Aspen Insurance Holdings Ltd (AHL) 2008 Q2 法說會逐字稿

Good morning. My name is Shalana, and I will be your conference operator today. At this time I would like to welcome everyone to the Aspen Insurance Holdings Limited second quarter 2008 earnings conference call.

(OPERATOR INSTRUCTIONS)

It is now my pleasure to turn the floor 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, 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 30, 2008. 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 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 US 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.

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.

Thank you, Noah.

I'm pleased to report a very good second quarter for Aspen, with net income of $126.9 million, or $1.44 per share for the quarter, an increase of 11% over the same period last year, and an increase of 56% over the first quarter in 2008. This reflects a strong performance by our underwriting units, plus a solid return from our investments.

The combined ratio was 78.2%, versus 88.4% in the same quarter last year and 85.4% last quarter this year. The annualized operating ROE was 21.2%, and we increased book value per share by 2% in the quarter and by 22% in the last 12 months. A short summary of our results is set out on Slides 3 and 4.

Overall, insurance and reinsurance prices continue to fall across the majority of our book. In contrast to this, we had a very strong performance in our financial institutions and political risk insurance units, where rate [setting] was significantly in our favor. Both lines, but political risk in particular, are benefiting from increased demand and an attractive pricing environment as sentiment in the credit and financial markets continues to deteriorate.

I'm now going to turn the call over to Richard, who will take you through our financial performance in more detail.

Thank you, Chris. Good morning, everybody.

I'm very happy to report on a good second quarter performance for Aspen. Our diluted earnings per share on operating income for the quarter of $1.44 compared with $1.14 in the second quarter 2007. This increase is driven by strong trading performance and our active approach to capital management, as we've taken opportunities to buy back shares at attractive prices over the past year. For the half year, our diluted earnings per share on operating income of $2.23 compares with $2.40 in the first half of 2007.

Our diluted book value per share increased by 23%, to $28.99, from $23.63 when compared to this point last year, reflecting primarily $381 million of retained income over the last 12 months. We have also increased diluted book value per share by 7%, from $27.08 at the start of the year.

Our combined ratio for the quarter was 78.2%, comparing favorably with 88.4% for the second quarter of 2007. This reflects our disciplined underwriting approach and quality of risk selection, in addition to a lower incidence of cash-related claims. On a year-to-date basis, our combined ratio is 81.7%, compared with 83.9% for the half year 2007.

Turning in more detail to our underwriting performance, our gross written premium have increased by 5%, to $529 million over the same quarter last year, benefiting from our measured diversification into new business lines. The increase in gross written premium reflects the incremental contribution from lines such as political risk and excess casualty insurance which have been developed over the past year. On a like-to-like basis, our gross written premium has decreased by 7% over the second quarter of 2007, reflecting softening market conditions. On a year-to-date basis, our total gross written premium is broadly in line with last year.

You'll see the written premium has decreased significantly, from $85 million in the second quarter of 2007 to $23 million this quarter, with a corresponding impact on net written premium, which has risen by 21%. As a reminder, we purchased several multiyear catastrophe reinsurance covers in the second quarter of 2007 which are still being earned in 2008.

Net earned premiums have fallen by 12%, to $397 million, when compared to the second quarter of 2007, and are a function of the reduction in gross written premium in the second half of 2007 and in the first quarter of 2008. Net earned premiums decreased by 11%, to $780 million, compared to the first half of 2007.

Our loss ratio of 47.4% is 13 percentage points lower than the second quarter of 2007, reflecting our relatively benign cat loss experience during the period. Our exposure to the storms and floods in the US Midwest is within our expectations of less than $10 million for our property reinsurance segments, and we don't anticipate any crop losses. Our exposure to crop insurance is through our treaty reinsurance book, where we have premiums of only $6 million.

We recorded $40 million in net prior year releases in the quarter, an increase of $22 million on the second quarter in 2007. The current period releases have arisen mainly in our casualty reinsurance and international insurance segments and reflect better than expected loss experience. On a year-to-date basis, we have booked $80 million in net reserve releases, compared with $44 million in 2007. These reserve releases account for less than 3% of our net reserve at the start of the year. Excluding solely the impact of prior year reserve releases, our combined ratio has improved by 4 percentage points, to 88.3% for the quarter, from 92.4% compared with the same period last year.

On an accident year basis, our loss ratio for the quarter was 57.4% and compared favorably with 68.2% in the second quarter of 2007. On a year-to-date basis, our accident year loss ratio was 60.1%, versus 62.6% in 2007, evidencing the high quality of our risk selection capabilities and a softening cycle across a number of our business lines.

I'd like to draw your attention to a new exhibit on our earnings supplement, on Pages 15 and 16, which provides a comparison of [our core] key performance ratios on a financial year -- on an accident year basis by operating segment. The accident year loss ratios reflect changes in both prior year reserve and premium movements, including the impact of commutations and updated advice on premium estimates from Siemens to get a more representative picture of current year performance.

Our expense ratio has increased to 30.8%, from 27.9% in the second quarter of 2007. Within this, our policy acquisition expense ratio has decreased by 1.7 percentage points when compared to the second quarter of 2007. On a year-to-date basis, the acquisition expense ratio of 17.1% is in line with last year. Our operating ratio has increased to 14.4% for the quarter, from 9.8% in the second quarter of 2007, being pushed up by setup costs associated with new teams and by our investments in our new platforms, including entry into Lloyds during the second quarter. The contribution to earnings from these ventures will have a more meaningful impact during the second half of 2008, which we anticipate will return our expense ratio to lower levels.

I'll now turn to the highlights from our operating segments.

Our property reinsurance segment has achieved a combined ratio of 65% for the quarter, a 12.3 percentage point improvement over the same period in 2007, with no significant loss activity in the current quarter other than reserves attributable to Midwest floods for less than $10 million. On a year to date basis, our combined ratio is 64.2%, comparing favorably to 73% in 2007. Gross written premium for property reinsurance has decreased by 10% for the quarter and 7% for the year to date, compared to the same periods last year, reflecting continued pressure on pricing.

Turning now to our casualty reinsurance segment, the combined ratio for the quarter has improved to 91.5%, from 94.7% last year. The improvement in the combined ratio was due largely to $24 million of reserve releases during the quarter. On a year-to-date basis, the combined ratio increased to 93.4%, from 90.1% in 2007. Gross written premium in this segment was down by 28.5% from the second quarter of 2007, and down by 21% for the half year. The reduction in written premium is further evidence of our disciplined underwriting approach in difficult market conditions in addition to downward premium adjustments in our international and US casualty lines. On an accident year basis, the combined ratio for our casualty reinsurance segment was 99.7% for the quarter, compared with 93.3% in 2007, reflecting challenging market conditions. For the half year, the accident year combined ratio is 100.6%, compared with 96.3% last year.

Our international insurance segment reported a combined ratio for the quarter of 79.2%, compared with 88% for the same period in 2007. The loss ratio has improved to 51.3%, from 61.3% in 2007 for the quarter. This decrease was driven by more favorable loss experience this quarter compared with 2007, which suffered from large losses in our marine hull and UK commercial property lines. On a year-to-date basis, the combined ratio was 87.1%, compared with 85.5% in 2007. Gross written premium was up by 30%, at $259 million, reflecting incremental contributions from business lines such as political risk, excess casualty and financial institutions insurance which have been developed over the past year.

Turning to our US insurance segment, the combined ratio was 91%, down significantly from 122.6% for the second quarter of 2007. On a year-to-date basis, the combined ratio was 96.6%, down from 107.7% in 2007. I'm very pleased to report that the loss ratio has improved significantly, from 71.2% at the end of June last year to 49.4% on a year-to-date basis in 2008, as we have reshaped the book, particularly in the property line. The expense ratio continues to be adversely impacted in the short term as a result of the investment we have made to rebuild the book and reshape the organization. Gross written premium on a year-to-date basis has increased 3% when compared to the same period last year. Our property book in particular has changed significantly, with greater diversity and reduced loss activity.

Turning now to investments, our net investment income for the quarter was $71 million, compared with $79 million in the second quarter of 2007, due primarily to the performance of our funds of hedge funds and a slight reduction in book yield. Although a decrease on the second quarter of last year, this was a significant improvement on the first quarter of 2008, as a result of the positive contribution from the funds of hedge funds. These funds contributed $11 million in the quarter against the backdrop of volatile market conditions, compared to a loss of $17 million in the first quarter of this year.

Book yield on the fixed income element of our portfolio has remained stable at 4.8% when compared to the end of the first quarter of 2008, and decreased marginally when compared with 4.9% at the same point last year. We carry no impairments in our investment portfolio and continue to be satisfied with the credit quality of our fixed income book, at an average of AA+, with 89% of our portfolio being rated A or higher.

Turning briefly to capital management, as a reminder, we completed a share repurchase of $100 million in May from Candover Partners, the last of our founding private equity shareholders.

Lastly, I'd like to update our guidance for 2008 based on our experience year to date. You will see an updated set of metrics on Page 15 of the slide presentation. We expect that pricing will continue to soften for the remainder of 2008 in most of our lines, with some exceptions, as Chris will discuss. We anticipate that total gross written premium will remain within original guidance of $1.8 billion plus or minus 5%.

Volatility in the capital and equity markets is expected to continue throughout the remainder of the year and, as a result, guidance for investment income has been revised to a range of $230 million to $265 million, with fixed income and short-term investments expected to contribute $230 million to $245 million and funds of hedge funds expected to contribute less than $20 million. The assumed cat load has also been revised to $115 million for the full year, reflecting our experience in the half year to date. Return on average equity is unchanged in the range of 13% to 16% for 2008, assuming normal loss experience for the remainder of the year.

To conclude, I'm very pleased with yet another quarter's strong results across all elements of our business. This is the 11th consecutive quarter that we have increased book value per share. I'm confident that we are addressing the margin challenges of the soft cycle with the benefit of broad and deep experience in previous cycles. I'm also pleased that we have the confidence to continue to invest in our people and diversified business model.

And with that I'd like to hand the call back to Chris.

Thanks, Richard.

As Richard has indicated, I cannot emphasize enough the importance of maintaining underwriting discipline as the market continues to soften, and this is a critical focus of our attention at Aspen. I'm now going to discuss what this means in terms of the market conditions in each of our business segments, as shown in Slide 16.

As a reminder, we measure rate relativity on a premium-weighted basis on the business we renew.

Starting with property reinsurance, our catastrophe account has seen rates continue to decline, with average reductions of 7%. We've reduced our position in Florida as a result. Also, a number of our clients have chosen to increase their retentions and buy less reinsurance. Average rate reductions on our (inaudible) book amounted to approximately 10%, with the rates for complex risks less impacted.

Pro rata pricing continues to soften, and we wrote less business than we had expected due to inadequate pricing on certain accounts. We rated down on average by 6%.

Our property facultative reinsurance books on average declined 10%. Declines in the US were more marked than in the UK and Continental Europe, reflecting the fact that international rates began to fall roughly a year ahead of the US.

Turning now to casualty reinsurance, our international treaty unit had a better than expected July 1 renewal, with relatively flat rates. Competition on US casualty reinsurance remains acute, and we non-renewed a number of contracts on rating grounds. The average rate reduction in our book was approximately 5%, which was better than our planning assumption and reflects the deliberate pruning back of our account where rates are insufficient.

Moving on to international insurance, we recorded average decrease of 5% on our renewal book as rates have continued to decrease across most lines. In marine hull insurance, loss-impacted accounts have seen price increases, and rates on the book have averaged a 2% increase. In energy physical damage insurance, we've seen some signs of rating pressure beginning to abate, on top of (inaudible) programs, with brokers experiencing some difficulty in placing certain programs.

In excess casualty, rates are continuing to reduce and have fallen by an average 10% to 15% in the US, with higher reductions outside the US market.

July is the biggest renewal month for our aviation account year to date, and the rates were generally flat, with some (inaudible) subsequently being offered -- re-offered at higher prices. We recorded an average rate increase on renewal business on our aviation book of 1%.

In UK commercial property insurance, competition remains strong, with a large rate concession in the property owner sector. We were, however, able to achieve average rate increases of 1% on our renewal book. Market conditions are also challenging UK employer's liability insurance, with larger accounts continuing to see declining rates. The average rate reduction on our renewal book amounts to 11%, although there are some signs that pressure may be abating.

In our UK [industrial and] professional lines account, conditions remain very challenging, and we have scaled back our underwriting appetite as a result. The pricing dynamic in political risk and financial institutions, however, is a very different story. In political risk we are seeing increases of as much as 100% in certain segments of the market, such as contract (inaudible) and credit insurance. Our financial institutions account is biased towards the UK and international and emerging markets, but we are seeing rate increases of up to 10% on non-UK business, with UK business being somewhat more competitive. In the US, we are seeing very significant increases, sometimes up to 200%.

Finally, our US insurance business is seeing a great deal of competition, with average reductions of 16% on E&S property and E&S casualty is down about 10%. We expect property rates to continue to weaken overall. However, the Florida tricounty area is beginning to show signs of a slowdown in rate reduction. US casualty insurance saw rate reduction slow in June compared to earlier in the year.

In conclusion, I want to draw your attention to a concern I have which will adversely affect property and casualty insurance around the world and from which Aspen will not be immune. A spectre is again haunting the global economy, a spectre of persistent inflation. As you know, inflation rates are now higher than they have been for some years. Year-on-year percentage increases in consumer inflation indices have increased globally, with the US at 5% versus 2.7% a year ago. (Inaudible) is at 4% versus 4.9% a year ago, China 7.1% versus 4.4%, and India now at 8.6%, compared to 6.6% a year ago.

Many commentators believe that these increases are showing a period of renewed global inflation at higher interest rates. Others believe the economic slowdown caused by the extended credit crunch will ease inflation. Our concern is that insurance claims historically have tended to rise at rates that are greater than consumer price inflation. Most of the increases so far are attributable to increase in commodity prices. What will be even more worrying, though, is if an increase in inflationary expectations feeds through to increases in interest rates and call of price inflation, which will have a wider ranging impact on the cost of settling insurance claims. In these circumstances we can expect the cost of US casualty claims, where the rate increase has been muted for many years now, to begin to increase again.

Beyond these general inflationary indicators, there has been tremendous volatility, sometimes approaching hyperinflation, affecting certain commodities. Although many commodity prices have fallen significantly in the last few weeks, nevertheless, in the last 12 months, the price of steel products have increased by 30%, natural gas by 42% and corn by 85%, and we are all painfully familiar with the price of oil. It follows that exposures from certain types of complex risk, particularly those associated with the oil, gas, petrochemical as well as agribusiness industries, will rise accordingly, and so will the cost of claims.

Clearly, this presents an industry-wide challenge. Aspen's approach to strategic risk management has caused us to focus on this (inaudible) very early on. We are reviewing insured values where appropriate to ensure that we are quoting rates, terms and conditions on the correct exposure basis. We're also evaluating the likely cost of future claims.

Within our reinsurance underwriting, we are examining our insurance company client practices to ensure that they are identifying exposures correctly, which will give us the transparency to ensure we continue to receive the appropriate premium for the risk we assume. However, I am not yet convinced that all of our clients have thought the issues through, and I expect that we may lose some business going forward, as some clients may not appreciate the full gravity of the inflationary shock that may come.

If instead of persistent high inflation we see limited global growth dampening down inflation, then our concerns will be more related to the effect on renewals and new business opportunities of slower economic growth, particularly in those markets with already high market penetration. This scenario will likely exacerbate and extend the already visible softening across most of the P&C market.

In addition to our concerns about inflation, we're also continuing to seek a better understanding of the potential risks and opportunities arising from climate change and the rapid evolution of global energy policies. In summary, we believe these challenges will provide net positive opportunities for specialty insurers and reinsurers, but we will need to continue to build our financial strength, product range, geographical reach and risk management skills if we are to make the most of them.

These ambitions lie at the core of our current strategic thinking. It is important to note that I would characterize our activities as getting ourselves to a state of readiness to take advantage of any opportunities when the time is right rather than as a search for any quick fixes to current soft market challenges.

And with those thoughts, I would now like to open the lines for Q&A.

(OPERATOR INSTRUCTIONS)

Our first question comes from Jay Gelb, with Lehman Brothers. Please go ahead.

Thanks, and good morning. Firstly, I just had a couple of quick numbers questions. Did you have an impact from catastrophe in dollar terms for the most recent quarter?

Something like $10 million, Jay.

Okay.

That's our US Midwest floods.

In that case, does the cat load for the full year seem particularly high?

No, we're reducing guidance down to $115 million from $135 million, so we have taken it down. But that's, I think, appropriate just for this particular time of year.

All right. So it's definitely building in some conservatism, though, with wind season and things like that?

It is building in what we would call our normal expectations of a cat season.

Right. Okay. And then on the expense ratio, the general and admin, that was up 4 points for the quarter and the year to date. I think you mentioned that that rate of increase may slow. Can you give us a sense of why that is and where it may ultimately settle out at?

Yes, certainly, Jay, I'm please to do that. The vast majority of that increase is attributable to some new teams and some new platforms, which we alluded to. So we've got more bodies creating income for us and doing it in new places for us, as well, such as Zurich, Singapore and Dublin, and also Lloyd's, which we opened up in Q2. So we're delighted to be there, but of course the written premium they're producing will feed through into earned in the second half of this year, and that is expected to bring the ratio down in the second half of this year. So it feels like we're at a bit of a high point right now as the new teams get going.

And that trend should probably continue through next year?

I would certainly hope so, but, of course, we've got those inflationary pressures which Chris was referring to, so it's our job to address those pressures. But, yes, the new teams should continue to produce income, and it will be earned through the book next year.

Okay, that's great. And then I was just looking back through my notes from the investor day, and, Chris, I think you had said that $2.5 billion was the appropriate level of capitalization for the Company. It's currently at $2.8 billion, with the $100 million buyback from Candover. So I just wanted to get your view on capital management at this point. Essentially, is everything you run going forward excess capital and retained earnings?

Yes, I think it's one that we keep under review all the time, Jay. And I think one of the differences today versus a couple of years ago when there was a lot of talk on this subject is I think raising capital is quite difficult now. I think it was relatively easy a couple of years back. The way capital markets are now is different. That makes me think having a somewhat bigger capital cushion makes sense. It's not to say that (inaudible) capital that is actually needed to address a reserving risk or an underwriting risk. It just seems to me more sensible not to be running at too tight in the margin at a time when raising capital can be very difficult or very expensive.

With that sort of proviso, I kind of think I agree with what you say. And clearly as we add some reserves with our casualty underwriting, that increases the need to hold more capital against those increased reserves. So you might want to sort of put that on the negative side of the equation, as well. But I think your analysis is roughly correct.

All right. That's great. Thanks very much.

Sure.

Thank you. Our next question is coming from Alain Karaoglan, with Banc of America. Please go ahead.

Good morning. Thanks for the call, and great results in the second quarter. Just a numbers question first, on the fund of hedge funds, what have you -- what are the dollar amounts so far this year? I know for the full year expectation is around less than $20 million, but at the six-month mark, where were we? And if you could give the cat impact also at the six-month mark, how much in cat losses? I think you mentioned $10 million in Q2.

Sure. At the half year, in terms of funds of hedge funds, we're down by $6 million, and in terms of total cats, it's something approaching $15 million. I think we had windstorm (inaudible) in Q1 for about $3 million to $4 million.

And in terms of, Chris, your comments on inflation, what have you done on the reserving front on the business that you've written already, your specialty, the casualty lines? If your expectations of inflations are going up, have you increased that in the reserves yet, or what have you done there? What do you plan to do there?

I think it's more a question of getting that issue right up the agenda and giving it a lot of prominence, keeping the situation under review. At this point we would look at everybody's forecasts for future inflation, and, frankly, they're not that horrific so far. So a point or two more on inflation might mean two or three points more on claims inflation, particularly US casualty claims inflation. So we'd make sure that our reserves are reflecting that.

It's more a question, though, of watching that and seeing (inaudible) [out of hand] and not forgetting that that means we pay more claims. I think you know this, Alain, but there is overwhelming evidence that if CPI picks up, insurance claims inflation picks up a bit more, and we don't want to find our reserves being (inaudible) that process. It isn't going to happen. So far, though, we've not been required to take any action at all. There's still a reasonably good cushion in there.

Thank you very much.

Thank you. Our next question is coming from Arthur Winston, with Pilot. Please go ahead.

Thank you, Chris and the team, thanks for really a great result in the second quarter. We appreciate it. I have two questions. The first is, and I may have missed it, in this segment, this international insurance segment, where these premiums are really escalating, if you didn't describe it before, could you describe what you're writing and what's going on here?

I think there's really two areas. You're talking about where the rates are moving --

No, no, the area that has all this premium growth.

Yes.

The lines, yes.

Okay. Well, one is political risk, which we started writing, I think, toward the end of last year. And essentially what we're doing there is think project finance, usually with a bank loan, for infrastructural products in emergent economies. It's not all that, but a lot of it is. And basically the cost of money has gone up, more money in the system, and the risk aversion of the banks has also increased. So more banks are insisting that insurance policies are taken out, and such as they want to ensure those are in force, that they say, well, the price goes up, that's okay. And the developers, the people on the other side of the equation, have no option but to pay. So it is what you might call a seller's market. That's the real story on political risk.

We thought we might write $20 million to $30 million of this business in our first year. Today I'd say it could be $40 million, maybe even $50 million. And that's not that we're writing more policies than we thought. That's a little bit of it. It's mostly we're just getting a much better premium rate for the job.

The other area is financial institutions insurance, where basically we are selling (inaudible) policies to financial institutions, sometimes with some E&O, sometimes with a little bit of D&O. Our focus here is, again, emerging markets and the UK, but there's some US in there, as well. And the issue here, really, is the whole credit crunch, the fallout from the subprime crisis, the kinds of (inaudible) that's going on. So essentially the price of that products, especially in the US, has gone up.

And, I mean, we've seen in some cases some smaller financial institutions in the US paying three times on renewal what they paid in the expiring policy. The average in the US for that [type of] customer is probably more like 40 to 50%. So those are the big numbers. However, the US isn't a big part of our book, so that's not (inaudible) we're doing. Generally we're seeing more sort of 10 or 15% increase.

And this has nothing to do with what MBIA and Ambac do. It's totally different.

No, we're not in that business at all.

And it should be a very small amount of large claims? You shouldn't have too many claims, but when you have one it's going to be very big?

I think that's definitely true on the political risk side. On the (inaudible) side, there will be some potential for attrition, but not much.

And we've also bought reinsurance against these (inaudible) to cover ourselves against those very issues.

Okay, good. My second goes back to what Jay asked. After you cut through it, number one, where is our stock purchase -- repurchase authorization situation now? And given that, I think, rightly so, we've got to keep more capital, and I think you're right, what does that mean in terms of future stock repurchases?

We still have $200 million (inaudible) outstanding from a board authorization that we got earlier this year. Because, as Chris says, given the state of the markets, it seems like a comfortable thing to hold it on our balance sheet right now as we sit here in the middle of hurricane season.

I mean, my view on that one, really, is, as Richard says, we're right over the middle, we're more at the start of the hurricane season, let's get through the third quarter and see how the landscape looks. I think it wouldn't be smart to do anything at the beginning of August.

So we'll just delay till the fourth quarter and see what happened in the hurricane?

Yes.

Yes, okay. And dividend, there's no interest in dividend increases?

Not at present. No, we always listen to what investors have to say to us, but we think across the board that we're pretty comfortable with having a consistent dividend.

Thank you very much. That means you don't want to raise the dividend is what you're saying?

(Inaudible).

No, you've got to speak English. You've got to speak straight in English.

All right. Okay, that would be a good definition of consistent, yes.

Okay. Thank you very much.

(OPERATOR INSTRUCTIONS)

Our next question comes from Sy Jacobs, with Jacobs Asset Management. Please go ahead.

Thanks, but my question's been answered.

(OPERATOR INSTRUCTIONS)

Our next question is a follow-up from Alain Karaoglan, with Banc of America. Please go ahead.

Yes. Just to follow up on the share repurchase with Chris and Richard, I understand the concept of keeping more capital and what you said about we're in hurricane season. But your stock is at 85% of book value today. Any purchase is accretive to your book value per share. You've decreased significantly your hurricane exposure, and I don't know what you think one in 100 or one in 250 years will lead to, but isn't that likely to lead to a different environment of pricing if that were to occur, and therefore your stock price is not likely to be below book value if that were to occur? So why not -- so the question that I have is why not do some share repurchases in the third quarter as opposed to none?

I mean, I agree with you, Alain, that our stock represents an excellent buy for everybody, including the Company itself. But we balance the issues, and I think we're coming out on the side of caution. We're just -- we would not be comfortable buying anything back, as attractive as it is at this price at this time. As I said already, I'd rather wait, get through the hurricane season and take a proper stock at that point.

Well, could you remind us what is your one in 100 year or one in 250 year exposure on the cat side?

We monitor the -- we stay within [17.5%] surplus at one in 100 and 25% of surplus at one in 250. As far as the one in 100 is concerned, we're a little bit within our tolerance. I haven't actually got that figure in dollars in front of me, but we're currently at about 16.5, 17% of surplus. Actually, just as a matter of interest, that has moved up a little bit recently, in the last 12 months. So there is not so much Florida, but elsewhere, we've written a little bit more cat than we had on our books a year ago. We're still within tolerance, but slightly closer to tolerance.

Thank you.

Thank you. Our next question is also a follow-up from Jay Gelb, with Lehman Brothers. Please go ahead.

Thanks. I may have missed it. Did you do July performance in the fund of hedge funds?

No, we didn't, Jay. But I think it'd be reasonable to say that it's been another tough month. I don't have the final results in for the month yet, so we'll have to see how the quarter plays out. But it won't be a surprise for all those in the market to note it has been a difficult month.

I don't mean to push you, but can you give us a degree of magnitude?

I can't at the moment, Jay.

Okay. Thank you.

Thank you. I'm showing that there are no further questions. I would now like to turn the floor back over to management for any closing remarks.

Well, thank you very much for joining us on the call this morning, and have a good day. Goodbye.

Thank you. This does include today's Aspen Insurance Holdings Limited conference call. You may all disconnect, and have a great day.