Aspen Insurance Holdings Ltd (AHL) 2014 Q4 法說會逐字稿

Good morning. My name is Peshantra and I will be your conference operator today. At this time I'd like to welcome everyone to the 4Q 2014 earnings conference call.

(Operator Instructions)

I'll now turn the conference over to Ms. Kerry Calaiaro. Please go ahead, ma'am.

Thank you and good morning. The presenters on today's call are Chris O'Kane, Chief Executive Officer; and Scott Kirk, Chief Financial Officer of Aspen Insurance Holdings Limited. Last night we issued our press release announcing Aspen's financial results for the fourth quarter and full year 2014. 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 in our earnings release posted on our website. I'll now turn the call over to Chris O'Kane.

Thank you, Kerry, and good morning, everybody. Aspen reported diluted book value per share of $45.13 at December 31, 2014, an increase of 10.3% from a year ago. We delivered an annualized operating return on equity of 8.8% in the quarter and 11.5% for the year.

2014 was a very good year for Aspen. Over the past several years we carefully set the stage for profitable growth as we invested in the business and expanded our position in insurance and reinsurance in a strategic disciplined manner. In 2014, many of those investments showed their worth and began to pay dividends in meaningful ways.

We executed on three levers, optimizing the business portfolio, deploying capital to create long-term value and enhancing investment return to surpass our 10% ROE target for 2014. Once again, we had a strong January renewal season in the face of difficult market conditions. This is a result of our close relationships with our clients and the bespoke set of solutions that we are able to provide for them.

The reinsurance markets are extremely competitive at present and a reinsurer must not only be close to their clients in order to have a full and adequate appreciation of their exposures, but also to be able to offer them solutions across multiple classes of business. We anticipated this trend long ago and currently are solidly diversified within our reinsurance business, which is split evenly between specialty, casualty, property cat and other property.

Our regional offices serving Asia-Pacific, Latin America, and Continental Europe are now long established and highly successful. Through our global network we are able to offer our clients a suite of solutions across many risk classes around the world. Clients no longer want to go to a different reinsurer for different types of risk, and if you're not able to offer multiple classes of solutions in multiple geographies, you may quickly become obsolete.

Reinsurance industry rates at January 1 were down meaningfully, the downward rate pressure varied depending on the region and class and as expected, most of the intense pressure was in property cat. During the renewal process, access to risk was not a problem for our teams.

We remained focused on underwriting and pricing discipline and it's good to be able to report that we turned down or reduced our share of the business that did not meet our standards, but were able to increase our share in areas with somewhat stronger pricing terms and conditions. We were able to renew the business we wanted with pricing down on average 6%.

In property cat, we managed to renew the rates down 9% in the US and 11.5% for the rest of the world. For the rest of the reinsurance book, away from property cat, we renewed at rates down 3%.

We're very pleased about winning some new well-priced business in the current environment. We achieved good outcomes with existing clients that we had targeted for increased shares for several years now. We've won those increased shares at favorable pricing because of the breadth of product offerings we make for clients and a geographically well-spread distribution.

During the renewal season we continued to manage our PML such that we deployed capital where it will be able to generate the most profitable returns. But we also pulled back capital from areas where rates are the most pressured.

We also continued to utilize Aspen Capital Markets to manage our net exposures downwards. For example, in European wind where rates were most under pressure, our 100 PML fell by 1% on a gross basis, but was down 6 points on a net basis, after the effects of an ACM and the effects of retrocession. Now I'm going to turn the call over to Scott for some comments on financial results and then I'll come back for some closing remarks. Scott?

Thank you, Chris. Operating earnings per diluted share for the fourth quarter were $0.97. Book value grew 10.3% from December 31, 2013 to $45.13. Annualized operating return on equity was 8.8% for the fourth quarter and 11.5% for the full year.

Gross written premiums for the group of $615 million increased 2% in the fourth quarter compared with a year ago, with underwriting income of $36 million. The combined ratio was 94.1% with $16 million, or 2.6 percentage points, of net catastrophe losses in the fourth quarter and $12 million, or 1.9 percentage points, of favorable prior-year reserve development. I'll now provide some color on our segments, starting with reinsurance.

In reinsurance, gross written premiums declined 17% to $145 million. This segment recorded underwriting income of $46 million in the fourth quarter. The resulting reinsurance combined ratio was 82.7%. There were $15 million, or 6 percentage points, of net cat losses in the quarter related to Aussie health forms, Asian weather-related events and North American and European storms.

There were also a number of non-correlated mid-size losses which totaled approximately $30 million. The biggest was a file off in Spain which cost us $11 million. For the year, reinsurance gross written premiums grew 3.4% with growth across all sub-segments. The combined ratio for reinsurance in 2014 was 77.6% compared with 76.4% a year ago.

In our insurance segment, gross written premiums increased 10% to $470 million in the fourth quarter. The US teams accounted for the majority of growth as they continue to gain scale. The combined ratio for the insurance segment in the fourth quarter was 97.1% with, minimal cat activity.

For the year, gross written premiums in the insurance segment grew 14%, mainly again from the US teams. For the year, the insurance segment had a combined ratio of 96.2% and an accident year ex-cat loss ratio of 60.2%.

I'll now move on to reserve releases. In reinsurance we had $23 million or 9 percentage points of favorable loss reserve development in the quarter, and $99 million or 9 percentage points of favorable development for the year.

In insurance, in the fourth quarter, there was $12 million or 3 percentage points of prior-year development. The development is related mainly to a large construction project. This is nearing the end of the construction phase and we have responded to some incurred development during the quarter.

For the year, insurance had favorable reserve development of $5 million and at a group level we had reserve releases of $104 million. An initiative we are very excited about is the restructuring of our retrocession and reinsurance programs.

We stated an expected improvement in net income of $25 million for 2014 and a further $20 million in 2015 from this initiative. We have surpassed the 2014 target and are maintaining our 2015 target. In 2014 we took advantage of rights in the retrocession market and were able to purchase more retro for less dollars than we expected at the start of the year.

The retention ratio, defined as net written premium as a percentage of gross written premium, was basically flat from a year ago despite our growth in gross written premiums. We had expected this ratio to trend upwards throughout the year, but we retained less than we had planned due to a combination of taking advantage of lower retro pricing, as well as the timing on some of our contracts.

That said, as a result of better-than-expected loss experience, the benefit to net income was even great than the $25 million we had expected. This is exactly why we think retaining more of these diversified risks is a good idea. And we expect the retention ratio to increase over time as we retain more premiums.

On the expense line, for the group, the overall operating expense ratio was 38.6% for the quarter. This is a bit higher than what we consider a run rate, primarily as a result of three factors.

The first was that we had a good year and performance compensation is weighted towards year-end post the win season. Secondly, we had a fair-value adjustment on our equity compensation. And finally, some one-time severance costs related to previously announced management changes.

As an organization, we have been investing more for a number of years now. Now we are at a place where we can step back and look at how much to make the business more efficient and how best to leverage the infrastructure that we have built. We expect the expense ratio to trend downwards through the course of 2015 as we continue to gain efficiencies and the US platform continues to gain scale.

I'll now move on to investments. Net investment income was $47 million in the fourth quarter, flat from a year ago. We expect this to be about the run rate going forward.

For the year we generated $190 million of investment income, which is relatively flat from a year ago. This was a result of the actions that we took over the last few years to increase our investment returns.

We ended 2014 with 12.5% of our portfolio in alternative assets including equities, emerging market debt and BB bank loans. This compares to only 2.8% at the end of 2012.

For the fourth quarter the total return on our aggregate investment portfolio was 0.8%. Our fixed income book yield for the fourth quarter of 2014 was flat with third quarter at 2.65%, while the duration of the fixed income portfolio was 3.29 years, including swaps.

We continue to actively manage our excess capital. We repurchased $60 million of ordinary shares during the fourth quarter and $181 million for the full year. Over the last two years, including dividends we returned close to $600 million of capital to shareholders.

As you know, we have a strong commitment to run a capital-efficient organization and return capital to shareholders if we cannot put it to work at appropriate rates of return. Since 2005 we returned 73% of net income to shareholders.

As you saw in our press release yesterday, our Board of Directors has replaced its existing share repurchase authorization with a new authorization of $500 million. The authorization is effective immediately and runs through February 6, 2017.

It gives us the flexibility to repurchase shares through open market repurchases, privately negotiated transactions and accelerated share repurchase transactions. And we are prepared to execute the authorization as conditions and opportunities warrant.

So in summary, our business is performing very well in both insurance and reinsurance, and we look forward to continuing our trajectory of profitable growth in 2015. We currently expect an 11% operating return on equity for 2015. This is, of course, assumes normal loss experience, our current view of interest rates and our prospective view of the interest rate environment. I'll now turn the call back to Chris.

Well, thanks, Scott. Now I'm going to make a few comments on our strategy and how we're going to navigate pretty difficult market conditions. We continue to build on the success of Aspen Capital Markets. In property cat we're able to leverage our third-party capital relationships through ACM to manage our net exposures down.

We're also able to offer our ACM investors access to a different type of risk, which is what they're seeking. Previously our ACM vehicle solely offered property cat exposures. This year we passed a part of our US insurance risk to ACM investors for the first time.

We now have $185 million of third-party capital and in 2014, ACM contributed in excess of $13 million to the group results. In 2015 we expect to continue to use ACM to fund underwriting opportunities where we can better serve our clients.

In reinsurance, Asia and Latin America premiums currently account for about 20% of the total. This area of our reinsurance account has a faster growth rate than elsewhere. Our underwriters on the ground are well known in these markets.

Four years ago we made the decision to make a meaningful investment in our US insurance platform. We wanted to continue to diversify into insurance and to provide our service to the biggest insurance market in the world.

Over the last four years we have invested more than $150 million in our US platform. This included hiring underwriters, claims professionals, actuaries, as well as opening offices and building IT systems. The investment has paid off and will continue to pay off more meaningfully in the future.

This was not one big bet on one or two markets in the US, this was the result of a detailed strategy which included responsible growth in many different lines. In 2010, we only had three teams, property, casualty, and professional. Now we have nine.

In 2010, we wrote $167 million gross written premium. In 2014, we wrote $780 million of gross written. That is $613 million of growth or 366%. What is most important to note is that in 2014 we had a loss ratio of 58.4%.

We remain disciplined and grew, as we always do, where we felt the risks were priced appropriately. To give a sense of which lines the growth came from, for example, property and casualty accounted for 14% of growth, programs for 34%, professional lines 17%, environmental 10%, energy 8% and surety 5%. As I said, it's not one big bet.

Not only are we diversified by product in the US, we're also diversified by region. For example, our property business tends to be more exposed in the Northeast and the Southeast, whereas the energy property account is much more South Central.

We will continue to expand the platform and we will grow responsibly in the same manner we've done since 2010. The rate dynamic on the insurance side is much different than the reinsurance side. Our rates are not a huge tailwind in the US insurance market; they are certainly not a headwind either.

For example, in casualty in 2014, we were able to shave a rate increase of between 5% and 7%, depending on line. We will continue to watch technical pricing always very closely, and if we believe that we can leverage our capital more effectively in one line than another, we will move quickly to redeploy that capital and take advantage of classes which are better rated.

Our growth rate will tail off a little in 2015 and 2016, reducing to an anticipated 10% growth in GWP per annum for the next couple years in the US. In the past, good loss risk just came with inflated expense ratios, which resulted in investments in the US platform. This produced only modest margins; however we are now reaping the scale benefits of our platform. By the end of 2015 we expect to deliver $600 million in net earned premium and our G&A ratio should reduce to approximately 16%, which will allow the US insurance platform to become a significant contributor to overall ROE.

In February of 2013, you will remember that we set an expectation of a 10% return on operating equity in 2014. I'm very proud to say to you today we did it. We surpassed our 10% ROE target and along the way we did have a lot of fun.

My colleagues at Aspen inspire me daily. They work tirelessly to offer our clients innovative solutions which address their needs. In reinsurance, our close client relationships enable us to continue to punch above our weight and gain access to the most sought after risks. And in insurance, we continue to offer international lease solutions and the US platform is continuing to gain scale through profitable growth.

At this time of accelerating consolidation in our sector, it would be appropriate to comment again about issues of scale and consolidation. Our Board gave a great deal of thought to this topic last year and we believe that the question of scale is one that is more relevant to our reinsurance segment than to insurance.

Insurance now represents about 60% of our total book. In our international operations, we have meaningful growth in our Lloyd's operation, for the Lloyd's balance sheet is certainly big enough for any of our customers. We continue to grow our US specialty operation and we expect to achieve the necessary scale organically by the end of this year.

With regards to reinsurance, there are different ways to play in that sector. We always preferred an opportunistic approach whereby we will reduce or expand our activities depending on market opportunity. We ally this approach with a deep understanding of our clients and their needs and the products they require.

The spectacularly good results achieved by Aspen Re in recent years is a testament to the effectiveness of this approach. Of course, we also provide a large number of global clients with whom we enjoy excellent relationships. Here we find that a balance sheet in excess of $3 billion combined with the contribution from Aspen Capital Markets can provide the significant limits of capacity these customers require.

Evidence of the health of this part of our business is provided by our having increased our shares with those customers in the last couple years with whom we seek expanded relationships. The fact that these major global clients are buying increased limits from us demonstrates the significant part that Aspen replays as a counter party.

However, taking all these factors into account, my summary is that we're trading very well and very effectively. But of course, we will continually monitor industry developments and our Board will remain vigilant, protecting shareholders' interests and creating value. That concludes my prepared remarks. Scott and I would now be happy to take any questions you may have.

(Operator Instructions)

Your first question comes from Amit Kumar with Maguire (sic).

That's Macquarie Capital. Thanks and good morning.

Amit, good morning to you.

Two quick follow-up questions and I apologize if I missed this. I think you were talking about the development numbers and you said it was a large construction project. I thought the development was in the marine, aviation and energy segment. Is this some sort of an energy construction project? Can you give us more color [concerning] this development please?

Hi, Amit, it's Scott here. Let me just say a little bit of development that we responded to in the quarter. It is a large construction project, but it is in fact in our construction liability section of the account.

Okay, and can you sort of expand on that? Like do you get the sense that this issue is behind you? Has there been any additional news or development which we could see in Q1?

Well, my impression, Amit, is that it is largely behind us. It's US-based, a fairly major project. We had three interests in it. We didn't like the direction the claims were taking this year. We took a good look and we decided to try and put a cap on that.

We then looked at any similar risks, and we don't have too many of those in the book that look any similar. And we took the opportunity to increase the IBN off of those as well. Clearly, you can never say never in the world of reserving, but we wanted to put as solid a cap on this as we could do, and we've done. It's a very specific area of the book and I don't think there's any, if you like, contagion risk into elsewhere.

Got it, that's helpful. The other question I had is on your pricing commentary, you are talking about rates being down. What is your sense as to how much is the ROE down for the renewals business? Is it in the 200 to 300 basis point range? Is it more or less than that?

So the business I was talking about there is not the insurance business, which on average we renewed close to flat, maybe down minus 1%, something like that. We're still seeing is some increases on the insurance side and elsewhere some reduction.

On the reinsurance side we're down 3%, on the -- away from the property cat area. I think in the property cat it's down 9%, a little bit more in Europe, but less in the United States. We dumped a bit of European business. It wasn't superbly well priced to start with, and so we lost a bit of that.

The US I think is actually is not as good as it was, but basically there's still some stuff that's well worth writing in there. I think we haven't really offered a guide to what the ROE implication on that piece of the account that was renewed is, but I will tell you it will be nothing like the 200, 300 basis points you suggested. You're talking about 9% rate reduction on maybe about 7% of our total book. It's a marginal impact, actually.

Got it, that's helpful. And the final question I have is going back to the discussion on consolidation. Obviously a lot has changed since we initially started talking about this. It seems that everyone around you is now involved in something or the other and probably it's not only about reinsurance, it's about scale and expense and optimization of portfolios.

I'm curious, has there been any evolution in your thought process? Or are we at the same place where we were in April of 2014 in terms of how you thought about the go-it-alone strategy? Thanks.

Well, I guess I would say our strategy is to move forward with an open mind and create value for our shareholders and that's what was. That's what it still is. It seems to me that we have a pretty winning model at the moment. There aren't many of our competitors actually saying we got growth resulting in investments made over a few years.

We've got the diversification into insurance. We've got a broadly-based reinsurance account. We've got some very nice results. We've got an upward trend in ROE. So that seems to me to be a pretty good way to create value and that's what we are likely to do.

But if opportunities present themselves, we're always going to take a look at them. That's what we did the last one. We worked out, of course, that stand-alone independence was a better way to create value than that particular deal.

But one looks at the future with an open mind always. But we're not looking at the future from any sense of there is a flaw in the business model. We're looking from the point of view that we think we have a winning hand already.

Got it. Thanks, that's all I have. Thanks for the answers.

Okay, Amit, thank you very much. Bye.

Your next question comes from Max Zormelo with Evercore ISI.

Hi, good morning. It's Max Zormelo from Evercore.

Hi Max, good morning.

Hi. So my first question is about the top-line decline in the reinsurance segment. It's down quite meaningfully this quarter across virtually all lines, so I'm just wondering if you could give us some more color on that.

Hey, Max, it's Scott here. How are you doing?

Good, very good.

Max, you know what? I'll probably direct you towards the year-to-date numbers. There's always going to be a bit of subjectivity and a bit of noise during the quarter. The most significant one has been in our casualty reinsurance area, and that can be subject to premium adjustments. As I say, step away, best to step away from the quarter and have a look at the annual numbers.

Okay. Second one is on the ROE target. You're talking about 11% for 2015. As I look back on the 2010 results, I think when you put out the target, you said cat losses were going to be -- you're targeting at $185 million in cat.

Fast forward to now, cat is giving about $65 million. I'm looking towards 2015 and trying to figure out what is a normalized cat number. Or what's your estimate of cat that you're including in that 11% ROE target?

Max, it's Scott here again. You know, I think Chris gave some color on where we are in terms of our numbers in 1/1, on the 1/1 renewals. We've given that to you. So there's a few ups and downs there, although generally we've done well and come through that pretty well.

I think if I was to switch gears a little bit from reinsurance and look a little bit more at the insurance side of the house, we've got a little bit more cat-exposed business there. Obviously with the growth we are expecting in our US energy, physical damage side of the house, which is really a good growth engine for us. But other than that, there's nothing really going on in the P&Ls either.

The question I'm asking is more about the cat load for the year. I'm talking more about -- because if you look at $185 million, you have $65 million. Obviously there is a couple of points lower if the cat losses are coming at the $185 million level. So I'm just trying to get a sense for how should I think about the cat losses for this year?

Yes, Max, I'd say it's not a meaningful increase in the level of cat load that we would be expecting through 2015.

Okay, all right, fair enough.

Maybe, Max, I can help you a little bit, sorry to interrupt. There's a number of moving parts here. One of those moving parts involves us being a better leveraged Company, operating leverage going up. The rate of growth of premium is greater than the rate of growth with capital winning. And that's because it's diversified growth.

And then I'd point you to US. And what we said on the call there is this has been a profitable account for a few years, but modest profit because the infrastructural base costs a lot of money relative to the size of the operation. In fact, the US top line is running ahead of plan and we look forward this year we think we're going to achieve that, to us, very important 2016 OpEx ratio in the course of this year.

That means that US, which is not a sizeable book, $800 million-plus written and $600 million-plus earned, is going to make a big contribution to ROE. So yes, we're losing a little on cat, as cat prices reduce, but we're winning a lot on US insurance and winning a lot from leverage.

That's why two years ago sort of today I told you I thought we'd do a 10% ROE in 2014 and we did. We beat it actually. And today I'm saying to you I think we'll do 11%. And times are tougher but we've taken some actions that are going to mean that we'll say to you with equal confidence we could hit 11% this year.

Thank you. Last one, if I may, just a numbers question. I think Scott mentioned the expenses, there were three contributors. Just wondering if you could just quantify, give me some numbers around that, please?

Yes, Max. Let me just go really for the quarter there. What we talked about the three drivers of the uptick in the expense ratio, one being performance related comp, one being our fair value adjustments related to some of our stock comp and also some severance related costs. So on the severance side, it was about $3 million or thereabouts in the quarter. And on the fair-value adjustment, you know that some of our stock items are linked with the share price.

We've certainly seen an uptick in share price across the year and that will result in a little more costs coming through the income statement. In the third quarter that was about $3 million, or about $5 million across the year. So I've given you two data points there, I think you can make up what the third piece is.

Okay and the performance comp?

That is the third thing, yes.

That is the $5 million again? All right, that's helpful, thank you.

Yes.

Okay. Thank you.

Thanks, Max.

Your next question comes from Ian Gutterman with Balyasny.

Good morning, Chris.

Good morning to you.

I guess I wanted to follow-up on Amit's questions a little bit more. On the construction loss, is there anything more you can tell us? It seems a reasonably significant loss for one event.

Is it something that you had large limits on? Was it one of your bigger construction projects in your book and that's why it would have a big impact? I'm just trying to get a little bit more color about why one event would have a $12 million loss?

Well, Ian, to be frank with you, this was an under-performing area of our book and we took some steps last year, so late 2013 into 2014, to get some improvement there. In fact, not only have we non-renewed that particular involvement, but we have closed that operation entirely. We are longer writing construction liability from London. That was a problem area. In the course of the last 12 months or so, we tried to get our arms around it from an insurance point of view.

The good news is I think it's a relatively small problem. The bad news is it's a nasty little problem and I think what we want to do is try to put reserves on it and hope that that's the end of it. As I said earlier, there's never a guarantee that that was the end of it.

Our exposures there, there are lines in this $10 billion, $20 billion area, but they are in a primarily exposed position so they can produce a little bit of volatility of outcomes. I feel pretty good that we got our arms around it and that it is not -- that type of exposure is not an ongoing part of our accounts. And therefore, there may be some development from what we've done in the past, but there isn't going to be any more of that exposure put on our books.

Got it, that makes sense. And then on the strategic question, maybe you could talk about your views on -- obviously over the last year, given what we have seen elsewhere in the market, there's been, one, a lot of transactions, but, two, an evolving thought that scale is much more important than it used to be, specifically on the reinsurance side. That getting your cost structure down is more important than it used to be. That diversification is more important than it used to be to lower your cost of capital.

How do you feel Aspen needs to respond to those events? Is your current strategic plan still as good as it was a year ago? Or were there things you look at with how the world is changing that you feel you might need to respond to and make some changes on the margin?

Well, first of all, I agree with you that scale is an issue on the reinsurance side. I think less so on the insurance side. And on the insurance side, half of our book, roughly speaking, is Lloyd's of London, which is certainly scaled big enough to please any customer who buys policies.

On the reinsurance side, to a certain -- at a group level our response to this issue goes back probably six to seven years when we started building our insurance book. Our response to scale as an emerging issue in reinsurance was to become a bigger insurance player. That said, we have a very valuable and a very, very successful reinsurance operation.

What are we trying to do in that operation? I've been saying for some time I don't view US reinsurance as a growth area for us. I think the US casualty reinsurance market is and has been a tough market. We do, do some business there. We do it well, but we haven't grown it in a long time. And on the property side in the US, you got all that property cat downward pressure. So though I think we're an effective player there, we don't view that as growth area.

Where are we getting growth? Continental Europe, mainly with smaller clients, probably don't include UK in the Continental Europe. We don't do so much in Germany, but some of the smaller economies we're pretty effective. Asia Pacific, most of our customers are small. Latin America, we got a good growth rate and most customers are small.

What are we doing for those customers? We're looking at the totality of their exposures. Maybe their issues are on the surety bond side. Maybe their issues are on the mode of third-party side. Maybe it's property; it's usually actually not property. I would try to play a part across the whole totality of exposures.

Our size is plenty big enough for those counter-parties. They do tend to have traditional relationships with a couple of very major reinsurers and then smaller relationships with a few others. We are one of those few others and that's working for us. It's not restricted by scale at all.

And then you've got ACM, which we've now been doing for about two years. The growth rate there is rapid. We do want more scale in ACM, but we're building a track record to up to three years of trading. A formal track record gets us to that inflection point where we could expand it a lot more and we've certainly got some very good people working on that. So I look at that and I say you know, it seems to be working very well. The result of Aspen Re last year was again spectacular.

So now what about cost? Cost matters, of course it matters. But I would say to you the better underwriting Company is going to always out-perform the Company that has a low cost base. Reinsurance guys are bright, they're relatively expensive to hire. If you can get them underwriting more risk and premium per person, that's good. But if you reduce the quality of the underwriting because of that, that's not so good.

And at our scale, I can compare our results, our return on capital in reinsurance, which is an internal metric, to the stand-alone reinsurers. And I see us out-perform them year in, year out. So again, I think that's fine; I think we have a sustainable model.

What I said at the end of the call, though, is you've got to maintain an open mind. If things happen, you take a look at those things, you decide would you be better off that way? And if you are going to be better off, that's what you try and make happen. So far we haven't seen such an opportunity. We've looked at a few.

There's never a period that goes by we're not looking at something. We've looked at some of the obvious names over the last few months. They have made, let's say, more sense for others than for us to get involved. And so we've kept on with what we're doing. So I hope that color helps you, Ian.

That's actually very helpful. I appreciate all the detail. Thank you.

Thanks, Ian, bye.

(Operator Instructions)

There are no further questions at this time.

Okay, well, thanks to you all for listening to us on this remarkably cold morning. Have a good day, goodbye.

Thanks, everyone.

Thank you, Ladies and gentlemen, this concludes today's conference call. You may now disconnect.