Argo Group International Holdings Ltd (ARGO) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2011 Argo Group International Holdings earnings conference call. My name is Marissa and I'll be your coordinator for today. At this time all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions)

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

Thank you, Marissa, and good morning everyone. Welcome to Argo Group's conference call for the second quarter of 2011. On the call today is Mark Watson, Chief Executive Officer, and Jay Bullock, Chief Financial Officer.

We are please review the Company's results for the quarter as well as provide management's perspective on the business. Following management's opening remarks, the operator will provide instructions on how you may queue in to ask questions.

As a result of this conference call, Argo Group Management may make comments that reflect their 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 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. Mark?

Thank you, Mike, and hello everyone. We appreciate you taking the time to join us today. After my remarks, our Chief Financial Officer, Jay Bullock will provide you with additional financial details, and then we'll take your questions.

I would like to begin my remarks this morning by briefly reflecting on the progress we've made in the first half of this year. Combined with the strategic initiatives we either completed or set in motion during 2010, I believe what we have accomplished in the first six months of 2011 has been consistent with the strategy we have shared with you for this stage of the market cycle we are in. Approaching 2011, we, like many of us in the industry, were faced with a number of challenges following a year-long of series of major global catastrophes, to which I am pleased to say our platform responded well, not that we did not have losses, but they were within expectations.

Excess capital in the markets meant that the industry was able to absorb these losses as well with minimal impact, unfortunately to the rate environment. We've continued to experience top-line contraction during the first half of this year. We've done so purposefully as a part of the business strategy we've mapped out.

The key elements of that strategy as I've outlined before are; effectively managing our capital; maintaining underwriting discipline with the focus on profitable business; improving efficiencies in our and infrastructure; and pursuing opportunistic long-term growth initiatives that will allow our platform to respond competitively, hopefully in any part of the market cycle.

Looking back on the last six months, I'm confident we chose the right course of action. We've made real progress in advancing our platform and improving our operations, our capital position is strong and we remain strong in our core businesses. The Cat activity we've seen over the past 6 quarters has been unprecedented. I don't think anyone could have predicted the frequency of activity, let alone the severity. We took our share of losses from the tornado activity this quarter, however those losses were reasonable and in line with the level of exposure we had undertaken.

During the second quarter, we reported $31.9 million of catastrophe losses, net of reinstatement premiums, which accounted for 11.7 percentage points on our combined ratio. Our second quarter and 6-month combined ratios net of catastrophes and prior-year reserve development were 97.2% and 98.7% respectively.

A majority of our losses, in fact more than 80% of total second quarter Cat losses, occurred in our commercial specialty and international specialty segments, largely as a result of the tornadoes in Missouri and Alabama. Development from the significant Cat activity in the first quarter has been minimal, so overall I feel good about our results today, again given the magnitude of industry losses in the first half of the year.

During this time of year, we renew many of our reinsurance programs, and given the level of Cat activity that we've had over the last 6 quarters, we were thinking about how we could change our reinsurance structure, or reinsurance program, slightly, and while we are very pleased with how our reinsurance programs have responded, we have made a few changes. In June, we completed our first ever transaction in the ILS market with a successful placement of a new catastrophe bond, Loma Re. If triggered the bond provides us with a $100 million of protection against the multiple occurrences of certain named perils over an 18 month period.

Loma Re brings with it both offensive and defensive advantages. Defensively it protects us against large, frequent and severe Cat events. Offensively, since the bond is triggered by a second event, it puts us in a position to be more aggressive at a time when rates are likely to rise. Again this is our first experience with the Cat bond, and we've been pleased with the response from the market. We may look to issue a series of such Cat bonds over a multi-year timeframe as a part of our reinsurance program going forward.

In our first quarter call I commented that the overall market environment had improved in response to the recent series of Cat events, and it appeared we had moved off the bottom of the soft market. That trend continued in the second quarter particularly with business that is larger in size, or which comes through our distribution systems in both Bermuda and at Lloyd's. In fact, the property market in London was up across all of our business lines.

Reinsurance rates continued to firm with loss-affected business leading the move upward. What's encouraging is that we saw positive moment in non-loss-affected business as well. The continued positive signs in the property environment give me reason to believe that the market is poised for rate improvements, a trend that could gain momentum if there's significant activity in the US wind season. Conversely if there isn't much wind activity in the US, it will be interesting to see how much rate improvement we get at the beginning of next year.

As regards to casualty market, the primary driver to improving rates will be a reduction in market capacity which we've seen some, but not much. It could come as a natural part of the cycle, or strengthening of the economy that increases risk-taking, or to say differently, if we ever see any signs of a growing economy, that should increase demand for many of our products.

Unfortunately, the recent activity out of Washington as well as signs of a slowing US economy in the first half -- from what we're seeing now, don't really bode well for new business startups or business expansion, particularly in the small business communities where our excess and surplus lines and commercial specialty segments operate. Consequently in our US segments, we have been selective in the business we write, letting go of business where the potential for profit is unlikely.

We continue our focus on pursuing opportunities in geographic regions where economies are expanding and where business opportunities look more attractive for both near- and long-term growth. Over the first half of this year, we have created a specialty division within the syndicate adding lines of business for marine cargo, yachts, space and aviation, opened a new branch office in Paris which is writing business through the syndicate that will extend our reach into European and other regional markets, and we've brought Pedro Purm on board to head up our operations in Brazil. Pedro has an outstanding reputation and experience in the Brazilian market, and he's already attracting several experienced insurance executives to join his team. We're making great progress getting the infrastructure in place to begin to tap into that promising market.

Because we dedicate a lot of time and effort over the last two years de-risking our Lloyd's portfolio and realigning its operations, I wanted to mention that we're starting to see signs of improvement. Our sharp focus on creating operating efficiencies in our London office should become evident, although the effects of those changes will trail improvements in underwriting results by a few quarters. Most significant in our Lloyd's operation however, is that we believe our arms are now around the things that were creating volatility in past results. Absent additional catastrophic activities, we're much more confident the syndicate will perform in line with our expectations going forward.

Let me touch on a few additional items before I turn the call over to Jay. You may have noticed in our results this quarter, an increase in net realized gains. Part of that was the gain in the sale of one particular investment, but also was the opportunity during the quarter to readjust our investment portfolio, where we thought certain investments appeared to be fully valued, and Jay will go through the details of where that happened.

I'm pleased to note that our financial strength ratings were reaffirmed during the quarter by both Standard & Poor's as well as A.M. Best. We take great pride in the fact that Argo Group's ratings are among the highest in the industry. Lastly we remain comfortable with our capital position and continue our repatriation of a portion of our capital through the payment of another $0.12 per share common stock dividend which was announced this morning.

To summarize, I would say once again our platform and reinsurance program responded well to several severe catastrophic events. We saw signs of market pricing beginning to improve in many of our business lines, and we're cautiously optimistic that that trend will continue. The performance of our Lloyd's book has begun to stabilize, and we are excited about the potential of the syndicate's new opportunities.

Our progress continued in expanding our platform's geographic footprint, as have our initiatives to create a more efficient and less costly operating infrastructure. Finally, our balance sheet and capital position remained strong as reflected by the reaffirmation of our financial strength ratings.

With that I will turn the call over to Jay.

Thanks, Mark. I'll take a few minutes to add some additional detail on the quarter, and after that take your questions.

As is evident, the financial results reflect another challenging quarter for the industry and for our Company. Despite significant catastrophe losses, we were able to post an operating profit and crystallize a significant amount of gain embedded in our investment portfolio. In light of this week's markets activity, I feel good about that outcome. Nevertheless market challenges remain. Over all our top-line decrease on a gross written and earned basis to $407 million and $271 million, down 7% and 16% respectively, largely from prior year quarter, largely due to management initiative.

Our first-quarter pre-tax income decreased slightly to $32.5 million against $33.1 million in pre-tax income for the prior year quarter. Year-to-date our pre-tax loss was $65 million versus $65 million of pre-tax income in the prior 6 months, largely the result of severe catastrophic losses in the first quarter of 2011.

Estimated pre-tax losses attributable to second quarter and year-to-date 2011 catastrophes net of estimated reinstatment premiums totaled $31.9 million and $144.9 million respectively, compared to $15.1 million and $43.9 million respectively of catastrophe losses in the first 6 months of 2010.

Book value per share inclusive of common dividends paid was $56.65 at quarter end, against $58.41 at year-end 2010. Despite the industry-wide loss events and difficult market conditions, we have grown our book value per share at a compounded annual growth rate of 11% since 2002.

Back to revenue for just a moment. It is worth noting that comparison by segment is distorted by the following; in commercial specialty we incurred approximately $5 million in reinstatement premiums in the quarter; in international specialty segment, one significant second-quarter contract was pushed into the third -- extended into the third quarter which would have resulted in a flat year-over-year comparison; and at Syndicate 1200 the quarter reflected a negligible amount of premium development this quarter against approximately $3 million in last year's second quarter. In addition for the group, net written premium declined by approximately $16 million reflecting the transaction with Loma Re.

Overall reserve development was marginally favorable comprised of prior-year positive development of $2 million for our E&S segment, prior-year favorable development of $1.8 million in International Specialty, and prior year favorable development in runoff of $5.3 million, offset by unfavorable development of $2.5 million in Commercial Speciality and $5.5 million in Syndicate 1200.

In addition to our quarterly review of our prior accident years, our reviews always incorporate a look at current accident years as well to make sure we are responding appropriately to changes in our business, the external environment and market conditions. Our expense ratio was up very slightly in the quarter, impacted to some extent by the reinstatement premium mentioned previously, and by the investment in certain back-office initiatives we've mentioned in the past, that we feel will be reflected in coming quarters.

Let me spend some time on Argo's investment results. Investment income for the second quarter of 2011 decreased slightly to $32.9 million from $33.1 million in the second quarter of 2010. Total return for the portfolio was 1.8% for the quarter, and 3.2% year-to-date. We continue to keep the duration of the portfolio relatively short, with an overall duration of 3 years which is slightly shorter than our expected liability duration.

Argo's investment portfolio remains conservatively positioned with an overall rating of AA and 86% of our assets invested in investment grade bonds. Argo's unrealized gain position for the second quarter increased to $255 million from $228 million at year end. Our portfolio book deal decreased slightly from the end of the year to a tax adjusted rate of 4.3% in the quarter.

In the quarter, as Mark mentioned, we realized $31 million in gains coming from the sale of one large equity position which was approximately $10 million. Other gains in the equity and bond portfolios, primarily driven by generating liquidity to fund new mandates of approximately $15 million, and by gains on certain foreign exchange hedges that we put in place, approximately $5 million, against the non-dollar US losses we incurred in the first quarter international events. We continue to believe our conservative investment strategy provides us flexibility to take advantage of investment opportunities as they arise.

Commenting on the capital structure, Argo Group ended the quarter with approximately $1.9 billion in capital, split between $1.5 billion of book equity and $380 million of debt, comprised of $312 million of trust preferred securities and $68 million of senior debt. In the quarter we extended by a year, and increased our revolver from $150 million to $170 million. It remains undrawn as of quarter end, and available for any supplemental liquidity needs.

Overall our capital position remained strong despite the high loss activity of recent quarters, and we have ample capital and liquidity to meet any market opportunities that arise.

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

(Operator Instructions)

Amit Kumar from Macquarie Research Equities.

Good morning. Just going back to the discussion on prop cat premiums, can you sort of talk about the appetite going forward at 1-1, and also revisit the P&L number? I think the number you gave was 6% of capital for 1-and-100, maybe just refresh us with the number right now.

That 1-in-100 number, that would be at approximately [first] number.

As to respect to risk appetite, if rates remain where they are, I would say we'll have some in increase in risk appetite, but not a lot. I think rates need to go up a bit more before we start wanting to write more risks. I guess we will have a pretty good sense for what's going to happen in the next 6 weeks or so. If rates remain where they are, we will write a bit more on it, but I would defined that as 5% or 10% more, not 20% or 30%.

At the time of acquisition and after that I think you mentioned an upper limit of prop and premiums. Was it $100 million, $125 million? Can you remind me what that number was?

That's the amount of premium that we're writing right now. When we think about how much premium we want to write, we think about it in relation to our capital, how much we are willing to lose in any one of them, as Jay was just talking about, and also relative to what's going on in the other parts of the portfolio, but we also think about it on a risk adjusted basis, and so if we see prices move materially, I think that for a short period of time, and I'll define that as 1 to 2 years as long as we are getting substantially more return than we would otherwise expect, I think we would be willing to take on more risk during that period of time, but only during that period of time.

Can you revisit the binder book? I know you spent a lot of time talking about that in the past, but maybe just revisit the turnaround of that book.

The binder book is relation to primarily our operations at the Syndicate, and we have, as you know from us talking about it over the last couple of years now, de-risked a fair amount of that binder business. The binding authority operation was still down about 10% for the quarter, but most of that was intentional, if not all of it, and there are probably still a couple more accounts that we'd like to move off during the course of the year, but the majority of that work was done at the end of last year, only a little bit first half of this year. But you're still seeing the premium flowing through, so the decisions that were made are still having a financial consequence today, but we're getting towards the ends of that.

And you said it will take how many quarters more for the -- all of the decisions to flow through?

To the extent that we canceled a couple of contracts in the first half of this year, it will take until the end of the first half of next year for that to finish flowing through the financial statements, so this time in a year, we should be through with that.

Last question. In terms of the overall ROE expectations, I know you spent a lot of time previously talking about this. Just based on where we stand today, can you refresh us -- what exactly is your road map from here as to how do you get to a double-digit ROE going forward?

First of all, it depends on what's going on in the general economic environment. If the market as a whole is struggling to generate double-digit ROEs, I think we will as well. Secondly, with a risk-free rates as low as it is, I think that I'd said previously that our long-term goal of 15% might in this current economic environment be closer to 12%, but of course, we're a long way from that right now.

We have spent a lot of time readjusting our product portfolio mix, to a lesser extent geography, but mainly a function of product. That is starting to pay off. We also have embarked upon a number of expense reduction initiatives mainly the consolidation of a number of our operational systems in our back office which we have talked about in prior quarters. Those activities are on track, but just to refresh everyone's memory, we think that it's still another 18 months before that's done, but we are on track so we keep marking down the quarters where we can begin to see some efficiencies there and some direct cost savings, and in the process of reorganizing some of our reinsurance programs, we have found a more efficient use of capital in doing so, and hopefully that will free up a bit of capital over the course of the next 12 months.

That's all I have. Thanks.

(Operator Instructions)

Doug Mewhirter of RBC capital.

Good morning. Just a couple of questions. The first is, did you participate meaningfully in any reinsurance renewals midyear, and what sort of conditions or in those -- in those events?

During the midterm reinsurance renewals, we are both the buyer and the seller, and I would say that as respects property programs, I think our experience has been the same as everyone else's. If you had lost exposed risk, the pricing could have been up 50%, or it also could have been up 1.5 to 3 times what you were paying a year ago. As respects our causality programs, we don't provide casualty reinsurance; as a buyer of reinsurance we didn't really see too much change in our terms and conditions of our reinsurance programs.

Thanks for that. My second question is more of an accounting question maybe for Jay. How do you account for the interest or the spread of [relibrary] you pay for that Loma Re cap on? Do you count it as ceded premium or interest expense?

It's ceded premium. As I mentioned, the net written premium was down in the quarter, didn't affect our earned in any material way by the seeded premium on Loma Re and it will be treated as premium going forward.

Thanks. Also could you remember -- what's your approved capacity for this year, for 2011, at Syndicate 1200?

Yes, [stamp] capacity is GBP325 this year.

I guess you're well under that, but that's, I guess --

Sorry. Just to be clear, remember, that's 100% syndicate. We speak for approximately 64% of the syndicate.

That makes more sense. Thanks that's all my questions.

Bob Farnam from KBW.

Hi there, good morning. If I remember right, the second quarter usually has a environmental reserve study. Did that take place this year?

We do that study during the third quarter based upon second quarter data, so that's a review that we would be doing now, although there's not really much left to review.

Yes, right, and that's follow-up questions is the asbestos side, you've heard some companies that had some issues with the asbestos reserves, so I'm just curious if you're seeing the same issues that are creeping up?

Actually, at the end of the second quarter, literally, I think two days after our earnings call, we resolved one of the last reinsurance issues that we had for one of our expenses claims. As a result of that, Bob, there really -- we haven't seen any emergence of any large claims coming in. Most of what we have left on our books are small claims, and the number of open-claims counts continues to drop a fair amount. I would sight you back to our 10-K where we have pretty robust discussion about claim counts and what remains out there. The only change since then is that it's continued to come down a bit more.

Very good, thank you.

Randy Binner from FBR Capital Markets.

Good morning, everyone. This is [Dan Lee] for Randy Binner. With more [kanadigestedreliapharmas11] has there any noticeable impact in your business?

The answer is, we haven't seen a lot of impact in our business yet, but I think it's coming. I think that -- as respects our reinsurance business, I think our [cedants] are finally getting their hands around how this affects their risk profile, and also is giving us a little bit of a view of how -- of where we focused our portfolio, and then for our insurance operations, as the buyer of insurance, we are looking at some of the Cat-exposed areas in the Gulf and thinking through some of our risk aggregation. I don't think it changes our portfolio too much, but I think it that may change -- we're seeing some change in insurance property pricing in the Gulf Coast region which is giving us better rate which leads me to believe that some of our competitors are reacting already to some of the changes to RMS.

Thanks, Mark. More of a numbers question. What was your statutory surplus then of the quarter and if [pimagohoths] were to return, where do you feel comfortable writing to on a [preemto] surplus basis?

You have to ask yourself what is the definition of statutory surplus; we have capital in US, we have capital in Bermuda, and we have capital on deposit at Lloyd's. If you take the GAAP balance sheet, and simply do the following exercise; add debt plus equity minus goodwill intangibles and DAC, you'll have a number that's the approximate statutory capital, works out to be about equal, just by coincidence, about equal to our GAAP equity. So let's say we have a $1.5 billion to $1.6 billion in capital that we can underwrite against. I go back to Mark's point earlier, premium is a measure, but what is the underlying exposure against that premium; is a property, is a casualty? Depending on that blend, it is very rough measure. Having said that, clearly you have capacity to write on a 1-to-1 basis from a net standpoint. There's significant room for growth there.

For a lot of our casualty business that isn't that long tail in the US, I would expect that we can probably write 1.5-to-1, but then we have property business that's Cat exposed where we might write 0.5-to-1. On a blended basis, it's certainly more than 1-to-1, but it may not get past 1.5-to-1 given our product mix today.

Thanks. Thanks for the color.

Ken Billingsley from BGB Securities.

Good morning. Just want to ask a question on the pricing comments. Based on your experience, it seems that you maybe a little bit more positive at least more near the top of the group of some positive adjustments regarding the direction of pricing. Can you talk to what you are seeing that might be a little different than everyone else there, and maybe more specifically, what do you seeing in regards to the customer's appetite regarding terms and conditions, the deductible, the amount of coverage that they taking on today versus maybe what they were doing a year ago?

My positive commentary about pricing was limited only to property, and I probably should have highlighted that more in the beginning of my comments, Ken. I think that's pretty consistent with everyone else. As respects to causality business, I'm not seeing a lot of positive rate improvement. What I am seeing is a slowing in a downward trend to some positive rate improvement, but I'll defined that as low single digits. What is perhaps a bit more encouraging is we don't seem to have the same level of push back and challenge to change terms and conditions meaning to expand coverage. That doesn't mean that that won't persist.

And while I am more optimistic today than I was a year ago, that's only marginally more optimistic, I still think that we have a long way to go before rates start to improve to a point where we might say that we had visibility towards a hard market, and that's why you've seen is pull back premiums so much; we'd rather focus on margin that on market share. I know that's a bit contrary this quarter, because a number of others in the market have grown, but I actually don't see the pricing there yet. So I didn't mean to sound too optimistic because, actually, I'm still very cautious.

And I apologize. I didn't mean you seemed a little bit more positive than maybe some other comments, not that you were bullish on pricing. Regarding some of the accounts I saw you've added some -- go after some larger within your specialties, you're maybe targeting some of the larger players in certain accounts. On the smaller customer side, do you think that shakeout two years ago has already occurred and that if the economy stalls or dips again that the smaller accounts may not be as affected this time around?

It's hard to say. It's the first time since I've been in the business, and I think since any of us have been, that the down part of our market cycle is coincided with the down part of an economic cycle, and so it's kind of skewing how we think things might perform going forward because even if we do have a continued contraction in underwriting capacity as we and others decide that certain classes of business don't make sense, the demand isn't there, whereas in the past, they would have been. Again I'm talking about small accounts here. So I think that prolongs what any positive pricing momentum that might happen, certainly for casualty business, because the demand just isn't there.

Very good. I may have missed this in the comments in the very beginning of the call. From an M&A standpoint, and obviously where your capital position is, how opportunistic would you see yourself being over the next 12 months of anything of significant size?

As I've said for the last year and a half, I guess two years now, we've been very focused on digesting all of the acquisitions that we've made keeping in mind that for the last couple years we've been trying to merge 3 public companies together into 1, and in the process of that, not only get the underwriting right, but also consolidate our back office operations. While that process is still 18 months to completion, every quarter that goes by, we get a little bit more positive about our ability to successfully digest an acquisition.

As hard as it is to find something that makes strategic sense and negotiate a fair price, integrating an acquisition is just as challenging, and so I think we're just now getting to the point where we think we can digest another acquisition of any size. We continue to make small acquisitions, but we don't always disclose them publicly because they're not things that tend to move the needle at any one moment in time. Anything of any size, I think we are probably still a couple quarters away, but that doesn't mean we wouldn't be planning for one now if the right opportunity came along.

Very good. Just to verify, the positive development of -- [24 points] the loss ratio?

The development for the entire Company was just slightly more than $1 million. It is a negligible impact on the combined ratio this quarter.

Great. Thank you for taking my questions.

( Operator Instructions )

[Brian Smith] from USAA.

Good morning. I was wondering if you could give us an update on your thoughts about potentially calling the old PX redebt.

We think about it a lot, and I continue to wrestle with the structural advantages that that gives us, and where that debt trades. I can tell you a numerous occasions, I had small amounts offered to meet at attractive prices, but when I've looked at trying to buy more than a small amount, it gets pretty quickly to par. So it is something that we continue to look at. I would say that we are taking steps to put ourselves into a position to do that when we think that the time is right, but equally thinking about whether or not we add something incremental to that as opposed to calling.

Thank you.

Amit Kumar from Macquarie.

Thanks. Just two or three quick follow-ups. On the capital management discussion, if you do not have an active hurricane season, do you foresee returning to a buyback after the hurricane season?

Yes, we do.

I thought you said you were going to wait until 1/1 for pricing --

Sorry. Hurricane season ends in November which is pretty close to 1/1. Do I think that if we find ourselves in an excess capital position at the end of the year, meaning November, December, would we think about doing something then prior to January? Yes, we would.

That's actually helpful. Secondly, on Jay's comments regarding [therralofreleses], can you in fact expand on the adverse development in some of the lines? I might have missed that, apologize for that.

It was pretty small in the US businesses; there was $2 million in commercial specialty that was coming out of reasonably recent casualty years, but again it was $2 million on a fairly substantial reserve base. In London, we have been monitoring the liability book from a reinsurance recoverable standpoint, and we've adjusted down our expectation on recoverables. It's almost more about adjusting the asset side than it is the liability side from a recoverable standpoint. So it's not that we see the activity getting worse necessarily there, it's just that we are changing our assumption on some reinsurance recoveries, which really brings in -- which is, I hope, knocking on wood as I say, one of the final pieces to bring the reporting and the consistency in London more in line with the way that we approach things.

And then final question. This is for Mark. Can you address the competition in the marketplace amongst various lines? Do you think -- we were talking about sort of getting into the inflection point. Do you think the competition is mostly disciplined, or you're still seeing isolated pockets of aggressive competition?

I would say that there's still there is still aggressive competition, but I would define it slightly differently. I would say that there is still aggressive competition, but I would define it slightly differently. A couple of years ago, we would see competitors coming in and undercutting our pricing by 20% to 40% for some accounts, and I'm talking about the US now. Of course, we've had a general market decline since then, and so today, you won't see that aggressive a competition, but you might see 10% to 20% and when you look at where rates are today versus where they are two years ago, 10% to 20% today is the same as 20% to 40% was 2 years ago. That's why you're seeing is consciously decided to exit a small class here, or give up on an account there, because there's just no more rate to give. There is a bit of margin to give up 2 years ago, I just don't think there's not much that much to give now.

Again I am talking about small account business which doesn't have the same margins as much about business, but it doesn't tend to be as volatile either over a market cycle. So it is all relative; there's not as much, on a pure magnitude, the changes has mediated, but there is still a fair amount of competition for any accounts that we're renewing.

Thanks for the answer.

I show no more questions at this time. I would like to turn the call back to Mr. Watson for closing remarks.

I'd like to thank everyone for being on the call today. While I think we've made a lot of progress, and we talked about it this morning, it is very frustrating to have yet another quarter of Cats beyond our expectations in terms of frequency and in the industry's expectations, and I look forward to talking to everyone at the end of the third quarter. I'll see everyone then. Thank you.

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