AXIS Capital Holdings Ltd (AXS) 2004 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2004 AXIS Capital Holdings Limited conference call. My name is Anne Marie and I'll be your coordinator for today. At this time all participants are in listen only mode and we will be facilitating a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to Ms. Linda Ventresca. You may proceed.

Thank you, Anne Marie. Good morning, ladies and gentlemen. I'm happy to welcome you to our conference call to discuss the financial results for AXIS Capital for the quarter ended March 31, 2004. Our first-quarter earnings press release and our financial supplement were issued yesterday evening after the market closed and if you would like copies please visit the investor information section of our website, www.AXISCapital.com.

We set aside an hour four today's call which is also available as an audio webcast through the investor information section of our website at www.AXISCapital.com through June 4th. An audio replay will also be available from approximately 11 AM Eastern today through May 14th. The toll-free dial in number for the replay is 888-286-8010 and the international number is 617-801-6888. The pass code for both replay dial in numbers as 193-06-770.

With me today in our Bermuda headquarters are our speakers John Charman, AXIS Capital's CEO and President; and Andrew Cook, CFO. We also have with us our Chairman, Michael Acton (ph) Butt who will be available to answer questions.

Before I turn the call over to Andrew I will remind everyone that statements made during this call, including the Q&A session, which are not historical facts are forward-looking statements within the meaning of the U.S. securities laws. Forward-looking statements contained in this presentation include our 2004 gross premiums written for our European reinsurance unit and our U.S. reinsurance segment, our 2004 earned premiums, our 2004 unrealized gains, our security lending program and our expectation regarding future growth in financial performance and future market and industry conditions.

These statements involve risks, uncertainties and assumptions. For a discussion of these risks, uncertainties and assumptions which could cause actual results to differ materially from our expectations please refer to the risk factor section of our latest prospectus. We undertake no obligation to update or revise publicly and forward-looking statements whether as a result of new information, future events or otherwise. In addition, this presentation contains some non-GAAP financial information within the meaning of the U.S. federal securities laws. In particular our presentation of diluted book value per share may be considered non-GAAP financial information. For a reconciliation of these items to the most directly comparable GAAP financial measure please refer to our financial supplement which can be found on our website, www.AXISCapital.com. With that I'll turn the call over to Andrew.

Thanks, Linda. Good morning, everyone. I'd like to spend the first part of this call reviewing our financial results with you and then I'll turn the call over to John. This quarter represented a great start for the year for AXIS Capital. Net income including realized gain was $167 million for the quarter or $1 of diluted earnings per share versus 107 million or 75 cents per diluted share during the first-quarter of last year. Our annualized return on average equity for the quarter was nearly 23 percent. Shareholder's equity (inaudible) $3 billion and our diluted book value per share on an as if converted basis at quarter end was $18.54, an increase of 6 percent from the year end 2003 diluted book value per share of $17.48.

Our combined ratio was 72.5 percent as compared with 73.1 percent in the first-quarter of last year. This change reflects the continued diversification of our portfolio of business, ongoing conservative reserving, better-than-expected profitability in short tail lines and a relentless focus on driving down our overall expense ratio. Gross premiums written for the quarter were more than $1 billion and represented a growth rate of more than 71 percent over the corresponding quarter in 2003. Net premiums for the quarter were nearly $900 million growing 66 percent over the corresponding quarter in 2003.

On a segmental basis growth in gross premiums written breaks down as follows -- a 23 percent growth rate in our global insurance segment, a 103 percent growth rate in our global reinsurance segment, a 61 percent growth rate in U.S. insurance segment, and a 170 percent growth rate in our U.S. reinsurance segment. Our global insurance segment posted strong organic growth continuing to benefit from it diversification by product and geography in the ever-increasing concern regarding the financial strength of legacy players.

Growth in global reinsurance includes organic growth from the Burmuda reinsurance portfolio of 18 percent. Also included is new business of $180 million from our recent expansion into continental Europe, beating our expectations for this new unit. We expect the new unit's first-quarter gross premiums written will represent more than 80 percent of annual business production for this European reinsurance business.

Our U.S. insurance segment continues to perform well and we are very pleased with the quarter-over-quarter growth of 61 percent in what generally is a quieter quarter for this segment in terms of renewal volume. As a reminder, the first-quarter of last year included cancelled (ph) rewrite premiums totaling 23.4 million; these were one time premiums not repeated in the first-quarter of 2004. Cancelled rewrite premiums of 31.9 million were also included in the second-quarter of 2003 and will necessarily have a larger impact on comparative analysis for the second-quarter of this year as renewal rights transaction for D&O and related lines closed only in mid February of last year, almost midway through the first-quarter.

Our U.S. reinsurance segment which missed the critical 1/1 renewal base for 2003 was fully operational well in advance of the 1/1 renewal date for 2004 and therefore delivered a 170 percent growth rate. Gross premiums written (indiscernible) 166 million as compared to 62 million in 2003. With respect to the seasonality in this segment, we expect roughly 60 percent of the business in this segment to be generated during the first-quarter and the balance throughout the remainder of the year.

Our total net premiums earned for the first-quarter of 2004 have increased to $471 million or 56 percent over the same quarter last year. What is probably more relevant is its sequentially quarterly growth of 18 percent when compared to the fourth-quarter of 2003. We expect this positive earned premium momentum throughout our business segment to continue throughout 2004 as we continue to earn out our $1.4 billion of unearned premium reserve.

I would like to spend some time discussing our outwards reinsurance programs recorded in the global insurance -- in global reinsurance segment. Our U.S. insurance segment has not made any significant changes to this comprehensive reinsurance program and ceded (ph) 46 percent of its premium volume this quarter. In global insurance a 16 month contract expired at the end of last year and has been renewed during the first-quarter of this year. We've also been able to secure some industry loss warranty coverage whose cost is included in the results of our global reinsurance segment.

(indiscernible) purchases are not one-off annual purchases but part of our daily overall portfolio management exercise. We are in the market every day looking for opportunities to mitigate volatility and add to earnings and protect our capital base as our portfolio grows. As a result of our daily investigation into outwards reinsurance opportunities we have been able to expand coverage and protect aggregate with high-quality reinsurers.

Moving on to our underwriting results; I would like to note that the quarter was once again marked by generally benign loss activity as evidenced by the group's overall loss ratio of 51.5 percent for 2004. Global insurance includes favorable reserve development from the 2003 underwriting year of 33.8 million or 16.9 percentage points. These releases were principally related to our marine and aviation war, terrorism and property lines. We had one large marine hull lost in the quarter which on a net basis benefited substantially from the comprehensive reinsurance protection we have put in place.

Global reinsurance includes favorable reserve development from the 2003 underwriting year of $14.7 million or 10.2 percentage points. This favorable development in conjunction with a shift in business mix largely attributable to the addition of the European reinsurance unit has resulted in a relatively flat loss ratio for global reinsurance.

In our U.S. insurance segment our business is now fairly evenly split amongst property, liability and professional lines and are overall loss ratio for this segment has moved up commensurate with the mix of business in this segment. At March 31, 2004, we have nearly $1.3 billion in gross loss reserves of which 81 percent is related to IBNR. As you review our 10-K and financial supplement you will note that we've begun to allocate our general and administrative costs to each of our four segments. All of our segments are now fully up and running and we therefore believe it is appropriate at this time to reflect the fully loaded G&A expense for each segment.

In prior periods we had allocated direct underwriters cost to each segment and reported these in acquisition costs for the segment. We have for periods in 2003 restated underwriting costs as part of our G&A expenses in our financial supplement and our 10-Q. You'll notice an overall drop in the external acquisition cost ratio. It necessarily varies by segment from quarter-to-quarter as the mix of business changes amongst and within the segments.

Operating cash flow continues to be exceptionally strong as demonstrated by the 365 million generated during the quarter. We ended the quarter with total cash and invested assets of approximately $4.4 billion. Total pretax income on our invested portfolio for the quarter was 41.3 million which includes realized gains of $10.1 million. On a rolling quarter basis investment income has increased to $31 million from $27 million last quarter due to the repositioning of the portfolio in the third quarter to take advantage of the higher rate environment.

We remain very conservative with respect to the overall positioning of our portfolio and we certainly believe that this will hold us in good stead in relation to our competitors given the approximate 80 basis point backup in rates for the month of April. This is likely to erode a substantial portion of unrealized gains we have recorded in shareholder's equity during the first-quarter. However, our short duration and overweight cash position will allow our managers to take advantage of this backup has they move cash into longer dated securities.

We still believe that there are further rate increases to come and accordingly we will maintain our conservative investment posture over the near-term. In support of this position is our VAR, or value at risk, which has already dropped at December 31st to $174 million and was further reduced at March 31st of this year to $157 million. We also believe that the impact on book value of a 100 basis point parallel shift in the yield curve, which we calculate to be approximately 60 cents per fully diluted for AXIS is at the very low end of our comparable universe.

We invested $9.3 million during the quarter in the senior preferred shares of the collateralized loan obligation. The total amount of this commitment is $25 million over the next two years. The purpose of this investment is twofold -- first, to diversify some of our investments away from U.S. high grade fixed income, particularly given the rising interest rate environment; and secondly, to enhance investment returns. We may make more investment in this area as other opportunities arise.

During the quarter we also implemented a securities lending program whereby the company lends its securities to third parties in exchange for a lending fee. In return we receive collateral for the securities on loan which are recorded as payable on our balance sheet. This collateral has been invested by our lending agent in short dated securities. At March 31, 2004 approximately 495 million of our securities were on loan. We believe this program represents a good opportunity to enhance returns from our investment portfolio and as our investment portfolio grows we expect that this balance will grow also.

Other insurance related income was immaterial in the quarter at $288,000. As discussed in previous calls, this amount principally represents the mark to market movement in the value of a political risk contract accounted for as a derivative and in this quarter emerging market spreads were generally flat. We had FX losses in the quarter for the first time as weakness in the Euro offset marginal gains on our net Sterling asset. Included in our expenses is total non-cash compensation of $4.7 million or 3 cents per diluted share relating to the expensing of restricted stock and option grants. In the comparable 2003 quarter this amounted to 3.5 million or the same 3 cents per diluted share. As always, we suggest you refer to our financial supplement posted on our Website, www.AXISCapital.com, for further detail with respect to our financial results. Now I'd like to turn the call over to John.

Thank you, Andrew, and good morning, ladies and gentlemen, and welcome to you all. The first-quarter of an underwriting year is an extremely important quarter in our business. And this first-quarter for AXIS was particularly important as all of our segments were fully operational for the first time. We increased our gross premiums written by 72 percent, and our net income by 56 percent delivering our shareholders an annualized return on average equity of almost 23 percent for the quarter. To achieve these results we have driven significant organic growth in our global insurance and global reinsurance segments, added substantial new business in our two U.S. segments, and we got off to a great start in our European reinsurance unit.

As a general comment, we continue to observe pricing which is substantially adequate for the risk we take on across all of our segments. There continues to be plenty of business for us to access across our highly diversified product lines which satisfy or exceed our requirements and we expect the unabated global trend towards (indiscernible) party diversification, particularly in the reinsurance marketplace, will continue to benefit us as a new market with a strong and transparent balance sheet.

The specialty lines of business we write in the global insurance segment achieved strong organic growth in gross premiums written of 23 percent over the same quarter last year. While we're experiencing price declines in specialty lines, including property and terrorism which are disappointing, these declines are from historically high levels. The business remains profitable on an absolute basis and terms and conditions importantly remain firm. The large commercial property risk in the U.S. and Europe we are walking away from as much business as we are renewing. This is because of the senseless and extreme competition from the major carriers. We are still able to benefit though from leveraging our client and distribution relationships as well as accessing relatively smaller accounts both within and outside these geographic areas.

Political risk business continues to see increased activity as flows of foreign direct investment pick up globally. Marine, hull, cargo and specie (ph) lines continue to make progress towards attractive levels. We have spent the last two years building a diverse portfolio in this segment for which we are now effectively in the portfolio management mode and we continue to look for and do find opportunities globally. Our global reinsurance segment not only achieved strong organic growth as it continued to benefit from the emphasis on counterparty diversification, but also experienced a robust 1st of January renewal date in its new European reinsurance unit. We achieved an overall growth rate of 103 percent.

The 1st of April renewal date for Asian region business does not represent a major production date for our current book of business; but we have seen pricing in Japan off by up to 10 percent in the extreme coast (ph) and we have been encouraged by the substantially positive changes in pricing, terms and conditions in the Korean marketplace.

While the majority of the global REIT (ph) book of business remains short tail, severity driven business -- sorry, excuse me, remains short tail severity driven business, the segment has diversified into medium tail business including major excessive loss in trade credit in continental Europe. We are extremely pleased with the performance of our new European reinsurance unit and we expect that the next 1/1 renewal date will bring additional strong market penetration in continental Europe. Our marketing efforts for this last renewal were only commenced in November of last year which somewhat limited our ability to participate strongly.

In our U.S. insurance segment we experienced 61 percent growth over the first-quarter of last year as we continue in our book building mode. Overall, market conditions in those areas that we have chosen to participate in have not changed significantly from the last quarter with pricing, terms and conditions broadly remaining attractive. As we've noted before, price declines persist in the U.S. property market with pricing in larger accounts under the most pressure. Pricing generally remains firm for us in the casualty lines. But this market is beginning to see lots of positive rate momentum.

These circumstances still vary considerably by risk and situation. Professional lines pricing has begun to come off of historically high levels, particularly on excess business and mainly due to new competition who are undercapitalized and having to find their way into the business. Despite this terms and conditions remain tight and pricing more than adequate across all classes. Importantly there is substantial loss development emerging for the industry for the 1977 through 2002 period which will force the industry to recognize and address these issues. We expect this to be a major stabilizing factor.

In our U.S. insurance segment submissions have increased by more than 50 percent across our book and our infrastructure and underwriting machine are where they need to be to harvest quality business which absolutely exists beyond the norm. Our U.S. reinsurance segment experienced gross premium written growth of 170 percent driven by our full participation in the 1/1 renewal season. Generally we find the U.S. casualty reinsurance marketplace, particularly professional lines for insurance, remaining attractive and have seen no significant deterioration in terms and conditions. We continue to look for improvement in trends for primary umbrella business before we become more active in this line.

As I stated during last quarter's call, we expect the relentless deterioration of the balance sheets of legacy players combining with Sarbanes-Oxley slowly forcing more realistic financial reporting to continue to support generally rational behavior on the part of all market participants. While we continue to see a degree of crass (ph) stupidity being shown by a number of major carriers, the reality is that they are substantially giving away their net earnings in a way they have yet to understand. But these will materialize over the relatively near-term. This is largely due to the fact that the reinsurance market remains firm.

We at AXIS remain confident of the premium value of our strong balance sheet in the ongoing flight to quality as it is skirted (ph) by exceptional professional underwriting talent and further differentiated by a superior service to our global clients. While we have experienced continuing significant growth, I cannot emphasize enough that our growth is controlled risk by risk, class by class and segment by segment on a daily basis. Our growth is both deliberate and strategic. Thank you and I'll now turn the call over to Linda.

That concludes our prepared remarks for today's call. We'd now like to open the lines for questions. Anne Marie.

(OPERATOR INSTRUCTIONS) Dave Sheusi.

Good morning, everyone. Congratulations on the quarter here. A couple quick things. John, in your formal remarks you had commented that you are in a portfolio management mode. Could you put some color around that in terms of opportunities in the market, growth expectations, that kind of thing? Outlook?

We have achieved significant penetration on our global insurance business over the last two years. If you think back to when we established AXIS, we saw a unique opportunity rather than wait anywhere between five and seven years to build a diversified portfolio of -- diversified by different product lines and by geographic region. We saw a unique opportunity to build that portfolio not within five to seven years but within 12 to 18 months. And we have substantially achieved that. So not only are we continuing to add to that portfolio, but we're managing that portfolio maximizing the penetration within it and within the different interests of the major client (indiscernible).

And actually doing a lot of cross selling because a lot of our major insurance clients, for instance, when they're buying property protection will also need to buy things like D&O insurance. And we are able to use our relationship and leverage with clients to carve out positions for ourselves for things like D&O. So when looking at the portfolio now that we've actually largely established the portfolio we're now looking to maximize our presence within it?

But it also gives John the ability to move capital because we've got the base of business now on a daily basis to where the underwriters perceive the higher returns are. So it's a constantly -- but when John uses the term "managing the portfolio" that's what we're referring to; the ability to move capital to the maximum opportunity.

I was a little surprised by the level of growth on the property cash side and just property in general. What's different at this renewal season that was different from last year, is it geographic opportunities that you didn't see last year or is it changes in terms? What's driving that?

Actually, Dave, when you break it out and you take the European operation out of the global reinsurance sector, on the pure cat side in Q1 last year we wrote $186 million worth of premiums and this year on the pure cat side $198 million. So while there was growth within the portfolio, it's really coming from expanding our line sizes within our existing client base rather than what you'd call brand new clients coming on board. And really given it's our third renewal season now for Bill Fisher (ph) and his team, it's really all about the fact that we've been able to expand our market penetration.

And I will say, if you strip it out, I think Bill's growth was about 18 percent. So, and when you think that we're concentrating on penetrating lines of business perhaps more strongly than we've been able to over the last couple of years, I don't see that as a significant increase. I think it's very much in line with the planning that we've undertaken. Most of the growth came out of, as Andrew said, European reinsurance and also -- which is a fully diversified book of business, as well as (indiscernible) actually being able to participate in the '04 renewal season.

Great. Thanks so much.

Ron Frank, Smith Barney.

Good morning, everyone. A few things if I may. First of all, if I'm doing the math right the accident year loss ratio was up about 10 points year-over-year if you take out development. And I was wondering if you could characterize that in terms of how much is attributable to mix shift toward more medium tail or casualty lines type of business versus what if any underlying deterioration it may imply?

Second, John, your comments, if I heard correctly, seem to imply that parts of the property market you were still finding attractive and I was wondering you could elaborate on that? And lastly, also for John, you made a comment that where you -- I think you were saying that you expected the reinsurance market would soon discipline those companies getting aggressive on short tail lines of business and I was wondering if you could elaborate on that expectation if I'm reading you right?

I'll let Andrew do the first one and then --.

Ron, I think your point is right, it is about the changing mix of business, but you've really got to look at it on a segment by segment basis. Global insurance in particular, there was one loss we had in the quarter that we talked about on the call that added about 6 points to the overall loss ratio in the quarter. But other than that, it gets back to what John was saying in this portfolio management and we've seen some opportunities within the global insurance line that have different loss ratio targets than some of the opportunities we saw last year.

So if I was to look at your picks as it were, Andrew, for the lines of business I would not see anything that would be attributable other than to mix basically?

Yes, I think that's a fair conclusion, Ron.

Thanks.

Ron, in terms of my comments about the property market, I just compare -- once a quarter I throw around with Dennis Reding and Marshall Turner who run our U.S. operations -- I throw around our growth in distribution network through the U.S. And I get a pretty good handle for what is actually taking place at the ground level as opposed to what most CEOs think is happening within their organizations. It consistently amazes me that just how far away -- how badly managed our industry is between the rhetoric of the people at the top and actually the operations at ground level.

Where we are able to trade and trade very effectively is below the radar screen of most of the alphabet houses. Anything of any substance, and you've heard me say this before, is absolutely being attacked and savaged by those companies and it is mindless and senseless. It's like a feeding frenzy. Because of the way that we're constructed and because of the experience of Dennis and Marshall and his team, and the embedded relationship they have with the broker distribution network, we are able to move below the radar line of most of those major businesses. And so we are nimbly able to attract business within the $100,000 to $500,000 property range which splits below their radar screens.

And because I said that our submission count is up by 50 percent this year, we're very efficient in the way we deal with submissions, but we are very effective in taking a small percentage of those submissions and turning those into firm orders. And it's a very focused process, a very deliberate one and a very efficient one. We're below the radar screen so we want to stay out of the silly competition that's being affected.

In terms of my comments about those major alphabet houses, the reinsurance market has pretty well remained firm, there are no real cheap deals out there for primary carriers to exploit and create margins from. The stupidity is being exacerbated by those major carriers because essentially what they're doing is giving away all their end margin, they're not making margin from their reinsurers.

So you think ultimately they'll be limited by the unwillingness of the insurance market to support the behavior?

I think that what will happen, Ron, is the fact their financials will show through much more quickly because it's cutting much more quickly from their net. They just don't understand it.

Okay.

Ron, there's one other point there which is that the concentration of the reinsurance market into about 10 or 15 players means that if that market holds firm then John McCase (ph) becomes very strong. And in the past we've had a broader reinsurance market that people have been able to take advantage of. Today the quality of reinsurers -- they're really a limited number of people.

Unable to supply the market with capacity.

Then maybe you shouldn't try so hard to broaden, Michael.

Broaden what?

I'm just kidding. You're trying to diversify that market a little bit yourself.

We’ve diversified in Europe and we've diversified by product line, we haven't competed for that business. We've said that before quite clearly, Ron, with the portfolio transfer of business to us because of the fundamental concerns within Europe of existing balance sheets.

We go where we're needed.

Thanks very much for that.

Adam Klauber, Cochran, Caronia.

Good morning. Thank you. As far as your reserving in IBNR, is it fair to say that you reserve your current accident year pretty conservatively? And then as the loss experience comes through that's when you release the reserves, is that pretty accurate?

That's very accurate, Adam.

Assuming that loss experience stays relatively favorable, you don't -- there aren't any big catastrophes or big losses this year, is the favorable development we saw in the first-quarter -- is that a reasonable barometer of what we could see throughout the year?

Adam, it would be inappropriate for us at any time to talk about future reserve releases. And I think, as you know, we do a very detailed study with our external actuaries each and every quarter and we released reserves this quarter based on the work we did with our actuaries and obviously we're going to do that study next quarter and the quarter after it and releases will come as and when we've consulted with our actuaries and out before then. That's a quarter by quarter operational decision we make.

Okay. Thank you very much.

Charles Gates, Credit Suisse First Boston.

Thank you. My first question -- Andrew, I thought -- and I might have misheard you, you made reference to something called a 'cancer' rewrite premium and I wasn't sure what that was.

Cancer rewrite -- Charlie, when we took on the D&O book from Kemper we had a renewal right to do with Kemper and each and every D&O contract that they had written we had the opportunity to quote on. And if you think about it, Charlie, a D&O (indiscernible) may have come across from Kemper. It had an expire date, as an example, on June 1st. So we would have written a short tail premium from 7/17, the day of the cancel rewrite closing to June 1st. So those would be one time cancel rewrite premiums that were only experienced really in the first and second-quarter of last year.

How do you spell cancer?

Cancel.

Oh, cancel.

It's my bad accent, Charlie. Sorry about that.

There was the first question. The second question -- John, you made reference to, and I might have bungled the quote, "crass stupidity on the part of some players".

You didn't. That was exactly what I said.

If you were in analyst sitting in New York City or some other city trying to observe this industry. What would you look for to discern that?

I'd look to see how close the CEOs of these businesses are to their business. Too many businesses are still managing their underwriting businesses from a distance. I don't want to spend too much time on them, but I think that if you look at what I said to you about the way we set up AXIS, I think that we have a management team and a senior underwriting team that are so embedded in the daily operations of the company, the underwriting operations, that we are fundamentally different from them.

As I said to you, I just spent a week trolling around the U.S. through the distribution -- varied distribution network that we have -- and I received a very consistent message back about the behavior of the alphabet houses. But I believe it will be short-lived because I think when the CEOs actually understand where their growth is coming from and the price they're paying for it I think they're going to have a rude shock. It's really a difficult position because you have to listen, Charlie, to people like me telling you what we believe is happening in our business, I believe I actually know what is happening. I just wish a few others would actually take more time to really understand it.

In this context, what do you mean by alphabet houses?

I'll leave you to decide.

Thank you.

Okay.

Years ago people use to refer to Alexander & Alexander and Fred S. James and Frank B. Hall as alphabet houses.

That's on the brokering side. (multiple speakers) on the underwriting side.

Thank you.

Not at all, Charlie.

Ron Bobbitt (ph), Capital Returns.

My question has been answered. But congrats on a great quarter.

(OPERATOR INSTRUCTIONS) Vinay Saqi, Morgan Stanley.

Just a couple questions, two on reinsurance. One specifically, it seems as though the use of reinsurance I think in the global --.

Can you speak up, Vinay, sorry?

One is just on the use of reinsurance; it looked as though you had a greater use of reinsurance in the global insurance segment. If you could just talk about that, number one, what you're seeing in that marketplace. Number two, can you just give us a sense of how you're monitoring the credit risk associated with this reinsurance? And then third is terrorism risk. Can you just give as a little more color what's happening in the marketplace currently for terrorism risk, how companies are pricing it and what you're seeing in terms of terms and conditions?

Andrew can start and out I'll fill in.

Vinay, as we said on the call, we're looking at the reinsurance marketplace on a very regular basis to see what opportunities are out there for us. And a couple things, last year on the global insurance side we were still building out our portfolio and certainly moving into the renewal season this year our global reinsurance portfolio is very well diversified. So from a reinsurance standpoint what we really look to do this year is try to broaden our reinsurance protection where it's available to us and also lower down our attachment points.

And so the difference between the '03 reinsurance protection and the '04 is really that; it now covers all sort of five of the sublines within our global insurance sector, also we've expanded the coverage at the top end to take away some more of the adverse disparity potential but also lowered the attachment points down to ensure that some of the attritional losses or adverse frequency type losses are now being protected in the company.

If you think about it we're seeing some immediate benefits from it because we had the marine hull loss during the quarter and had over a 50 percent recovery on our reinsurance because of it. So from that standpoint where we're seeing opportunity we're taking advantage of it as it presents itself. And with respect to the overall security, we've got a very detailed reinsurance security committee that five or six members of the senior team sit on and we review each and every reinsurer prior to submitting any orders through the brokers.

Vinay, I think just to reemphasize because I made strong comments about the reinsurance market remaining stable which is -- we are a very different business in lots of different respects from most of our competitors. Most of our competitors go into the market on an annual basis to buy their reinsurance programs. In global insurance we actually portfolio manage our business. So we have -- and don't forget that in global insurance only two people are allowed to buy reinsurance; one of them is me and another one is a chap called Adrian Ryan (ph) who has worked with me for 17 years.

He is in the market on a daily basis looking for opportunity to actually either enhance our profitability or the potential for profitability or reduce the potential for loss and protect our capital. So we are -- it's like a patchwork, we can take a long time to fill in lots of -- it fits like a jigsaw puzzle -- we can take a long time to find bits of opportunity, but whatever opportunity is there within the market on a daily basis we're (indiscernible) to find. It doesn't mean in any way that the market is soft.

We've had to work extremely hard this renewal season, and we've achieved a great deal more. But my overall impression is that the market is still quite a firm one. It's very important for us because what we have been able to achieve through this increased spend on global insurance is a significantly lower aggregate retention within a large number of our lines of business as well as much greater coverage. But don't forget as well that every risk we take on we're happy to (indiscernible). But -- so we're looking at value added. But we are very different in the fact we're in the market day in and day out.

Then on terrorism?

Terrorism, again, if you look at the stupidity on the U.S. property market -- in the U.S. property market by the major houses, stupidity is being demonstrated on their true up pricing, and there are a large number that are pretty well trained on terrorism for nothing. After the dreadful tragedy in Madrid -- we have four terrorism underwriters in AXIS globally recognized as leaders, and we very quickly -- well, one of them is me -- and we very quickly met and we decided that the market was going in the opposite direction to where we perceived the risk was being enhanced. So we substantially took our foot off the gas with regard to our terrorism activity. We are still in the market, we price it ourselves, but we have stepped back from it since the Madrid issue.

Thank you, that's helpful.

Mike Hallet, Endeavor.

A couple questions for you guys. Firstly can you give us some more color on pricing in the property retro markets and can you give us a sense of how your premiums evolved there during January 1 renewals? And secondly, I was just hoping, John, you could give us a little more color on the comments that you made regarding property reinsurance being more stable than the primary large property markets. Why do you think that is and do you expect that to continue? Thanks.

The first question I'm not quite sure we follow, but we don't write any property retro. So I'm not sure -- we'll just leave it at that unless you want to rephrase the question.

Can you just give a sense of did you see more opportunities to purchase property retro in the first-quarter where and just where that market is right now?

No, we didn't. Certainly not that I'm aware of. Michael, do you want to --?

On the reinsurance market, Mike, on a previous comment to a questioner, I think from Ron, was that the concentration of the reinsurance market in quality terms is now down to 10 or 15 players worldwide, maybe 10. But the renewal season in January this year they held firm. Previous experience has been that they held term up to two or three weeks before the end of the year and then tended to weaken in the last period. This year that didn't happen. One of the reasons is self evidently that the major players have substantially got new CEOs who have seen what had happened to the books that the inherited in the last five to six years including the destruction of value through the decline in the stock market and were determined that they had to actually hold the line to make underwriting profit.

But it's part of the whole theory that we have that the attitudes of the market's changing towards making underwriting profit and it's starting now with the reinsurance companies holding the line more firmly than they have in the past. That we think is encouraging. As John said, that squeezes the margins at the direct writers if they give away their margin because they can't (indiscernible) on buying cheaper reinsurance at the moment. So we very much hope that that position stays the same as we move forward through this cycle.

Okay. And are you seeing continued follow through with that into the April renewals in terms of the discipline of the reinsurance markets?

Most of the main (indiscernible) renewals are done on the 1st of January. There was only the (indiscernible) this year which is always a pretty dodgy (ph) market in any event.

I don't think that Asian is in Regent (ph) tends to be very aggressive in terms of its pricing. It's dominated by a limited number of major players, the Swiss have been very, very active throughout that region not only during this renewal season but really for the last three years. And aggressively going along with a few others for market share. As I said in my commentary, it's not a major issue for us. We are sitting back and watching so there's more than enough left in the rest of the world for us to go after.

The next major trend judgment will be in July for the Australian market.

Thanks very much, guys.

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