Aspen Insurance Holdings Ltd (AHL) 2013 Q2 法說會逐字稿

Good morning my name is Cassandra and I will be your conference operator today.

At this time, I would like to welcome everyone to the second-quarter 2013 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

At this time, I would like to turn the call over to Kerry Calaiaro, you may begin.

Thank you and good morning.

The presenters on today's call are Chris O'Kane, Chief Executive Officer, and John Worth, Chief Financial Officer of Aspen Insurance Holdings. Last night, we issued our press release announcing Aspen's financial results for the second quarter of 2013. This press release, as well as corresponding supplementary financial information, can be found on our website at www.Aspen.co. 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 contains 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 posted on Aspen's website.

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

Thank you, Kerry, and good morning, everyone.

In the second quarter of 2013, Aspen delivered solid operating results in an above average catastrophe quarter. The accident year ex-cat combined ratio was 91.2%, down from 92.9% in the second quarter of 2012, as a result of the improvement in the loss ratio. Diluted book value per share ended the quarter at $38.87, down 4.4% from March 2013, primarily due to the impact of widening credit spreads and interest rate movements on the unrealized investment portfolio gains. We delivered an annualized operating ROE of 8.6% through the first half of 2013.

Previously, we outlined three initiatives that underlie our expectation of achieving a 10% operating return equity in 2014. The first initiative is business portfolio optimization. We remain sharply focused on the profitability and risk profile of each of our major lines of business. Second, is efficient capital management, in other words ensuring that the capital we hold is appropriately sized given the risk to our business. And third is enhancing investment returns. We are focused in optimizing investment income, by responding rapidly to the changing dynamics of the global investing markets. We continue to make progress on all three initiatives in the second quarter.

Our efforts to optimize our business portfolio have focused on reducing volatility in our insurance segment. In February we set out a plan to reduce the capital attached to our US ENS open market, wind and quake exposed property account. We have done exactly what we said we were going to do, and have now released $70 million of capital thus far. As we've told you before, we are not withdrawing from US property insurance, but we will continue to release capital and reduce volatility from this line. Partly to increased use of reinsurance. Our view has not changed, and we are still working towards releasing capital [attached to this account] totaling $140 million over the next two years, and ultimately release of $200 million. In addition, we are looking at ways of optimizing our seated reinsurance spend and see this as another way to improve ROE.

The second lever is to try to improve into an ROE -- I'm sorry -- the second lever to drive improvement in ROE is managing our capital in the most efficient way. We previously announced that we expected to repurchase $300 million of equity in 2013. We've been very active so far in 2013 and repurchased over $240 million of our shares through July 22. The third lever to drive increased returns is our investment portfolio. As you heard me say before, we are first and foremost an underwriting led Company. That said, we have been evaluating various strategies to increase investment returns within acceptable risk parameters.

We increased our allocation to equities by $200 million in the first half of the year to $413 million. In our fixed income portfolio, we added $65 million Double B rated loans, and $24 million in short duration Double B high yield debt. We will continue to evaluate other potential investment opportunities in line with our risk appetite. In summary, we are executing on the strategy we've previously set out and these levers will enable us to continue to see our operating return on equity improve.

I'll now turn the call over to John to comment on the financial results, and later I'll close with some thoughts on the market.

Thank you, Chris.

I will now provide an overview of the results of the quarter. Gross written premiums rose 3% from Q2 of 2012, the reinsurance segment was relatively unchanged, while the insurance segment grew 6%. The groups combined ratio for the second quarter was 97.1%, with 10.9 points of catastrophe losses. Reserve releases were $27.4 million, or 5 points. Resulting in an accident year ex-cat combined ratio of 91.2% compared with 92.9% on the same basis a year ago. The ex-cat loss ratio was 50% compared with 51.1% in Q2, 2012. While the accident year ex-cat loss ratio was 65.1%, compared with 56.7% a year ago. Total group expenses were $195 million or 35.8% of net earned premium, with modest improvement in both the acquisition, and the G&A expense ratios.

Now I'll provide some more detail on the reinsurance and insurance segments for the second quarter. The reinsurance business produced an underwriting income of $30 million, down from $59 million from the prior year. Mainly as a result of cat losses. The combined ratio is 88.9%, with $51.8 million or 19.3 combined ratio points of cat losses in the second quarter of 2013. Prior-year reserve releases were $24.1 million or 8.7 combined ratio points, and we experienced net favorable development in both short-tail and long-tail lines. The resulting accident year ex-cat combined ratio was 78.4%, a near 6 point improvement from the 84% a year ago. While the accident year ex-cats loss ratio was 46.2%, an improvement of 6.2 percentage points from the second quarter of 2012. This is a good result, and reflects our continued focus on underwriting discipline.

Gross written premiums of $298 million were relatively unchanged from a year ago. This reflects good growth in other property, mainly pro rata business and a favorable rate environment. Property cat premiums declined 9%, reflecting lower rates as well as exchange-rate movement primarily the weakening yen and (technical difficulty) Japan renewals. Specialty reinsurance was flat as we maintained a disciplined approach. Casualty reinsurance gross written premium was down 5% from a year ago. Excluding premium adjustments, our book is stable and should begin to benefit from the rate improvements that we're seeing in the primary market. Underwriting income for the insurance business of $1 million compared with $18 million in Q2, 2012. The combined ratio was 99.8%, with $6.9 million or 2.6 combined ratio points of cat losses in the second quarter of 2013.

Prior-year reserve releases for the second quarter were $3.3 million or 1.2 combined ratio points, compared with $14.5 million or 6.3 combined ratio points for the second quarter of 2012. The resulting accident year ex-cat combined ratio was 98.5%, in line with a year ago. The accident year ex-cat loss ratio increased 2.1 percentage points to 63.9%, primarily the result of a few mid-sized attritional losses in the international property and marine liability portfolio. The expense ratio improved 2.1 percentage points as we continue to gain scale in the US. Gross written premiums increased 6% to $388 million, the growth was led by marine energy and construction liability, and global casualty primarily as a result of a favorable rating environment for these classes. In the US, growth was led by the US casualty team which benefited from improved rates. Both of our international and US insurance businesses recorded positive underwriting income for both the quarter and for year-to-date.

I'll now move on to investments. Our additional investments in Double B securities is predominantly in bank loans and to date we've added $65 million in this portfolio, and we'll continue to selectively increase the position. Investment income was $46 million in the second quarter of 2013, down 13% from the equivalent quarter a year ago. Since May, we have seen an uptick in rates. And with about 20% of our investment portfolio maturing each year, if rates stay at this level, we should see a modest benefit from these higher rates in 2013, with increasing benefits in 2014 and beyond.

Total investment return for the quarter was negative 1.2%, compared with a total return of 1% for the second quarter of 2012. Fixed income book yields for Q2 2013 was 2.71%, down from 3.19% in Q2, 2012. The duration of the portfolio increased slightly from March and is currently 3.4 years, including the effect of our interest rate swaps the duration is 3 years. Our equity portfolio totaled $413 million at June 30, 2013, up from $187 million a year ago. Reflecting our strategy of tactically diversifying our investment portfolio by investing in high-quality global equity income strategies. The equity portfolio generated a gain of 8.3% year-to-date, including a loss of 0.3% in the quarter.

The tax rate for the first half of the year was 5%. Fully diluted book value per share was 38 points -- $38.87 at June 30, 2013, down 4.4% from the first quarter. Positive contributions from underwriting, and the buyback program, were more than offset by the negative investment returns.

I'll now turn the call back to Chris.

Thank you, John.

For the first half of 2013 we achieved an average rate increase of 4% on renewals across our entire book, with an overall average of flat in reinsurance, and a 7% increase in insurance. Specifically in reinsurance for the first half of 2013 our property catastrophe reinsurance had no change in rating levels. For the market the pricing environment differs dramatically by line and geography. The majority of alternative capital which has ventured into the space has focused in US peak zone exposures particularly retro and the Florida reinsurance market. US cat renewals have reflected this additional supply with average rate changes in 2013, to deteriorating month by month through the first half of the year.

In January there was a slight increase in rates per Sandy in the single digit range, and in April we saw reductions averaging about 5%, with Sandy effect accounts largely flat. As we got to June, which was Florida focused we saw rates down 15% or more and then in July which is more nationwide, rates in the market were down between 10% and 15%. Meanwhile the more commoditized ILS world has seen much larger reductions, particularly cat bonds, where rates have fallen 30% or more. Aspen is below weight in domestic Florida reinsurance. We are cautious about attachments points, data standards or the leverage levels of many of the buyers and of the political environment. Our Florida exposure comes mainly from long-term partners such as Nationwide and Super Regional buyers, supplemented by small number of high-quality Florida insurers. We're often selling more than one product to the customer which allows us to build strong relationships with the buyers, and confidence in our underwriting and claims adjusting practices. Our US other property reinsurance book achieved an average rate increase of 2% in the first half.

The Parata book achieved 5% rate increase the first half of the year, reflecting improved market conditions in US primary business. Following a largely benign year for losses outside the US, rating international property reinsurance markets are generally flat or slightly down, with many reinsurance keen to increase penetration. April is major (inaudible) for the Japanese market as expected the market continues to benefit from post Tohoku pricing levels. You may recall that after the earthquake we managed our Japanese books such that we renewed half the earthquake limits but maintain premium volume. This year we maintained greater integrity and renewed the majority of the book. Despite an increased level of capital in the market most renewals remained stable although premiums in dollars are down due to a weakening yen.

For casualty reinsurance, we achieved a rate increase of 1% in the first half of the year. The rate environment continues to vary based on line and geography. In parts of our casualty segment we are seeing an improving market especially US ENS general liability and non-medical professional lines. Our current portfolio continues to see stable loss cost trends. For specialty reinsurance, rates across the portfolio were flat and average with continued rate movement in marine on the back of high loss activity. Conversely, an absence of loss activity has led to downward pressure on aviation prices. European trade credit reinsurance saw rates fall 1% on average through the first half of the year as competition is high following several profitable years.

Now I'll move on to the insurance segment. As I said earlier our insurance book for the first half of 2013 achieved a blended rate increase of 7%. For our property insurance book across the US and the UK, we have achieved an average rate increase of 2%. In our programs business, we also achieved rate increases of 3% for the first six months as the market responded to Sandy losses. In our UK property business the market remains crowded but the rating environment appears to have stabilized, and we continue to focus on a strict underwriting discipline, which has produced excellent results.

Casualty insurance renewed at rate increases of 5% on average through the first half of 2013. We continue to see positive progress and momentum in the US primary casualty market, we've achieved average rate increases of 11% in the first half, and the outlook continues to be favorable. The global excess casualty portfolio is showing signs of momentum too with continued rate improvements. In our marine energy and transportation insurance business, we achieved an overall rate increase of 12% for the first six months. The rating environment in financial and professional lines businesses is mixed, achieving a 1% increase in average for the first six months of the year. Financial institutions continued to achieved rate increases with an average of 8%, professional liability rates in the US rose 2% on average in six months, this is very encouraging as this is the first positive rate movement in many years.

Technology liability is up 2% on average. Let's now spend a few minutes looking at the broader market dynamics affecting both insurance and reinsurance. As you know, to offer our clients a full suite of product offerings we formed Aspen Capital Markets. We're leveraging Aspen's existing franchise and underwriting expertise, to offer investors access to diversified products. We've made good progress so far in executing our plan. We have set up an asset manager [to see to our] small catastrophe fund, and I look forward to building a good track record. We've mentioned to you before that we value our diversified model. Even as some of our reinsurance lines experienced downward pricing pressure, we are seeing some positive signs in our insurance lines as a result of increasing insurance rates and some economic improvement.

For example, there's a lot of momentum in credit [and pull forth] on the back of recovering world trade volumes. We're also excited about the prospects for our technology liability account. The IT industry itself is growing globally, giving us opportunity to grow the technology [in our account] outside its traditional stronghold in the US and Western Europe. We are now an established leader in this marketplace and are proud to serve with the producers and users of technology. As technology advances, and takes on new roles in commercial and personal life, it creates new risks. We can't be sure what will turn up next but we will continue to innovate in a thoughtful and disciplined manner.

Anyway recall we strengthened our energy capabilities in the US earlier this year, and the team has received very encouraging welcome from both brokers and clients, making excellent progress in this early stage. So we are seeing both positive and negative trends and opportunities in the market. Some of the trends in the price environment we've just discussed today will create additional headwinds. Pricing has been pressured by the increasing new capital and property catastrophe market and [the effect of] displaced poverty reinsurance capital moving to casualty reinsurance and elsewhere. Also, we believe that the increasing number of binding authorities given to the major brokers will ultimately increase pressure on pricing. Nevertheless, we are actively managing the business in light of these challenges, and have strengthened our efforts across our three ROE levers optimization of the business portfolio, capital efficiency and enhancing investment returns.

Taking all these considerations into the balance we continue to expect that we will achieve a 10% operating ROE for 2014, but we do acknowledge that this is now a more demanding goal than it appeared earlier in the year, and that it will require additional action on our part to achieve it. Amongst these actions will be a rigorous look at our ceded reinsurance needs and practices, with a view towards retaining a greater share of profitable risks.

Thank you very much for listening to us. John and I would now be happy to take any questions you may have.

(Operator Instructions)

Mike Zaremski, Credit Suisse.

Couple of questions about the primary insurance segments. The accident year loss ratio ex-cats tracked kind of well above last 12-month levels and so I was curious if there were any large attritional losses in the segment impacting the number. And then, secondly, the expense ratio was tracking 2 points below 2012 levels and I was wondering if that's a trend we should expect to continue. And then I have a follow-up. Thanks.

Okay, Mike, thank you. It's John here. In terms of the first part of your question, the accident year loss ratios in insurance, as I said earlier, we've got a 2-point movement in that, and that's on an NEP of $300 million, so it's about $5 million. And what that reflects is us taking action against a few contracts, in response to what we see as industry-wide loss events, specifically in energy liability. On the expenses side, the expense of the reduction in the expense ratio which is overall leading to a combined ratio for the insurance sector, which is flat compared with last year, is due to the build out, as much as anything, of the US. And as we continue to build out the US so we'd expect to see the expense ratio for the insurance segment continuing to benefit.

Okay, got it. Also, next question, there's been some media reports citing personnel departures within at least two to three teams at Aspen that appear to write somewhat sizable premium levels. I guess, can you comment on whether competition for talent appears to be heating up and whether we should expect a top-line impact or bottom-line impact as a result over the next 12 months?

Yes, Mike, I would say competition for talent has heated up. You have a couple of displacements in the marketplace, people have moved from one place to another place. And they are hiring, or they're hiring and firing, and I guess in a way we should be flattered that Aspen talent has been approached so aggressively and forcibly. So we lost some people. Inevitably, when you lose people you regret it. Some of the guys we lost are particularly good, others are fairly easy to replace. Thus far we have been able to promote from within, and promoting from within is a great thing to be able to do. We don't talk much about talent management or recruitment and retention on these calls, but actually it's one of the things that, right from the point I started this Company 11 years ago, I put a very, very high premium on.

And so we have a lot of great underwriters at the top and we have a lot of great underwriters waiting in the wings. We're sorry to see good people go. Will they take business with them? We don't think so. We think that the relationships today are institutional. We think the guys who are moving into new positions have the same kind of client and broker knowledge as the boys we had before. And clearly we are working very hard to maintain it. We're also trying to grow the business elsewhere, so we're going to have to monitor that one, but at this stage we are not necessarily saying there's any loss of forward momentum of the Company.

Okay. And, Chris, one last one if I may, at the end of your prepared remarks you made some kind of comment about -- I'm probably getting this wrong, giving increasing business to the brokers which could cause pressure on pricing? I think I didn't completely follow you if you could flesh that comment out.

Sure. You know, more this year than ever before we've seen the major brokers -- that's the top three brokers-- creating arrangements with carriers or groups of carriers to give them blocks of business. There seems to be a view that if in any given line of business, up to about 20% cannot be transacted in the open market, but can be done under some kind of cover or binding authority or something like that. That means before the broker starts placing the risk -- let's say he's got 20% in facility, he doesn't have to place 100% he only has to place 80%. That's -- in time, that's more capital, more competition makes a broker's life easier, and I believe it will force prices down. That's generally a negative for the specialty insurance marketplace.

Understood, thank you.

Amit Kumar, Macquarie

I guess two or three questions, first of all just under discussion on the three levers in terms of hitting the 10% ROE, it seems that I guess you're less sure of hitting that versus what we have talked about in the past. And you're mentioning looking at ceded reinsurance, what about buyback? I mean you're at $240 million your target was $300 million, clearly you're ahead. Maybe just talk about the levers a bit more, maybe in a bit more detail. And how do you expect to get to the 10% based on the revised color you gave in the call?

Amit, thank you. I think what we are seeing is we are so confident about achieving 10%, but more recently there have been some additional headwinds to that. Chris mentioned one of the steps that we think that we can take in order to offset those headwinds which is on the reinsurance side. I would say that's not the only one, and we are seeing opportunities in terms of further focus on expenses and additional investment opportunities as well.

Yes, Amit, it would be wrong to think there's a silver bullet here. There isn't sort of one simple step, you've got to squeeze everywhere. So on capital efficiency, we reported to you the share buyback so far, we are going to keep that running forward through the summer, through the rest of the year, given the way we see the market. If the market changes, we may need to change that, but so far we are pretty confident that the undertakings we made about capital reduction at the beginning of the year are going to be achieved. In terms of investment income, opportunities perhaps coming now in emerging market debts, maybe some more room for equities in the portfolio.

We've taken some steps already, we'll take some more. Nothing too racy, nothing too exciting, but just something that keeps that portfolio moving the right way. And, of course, an uptick in interest rates negative for the book value side, but, of course, positive for income. And then finally business optimization, I think all our underwriting leaders are completely clear that they are here to write the best risks. And so we keep squeezing and saying, where is the more reward, where is the more return? Nobody in Aspen feels that they have to renew business, they only feel they have to write profitable business, and we just keep on emphasizing that.

The final point there I think I said was with reinsurance. We used to give you guidance that our ceded spend was, across the entire Company, like 8% to 12%, 10% to 12% later on. In insurance it has actually now crept up to more like the 25% to 30% range, so I think what we are doing is giving a lot of good business away. And what I'm looking at now is seeing how we can retain that good business. It's diversifying business to the capital implications and not serious, but if we actually just improve our premium leverage, our retaining more of our rigor business, we're going to squeeze more out of the ROE and that is one of the things we will be looking at a lot in the second part of this year.

And I think I'll report to you in detail on that in six months' time -- three months' time from now we'll still be in the planning phase so it'll be six months when we've done what we've done that we will talk about it more. So I think you're right to say the world looked an easier place last February, so we were very, very, very highly confident indeed of beating 10%. Today we're still pretty confident of beating 10%, but we're just saying to you, some negatives happened in May in the cat market that we were not necessarily anticipating. I hope that helps.

And, that's very helpful actually, but no change in the buyback thought process, right? Are we still sticking to the goal or is there a possibility we could exceed that?

There's always a possibility we could succeed it, but all we want to say to you this morning is, we are sticking to the plan. And we are going to complete the plan.

Got it. That's actually very helpful. The only other question I guess I have is, in Q3, we've seen several small losses, and I mean you even had one yesterday. Do you have an early view how those losses might impact your Q3 numbers?

It's still early days, as you say. The accident that happened only yesterday, I think they are individually relatively small losses, it is just too difficult to tell at this early stage.

Okay. And, do you -- I mean, there was a satellite, there was a crash, there was a Canadian tank, if you add all of those do you think they will be within your cap load, or are we talking about -- maybe just talk about that if you add all of those?

We can't really talk about it because we don't know. It really is too early to say. We don't have good data, we don't have a good sense. The only thing I can say is the way we're looking at it there no reason why Q3 shouldn't be a perfectly reasonable on-time quarter. Nothing we know has caused us to believe that's not the case, but there's a lot we don't know yet.

Got it. Okay, that's all I have for now thanks so much.

Max Zormelo, Evercore

I noticed the -- in the Reinsurance segment, the accident year loss ratio ex-cats improved quite meaningfully this quarter. I was wondering if there were any one-time items in there, or if this is the -- a trend that we should expect going forward?

Max, I'd say there's no one-time items in there, to answer your question. I think overall it's better attritional loss experiences. If there was any other area particular, largely driven by specialty Re, I'd say.

Okay, that's helpful. Second question was, I wanted to get your thoughts on if you could give us an update on the capital markets business, or what progress you've made on that and if you have -- how much capital you've raised so far? Thanks.

At this stage for (inaudible) capital markets we've hired some people, about to add another guy to the team. We've done a lot of legal work establishing structures, asset manager in New York and asset manager in Bermuda. We are not actually out capital raising at this stage. I think that's going to come later in the year. What's likely to happen in the early stages actually is that some of the existing Aspen recap business, we are going to be looking at moving some of that into new vehicles. And using that to sort of start building a track record. Still very early days in that, but what I will say is by 1/1 we fully intend to be up and running. We are not too worried about missing the summer when there's not a lot of activity, so it's more behind the scenes work for now.

Okay, thank you. It looks like the industry losses for the Costa Concordia seem to be trending up because of higher salvage cost. Wondering if you had any [advert] development on that loss this quarter, or if you are going to split any further advert development because you've already reserved to the limit on the loss?

Yes, you're right, the losses that the industry is being informed of by the P&I clubs have increased during the quarter. I think they went up from $750 million, as a total loss, to $1.1 billion. And in line with that we've increased the amounts that we are putting aside for Costa Concordia. If anything, we are taking a more prudent approach than those numbers or the industry would suggest.

So what is the current number? I think you were at $38.2 million before. What is it now?

The number now, Max, is about $50 million.

Okay, that's helpful, thank you very much. I think that's about it. I'm done, thank you very much.

Josh Shanker, Deutsche Bank

You know, Chris, you and the team have the dubious distinction of being the most skeptical in the market once again. I read the press release and it said that you're worried about rate declines. I wanted to find out whether that was rate of change deceleration or price decline that you were quite worried about.

Well, Josh, thank you for the accolade. I do like to tell it as it is rather than tell it as people might like to hear it that it might be, okay. The rate changes I was referring to is chiefly in property cat Florida renewals -- well known, well talked about. After a couple of years of increasing property cat pricing, you saw really new money in the market being very, very competitive at having effect on the stance lines. Behind that, what we are seeing is a lot of the capital that is getting displaced from the property cat sector is going to find other homes. We're now finding the fastest-growing casualty reinsurer in America is a company most well known as being a property cat reinsurance company. This is quite a new -- quite bizarre. So if you kind of look beyond the surface you see that's going to have a wave in terms of casualty pricing as well. Hasn't been felt in the quarter, we reported very good numbers for our casualty both in terms of performance and in terms of rate level business. But just look at where that wave wash might be heading, that's all I'm suggesting that you and others might like to do.

Okay. So, currently right now on the primary level, is there any line of business that you see negative pricing?

Trend is overall upwards, as I said on the call. I think you'd have to look very hard to find something where that isn't true. The range is like flattish. For example, UK property, which is not really moving up, it's flat, through to some of the more special, like marine energy lines or general liability in the US where you'd be close to double-digit increases. Aviation still is -- it's been a while since there's been any major disasters so there's a bit of downward pricing there, particularly on the airline book, that's rather than the sort of aviation that Aspen engages in.

If you had to look one year ahead and were guessing what the distribution of premiums would be for Aspen between insurance and reinsurance and the percentage of your premiums derived from property cat in the reinsurance section, given where you think pricing are heading, how do think the distribution fairs 12 months in advance compared to where it is right now?

What we always trying to do is follow the money. And I think currently we are seeing more price increases on the insurance side of the house than on the reinsurance. So I expect the insurance to grow, but you wouldn't be asking to give guidance on that sort of thing at this early stage. But, just as a trend, I think insurance as a percentage of the total will grow, and we will see what happens in the property market, the property cat market, but so far I would say property cat pricing is pretty good. It's off its peak, it's objectively speaking a very satisfactory ROE business, so I'd expect property to represent a significant part going forward. But if pricing is down a little, then the proportion of the total represented by property will also be down.

But you also still have room to increase your PML if you wanted to?

Yes, but remember, if prices go down -- your question to me was our premium. Prices go down, you write certain exposure, you're going to have (multiple speakers). The question is about business mix measured by premium property down, I'm not saying we would necessarily have less property exposure as long as it stays above our hurdle rates. And I think it's comfortable above our hurdle rates and I think that probably cat will stay above those hurdle rates, it's just going to be a little less [full paid]. Or it could be -- we're speculating here and we don't know what the wind's going to do in the next few months and it could be a very different story come October.

Well, I appreciate all the color. Thank you.

Nitin Chhabra, Sterne Agee.

Hi, good morning. It's actually Dan Farrell. Just another follow-up question on the reinsurance purchase comments you make, or just a clarification. You mentioned higher return products and you also said that they would be generally non-correlating so they wouldn't do that much to exposure. Can you give us examples of some of the lines that you're thinking about? And then, secondly, when we think about modeling from a net to gross perspective, are we talking about a large change in total, or is it more keeping more of one line of business, maybe buying more of another to try and manage it that way? Any sort of direction or guidance on that would be helpful.

It would be helpful, but I don't think I can give you too much more, Dan, than what I've already said. Essentially I think we're ceding a lot, rising 30% of Aspen insurance's premium. I believe that a lot of that risk is well written, well controlled, and diversified. On an individual line of business basis it might make sense to cede, but actually across the whole organization we could retain more. So what we are going to be looking at is retaining a diversified slice of everything that we've bought and seeing if we can improve our premium leverage and hence improve ROE from that [rule] -- from that source. I'll report more on that in about six months' time.

Okay, we will wait till then. Thank you.

You have no further questions. Do you have any closing remarks?

No. Thank you very much for your time and attention this morning. Have a good day. Goodbye.

Thank you.

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