Argo Group International Holdings Ltd (ARGO) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2009 Argo Group International Holdings, Ltd. earnings conference call. My name is Dan, and I will be your coordinator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Michael Russell, Director of Investor Relations. Please proceed.

Thank you and good day, everyone. Welcome to Argo Group's conference call for the third quarter of 2009. With me today is Mark Watson, Chief Executive Officer, and Jay Bullock, Chief Financial Officer. We're pleased to have the opportunity to review the Company's results for the quarter, as well as provide management's perspective on the business. No earnings guidance will be provided.

Before we begin, I would like to mention we will be participating in the Friedman, Billings, Ramsey investor conference December 1. Should you be attending, we hope you take advantage of the opportunity to sign up for the one-on-one meetings with Argo Group management.

I would like to remind you this conference call is being recorded and all participants are in listen-only mode. Following management's opening remarks, the operator will provide instructions on how you may ask questions.

As a result of this conference call, Argo Group management may make comments that reflect our intentions, beliefs and expectations for the future. Such forward-looking statements are qualified by the inherent risks and uncertainties surrounding future expectations generally and may materially differ from actual future results involving any one or more of such statements. Argo Group undertakes no obligation to publicly update forward-looking statements as a result of events or developments subsequent to this conference call. For a more detailed discussion of such risks and uncertainties, please see Argo Group's filings with the SEC.

With that, I would like to introduce Mark Watson, CEO of Argo Group. Mark?

Thank you, Mike, and hello, everyone. We appreciate that you've taken time to join us today. I will lead off with some general comments regarding our third quarter and the market environment heading into next year. After my opening remarks, our CFO, Jay Bullock, will provide additional detail on our financial results, and we will then open the call for your questions.

So let me just kind of start off and say that if you were to provide Argo Group's financial results to an investor not familiar with the property and casualty industry, they might note the certain points of significant performance. As we emerge out of a recession, the investor might notice that premiums in revenue at our Company are up; that operating and net income has increased substantially, both sequentially and year over year; and that the Company is generating significant positive cash flow and is well capitalized. Moreover, they would see that book value per share just hit another all-time high, just over $50 a share.

Given the strength of these results, the investor might be surprised to learn that the P&C industry in which we operate is in the most challenging part of its operating cycle. Rates continue to be under pressure from fierce competition. A challenging economic environment exists for small business owners -- those are our policyholders -- who are contracting their businesses and in some cases choosing to buy less protection. And because they are shrinking, they have less exposure units that we are ensuring. Assets and asset yields, especially the short end of the curve, are paltry at best.

The illustration is really intended to provide a juxtaposition between financial performance and the challenging quarterly result, given the state of the insurance market. It is also meant to highlight Argo Group's positive financial position at the end of the quarter, not the least of which is the 15.5% increase in book value per share since the end of last year, eclipsing the $50 per share level for the first time.

This quarterly performance follows a long-term trend which has seen our book value per share grow at a compounded annual rate of over 12% since 2002, a point at which our current strategy really began to take shape. Underlying the strong increase in book value this year has been the performance of our investment portfolio, coupled with strong performance in our reinsurance unit, steady performance from E&S and commercial specialty, and the continued challenge posed by the repositioning of our international specialty platform.

Despite the challenges, each of these operating units remains a key component of our strategy of providing a market-leading specialty platform to our insureds and distribution partners. However, with the progress of our platform buildout come the challenges of the current environment. Argo is both reacting to and preparing for a continuation of this environment.

We are reacting to the market by holding the line on pricing and are prepared for further reductions to certain classes of business. We are being cautious in interpreting what we see as continuing positive development in our prior underwriting years. While I would like to report otherwise, we fundamentally do not see the marketplace improvement than many anticipated at the outset of 2009, and I don't really see 2010 differently.

We will continue to invest in our businesses, looking for opportunities to invest in people and units which complement our specialty platform. Our Bermuda operation is a great example. In only its second year of operation, it is making a considerable contribution to our results. In addition, the expansion of this business to casualty is progressing well and will further enhance this unit's contribution in 2010.

In the core of our US businesses, our underwriters are working diligently to secure renewals by staying in front of their existing clients and distribution partners. Attracting new business, however, is extremely challenging for two primary reasons.

First, with everyone defending their renewal book, price alone is often the determining factor in winning new business. We have certainly seen that in the marketplace with some of the new entrants. The events of the past year have created a cottage industry of new competitors all determined to build a book and an environment where price is paramount.

Second, the difficult economic environment has had an adverse effect on the number of small businesses succeeding, as well as a number of new or early-stage business startups. These new businesses form a core of what we often insure in our E&S segment.

Finally, while the market avoided the large catastrophic weather events this quarter, and for the most part this year, and while in certain of our businesses we did benefit from this, we are simply not as exposed to large catastrophic events as some of our competitors. In addition, we chose to react quickly in the quarter to a number of large current and most recent accident-year losses, effectively offsetting whatever benefits we might have realized from the lack of large storm activity.

Let me go through and talk about each segment in just a little bit more detail. First, let me talk about our excess and surplus lines segment, which continues to experience the most competitive environment and market rate challenges, contributing to a breakeven underwriting results for the quarter, but operating income nonetheless. As we've mentioned for several quarters, some carriers continue to sacrifice rate to sustain topline, while admitted carriers expanded their risk appetites into traditional E&S markets. Still others appear to be offering increased commissions to attract new business, further exacerbating the competitive environment.

One of our competitors, I understand, is offering a special between now and the end of the year and are paying an additional 5% commission on new business. I don't think we really want to compete against that.

Despite these challenges, we did see some early indication of rate stabilization in certain classes such as transportation and industrial casualty, while pressure continued to be significant in our professional lines.

Overall, our prior accident years continued to develop favorably for E&S, which, on a net basis, reported approximately $1.5 million of prior-period positive development in the quarter. The effectiveness was muted by a decision to strengthen the 2008 accident year in reaction to a number of large losses and to a series of property losses in the current accident year, which I was referring to earlier.

In our commercial specialty segment, Trident, which acquired Massamont in 2008, continued to perform well in the third quarter in the public entity marketplace. And our business that insures mining operations, Rockwood Casualty, continued to perform with the consistency and predictability we have seen for some time. This latter result was achieved despite the fact that Rockwood is now beginning to see competition from new entrants, byproducts of the recent market dislocations.

Rates in this segment continued to experience pressure, but to a lesser extent than our nonadmitted business. In certain regions, flat to slightly upward pricing environments are starting to appear, and I do think that will continue. Much like E&S, commercial specialty has found new business acquisition challenging, and therefore has focused most of its energy on retaining existing business at profitable rates. Commercial specialty also has felt the impact of the economy on its small business policyholders, who are cutting back on discretionary purchases, thereby reducing the size and potential of the addressable market.

Prior-period results were slightly positive for this segment as favorable development in our Rockwood unit offset strengthening in Argo Select, our retail and hospitality unit. Our reinsurance segment -- that's the Bermuda operation -- certainly strengthens our operating results in the quarter, and this was primarily due to a lack of activity in the quarter results. In fact, Argo reposted a combined ratio of 46.7% for the quarter.

The property cat rate environment, while on a fairly steep incline in the first half of the year, appears to have peaked, the result of a lack of large events, coupled with the significant recovery in the balance sheets of all competitors. As a result, we may see companies that held back aggregate in anticipation of a more robust pricing environment be more aggressive at January 1 renewals. Argo Re also reported favorable prior years' loss development as we continue to benefit from favorable outcomes, particularly as it relates to Hurricane Ike from last year.

Another bright spot in our reinsurance segment is the progress made in our excess casualty insurance unit, which will be making a positive contribution to operating profit by the end of its first year of operations. While tracking close to plan in the casualty space, we are proceeding cautiously with our professional lines rollout, where competition continues to be fierce, keeping rates and terms at levels where we simply are not comfortable participating.

Lastly, let me talk about international specialty, our London operation at Lloyds. While we have learned over the past year at Lloyds is that not all the information we want to examine on Argo International's property binder book is immediately available, but rather has come to us gradually. This has been a source of some frustration, which you have heard me talk about in previous calls, as we try to reposition this book of business.

As we continue to get more complete information, we've been reacting quickly, and we chose to do so again in the third quarter. The nature of the binder business, which was expanded substantially in 2007 and the beginning of 2008, has led to kind of a reporting lag, and that's why we are still seeing things right now. Some of this is a result from business written at the beginning of 2008, and it's affected the results for the end of 2008 and 2009.

And while we've taken action this year to address that book, it looks like, for 2010, we will be cutting the binders in half from 2009 to 2010. And unfortunately, this has had another material impact on the quarter. And I think it still may be a couple more quarters before we finish pushing this through our operations because of the lag that I referred to earlier.

For our runoff business, regarding the runoff lines, we've continued to see favorable development through the legacy business of PXRE totaling $2.7 million for the quarter. We also performed our annual review of asbestos and environmental reserves during the third quarter. We did not change our reserves, with the exception of the settlement of a matter subject to binding arbitration, which resulted in a net charge after tax of $3.8 million or $0.12 per share.

Let me talk about investment income for a minute. We are seeing the impact of the steepening yield curve and the fact that we have chosen to keep our portfolio short as we come out of the credit crisis. Jay will discuss this in more detail, but the decline from the previous quarter was driven by a one-time item in the second quarter of approximately $4.5 million related to interest on a tax refund and also by the significant decline in our income on our growing short-term portfolio.

We're looking at ways to prudently offset this effect and in September began taking action on our London business to bring that portfolio more in line with the overall Company's investment strategy and risk tolerance. We should see some modest benefit from these changes in the fourth quarter and next year relative to the rate environment, which we don't see improving anytime soon.

From a valuation perspective, the investment portfolio has performed well. On a gross basis, our unrealized position has gone from a slight loss at the end of 2008 to a net gain position of just over $180 million at September 30.

Let me talk about capital for a minute and then I will move on to Jay. It seems that, once again, capital and the effective deployment of capital is a topic of great interest, only a few short months after it looked as though a meaningful amount had been permanently lost by the industry. Let me just say I would rather be in our current environment than what we were looking at a year ago.

We continue to generate additional capital, particularly in parts of our business which are, in effect, contracting, which will put pressure on returns into the future. However, as many of you have heard me say before, we have a capital deployment strategy that, first, supports our balance sheet, mainly loss reserves. While the top line contracts in certain businesses such as excess and surplus lines, the lag time on the release of capital is materially affected by the payout patterns of our reserves.

Second, capital supports the growth of our core business and reduces reliance on third-party reinsurance. A prime example of this future capital consumption is in our excess casualty business in Bermuda, which is still in its first year of operation.

Third, we will deploy capital to pursue attractive market opportunities through selective acquisitions that complement our existing business lines or books of business in the Company, things that we've done over the last eight years, I think pretty successfully. We continue to see a regular flow of small acquisition opportunities which provides us expansion opportunities in the US.

And finally, should the above needs and opportunities fail to materialize, we would consider repatriating capital, depending on our capital position and share price, either through our authorized stock repurchase program or a dividend.

Let me conclude my remarks by commenting on our team. Over the last year, we have been filling some empty seats and broadening and expanding talent throughout the organization. This continued in the third quarter and will continue for several quarters to come.

One positive byproduct of the market dislocation is the current pool of talented team that is interested in being part of an entrepreneurial and exciting environment like Argo. I believe the team is now as strong as it's ever been, and Jay will mention a couple of additional high-quality professionals we recently added to his team.

With that, I will turn the call over to Jay.

Thanks, Mark. Let me go over and add some additional detail around the third quarter's financial results. I will be brief and simply touch on a few items for which additional information might be useful. Then after, we will open it up for your questions.

Our results for the third quarter reflect continued sound risk management practices throughout our business. Book value per share growth in the first nine months to a record level of $51.04 is a reflection of our conservative investment strategy, coupled with prudently providing for the business we have written.

In the current environment of heightened competition and depressed asset yields, we continue to look for opportunities to add teams and businesses, but want to be certain we maintain the core of our franchise.

Now turning to the financials, the growth in the top line is largely attributable to Argo International and is primarily a function of our increased participation on the syndicate from 54% to 61% over the period. Absent this increase, all units were flat to down, reflecting the current market environment.

Overall, the prior-year reserve development was favorable by $9 million for the quarter, as Mark detailed. We experienced small favorable development for each segment. During the quarter, we did experience a one-time charge relating to a binding arbitration loss from our runoff segment, which, while a charge-off of a recoverable, is not a recurring event.

Argo Group's expense ratio increased to 38.6% in the third quarter from 35.4% a year ago. This increase is a function of the abovementioned charge, coupled with a shift in the mix of business in Argo International to higher commission product and a modest increase in operating expenses there as we reposition the business and continue to improve their reporting and management systems.

Let me address in more detail the quarter-over-quarter decline in investment income. In the second quarter, we reported $41.9 million in investment income versus $31.9 million in the current quarter. As Mark mentioned, the first thing to note is that the second quarter included a one-time increase of $4.5 million related to interest on a state tax recovery. In addition, due to a change in the amortization of premium on certain bonds, investment income was further reduced in the quarter, primarily in our London operation, by approximately $1.5 million.

After adjusting for these two items, the quarter-over-quarter change is approximately $3 million, which is a reflection of our move towards shorter-duration assets coming out of the credit crisis, coupled with changes we made at the beginning of the second quarter to reduce certain per-risk exposures. I expect investment income to reflect a more normalized level, in line with the above adjustments and the general decline in yields, going forward

In the third quarter, we posted just under $1 million of net realized gains. This result was the net effect of approximately $9 million in gains out of our fixed income portfolio, offset by approximately $1.4 million in other than temporary impairment charges in our equity portfolio and approximately $7 million realized foreign exchange losses as we continue to shift the allocation of investments in our London portfolio.

This latter shift will allow us to invest those funds at higher yields going forward. This FX loss had previously been included in our other comprehensive income and was on the balance sheet.

One additional item of note on the income statement -- the income was reduced in the quarter, primarily as a result of profit commission previously booked in our London operation, which was reversed in line with lower expected syndicate returns on the 2008 and 2009 years (technical difficulty). Recall that we are paid profit commission on the approximate 39% third-party capital that we manage in our Lloyds operation.

Now let me turn to our balance sheet and investment portfolio. At September 30, 2009, our investment portfolio had a market value of approximately $4.3 billion. This growth was the result of continued positive cash flow, coupled with a significant recovery in value. For the nine months, the portfolio went from roughly a neutral net gain loss position to a position -- to a net gain position of approximately $180 million. At the end of September 30, 2009, the fixed income portfolio duration was three years, with an average credit quality of AA+.

The second-largest line item on the asset side of the balance sheet is our reinsurance receivables, which had a balance at quarter end of approximately $1.3 billion, up just slightly from the previous quarter. While the charge taken in the quarter was related to this account, it was not credit related, and we continue to feel comfortable with the credit quality of our counterparties.

Finally, I'll comment on our capital position. With the significant growth in our equity base year to date, our total capital position eclipsed the $2 billion mark, which, after taking into consideration our intangibles and deferred acquisition costs, gives us more than $1.5 billion of underwriting capital. This position, coupled with the quality of our securities, allows us to compete effectively in any market.

There were no material changes to the nature of our capital structure in the period. Our revolver remains undrawn as of the end of the quarter and available to supplement our liquidity needs. We feel we are properly positioned to support our business for the balance of the year and take advantage of other attractive opportunities that may present themselves in 2010. We continue to evaluate alternatives for the most effective deployment of our capital base, along the lines that Mark mentioned earlier.

Before I open it up for questions, I would like to introduce some new members of my team. As Mark mentioned, we've been actively broadening management talent at Argo while, I might add, we continue to focus on driving efficiencies across the portfolio. I'm confident that both the benefit of the additional talent along with this improved operating performance will be evident in coming quarters.

First, I would like to welcome Jim Tees. Jim joins the Argo Group as Chief Accounting Officer and Treasurer. Jim was most recently at Max Capital Group, joining as Controller in 2000 after the company was formed and was their EVP of Finance and Investments prior to joining Argo. Jim is a veteran of the Bermuda insurance market, having worked and at times lived in Bermuda since 1993. Jim started his career with Coopers & Lybrand.

Also joining my team just last week is Rip Reeves as our Chief Investment Officer. Rip has over 25 years of experience in the investment and portfolio management fields. Rip joins us from Standish Mellon Asset Management, where he was a Senior Portfolio Manager with over $10 billion under management for insurance clients. Rip had previously worked at Scudder, Stevens & Clark, JPMorgan Investment Management, all after beginning his career at Salomon Brothers.

I'm pleased to welcome these gentlemen to the Argo Group and my finance team.

Operator, that concludes our prepared remarks, and we're now ready to take questions.

(Operator Instructions). Mark Dwelle, RBC Capital Markets.

A couple of questions. The first question, within the excess and surplus lines unit, it looked like the loss ratio had risen somewhat there. I was wondering if there was any effect of any type of catastrophe losses --obviously no hurricanes, but if there was anything smaller in there.

The change was primarily a function of more property losses during the quarter than we typically have. Some of them were from storm losses in the central part of the US. They were cats, but not cats in the sense that we think about, of hurricanes or earthquakes. And we had an above-average, Mark, number of fire losses during the quarter. Jay?

I don't have anything to add to that.

The second question that I guess I would like to try to talk through a little bit is, I know in the reinsurance unit, there's always been a pretty high degree of seasonality, which is to say the fourth quarter, there tends to be virtually no premiums. With some of the changes in mix that are going on there, is that still the right expectation for the fourth quarter?

Well, it may be slightly different, only in the sense that the reinsurance segment also includes our casualty insurance business being underwritten in Bermuda. So when you think about our reinsurance segment, it's really all business being underwritten in Bermuda. And that has less cyclicality to it, although January 1 is a pretty big renewal date for our property cat reinsurance book. Jay, do you want to add to that?

No. I would just say that last year's fourth-quarter written premium was negligible in the reinsurance business. But that's going to start to be moderated, especially next year. You will see it somewhat this year, but it's going to be moderated next year because the casualty is written off much more a uniform basis.

Right. And as we expand the property cat book, there are I think a couple of accounts that might be written in the fourth quarter.

Can we then extend that same discussion related to the international specialty? I know that there's some changes in mix going on there as well. And does that have any impact on some of the seasonal trends? Historically, the third quarter had always been the stronger quarter there, and the fourth quarter somewhat weaker. Would that -- should we still expect that same sort of mix?

Well, so the book in London is still primarily property. It is primarily written in the first seven months of the year. The difference in change of mix will be less binder business, which is predominately property, but the direct and facultative book, which you've heard me talk about over the last year, I think those changes have pretty much flowed through now. So I don't think the mix will change too much in terms of where the premium is booked.

As far as the third quarter being a stronger quarter in terms of premium volume, I think that may continue because of July 1 business being written. But on the loss side, one of the challenges we had this quarter was, again, more property losses than we anticipated in that book, just like we saw in the E&S book.

Okay. I will stop and let some other people take a go.

(Operator Instructions). Bijan Moazami, FBR Capital Markets.

I have a number of questions, first one relating to the international specialty. What happened there? Why did the investment income drop so much, and why did the expense ratio go up to 43%?

Two things. The expense ratio is really a function -- sorry, let me do the investment income first. Investment income is a function of two things. One, we've kept that portfolio very short. In fact, there was a meaningful amount that remained on deposit with Lloyds, which, up until late 2008, early this year, had not been a bad returning asset, especially for an independent standalone company.

We've been moving those assets off of deposit through the year, throughout the year. And as I mentioned in my comment, we moved about $80 million in the quarter off deposit and incurred some of the -- we crystallized some of the FX loss as a result of that. All of that is going to move from being a few basis points in yield today into something a little bit -- providing a little bit better return and more in line with the duration that we can -- a duration that better reflects our overall organization.

That was one of the -- so sequential declines in the short-term rates certainly had an impact. And then we changed slightly the amortization of some premium on some bonds there. When you buy a company, you mark the portfolio to market. You are amortizing those bonds.

What you saw in the quarter was a little bit of a catch-up on some of that amortization. A more normalized quarterly result would have been in the $3 million range, and we think that we will be able to move that up going forward.

On the expense side, what you see is a shift in business to higher commission product, coupled with some additional expense that we have incurred and what I will call the repositioning of the business and investing in their reporting and management systems. The first is a function of the fact that, as Mark pointed out, during 2007, 2008, that binder book had been expanded. That binder book earns over a longer period of time, and so we are seeing that expanded book reflected in the commission ratio. It's a higher commission. The other are one-time expenses as we have added some additional people and, as I've said, invested in the management reporting systems.

So what is the run rate expense ratio going forward? If that's 43%, you will never be able to generate much underwriting profit in that line.

Fair point. It all depends on -- you obviously, with that higher commission, expect to get a meaningfully lower loss ratio. And we haven't been getting that. So a fair point with the results that we've been getting.

I think going forward, we should be able to move that expense ratio back into the high 30s, which is more reflective of a Lloyds market expense ratio.

I would like to go back to the runoff operation. Could you update us in terms of how much capital is being utilized by these runoffs and how much of this capital was freed up over the past 12 months?

So if you look at where our runoff reserves were at the end of 2008, they were at approximately $530 million. And that was down from $800 million the year before. A lot of that significant decline was a sale in the runoff reserves of the PXRE business in the US. So that $530 million at year-end 2008 is now down to about $445 million as of the end of the third quarter, the majority of which is workers' comp reserves or A&E reserves are down to about $100 million.

I will let Jay answer how much capital is now allocated against that.

Right. So in round numbers, there's probably, during the year we were sort of mentally allocating about $200 million of capital for that operation. The prior year is hard to judge, based on the higher number, because we sold that operation during the year. But I would guess somewhere in the range of $25 million to $40 million might have come out of that capital allocation. And I expect -- I think, Bijan, that you may have heard me say before, I've got an objective over the next couple of years of trying to get upwards of another $100 million out of that operation.

$100 million. Well, I mean, the point here is that the only problem I see with the result is just variable ROE. And unless the expense ratio decreases or you manage to free up the capital at a faster pace, given that investment income is dropping and given that the market is very competitive, it's kind of hard to get the ROE up. And the only choice remaining is that you guys buy back a tremendous amount of shares. So am I missing something in that analysis? Otherwise, I would like to get a little bit more input.

No, I think your observation of the marketplace is correct. Interest rates are down, which makes it difficult to generate investment income. The insurance marketplace is very competitive, making it difficult to generate acceptable underwriting margins. So expense management becomes more important. We have been cutting our expenses and cutting our workforce, mainly through attrition, in the US and in London. And we will continue doing that.

As respects capital, we are in a good position in the sense that we continue to generate capital. We generated a few hundred million dollars' worth of capital over the last 12 months. And so, that's why I took the time earlier in the call to go through and talk about how we use our capital, which hopefully is the same thing you've heard me say before.

And as we continue reallocating capital within the Company as it's freed up in runoff lines and freed up in other parts of the US, then we have a chance to do something else with it. But you are right. If margins are down, and capital is up, it's pretty hard for anyone in the industry to generate a higher ROE, which is why you are seeing ROEs in the industry coming down right now.

One last question. What is the run rate tax rate? You mentioned a few things in your prepared remarks.

Sorry, what was the first part of that question?

Tax rate.

What is the run rate?

Yes.

Bijan, it moves around from one quarter to the next, but notionally, about a 20% effective tax rate on a worldwide basis is a good rule of thumb.

And you will note that it's a bit higher than that in the quarter, and that's a reflection of the timing difference of some tax items in London. We actually incurred a tax provision relative to our international operation, despite a marginal profit in the quarter.

Great. Thank you.

Tisha Jackson, Columbia Management.

Well, just correct me if I'm wrong. I get the sense that in terms of capital management, your preference is probably to reinvest in the business more than anything else. And yet, with the stock trading at a significant, hugely significant discount to book value, it seems to me that the clear winner in terms of return is to just repurchase shares aggressively, particularly when we are in an environment where pricing stinks -- technical term. So maybe if you could comment on that.

Well, clearly, the best short-term opportunity to improve returns is to buy back stock. And so, we have to balance that with the long-term opportunities or intermediate-term opportunities with what we can do with capital.

The most important thing about capital is to make sure that we have enough capital to secure our balance sheet. And I think that I was trying to make this point earlier in my remarks, but it's sometimes challenging to communicate, and that is people sometimes get very focused on premium and look at premium relative to capital as a proxy for how much capital we should have.

And the reality is that capital is present -- you need capital to support your balance sheet, both the asset side, which we saw a year ago, and the liability side, which is the core of our business. And premium is kind of a proxy for what the loss reserves might look like in the future. And so while premium may be coming down in the US, it's not coming down as quickly as loss reserves. So just keep that in mind.

Secondly, there are some near-term opportunities for the Company. There's no question that, to use your technical term, pricing stinks, and I agree with you. And we also are still reallocating a bit of capital from one part of the business to the other because we do have some growth opportunities in our reinsurance operation.

And absent all of that, yes, you are right. With our share price where it is, now is not a bad time to be thinking about that. And it's something that is on our list of things to do all of the time to. So it's not that we aren't thinking about it, Tisha.

Okay. I mean, I guess my only comment back would just be, I do think you guys have been pretty good acquirers over time, but I also think that shareholders haven't been able to kind of -- you haven't been able to make the 15% ROE goals in a long time. So I, as a shareholder, would rather see you kind of stabilize the business, get expenses down, manage capital aggressively and show that you can achieve your goals in ROEs before mucking it up again with further acquisitions.

Well, I would just point out that your point is duly noted. I would point out that the last couple of years, with the acquisition of PXRE, that we have had additional capital without corresponding income. I would also point out that over the last six and a half years, we have grown book value per share on a combined basis over 12%.

Agreed. Thank you.

At this time, we have no further questions in queue. I would now like to turn the call back over to Mr. Watson for closing remarks.

I would like to thank everyone for joining us today on our call. I would really like to thank our employees who are working hard every day in what is a pretty choppy marketplace. And we look forward to reporting our year-end results in February and hope you can join us then. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.