Aspen Insurance Holdings Ltd (AHL) 2008 Q4 法說會逐字稿

Good morning, I will be your conference operator today. At this time I would like to welcome everyone to the Aspen Insurance Holdings fourth-quarter and year-2008 earnings conference call. All lines have been place on might to prevent any background noise. At the end of the speakers remarks, there will be a question and answer section. (Operator Instructions)

Mr. Fields, you are 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 under way, I would like to make the following remarks.

Yesterday afternoon we issued our press release announcing Aspen's final results for the year and quarter ended December 31, 2008. This press release as well as corresponding supplementary financial information can be found on our website at www.aspen.com. I would also like to draw your attention to the fact that we posted a short slide presentation on our website to company this call.

This presentation contains and Aspen may make from time to time written or oral forward-looking statement 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 involving future events that are subject to a number of uncertainties and other factors. For more detailed description of these uncertainties and other factors please see the risk factor 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 earnings slide presentation posted on the Aspen website. Now I will turn the call over to Chris O'Kane.

Thank you, Noah, and good morning, everybody. I am pleased to report that our book value per share increased by 3.8% to $28.10 for the full year. Our combined rates here for full year was 95.6% and net incomes for the full year was $103.8 million which equates to an operating return on equity of 5.4%. Our book value per share increased by 7.2% over the third quarter of 2008 and combined ratio for the quarter was 93.4%. Our reported net income of $21.8 million for the quarter a decrease of 84% versus the same period last year.

While our absolute returns for the year are disappointing, I think there are some very positive aspects to our performance. 2008 was an incredibly challenging year both for our industry and financial markets more broadly and was dominated by Hurricane Ike and by unprecedented falls in financial markets worldwide. I will start by commenting on our underwriting performance for the year. Our reinsurance operations fared extremely well in the third most expensive catastrophe year on record. The combined ratio per reinsurance was 91.6% with Hurricane Ike impacting a combined rate of property reinsurance by 23 percentage points. Casualty reinsurance had an excellent result with combined rates of 92%, 6 percentage points better than we had expected.

There is no doubt that market conditions in casualty have been and remain challenging but our continued underwriting and pricing integrity are guiding through this difficult stage of cycle with success. The results in our insurance lines are more mixed.

Our UK liability insurance unit continues to produce excellent results and our UK property insurance operation achieved a combined ratio of 75% in extraordinarily challenging circumstances. This is superb results. Elsewhere, for example, in offshore energy physical damage insurance, our results were impacted by Hurricane Ike and our marine and energy liability count was affected by reserve strengthening on 2007 California wildfire losses. Our US insurance account needs more careful interpretation. The loss ratio in property is 60%, which we think is a good improvement and reflects the work that we have been doing to reposition our book. Our casualty loss ratio is 66% which is very respectable.

However the property combined ratio is 119% and the casualty combined 102% which reflect the expense load as we invest in the future of this business. I will also comment on the impact on the ongoing financial crisis on the underwriting result via what we have increased our net reserve position from $35 million to $85 million in total. This exposure rises from our casualty reinsurance and International insurance segments. In casualty reinsurance, we have written a small number of reinsurance contracts with certain (inaudible) syndicates who have underwritten financial institution explosions including E&O and D&O as well as one casualty covenant. In our international insurance segment discounts from our financial institutions book where we write E&O and some D&O risks. In my opinion we have taken a extremely conservative but appropriate reserving posture in the spectre of this explosion.

Turning back to Hurricane as set out on slide three, we announced our initial loss estimate for this event of $141 million, net of reinsurance, tax, and reinstatement premiums on October the 10th, which we believe was consistent with the market loss of approximately $16 billion. This consists of $99 million in property reinsurance and $42 million in International and US insurance segments. We have increased our loss estimates for Hurricane Ike by 12% this quarter to $158 million and we've increased our market loss assumption by 17% to $20 billion. The modest change in our loss increase reflects approximately an 8% increase in property reinsurance and 19% elsewhere, principally arising from (inaudible) in offshore energy physical damage losses.

Regarding our property reinsurance segment, as stated in previous calls that we would typically expect our market share and property reinsurance for a US CAT of this type to be in the region of 1 to 1.25%. Based on our revised market loss estimate, our market share equates to approximately 0.6% within property reinsurance which clearly demonstrates the benefits of the measures we put in place to reposition our property reinsurance book post the 2005 hurricanes.

Now let's look at how our investment return it varies from our expectations. The biggest single variance is due to the performance of our fund of hedge fund investments. At the beginning of the year, we had $561 million invested with an expected return of 300 to 500 basis points of treasuries. The actual result is a loss of 17% or $96 million. This represents a reduction in post tax ROE of under 4%. We gave notice of redemption in September last year in respect to the $177 million of our fund hedge fund investments and currently intend to redeem the balance next redemption date which is June 30, 2009. This will mark the end of our involvement in the fund of hedge fund sector. It is worth contrasting the performance of the fund hedge funds with our fixed income and short-term investments which returned to 4% for the year. It was extremely pleasing given the turmoil in financial markets. In aggregate, our investment portfolio had a positive total return of 2% in 2008. I am 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, everyone. Despite challenging conditions in 2008, our balance sheet has strengthened over the year. Our capital has strengthened during the quarter as a result of a significant increase in unrealized gains from our fixed term bond portfolio due to a general flight of quality and security where we believe we are very well-positioned. We continue to enjoy excellent liquidity, generated by solid positive cash flows from operations amounting to $86 million in the quarter and $531 million for the year.

I will now highlight some of the key performance metrics in the quarter and the year. Book value per share on the diluted basis at the end of the quarter was $28.10 compared to the $27.08 at December 31, 2007. This represents a 3.8% increase year on year. Since the third quarter, 2008 book value per share have increased by 7.2% due to unrealized gains in our investment portfolio and positive contribution from earnings. Operating income is $20.5 million per quarter, and $151.5 million for the year. This includes losses from our funds of hedge funds of $49 million in the quarter and $97.3 million for the year.

Annualized operating return on equity for the quarter was 2.4% and 5.4% for the year. Annualized operating return on equity excluding our fund for hedge fund performance was 10.6% for the quarter and 9.2% for the year. Operating earnings per share for the quarter was $0.17 compared with $1.47 in the fourth quarter 2007. On a year-to-date basis, operating earnings per share was $1.44, compared with $4.99 in 2007. Losses from our hedge funds reduced operating income by $0.55 a share for the quarter and $1.01 for the year. Hurricane Ike and Gustav reduce our operating income per share by $2 in the year.

Gross written premium for the quarter of $435 million is up 43% from $305 million in 2007. Due mainly to the contribution of our new underwriting teams. On a year-to-date basis, gross written premium has increased by 10% to just over $2 billion. Again, attributable to our new underwriting teams which contributed $208 million. Net earned premium for the quarter of $479 million is an increase of 13% over last quarter of 2007, as we see written premiums from our new lines start to earn through to the income statement. Net earned premium on a year-to-date basis of $1.7 billion is broadly in line with 2007.

Our combined ratio for the quarter was 93.4% compared with 79.4% in 2007. We experienced $12 million of net reserve strengthening for the quarter. We experienced some strengthening in respect to California wildfires within International insurance offset by favorable experience across a number of our other lines of business. This net strengthening compares to $35 million of reserve releases in the fourth quarter of 2007. In 2008, our combined ratio was 95.6% compared with 83% for 2007. Hurricanes Ike and Gustav accounted for 11 percentage points of the increase in combined ratio for the year. Reserve releases were $84 million, down $23 million on last year. The net impact of cat events in 2008 including Ike and Gustav have amounted to $203 million, compared with $77 million in 2007.

Our expense ratio for the quarter was 28.5% down from 31.8% in the fourth quarter of 2007, due to an increase in earned premiums and a reduction in operating expenses. Operating expenses have decreased from $57 million in the fourth quarter of 2007 to under $49 million in 2008, due to a reduction of performance related incentives and lower exchange rates applying to our sterling denominated expenses. Our tax rate increased in the fourth quarter to give an annual effective rate of 26%. This is being driven by the distribution of underwriting and investment losses within the group between our Bermuda and UK operating companies, in particular in the fourth quarter.

I will now turn to the highlights from our operating segments. Chris has already commented on the performance of our property reinsurance segment including our Hurricane Ike numbers. Our casualty reinsurance segment, combined ratio improved to 92% for the quarter from 96.1% in the fourth quarter of 2007. The improvement is due largely to favorable development on prior accident years, particularly in our US casualty book. In the full-year 2008, the combined ratio was improved to 92% from 94.6% in 2007. Our accident year loss ratio for the year was 105.8% which includes $30 million -- sorry, $35 million of reserve charges related to the financial crisis as Chris referenced earlier. Our fourth-quarter gross written premium increase of $46.4 million includes the impact of a number of prior year premium adjustments as we receive updated information from our cedents. For the 12-month period, gross written premiums decreased by 4% to $460 million when compared to 2007.

The International insurance segment reported a combined ratio for the fourth quarter of 104.9% versus 70.5% in 2007. The fourth quarter 2008 has been impacted by $24 million of net prior-year reserve strengthening. We have adverse prior year deterioration in respect to California wildfires and also from ship owners liability, both within our marine and energy liability accounts, offset by favorable developments in our UK Commercial and property lines. I will not draw any negative trend conclusions from the specific elements of adverse developments within this quarter.

For 2008, the combined ratio for the segment has increased to 99.8% compared to 80.7% for the same period in 2007, with Hurricanes Ike and Gustav contributing 7 percentage points to the increase. Gross written premium in the quarter increased by 53% to $229 million. For the 12-month period, gross written premiums have increased to $868 million from $663 million in 2007. The combined ratio for the US insurance segments have improved significantly to 59% compared with 77% in the fourth quarter of 2007. You may need a favorable lot experience in the current quarter. The compound ratios for the 12 months was 105.8% with Hurricanes Gustav and Ike accounting for 15 percentage points of the increase in the combined ratio for the year. This compares to the combined ratio of 98.3% for 2007. Gross written premium increased by 13% when compared to the fourth quarter of 2007 and 5% for the year.

Turning now to our investment performance. Our net investment income for the quarter was $10 million compared with $18 million in the fourth quarter of 2007 due primarily to the adverse performance of our fund of hedge funds. Our fixed income portfolio performed strongly with unrealized gains of $138 million in the fourth quarter. By the end of the year, the fixed income portfolio had $67 million of net unrealized gains, compared with $42 million of gains at the end of 2007. The average credit quality o the portfolio remains AAA. Please refer of slide four of the earnings slide presentation for a breakdown of our portfolio by asset type.

Total investment return including unrealized gains and losses for the quarter were $157 million, up from $145 million in the fourth quarter of 2007. On a year-to-date basis, total investment return of $117 million is down 69% from 2007. Due mainly to the performance of our fund of hedge fund investments taken together with impairment charges and the smaller net change in unrealized investment gains.

The book yield on the fixed income portfolio was 4.64% of December 31, 2008, compared with 5.05% at the end of 2007. Average duration has decreased to 3.1 years from 3.4 years. As we have responded to the changing interest rate environment. We have taken charge in the quarter of just under $4 million pretaxed associated with investments we believe to be other than temporarily impaired. For the 12-month period our impairment charges were $60 million. Total impairment charges are just over 1% of the portfolio as at year end.

I will now talk about our liquidity and capital structure. We continue to enjoy a strong balance sheet with just under $6 billion of cash and invested assets. Our debt-to-capital ratio at the end of December is 8.2%, reflecting our limited reliance on borrowings. This ratio is broadly in line with December 2007 despite the impact of the 2008 hurricanes. Our total debt from hybrids to total capital ratio is 22%, which includes $419 million of perpetual preference shares.

Turning now to guidance for 2009. As set out on slide five, due to the level of economic uncertainty involving investment returns in particular, we have limited our guidance metric to the following data points. Our gross written premium guidance is $2 billion plus or minus 5%. We expect to see between 10% and 12% of gross earned premium. We anticipate our combined ratio to be in the range of 90 to 96% including a CAT load of $170 million assuming normal loss experience. We expect a tax rate of 13% to 16%. That concludes my comments on 2008 performance and guidance for 2009. I would now like to turn the call back to Chris.

Thank you, Richard. I am now going to comment on January renewals and our view of the market outlook. As a reminder, we measure rate relativity on a premium weighted basis on business we renew. Starting with our property reinsurance segment, we saw significant hardening of US peak (inaudible) CAT contracts with rates rising by 20% or more and we expect this upwards trend to continue throughout 2009. Rate increases on regional US business however have been more lucid.

Accounts from the European wind exposure experienced rate increases of 5% to 10% on average but rates elsewhere in Europe were flat. In general, our US casualty reinsurance business, we saw early signs of market hardening in January 1, renewals. General and umbrella liability lines have reversed their mid-2008 double-digit declines to a smaller single-digit decrease or even flat renewal. We are still seeing some pockets of heavy competition on certain more attractive and loss re-accounts. Conditions, however, are opening up.

In International casualty reinsurance generally, we saw rate increases in the high single-digit range depending on the class of business and the loss experience. Terms and conditions were broadly steady with small improvements. Overall we recorded an average rate increase of 3% on renewal business across the International casualty reinsurance book.

Turning now to our International insurance segment, we achieved an average rate increase of 15% on renewal business -- excuse me, reflecting an improving rate environment in a number of our lines of business in particular marine held and marine and energy liability for which the month of January is an important renewal period. In marine held the rate environment was improving in part due to reduced market capacity and we achieved average effective rate increases of 27% of our book. We achieved significant increases at our marine, energy and construction liability book of an average 44% versus our planning assumption of 10%.

In US property insurance rates, they continue to vary between 10% above and 10% below expiring premium, but there are many outliers. For larger property accounts requiring a number market participants we are generally able to bind business with the rate increases of between 5% and 10%. Property rates remain heavily bifurcated between CAT and non-CAT with CAT being much more likely to see increases. In US casualty insurance, we maintain our discipline on writing approach, our low book is typically saw reduction of 10% we were in fact able to secure renewal orders at rates equivalent to those achieved at the end of 2007.

In conclusion, there is no doubt that the P&C insurance industry is still experiencing very difficult conditions. Since we reported to you last quarter, three-month LIBOR declined by 2.63% and the US Treasury five year yields declined by 1.3%. This will ultimately lead to reduced investment income. There is still no return to stability in equity markets and we have yet to experience the impact the recession will have on claims, frequency, and severity. On the other hand, many lines of business are experiencing good levels of rate increase and we believe this trend will continue as 2009 progresses. I have already reported to you on the level of increase that is planned for many of our lines of business. Our test now in managing our underwriting is to increase our exposure to those lines that are enjoying the biggest increases while moderating our exposure to those which have yet to reprice. This is something that we will be working on assiduously throughout 2009? With that, I am happy to turn the call over to Q&A.

Operator?

Operator, can you invite questions please?

(Operator Instructions) We'll pause for just a moment to compile the Q&A roster. And your first question comes from the line of Dan Farrell.

Good morning. Hello?

Hi, Dan.

Hi. Couple of questions. Firstly, I apologize if you touched on this in your comments, but can you just go through again some of the details on the -- on the movements in the reserve edition of the quarter, and in particular, did any of the reserve movement relate to some of the premium adjustments that were taking place in the quarter?

Yes. Certainly. The answer to the second question is, no. And just to go into a bit more detail on what happened. The major movements that we have had have been in our International insurance segments as I am sure you can see from the financial supplement that we had $24 million of strengthening in the quarter. Now from that, by far the biggest proportion of that is in respect to a California wildfire claim where the issue is between a utility owner and various property owners and it's question of liability under that position so that is by far the largest element of that reserve strengthening.

The second element I will pick up is on ship owners liability where we've had some strengthening in relation to 2007 and and before and particularly one item I will pick up is the -- the wreckage of the SS NAPOLI which happened in 2007. You may remember that was part of Windstorm Carol, that's proved more expensive to clean up than had been anticipated. So that is what has been happening on the negative side in International insurance, but on the positive side, we actually have some releases from prior years from the property line and the very early years of UK liability where we continue to see very good loss experience.

That's helpful. Thank you. Then just on the combined ratio guidance for next year, does that include any prior year reserve movement assumptions? And then also on the CAT assumption of $170 million, can you refresh us on what that compares to, assumptions for a year ago when you were forecasting CAT?

Yes, sure. We do not include any assumption in respect to prior year development in our anticipated number. In the 90 to 96 that we quoted for you. Our CAT number from last year was 135. So we have a small but what I would describe as not material increase in CAT load.

Great, thank you. That was helpful.

Okay

Your next question comes from the line of Brian Meredith of UBS.

Thank you. A couple of questions here. First one, Chris, I am wondering if could you walk through any significant changes in your reinsurance program -- your outgoing reinsurance program? Significant changes, retentions, or additional coverages that were bought during the renewal.

I can. I would say that in general, there are no very significant changes. But that's a very short answer to a good question. If I look most of what we are buying is quite specific protections against specific lines of business. And in a few instances, we had losses and reinsurers are sort of pushing us to obtain a little bit more risk. For example, in the marine and energy line, where there are Ike losses, which actually comes up for renewal at the end of this month, we are thinking maybe we are going to retain a little bit more there but it's not decided yet. We have a $20 million retention loan. Maybe that could be 20%, 30% higher, something like that.

And some of the other specifics. Maybe they want to keep us -- to keep an extra million -- couple of million dollars each and every loss. I would say in general, the passion is the same. There's no kind of wholesale change in our risk protection strategy. Over on the retro side, as you may recall, we bought much, much less retro for the last couple of years and that pattern is going to carry on. We are actually out in the market at the moment. There is kind of a spot market for that stuff, the prices fluctuate, and we buy more retro if it's available at a price that makes sense and if it's not available at a price that makes sense we just modify our gross exposures accordingly. So again I would say it's pretty much steady as she goes.

Excellent. And then, Chris, your comments about your exposure to the financial credit crisis out there right now. Maybe we can get a little bit more color around the numbers you provided us and do you have kind of a loss pick, in your D&O and E&O and what you are booking at is for the 2007 and 2008 year?

I mean -- in general terms, I would say very hard to reserve this. But clearly the financial crisis is going to cost the insurance industry some money. Market lost estimates pre-Madoff I think that's still around about $9 million, $10 million and people are estimating anywhere from a $1 billion to $4 billion extra on top of that for Madoff. But there are issues like, what are the circumstances being advise, do they really, really lead to real claims or are they just notifications. Which year of account will the claims will go to. What are the nature of the defenses. I think it is actually hard to put a good number on it. What we have -- and what I think a lot of people would be faced with that is say let's not -- we don't really know enough to reserve adequately, so why don't we wait until we know more, and then we will reserve.

Now that, I think is a respectable enough point of view but it's not the one we have taken. What we have tried to do is try and work out what we think is our best pick of what it ultimately is going to cost us and that cost is over the 2007 and 2008 years to increase the total reserves as I said on the call by like $50 million to about $80 million, $85 million. Don't think there is much more that I can tell you because other than that, I would say it's informed by a general spirit of prudence. That's what we've done. I think we will go ahead.

Excellent. And then last question. Can you talk a little bit more about what you perceive your capital position is right now, and your ability to -- to grow here in 2009 and take on more exposure if the market continues to harden here. Is there much of a constraint right now?

I would have to separate property CAT from everything else. And property CAT certainly in the peak zones which would essentially be US wind, I would say, we are close to full. I think really we are in a position where the amount of headroom is very, very small and what we are looking at doing is more -- there are better deals and worse deals and maybe if you see a good deal you will want to get on that one and that means you need to cancel one that isn't secured. As I said earlier we are also looking at buying more property retro, and to the extent that that is available and we can arbitrage effectively with that we may be able to increase more on a gross basis but not a lot of space. I would say pretty much every other line of business and every other peril will come through capitalized to do that. The only pinch point would be peak zone CAT. So elsewhere, and I think a lot of what looks to be pricing like in marine whole, marine liability, elsewhere, some E&O and D&O price institutions will continue to reprice. We certainly have got plenty of capital available to do that.

What about energy in the Gulf?

Well, obviously energy in the Gulf is effectively a CAT line, and the way we have budgeted that is -- is we probably sending CAT three ways in the property insurance area, in the E&S property insurance onshore and then off in the Gulf and we have made an allocation based on what we think the market is likely to be. The interesting thing about any physical damage is we need to see in that business something like about a 75, maybe even 100% increase in the effective price of the risk. Clearly we have been underpricing that risk for some time. If we get that kind of pricing, we certainly have the capital available. We have earmarked it to take advantage of that. If that kind of pricing doesn't come through, then I don't see much point in writing that business, and that would actually free up CAT capacity to use elsewhere, for example in property CAT reinsurance. But I don't want to do that yet because I am very hopeful that the current repricing needed for the offshore energy is actually going to flow through. We won't know for a couple of months yet, because the renewals really get being visibly in March on that and that is going to tell us where the market for the summer is in that line.

Thanks for the answer.

Okay.

Next question comes from the line of Vinay Misquith with Credit Suisse.

Good morning. On the D&O loss (inaudible) if you could help us understand your reserving in the sense that what is the industry loss estimate that you have reserved? Would that be the $10 billion limit? And how should we look at -- as to whether your losses might increase. What are the factors that we should look out for that might lead to an increase in loss reserves in the future?

Okay. I don't -- I don't really think that we can -- I mean it is a bottom-up approach rather than top-down approach is the best way to put it. What we have done, we have insurance and reinsurance exposures, but in both cases, we have looked at every situation, every bank, every financial institution that one of our reinsurance clients touched or in our primary underwriting we look at each one and we look at whether there is any notification coming through. We then look at the quality of that notification because some of them clearly will not amount ultimately to pay claims and others I think are very likely to. So there is some exercise of judgment.

What I was saying earlier is -- I mean that has been informed by a good degree of prudence and conservatism. I -- coming up with that ground-up approach, you can look at our mark, our share of those contracts and get a view of what the 100% loss will be. But we are not involved. We are not big enough in this business to actually have a big enough sample to gross up to a market loss. So that's why I personally use the advising figure from late last year for the market loss which was just shying of $10 billion but certainly Madoff is going to add meaningfully to that.

The other bit of the question what would cause a deterioration. Well, I guess if defenses that we think should be effective don't work or for some reason coverages might get attached to a different year of account than the year of account we think they would be belonging to. I don't think that is going to happen. Obviously if we did we would reserve differently but it can't be ruled out. My general sense is we are at the more conservative and at the more proactive end of this particular exposure rather than sort of waiting to see what's going to get paid and putting up a reserve on it then.

Okay. That's great. On the casualty, US shady business. Your gross premiums are prudent, went up quite significantly I believe. Some of that was because of premium adjustments. But what was mentioned in the press release, also -- you had higher contribution from your US and WA teams. Can you help us understand the growth in that line? We have heard that pricing really hasn't improved significantly. So just curious from your perspective as to where you think--?

Yes. I am going to ask Richard to give you the detail on that, but my general observation would be there is a few funny things in the quarter but across the whole year, actually casualty reinsurance is down and I think that's probably a fairer way to look at it than to the quarter in particular. Can you give us the detail, Richard?

I do, Chris. I think that is the main point, the 4% decline year on year. Having said that, we have got a US team, which is performing very strongly, I think very roughly in the fourth quarter they're up from about $5 billion in 2007 to roundabout $15 million, $15 million in this quarter. So there are some increases in there, but in the quarter itself, the adjustments do make it rather difficult to see what the trend is. I will pull you toward the year on year number rather than the number in the quarter.

Just to be very clear, Richard was referring to millions rather than billions just then.

Yes, yes. Okay.

I don't think anybody--.

One final question on the investment side. You guys did very well this quarter with your book value going 7%. You had mostly a very conservative investment portfolio. Are you looking to maybe increase that a little bit maybe in the second half of 2009 as there are more opportunities?

The short answer to that is, yes, Vinay, but very much in line with what we have been doing at the back end of 2008. We are very pleased with what came through in terms of quality and what we produced in Q4. We did go more into writing CMBS in particular and I think the timing of that worked out very well for us. I think there's actually some decent opportunities back in the corporate bond markets in sort of A plus or better as the markets prove attractive and as the yields drop off on the treasury side. That is going to be the focus of our attention for our -- for incremental money as it comes up. But the main story about our investment portfolio will be consistency with regard to 2008 in the fixed income portfolio, quality will be kept high, liquidity will be kept very high and hopefully we'll be producing the consistent returns from the fixed income portfolio that we've achieved in 2008.

That's great, thank you.

Thank you.

Your next question comes from the line of Jay Gelb with Barclays Capital.

Hello. With regard to investment income, can you -- I don't know if you can give us your view there on the outlook for 2009?

Well, it is certainly not part of our guidance, Jay, for reasons that I talked about in the -- in the call. I think it is extremely hard to call investment income, particularly in respect with fund to hedge funds and that has been our experience in 2008. We are currently looking at reinvestments rates of something like 4% and that seems be a good working assumption for us right now, but you will appreciate as well as I do how difficult it is to project that going forward.

I think you mentioned with LIBOR being down, that that could have a drag on investment income. Would you anticipate the investment income excluding the alternatives that that would be down for the full-year 2009 versus 2008?

Well, I have said I think the reinvestment rate will be about 4%. That's how we see it right now. If you think about the portfolio as a whole, a billion (inaudible) and portfolio of around about 4 billion will come to maturity this year. I think from those data points I believe you will be able to draw your own conclusions.

Okay. Then on the alternatives. I know you have significantly reduced the exposures to the hedge fund to funds. What was the performance in January?

Actually it was up as of the back end of last Friday by about 1% on blended rates. So some recovery from -- from Q4.

So up 1% year to date or from January?

To the end of last Friday which is the most recent numbers I have.

Okay. Great.

So January. Let's call it January.

Okay. And then -- in terms -- the other point on the guidance was the seeded premiums. If I was to try and convert that to seeded -- to the dollar amount of seeded premiums for the year, you are essentially saying that would be up versus $166 million in 2008 for the full year? Am I thinking about that correctly?

No, not quite. It is just 10% to 12% of earned is what we put it at. I haven't actually given earned guidance. We are just trying to give you a trend or an indication of how it has been since 2008. As Chris said to his response in the earlier question, at the moment it looks like a pretty steady policy relative to what was achieved in 2008 in terms of written.

Okay. Thank you. My last question is on exposure to [Klaus]. I don't know if you have any review there.

It seems to me to be a pretty small event. You know probably $2 billion or less. Probably Spain is worse effected than France and Spain is the Consortium National, so the exposure doesn't come to the private reinsurance market generally. And then in France, it is down in the southwest it is going to be with the agriculture writers which is not part of the book that we specialize in. So, I think for Aspen, it is unlikely to be one where we will -- I don't think we will make an announcement about Klaus, I think it will just be too small.

That's helpful. Thank you.

Thanks, Jay

Next question from Mark Seraphin with Citadel.

The premium explanations on the casualty reinsurance growth were helpful. Maybe you can help -- help me understand little bit better any implications that those adjustments might have had on the accident year loss ratio pick or is the increase in that sequentially or year-over-year more related to or solely related to the increase in credit crisis you talked about backing some of the Lloyd syndicate treaties?

The main impacts on the accident year loss ratio will be from the extra reserving in respect to the financial position rather than those adjustments.

Okay

I'll -- I'll suggest that when you look at the full-year accident ratio rather than the quarter.

Okay. And then -- maybe you mentioned this in your prepared remarks and not finished it, can you walk me through the currency transaction impact that would have changed shareholders equity in the quarter?

Yes sure. I think -- I will give you some numbers for the year if I might on the quarter, the most significant and positive impact for us is actually our expense base. The exchange rate movement has improved our expense line by around about $10 million for the full year and around about $5 million for the quarter and quite significant movement for us and that's been appreciated. On rest of the account on the balance sheet, we are pretty evenly matched between assets and liability s there isn't actually a significant movement on a net basis.

Thank you.

Okay.

Your next question comes from Arthur Winston with Pilot.

Good morning. It seems -- it seems that with very uncertain investment opportunities or low return investment opportunities, that a higher dividend would be in order, that you would tell the Board before we lost any more money on these investments. So the idea is that you think the management thinks that going forward with all your new teams and the direction that the overall insurance market is headed to suggests a better opportunity for growth in the next two or three years than we have seen recently. Is that what you are thinking? For premium growth to write insurance?

I believe that some of the lines of business, property reinsurance, especially on the property CAT side, some of the marine, maybe offshore energy, maybe the rates could double on that. The marine hull. Some of the energy-related liability lines. That sort of thing. I think they have the potential to reprice very dramatically, and I think it makes a lot of sense to keep capital low and take advantage of that which is what we are doing.

I think there is a chance some people might say an outside chance that you are going to see a broader repricing of business as the year goes on. There's a view common amongst the brokers that the first and second quarter of this year will see property prepricing and third and fourth quarter will see casualty repricing. If that happens we want to be in a position with the capital to take advantage of it. That probably would be the main thing, kind of informing of how much CAT you want to hold is the opportunity that is either already here or is going to be here in the quarter and then there might be some more in (inaudible). I hope that helps.

Yes, it does, thank you.

Pleasure.

(Operator Instructions) And at this time, there are no further questions.

Well, in that case I will thank you all for your attention and wish you a good day. Goodbye.

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