AXIS Capital Holdings Ltd (AXS) 2005 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the second-quarter 2005 AXIS Capital earnings conference call. My name is Alicia, and I will be your operator. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of today's conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference call is being recorded for replay purposes. I would now like to introduce your host for today's call, Ms. Linda Ventresca. Please go ahead, ma'am.

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 June 30, 2005. Our second-quarter earnings press release and financial supplements were issued yesterday evening after the market closed. If you would like copies please visit the investor information section of our website, www.AXISCapital.com. We've set aside an hour for today's call, which is also available as an audio webcast through the investor information section of our website through August 26th. An audio replay will also be available from approximately 11 AM Eastern today through August 19th. 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 is 38859882. With me today in our Bermuda headquarters are John Charman, AXIS Capital CEO and President, and Andrew Cook, CFO.

Before I turn the call over to John I will remind everyone that statements made during this call, including the Q&A session which are not historical facts may be forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements contained in this presentation include, information regarding our future growth prospects, financial results, losses and loss reserves and investment strategies, and our expectations regarding pricing and other market conditions. These statements involve risks, uncertainties and assumptions which could cause actual results to differ materially from our expectations. For a discussion of these matters please refer to the risk factors section of our annual report on form 10-K.

We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information future events or otherwise. In addition, this presentation contains information regarding diluted book value per share and net income excluding investment and foreign exchange gains and losses, which is non-GAAP financial information within the meaning of the U.S. federal securities laws. For a reconciliation of these items to the most directly comparable GAAP financial measures, please refer to our press release issued last night which can be found on our website. With that I will turn the call over to John.

Thank you, Linda. Good morning, ladies and gentlemen and thank you for joining us. I am pleased to report that AXIS Capital's second quarter kind of 2005 has produced excellent results. Our net income was $173 million for the quarter. Net income excluding realized gains and foreign exchange losses, net of tax was $197 million, up over 30% from the second quarter of last year. For the six months net income excluding realized gains and FX was $373 million, up over 20% from the same period last year. Gross premiums in the quarter were up by 21.9% and net premiums were up by 26.2%, and includes growth in both our insurance and reinsurance segments.

Net premiums earned were $624 million, up 28% over the same period last year. Our combined ratio was a solid 75% for the quarter and 76% for the year-to-date. Total pretax investment income continued to increase and was $60 million, up 107% from the second quarter of last year. These exceptional results were delivered by a combination of our worldwide underwriting platforms and our investment portfolio. This translates to an excellent annualized return on average equity of 23% during the quarter and 20% during the six months ended June 30th.

Before I begin the discussion of AXIS Insurance and AXIS Re and their respective marketplaces, I should tell you that broadly speaking this is an unstable global marketplace with conditions varying by situation, by class and by region. Opportunities for AXIS still exist, but it is only about execution, execution and execution. That is what matters.

Now with respect to AXIS Insurance, pricing generally in the segment is favorable to declining for many specialty classes that we target. Terms and conditions, however, remain attractive in the main, and there is still ample business for us to find, where rate levels meet or exceed our return hurdles. Less of this opportunity is coming from our London market-based specialty business and more from the vast U.S. Insurance marketplace. The 18% increase in gross premiums in AXIS Insurance during the quarter was driven by growth in our U.S. Insurance operation. The attractively rated specialty classes we targeted during the 2003 and 2004 years are now producing the business flows we anticipated.

In the face of an ever more competitive London market, the London Global Insurance subsegment, which includes the London market-based specialty business we write, grew gross premiums a moderate 5%. The growth we experience here was primarily due to our political risk book where we continue to see significant opportunities coming from our long-standing strategic partnership with a limited number of global investment banks. Our startup professional lines effort in London where we write European D&O exposures for commercial and financial institution accounts, our high excess Bermuda professional lines book and a stronger offshore energy market following hurricane Ivan's impact last year, unaided by an increased level of construction activity, fueled by higher oil prices. Outside of the growth in these areas we have continued to reduce our writings in areas where pricing is not meeting our requirements. Our disciplined underwriting is evidenced by the significant decline in premium in the quarter from our global commercial property book.

Following the Madrid bombings in March 2004 I said we had adopted a defensive stance in underwriting terrorism business. There are by far fewer and fewer opportunities to write properly rated standalone terrorism business and again we are declining on a daily basis accounts that don't meet our criteria. The usual bandits at Lloyds continue to define the laws of gravity by consuming everything that they are offered. I will discuss TRIA and my views on this with respect to our business at the end of my remarks.

Within U.S. Insurance gross premiums during the quarter increased 30% over the second quarter of last year and net premiums by 28%. Much of this is due to our excess (ph) and umbrella liability line of business, where we added to our team, drove up submissions and successfully accessed business where pricing has held up relative to loss trends. The significant progress we've made in our startup D&O unit also meaningfully impacted our growth in our U.S. Insurance operations. In particular this unit is experiencing strong growth by becoming a meaningful provider of miscellaneous professional liability coverage to small and middle market clients through an NGU (ph) relationship with a team with an exceptional track record. In our commercial and financial institutions professional lines gross premiums grew a modest 11%. We have experienced in these lines single digit rate declines in keeping with the deceleration of declines noted earlier this year, and therefore we have experienced better renewal retention.

This growth not only shows the effect of opportunistic transactions and increased demand for side A (ph) coverage, but also is beginning to show the impacts of our focus diversification into other ancillary lines. As we enter the third quarter, conditions in the PNC insurance market in the U.S. continued to exhibit trends which are broadly flat to down. However, in CAT exposed E&S property business rates are improving in most parts of Florida, up to 15% as well as the coastal Carolinas which are up in single digits. In contrast our long CAT exposed retail property business where last year's windstorm activity had little impact, is seeing rate declines on the order of 15%.

In E&S casualty business competition continues to intensify on large accounts, and we are beginning to see some erosion in terms and conditions. Therefore we remain cautious and are becoming defensive in this area. In E&S umbrella business which has held up relatively well to date, the market is now beginning to support reductions of up to 5% to 10%. The terms and conditions remain firm, and we would expect our writing here to quickly level off if market conditions continue to soften.

Moving onto our reinsurance business, gross premiums were up in our reinsurance segment 32% for the quarter and 30% for the year-to-date. The year-to-date growth which is in my estimation the most meaningful period to discuss for our overall reinsurance business was primarily driven by our newest reinsurance operation in continental Europe, which achieved significant market penetration at the critical 1/1 renewal date. This growth was offset by higher primary company retentions in the U.S., particularly for non CAT exposed business. The overall reinsurance growth in the quarter specifically was driven by opportunities in property reinsurance in Florida, liability reinsurance opportunities in Europe and professional liability reinsurance opportunities in the U.S.

Globally, reinsurance pricing was in line with our expectations. In the Global Reinsurance market since the beginning of the year there has been moderate price softening, particularly in short-term lines with the exception of Florida business. Importantly, terms and conditions have held up well across the board.

In the U.S. casualty reinsurance rates are for the most part keeping up with loss trends. Within D&O treaty business specifically terms have hardened, seating commissions decreased and loss caps were introduced on treaties where there had been none. However, in the face of continuing erosion of pricing on the primary side in most lines, including professional liability, the (indiscernible) in the reinsurance marketplace is beginning to see more downward pressure than that experienced in the beginning of the year. We would expect our book at best to level off if this trend continues.

With respect to CAT business the CAT premium was relatively flat. Rates were down as much as 10% with the exception of those national accounts that had significant losses from last year's wind events in Florida. Florida renewals were generally favorable with rates up between 10 and 15% for those exposed to last year's events and January flat for loss free accounts. There was strong demand for capacity during renewal, particularly with a substantial program coming back into the market. However, we detected a trend whereby there was market resistance to supply full capacity to programs even at market clearing pricing.

In continental Europe the CAT reinsurance marketplace is much more competitive relative to other markets. Our greatest competition coming from Lloyds. However, the trend towards counterparty diversification is increasing. And cedants are acknowledging and wishing to access the strength of our balance sheet. We continue to find ample opportunity at technically adequate levels. Our property reinsurance line of business includes pro risk and pro rata property reinsurance. For pro risk property our premium was up approximately $21 million, with the majority of this coming from new business from an existing client.

We are aware that we are in the middle of the hurricane season, with two storms hurricane Dennis and hurricane Emily already having made landfall. Based on the information available to us at this time, we currently do not expect the net losses from these two events together to have a material impact on the third quarter results. With respect to last year's hurricanes, we remain comfortable with our current overall reserving position.

With respect to TRIA it would appear that the prospect of renewal on terms quite different from that of the existing bill seems more probable. I have been of the view for some time that the private market should develop a workable solution to the problem, but that the U.S. government should bear the responsibility for nuclear, chemical and biological risks. If either TRIA is renewed with a higher deductible and greater per event retention or TRIA is not renewed, I believe that the outcome will be neutral to positive for AXIS. We already managed gross P&Ls in major cities and put forward sunset (ph) terms that mitigate terrorism exposure in our U.S. Insurance and reinsurance books post 31st of December '05. I believe that the demand for stand-alone terrorism coverage for which we are a leading global market is more than likely to increase in either scenario.

Now I would like to update you on our internal investigation, which we launched following inquiries received by the Company in connection with investigations of the insurance industry by the New York Attorney General and officials from other jurisdictions in which we do business. The purpose of our internal investigation led by outside counsel was to determine whether we had engaged in any of the improper business practices that are the focus of the wide-ranging inquiries. I am pleased to report that this extensive and exhaustive internal investigation is now complete. And has uncovered no evidence whatsoever indicating that we engaged in bid rigging, fictitious or inflated quotes or related matters, or conditioning direct insurance on the placement of reinsurance. I reiterate that no evidence of any of these types of wrongdoing was found.

With respect to incentive commission agreements as previously disclosed, we have in the past entered into incentive commission arrangements with brokers consistent with long-standing and widespread industry practice. However, as an update, you should know that we have not entered into any of these arrangements with respect to 2005. And with that I will turn the call over to Captain Cook.

Thanks, John, and good morning everyone. I would like to walk you through our financial results. Our diluted book value per share at June 30, 2005 of $20.89 increased 11.4% over the last 12 months. This accretion over the last 12 months includes the impact of the CAT's last year and our share repurchase program in the first quarter of this year. Net income excluding foreign exchange and investment gains and losses, net of tax, was $197.4 million, 30.7% higher than the comparable figure in the second quarter of last year. This increase was driven by higher underwriting profit and investment income, specifically underwriting profit increased by 37 million or 29% and investment increased by 25 million or 74%. Foreign exchange losses in the quarter totaled 27.2 million, and we had interest expense of 7.8 million in the quarter which we did not have last year.

Consolidated gross premiums of 767 million were up 21.9% over the second quarter in 2004. In the quarter gross premiums in our reinsurance segment increased by 32% or gross premiums in our insurance segment increased by 18%. To recap within AXIS Insurance our U.S. Insurance subsegment showed growth in many lines. The most significant growth was in our liability and professional lines where in the case of the liability line we have added staff and infrastructure over the last year or so to take advantage of the attractive rating environment, particularly in umbrella. And in the case of professional lines we have added new classes during the year.

In our Global Insurance subsegment declines in property, terrorism and aviation were offset by gains in political risk and professional lines. Overall the declines evidence our discipline and increasingly competitive marketplace. As we have noted in prior quarters, the political risk book has an irregular renewal pattern, and the second quarter was a particularly active quarter. Professional lines growth stems from the successful buildout of our London team and the attractive rating environment for excess business in Bermuda.

Growth in our reinsurance operations in the quarter was primarily due to the opportunistic expansion of our property per risk and property pro rata books of business. Total net premiums earned for the quarter were 624 million, a 28% increase over the second quarter of 2004. This increase reflects the strong growth in our underwriting business throughout 2004 and 2005.

With respect to consolidated underwriting results, our combined ratio for the quarter was 74.5% as compared with 75.2% in the same period last year. The improvement in the ratio was primarily due to a 3 point increase in prior year reserve releases in conjunction with continued solid current accident year results. The consolidated current accident year loss ratio increased by 1.7 points due in large part to the changing mix of business year-over-year, and was offset somewhat by the incorporation of our own experience into the reserving for some short tail line of business.

As you noted last quarter for aviation, war and terrorism lines of business we have significant experience to categorize these for the most part as rapid visibility lines. In the absence of a major loss event this approach favorably impacts our current action year loss ratios in Global Insurance. Should a major event occur we will apply our conservative reserving philosophy upon a loss in much the same way we would in the event of a major catastrophe.

In terms of reserve development we had $74 million in favorable development during the quarter, 44.4 million in favorable development came from our insurance segment and 29.6 million came from our reinsurance segment. You should note that this level of reserve releases correlates with a significant growth we experienced in our severity driven, short tail Global Insurance and property CAT businesses.

With respect to our consolidated acquisition cost ratio, we are relatively flat quarter-over-quarter and up only 1.3 points for the sixth month period relative to the same period last year. The impact of higher acquisition cost business in the mix this year was offset by a reduction in the acquisition cost ratio in our insurance segment. Specifically we sold a number of 2004 PSA agreements this quarter and as a result our Global Insurance expense ratio decreased by 2.7 points in the quarter.

With respect to the financial impact of PSA's broadly for the Company there continues to be business that was written last year which is being earned in this calendar year and the associated expense amortized with it. As John noted earlier, we have not entered into any new PSAs this year. At the moment our all in acquisition cost ratio remains stable and in line with our expectations for our current portfolio.

Our G&A expense ratio remained relatively flat at 9.1% for this quarter and compared with 8.7% in the second quarter of 2004. Total cash invested assets ended up the quarter at about $6.5 billion due to strong cash flow from operations. For the six months ended June 30, 2005 operating cash flow was 861 million. Of course this was offset largely by dividends and our share repurchase during the first quarter.

Total pretax income on our investment portfolio for the quarter was 59.8 million, up 107% over the second quarter of 2004 and included 58 million in net investment income and 1.8 million in realized gains. This increase was primarily due to the increased invested assets and was also the result of increased yield. Since our portfolio was concentrated in the short end of the yield curve our yield has been pretty consistent for the last two quarters at 4%. With the margin decline in the three-year treasury yields during the quarter we recouped last quarter's unrealized loss of $49 million and ended the quarter essentially flat. Since the end of the quarter the three-year treasury has retrenched by about 45 basis points and as such we will have some price erosion but should be able to enhance yields moving forward.

We continue to believe that our short duration portfolio, either investments focusing on floating-rate instruments and cash holdings limited downside to our capital base during periods of market volatility. We continue to believe U.S. interest rates at the short end of the yield curve will continue to rise and that it is highly likely that cash will outperform intermediate fixed income during 2005 on a total return basis.

With this in mind we are focusing on shorter maturity investments and others that will outperform as short-term rates rise. Our allocations to other investments is beginning to contribute to quarterly net investment income and in this quarter we added 5.4 million of income from other investments. The average annualized yield for these investments for the quarter was 5.5%, about 150 basis point higher than our fixed income portfolios. Please note that any changes in market value in our hedge funds will flow through investment income, and this may add some volatility in this contribution going forward.

For this quarter hedge funds contributed $600,000 to investment income, and the average balance invested in hedge funds during the quarter 75 million. Other insurance related loss was $5.4 million in the quarter. As many of you may recall we entered into a multi-year sovereign default contract that we accounted for as a derivative. We reached an agreement with our counterparties to close out this contract early and removed the risk from our aggregation models. In total we have received cash of $31 million and do not receive or pay any losses. The charge this quarter reflects the final mark-to-market close out of the contract. We now have no further exposure to this contract.

During the quarter we experienced net foreign exchange losses of $27 million. In excess of 21 million of these losses was due to our net long position with respect to the euro, which slipped 6.8% in the quarter. This net exposure is a combination of cash and investments and premiums receivable offset by outstanding loss reserves and forward contracts. These balances are primarily attributable to our continental European reinsurance operations. For this quarter the average long balance was approximately EUR310 million.

There is currently no clear consensus in the market with respect to the direction of the euro over the short-term and we have taken action to reduce future volatility from currency movements. Through a combination of spot trades and the placement of forward contracts we have reduced our exposure to the euro by about 1/2. Should a consensus develop with respect to a further weakening of the euro, I expect we will continue to reduce our net long exposure to the currency.

It should be noted that from inception to date we are in a net foreign exchange gain position of $6 million. In our view there will always be uncertainty with respect to this line item, but we believe that our recent actions should help us substantially mitigate future volatility. We continue to belong the euro as we build balances in this currency to meet our expected liabilities, and we believe that over time we will reach a net neutral position with respect to matching our invested assets with our expected liabilities. I will now turn the call over to John for his concluding remarks.

Thank you, Andrew. Ladies and gentlemen, I still strongly believe that there remains a disconnect between the boards and management of so many of our competitors and their actual underwriting operations. Shareholders will continue to pay a heavy price for the window dressing still being practiced in the industry. It is my expectation that whilst we are pulling back in some areas due to irrational competition, this will be counterbalanced by the actions we have already taken in entering a number of attractively rated specialty classes, which is consistent with our overall strategy of diversification and specialization.

Our balance sheet continues to be at the highest quality with our net IBNR of $1.9 billion at June 30th, representing 83% of total net reserves and 60% of shareholders equity. We continue to build strong book value by maintaining the highest underwriting standards and providing consistency and good service to our clients and intermediaries despite the instability of the current marketplace.

That concludes our prepared remarks. And we will now take questions from those on the call. Thank you.

(OPERATOR INSTRUCTIONS) Joshua Shanker, Smith Barney.

Good morning. Fantastic quarter, everyone. Listening to two parts of your call, first listening to the pricing commentary and then listening to Andrew's financial results, I would almost think there was a bit of a disconnect. John, you seemed pretty pessimistic in your comments about the marketplace and then of course there's a great deal of growth in the company. I'm wondering compared to 2Q '04 the business that you wrote then is the business today in commercial liability on the primary side in the U.S.? And property in the reinsurance book, is that better or worse than the business was one year ago?

The reinsurance contracts that we are writing on the property, as I have said for the last 18 months that I believe that there were better opportunities for us on the reinsurance side of the business in the short to medium-term than on the primary side. Because terms and conditions have held well, and the restrictions that reinsurers have placed on primary carriers have held. We have been very selective. You have heard me over many quarters talking about the intense marketing effort that we have had as a senior management group and a group of underwriters with regard to identifying key cedants and maximizing the business penetration with those people. These are people that we have high regard for with regard to their underwriting. So whilst the insurance property market, the primary insurance property market has weakened, we still have, I believe very strong regard for a number of underwriting businesses within that marketplace. And it is risk selection and cedant selection that is critical. And I am very comfortable with the business that we are accepting today just as I was a year ago.

Did you think it has the same level of profitability under normal circumstances?

Yes, it matches our hurdles.

Very good. And in terms of going back in time looking at the commercial liability growth in the primary side in the U.S., do you think that there was some business that you let slip past one year ago that you wish you had written now?

No I think that we have been building out -- if you recall what I said a few minutes ago, the fact that we have actually been building our team in that particular productline, and we were very fortunate to take on some excellent people who were just not there a year ago. And as I said to you time and time again, unless we can find the right people to transact this sort of type of business, we won't do it. So it is a very logical buildout of business following actually the buildout of the team.

Very good. And in terms of the general expense ratio on the primary side of the business, obviously that has been rising for a couple of quarters. Is there a stabilization there expected? Is the current ratio probably a run rate ratio going forward? How should we look at that?

The same as we said I think last quarter that our expense ratio had started to come to what we would call a normalized run rate. So plus or minus a small percentage in any one particular quarter I would suggest that we are at full buildout mode right now.

Very good. Thank you very much.

Bill Wilt, Morgan Stanley.

You mentioned a couple times I believe in the press release about beginning to blend your own experience in reserving and pricing whereas perhaps you had previously relied more on industry loss ratios and development statistics. Can you add some color to that the lines of business, particularly I'm interested to know whether you think that has any implications for your competitiveness vis-a-vis legacy companies.

We started to do that last quarter and we spent the time in the call last quarter talking about the blending of our loss reserves for the most part as we said is on our short tail lines of business such as terrorism, aviation, war, marine war, etc. where it is really given our line sizes and our cash pinpoints, etc. It really has more to do with a catastrophic type of event as opposed to I guess what you would call a run rate type of loss. The other thing, too, is we have now got 4 to 5 year's of experience with our own book of business so we don't have to rely as much on industry experience in setting our loss reserves. So I think what you will see is within Global Insurance in particular on those lines of business that are current accident year loss ratios. But it's really only in the short tail lines that we started that process but again as we continue to mature and build more of our own experience we can continue to expand that across certain lines of business.

That helpful. Might that mean fewer reserving releases if the upfront loss ratio take is likely to be more accurate?

It is difficult to forecast that given how (indiscernible) losses can play over time but what I think I can say in those particular lines of business I would expect better current accident year ratios, all other things being equal, than we would have posted in prior years.

Fair enough, thank you. One quick follow-up if I may just your target debt to capital ratio and how might that change differ from where it is now? What are you thinking if anything over the second half of '05 and perhaps into '06?

I think where we stand right now it is about 14% debt to total capitalization, and I would suggest given our rating with the agencies we could take it up to somewhere around 20% without having any difficulty in supporting our current rating. So we definitely have some flexibility there.

Dan Farrell, Fox-Pitt, Kelton.

First question, just in terms of your retention levels I guess particularly in the Global Insurance segment they bounce around a little bit and go up a fair amount this quarter. Can you just talk a little bit about that and how we should think about that trending?

Are you talking about retention --

I'm sorry net to gross premiums.

I see. Well, it just depends on the different flows of business within the portfolios during each quarter.

I think we have been talking about over the last couple of quarters how the on the Global Insurance side the reinsurance program is an active management and a portfolio management exercise. And certainly over the past two or three quarters we have been building out the reinsurance support as we see opportunities in the marketplace to protect ourselves. And what we have tried to do is move it down, so protect ourselves as well as have some of the high layer protection for significant shock losses covered as well. So it will move quarter to quarter but I would say where we are now I believe we have --.

It really depends, Dan, because we said before that we are in the market on a daily basis. We dealt on the Global Insurance side just by once a year, as so many of the major companies do. We are opportunistic in our reinsurance purchasing there. And so if the opportunity presents itself, then we take it. So it does get a bit lumpy from time to time. But we are not increasing our retentions. We are actually reducing them.

Okay, great. Thank you. And then can you give us a little bit more color and maybe try and quantify a little bit more your increased presence in the marketplace, the numbers of people that you have in each geographic area versus a year ago; your effort to get out to more people and things of that nature?

Let me -- Andrew will come up with the numbers, but let me just tell you I know of no other senior management team, either underwriters or management, that are so deeply embedded in the day-to-day underwriting activities of the Company. We spend a huge amount of time and have done so increasingly over the last couple of years actually out on the road, visiting cedants, visiting clients, and visiting our distribution network, and squeezing the margin. And it is very targeted. It is pretty tiring, but if we can at the margin show real growth and good growth because of that increased effort by us all, if that is a differentiator, that is what we're about.

In terms of headcount, we ended the quarter of June 30th with about 409 people. I think off the top of my head, I'd say a year ago we probably had about 300 people or so within the organization. But I guess to give you some specifics, if you think about the growth we've had in the Company and reinsurance during last year's renewal season, Carl Meyer (ph) and his team had about seven guys on the ground, versus this year there is 30 people on the ground in Zurich. So we've added staff where John said, where we are really targeting the business.

The other area we've grown our staff kind of, I would say, would be within the U.S. operations, which is consistent with the question earlier about the increase in the expense ratio there. But again, that is where we're seeing the opportunity to roll out the AXIS platform, and that's where we've increased our headcount accordingly.

You're not going to see, as I said before, you're not going to see AXIS in a typical industry mode from an infrastructure point of view, because of the systems that we have, the technology that we have, the connectability that we have. We don't need to overwhelm ourselves with people. We are a company that has an awful lot of chiefs, and we don't have a lot of Indians. And so I would suggest even by the end of this year, we will be hard pressed to have about 450 people in the Company.

And if you look at similar size companies -- and don't forget, an awful lot of our business is individual risk transaction business. We are not sucking in huge quota shares of other companies. So it gives you some insight into the technology that we have and the efficiency that we have that allows us to penetrate the market in the way we do.

Thank you, guys. That was helpful.

Susan Spivak with Wachovia Securities.

Thank you, good morning. A lot of my questions have been asked, but if I could just follow up on a few. First of all, John, is there any particular seasonality of where you are growing your U.S. insurance book that we should be aware of? And then my second question for Andrew is, as you take the debt to total capital ratio up, can you relate that to any potential future capital management actions?

My answer, Susan, is nice and simple because it's no. There is no seasonality attached to it.

Susan, in terms of capital management, we didn't say anything on the call with respect to that, but from where we stand in terms of this year, I would say that our capital management activity for this year will be limited. And as we said in past calls, going forward any capital management activity that we undertake is going to be directly dependent on the opportunities we see in the marketplace, our analysis of the rating agency models and our own internal capital allocation models. And then again, obviously, where our stock is trading in the marketplace. But I think our analysis would be pretty consistent with that we went through this year, when we didn't get the share repurchase in in February.

And Andrew, if I could just follow-up on the reserve releases, did you break down what lines of business those came from? If you did I apologize for missing it. Were any in casualty related lines?

No, no, no. Same as always, Susan, it is always from our short tail line of business and will continue to be if we have them for the future.

We release where we have certainty.

Okay, that's terrific. Thank you.

Steve Shapiro, (ph) with SF Investment.

Yes, good morning. Can you help distinguish for me the difference between your growth in your specialty lines or your specialty platform and what you consider window dressing where you are backing of? In other words, what specialty practice represented the biggest percentage of your overall premiums? And then what window dressing area are you truly backing away from and what was the percentage reduction?

The window dressing I was talking about business practice, but it is pretty clear the areas where the greatest competition have been on the insurance side, which are the property related businesses. And we have walked away from huge amounts of businesses based in the U.S. and out of our Global Insurance sector.

And Steve, if you take a look at our supplement which is posted on the website and you go to page 6, you can see on a byline basis where we have growth and where we've retrenched from certain lines of business. I think John covered most of them on the quarter, but where we're seeing opportunity in the marketplaces and as we've said, political risk book in particular is very irregular with respect to which renewal patterns and the deal flow that comes to us. This was a particularly active quarter for us and you can see that reflected in the growth patterns. But you can get all the percentages in terms of live by line from page 6 in the supplement.

But because we target our client list, whether it is insurance or reinsurance, whether it is primary or reinsurance. So we are still growing our businesses, growing our people, maximizing our penetration with the clients that we've known for a long time and want to do even more business with. So that is what we're spending a lot of time doing. We are trying not to participate in some of the Dutch auctions that seem to take place on the major accounts.

So is that how you are defining what you consider to be specialty from what is more commodity like?

Well, I'm not interested in commoditized business.

Clearly.

If we can't bring value to a product we don't want to be really in the product. We have to be able to bring value to the distribution network or the client base. If we can demonstrate value, we get paid better for it. So we are in the businesses that actually need us. And we like to be in businesses that the global economy actually needs to continue to function. Where people have to buy those products. But we are very, very focused because we've been doing this sort of stuff for an awful long time. We know our way around it. We know who to insure or reinsure and who not to. We know what sort of portfolios they have. We know what penetration we want to achieve. And we are still building into that phase. So the whole concept of AXIS was to create diversity of productline and diversity of geographic location. And that is the secret. That allows us a big pond to fish in.

(OPERATOR INSTRUCTIONS) We appear to have no more questions in the audio queue at this time.

May I take the opportunity to thank you all again for taking the time to listen to us and ask the questions that you did. And we very much look forward to seeing you or hearing you, talking to you at the next quarter. Thank you.

Ladies and gentlemen, thank you for joining today's conference. This concludes today's presentation. You may now disconnect. Good day.