Aspen Insurance Holdings Ltd (AHL) 2008 Q3 法說會逐字稿

Good morning. My name is Lynn, and I will be your Conference operator today.

At this time, I would like to welcome everyone to the Aspen Insurance Holdings Third Quarter 2008 Earnings Conference Call. (OPERATOR INSTRUCTIONS)

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; 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 September 30th, 2008. This press release, as well as corresponding supplementary financial information, can be found on our Web site, at www.aspen.bm. I would also like to draw your attention to the fact we have posted a short slide presentation on our Web site 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 Web site.

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 Web site.

Now, I'll turn the call over to Chris O'Kane.

Thank you, Noah, and good morning.

In the third quarter, we've experienced considerable turmoil in global financial markets and two major hurricanes, which have impacted our results for the period.

For the quarter ended September 30, 2008, Aspen recorded a loss of $116.7 million after-tax, or an operating loss of $1.02 per share. The main [drivers] of this were losses from Hurricane Ike, impairment charges of $44 million associated with our fixed-income portfolio, as well as losses from our fund of hedge fund investments of $42 million for the quarter.

Turning to the hurricanes -- we reported net losses of $155 million for both storms, with $141 million related to Hurricane Ike. Our estimated losses are well within our expectations for storms of this nature.

Regarding Hurricane Ike, approximately 69% of our estimated losses are derived from our property reinsurance operations. Our U.S. insurance book accounted for 4% of the losses, and 27% emanated from our international insurance segment, mainly in our offshore energy physical damage account.

Our overall estimate of losses for the hurricanes has not changed since our pre-earnings statement on October the 10th. However, the analysis I have just given reflects our reporting segments. Specialty reinsurance is reported under international insurance, whereas we had grouped this into reinsurance in our pre-earnings statement.

Our loss estimates for this event assume a market loss of about $16 billion, which reflects our expectation that losses will be higher than some early loss estimates assumed, particularly higher than those from the CAT modeling companies.

Our estimated market loss is split roughly $13 billion onshore and $3 billion offshore, with approximately 80% of the onshore losses arising in the state of Texas. On a gross basis, this equates to an estimated market share for us of just over 1.2% for the event. The equivalent figure for Hurricane Katrina was approximately 2.5% of the event, and this reflects the reduction in our risk appetite and repositioning of our catastrophe book in 2006 and 2007. Our losses from these hurricanes were partly offset by strong performance in our non-catastrophe-exposed lines, which underlines the robustness of our diversified underwriting model and reflects our success in expanding our insurance operations at our casualty lines in recent years.

I'm now going to turn the call over to Richard, who will take you through our financial performance in more detail and provide an update to our 2008 guidance.

Thank you, Chris, and good morning, everybody.

As Chris has mentioned, our performance in the third quarter of 2008 has been impacted by losses from Hurricanes Ike and Gustav on the global financial crisis, which has affected the performance of funds of hedge funds and our fixed-income portfolio in the form of other-than-temporary impairments and unrealized losses. Despite the impact of the hurricanes and investment losses, Aspen's balance sheet, capital position and liquidity remain in excellent condition to weather the storms and provide a solid platform for future performance.

Before I talk specifically about the impact of these events, let me first provide you with a summary of the key metrics we use to monitor the performance of our business. Operating losses per share for the quarter were $1.02, compared with $1.12 of operating income per share in the third quarter of 2007. On a year-to-date basis, operating earnings per share were $1.28, compared with $3.52 for the same period in 2007.

Hurricanes Ike and Gustav accounted for $1.91 of the losses per share for the quarter and $1.80 year-to-date. The fund of hedge fund performance accounted for $0.52 of the losses per share for the quarter and $0.56 year-to-date.

Book value per share on a diluted basis at the end of the quarter was $26.21, compared with $25.68 at September 30th, 2007. This represents a 2% increase year-on-year, although book value per share has decreased by $0.87 since December the 31st, 2007 and by $2.78 since the end of June 2008 as a result of hurricane losses, impairment losses and the movement in unrealized losses in our investment portfolio.

Gross written premium for the quarter of $441 million is up 18% from $374 million in 2007, due mainly to the contribution from our new underwriting teams. On a year-to-date basis, gross written premium has increased by 3.5%, to $1.57 billion, again attributable to our new underwriting teams.

Earned premium on a year-to-date basis of -- apologies, I'll start that again. Earned premium on a year-to-date basis of $1.22 billion has lagged behind that produced for the same period in 2007, as premium is yet to fully earn through from these newly established lines. Net earned premium for the quarter of $434 million is a small increase on the third quarter of 2007.

Reserve releases for the quarter were $16 million, compared with $29 million in the third quarter of 2007. On a year-to-date basis, reserve releases were $96 million, up $23 million for the nine-month period last year, representing 3.4% of our net reserves at the end of September.

Our combined ratio for the quarter was 123.3%, compared with 84.5% in 2007. Hurricanes Ike and Gustav accounted for 41 percentage points of the increase in the combined ratio for the quarter. The net impact of CAT events in 2008, including Ike and Gustav, have amounted to $199 million, compared with $63 million in 2007, which, as a reminder, was a very light CAT year.

On a year-to-date basis, our combined ratio was 96.5%, compared with 84.1% in 2007. Our year-to-date combined ratio decreases to 81.8%, excluding the impacts of the hurricanes.

Our expense ratio for the quarter was 28.1%, down from 32.1% in the third quarter of 2007, due to a combination of an increase in earned premiums for our new underwriting teams and a reduction in operating expenses. Operating expenses have decreased from nearly $59 million in the third quarter of 2007 to under $52 million in 2008, due mainly to a reduction in performance-related incentives and lower exchange rates applying to our Sterling-denominated expenses.

I'd now like to discuss major events and the shape of the quarter at Aspen, starting with a more detailed discussion on the performance of our investment portfolio. Our net investment income for the quarter was $19 million, compared with $72 million in the third quarter of 2007, due primarily to the performance of our funds of hedge funds. The book yield on the fixed-income portfolio was 4.87% for the quarter and 4.81% for the nine months, September 30th, 2008.

As a result of the chaos in the financial markets over the quarter, we have taken impairment charges of $44 million pretax associated with investments we believe to be other than temporarily impaired. This represents just under 0.8% of our investment portfolio. Net unrealized losses at the end of September 2008 were $82 million, compared with unrealized gains of $42 million at the end of 2007.

Out of the total impairment charge of $44 million pretax, $34 million relates to bond holdings in Lehman. We've written our subordinated debt in Lehman down to 0 and our senior debt down to a market value of less than $0.13 on the dollar, in line with current market pricing for such securities. Our ultimate recovery may exceed current market value.

To confirm our investment strategy, our portfolio does not contain any direct investment in real estate, collateralized debt obligations or common equities. We continue to maintain a high-quality diversified portfolio, with 46% invested in U.S. and foreign government-backed securities, including Treasury stock, agency debentures and agency MBS.

The portfolio has an average credit quality of AAA and an average duration of 3.5 years. Please refer to slide 14 of the earnings slide presentation for a breakdown of our portfolio by asset type.

Our investments in funds of hedge funds have also been materially impacted by the upheaval and deleveraging in the financial markets, and by extraneous factors such as restrictions on short selling. Performance was down by 7% or $42 million in the quarter, and 8% or $48 million for the nine months. By contrast, the S&P 500 was down nearly 9% for the quarter and 21% for nine months.

The Fund Of Fund Conservative Index is down by over 7.5% for the quarter and down by just under 9% for the year-to-date. We are actively evaluating our allocation to our funds of hedge funds holdings and are considering other opportunities available to us under the prevailing market conditions.

I'll now turn to the highlights from our operating segments. Our property reinsurance segment had a combined ratio of 146% for the quarter, compared with 69.1% for the same period in 2007. Hurricanes Ike and Gustav account for 89 percentage points of the combined ratio for the quarter.

On a year-to-date basis, our combined ratio is 93.4%, compared to 71.9% in 2007, with the hurricanes adding 30 percentage points to the combined ratio for the current year. Gross written premium of $153 million for the quarter and $508 million for the nine months is in line with the comparable periods in 2007 if you exclude $12 million of reinstatement premiums in respect to Hurricane Ike.

Turning now to our casualty reinsurance segment -- the combined ratio for the quarter improved to 90.4% from 101.7%. The improvement in the combined ratio is due largely to favorable developments from prior years and prior-period premium adjustments, particularly in our U.S. casualty line.

On a year-to-date basis, the combined ratio has improved to 92.2% from 94% in 2007. Gross written premium has increased marginally in the third quarter. However, in the nine months, gross written premium decreased by 16% over the same period in 2007, reflecting our response to the prevailing market conditions.

Our international insurance segment reported a combined ratio for the quarter of 119.4%, compared with 81% for the same period in 2007. Losses associated with the hurricanes of $46 million, net of reinsurance recoveries and reinstatement premiums, accounted for 29% of the combined ratio for the quarter. The remaining increase in the combined ratio is attributable mainly to a $22 million reduction in reserve releases compared to the third quarter of 2007.

On a year-to-date basis, our combined ratio is 97.9%, compared to 84% in the same period in 2007. Gross written premium was up by 40%, to $181 million for the quarter, reflecting the incremental contributions from business lines such as financial institutions, financial indemnity and excess casualty insurance, which have been developing over the past year.

Our U.S. insurance segment reported a combined ratio for the quarter of 172.1%, compared with 97.3% for the same period in 2007. Hurricane losses of $15 million accounted for 63 percentage points of the increase in the combined ratio.

The current period has also seen a reduction in reserve releases from $3.5 million in the third quarter of 2007 to less than $1 million this quarter. For the nine months, excluding the impact of the hurricanes, the combined ratio has improved to 101.4%, compared to 104.6% for the same period in 2007. Gross written premium on a year-to-date basis has increased 3% when compared to the same period last year, as the book continues to be reshaped.

I'll now talk briefly about our liquidity and capital structure. We continue to have strong positive cash flow from operations of over $442 million for the nine months, in addition to $5.9 billion of cash and invested assets, which are predominantly liquid, and our fund of hedge fund investments, which are subject to some limited redemption restrictions. We maintain high levels of liquidity, with modest levels of long-term leverage in our balance sheet, and we are not dependent on external sources of short-term funding.

Our debt-to-capital ratio at the end of September is 8.6%, reflecting our limited reliance on borrowings. This ratio is up slightly from December 2007 as a result of the impact of the hurricanes and unrealized losses from our investment portfolio.

As a reminder, our debt is in the form of $250 million of senior loan notes expiring in 2014. Our total debt-to-total capital ratio is 22%, which would include $419 million of perpetual preference shares.

Lastly, I would like to update our guidance for 2008 based on our experience year-to-date and expectations for the fourth quarter. You'll see an updated set of metrics on page 15 of the slide presentation.

We anticipate that total gross written premium will remain within original guidance of $1.8 billion, plus or minus 5%. Our combined ratio has been revised to a range of 92% to 96% as a result of the hurricane-driven loss activity in the third quarter.

Volatility in the financial 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 $160 million to $205 million, with fixed-income and short-term investments expected to contribute $230 million to $245 million and funds of hedge funds expected to contribute losses of between $40 million and $70 million. This latter range is very difficult to predict, given high market volatility.

Our tax rate has been revised to a range of 14% to 17% as a result of the distribution of hurricane losses within the group. The assumed CAT load has also been revised -- $235 million for the year, including $35 million for the fourth quarter, reflecting hurricane losses. Operating return on equity is in the range of 8% to 11% for 2008, assuming normal loss experience for the remainder of the year.

In conclusion, our underwriting business in the round has performed satisfactorily. The quarter's results are reflective of recent events. However, I'm confident in the long-term performance of our diversified business model and the strength of our balance sheet. Coupled with our high levels of liquidity, I believe we are placed in a strong position to benefit from opportunities that are likely to present themselves over coming quarters.

And with that, I would like to turn the call back over to Chris.

Thanks, Richard.

I'd now like to comment on current underwriting conditions and the implications of the ongoing financial crisis on our business. Further detail is set out on slide 16.

What sets this earnings call apart from every other one we've presented, since our first [call as a] public company in February 2004, is that I believe it is possible, for the first time, to be hopeful about general upturn in market fortunes. To be hopeful is not the same as to be completely persuaded that a general market correction has arrived. And I think it is worth spending a few moments considering the reasons to be cautious versus the reasons to be optimistic.

In almost 30 years in this industry, I witnessed five soft markets and four market corrections. All the corrections have had certain features in common.

First, there had been a period of several years of low premium rates and high attritional losses. Second, some company failures occurred (inaudible) with a withdrawal of capital. Third, a cataclysmic event or events, such as asbestos and pollution in the 1980s, Hurricane Andrew in 1992 or World Trade Center in 2001. Fourth and finally, a widespread willingness by insurance industry management to put up prices, even if it results in the loss of business. I would now argue that only one or two of these preconditions thus far have been even partly met.

Of course, we should beware of expecting the future to be invariably a repeat of the past. There are some additional features this time which may allow a correction to occur for different reasons.

For example, the typical P&C insurance return on equity will see about a 50% contribution derived from investments. This is what allows combined ratios in the 90s to produce satisfactory returns. Today the investment side is not contributing at these levels, and the immediate prognosis for investments is uncertain at best. This puts increased pressure on the underwriting side to contribute more, and I feel there is an increasingly widespread recognition of the need to move back to higher premium rate throughout the industry.

The next few months will show us whether this will indeed be the case. My personal opinion is that this will happen in some lines of business, most likely dominated by property reinsurance and insurance at first, then ultimately expanding into the casualty lines.

There's also, this time, a second set of considerations around hurricane losses. While it is convenient to classify hurricanes on a 1-to-5 Saffir-Simpson scale, it's important to note that wind speed is but one piece of the puzzle when analyzing the loss potential from a storm. By definition, a Category 2 storm has sustained wind speeds of between 96 and 110 miles per hour. While it's true that Ike was a Category 2 storm under this definition, Ike carried storm-surge characteristics of a Category 4 storm.

According to NOAA, Ike's storm surge rated 5 on a scale of 0 to 6 just before landfall. This was about the same destructive potential that Katrina had at its landfall. In addition, Ike was significantly larger than Katrina. Ike's tropical-force winds extended 275 miles, which was 30% larger than Katrina, and its hurricane-force winds extended 115 miles, which was 10% larger than Katrina. As a result of its sheer size, Ike's destructive force penetrated much deeper inland that what would typically be expected from a Category 2 storm. As a result, even clients in non-coastal states were impacted by Ike.

Significant and broad loss activity from Hurricane Ike has reminded the market that U.S. CAT-exposed property has once again been written at prices which are unacceptably [low]. I expect that the pattern of rate reductions that we've seen since 2006 have ended. I expect rates to be flat going into year end and to increase by 10% to 20% by the middle of 2009.

Thirdly, we're witnessing the discomfiture today of two major competitors who previously enjoyed excellent reputations and very good financial strength ratings. Many of our clients are telling us that they now feel they made a fundamental risk-management error in allowing so much of their business to be placed with one carrier in particular, despite that carrier's impressive ratings and balance sheet. They are saying that the risk of excessive concentration in a single counterparty was not justified by the quality of that counterparty's balance sheet.

We sense that there is a return to the subscription market, particularly evidenced in financial and professional lines, in construction liability and general liability, in aviation, and even in major account property lines. Commitments of $100 million to $500 million previously with one carrier are now being offered to three or four, or even as many as 10 carriers. This process, which constitutes sound risk management, will ultimately lead to significant price increases.

We should bear in mind that at this stage, we're paradoxically (inaudible) reverse, [with] significant rate reductions being offered by our distressed competitor to counter the threat of lost business.

So what does all this mean for Aspen? There is a broad and narrow way to answer that question. In the broader sense, our 2009 business plan expected a continued decline in rates.

Following the events of September and October, we have revised this up to something closer to flat rates overall, with some lines expected to deliver sizeable increases. As you know, we've always believed in capital management, which means allocating capital quickly to emerging attractive opportunities, and withdrawing it as quickly as necessary when the returns begin to deteriorate. Currently, we see significant opportunities in certain financial and professional lines, in financial and political risk, excess casualty, offshore energy property, and, to some extent, in property reinsurance and aviation insurance.

More narrowly, the ongoing financial crisis and the deepening recession have caused us to look again, and in a penetrating way, at our financial and professional lines' exposures. As you will recall, we only began writing these lines within the last year or 18 months. And so therefore, we've very little exposure to the problems. Our entry into most of the lines took place after the crisis had become apparent, and so we have moved cautiously and with the benefit of very significant rate increases already. Although we have moved cautiously thus far, we now expect to enjoy very attractive underwriting conditions in near future and see considerable scope for expansion in these lines.

Another consequence of the crisis, I believe, is a real likelihood of increased regulator oversight of our industry. And those common companies, which have placed a premium on enterprise risk management and transparency, as Aspen has done, will be well positioned to respond to the challenge.

We're not blind to the challenges that are looming. On the last call, I talked about the inflationary threat, which has certainly receded, at least for the present. Today we're at the onset of a recession, which many commentators anticipate will be significant and long drawn-out.

This will produce increased claims in causes such as fraud and arson. In addition, businesses will have further pressure exerted on them, as [the] margins resulting in rethink of their [insurant] needs. Aspen's underwriting teams have successfully faced these challenges before, and we will be vigilant in protecting our shareholders from these recessionary threats.

In conclusion, at Aspen, we find ourselves in the fortunate position of enjoying excellent relationships with our clients, a very strong balance sheet, and a diversified business model, which makes us feel exceptionally well placed to take advantage of opportunities as they emerge in 2009.

And with that, I'll turn the call over to Q&A.

(OPERATOR INSTRUCTIONS) Jay Gelb, Barclays Capital.

Thanks very much, and good morning.

Chris, that was a great overview in terms of what it may take to change the cycle here. I believe one of the things you mentioned was low rates and high attritional losses. It seems that what may be different about this cycle is that the underwriting results are still, overall, pretty solid, including what most would argue is still some excess loss-reserve positions for the industry. Do we need to see loss reserves start to become more deficient for the industry, with higher calendar-year underwriting losses before we can really call it a turn?

Jay, I think it's an incredibly difficult one to call. And I agree with you -- that's [why] I was really trying to say there are reasons to be cautious, and there are reasons to be optimistic. And if you want to put it crudely, things haven't been that bad so far for most people, notwithstanding the depletion of returns on the investment side. There probably is maybe another year's worth of over-reserving within the industry as a whole, maybe 18 months.

And I think the first factor is -- you're going to see that kind of being leeched out. Maybe that's easier to do than push for rate increases, which would say maybe we see the beginnings of a turn this year end. And maybe it begins to develop and strengthen over the next 18 months or so, with maybe a hard market coming more in, let's say, 2010, rather than 2009. I think it's very, very tough to call.

The other side is how long is the prices [in] investments markets going to carry on? I mean, if that recovers, it eases pressure on underwriting. If that intensifies, it increases pressure on underwriting.

So I feel -- I don't want to sit on the fence here, but I feel things are definitely looking up compared to what they were. But I think it might be a little bit early to sound the trumpet and say the hard market is with us.

I think that makes a lot of sense.

And then secondly, can you talk about the exposure to the hurricanes? You saw it on the property reinsurance, the property insurance, the international through the offshore. When you look back, in terms of the risk-management process, is Aspen comfortable that it wasn't accepting too much exposure in too many different parts of the franchise?

No, I'm totally comfortable about that. Clearly, we operated in insurance and reinsurance and different lines within. But management is holistic. We have, I think, something -- over 20 people in catastrophe risk management. And their job is to collect that data, get it into one place, and make sure -- give it the ability to look at what everybody's done.

I've felt that something in the region of 1% of a hurricane loss of significant size, from the property reinsurance account, is about what I expected. I think it's what we're capitalized to take. And I think probably we got a bit less than that. So I think that's a good-news event.

And then on the insurance side, $7.5 million on Gustav and Ike from [ENS] property -- I think that's very respectable, considerably more respectable than what I was reporting three years ago in Katrina or in Wilma.

You then got the marine energy stuff. That's reinsured in excess of $20 million, up to $100 million. And this is quite a big loss for that industry. And that's the one -- I'm not saying we've too much of it. But it's the one where I think we all need to take a close look at these offshore rigs, and how much money you need to insure them against wind. And we're still taking that look. I would say I'm cautiously optimistic there that we're going to see rate increases of 50%, maybe 60% at -- as they come up for renewal, in the last 12 months or so.

And I think there are [one or two of] our competitors who probably have been [shopped]. Our gross loss on that stuff is around about $50 million-ish, $20 million-odd after reinsurance. And I think we've got some competitors who've got three, four times that amount gross loss, who may be overreacting. But we'll watch that carefully. And if we're convinced that the price is right, we're going to expand there. Just a few doubts as to whether price is absolutely right as yet.

Okay. Thanks for that insight.

And then separately, for Richard -- can you give us a bit more insight maybe on what -- I don't know if you have for the hedge fund of funds what the performance is so far in October, or if not, the -- maybe what the index did.

And then, it sounded like you're reviewing the allocation to that asset class. When will that review be complete?

Okay, Jay, good morning.

Start off with October performance. And we're not to the end of October, of course. Up to the end of last week, it looked like we were down something like 200 points. But I will say that the market has some recovery for this week. So as has been the story for most of Q3 and before, really rather difficult to predict where we will end up. That's the performance in October. We are down, but the market has gone back up again. So we shall see, we shall track it very carefully.

As regards what we're doing in the asset class, and what we're doing in alternatives generally -- we have put a redemption notice in to our fund managers in respect to 40% of our fund of hedge funds holdings. So that'll be about $200 million. And we've done that actually in September and expect the cash to come through from that at the beginning of January. And we're thinking about our policy in relation to the remainder of our holdings.

A position we'd very much like to be in is to be flexible to respond to the opportunities that are appearing in the markets. I think some of the investing models and opportunities are changing. And the way to take best advantage of this is to stay very close to our advisors and the markets, and a response of (inaudible) that is clearly a major feature of what's going on at the moment. And I think the opportunities that are available to us will change over the next two or three months. We watch it very carefully, and I think there'll be some very interesting places to put our money as we move into 2009.

Great. And that performance number you gave, so far in October -- is that for Aspen's performance, or the index?

That's Aspen. Because I think the indexes tend to be monthly.

Okay. All right, thanks very much.

Okay.

Alain Karaoglan, Banc of America.

Good morning. I have a couple of questions.

The first one, on the casualty reinsurance business and the U.S. insurance business -- your adjusted accident year combined ratio for the casualty reinsurance business is 105.7 in this quarter, and on the U.S. insurance business, also the same. Why is it so high? And what had happened in the quarter?

And the second question relates to it -- is in terms of your outlook, you don't see the outlook on the excess and surplus improving going forward, and given that one of the large companies in difficulty is a big player in that. And I was wondering what your thoughts on that were.

And on the professional liability business, on that sheet, it doesn't seem to be a very attractive environment. Yet you're growing it meaningfully. And I realize you've hired a new team.

Okay, right. I'll kick off, Alain, and then I'm sure Chris will join as well.

On the casualty reinsurance, the combined ratio for the quarter -- you're right -- is not looking that strong for the accident year. We have had a little bit of reserve strengthening. We recognize what's been going on in respect to the credit crunch. And we looked at our reserves in that respect.

I think I would point you towards the longer-term loss ratios rather than any one particular quarter, for casualty reinsurance in particular. But I think the ratio we are recording does reflect the strengths and stresses in that particular segment. And one would hope that the race would start to push up, as Chris has described.

So not a great result for the quarter. It does reflect some very limited strengthening in respect of the credit crunch and losses that might arise from that. And we shall see how that progresses over a multi-quarter view.

And what's the dollar amount of the reserve strengthening, Richard, in that line?

$10 million.

Okay.

And turning to U.S. insurance -- I think you're still seeing a transition in U.S. insurance. Combined ratio for the quarter is starting to improve year-on-year. But what we're short of at the moment is earned premium. And our team that's looking after U.S. insurance is starting to produce the GWP, and you can see that increasing on a year-to-year basis. But they have an expense base, too, to sustain. And I'm expecting that to improve as the GWP starts coming through from that reshaping.

Okay, Alain. I think the other part of your question I will take. And that was, first of all, ENS property, I think probably (inaudible) both in the U.S. and then professional lines.

Taking the ENS piece first -- I am, I would say, hopeful for the medium-term future. Reporting on what I'm seeing in the market today, I'm not so happy. I think a lot of the preconditions for a correction are there. But actually, what's happening is there's more competition as there's an effort to hold onto business by companies that might otherwise lose it. So actually, rates are lower, in many cases today, than they were three months ago.

Now that's a paradox that makes no sense. And I think it's transient; I think it's going to stop quite soon. So actually, rates are down.

If you look forward to year end, when does that process end, when does some sort of sense of pricing [correcting] return? Maybe at year end, maybe in the course of next year.

If you want to look out to the middle of next year, I would say the ENS arena ought to be seeing decent rate increases, too. It's just too soon to sound the bell on those.

I think the final part of your question -- and correct me if I've got it wrong here -- I think was about professional lines?

Yes.

That's something that we started doing about -- last summer. It's almost entirely UK business. Little bit of it is Australian, almost nothing outside of the UK and Australia. We hired the team because they had an unusual approach to this. They risk-managed the business. And most guys doing this kind of -- we provide cover for smaller firms, maybe actuaries, maybe architects, maybe small firms of accountants. It's not the -- it's not the big stuff, the household names.

And they really get close to clients, and they say, who's interested in risk management -- who is willing to change their business model, change the business practices, try and run their business a bit more cleverly.

Now oddly, in the UK, that's just not something that's common. And these guys have a certain network of clients that have been with them and like the treatment they get for quite -- couple of years -- more than a couple; quite a few years -- over probably two different previous employers. And we know the performance of that book. And it outperforms the general market.

So what we've really done is we've got a team that's connected itself with its own group of clients, risk-managed business which outperform [in] the market. And I'm completely comfortable that we've done the right thing there.

Beyond that, the general sort of commoditized professional lines in the UK remains competitive. I would say, though, that the UK in general is further into the downturn, and possibly closer to coming out the other side, than the U.S. market. Prices went down there faster and earlier. So we may be beginning to see a turn there in 2009 as well. But without that turn, I'm not predicting significant growth in our UK professional lines.

Thank you very much.

Thanks.

(OPERATOR INSTRUCTIONS) Dean Evans, KBW.

Yes. I may have missed it, but could you give the impact of what reinstatement premiums were in the quarter, on the top line?

Sure, Dean. It's $14 million.

Okay. And which segments -- how did they break down by segments?

It's predominantly in property reinsurance. I think it's about $12 million in property reinsurance.

Okay, great.

Great. That was all I had. Thank you.

Thanks, Dean.

[Thank] you, Dean.

At this time, there appear to be no further questions.

In that case, I think we can bring this call to a close.

Thank you very much, indeed, for listening. Goodbye.

Thank you. This does conclude today's Conference Call. You may now disconnect your lines, and have a wonderful day.