丘博保險集團 (CB) 2003 Q2 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the ACE Limited second quarter earnings conference call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions following the presentation. It is now my pleasure to turn the floor over to your host Ms. Helen Wilson of investor relations. Ma'am the floor is yours.

Thank you and good morning, welcome to our second quarter 2003 earnings conference call. I'll be your host for today's call. Our report today will contain forward-looking statements such statements relating to our financial outlook business prospects, market conditions pricing policy terms profitability growth premiums, cash flow, tangible equity, income, balance sheet strength, interest expense and dividends, tax rates, exposures and reserves, reinsurance recoverables, LPG reductions and asbestos litigation. Actual results may differ materially. Please refer to our most recent annual report on form 10-K, quarterly report on form 10-Q and other documents on file with the S.E.C. particularly our safe harbor language earnings release and financial supplement available on our Website for more information. I'd also like to remind that you this conference call and its content and any tape broadcast or publication by ACE Limited are the sole copyrighted property of ACE Limited, may not be copied taped rebroadcast or published in whole or in part without the express written consent of ACE Limited. This call is being web cast live and will be available for replay for two weeks. All remarks made during the call are current at the time of the call and will not be updated to reflect subsequent material developments. You may listen to reply at 877-519-4471 or 973-341-3080 access code No. 4021135. Now I'd like to introduce our speakers. Brian Duperreault, chairman and Chief Executive Officer, will give an overview of the quarter followed by Dominic Frederico who will provide the highlights of North American and financial services segments then Evan Greenberg will give highlights of global reinsurance and overseas general. Philip Bancroft,CFO, will review the overall financial position and results and then we'll take your question. Now I'll turn the call over to Brian.

Thank you Helen. It is hard to find fault with any aspect of this quarter's results. Premiums grew rapidly, Gross net premium and earned. Cash flow was positive, very positive and investment income increased slightly. Underwriting margins remained very strong and when you add significant investment gains you have an outstanding result for the period ended June 30th, 2003. If I had to single out a defining characteristic of this second quarter I would point to the significant increase in our capital strength. Everything that happened this quarter contributed to our capital resources. We posted record net operating income, as well as positive gains in both our fixed income and equity portfolios. Realized a conversion of $311 million of mezzanine securities, the common equity and completed the issue of 575 million of perpetual preferred shares. The result was a 22% increase in capital funds for the quarter, from 6.7 billion to 8.2 billion dollars. Debt to total capitalization declined from 20.9% at year end to 18% currently. All our other leverage ratios improved accordingly. Fully diluted book value per share increased to $27.24, a gain of 8% over the previous quarter, and a 13% gain over year end. Tangible book value increased 14% in the quarter and 23% for the year to date.

With regard to insurance pricing, the very large rate increases in the property business are coming to an end particularly for very large low frequency high severity accounts and in the property-catastrophe business. This will result in more moderate growth in this line of business. For ACE this is being offset by continued rate increases and very high demand in the casualty business. Casualty income has earned over a longer time frame and it is also more sensitive to interest rates. Our casualty business is growing at double digit rates, P&C premiums up 46% for the quarter. Unlike our competitors, who have fresh capital but little infrastructure we are fortunate in that we have a global platform and large claims management capability throughout the world. This is an important factor for us in winning new business. On the external front, Congress continues to express interest in crafty legislation to deal with the asbestos issue. The current senate bill is not acceptable to the insurance industry but with any legislation is still too early to predict an outcome. It is possible for Congress to pass a bill that will do something about the asbestos issue. The possibility remains that an asbestos bill that finally quantifies an asbestos disclosure for investors and insurers could pass by year end. Regardless of the outcome we believe that we have set aside reserves to deal with our ultimate liability even under the current tort system. Nevertheless we are continuing to do everything we can to push for a system that compensates the truly injured and redirects funds from processing costs directly to the victims. Now I'd like to turn the call over to Evan, Dominic and Phil who can provide you with better insight into the operations at ACE.

Thanks Brian. In the second quarter, the insurance North American segment continued to expand its position as we grew our net written premium 35%. Over the last six quarters we have achieved an average increase of more than 50% in net earned premiums over the same period of the previous year, clearly demonstrating our value and acceptance in the marketplace. Income excluding net realized gains was $134 million versus $126 million in the same period last year, an increase of 6%. The business posted a combined ratio of 91.2% in the quarter versus 88% in the same period last year. This increase was reflective of a higher loss ratio resulting from one, a recovery of the piper Alpha claim, booked in the second quarter of ‘02, two, a more normalized property result in the quarter versus an exceptional result in last year's quarter, three, changes in our mix of business as we shift more to casualty and other specialty lines and four, an increase in our net retentions. With respect to the rate environment in the insurance North America segment we continue to see strong improvement during the second quarter across all lines with the exception of property. As we obtained higher rates and better policy terms and conditions. Rate increases in the casualty market continue to experience growth in excess of 30% in the U.S. and almost 50% in Bermuda. For our DNO book of business rate increase continue to be significant. The U.S. DNO achieved rate increases at 60% and Bermuda at 125%. Conversely we have seen the property market become more competitive rates flat or increasing slightly however meeting our underwriting standards for acceptability and profit. (inaudible) continue to increase in the (inaudible) segments growing in excess of 40%. For our DNO book of business our net written premiums in the U.S. grew over 400% however this is on a small book of business in 2002.

Our newer product lines A and H medical risk excess casualty excess workers' compensation custom casualty environmental and stand alone terrorism have been widely accepted, growing in strong double digit pace as we expect to realize strong growth in these areas. During the quarter we introduced ACE complete a self service Website where producers can quote and bind small workers compensation coverage via the Internet. Ace Bermuda also experienced very strong growth and contributed to the second quarter results. Net written premium grew well, 25%, DNO experiencing growth of nearly 70% over the same period last year. We believe that today's business environment will continue to support ACE Bermuda's efforts to grow through better pricing and business opportunities. Rate increases like those in ACE U.S.A. remain strong in the casualty and the DNO business lines. Westchester’s special group, a leader in the ENS market group saw its second quarter growth fueled by the greater demand of its casualty products where net written premiums increased in excess of 70%. Additionally we experienced a 22% growth in Westchester’s property and inland marine net written premiums. This growth was a result of our strong distribution relationships in the wholesale marketplace. Westchester also began to experience a stronger demand for it agricultural products. Growth in both the casualty and the agricultural markets throughout the balance of the year.

Moving on to ACE Financial Services segment we continue to produce good results despite the results of a volatile credit market. ACE Guarantee Corp. had a strong quarter in the municipal and non-municipal reinsurance line of business of 79%. Municipal new money and refunding issues were both up for the quarter as municipalities took advantage of low interest rates while working to fund budget deficits. AGC also demonstrated strong growth of 65% in the insurance of derivative transactions as the company continues to build that franchise. Trade credit was also up as the company continues to benefit from a very hard market. As previously discussed AGC has decided to stop writing insurance on single name credit default swaps as is demonstrated by the rapid runoff of that book of business in the financial supplement. For ACE capital Re, gross written premiums were down 60%, this is the principal result of conscious decision due to current pricing weaknesses. We do not anticipate that pricing in this market will be attractive for the balance of 2003. Weakness was also witnessed in the mortgage line due to the rapid run of the in force book of business and the cancellation of a major treaty that was in place in the second quarter of '02.

Looking at financial solutions our income excluding net realized gains in the quarter was relatively consistent with the same period last year, 26.3 million, versus 26.8 million last year. The return on capital produced by this business continues to show superior results. We carefully manage financial solutions on a contribution to bottom line and return on equity basis, not production. As I explained in the past, production results for financial solutions are often volatile because this unit writes a limited number of large custom tailored transactions which are not renewable on an annual basis. Earlier this year we wrote a number of property programs that were structured with more risk transfer than such programs have incorporated in the past. We made this adjustment in order to take advantage of higher margin levels available in the market. We expect these programs will contribute to the bottom line as we earn the premium. Today's low interest rate environment makes it challenging for us to write loss portfolio transfers. While we are seeing some opportunities we expect that our overall LPT production for 2003 will be lower than last year. Finally, on the insurance side we continue to experience an increasing level of interest. More and more financial solutions insurance opportunities are generated from our ACE U.S.A., ACE Europe and ACE Australian client base. We are working closely with these ACE companies in order to capitalize on this positive trend.

In summary the favorable second quarter financial performance by both insurance North America and financial services segments set the stage for continued growth throughout if balance of the year. Now let me turn the call over to Evan for a detailed review of our international and reinsurance segments.

Thank you Dominic. P&C reinsurance, ACE gloability Casualty had another good quarter with income excluding net realized gains of 78.7 million. Net premiums written for the quarter were 345 million up 75% over second quarter last year, and we achieved a combined ratio of 77.2, compared with about 60.8 for the same period last year. We incurred 30 million of CAT related losses in the quarter compared to 11 million second quarter last year. CAT losses are in line with our estimate for '03. We continue to rapidly grow our nonCAT business which accounted for 65% of global Re earned premiums, compared with 44% last year. Naturally, this change in mix means a higher overall combined ratio. All Global re-operations have performed well in the quarter. In the property CAT business we continued to maintain a disciplined approach to underwriting and we were successful in retaining a high proportion of what we consider to be high quality, adequately priced business in spite of increased competition. For the second quarter our CAT related premiums were up approximately 20% over the prior year. In our view CAT rate levels overall are off about 5 to 10%. Consistent with what we saw during the first quarter. Therefore, the market remains stable, and relatively disciplined. ACE Tempest Re operations in the U.S. and Europe achieved growth. Net premiums written increased 181% in U.S. and over 60% in Europe with each operation making a reasonable contribution to income.

Turning to the rate environment, on nonCAT related lines I'd offer a few observations. We continue to see underlying rate increases in the primary markets and these are flowing through to the reinshirrers. In a number of classes, and particularly in casualty lines, we're continuing to achieve reinsurance rate increases as well, and as important, terms continue to tighten. In many of the short-tail lines, rates are flat to modestly down. Overall, we consider current terms in most but not all classes to be adequate. As demonstrated in our numbers, we still see opportunity to grow in the current market environment. It's a good time to be a reinsurance underwriter, but as always, you must be selective in the business you write.

Let me turn to the life operations. Life re-insurance, in our life operations net premiums written for the quarter amounted to 43.5 million compared to 26 million in respect to the second quarter of '02. Our ongoing lines of business, moderately outperformed expectations. Terms and conditions for new treaties continued to improve. Now I'll turn to ACE Overseas general. General and global markets had an excellent second quarter. Income excluding net realized gains increased by nearly 170% to 70 million and the combined ratio improved by 6 points to 93.2%. Net written premiums were up 49% to 916 million, and our net to gross retention ratio increased by eight points to almost 74%. Let me briefly highlight each operation.

First, ACE International. Operating income increased by 70% to 59 million for the quarter. The combined ratio improved by more than three points to 91.5%. Net premiums were up 36% to $621 million. Excluding the effects of foreign exchange, net written premium growth was 25%. Overall, our P&C net written premiums grew 46% and we continue to experience strong growth in our A and H business which was up 27% for the quarter. On a regional basis, growth was good. Net written growth in Asia PAC was 46%, Europe was up 40%, Japan about 6, and Latin America about 4%. Generally speaking, market conditions have remained firm through the important July 1 renewal season. For short-tail lines, rates overall are up in the single-digit range while on the longer-tail casualty lines rates continue to move up rapidly. Now, it's a big world out there and rate activity and the competitive environment certainly varies by class and by territory. As I've said before our international portfolio is diverse, in terms of both geography and product. We have a global network which continues to gain strength. I fully expect ACE International to continue to post strong operating results through the remainder of the year. Now let me touch on ACE Global Markets our London based ENS business had a very good quarter in line with our expectations. Net operating income for the quarter was 11.5 million and the combined ratio is 97.1 compared to 110.5 last year. Net written premiums in the quarter were up 84% to 295 million. We continue to experience strong growth in our energy, professional lines and marine lines of business. Our property business performed extremely well in the quarter, though growth is beginning to slow. As with ACE International pricing continues to harden in casualty and marine related lines, and the rate of increase in property related lines has slowed. In fact, we're beginning to see competitive pressures building in certain large property and energy related classes. As with ACE sprcial International, I expect ACE Global Markets to show favorable results for the balance of the year. Now let me turn it over to Philip Bancroft.

Thanks Evan. The key message I'd like to you take away today is that our earnings for the quarter are strong and our balance sheet continues to strengthen. I'll discuss our second quarter financial performance the investment portfolio, reinsurance and capital structure. I'll also update our guidance for 2003. Our income excluding net realized gain for the second quarter was 286 million up 25% over last year, or $1.01 per share and represents an annualized return on average equity of 15.6% and a return on after tangible equity of 25%. Our net income was $371 million, up 257% or $1.32 per share. Our operating cash flow was very strong at 978 million, bringing our total for the year to 1.6 billion. The investment environment continued to be difficult, although on balance, more favorable than the first quarter. The equity markets showed some recovery but remained volatile and short term interest rates were at historic lows. We continue to maintain a conservative investment portfolio where predominantly invested in high grade fixed income securities with an average credit quality of double A and our duration remains at about 3 years. Our exposure to equities is approximately 3%, and the current average portfolio yield is 3.8% down from 4.2% last quarter. The significant changes in our portfolio values for the quarter were, we recorded 25 million of realized losses by recognizing impairments of equity, fixed income securities and other investments. We realized $79 million of gains on the sale of securities and a change in fair value of our S&P index derivatives. Unrealized gains and other investments of $340 million. Last we had a 52 million gain on the change in fair value of our credit derivatives. Overall our net realized and unrealized gains and losses after tax added 358 million to our book value. Turning to another key area of interest, total reinsurance recoverables decreased by 241 million to 13.9 billion. Recoverables per our ongoing business decreased by 98 million while our runoff book decreased by 143 million. During the quarter 1.35 billion was billed to reinsurers. We collected approximately 1.4 billion and we've seen no evidence that our reinsurers are unwilling to pay. Our loss reserves continue to build with the growth in our business and paid loss activity. Net loss reserves relating to our ongoing business increased by 698 million reflecting our growth in business. Our net runoff reserves decreased by 212 million principally due to loss payments. There are no changes in our estimates for A and E reserves. Our combined ratio was 91.7%. During the quarter we had 12 million of prior period development and 30 million of CAT losses which together represent 2 percentage points on our combined ratio. The last balance sheet I'd like to discuss shareholders equity and financial leverage. During the quarter our shareholders equity increased by 1.5 billion, or 22%, and our tangible equity increased by 37%. We believe our tangible he can wet will increase by at least 55% for the full year. We issued 575 million of perpetual preferred securities and our mezzanine equity converted to ordinary shares on May 16th which together increased shareholders equity by 868 million. Our outstanding shares increased by 11.8 million. Our diluted book value per ordinary share grew by 13% to $27.24, up from $24.16 at December 31st. Our growth in tangible book value per share was 23%. These increases in our shareholders equity have allowed us to reduce our debt to total capital ratio to 18% and our debt plus trust preferred tangible equity to 43.4%. We're very comfortable with these ratios and they're consistent with the averages of our peer group. Now we'd like to turn to update of guidance for 2003. We expect a growth rate in premiums of our P&C business of 42 to 45% per year which was an increase from our previous guidance of 35 to 38%. The increase results from the growth in net written premiums for the first half of this year. We expect cash flow of 3 billion up from 2.5 billion. The remainder of our guidance has not changed from our previous estimates. We continue to expect our combined ratio will be in the 90 to 92% range for 2003. Given the impact of the changing mix of business, we expect it to be at the higher end of that range. Remember, we've assumed 100 million of CAT for the year for our catastrophe reinsurance business versus 30 million incurred year to date. We expect the growth in financial services income excluding net realized gains for the year will be 15 to 20%. We expect net investment income to be in the range of 845 to $865 million for 2003, the increase cash flow has not increased our investment income guidance due to a decrease in interest rate since the first quarter. We expect total interest expense and dividends of approximately 220 million. Also we expect that the tax rate will be in the 18 to 20% range.

We're very pleased with the financial results of our business in the first half of 2003, both from an earnings and a balance sheet standpoint. The continued diversification of our book of business has resulted in the addition of higher loss ratio longer tailed business but we expect stronger long term earnings power to higher investment income on longer duration reserves. We're comfortable with our reserve adequacy and strength in capital base. And now I'll turn the call back over to Helen.

Thank you. At this time we'll be pleased to take your questions.

Thank you. The floor is now open for questions. If you have a question press 1 followed by 4 on your touch tone telephone at this time. If at any point your question has been answered you may remove yourself from the queue by pressing the pound key. We do ask that if you are using a speaker phone to please pick up your hand set to provide optimum sound quality. Once again that's 1 followed by 4 on your touch tone telephone at this time. Please hold while we poll for questions. Your first question is from Mike Pihton of Legg Mason. Please state your question.

Congratulations on a good quarter once again. I was wondering if Brian or actually Dominic or Evan if you could break down or give us some color on the breakdown between property and casualty business. You stated your goal do increase the property and casualty business but it's not apparent how much you're increasing in particularly in light of the recent sell off with Renaissance some I was under the impression that very little of your business was actually property CAT business, also in speaking with one of your competitor underwriters that writes DNO business said that you had a very good July 1 renewal period, it's becoming more increasingly important to break this out, the casualty business is very, very different. Can your break that down and give us some color ? What is your goal in terms of what you would ultimately like to see in 2004?

Okay, Mike, thanks. Well, since you mentioned property CAT, I'm going to have Evan start with this breakdown. But before he does you know, I'm not sure I have an ideal goal. We've always like diversified earnings. And you know, so you know, the property business produces its own, you know, level of returns. And we like the property business. But you know, the opportunities are emerging much more rapidly in casualty. And that's just a trend we're going to follow. But Evan, you want to talk about the property CAT for a second?

Yes, that part of the question is a little surprising to me. ACE Global Re as you recall, began life as tempest Re, strictly a property CAT writer, one of the two that was formed that are the majors now after hurricane Andrew. The company was predominantly a CAT writer until about two and a half years ago. And then we began to diversify, and that gained tremendous speed last year into this year. Last year, as I said, the nonCAT business was 44% of the earned premium. This year, it's 65%. And if you look back on the quarter, and we've been very clear with about this, there was a rapid growth in the nonCAT areas, which is both risk property and other short-tail lines such as marine and aviation, and the balance is in the casualty areas. The U.S. operation is weighted very heavily towards casualty. I'd venture to guess that's in the 80% range. Whereas the London-based business is a mix of short-tail and longer-tail business, more short-tail than longer-tail. And predominantly nonCAT. Bermuda is predominantly CAT-related business. And you have a breakdown and a mix there. So I think it gives you a little more color and guides you in the supplement towards a better understanding of CAT versus nonCAT.

You want to talk about North America?

Yes, I have results for the entire insurance operation, the schedule I have with me. I don't have the breakdown between U.S. and international. But in total for six months, you'd see a reduction in property you roughly $300 00 million. At the same time, you'd see an increase in casualty of approximately 400 million and professional lines of $300 million. So can you see kind of a dynamic shift there of 300 million of property with 700 million going into the longer tail lines and therefore the result in increase on loss ratio and obviously as Phil mentioned the expectation of higher contribution of earnings off the longer tail earnings of reserves off of that business.

Okay Michael.

Thank you very much. One follow up, thank you for the thorough answer. This is something that's not related to that question but Brian I was wondering if you could just briefly touch on legislative reform? I know you mentioned asbestos. If we assume that perhaps asbestos legislation is dead, I was wondering if you could just very quickly touch on what your thoughts would be for general tort reform if, in fact, the legislation is dead, does that give an increased probability that general tort reform might pass?

I'm not sure they're related frankly Mike. Nor did I say that tort reform is necessary -- or asbestos is necessarily dead. Certainly, this version is something that we strongly oppose. But that don't doesn't necessarily mean that there can't be some changes made to it where we would support it. And I think that is a possibility. With respect to other reforms, you know, I think there is a general feeling in Congress that some things need to be done. I think the asbestos is, you know, it's such a complicated issue, that you know, the progress being made on the asbestos is not necessarily an indication of what might be happening in other areas. So no, I think you're going to see some other tort reform. Action in particular.

Thanks a lot.

Your next question is from Jay Cohen of Merrill Lynch. Please state your question.

Yes, thanks. I guess this is for Phil. Phil, since the quarter-end obviously we've had a noticeable backup in rates. I'm wondering if you had any sense what the impact would be roughly speaking on shareholders equity or the bond portfolio, and then also talk about how that's going to flow into earnings as well, assuming rates let's say they stay where they are.

We think that since the end of the quarter, we had a backup in rates that caused about $140 million impact on equity. And you know, that won't really roll into income. I mean, the unrealized gain we have in the portfolio does roll in income over the life of the portfolio. So this will just you know diminish the impact on P&L going forward.

The higher rates how that will roll into income are you guys changing your --

I can give you a metric the way we look at it. We would say we do some sensitivity testing. And we would say if rates went up 100 basis points immediately, that we would begin to break even from a capital standpoint in about 18 months. So the higher rates, we have a short duration port portfolio, they would make up we'd be just about break-even from an equity standpoint as I said in about 18 months.

That's helpful, Phil. Thanks for the answer.

Okay Jay. Next question please.

Thank you. Your neck question is coming from Hugh Warns from JP Morgan. Please state your question.

Quick follow-up on the North American side. What was the Pipers Alpha return?

Second quarter we saw a net benefit of 13.7 million.

Okay. And then you talked about the increase in retentions as being one of the four factors that's driving up the loss ratio on the North American business. And I guess my math is showing you went 4246 to maybe a 57 retention. Why would that be -- why would that necessarily be the case? I mean, what -- why are you doing that then if your retentions, was it a major factor or is it a small factor you had in the quarter?

Well, I think there's a whole host of factors that I tried to outline.

I know there's four of them.

Each of them contributed I think fairly significantly. The increased readings A we think it make sense to retain that business because it does have a combined ratio of less than 100% albeit at the higher end because obviously we like to you know, build our investment or our income momentum through the continue of build up of our reserves. Specifically in the retentions as we retain a lower-down risk obviously as you look at stratification of premium and the risk inherent against that, the loss ratios at the lower level are obviously higher than at the upper excess and catastrophe levels. And we've shifted say in our risk management business we're keeping the first 5 million where historically we ceded out 4 million in excess of 1 million. That first 5 million has a higher content loss ratio than the typical excess we would have retained in prior years.

Okay. Okay. The writing more casualty business you gave us the rough mix and the numbers you gave the down 300 on the property up 4 on the casualty and up 4 on the professional lines, is that for six months or year over year?

Six months net written premium for the entire insurance organization.

Where would the mix have been in 2001, that's what I'm trying to back into in.

2001? All of two -- I'm going to speculate a little bit.

No, I'm just understanding the base we're coming off. When I do the math I'm not coming up with the right -- I'm surprised we're not seeing absolute deterioration despite the very strong trends on the pricing side. The Piper Alpha was 1.9 points which was pretty tiny and the property was pretty tiny looked like it's small too so there's got to be a huge mix shift going on that we can't quantify.

I guess I take exception to the deterioration comment.

Well I mean it was 68% again and it was 69.2 in the quarter versus 65.4 all in.

You're looking at the loss ratio.

Right.

Let's say the raising of the retentions will shift loss ratio and expense ratio so you got concomitant reduction in the loss ratio.

Okay.

The overall, if you go back to 2001, we were much more a first party book of business. As Evan pointed out in the reinsurance business it was mostly property CAT. In the North American area, we like the property business. It was showing good rates. Now, that casualty business, you know, that we didn't like in 2001, because of rate increases, is now started to be priced into a level that we like. So there's been a -- there has been a shift from property to casualty. I wouldn't call that a deterioration. They just have a different --

Right.

They just have a different kind of earnings pattern. And as -- you know, there's a different kind of more annuity like level to the casualty than property, not a deterioration effect. We think our earnings power is actually improved over the last several years.

Okay. I might just follow up. I don't want to go over the whole -- take up the whole call. The expense change was about 600 00 basis or .6, on the underwriting sides when you netted it out it was all that dramatic --

Well that’s just in the quarter.

Right year over year. Which I understand the mix shift and understand why you're doing more casualty but it just surprised me,when you look at your paid to incurred 73% you have deterioration in the quarter year over year and you're mixing to casualty retaining more business, it doesn't seem to add up when we are doing more improvements from the core market but I'll take it off line. I appreciate it.

Okay.

Thank you. Your next question is from Mark Lane of William Blair and company. Please state your question.

Good morning, few questions. First of all Dominic you listed a lot of new business lines, within the U.S. business. Can you quantify the amount of gross or net written premium in the quarter that's from businesses, maybe that you didn't write before September 11th?

Well, I'd have to sit here and add up a bunch of numbers for you. Susan, you're on the line. Do you have a total you could think of off the top of your head?

Dominic, I'd have to add them too.

Yeah. At least a couple hundred million dollars.

All right.

As you look at the excess casualty has really taken hold and is growing very, very strong. Medical malpractice liability has also had a tremendous growth. The excess comp business, you know, we're seeing really strong growth across all lines of business. Maybe later in the call I'll get back on and give you a number. Because it's spread out over -- we have the P&L by lines of business so we'd have to line add them pickup up.

On financial Services you didn't change your guidance for the year of 15 to 20% earnings growth. But certainly this looked like a tough quarter in that business, both from the top line and bottom line. What's going to happen in the second half that's going to allow you to get to a high teens earnings growth in financial services?

What you're going to see is, as I kind of mentioned, we've written that business prospectively on a higher margin basis, both in the solutions and in the financial guarantee area, where in the guarantee area, we talked about we really thought we were getting paid last year for both risk and volatility. And this year in certain lines we're not getting paid for the volatility, so we've decreased that. But we will get the benefit of the earned premiums throughout the year on that higher margin business. And the same with solutions we wrote those retroaccounts on a higher premium basis. Although the volume is down the component of the business in terms of the margin inherent in each of those programs will contribute to higher earnings throughout the year.

To better margins?

Yes.

Last quick question is on the bad debt reserve within the recoverables, I think it was down $25 million sequentially, and were there settlements against estimates within the quarter? Why did the bad debt reserve come down 25 million on a limited basis?

In were some write-offs but what we do each quarter is we reline up our portfolio of reinsurers, and we apply their credit ratings to them and make estimates about what our ultimate losses would be. So regardless of the reinsurer, even at Berkshire hath Way, we would take a charge because the likelihood that a triple A company would default. So we apply historical default rates to the ratings, and then calculate our bad debt reserve. And it just adjusts with the mix of the reinsurers we have in the portfolio. You'll also note we had a decline in the overall portfolio of 240 million so that would contribute to that.

So it's a fallout of a grounds-up analysis basically?

Exactly, yes.

Okay. Thank you.

Your next question is from Michael Lewis of UBS. Please state your question.

I have two quick questions. Again, in the ACE North America, there was a distinct slow down in gross written premiums and again I guess that affects your earnings or your flow-through of that as you get into earned premiums down the road. Can you explain why we only had a 15% increase in gross written premiums versus 31 last quarter and the other part of the question is on the financial services business, as that flow-through of higher margin business continues this year and you had a sharp falloff in the gross production, does that affect your results going forward next year unless you're going to make it up down the road with more production this year? Can you explain that?

Michael, I guess those are both Dominic's.

Let me take them in order. In terms of the growth and the gross versus net, we have continued to look at the portfolio, as we talked about in the middle of last year, we've discontinued a large segment of our program business and that program business in the quarter accounted for about $106 million of decrease in gross written premiums on a like for like basis. So in '02 you would add $106 million of program business in the growth that was not renewed in '03. If you restate, then, the growth rate on gross for that change it would put it up into the low to mid 20s. Second question, in terms of financial solutions, the real drop-off there in terms of production is in the LPTs. And loss portfolio transfers. As soon as you appreciate, they're slow contributors over a long period of time to the earnings. And as I said we had a shift this year to what I'll call higher margin, less transactions but higher margins. Obviously that book of business on the property retroside is probably more consistent year to year than our loss portfolio transfer business, and we would continue to view that as a good growth opportunity and a good contributor to earnings through the remainder of this year and as we look at renewing that business in '04.

Thanks very much.

Next question is from Ron Frank of Smith Barney. State your question.

One question is following up on the LPTs. If I'm reading the supplement right it looks like they were nothing this year and next to nothing in the second quarter of '02. So my conclusion was that it was business other than the LPTs that fell off year over year or maybe I just misheard and I wanted to clarify that. Second, more broadly, I wanted to get a feel for what the philosophy, if that's the right word is, on retentions is right now. We're seeing a progressive increase. And I wanted to get a feel for what's coming into play there. Is it largely sort of a passive function of mix? Is it a deliberate increase? Because you have the capacity for net even though the growth slowed down and achieving it that way, is it being imposed to some extent by reinsurers? I wanted to get a feel for what factors are driving your retention decisions now.

Okay, Ron, let me do that one first and then we'll get to the LPT question. We have consciously decided to retain more. There is some mix of business component to that, but that doesn't -- I don't think it weights as heavily as a dire desire to retain more. Certainly when we move from property to casualty, casualty doesn't necessarily require the same kind of reinsurance structures. So you're going to see that. But you can see even in our casualty business we have decided to take more on. No, I wouldn't say the reinsurers are imposing higher retentions. That would occasionally occur but I don't think that's a dominant feature of what's going on. Substantially, our choice to take more on, particularly now that we like the level of rate that we're getting.

Okay.

Dom you want to take the LPT question?

On page 20 we break down on the bottom of the page with the LPT activity by quarter. You can see second quarter of '02 we had 25 million, obviously there's zero in second quarter of '03. But more importantly what you're seeing in the drop is the equity CDO business that we wrote both in ACE Financial Services, ACE Capital Re and ACE Financial solutions U.S. Significant drop 102, 100 million, between the both groups in the current quarter versus the prior year. Equity CDOs which are in effect finite covers. Remember that's where we're getting paid roughly 85 cents or the dollar, 85 cents a premium to limit. Our target on the pricing of that was in the 80 to 90% range of premium to limit. Obviously in the current year that pricing has dropped down to the low 70s which we thought was unacceptable. Two factors, not just LPT’s but Equity CDOs as well.

And I'd just like -- thank. I'd just like to follow up with Evan. Evan could you tell us, drill down a little bit for us in particular on what you're seeing in Europe in the way of opportunity? At least one or two companies seem to be licking their chops about Europe right now. And we just saw the Swiss down graded yesterday again. Could you comment on what you're seeing there in the way of opportunity?

Yes. As you know, we've seen a lot of opportunity in Europe over the last year and a half. And that continues. There is a bit of a slow down in property, particularly large account property, rates are flat. Even in some areas beginning to come under pressure. In smaller risk property, that is not true. It continues to firm, albeit slowly. The casualty areas, tremendous opportunity, whether it is DNO, excess casualty, or primary casualty. There's more of an excess market emerging, as -- which has been a trend we spotted early on that continues as companies cut back their appetite and their risk appetite for ground-up, single large-limit casualty, which is how Europeans would typically place it. They're putting out lower limits for primary casualty, which creates more opportunity for excess, and we've been moving quickly in that. If I look geographically for a moment, Germany has never been -- we've never seen a market like we've been seeing in Germany where so many major players have pulled back and there is an opportunity for foreign companies to grow their presence in the German market. France has been much more of a casualty and property, and property play, I should say, both large and middle for us. French companies for a period of time have pulled back. The U.K. has continued to just boom for us. And that is, as you know, many competitors, established companies, have withdrawn, or reduced their appetite. There is a couple of players beginning to show more -- a bit more of an aggressive stance. And so there are -- we are seeing signs of others beginning to move in and take advantage. However, we do, for ourselves, believe that the favorable environment we see will continue.

Thanks. Last one, I promise. The 15% gross growth in North America, can we break that down roughly rate versus new business?

Yeah, I'd say -- I'd say it's probably a third rate, two-thirds new business.

Okay. Thanks a lot. Sorry to take so long.

Thank you, your next question is from Brian Meredith from Banc of America Securities.

Couple of questions. First one with respect to capital, y'all are growing faster and faster than you originally expected at that time beginning of the year. At what point does that growth present a problem from a capital standpoint, and do you have sufficient capital right now to kind of grow remainder of 2003 and into 2004?

You want us to answer that first Brian?

Yeah. I'm going to let Phil add to this but we've given you some guidance in terms of earned premium the rest of the year. And our capital we believe can sustain that growth for the remaining part of the year. Now, I don't expect the -- you know can the growth rates to stay at that level in '04, certainly. We would expect to have, you know, good growth. We're not prepared yet to give guidance. We'll do that a little later in the year. But based on what we're seeing now and we're starting our process of review, we would expect our capital levels to be okay, at these reasonable -- at actually very good growth rates. Do you want to add anything?

I'd just add on a quarterly basis we're modeling S&P and Am best, tracking where the rating agencies think we need to be. And that's the basis for concluding that our capital is adequate based on the projections we have on growth.

Great, two more quick ones. Follow up to Jay's question, the 140 million of book decrease, break-even, does that expect to see 45 to 50 million of investment income for the remainder of the year?

It would depend on -- I mean --

And is that factored into your projections that interest rates stay where they are?

That's not right Brian.

That's break-even over 18 months you told us?

860 to 865 guidance is going to be fine. We've got a lot of good positive cash flow but we're also seeing that as our portfolio rolls into the lower yielding current money rates it's almost offsetting. We were up 7 million dollars this quarter and it was just the offset of those two. So we're not predicting that we'll see any dramatic change in that. As I said, we think we're in the range of 845 to 865.

Great. Last question since Susan is on the phone, maybe she can answer, this shift into the more casualty business what has that done for the duration of your loss reserves year over year basis. Last question following that up what given that increase in duration of loss reserves, given where the interest rates are right now what would be an acceptable increase in the combined ratio writing property versus casualty at and still remain the same return on capital?

Susan, Rivera. Maybe can you answer, Susan Rivera.

Duration of our loss reserves, the earned premium contribution on some of those new lines that are heavily casualty-related really isn't that large yet so I don't think we've seen a change in the duration of our loss reserves at this point.

You haven't seen change in duration, therefore -- okay. Then with why would you want to write more casualty than property business given that casualty has a higher combined ratio?

It will continue to earn as the writings continue to earn in the duration on the loss reserves will obviously get longer but right to date a lot of casualty business that we're writing is relatively new. So it's writing with little earned. So it doesn't have a significant impact on the overall duration of the loss reserves at this point. But as we earn more of that in, and our mix continues to change the loss reserves will naturally lengthen.

Thank you.

Thank you. Your next question is coming from Sean Reed of CitiGroup.

Dave of CitiGroup. Can you drill down a little bit in terms of where you stand on the agency's models particularly at S&P as they've identified that as their chief concern for 2003? And then as a follow-up, I wanted to ask Dom, given your comments on the funded equity CDO market it sounds like it's mostly a pricing issue on new business. Do you have any concerns the existing in-par book?

I'll start that. The capital adequacy ratio that we have with S&P, that they've recently published for '02, is 155%. They've also published that they would expect that we'll keep a ratio in excess of 145%. So that's what we're tracking and modeling. And we'll be communicating at they complete their next year's evaluation.

In terms of the CDO marketplace, we did mark some what I'll call normal loss activity. As I said earlier, those books of business were written at about an 85% of premium to limit. So therefore obviously there's an expectation that there is going to be loss activity. On one segment of the book we've had no losses so that's run absolutely better than we think. The other side on the ACE Capital Re, we booked a normal amount of activity and believe we are adequately reserved and based how we earn the premium at a fairly high level. So in either case we're very pleased with the performance of the book and as you point out correctly we're just not happy with the pricing today where we don't think we get paid for the volatility. So we're deemphasizing that book of business.

It's pricing not experience.

Thanks guys.

Thank you your next question is from Adam Clother (ph) of Cochran Corona. State your question.

I have two questions. Obviously you've picked up momentum in the over seas global market. What are you looking for in 2004, can this momentum be sustained next year?

Well, we're not giving guidance for '04 right now, as you know. But let me just give you some -- a little bit of color on what I see. The -- and some of this is just a rehash of what we've said. First of all, pay attention to the foreign exchange, and what it does to the overall. We grew substantially in the quarter. But foreign exchange had about a ten-point impact on that. And you know, we're not covering that. We're not covering that up. That's just the reality. We have very good growth. It is beginning to slow, because of the short-tail lines, as we went through, are under more pressure. They're adequately priced but continuing to grow those, you're not getting the benefit of rate increase. And there is some competition beginning to increase. The casualty areas are doing very well. Europe and Asia Pacific will continue to lead our growth. And I think that will happen through '04. Japan is a slow-growth environment. It takes a long time to do anything good or bad in Japan. And putting ACE on a better footing in Japan is a strategy, we're just quietly focused on. But that will take time to show any dramatic effect in the numbers. And Latin America is a difficult and more volatile region. And so you'll see the growth in Latin America from an underwriting perspective. You've got to take care and you've got tot to be careful. And Latin America ironically didn't tighten as much as the rest of the world did. So we're selective in how we grow in Latin America, though it's an important region for us. I hope that gifs you a little bit of flavor. (audio-gap) Did you have another question?

Yes. Quick question. North America, could you give us an indication of how workers comp loss costs are running and could you give some idea how big your workers comp book is?

Sure. This is Dominic. Workers comp loss costs are obviously increasing as we see the trend in medical inflation to still be upward. However, offsetting that is the substantial increase in rate activity. In terms of the total comp book of business, to the total, that -- it's a fairly decent contributor. But remember, a lot of our comp business is written on a loss-sensitive basis. So that obviously, as the losses within the company's retentions go up, we get to bill and book additional premium. And to try to get you kind of a quantum number real quick as I page through our information here -- sorry for taking so long. Risk management rights in the quarter, I guess we'll look at earned premium, that's more important. It's $200 million of earned premium, heavy percent of that is workers comp. Obviously they do auto and GL but more of that on a deductible basis. So it's significant to the total earned premium for the quarter in the domestic side which was 920 in total for North America. So comps large but we're getting rate increases that are significant. That's why we decide to keep the 4 X 1 this year because we believe that business to be on a combined less than 100% basis and obviously as Phil pointed out, we're building earnings power if we get any positive change in the rate environment, significant buildup reserves will obviously contribute to income over a long period of time.

Thank you very much.

Next question is from Susan Spivak of Wachovia Securities. Please state your question.

I've got a lot of follow-ups. But Brian could you address what we're talking about on the casualty side? It seems to me, tie this in on your growth fro specs and substantial slow down. First of all is there a seasonality, do you write more of your business in the first quarter, and since you didn't change your guidance, shouldn't we have inherently assumed that there would be somewhat of a slow down? Just a slow down in the growth rate? That's number 1. But the second part of it is, you just started writing these casualty lines, and building those on your book. When should we really expect that to flow through? I mean, should we have expected that already, or doesn't it take time for that to actually throw -- flow through? You don't see casualty results immediately. And then on the property side, when you talk about market competition, and even short-tail lines all over, is this -- you know, I've heard you talk about the fact that there's actually fewer competitors in the market. So would you say that there's competition is really coming from the fact that there haven't been any losses? And that the disciplined and the rational competitors do have more capital and it's only natural that this would happen, or are you seeing more and new players come into the market aggressively?

Okay. Well, let's just talk about growth rate slow-down as you put it. You know, if you look at the growth rates, in -- and we'll talk about gross production activity. We had very solid production, gross production activity in reinsurance. And that's in spite of, you know, the property CAT rate declines, as Evan pointed out that's because we're growing the non-CAT business very rapidly. So we had rapid growth in gross there. And the growth rate in international was quite strong, Evan pointed out some of that was due to foreign exchange. But even taking that out, very strong growth rates in gross internationally. Both in over seas and in Global Markets. So in those two areas we had very good growth. Now we get into the North American operations. There, we had you know, two things going on. One, the property business is slowing. It's slowing because of increased competition. You asked me about the property side. There is more competition I think, companies are starting to take more, you know, we're not seeing the, you know, the kind of layering as much as before, companies are taking the whole thing, taking like the first 100 million. So there is a step-up in appetite for that business, and we've seen that decline. We happen to like the property business, even at these rates. But the property business is slowing a bit. And I think if you -- if you look at the rest of it, as Dominic pointed out, we've seen a drop in the programs. We consciously got rid of program business. And the program business has high gross, low net. So it exacerbates the activity on a gross basis. The casualty business as Dominic pointed out is growing very, very rapidly. So in INA you're seeing a shift that's having an effect on gross. And the rest of the areas even with that shift we're having a large growth in gross. So you know, I don't -- I don't -- I wouldn't consider it seasonal. Maybe the seasonality of this, you know, dropping of the program business, you know, that will work its way through. But I think it's more of a -- more of a mix issue with respect to the shifting of our gross production. And then of course, that leaves all the, you know, the solutions business, et cetera, which just, you know, we had no production on the quarter. But that's a -- you know, that thing runs anamously. You can't make a prediction on the quarter. I think our growth rates are quite good. I get the question about can we handle our growth rates due to capital and then the question is where our growths rates are. I think our growth rates are quite good and then on a gross basis, you can see some shift into casualty. You ask me when does the casualty show? Well, the casualty shows up in earned premium, as it's earned you're seeing that occur. Our earned premium is growing on the casualty side. It has a higher combined ratio, so you don't see the impact on the underwriting income. You'll see the impact that it has but it shifts our combined ratio around a little bit. But it also produces excellent cash flow and that is a long term income provider as those reserves produce investment income over years. So the casualty has a delayed effect on the total return basis.

Okay.

It has a delayed effect and you're going to see that, you know, occurring into '04 and '05. Look at our cash flow. Our cash flow was nearly a billion dollars for the quarter. And that represents a significant shifting in our property casualty.

That answers my questions Brian. The delayed effect on the total return basis will mean that you've more stable growth into 2004 and 2005

I guess if you'd ask me what would I rather have a 90 combined property book of business or casual book I'd take casualty all day long because you have much more annuity like business. We know that's not the way it works. I mean we write a diversified book of business and you seize the opportunities as they occur and the casualty's coming in now and that has -- it raises our combined ratio, it actually produces an excellent long term result for the company and so I'm very pleased with the growth rates as we shift the casualty.

Are we in any danger of the property market approaching the inadequate rates of the late '90s?

Well, I think if you looked, I think you ask all the property guys if they like these rates, they like these rates. It's kind of like a convenient here. Maybe it's not an '82, but it's a pretty good year. Maybe it's a '90. I don't know. It's a very good loss ratio potential business. And I think that's why it's drawing a crowd. And you know, the terms and conditions are good. So it's not just rate, but you know, it's a level of deductibles and all the other things that produce, you know, a return. And I think we like the property business, at these rates. We like it very much. But there is competition.

Okay. Thanks Brian.

Thank you.

Your next question is from Bill Wilt of Morgan Stanley. Please state your question.

Good morning. I'll be quick given the time. Prior year development was small, only $12 million. Thought I'd ask if there are any major reserve reviews or business segments that are going to be reviewed in the second half of the year that are you know just on your radar screen?

We have a program where we review our reserves every quarter, very detailed review, it's internal, we have our actuaries together with our management team involved in those. All around the world. And we also throughout the year have asset actuaries involved in doing a very detailed review, and ultimately reporting to our board. So that process is ongoing and takes place all year long. So I don't see anything unusual in the second or third quarter. I mean the third or fourth quarter.

Bill you know we look at our perseverance quarterly so we feel we don't wait a year to look at the reserves. We look at them every quarter and we feel very comfortable with the level of reserves you have.

Great, thanks. The second one as you look out on the second half of '03, what variables would likely influence your combined ratio guidance the most? For example if there was you know a combination of an acceleration in casualty rate increases for whatever reason, you know, combined with a decline in the paid loss ratio? I mean, is there -- what combination of variability’s would potentially move that combined ratio guidance?

Oh, well, I think the one thing that you know the biggest single thing is it's CAT season. And you know, we pointed out we've said maybe 100 million for the year, we've had a little bit already, but we're into CAT season so that's probably the most significant movement. You know, the casualty business tends to be more stable. Property business less so. And you know, but there is frequency and it varies a little bit more predictable longer term. But you know there is variability in terms of frequency. Even in the casualty business. So you know even though you may be expecting a, you know, a reasonable -- reasonable year the quarter itself could be all over the lot. So you know, you can have a couple points movement either way. And that might affect the actual loss ratios that we incur for the second half. But I think we pointed to you know, higher into the 92 range because you've got to recognize that there are, you know, CATs potentially to occur particularly in the third quarter.

Okay.

Thank you, your next question is from Ken Zukerburg of Stadium Capital.

House keeping, pension liability adjustment, is that something to expect in subsequent quarters or true-up?

It’s a true up. What that really represents is the movement between our pension obligation and the valuation of the assets in the pension plans. So the -- it's effectively like an unrealized loss and that's why we took it in this quarter.

Right. Actually great disclosure on the financial guaranteed business. As I was looking at it, though, I did see the nominal pickup in the senior level CDOs I know there were some various questions on that. You know, the general CDO business. And I just wondered if you can give us a little bit more color on the business, whether you're able to talk about, you know, types of deals or times of issuers, obviously credit has improved this past quarter, which is good, but then we also sense there's a lot of sort of questionable companies out there in the community that are trying to act money that way so any insight there would be extremely helpful.

Okay. You know, the CDO market you know, we underwrite each and every deal, specifically, and really pay a lot of attention, and there's also a view towards aggregation. So you know, we made a conscious decision to move out of the equity side because we didn't see value there. We've had a strategic objective of moving up in the credit structure. To maintain what we consider a higher quality of a book of business. Obviously, you know, as we look at deals we have to look at aggregation first and then the deal second. So you're going to see some shifting. But by and large the overall philosophy is to move up in the spread or up in the credit spectrum, and eliminate all participation on the equity side.

With some of the things at MBIA and Ambac and the latter management changes at least at the TFO level has there been any sort of opportunities for you to pick up business that you hadn't had before, or is it sort of you know standard opportunistic acquisitions or at least you know --

We were able to pick up opportunistically a lot of business because I think as we've mentioned previously the competition in the reinsurance market specifically has significantly declined, a lot of what we'll call non-financial guarantee companies that had operations in this sector, had decided to leave the market, over the last couple of quarters. Some of them being European, some being U.S. So as we looked at the reinsurance world, you can count as well as we can there are very few competitors left in that marketplace. So although we have a strategic long term objective to move on to the insurance side, to really get involved in what I'll call better control and pricing of the risk, the opportunities today created on the reinsurance side because of the lack of competition and capacity were the primary companies still need to offload a substantial amount of risk from the standpoint of capital management has created an opportunity for us and as you see, as you saw in our municipal and non-municipal sector on the reinsurance side we had substantial growth in the quarter. And we anticipate that continuing.

Thanks very much guys.

Charles Gates of Credit Suisse First Boston. Please state your question.

Hi, good morning or maybe it's good afternoon. I apologize for that. I apologize for that. The one question I have at this time for modeling purposes, to assess the impact of interest rate volatility, I guess this is a question for Phil. What kind of a tax rate should we use, attempting to assess what the impact of higher interest rates on the fixed income securities portfolio?

I think the average rate that we're predicting is 18 to 20. And I'd be comfortable using that rate for that purpose.

And so therefore, that would be a blended rate, company wide, incorporating the very, very important tax advantages in Bermuda?

Yes. It would be an estimate on where we hold the assets, what investment income we expect to earn in the various jurisdictions and that's a blended rate that would take that into consideration.

Thank you.

Once again if you do have a question you may press one followed by 4 on your touch tone telephone at this time. Your next question is coming from Jim Aga of Millennium Partners. Please state your question.

Good morning. I didn't press the button. I'm sorry I don't have a question today.

Once again that's 1 followed by 4 on your touch tone telephone at this time. Your next question is coming from Ron Frank of Smith Barney. Please state your question.

I admit it I pressed the button. Just one quick one and Dominic I'm sorry if I just missed it but I think early on, you mentioned a 79% number, as a growth rate with regard to some aspect of the guarantee business. I can't reconcile that to any of the reported line numbers. Could you help me with that? Did I either miss mishear the number or --

I heard the number contradict, it was in the (inaudible) side.

Dominic seems like what might be occurring at least from some of the comments on the back of the supplement there might be a move on the primary and deemphasizing the reinsurance piece as you go forward. Is that a correct interpretation? Because you know the rating agencies now are talking about the reinsurers getting selected against the little and whatnot.

I'd say we're moving to primary. However, the reinsurance market today is a very uncrowded field. And because we're going to have -- maintain the reinsurance company, we're hoping to be able to bite out of both sides of the apple.

Okay. Thanks again.

I want to close on the comment that was -- the question that was asked early on about what was the new business contribution in the quarter for the new lines. It was roughly $90 million on gross about 6% of our growth rate and about 40 million on net which would also be about 6% on our growth rate. So the excess casualty medical malpractice, all those lines aggregated contributed about 6% growth -- gross and net to the growth rate.

Your next question is from Tom Cholnoky of Goldman Sachs. Please state your question.

Hi, my problem is I was pressing all the wrong buttons until now. Just one quick question Phil on your outlook. Interest expense and dividends of $220 million just help me out with that for a second. Your interest expense I think through 9 months is 88 million.

Well, we added -- that includes the dividends for the perpetual preferred that we just issued.

Oh, okay.

So it just went up by that amount.

You annualized the 88 and you add in the perpetual preferred. Thank you.

You're welcome.

Next question is from Stephen Lobe. Please state your question.

Good morning. I apologize if you've already given this answer but I was curious as to what amount of prior year reserve development may have been in the loss this quarter.

It was $12 million.

In aggregate?

Yes.

Next question is a follow up from Hugh Warns from J P Morgan.

Last question Can we get a sense of where we are North America, not trying to beat a dead horse, trying to understand what's going on between property and casualty? Starting point an ending point? You could follow up later, he extremely helpful for anybody trying to understand the question.

I don't understand the question. Could you ask it again?

Yeah, if we just look at you know the premium levels, I'm trying to get the mix of business between property and casualty for just North America. Because you gave us the changes you said yeah property was down 300, up 700 in the casual, we don't have a starting or ending point to understand the mix shift so that's where we're struggling.

I don't have the number.

That's fine.

Let's do it this way. Obviously you're not the only one that wants to get this information. And you know, so we've given kind of a for set of percentages, it's this it's that. So you know, we'll have to put it in the supplement. I think it's pretty simple. That we'll have to -- we'll have to start providing this so you can get a better feel for how the mix is changing. And again I'd rather do it that way so it's clear and consistent and everybody gets it. So can you bear with us and we can get that out to you?

Absolutely. You know that would make my job so much easier just gent a sense for how much this this is. The model is practically impossible without having a starting or ending point to make these adjustments.

We'll have to make sure that we do it in a way that, you know, is consistent definitions and everything. So --

Perfect.

I can't portion I'll get it out to you --

That's fine.

-- in the next week or month. May take us a little while to do.

Thank you.

Next question is a follow-up from Jay Cohen from Merrill Lynch. Please state your question.

Unrelated to the quarter actually, I was wondering if you would comment on the litigation which has gotten some press out in California, what your position is on it.

Well, you know, we're still waiting for the judge, so I really don't want to -- I don't know what it will say so you guess I should probably not say anything about that. I guess what I would say is, you know, a couple of things. One, you know, regardless of what the judge says, the most important thing to keep in mind is that we have a reserve this business, and you know I said that in my opening remarks. And so I'll repeat it for you. We believe our reserves adequately cover the liabilities that the company has. So that's the most important headline. You know, there was an article in a magazine recently which was, I think, certainly negative, and some facts that were wrong in that which we will respond to the magazine about. And correct that. But you know, as I said, we're very comfortable with the position we're in with our asbestos reserves. I said earlier, I'd love to see some good legislation passed. If it doesn't, we're okay.

Thanks, Brian.

You're welcome.

Thank you. Your final question is coming from Ron Frank of Smith Barney. Please state your question.

I guess I'm trying to win some kind of prize today Brian one last one and that is, can you tell us where you are vis-à-vis your reliance assessment in Pennsylvania, we saw one other company move its assessment up for that assessment and was there anything like that in the quarter or is there prospectively something like that to come?

I'm not sure that's a new event. Susan help me out here.

I think we've been incurring those charges for some time now. And you know, it's automatic hit, automatically flow right through to the bottom line. I think it's about 5 million, I don't think our number has changed. It's increased obviously because of the reliance situation. But that normally as Susan says flows right through to income in the quarter. It's up but I don't think it's up shift cannily. It isn't that we noted as a significant variance year over year.

Okay fine I know it's not a new event I wanted to nail down the delta. Thanks again.

Thank you Ron. If there are no further questions we will concluded this call. We look forward to your interest at ACE and look forward to having you join us again at the end of the next quarter. Good day.

This does conclude today’s teleconference. You may disconnect your lines and have a wonderful day.