Aspen Insurance Holdings Ltd (AHL) 2007 Q2 法說會逐字稿

My name is Ray, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aspen Insurance Holdings second quarter 2007 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS)

It is now my pleasure to turn it over to your host, Mr. Noah Fields. Sir, you may begin your conference.

Thank you. And good morning. The presenters on this morning's call are Chris O'Kane, Chief Executive Officer of Aspen Insurance Holdings; and Richard Houghton, Chief Financial Officer of Aspen Insurance Holdings. Before we get underway, I'd like to make the following remarks. Yesterday afternoon, we issued our press release announcing Aspen's financial results for the quarter ended June 30th, 2007. This press release, as well as corresponding supplementary financial information, can be found on our website at www.aspen.bm.

I would also like to draw your attention to the fact that we have posted a short slide presentation on our website to accompany this call. This presentation contains, and Aspen may make from time to time, written or oral forward-looking statements within the meaning under and pursuant to the Safe Harbor provisions of the U.S. Federal Securities laws. All forward-looking statements will have a number of assumptions concerning future events that are subject to a number of uncertainties and other factors. For more detailed descriptions of these uncertainties and other factors, please see the Risk Factors section in Aspen's annual report on Form 10-K filed with the SEC and on our website. Finally, this presentation will contain non-GAAP financial measures, which we believe are meaningful in evaluating the company's performance. For a detailed disclosure on non-GAAP financials, please refer to the supplementary financial data on our earnings slide presentation posted on the Aspen website. Now, I'll turn the call over to Chris O'Kane.

Thank you, Noah. Good morning, and thanks for joining us. I'm very pleased to report continued strong results in the second quarter, and believe that this is representative of the result our business is capable of delivering. For the second quarter of 2007, we reported gross written premium of $503.5 million, which is 3.6% lower than the same period last year, and net income of $114.7 million, an increase of 12.7% versus the same quarter last year. This equates to an annualized return on average equity for the quarter of 20.4%. Our combined ratio for the quarter was 88.4%. For the first six months of 2007, annualized return on average equity was 21.7%, with a combined ratio of 83.9%. Further detail on our results is set out in slides 3 and 4.

I will now comment on our experience during the most recent renewals and provide you with some observations on market conditions for the year so far. Before I turn to specific lines, let me start by giving you an overall view. Terms, conditions and form are holding firm across all of our lines of business and rate levels continue to be consistent with good underwriting profits. Having said that, we've only a few lines, for example, marine hull and marine liability, where we are still seeing rate increases. Elsewhere, rates are generally satisfactory, but the trend is downwards. As a reminder, we measure rate relativities on premium weighted average basis on the business we renew.

Turning now to each of our segments, as shown in slides 5 and 6, beginning with specialty lines, we've seen average increases in our marine liability and marine hull insurance accounts of 10% and 7% respectively. On our aviation insurance account, we recorded average rate decreases of 8%, which is in line with our expectation and meets our return requirements. Competition in aviation remains strong, and we have repositioned our account away from airline hull and liability where rate decreases are most marked. In energy physical damage insurance, we averaged rate decreases of 7% on real business with bigger reductions on certain Gulf of Mexico exposed accounts following record increases for those in 2006. The 10% average rate increase on our marine liability count reflects a particularly large increase on one contract with some modest increases elsewhere. Rate rises on our marine hull account partly reflect recent market losses in this segment. Our specialty reinsurance account has seen rates on renewed business decrease by 4% on average, which was marginally better than our expectations.

Turning now to our property reinsurance segment, U.S. cat pricing remains very strong, but we witnessed rate reductions of between 15 and 20% from last year's record highs on July renewals, bringing the market broadly in line with January 1, 2007 pricing. Elsewhere, we are seeing rates declining on our risk excess of pro rata property reinsurance accounts. Overall, we were at a smaller portfolio in 2007, reflecting the softening market. In our UK insurance business, rating pressure remains acute across our book. In our UK liability insurance account, rates have decreased by 14% year-to-date, reflecting continued strong competition, and we declined to renew a large number of contracts during the July renewal on pricing grounds. In UK commercial property insurance, our average rate decrease was 4% on business we renewed, which was better than our expectations. Based on current rate levels, we would expect pricing for both of these insurance lines to bottom out in the near future. In our U.S. excess and surplus lines business, rates are still attractive, but declining -- with pressure more acute in casualty than property, reflecting increased competition in this segment. We recorded average reductions of 3% across our book. The [forms] on our casualty account remains good and property is being repositioned following the hiring of Nathan Warde to head up our U.S. insurance operations, which we announced in late April.

Finally, moving to our casualty reinsurance segment, rates are marginally down across our book. Renewal activity in our international casualty and treaty account in the quarter is mainly in Australia, where we recorded a modest decline of 3%, which was offset by better than expected pricing in our U.S. casualty treaty account, where rates were flat on average.

Turning now to other developments in the quarter, in June we announced the establishment of a branch of our UK property -- of our UK company in Zurich, which will be developed as a hub for our European reinsurance business. This will enable us to build on our close relationship with certain continental European insurers and to access more of the good quality business which is now typically placed in the London or Bermuda markets. Also as part of our continuing diversification strategy, Aspen has been fortunate to attract very good underwriters. We recently announced the establishment of announced the establishment of a non-U.S. professional liability insurance unit focused on the UK and Australia. The unit will be led by a very experienced underwriter who has a track record underwriting this account successfully for 22 years. We will commence underwriting at the end of the September and expect to write up to $100 million of growth written premium within three years.

I would also like to comment on the UK and Australian floods and their likely impact on Aspen. Firstly, it is important to remember that the June UK floods and the July UK floods are distinct and separate events for reinsurance loss definition purposes. Separate retentions will be applied within the catastrophe excess loss reinsurances for each event. We anticipate based on current market loss estimates that a significant amount of each event will be retained by the primary insurance. The June UK floods, which impacted northern England, is reflected in our Q2 figures, and we reserve $23.5 million for this event, of which $17 million is from our property reinsurance account and $6.5 million from our property insurance book. Our estimate is consistent with the market loss of GBP1.5 billion or $3 billion. The July event is a loss which is still in progress, and impacting areas of central and southern England. Consequently, it is premature to comment, but what I can say at this stage is that the greater part of our UK flood exposures emanate from our property catastrophe reinsurance account. This is designed to respond to events of much greater severity than the June floods, and we shall have to wait and see whether the July floods will produce significantly greater losses than June before reaching any conclusions about loss estimates. In Aspen, we do not currently have any property reinsurance clients in Australia, and consequently we do not believe we have any exposure to the recent storms and flooding in New South Wales. We do have some worldwide clients with Australian exposures, but we believe that these attach at levels far above these events.

In conclusion, I'd like to comment briefly on our reinsurance protections and our market shares of recent catastrophe loss events. We've taken advantage of a more favorable pricing environment in the past few months to purchase several retrocession type covers to protect ourselves against catastrophe events, particularly in the U.S. As we announced earlier on the severity side, we've issued a cat bond fund of $1 million covering California earthquake, with a recovery pro rata upper limit between PCS events notified and $23.1 billion to $25.9 billion. We've also bought $100 million of U.S. wind ILW cover, triggering en tranches at $30 billion, $40 billion and $50 billion. In addition, we have bought $170 million of frequency cover, some of which is in the form of ILW's, protecting us against the frequency of moderate events in the U.S. and Europe. One of the variables we like to monitor is the share our loss represents of any given market catastrophe loss. In slide 7, we show you our actual shares of market losses for Katrina, Rita and Wilma, as well as what we would expect those to be given the changes in our portfolio and our risk management. We also show our estimated share of losses for Windstorm Kyrill and the UK June floods. You may wish to consider these as one of the inputs in accessing our loss potential in future catastrophe events. With that, I'm going to hand you over to Richard Haughton for his first Aspen earnings call.

Thank you, Chris and good morning. I'm very pleased to report another strong quarter's performance for Aspen with contributions from all our business segments (inaudible) Q1 and excellent result in our investment income line. Book value for ordinary share was up by 21% to $24.44 at the half year, and our top level results are set out on slides 3 and 4. Our half year combined ratio was 83.9% after absorbing the impact of some large losses, including the UK floods, which I'll explain in more detail in a moment. This compares to 85.8% for the first half of 2006. Our net income for the first half of 2007 was $237 million, 44.6% up on 2006, with our Q2 net income at $115 million, up 12.7% on last year. Our annualized return on average equity was 21.7% for the first half, compared with 15.6% in 2006, and our Q2 annualized return was 20.4%, the same as last year with stronger investment performance tempered by worse lot experience than in 2006.

I'll now take you through the income statement and business segment performance. As outlined by Chris, softening rates and a number of our business segments have impacted gross written premiums, which were 3.6% down in Q2, and 5.1% down in the first half. As referenced earlier by Chris, we've taken the opportunity in Q2 to purchase additional retrocover at what we believe are attractive rates, and also implemented both the California quake cat bond and a U.S. wind ILW reinsurance program to protect our property book. Some of the cover has been purchased for an 18-month period, and this explains why net written premium is down 16.3% in Q2. However, net earned premiums are 5.2% up in Q2, and 7% up in the first half.

Turning to claims performance, we've had a generally sound quarter with limited large losses. We have positive prior development in quarter 2, releasing $18 million from reserves, principally from our insurance and specialty books. This compares with a release of $28 million in Q2 last year. Our releases in the first half were $44 million, compared with $46 million in 2006. Our releases in the half year represent only 1.9% of our net reserves at the end of 2006. At June 30, 2007 our total gross reserves for losses and loss adjustment expenses were $2.85 billion, of which 55% represents IBNR. An increase in the IBNR component is 6% in the year-to-date, reflecting the continued settlement of hurricane losses. The gross reserves held in respect of KRW are $448 million at the end of the first half, including 21% of IBNR, compared with $721 million total reserves for KRW at the start of the year. There has been no adverse development of KRW claims in the quarter, and the revaluation of industry losses by PCS has increased our recoveries under our cat swap by $5 million in Q2.

We had three notable losses in the quarter -- a marine loss of $14 million, tornado loss of $7 million and UK flood losses reserved at $23.5 million. Chris commented on the UK flood losses earlier. The combination of Kyrill and UK floods brings our gross cat losses for the year to $48 million, compared with only minor windstorm-related losses in 2006. These cat losses will run $10 million above our expectation for the half year. Our ex-cat combined ratio for the first half was an excellent 78.5%, compared with 85.8% last year. Our overall expense ratio, 28% for the first half, compares favorably with 31% in 2006. Within that result, the operating and admin expense ratios remain broadly flat, while the policy acquisition ratios has fallen from 21.2% to 17.9%. These ratios have improved as a consequence of buying less reinsurance and therefore increasing net earned premiums.

I'll now summarize the performance in each of our business segments as outlined in slides 10 and 11. The balance and diversified nature of our portfolio is well-demonstrated by having strong contributions from all of our business segments. Property reinsurance produced an underwriting profit of $32 million for the quarter, having absorbed $17 million of losses in respect to the June UK floods and $7 million in respect to the tornado claim. The half year result, which also includes $24 million of losses from Windstorm Kyrill, have still produced a strong combined ratio of 74% compared with 77.5% in 2006. The casualty reinsurance segment has produced a combined ratio of 94.7%, which is in line with our expectations for this account. In comparison, the 2006 quarter benefited from $39 million of prior period releases which followed a detailed actuarial review and produced a combined ratio of 63.7%. For the six months, the combined ratio is 90.1% compared to 81.2% in 2006.

Specialty insurance and reinsurance has produced a a profit of $8.5 million for the quarter, despite a marine hull loss of $14 million in respect of damage to a dredger in Shanghai Harbor. The combined ratio for the quarter of 92.8% compares favorably to the 111.4% in the comparable period in 2006, which was affected by adverse developments on 2005 hurricane losses. The six months combined ratio is 87.4% compared to 94.2% in the same period in 2006. Our property and casualty insurance account has produced a profit for the quarter of $5 million, at a combined ratio of 92.3%, and that is broadly similar to Q2 2006. This account has suffered losses of approximately $6 million from the UK floods. For the half year, the combined ratio is 88.9%, compared to 96.1% in 2006.

Turning to investment performance, we enjoyed an excellent contribution from our portfolio this quarter, generating $79 million compared with $50 million in Q2 last year. Details of our portfolio, I'll share on Slides 12 and 13. Our performance is driven by the size of our portfolio, which has risen by 20% to $5.45 billion including cash and cash equivalents from $4.55 billion at the end of the first half last year. Benefits from both strengthening yields in our fixed income portfolio and a larger holding of funds of hedge funds. Our book yield and our fixed income portfolio improved further to 4.93% at the end of the quarter, up from 4.77% at the end of Q1, compared with 4.4% at the first half of 2006. Duration lengthened to 3.6 years, compared to 3.1 years in 2006. We continue to benefit from having a high proportion of our total portfolio in strongly rated liquid fixed income instruments. We have an average portfolio rating of AAA, with 89% of our portfolio rated A or better. Only 1.7% of our book is rated BBB, and we have no high yield securities.

During the quarter, we increased our investments in the funds of hedge funds component of our portfolio from 6% to 9% of the total, investing a further $150 million. These funds returned an annualized 17% in the first half, but this should not be taken as a guarantee of future performance. These funds are multimanager, multistrategy giving strong diversification to limit volatility. Funds of hedge funds contributed $15 million out of the quarter's investment income.

Turning now to capital management, in 2006 our board authorized a common equity share buyback program of up to $300 million. We completed $200 million of this program from issuance of preference shares in Q4 2006, and still aim to undertake the repurchase of $100 million ordinary shares during the course of 2007, as and when appropriate.

Now I will comment on our guidance for 2007, which is set out on Slide 14. Our GWP guidance remains $1.8 billion, plus or minus 5%. Our combined ratio guidance remains within the range 83% to 88%. Our investment guidance remains at $250 million to $270 million. Our implied ROE range of 16 to 20% also remains unchanged, as does our tax guidance of 16 to 19%. Our guidance for the average full-year cat load has increased to $145 million from $135 million to reflect our first half experience.

In summary, Q2 has been another strong quarter for Aspen with a sparkling performance from our investment portfolio. Prudent underwriting has driven a quality bottom-line result. We'll now open up the call for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from Ken Zuckerberg of Fontana Capital. Please go ahead.

Yes, good morning, gentlemen. Two business questions, and then a housekeeping question. Chris, could you talk a little bit about the cat covers and the retroprograms that you bought and whether or not any of those covered the European theater, and specifically the UK flood losses? And then second, with regard to investment income and the sustainability of the gains that you booked in the alternative funds, how should we think about that for this second half of the year?

Okay, we're happy to do that, Ken. I'll deal with the first one and I'll hand over on the investment side to Richard. Our retrobuying this year has been quite interesting actually because there was great, great turbulence in the market. Back at [one one], I thought retropricing was just absurdly high and we didn't buy anything at all. By the end of March, I think the sort of ILW type pricing had fallen by 25% and the indemnity-based stuff had fallen by maybe 15 to 20%. So we began to look at some deals, and we found some were being priced at what we thought were commercially sensible terms. The two big deals we bought are essentially U.S. deals -- Cal Quake and US Wind -- but then we bought some more stuff, and that's that $170 million of limit. There's a number of different contracts in there, some of them would indeed cover UK flood. But most of them are focused on a repetition, like a series of storms rather than necessarily one storm or one cloud or whatever it might be. What we're concerned about is not a market loss of $2 billion, $3 billion, $4 billion happening once. I think we can withstand that. It's kind of almost a nickel and dime loss these days. What we're concerned about is five, six, seven, eight of these things happening in a year or two, and that's what those coverages are designed to do. I don't think there's anything we've bought that's likely to be impacted on the retro side by the June floods, and as far as I know not by the July floods -- although I have to stress, I don't have a loss estimate for a loss that's still happening. What else to add to that? We also buy reinsurance, which is much more straightforward -- most of our lines of business, for example, are property insurance book in the UK. We buy risk excess on that, we buy some cat cover on that. That just depends how the losses come in. We may have a recovery, we may not. We'll let you know what happened on the next call because we haven't actually got the loss advisors in to suggest at this point we'd have any recoveries. But that may change.

Okay. Chris, that was really helpful, and if I could just follow-up with regard to the composition of the loss, you discussed part of it primary, part of it reinsurance. There were two things I was struck by. Number one, there's a lot of estimates, including out by Fitch, that are nearly doubling the loss estimate that you mentioned, and I wonder how you're thinking about that and the potential volatility of that -- the initial loss estimate you posted today there. And then second, could you clarify for us what level of deductible, if you will, that you have to bear before reinsurance programs kick in for the UK-type event?

Let me comment on the -- on that Fitch number, which caused a wee bit of turbulence in the market the other day. I think what Fitch were doing was announcing, if you like, an aggregate flood loss cost across June and July floods. So they're saying if you added the first incidence of loss back in the month of June to what they think will be the last instance loss arising out of the July floods, then you get GBP3 billion. I can't confirm that, but I have no reason to disagree with it. But from the point of view of catastrophe reinsurance, what actually happens is the buyers are allowed to include no more than 168 hours worth of loss in a single event. So they've got to pick from the June loss, the most biggest loss they can find, all of which happened within 168-hour period, and a month later they do the same thing for another loss. The figure I referred to of GBP1.5 billion, we think that's a good number for the June event, in isolation. But the July event -- I don't have a figure, but it will another number. I guess by implication, Fitch may be saying they think it's GBP1.5 billion for each of them. I don't know about the second one. So when it comes to a player like us on the reinsurance side, most of our exposures coming by reinsurance, our clients -- the UK insurance companies -- they need to keep quite big share of the loss. In most cases it's more than GBP1 billion, maybe even more than GBP2 billion or GBP3 billion, they've got to keep before they start getting reinsurance recoveries. Probably if you got up to GBP3 billion or GBP4 billion, for the same event, losses in a seven-day period that's when you start triggering the reinsurance market. And certainly in June, that's likely to happen for most people in a big way. Now, as far as our insurance operation on the property side is concerned, I think we a reported a figure of $6.5 million -- on the cat side, what we buy there is GBP20 million, excess of GBP15 million. And on the risk excess side we buy GBP70 million, excess of GBP5 million. Just on the risk side, that means if there was a single risk that got affected by a flood, we'd keep GBP5 million and then up to the next GBP75 million would go to the reinsurers. So that's our protection. So we seem to be sitting on the cat side a fair way from being in any danger of troubling the cat reinsurance.

Very helpful, Chris, I appreciate the long answer and comprehensive one.

Sorry it took long time but --

No, no --

It's an important question. You had your questions on investment income, I'll hand you over to Richard now to deal with that.

Thanks very much.

Okay, just a reminder for everybody, we're up to $480 million in funds of hedge funds as our total portfolio. Out of our total portfolio, that's about 9% of our total. We certainly enjoyed our 17% annualized return for the half year -- it was an excellent result. And it was much stronger than we had originally anticipated, which was the high single digits. But given the nature of those investments and that sort of super performance, we would rather think about H2 in terms of our original plan than forecasting 17% annualized for the full year. I will be delighted if we manage to achieve that for the full year, but it doesn't seem appropriate at the moment to be pushing up to those levels which we've enjoyed. That's the reason I kept the guidance as we did for the last quarter.

Thanks very much.

Thank you. Our next question comes from Kevin O'Donoghue from Banc of America Securities. Please go ahead.

Thanks, and good morning everyone. A couple questions on the storm first. Could you tell us what your level of IBNR is in your property catastrophe reserves for the UK storm? As a percentage --

Yes, I mean for the UK floods, at the moment, it will be substantially all of it. Simply because of the position we are at in estimating the total result right now.

Okay. Great. And then in terms of your commercial property book in the UK, was there any difference between the relative geographic exposure you had to where the storms struck in the -- in June versus July? What I'm trying to get at is if we assume a similar sized event in July -- I know it's early yet but if we did, could we expect commercial property losses to be about the same size in July?

The storm in the north of England was an area with some industry. It was steel mills, the sort of heavy industrial plant affected. The central and southern England storm is -- there isn't really any heavy industry, any manufacturing. Now, there might be some warehouses, there might be some resell mercantile-type stuff. One of the things that we write in the UK is municipality business -- local government, school, that sort of thing. You're going to find those in both places. It's -- it is possible that we'll have a lesser commercial component to the second loss than the first, but having said that, the loss is still happening, so I don't want to go too far in that. But I'd say basically that part of England has got less commercial exposure so it may be that we've got less -- but we do have that municipality thing, and they can be anywhere. I don't think it's a very, very conclusive answer but it's about the best we can help you with at this point, Kevin.

Okay, thanks. And I just have one follow-up also on your hedge fund portfolio. Now, pushing 10% of your total investments, wondering -- have you reached the limit of how high you would be willing to take that? And I don't know if you can answer this, but wondering if in that hedge fund portfolio you'd have any exposure to the subprime credit issues and if that could hinder your returns on that portfolio in the third quarter?

Okay. I can confirm as far as in the fund of hedge funds, we only have short exposure to the subprime market, so that's not a major difficulty for us, we believe. As regards further appetite, we might have a little more appetite for fund of hedge funds, but not a great deal more than where we currently are. And the nature of our portfolio is very much in highly rated fixed income instruments, with fund of hedge funds as a small component of it.

Kevin, what I might add to that is just remind you, we set ourselves a constraint here or more ago saying we would keep 85% of our investable assets in fixed income and cash and 15% in alternatives. Of that 15%, 9% in fund of funds, and I tell you we're basically knocking at the limit of what we want to do there. So the 6% difference -- we're looking at ways to invest that. Yes, I think we would like to do something alternative with that, but I don't think adding to the hedge fund side is a sensible strategy. As we -- and when we take the decision, which we've not done that, obviously we'll be letting you know.

Okay, thanks very much for the answers.

Our next question comes from William Wilt with Morgan Stanley, please go ahead.

Hi, good morning. A couple of housekeeping questions, given the comprehensiveness of the call so far. The first is the gain on the catastrophe that the PCS indexed contract -- how does that flow through the income statement, or geography of that?

It goes into the other income line. So any sort of quarterly movement that we get -- whenever we get a reevaluation, and it gets adjusted, it will come through the other income line.

Great, thanks. Second one, the additional retrocession coverage that you purchased, it appears they're showing up in the property reinsurance segment -- is that accurate, primarily there?

Yes, that's correct.

And are they -- you scoped them out in an earlier answer, but are they multiyear or some of those multiyear or are those more annual in nature?

You've got a combination, some are annual and some are for slightly longer periods than that.

We're quite pleased, actually, Bill, that we were able to buy some covering to windstorm seasons, to hurricane seasons. We think that's a nice thing to be able to buy.

Sure. Any dimension you can offer as to the percentage which are recurring? I guess I'm thinking of the outflow, the premium session -- what percentage should be considered to come up again for renewal next year versus the two-year time frame?

One way of measuring it, and it's not a very exact way, one measurement is how much of the income we spent we're going to charge to the first year versus the second year. And the answer is about 25% or so of the total spend. We're charging a little bit more than 25% to the second year. But we bought quite a few covers, and it really is just too complicated to explain on a call like this. I think we'd just confuse everybody.

I can appreciate. Very helpful, appreciate that. Thank you.

Thank you. Our next question comes from Vinay Misquith from Credit Suisse. Please go ahead.

Hi, good morning. Could you provide us with some detail about what your exposure is to primary insurance in the UK? My understanding was that you wrote about $15 million worth of premiums in the UK.

That would be on the primary property side. Vinay, I think you're referring to that, correct?

Yes, correct.

Yes.

And how does your loss of about $6.5 million for the UK flood compare with your exposure? Because I'm trying to get a sense for your primary exposure versus your premiums in that market.

I think it's going to be a blunt instrument if you do it that way, but on that account is -- two things we like to do a lot. One is real estate schedules, we think it's good business in the UK . And that tends to be very much a London-based account. Some in other big cities -- maybe Edinburgh, Manchester or something -- but a lot of it actually is London. I think that's the biggest single component by income, I'm not aware of any losses advised on that side of it. Another thing we specialize in is municipality business. And those can be anywhere in the country. I would say there was a bias towards the southeast again as a matter of fact, but in the north on one municipality, I think we had a loss at a police station. And that accounts for actually most of our loss. But I'm not sure that could make any inference from that to say we're going to have another police station affected. It's really -- we just don't have enough data from which to generalize sensibly in my

Sure. Okay. That's helpful. And on your casualty reinsurance, could you add some color as to why the growth was high in this quarter -- were there some one-time items?

It's sort of in line with our expectations, actually. I mean, last year, as I said earlier, we did have quite a comprehensive actuarial review of our reserves, and that produced a big prior-year release last year, which is why last year's result looks so much better than this year. But this year's result is pretty much in line with what we would expect.

Right. I was speaking more in terms of the premium growth -- you had a premium growth of about 24% this year. I'm just curious whether there were some one-time items that affected that?

We can't put our fingers on anything specific right now, so the short answer will be no, that's just the way the book is developing.

Fair enough. And your tax rate was about 14% this quarter. Do you expect your tax rate to be on the lower end of your guidance before, or was this was quarter impacted by some one-time items?

I think that will be a fair statement, I would expect to be at the lower end of our guidance.

Okay. And lastly, if you could just provide us with your 1 in 250 PML as a percentage of capital, that would be helpful. Thank you.

The 1 in 250 figure that we were to -- like the constraint we set ourselves is not to exceed 25% of surplus for a 250-year event.

And right now you're -- I'm sorry, go ahead.

I was going to say, currently we're trading within that, and I'm just looking around to see if anyone has got the exact figure. It looks like we do not have that figure, I'm sorry. Comfortably we're in, I think I can tell you, we are a company, as you know -- we did risk the business a lot last year. We reduced the constraints and we've been trading comfortably within the constraints ever since.

Thank you.

Okay.

(OPERATOR INSTRUCTIONS) Our next question comes from Jay Gelb of Lehman Brothers. Please go ahead.

Thank you. I wanted to touch base on the guidance for the premiums seated at 6 to 8%. It's running a lot lower than that for the first half, so I'm just wondering if we should assume that for the second half of 2007 that retention will be above 100% in the back half of the year, or if you just, maybe are thinking that -- if you could explain that, that would be helpful.

Well, you might be on to something. We wouldn't -- we're not scheduled, we don't have any major reinsurance retrocessional renewals in the second half of the year, and we are opportunistic creatures and we always look at what the market offers. If there's something that looks particularly attractive to b y, we might buy it. But frankly, I think that's unlikely. So there is a reasonable chance there will be no or negligible reinsurance purchasing in the second half.

I see. Okay. But even using that, we still would get to something like a 10% premium seeded number. Am I thinking about that the right way?

No, I think you've got too high a number there.

You have to bear in mind the difference between the written and earned impact. We refer to those multiyear deals that we've just done. That's going to roll through into earned into next year.

Okay. When you talk about premiums seeded, is it net written premium off of gross written premium or earned?

It's on earned.

I see. Okay. That explains it. All right. And on the -- I just wanted to clarify a comment you made about potential losses for July. I think you were saying that the majority of your exposure there in the central and southern part of England may be on the property catastrophe reinsurance side -- therefore, the retentions will be higher possibly for the July losses versus June? Is that right?

For any catastrophe event in the UK -- central, southern, northern, anywhere at all -- most of our exposures is going to come by the property cat line. And then I'd expect us maybe to get a little bit by risk excess, a little bit on the primary side. The -- maybe the difference in the two events is the first event has more of a commercial dimension, and that shows up more in our primary commercial insurance account in the UK. The second event may be more of a residential loss, and we don't write direct -- we don't write homeowners' insurance in the UK so we don't have exposure to that. So maybe the componentable loss maybe will be a little more push towards the reinsurance side than it was towards the insurance side in the second loss versus the first loss. But as far as the cat retention is concerned, that -- the UK insurance companies have to keep -- by and large it's going to be the same for both events.

Okay. And then finally, would you be able to comment on the potential for industry consolidation in Bermuda and where you think Aspen may fall into that?

I think -- I don't think I want to speculate on the general topic. I think you can call any investment banker in the land and they'll happily show you the shopping lists and who's been allegedly talking to whom. It a great fun game to play. As far as Aspen is concerned, we think we've got a pretty good business. I think if you look at the things that we changed after '05, we derisked the business, we diversified the business further. If you look at the last four, five quarters, you see what the earnings model's producing. And we've hired some people, quite lot of teams this year -- I think we'll hire more teams. I'll tell you who they are and what they'll be doing when we have them under contract and not before, but we think we can grow organically and we're comfortable doing that. I don't say we're closed to the idea of consolidation, but it's absolutely not something we feel we need to engage in. And we're pretty happy getting on with our business rather successfully.

Thanks very much for the answers.

Pleasure, Jay, bye-bye.

Thank you our next question comes from Jay Yang of Perry Capital. Please go ahead.

In terms of your property cat contracts, would you say that they tend to lean towards homeowners' insurers or commercial exposures?

For the bigger companies in the UK, they would tend to be buying a single program covering both risks, and probably the two markets -- the personal lines market and the commercial market in the UK -- are probably approximately the same size. I don't think we have bias one way or the other. And there may be some sort of homeowners specialists in the UK. We do have some shares of those. And probably on balance, if you put the two things together, we probably do a bias toward the personal lines.

Would it be fair to say that you guys would typically stay away from the first layer of these property cat contracts?

Yes, but it's not an absolute rule. If there were a first layer we thought was well priced, we'd be willing to take a small share. But one of the ways you can look at this stuff is -- what's the market loss, what do you think the market loss is going to be before this contract attaches, and 80 or 90% of our exposure is attached in excess of GBP2.5 billion to GBP3 billion. We're really there to deal with real big cats. This stuff we see in the news in the last couple of days -- in human terms it's catastrophic, it's horrific, in economic loss, it may be significant. But in terms of insured loss, it's not, in my opinion, real catastrophe stuff. And that's why I don't think it's going to be affecting our cat account in a very significant way.

Your guidance for 2007 -- does that already include any contemplated loss from the July portion of the floods?

No. It doesn't.

Okay. And lastly, you mentioned that you were contemplating finishing the $100 million on the share repurchase when appropriate, I think you said. What would define appropriateness or what would determine appropriateness?

Well, a big part of that is alignment of our views and rating agencies' views as to what level of excess capital we hold. And that's what we are discussing with them.

Okay. Thank you very much.

Thanks, Jay.

Thank you, our next question comes from Ken Zuckerberg of Fontana Capital. Please go ahead.

Just a follow-up question. Chris, when the event first happened, what I recall hearing about were the factories in northern England. And I jotted a whole list of potential exposures -- retail inventory, wholesale inventory, food spoilage, business interruption, and evidently there's the world's or England's largest mall that has an exposure, a shopping center, et cetera. Are these things that have been fully contemplated in the estimates of losses thus far? And if the losses are higher, where could they be different relative to your initial expectations? And again, I'm just talking about the June event.

The simple answer to your first question is yes, yes, they have. Those are not particularly loss adjusting complex issues. You see the factories underwater, you get that. We didn't have any involvements in those sort of like headline risks on our primary side. Nor were we providing risk excess to the people who write them. So we're not particularly well-placed to comment on those bigger insulations because we're not exposed to them.

Okay. All right. And I guess just by way of follow up to Vinay's question, so $50 million was the premium collected in 2006 for I guess UK property. Could could you clarify what your total premiums for UK were, if possible?

There's different ways of looking at it. Probably, the UK is our second biggest market after the U.S., and one where another 20 something percent I believe of our total premium emanated from the UK. We have -- on the property insurance side, we've got the $50 million or so Vinay referred to, we've also got the employer's liability and public liability account of $90 million to $95 million is what we think we're going to write this year on that. You've then got, on the energy side, you have -- we have some exposures within a worldwide book that are in the UK. But to be honest, we don't account it and we don't file it. We don't record it that way. It's not a statistic that we monitor. My sense is that those exposures wouldn't be huge. And then of course on the reinsurance side, I think the UK is probably our single -- our second biggest source of revenue after the U.S., although it's a long long way behind the U.S. Maybe 15% of our property catastrophe reinsurance account comes from the UK. Those are maybe some sort of pointers -- but I apologize, I can't give you an exact figure for how much risk is -- how much premium comes from risk definitely situated in the UK

Thanks for the answers.

Okay, Ken, thank you.

Thank you, there are no further questions at this time. I would like to turn the floor back to Mr. O'Kane for any closing comments.

I have no more comments to make. I want to thank you all for joining our call and I hope you found it instructive. Have a good day. Good-bye.

This concludes today's Aspen Insurance Holdings conference call. You may now disconnect.