Aspen Insurance Holdings Ltd (AHL) 2007 Q4 法說會逐字稿

Good morning. I'll be your conference Operator today. At this time I'd like to welcome everyone to the Aspen Insurance Holdings fourth quarter and year-end 2007 results 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) Thank you.

It is now my pleasure to turn the floor over to your host, 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 under way, I'd like to make the following remarks. Yesterday afternoon we issued our press release announcing Aspen's financial results for the quarter and year-ended December 31, 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've 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 and our earnings slide presentation posted on the Aspen website. Now I'll turn the call over to Chris O'Kane.

Thanks, Noah. We're pleased to report a strong finish to 2007 and a record year for net income and return on equity. For the quarter we reported net income of $135 million, an increase of 13% versus the same period last year. This equates to an annualized return on average equity for the quarter of 23.2%. Our combined ratio for the quarter was 79.4%. For the full year 2007 net income was $489 million, the return on average equity was 21.1% with a combined ratio of 83% and our book value per share increased by 25% to $27.95. Now I'm going to turn the call over to Richard to discuss our 2007 financial performance in more detail and later I'll comment on current market conditions.

Thank you, Chris and good morning, everybody. As Chris has just told you, I'm very pleased to report on a strong fourth quarter for Aspen completing an outstanding year for the group. Our record results for 2007 combine strong underwriting performance and excellent investment return and active capital management to produce net income of $489 million up 29% on last year, with book value per share at $27.95, 25% up year on year. We've enjoyed a 20% compound annual growth rate in book value per share over the last two years. Our return on equity for the year was 21.1%, slightly above the top end of our guidance reflecting our prudent management of underwriting opportunities and strong investment performance. In particular, we have proactively managed our investment portfolio and avoided any significant impact from the credit crisis of 2007. Slides 3 through 9 provide you with a summary of recent results.

Our combined ratio for the year was 83% compared with 82.4% last year. You'll recall that 2006 had virtually no Cat events whereas in 2007 we've absorbed several match events including European Wind Storm Carol in January, UK floods in June and July, and California wildfires in October, that's an aggregate cost of $77 million. Our combined ratio for the year ex-Cat losses was 78.6%. We have benefited from reserve releases this year which I will discuss in more detail later but we believe that our combined ratio represents a strong result from our diversified model in the face of softening rates across a number of our product line.

Our combined ratio for the quarter was 79.4% compared with 76.8% last year with California wildfires costing us approximately $18 million and additional reserves in respect to reinsurance exposures to subprime and the ensuing credit crisis a further $12.5 million, a subject I'll return later.

I'd like to start my detailed review with our investment performance which I'm particularly pleased to have successfully navigated through a difficult year in the market materially improving on our performance from last year. Net investment income for the year was $299 million, up 46% on last year. We have achieved this result by improving our fixed income portfolio book yield to 5.05%, from 4.52%, through strategic sector rotation into high quality, mortgage backed securities and corporate bonds. Assets under management grew from $5.2 billion at the start of the year to $5.9 billion at year-end, helped by $774 million of positive cash flows from operations.

During 2007, we increased our allocation to funds of hedge funds from 3% of the portfolio to just over 9% at the year-end. These all turned to investments produced an 11.4% return over the year. The broad and diversified nature of the underlying investments produced an excellent absolute and relative return for us through the toughest parts of a turbulent year for the market. I stated before that we have negligible direct exposure to the credit crisis and can further confirm that we currently have less than $51,000 of our fixed income investments wrapped by financial guarantors. Details of our portfolio are on slides 10 and 11 which highlight that our average portfolio rating remains AA plus, with 89% rated A or better. We have not suffered any investment losses requiring an impairment charge at the year-end, and indeed movements in the markets have produced unrealized gains of $74 million over the year, reflected in other comprehensive income and contributing to the growth in book value per share.

Gross written premium for the year of $1.8 billion was down 6.5% as we chose to pull back from certain product lines where we felt rates were too low to generate adequate returns. Net written premiums were only down 4%, however, reflecting our reduced reliance on outwards insurance relative to 2006. Our spend on reinsurance protection in the fourth quarter rose to $26 million compared with $9 million for the same period in 2006 as we purchased specific coverage to protect our new business lines such as professional liability. Gross written premiums in Q4 rose by 6% reflecting in part the contribution of these new lines. Net earned premiums for the year rose by 3% to $1.7 billion, mainly as a result of the reduction in reinsurance spend in 2007.

Turning now to claims and reserve releases. The fourth quarter saw a continuation of conservative releases from prior years, producing favorable developments of $35 million in the quarter and $107 million for the year, compared with the strengthening of $7 million in Q4 2006, and overall releases of $51 million. Releases in 2007 came primarily from our UK liability insurance and U.S. casualty reinsurance books. Total favorable developments in the year represents 4.6% of opening net reserves, compared to 2.8% in 2006. Our equivalent number for 2006 excluding strengthening for hurricane losses was 6.3%. Our loss estimate for Carol and the UK floods have continued to reduce slightly in Q4 from original estimates, supporting our initial assessments. Our reserving methodologies and philosophy remain unchanged.

Turning to the specific issue of U.S. subprime and the global credit crunch, as you'd expect we've conducted a thorough review of all our potential exposures. Our exposure is very small and is limited two areas. A small number of reinsurance contracts of certain loan syndicates both underwritten worldwide financial institutions exposures including U.S. D&O and E& O cover within our international casualty reinsurance book and one casualty cash contract written by our U.S. casualty reinsurance unit. We have no losses on any of our insurance lines. Our total exposure amounted to $35 million in reserves at the year-end comprising $20 million of additional reserves above our expected losses of $15 million for this segment.

You'll see from the data in our earnings supplement and our supporting slides that our expense ratio for the year was marginally up, of 29.9% versus 29.3% with a Q4 ratio of 31.8% versus 28.2%. The adverse variance in Q4 is attributable to strong underwriting performance, driving higher profit-sharing with our product distributors. In addition, as I reported in Q3, our operating and administrative expenses have been affected this year by investment in new lines and teams, increases in profit related compensation and adverse exchange rates hitting our sterling cost base.

I'll now pick up headlines within each of our operating segments. You will recall that we redefined these segments to reflect our structure in Q3. Our earnings supplement contains details of our performance using both new and previous segmental split. Starting with property reinsurance, we finished the year with a strong fourth quarter, recording a combined ratio of 74.8%, compared with 80.1% last year, with the only substantial loss of approximately $18 million attributable to California wildfires. Our full year combined ratio was 72.6% is particularly pleasing compared with last year of 79.2%, as 2006 had virtually no Cat events whereas 2007 has produced a series of modest Cat losses from windstorm Carol, UK floods and California fires. While not insignificant, our losses from these events were comfortably within our initial catastrophe loss guidance of $135 million for 2007. The loss ratio for the year was 39.7% versus 43.2% last year, and gross written premium only fell by 3.5% to $602 million despite pressure on prices.

Casualty reinsurance finished the year with a combined ratio of 94.6% compared with 83.4% reflecting increased loss experience and lower rates levels. Note that 2006 enjoyed favorable reserve developments of $60 million compared with $32 million in 2007, and an accident year comparison would show 101.1% for 2007, and 96.1% for 2006. The $20 million increase in subprime reserves I mentioned earlier added 4.2 points to the current accident year combined ratio.

Our international insurance book covers a wide range of classes of business and the overall combined ratio for the year of 80.7% compares to 79.1% last year. This includes the modest size losses in the marine and aviation books this year and within our UK commercial property account from the UK floods. These were offset by strong prior year releases within our UK liability account from 2006 and before. Towards the end of 2007 our new lines including excess casualty and professional liability started to contribute to the top line, and we look forward to the contribution that all of our new teams will make in 2008.

Our U.S. insurance operation has been strategically repositioned in 2007 against the backdrop of challenging market conditions in both casualty and property lines, and we look forward to continued progress in 2008. The property book in particular was reshaped, lowering gross written premium by 20% to $123 million. Our full year combined ratio of 98.3% compared favorably to 111.4% last year, and the segment moved from an underwriting loss of $12 million last year to an underwriting profit of $2 million in 2007.

Having covered our trading and investment performance for the year I'd like to make brief comments on Capital Management undertaken in 2007 and proposed actions for 2008 and beyond. In the second half of 2007, we completed two traunches of share buybacks, totaling $100 million through accelerated share repurchases, completing the $300 million buyback program authorized by our Board in November 2006. Our balance sheet continues to benefit from strong trading performance and a favorable risk profile which is the product of prudent and diversified underwriting. This strength was reflected in November, when A.M. Best announced an upgrade of our Bermuda Operating Company and the removal of the negative outlook on our UK Company so that both companies are now rated A stable. Given prevailing market conditions and our anticipated trading performance the Board yesterday authorized a new buyback program for up to $300 million of old re-equity. The authorization covers the next two years and I look forward to giving you more details of the timing of these buybacks as the year progresses.

Turning now to guidance, in 2007, we exceeded our ROE guidance due to strong underwriting performance and excellent investment return and active Capital Management. On slide 12, we provide guidance for 2008. Our 2008 ROE guidance of 14 to 17% given normal loss experience reflects our anticipation of challenging pricing conditions. Our top line guidance is relatively flat on 2007 at $1.8 billion plus or minus 5%, reflecting the contribution from new lines and slight declines in other lines due to market conditions. Our percentage of earned premium cedents remains in the range of 8 to 10% of gross earned premium, as the multi-year deals signed in 2007 work through the income statements. Our combined ratio guidance at 88% to 93% has declined on 2007 due to margin pressure and the assumption of a normal Cat load of $135 million relative to our 2007 experience of $77 million.

Investment income is forecast to be in the range of 290 to $320 million, and our tax rate between 13 and 16%. To conclude on 2007 we are very pleased with the quality of our financial performance for the year and reverse strength of our balance sheet, our investment portfolio and our diversified trading platform which gives every expectation of continued success in 2008. At this point I'd like to hand it over to Chris.

Thanks, Richard. Well, I'm now going to discuss each of our business segments as shown in slides 13 and 14, as a reminder we measure rate relativity on premium weighted basis, on business we renew. Starting with our international insurance segment we achieved single digit declines on average on our book, which was better than we had expected although a significant variation by line of business. For example, in energy physical damage insurance, following huge rate increases in 2005 and 2006, benign loss environment has resulted in increased competition. Rate reductions here are averaging approximately 16% and we have non-renewed a number of accounts as a result.

In Marine Hull insurance, rates were generally flat to marginally down but we were able to secure an average rate increase of about 2% on our book. On our marine liability account the experience was similar. The marine liability market as a whole, rates were down but in spite of this we achieved an average increase of 5% on our book reflecting loss experience on certain accounts and some exceptionally strong client relationships.

In our new excess casualty insurance unit we're seeing rate declines of about 5%, our specialty reinsurance division experienced reductions of approximately 3% on average with bigger declines in certain classes and we non-renewed a number of programs that no longer met our hurdle rates. Moving on to the property reinsurance segment, we're experiencing rate softening in both the U.S. and international markets. There were significant differences in rate movements in the U.S. Cat market. On average U.S. coastal exposed business saw rate declines of around 15% which still allows for acceptable margins for us. On U.S. regional Cat accounts the rates fell by 20% or more, rendering many programs uneconomic. On non-U.S. business we benefited from increased submission flow following the establishment of a branch office in Zurich, in August last year. Strong competition led to rate reductions or modest increase target. For example, while we were successful in achieving rate increases in programs impacted by windstorm Carol, they were only modest. In the U.S. property risk success, there are marked differences in rate movements between loss impacted programs which registered flat to 10% increases while well performing business recorded rate declines of 5 to 15%. On our facultative reinsurance book, we seen U.S. primary carry reduce rate by 10 to 25% with a less pronounced decrease in Europe of around 10 to 15%.

Turning to casualty reinsurance, in our international casualty reinsurance business we saw rate reductions of just between 2.5 and 10% depending on the type of business and the loss experience. Prices have reduced but still meet our hurdle return rates. Terms and conditions remain reasonably firm. And U.S. casualty reinsurance rate reductions of between 10 and 15% are not uncommon in the marketplace. However we were able to achieve an average reduction of only 4.5% reflecting our focus on risk selection. We are seeing increasing competition in our U.S. Casualty business overall, with particularly aggressive pricing in workers comp flash covers, where a number of contracts in the market were being renewed by some of our competitors with rate reductions of around 40%. In addition, there was a significant broadening of coverage with new clear biological chemical and radiological exposures increasingly being included with little or no additional premium. I believe this is the worst kind of soft market underwriting. At Aspen we cancel virtually all contracts with NBCR on the workers comp Cat side.

I'd now like to highlight a number of our achievements in 2007. In 2007 we delivered fully against our stated objectives. Our underwriting performance was consistently strong in 2007 with a combined ratio of 83% before reserve releases. We recorded only modest losses from both windstorm Carol and the UK floods in June and July reflecting the measures we put in place in 2006 to reduce our natural catastrophe exposure. We also improved our fixed income portfolio book yield to 5.05% from 4.5%, against a backdrop of extremely volatile market in the second half of 2007 and we lowered our tax rate from approximately 26% in 2004 to 14.8% in 2007. Additionally, in 2007 in November, we completed our share repurchase program of $300 million. We will continue to focus on ways to optimize our financially rich and our tax rate in 2008 and beyond.

Our delivery against our objectives was recognized by A.M. Best in December when our Bermuda Company was upgraded to the same level as our UK Company. Both companies are now rated A stabilize.

Finally, we have been selectively building out our international insurance segment with the establishment of a number of new underwriting units, namely professional lines insurance, excess casualty insurance, and political risk insurance. I'm also pleased to announce today that we've entered the financial institutions insurance market and have hired a highly respected underwriter to lead our efforts. We anticipate that we will write around 60 million to $70 million of GWP in this line by the third year. The emphasis will be on smaller and medium sized financial institutions with limited exposure to major Investment Banks. We also tend to avoid the global 100 players.

We think we have got the timing right on this one given the current market. In addition, we have expanded our distribution consistent with our multi-platform approach with a branch office in Zurich to develop our Continental reinsurance business and a branch in Dublin which is where our excess casualty insurance is being written. We have a proven track record in adding profitable new teams and will continue to seek opportunities to do so in a controlled and measured way. Our underwriters are measured on profit, not volume, the establishment of new teams is about having the right people in place so that we're well positioned to take advantage of a change in marketing conditions when the time is right. Our measured approach to expanding and diversifying our business coupled with a rigorous focus on managing the underlying drivers of ROE leaves us well positioned in the soft state of the cycle to deliver consistent quarterly returns to our shareholders. And with that I'm going to open the call up to Q&A.

(OPERATOR INSTRUCTIONS) Your first question comes from Vinay Misquith of Credit Suisse.

Hi, good morning.

Good morning, Vinay.

Could you provide some more detail on your exposure to subprime and the charge you took this quarter? Was it a current quarter charge? Was it a prior quarter charge? And what was the exact amount? Was it $20 million and if you could give us some sense of the limits you provide and why you believe that it's now behind you?

Okay, Vinay, that was a multi-faceted question so this is Chris and I'll start and then I'll hand it over to Richard for more of the detail. I don't think this is a big issue for us, because basically it's not a line of business that we're big in. We see the main exposures coming from on a primary basis, from the right of the D&O. We also think there will be some E&O exposures and we think there may be some financial crime involved ultimately as well. Those are all lines of business that historically we have not been writing, so we missed the issue altogether and then we have to look at the reinsurance side of our operations and do we reinsure the big writers of D&O, and the answer is no, we don't, that's not part of what we do, but we do provide coverage to a few large syndicates who write some worldwide financial institutions. The premium we receive from that is just $23 million and we have been through that very carefully and what I mean by very carefully is we've looked through the reinsurance contract to see which institutions they are protecting and we reached a view on which institutions are likely to producing losses. This is reserve being, so these are not reported losses, it's highest perspective. The coverage is our claims made, so the numbers we're quoting you relate to our books as closed on the 31st of December. We had some reserves already at Q3 and we chose to increase these at Q4.

My view? We've taken a pretty conservative approach here so I would be surprised to see any adverse development. Last thing before handing it over to Rich I'd say these claims made cover and this problem isn't over yet. Every few weeks, we find another interesting headline so there may well be more claims in the future. I don't think Aspen is particularly exposed to those, it's simply not the business we're in but as a word of warning the problem hasn't ended for the industry yet. Richard would you like to go over the numbers?

Sure. Good morning, Vinay. The numbers are as follows. Total exposure, 35 as of the year-end and that includes 20 million of what we're describing as additional reserves in respect to this sector, in addition to 15 million which we would anticipate is the normal loss ratio. So 15 plus 20 equals 35, and within that 20, we had 7.5 which we booked in Q3 and 12.5 which we booked in Q4.

Okay. 12.5, Q4 that's great. And within the large syndicate, is it mostly exposure to European clients or is it U.S. clients?

It's a mixture of both. I think probably the bias would be towards U.S.

Okay, so you do have some exposure from that side, but you say that you've already taken care of it. Have you received any frames on those exposures?

We haven't got any specific claims. Vinay, we are talking to those syndicates.

Sure, that's good.

As I said, Vinay, we've looked at the institutions and we reached our own view as to whether they might likely make claims, but there's nothing actually reported as yet.

Okay, that's great. And on the financial institutions on this new segment that you're starring, is that focused on worldwide or is it a U.S? You said small to medium sized financial institutions, correct?

Yes. It could rite worldwide. We don't want to say we'll never write U.S. underwriting circumstances, but we actually think you get a better rate, a better risk adjusted return by awarding some of the Global 100 plays in some of the bigger U.S. Institutions so I would say the bias of the book will be away from the U.S. But we got to way and see. I think that it's an interesting area given what's been going on, I think rates are going to go up quite meaningfully and we got to wait and see in the U.S. to what extent we want to be tempted in by improved rates and better trading conditions.

So right now it's focused worldwide but you might think of going to the U.S. if the conditions are attractive. Would that be fair?

I think that's fair, yes.

One last numbers question for Richard. What was the income from hedge funds? I have an estimate here but I just want to get the real number.

It's 44 million out of a total of 299.

Sure, but this quarter? Do you have a number for this quarter specifically?

I'm afraid I don't have it for the quarter. I think that's an easy one I can follow-up on.

No problem. You said it's 44 million for the whole year,right, okay, that's great, all right, thank you.

Okay.

Thank you. Next question comes from Alain Karaoglan of Banc of America.

Good morning. Just following up on the subprime, you mentioned $35 million of exposure. And then you went to, the really reserves, losses right? Reserves, IBNR that you put up of $35 but the exposure could be higher than that, in terms of the limits or have we reached the limits?

Alain, you're right, I think we did say 435 million exposure, we should more accurately have said 35 million reserves, so I'll give you two points and that 35 is in respect of $23 million of excessive loss reinsurance premium, and not all that premium relates to FI. It's really everything that they do, and we have not assumed that every limit that we've written on an excess loss basis is going to be totaled and that the reinstatement is going to be totaled as well. I haven't got to have the total limits there, but I think that, well, I know that 35 represents an extremely conservative interpretation of the total theoretical exposure in the book.

Okay. The other question regarding the guidance that you provided, does that incorporate any expectation of reserve releases?

No, it doesn't.

Okay, and the top end of the combined ratio at 93% seems, what would need to happen for that to occur, ex-Cat? I mean you have there the 135 million Cat load that's 3.5 points or so higher than in 2007, but what would you see happening and could happen in 2008 to get the high end of the range ex-catastrophes?

This is always, as you know, a very well, very difficult thing to do is to predict the future.

Yes.

But we looked at this 1/1 and unlike the more recent renewal seasons, I find more variability around the mean. The average in our U.S. casualty reinsurance book, the average in the business we renewed was a 4.5% reduction, but we lost business to people who were giving 40% reductions. And I find it mind boggling that that's happening but it happens so we cancel the business. So the question is, could that contagion spread? As we go through the year, are we going to see increasing levels of rate reduction and if we do for the part of the premium that was going to earn in '08, are going to expect higher attrition loss as a result, and what I mean by that is the same losses will represent a higher rate on the premium, so 93 represents, if the market is a bit worse than our current read of the market being as it is today.

Okay, and in terms of your sort of thinking about the ROE on average, want it to be ex, how low would you tolerate it to go in a soft market from a budgeting point of view with the expectation of average Cats and of course catastrophes can take you to territory that is negative, but so we're around -- the low end of the range is 14%, how low would you plan it to be or would you be comfortable going on a budgeted basis for any year going forward?

I think the answer is that we wouldn't want to be lower than 14 by very much at all. I mean, that's getting quite close to what seems to us to be a return to being in the business.

Okay.

14 remember is not the lower, it is the lower end of the range. It's not the expected.

Yes, I understand. Great, thank you very much and congratulations on a great quarter and a very strong year.

Thank you, Alain.

Thank you. Next question comes from Scott Thomas of Morgan Stanley.

Hi. I know you've touched on this a bit already, but I was hoping you could provide some extra details on a few of the numbers in your segments. The first was in property reinsurance. Maybe you could just add some details as to what drove the higher written premiums for the quarter?

For the quarter, simply the amount of business we were able to put on the book. I don't think there's anything specific I'd like to draw attention to.

No one--?

One of the phenomenon that's been affecting us this year is that in comparison to previous year, we had a very low retro cost, and that's affecting the entire year and the fourth quarter is quite a small amount of written premium.

Okay.

So the year on year comparison is, I mean it's accurate but it could be misleading when you realize that we spent about $100 plus million lesson on retro session.

Okay, that helps. And then the second was in casualty reinsurance, maybe if you could just explain a bit more as to the higher combined ratio?

Yes, the high combined ratio is, well chiefly due to a couple of things actually. 2006 had stronger reserve development relative to 2007 of 60 million of development relative to 32 in 2007, plus that 20 million increase I was talking about in subprime, so it's hit that sector, that's where it's popped up.

Okay that makes sense and then the last one was in property and casualty insurance, just maybe some extra details behind the lower combined ratio for the quarter?

Sure. Two parts for this story. 2007 is an improving year with this sort of reshaping of the book that we're undertaking and we're hoping that's going to get better in 2008 against tough market conditions, but 2006 also included some fire losses, about $20 million of fire losses which hit the book pretty hard last year.

Okay, that makes sense. All right that's all the questions I had. Thanks a lot.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS) Your next question comes from Chris Neczypor of Goldman Sachs.

Hi, good morning. I just had a question about the ROE guidance and how that relates to the buyback in terms of the timing. Is it safe to assume kind of a half this year half next year or basically how should we be thinking about that?

I'm not actually giving specific guidance as to the timing of the buyback for 2008. Clearly, I've got an idea in my plan for the year, which is what has produced that ROE but it does depend on market conditions and where we can put the capital to work. So at the moment I don't really want to go any further than we already have to say that we have a new authorization program in place covering two years.

Okay, understood. And sorry, but if we could just go back to the increase in reinsurance premiums during the quarter, I know you said there wasn't anything specific you wanted to highlight there, but maybe you can help us to understand how we should think about the fact that you guys are able to grow that book and how you I think you mentioned that you're able to get some rate increases when if we look across the rest of the companies that have reported there's been some significant declines in reinsurance volume. So I'm just trying to reconcile that in my head as to how we should be comfortable with the business incrementally that you're putting on your books when everyone else is saying that they are non-renewing, thank you.

I'm not sure if I've got much more detail to add, other than we're very comfortable with the business we are putting on the book. We've got several segments within property reinsurance and they're all moving on pretty well. I don't think I can add any more than that.

Yes, I mean, I would put it in a little bit of a context for you. We have let's say the lines of business that we started 2007 with and many of them, the majority of them are subject to rate increases, as the rate decreases take part, some modest, some significant, I think I've said quite often we regard the UK primary market as the toughest market that we're in, and we -- actually in the aviation market is pretty tough as well. Others are a little bit more favorable so that part of the business is basically shrinking. But some of it affected by loss, is maybe breakeven in a few cases, if you get an account that has a big loss, you can usually charge more money and by the time you relate that amount of money to just one quarter, it can distort in a second quarter so you get a rate increase. We had that in reliability. We had a couple of accounts that had losses and we have very good relations with clients and we said that we need this kind of money to carry on, and they've paid us a price which is different than the price they're paying the rest of the market and that's got to do with a good client relationship, good claims paying, good service, good lead quality, that's what Aspen really tries to do. So there are cases where quite simply, same dealers in market, Aspen gets more money for writing at other people. I don't think that's a huge volume of money but break it down to a segment and relate it to a quarter and it can give you an average increase in spite of the market falling.

The other side is in the course of the year, we added some new teams, and these teams, several have now joined us and they have client relationships and within those client relationships there are some very good ones and there's some average ones. If you focus just on the very good ones, you can add some businesses that's well rated and that's largely where the premium growth is coming from. Now, I call it premium growth, but what's really happening is the shrinkage in the renewal book has been offset by some growth coming from some well targeted, well chosen new accounts and that's kind of keeping our top line steadyish, it's actually down a bit on the year, but steadyish let's say as opposed to shrinking faster. So I hope that helps you.

Yes, it does. Thank you very much.

Sure.

Thank you. We have a follow-up question from Alain Karaoglan of Banc of America.

Yes, thanks for taking the question. Just want to follow-up on the capital management and share buyback, Richard. I understand there's a $300 million authorization over two years, but there's nothing magical about that. I assume you're going to look at opportunities and to the extent that the opportunities to deploy capital don't materialize, there's nothing magical about not wanting to buyback more or accelerated or changing that plan because the way I look at it you're going to have around 350 million to $400 million in earnings on flat premiums in '08 and probably somewhere around there in '09, that suggests a lot of additional capital if we're still in a softening environment where you aren't going to grow the business.

Alain, I quite agree with you, there's nothing magical about the figure at all. It depends entirely on market conditions and what opportunities are available to us. If it feels right to give more back then I'm sure we'll have that discussion with the Board and the raising agencies, if we can deploy it successfully through new lines, or doing something else with it, I'm sure we'll do that so it's a very tricky one to try and predict. All I can say is that I will keep you very much engaged as we go through the year, as to the strength of the balance sheet and how we feel about that authorization.

Great, thank you very much.

Thank you. There are no more further questions. I'll turn the floor back over to management for any closing remarks.

Thank you for joining us this morning. Have a good day.

This concludes today's Aspen Insurance Holdings fourth quarter and year-end 2007 results conference call. You may now disconnect.