Aspen Insurance Holdings Ltd (AHL) 2017 Q1 法說會逐字稿

Good morning, and welcome to the Aspen Insurance First Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Mr. Mark Jones, Senior Vice President, Investor Relations. Please go ahead.

Thank you, and good morning. On today's call we have Chris O'Kane, Chief Executive Officer and Scott Kirk, Chief Financial Officer. Last night, we issued our press release announcing Aspen's financial results for the first quarter of 2017. This press release as well as corresponding supplementary financial information can be found on our website at www.aspen.co. Today's 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 U.S. Federal Securities laws. All forward-looking statements 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 posted on our website. Today's presentation also contains non-GAAP financial measures, which we believe are meaningful in evaluating Aspen's performance. For a detailed disclosure on non-GAAP financials, please refer to the supplementary financial data and our earnings release posted on the Aspen website. With that, I'll now turn the call over to Chris O'Kane.

Thank you, Mark, and good morning, everyone. We have a strong start to the year. We're beginning to realize the benefits of our insurance portfolio repositioning, while our reinsurance operation continues to produce exceptional results. We reported operating income per diluted share of $0.79 for the first quarter of 2017 and annualized operating ROE of 6.8%. We ended the quarter with diluted book value per share of $47.89, an increase of 3% from the end of 2016. Our results were strong despite the impact from the change in the Ogden rate, which reduced our annualized operating ROE by just over 4 percentage points. Looking at our segments, Aspen Re continued to perform very well with a combined ratio of under 89%, starting the year with successful renewals in January and a strong first quarter. Gross written premiums grew by 9% compared with the first quarter of 2016; however, on an underwriting year basis and excluding AgriLogic, top line was largely flat. Across Reinsurance, overall, rates were down 2% in the first quarter. Casualty was flat, Specialty down 1%, Other property down 2% and property cat rate decreases slowed to 4%. While the overall pace of rate reduction continues to slow, pricing remains pressured and we continue to be extremely disciplined. Our reinsurance colleagues have been able to hold the line while writing risk that we like and managing our exposures. Against this background, we were selective in our growth opportunities across all of the subsegments. For example, most of the growth in our Specialty Reinsurance business in the first quarter came from AgriLogic. When we brought the AgriLogic team on board last year, we knew their experience and technical expertise combined as part of Aspen would provide good long-term opportunity to grow our U.S. agriculture business. After a very positive first year, we continue to believe those prospects remain bright. In addition to diversifying our products and distribution through the addition of AgriLogic, our established strategy of building global network of regional offices as a way of keeping close to our customers provided a strong foundation for organic growth. We continue to see the benefits of this strategy with positive contributions from the MENA region following the establishment of the Dubai office and continued good traction in Asia. With ongoing pressure in the property catastrophe market we continue to leverage third-party capital through Aspen Capital Markets, to reduce exposures in property cat and manage our net exposures carefully, including the April 1 renewals, our net PML's were down across most perils. Our team continues to hold the line at the April renewals, and focused on finding business that met our return hurdles. Against a backdrop of rate declines, we found a few areas of opportunity, however, we also pulled back in a small number of significant cases, reflecting our underwriting discipline. Overall, rates were down almost 2% with Asia Pacific recording only modest rate decline. We achieved some growth, primarily as a result of close client relationships, good cross class collaboration and a strong market position in Japan, lead to various new opportunities. Our Reinsurance colleagues remain well positioned to continue to maximize opportunities as they arise. Turning now to insurance. Aspen insurance team has continued their disciplined approach to building businesses that we talked about on last quarter's call. We remained very focused on the areas that provide the best opportunities for long-term property growth and cautious in those areas where we do not feel the returns were adequate. Insurance reported combined ratio of 99% although this was impacted by the effect on our U.K. causality lines from the change in the Ogden rate. I mentioned last quarter that our targeted growth across the portfolio included areas such as Surety, U.K. regional, Professional Lines, credit and political risk, and crisis management. With continued strong performance from these areas, along with solid performance from reposition lines, I'm very optimistic indeed about the future profitability of our insurance business. In terms of top line, insurance was down 6% compared with the last year's first quarter, primarily due to programs in Primary Casualty businesses we downsized and our continued cautious approach to much of the Marine, Aviation and Energy market. However, we saw solid growth across most of the remaining book, giving us increased confidence in the future trajectory of our business. In the Property and Casualty subsegments, for example, our U.K. regional business is benefiting from purchase of renewal rights to book of business that is very complementary to run. We're scaling the business and the book is performing very well. Another example is our Excess Casualty book in the U.S. In line with actions to upgrade our underwriting talent, Lorraine Seib joined us last year. Since then, she has built out a team, changed the risk appetite, and has been highly successful in taking us into new profitable niches within Excess Casualty. In the Marine, Aviation and Energy subsegment, conditions in much of this market have been challenging for some time. However, there are some areas in which we've grown selectively such as Inland Marine in the U.S., with disciplined underwriting standards and an expanded footprint, we've been able to scale this business, including the acquisition of Blue Waters, a specialist marine agency in Puerto Rico. We remain very careful in our approach and this has been reflected in improved profitability across many of the lines in this subsegment. In our Financial and Professional Lines subsegment, we saw good growth and results from the number of areas. Recent exciting efforts include surety where our agile team with increased underwriting capacity is taking advantage of certain market dislocation to capture new opportunities. Now I'd like to turn it over to Scott for his comments and I'll make some further remarks later. Scott?

Yes, thank you, Chris, and good morning, everybody. In the first quarter of 2017, we produced after-tax operating income of $49 million, a combined ratio of 96.6% and we grew diluted book value per share by 3% to $47.89. Gross written premiums for the group were $998 million, an increase of 2% compared with the first quarter of last year, which is coming from our Reinsurance segment. Ceded written premiums increased to $312 million from $176 million in the first quarter of 2016, due primarily to the quarter share reinsurance placements that we mentioned on our last call. As a result, the retention ratio for the group fell to 69% from 82% in the first quarter of 2016. The loss ratio for the group was 56.5% compared with 53.9% in the first quarter of 2016 with the increase due to a combination of the $30 million impact from the Ogden rate change and higher cat losses. We recorded net cat losses of $29 million or 5 percentage points, mainly from the tornado in Mississippi, Cyclone Debbie in Australia and other weather-related events. Total prior year net reserve releases for the group were $26 million or 5 percentage points, of which $21 million came from reinsurance and the remaining $5 million from insurance. Our accident year ex cat loss ratio was 56% compared with 54.4% in the first quarter of 2016, with the increase attributable to our insurance segment where we had several fire losses and an Energy loss in the quarter. Turning now to expenses. We said previously that there were 2 things that would happen to expenses. First, we said that the acquisition ratio would improve, which it has done, coming down from 20.1% for the full year 2016 to 17.9% this quarter. We also said that the operating expense ratio would increase due to the reduction in earned premium, which it had also done. With the operating expense ratio at 20.9% for the quarter compared with 18.2% for the full year. As I look to the rest of the year, we expect to see earned premiums increase in our insurance segment as we continue to gain traction in our targeted areas of growth, and we also expect to see an increase in earnings in AgriLogic, which largely come through in the second half of the year. In addition, we expect to see an increase in ceding commissions earning through from our new ceded reinsurance programs. As a result, we continue to expect the total expense ratio to improve compared with the full year 2016. We remain keenly focused on operating as efficiently as possible and ensuring that operating expenses across the organization are aligned with our opportunities. Turning now to our segments. Firstly, Reinsurance. Gross written premiums of $565 million, an increase of 9% from the first quarter of 2016. Growth in Specialty was due to AgriLogic, and Casualty grew as a result of our regional growth initiatives. Other Property was up, largely due to favorable premium adjustments. Net earned premiums were also largely flat compared with the first quarter of 2016, however, I would expect net earned premiums to increase during the year as earnings from AgriLogic are weighted towards the second half. Including the $13 million impact from the Ogden rate change, Aspen Re delivered underwriting income of $31 million and a combined ratio of 88.8%. We had cat losses of $25 million and 9 percentage points, which was about $14 million higher than the first quarter of 2016. We also recorded $21 million or 8 percentage points of net favorable reserve development reinsurance. This reflected releases across all our subsegments. The accident year ex cat loss ratio was an impressive 50.3%, a 40-basis-point improvement from the first quarter of 2016. Turning now to insurance. The quarters underwriting income of $3 million and a combined ratio of 99.3%, including the $18 million impact from the Ogden rate change are a significant improvement from the fourth quarter of 2016. This return to profitability reflects the actions taken to reposition the book during the second half of last year. Given this repositioning and the changes to the portfolio, we thought it will be more relevant to provide comparisons to the fourth quarter of 2016. Gross written premiums were $433 million, an increase of 6% compared with the fourth quarter of 2016. This included growth in targeted areas such as surety, U.K. regional, Professional Lines and crisis management. We also started to see the impact this quarter from the Reinsurance changes that we talked about previously. Ceded premiums increased substantially to $195 million, resulting in a retention ratio of 55% in the quarter compared with 76% for the full year 2016, and this reflects the increase in our pro-rata treaty. The net loss ratio was 61% compared with 68.5% last quarter. We recorded $5 million or 2 percentage points of net favorable loss reserve development in the quarter. This reflected releases primarily across our short-tail lines, but was partially offset by the adverse development related to the Ogden change. We also recorded $5 million and 2 percentage points of cat losses from U.S. weather-related events. The accident year ex cat loss ratio was 61.1% compared with 68.3% in the fourth quarter of 2016. I'll now move on to investments. A net investment income of $48 million, down modestly compared with the first quarter of 2016, with reduction in the equity portfolio that was completed at the end of last year, dividend income was marginally lower than the first quarter of 2016. The total return on aggregate investment portfolio was 1.1% in the quarter, reflecting net gains across our equity and fixed income portfolios. Fixed Income book yield was 2.53%, broadly in line with the first quarter of 2016 and up from 2.49% at the end of 2016. While the duration of the Fixed Income portfolio was 3.9 years at the end of the first quarter in 2017. Now finally, I'll make some comments about capital.

We've undertaken 2 capital management actions in the quarter. Firstly, you recall that we took advantage of favorable rate environment last year to complete our 5.625% Series D preference share issuance. In January, we used a portion of those proceeds to redeem our more expensive 7.401% Series A preference shares. We also still intend to redeem our 7.25% Series B preference shares in July, which will reduce our total preference shares on issue by $43 million. The second capital action is the 9% increase in our ordinary share dividend that our board approved yesterday. Importantly, this is the sixth consecutive year of dividend increases. And with that, I will now turn the call back to Chris.

Thanks, Scott. I'm pleased with the results this quarter. We achieved growth in areas we targeted. We reported solid underwriting contributions from both segments, despite the adverse impact from Ogden. Our results began to demonstrate the benefits of insurance segments repositioning and highlighted the continued strength of the Aspen Re franchise. The Speciality, Insurance and Reinsurance markets continue to become more complex. Aspen too has become larger and more complex, utilizing different technologies and systems that operate across different platforms, businesses and geographies. We need to be sure that we have the right systems, people and processes in place to support our future business growth. To that end, we recently appointed Richard Thornton to the newly-created position of Chief Operating Officer of the Group, in addition to his responsibilities as the Head of Strategy. I believe the continued improvements, major improvements to operational processes supported by new technology solutions will enable us to improve our efficiency, nimbleness and effectiveness as a company. Richard and his team with his board of the entire management group, are looking at all of our operational activity whether it takes place in segments, platforms or corporate functions. While it will take some time to review our operational strategy and structure, and determine how these can best support the delivery of our overall strategy and business plans, Richard and his team has strategic vision, new ideas and strong momentum to deliver highly beneficial change. This is an exciting time for us. With the teams in place, we believe both our insurance and reinsurance operations are very well placed to succeed. The board's approval of 9% dividend increases the tangible expression of optimism in Aspen's future earnings prospects. We celebrate our 15th anniversary in 2017, and look forward with purpose to the future and delivering strong results for our shareholders. With that, we're happy to take your questions.

(Operator Instructions) The first question comes from Amit Kumar of Macquarie Capital.

Just a few questions. The first question goes back to the slide show where you're talking about capital and returning capital as it creates more value than deploying in the business. You didn't have any buybacks, you did have the dividends. I'm curious how you're thinking about your overall capital position? Do you think you might need capital to grow or do you think you're okay? Just help us understand that metric a bit better?

Amit, I will kick off and if you want to get into some numbers, I'll hand over to Scott, of course, but absolutely, not. We're very well capitalized business. We have all the capital we need to cover all the risks, in addition to that we carry some additional capital as a buffer, that's the stuff that's sometimes gets used for buybacks, and sometimes gets used to fuel the opportunities. In addition, we made really quite a big change. We've talked about in the reinsurance quota share, really since about June of last year, in a sense that's surrogate capital, but it's still real stuff, it's really we're using the capital of our reinsurance partners to further fuel growth. So very comfortable, we've all the fire power we need to take up advantage of any opportunities that might be coming.

Can you sort of -- again taking that comment, net-net we should anticipate a buyback as less likely or how should we think about that, is how to distill that comment?

Amit, it's Scott here. Just let me go back on a couple of things here. I think we talk about buybacks, common share buybacks at least. I think that's only a single lever and not the only option. We've been pretty active over the last 6 months, 9 months. We've done a bit of refinancing in those preference shares. We got a deal done at lower rates and we've used that -- we are going to use that to retire some of the more expensive prefs that we had out there. So in that way it does improve our efficiency and some of the flexibility that we have around our capital base. But clearly, we've got some exciting opportunities, and we are going to put that capital to work in the business where we see fit. But obviously if we do and when we have excess capital, we're going to find the most efficient way to return it to our shareholders. And that could be in the form of the dividend, which you saw that we increased, or alternatively, through common share buybacks.

My next question relates to the discussion, I think in the call, in the opening remarks, you talked about investment in technologies and sort of generating efficiencies through that. Is there a way you can sort of put some numbers around it, like maybe x million and x million would be the return? I think that might be helpful in sort of thinking about the expense ratio going forward?

Amit, we will do that. We will give you some numbers, but we're not going to be doing that today. It's a very, very major project. We're going to be working -- we've done a lot of work so far. We're going to be hard at work over the summer on this and I want you to view this not simply -- of course, it's expense saving, everything is about expense, but this is about repositioning the business to take better advantage of today's technology. That will be in how we design policies and how we sell them. How we service them after we sell them, but also be thinking about how we organize our teams, particularly the middle office and the back office, how they function. So it's big stuff, it's very exciting stuff, it's quite complicated. I'll be really disappointed if like 2 quarters from now we haven't been able to set out and solve out what we're hoping to do. We may talk a little bit in 3 months' time, but I've kind of earmarked the diary to sort of 2 quarters from now for more details.

Last question, I'll requeue. On AgriLogic, obviously there is a slide, you've talked about it a lot. How should we think about, I guess, the premiums from that business? It's had like $180 million growth in 2016. I mean, net-net, which direction should we think about for 2017 and even the future?

We ought to be able to achieve double-digit percentage growth. Double-digit meaning greater than 10, and I don't mean 30, 40, 50, but growing at a pretty good clip over the next couple of years, I think. Very thoughtful people, very energetic people, creative people. I think they've got a way of getting themselves in the right place at the right time and they understand that sector very well. While they didn't have the forward Aspen technology, Aspen Operating Systems and Aspen Capital, the 2 things coming together, are working very well. I wouldn't get too concerned by what we're seeing on the call about this quarter, there is, let's say a delay in the recognition of earned premium, that's because the crop mix changed and some of the crops that farmers were planting, the crops that we don't necessarily want to retain so much, and so we've been writing it, but we've been heading to reinsure a disproportionately a high part of that. And that's going to flip around probably starting this quarter i.e., second quarter, and in third quarter, I think you're going to see a very, very useful growth engine firing all cylinders again.

(Operator Instructions) The next question is from Josh Shanker of Deutsche Bank.

There's not 1 thing, but if I think back 20 years ago to the last soft market and what were the lessons learned, one of the behaviors was gross lines underwriters becoming net line underwriters, trying to arbitrage out inefficiencies in the reinsurance market space. As you move to increasingly cede your business, is that a prudent long-term strategy to be a business that intends not to keep its own risk or maybe I'm sort of looking at this session change a little bit incorrectly?

Josh, it's a very interesting and philosophical question. There was a time 4, 5 years ago, we talked a lot about the increased retention vehicle and retaining more risk where we may be targeting to keep all but sort of 10% or 12% of the business we wrote. That was at a time when we thought underwriting margins were quite attractive in insurance, and reinsurance price we thought was rather high. I don't think it's kind of have a philosophical change to say if the facts change, you change your opinion. If the margins in some of insurance are a bit lower, but still adequate and maybe better placed than someone else's balance sheet then that's the way you move. So today, I think Scott indicated actually on the last call, our retention level more in the area of 70% to 80%, 70%, 75% something like that. We don't actually target retention level, recession level, we target a series of decisions that make sense. We want to grow, we have absolutely great set of professional lines and related lines, areas like surety areas, like -- have management liability, like financial institutions that are doing very well indeed, have a lot of growth with businesses performing very well, but given its scale, I think using some reinsurance capital, partnering with them to see that growth through over the next 2, 3, 4 years makes a lot of sense. I think the same is true, maybe to slightly less extent in the Marine and Energy markets. Our Reinsurance, usually they are a bit smaller but roughly the same. Property, a little different. Property, we tend to operate more on excessive loss basis. And I think that's the right strategy through this phase with market cycle. It doesn't mean that you don't worry about underwriting margin. Frankly, if you don't produce the underwriting margins to satisfy yourself and your reinsurers, then you don't have any reinsurers. So it's kind of 2 areas to satisfy, an additional area to satisfy, so discipline remains critical, but right now, given our capital, given the capital available and the cost of capital of our competitors, I think we've got the right strategy. You asked me to look out beyond 2, 3 years, I dare say the strategy will need to evolve as the market evolves, but it's a bit pointless to speculate how those evolutions are going to take place. Does that help you Josh?

Yes. I guess, 2 other questions from there. The first one involves capital. Reinsurance is a form of capital, and given that you're using it more aggressively, do you have the capital that you could be a retain all your own risk, if you so chose at this point in time or is reinsurance a necessary part of your capital strategy? And 2, do we fear and you're not alone, I've seen it at least in 2 other companies that have reported or only to begin their reporting seasons of this moment to very significant sessions. Do we fear that we are operating under the great fool theory that the reinsurers are willing to take a business at a ROE that's absolutely unattractive and that's how the businesses is operating today, not you, but in general?

Okay. So I think the first question, Josh, is do we have the capital to retain all the risk? I'm going to answer it in a slightly different way, that would have made sense for us to retain all the risk. Some of our risks, let's say, some of the biggest risks are actually financial risks. We've risks in the asset portfolio. We have exposures in our underwriting to financial institutions, and we have other potential things such as cyber, which if they happen could affect both sides of the balance sheet. Theoretically, we could hold capital against all of those things up to 99 TVaR or 99 quantile value if you like. I don't think our owners will get much in the way of return equity if we did that. So it makes sense to take some of the tails of these distributions and place them with balance sheets that have diverse end exposures versus stuff from us that is accumulating and capital intense, can for someone else of their balance sheet be diversifying and capital light. That's I think the essence of what's going on here, with at least, I can only speak for this company and our reinsurance buying. There was a time, you know, I have been around a long time, Josh, and once upon a time, in the reinsurance world, there were indeed lot of fools and you know what happened? They all kind of went bust. I don't really meet any fools anymore, it's kind of a shame. It will be kind of useful. But our panel of reinsurers are some very smart and sophisticated companies. They take, for example, on our huge quota share of casualty and professional lines, that was a sort of a 3-, 4-, 5-month massive analytical job for us and for them and for some very sophisticated brokers in the middle. I don't think anyone is a fool, I think people are carving out pieces of each other's portfolio that belong more efficiently in their own balance sheets and that's what's going on.

The next question is a follow-up from Amit Kumar of Macquarie Capital.

Two quick questions. #1, again, going back to AgriLogic and I'm still learning a bit about this. Can you remind us how much are you booking this book at, what's your initial loss pick, what's the expense ratio component? And will it typically square out in the third and fourth quarter, when the crop season evolves? Maybe just help us understand that metric a bit better.

Amit, it's Scott here. Let me answer that question. I think we have sort of chatted briefly about this in the past. But you sort of expect to see your regular crop insurance business as probably booked with loss ratios in and around the low 80s, and I think that's sort of the industry norm. Clearly, as you flip that into the expense side, I mean, these types of businesses do tend to attract very low, if not, sort of nonexistent acquisition expenses, and really the rest of this G&A. So you still got quite a bit of margin in there to bring his business in under 100%. Clearly, we had a little bit of investment lag in the first year of their existence. That bleeds a little in second year, but we're in a much more solid position there. The challenge I think is that, a lot of these earnings and things come through towards the second half of the year, once you know what's in the ground, you know how that's growing, and you know how the commodity prices are going to respond to that. So hopefully, that sort of gives you a broader answer on the question.

So net-net, I guess, if I were to just take some numbers low, so let's say, 82, 83 something like that, in the low 80s with the LR and ER might be in the 6% to 8% range. Is that a good sort of ballpark or?

I think ultimately that's where we love to get to, but we're still probably in a position where we are still sort of working through on that earnings. Might be a smidge higher than that at this point.

Got it. That's helpful. And okay. And the other question I have is, just sort of switching back, and going to the last question, and the evolution of Aspen. And I think you mentioned, 15 years, I was actually surprised that, that much time has already passed. When you look at the broader franchise, do you think, if you look at some other companies out there, other underwriters, is there anyone where you could see Aspen plus another company, the 2 plus 2 gets to 5, or based on your strategy you think the standalone strategy is the right strategy, and again this is notwithstanding the Board of Directors to look at everything for the best interest of shareholders, notwithstanding that discussion. Do you think the standalone is the right way based on the evolution of the business or would you be open to some sort of consolidation or joining hands with some other carrier? Because clearly, as you outlined, you are talking about being more larger and more diverse as being the panacea to navigate these markets.

Okay. I do think you have to begin with the predilections of Board of Directors acting in the fiduciaries of the shareholders. And the statement is, which you and I've discussed before many times is, we are open-minded to all possibilities which create value in the best and safest way for our shareholders. Thus far in the history, the independent strategy had seem to be the right way, and it still does today. What I learned in the call was that Reinsurance business still firing all cylinders, and Insurance business, it took some medicine last year and earlier, not too big a dose of medicine and is well set for this year. And then I talked to you -- I will talk you in the future in some detail about how we can become a leaner and more efficient platform for insurance moving our operating expenses into a competitive or even very competitive zone, we will see. So those things, we believe, are going to be rewarded by the market and representing pretty decent value improvements for our shareholders. If something came along and said we can give you even more improvement, we can give you faster, we can give you more safety then, of course, we would take a look at it. That doesn't say, we are out looking for such opportunities, it just says, we got an open mind and fiduciary aware Board of Directors. And indeed, CEO, when it comes to that.

(Operator Instructions) Your next question comes from Ian Gutterman of Balyasny.

I just needed a follow-up a little bit on some of the earlier questions because admittedly I got a little bit distracted and only heard half the answer. But just, Scott, just a follow-up on the buyback discussion. I guess, I was confused from the way the press release read that the lack of buyback was due to the preferred issuance. But I thought that was essentially all prefunded by the 250 issue last time. So why did having a maturity prevent you from doing a buyback?

Sorry, that's not the way that's supposed to read. It's just that I was saying that we have been active in our capital management space, it's not to say that prevented us from doing any form of common buyback. So in that regard, I think we talked about some opportunities that we're seeing in the market, particularly in our insurance business. We will support those and we think they are attractive opportunities. As we get to a point where we have excess capital, we'll look to return that in the most efficient way to our shareholders. We also increased the dividend by 9% this quarter too, which is adding to those capital management actions. But in any 1 particular quarter, I don't think that I take that as any form of trend.

Okay. Got it. Were you restricted or blacked out at any point because of Ogden or anything like that, where you essentially unable to or was this just a choice that this was not the right time to buy back stock?

Just a choice. It wasn't the right time to buyback at this point.

Okay. I guess, can you maybe help me understand better how you guys evaluate excess capital? Because, I guess, what's been confusing to me at least is just capital return over the last few quarters has been less than earnings. And I understand there's some growth, but it's not like you're growing 15% or something, right. I mean, premium grew -- frankly, net premium last year was flattish. So overall right and AG doesn't require a lot of capital. I guess, I don't understand why you shouldn't be able to return at least earnings through buyback and dividend?

It's quite a sort of broad and far-reaching question. I mean, last year we did do $75 million of buybacks, which was a decent return and based on the level of earnings that we had last year. You look out in the marketplace and we do have some growth opportunities, I think I return to that as a saying that we would have that opportunity to put some of that capital to work. But overall, I still don't think that there is a change in our methodology in any way in regards to our ability to return that capital. I mean, you asked about how do we think about excess capital, and clearly, we think about it really in 3 ways, which is on a rating agency basis, a regulatory basis, and our internal basis. Now that is our biggest hurdle at the moment. But we still remain comfortably capitalized with the buffers that Chris said. So perhaps I'm wandering off in my answer to this Ian, but does that help in any way?

That helps. I guess, shareholders are always going to think you have more excess capital or should deploy more excess capital than the management is going to want, it's just a natural tension. But my other question, Chris, you mentioned at the end of your prepared remarks about this review process, and it sounds like some of it's operational, but you also mentioned the word strategy and structure. So I was hoping you could expand on what that means?

I'll try to, I don't want to go much further this morning than what I have already said because there's a lot of work being done. The company has grown organically, successfully. We operate in 30, 40 territories around the world. We operate for a number of entities. It's a reasonably complicated structure that all modern insurance companies have. We've been putting our energy, our creativity, and our strategic thinking largely into where we take our Reinsurance business, how we maintain performance there and also how we build a viable insurance business in the U.S. I think we've kind of done that. We've got a pretty good business in insurance in the U.S. We got a nice business outside the U.S., the business is scaled. So notwithstanding there are a few little bits of improvement we want to see there. The next big strategic challenge is to sort of look inwards and see what kind of return on investment you can get, if you invest some dollars in improving your systems, how can you bring down the cost of working, how can you improve productivity, how can you deploy technology more effectively, both in writing business, servicing business. So these are the biggest questions that I think we face with all financial service business today and certainly insurance companies. I think you're beginning to see answers for those in the personal line side. I think in Commercial, Specialty Reinsurance probably lags behind a bit, that's probably because it's more difficult. For us, as we think about it, there's some low-hanging fruit, there is some sort of medium-level fruit to write, but then there are some very aspirational things we like to do. We're going to spend the next 3, 4 months with our board thinking about these issues, working through them. We've engaged some fairly high-powered consultants to help us clarify our thought processes, and when we are ready to say, here's what we think we're going to be doing, and here's what it means, and here's how it goes to the metrics of the company, and you are going to be one of the first to know in common with all our other shareholders clearly.

Understood. I'm just trying to understand if this was sort of like I say a normal 3-year strategic plan type exercise or if this is more of a, we really need to think about what businesses we're in, and if we want to maybe be smaller in some and bigger than others, and change the mix, or change how we think about scale, or sort of bigger picture questions like that versus sort of the normal 3-year strategic plan type exercise.

It is more than a normal 3-year strategic plan.

Okay. That's what I thought, I was just trying to make sure...

First time in our 15-year history we've taken a really radical root and branch look at operating infrastructure. The beginning of the review is not to judge the underwriting. We actually think we got lot of lines of businesses that produce very satisfactory loss ratios. But the world keeps changing and you might find that some things that traditionally used to work at a certain loss ratio because, for example, broker acquisition costs in the London market, which they ratcheted up and they ratcheted up again and again. You might just have to include that, it doesn't work anymore. It worked for the last 10, 20, I don't know 100 years. But if the brokers want to take this share of the pie, there is no point in being in that business at all. So now you got 2 choices: one is you got to find somebody to take that business because they're capitalized more efficiently to deal with it, and the other is, you got to close it down or downsize it. So I think those kinds of underwriting choice questions fall out of this. We're not going into look at the underwriting items, but they certainly have implications at the end. Flip side of that is, you can find a more efficient mousetrap, it may be areas of underwriting business that currently don't look so good, we'll begin to pull in there. And really I'm very excited and very interested in the topic, and I love to talk about it more. But I think before we need to leave it there on that topics now, because I really want to be talking about it when we can actually give the world some facts, figures and some numbers (inaudible) what we're saying.

I'll be patient. Maybe just 1 last thing. Because you sort of led into it, I almost forgot to ask actually. It was, you mentioned acquisition cost in London. Do you have any thoughts or views you like to share on the investigation in the Aviation area, and is that maybe an impending sign that the pendulum is starting to swing or do you think that's more of an isolated incident?

Our Aviation book is pretty small. We're certainly in that market but we're somewhere between a sort of 1 and 2 percentage point market share player in the Airline market. So I don't think we have the insights and a vantage points that others have. Certainly, the kind of behavior, the kind of indiscretion that was going on, I think is very reprehensible. And as far as I can establish, it's isolated to that part of the market. But it's not really possible for -- I mean, I hope I know Aspen very well. I can't speak for the rest of the market so well. So I don't want to get into speculation.

There are no additional questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. O'Kane, for closing remarks.

Well, thank you, everyone, for your time and attention this morning. Thank you for asking your questions. I hope you found the call useful. Goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.