in the sheet of paper because I don't know that off the top of my head. I think it was $131 million. Just one second. just one second Somebody's going to look in the sheet of paper because I don't know that off the top of my head. somebody's going to look in the sheet of paper because i don't know that off the top of my head I think it was $131 million. i think it was $131 million

Speaker 3: Just fixed income alone is $128. Just fixed income alone is $128. just fixed income alone is $128

Speaker 10: Right. Just curious why that increased so dramatically from last quarter when I think it was $123 million. Right. right Just curious why that increased so dramatically from last quarter when I think it was $123 million. just curious why that increased so dramatically from last quarter when i think it was $123 million

Speaker 12: Increase. Yes. There is an increase there. I think the average, I'd have to double check. If you want to give me a call, I'll get back to you. It may have to do with the allocation of the investments to some extent, I don't have that right offhand. Increase. increase Yes. yes There is an increase there. there is an increase there I think the average, I'd have to double check. i think the average i'd have to double check If you want to give me a call, I'll get back to you. if you want to give me a call i'll get back to you It may have to do with the allocation of the investments to some extent, I don't have that right offhand. it may have to do with the allocation of the investments to some extent i don't have that right offhand

Speaker 10: Okay. Thank you. Okay. okay Thank you. thank you

Speaker 8: Thank you. We have one final question at the moment coming from Meyer Shields. Please go ahead. Thank you. thank you We have one final question at the moment coming from Meyer Shields. we have one final question at the moment coming from meyer shields Please go ahead. please go ahead

Speaker 6: Thanks. I was just hoping to throw in a couple questions on the segments. I was wondering whether Gene could break down the $55 million reserve development. Thanks. thanks I was just hoping to throw in a couple questions on the segments. i was just hoping to throw in a couple questions on the segments I was wondering whether Gene could break down the $55 million reserve development. i was wondering whether gene could break down the $55 million reserve development

Speaker 12: Yeah. We basically do that. If you want those details, you could give Gene a buzz either later tonight or in the morning. Yeah. yeah We basically do that. we basically do that If you want those details, you could give Gene a buzz either later tonight or in the morning. if you want those details you could give gene a buzz either later tonight or in the morning

Speaker 6: Okay. Happy to do that. Is there any significance to the fact that we're seeing a divergence of combined ratio by segments more than we've seen over the past few quarters? Okay. okay Happy to do that. happy to do that Is there any significance to the fact that we're seeing a divergence of combined ratio by segments more than we've seen over the past few quarters? is there any significance to the fact that we're seeing a divergence of combined ratio by segments more than we've seen over the past few quarters

Speaker 3: I think more than anything else, it just happens to be where the development happens to come. It's not the underlying accident year loss ratios. Ex-storms are much more stable than what you'd see on a reported basis. I think more than anything else, it just happens to be where the development happens to come. i think more than anything else it just happens to be where the development happens to come It's not the underlying accident year loss ratios. it's not the underlying accident year loss ratios Ex-storms are much more stable than what you'd see on a reported basis. ex-storms are much more stable than what you'd see on a reported basis

Speaker 6: Okay. That's perfect. Thanks so much. Okay. okay That's perfect. that's perfect Thanks so much. thanks so much

Speaker 8: Okay. At the moment, I'm showing no further questions. Okay. okay At the moment, I'm showing no further questions. at the moment i'm showing no further questions

Speaker 12: Okay. Thank you all very much. I appreciate your spending some of your evening time listening. I know you'll be busy tomorrow, so have a good evening. Okay. okay Thank you all very much. thank you all very much I appreciate your spending some of your evening time listening. i appreciate your spending some of your evening time listening I know you'll be busy tomorrow, so have a good evening. i know you'll be busy tomorrow so have a good evening