丘博保險集團 (CB) 2005 Q1 法說會逐字稿

Good morning, and welcome to the ACE Limited First Quarter 2005 earnings conference call. At this time, all participants are in a listen-only mode. In order to ask a question or make a comment, please press "star" followed by "one" on your touch-tone phone at any time. You may remove yourself from the queue by pressing the "pound" key.

At this time, I would like to turn the call over to your host, Ms. Helen Wilson, Director of Investor Relations of ACE Limited. Please go ahead, ma'am.

Thank you, and welcome to the ACE Limited March 31st, 2005 first quarter earnings conference call. Our report today will contain forward-looking statements, such as statements relating to our financial outlook and guidance, business strategy and practices, growth prospects, competition and market conditions, leverage, asbestos legislation and the industry-wide investigation and related litigation. Actual results may differ materially. Please refer to our most recent SEC filings, as well as our earnings press release and financial supplement, which are available on our website for more information on factors that could affect the forward-looking statements.

I'd also like to remind you that this conference call and its content in any taped broadcast or publication by ACE Limited are the sole copyrighted property of ACE Limited and may not be copied, taped, rebroadcast or published in whole or in part without the expressed written consent of ACE Limited.

This call is being webcast live and will be available for replay for one month. 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 also listen to a replay of the call at 877-519-4471 or 973-341-3080 with access code number 5826870.

Now, I'd like to introduce our speakers. We have Evan Greenberg, President and Chief Executive Officer and Phil Bancroft, Chief Financial Officer. Then we'll take your questions. Also, with us to assist with your questions are several members of our management team.

And now, it's my pleasure to turn the call over to Evan.

Thank you, Helen. Good morning everybody. Before I speak about our quarter, I'd like to begin with some remarks on the investigations. As announced in October, the law firm of Debevoise & Plimpton has been conducting a comprehensive internal investigation of the Company's business practices, directed by former US Attorney, Mary Jo White and operating under the auspices of the audit committee of our board of directors.

This independent internal investigation was undertaken in response to the industry-wide investigations being conducted by the New York State Attorney General, the Securities and Exchange Commission, and a number of other state departments of insurance.

Our internal investigation has two basic components. The first is the examination of ACE's business practices, as they relate to contingency sales commissions paid to brokers, and anti-competitive behavior in the form of bid rigging.

The second component, which commenced at a later date, relates to structured insurance and reinsurance transactions or is so-called finite business. The business practices part of the investigation has been completed. The investigation spans dozens of business units of the Company, reviewed thousands of account files, tens of thousands of e-mails and other documents and involved hundreds of interviews of present and former employees.

As we reported late last year, we found improper activity in the excess casualty business of our ACE USA division. Outside of excess casualty, we discovered a few examples of behavior that we would judge to be inconsistent with the expectations set forth in the ACE code of conduct or now prohibited by our new business practice guidelines, which were adopted in November. We have taken appropriate action to help ensure that such conduct does not reoccur.

Concerning the structured products part of the investigation, that is at an earlier stage and ongoing, but we have made substantial progress in examining the transactions involving ACE, either as a buyer or a seller. As this aspect of the investigation is ongoing, I will save any comments until it's complete. To date what we are seeing is that the transactions generally were structured in a way intended to provide for appropriate risk transfer and were accounted for properly. But again, the review is ongoing.

In giving you this brief update on our internal investigations, we believe we have said all that is appropriate to say. We cannot speak on behalf of the New York AG, the Pennsylvania Department of Insurance, the SEC or any other regulatory authority, as to what their views or findings may be. And their investigations continue. We respect those ongoing investigations and we'll be continuing to discuss these matters with the regulators. I cannot predict how long the industry investigations will continue or what conclusions they will reach. We're of course continuing to cooperate fully in all of the investigations.

Now to the quarter; as you can see, we had a very good quarter. Earned premium growth was strong, while net premium growth slowed in line with market conditions. The market continued to soften. Premium revenue in a number of our businesses was flat to down. We simply refuse to chase under priced business. Terms and conditions have held fairly firm, although, we have begun to see some loosening, particularly in the property related lines. I'll return to this subject later.

Our P&C underwriting results were excellent and the combined ratio was in line with our expectations. I should add that while our expense ratio was flat year-on-year, this year includes approximately 30 million of investigation related expenses.

To date, since the investigation has started, we have paid and accrued over 40 million for what we believe will be the ultimate legal related fees. Excluding this one time charge, our expense ratio improved over a point. There were no material catastrophe related losses in the quarter and we're quite comfortable with our current accident year loss picks.

We had excellent growth in investment income, which coupled with excellent underwriting profit margins produced record operating income. In spite of a rise in interest rates and the corresponding mark-to-market effect per share book value was up in the quarter and our annualized ROE was over 18%.

I should mention that in the quarter we successfully completed our Sarbanes-Oxley 404 certification filing. It was a tremendous effort involving our entire organization. While I believe that in general Sarbanes is too costly, prescriptive and overly burdened with process, it has in fact made us a better company. I encourage the SEC's recently announced efforts to refine the Sarbanes process.

Again, turning to the underwriting environment and our growth in the quarter; Globally Property rates continued to decline an average of about 10 to 20%, the larger the risk, the bigger the decline. Casualty pricing on an exposure adjusted basis was off between 0 and 10% and I'd say the same about D&O and E&O, the rate pressures in the UK and Europe were even greater with rates off 10 to 20%.

Casualty excess layer pricing was under greater pressure than the primary. The higher you move up the program the more competitive the pricing. To me, this is a reflection of competition from underwriters who have little else to offer but capacity.

Our North American operation experienced good growth in the quarter, primarily driven by our Risk Management, Crop insurance, Workers' Comp, Medical Malpractice and International Risk businesses. Most other classes, particularly Excess Casualty, D&O and Property were flat to down. Submission activity was up across the board, although close ratios continued to decline.

Our Overseas General operation was a mixed bag and reflects what I think was good underwriting discipline. ACE Global Markets, our London wholesale business shrank by about 15% due to Property, E&O and Financial institutions pricing. We chose to walk away from a lot of business rather than simply follow the market. The same is true for the London retail market where competition across the board has heated up.

On the continent, in Asia and Latin America, we experienced reasonable P&C growth of between 5 and 10%. Our Personal Accident business had excellent growth globally and net premium was up over 20% for the quarter led by Asia and Latin America.

Turning to ACE Global Re, in the main, the reinsurance market has shown more discipline than the primary market and particularly in Casualty related classes. With that said, certain Casualty related lines are on the edge in terms of risk/reward and there is less business meeting our standards. Property related lines and particularly CAT has also become more competitive and we've chosen to again walk away when we cannot justify the returns.

In general, speaking like in general terms, whether speaking about the retail, wholesale or reinsurance business as far as venue goes, we find London more competitive than the US and Bermuda market. I believe the changes taking place in our industry particularly in the brokerage marketplace will play to the advantage of ACE, given our global and local reach and our breadth of products. More business will be transacted locally by a greater number of brokers. We're well positioned to capitalize on this changing market.

Finally, we are actively involved in the asbestos litigation efforts -- legislation efforts -- excuse me. In fact, we are conducting this call today from Washington, DC. The current bill as it stands requires a number of important changes in order to win our support, and we're working hard to get those accepted in the next draft. As things stand, there is never been a better chance of getting good trust fund legislation passed. We are supportive of the efforts being made by members of the senate. At this point, just stay tuned.

Let me turn the call now over to Phil and then we will come back to questions.

Thank you, Evan and good morning. Today I will highlight major items related to our balance sheet and our earnings and I will also update our guidance. This quarter is a record in our income excluding realized gains and losses with a growth rate of 7% over the first quarter of last year. To put that in context, if we adjusted last year to our current ownership of AGO, our growth rate would have doubled. Our P&C combined ratio was 89.2%. This includes 29 million of prior-period development and 3 million of CATs. Excluding these losses, our combined would have been 88.1 versus 88.7% in the first quarter of 2004 on a comparable basis.

Our net prior-period development came principally from the North American segment and related mainly to losses from one specific account. Since year-end 2004, our net loss reserves have increased approximately 560 million. Our operating cash flow for the quarter was very strong at 1.2 billion. We continue to increase the earnings power of our now almost 28 billion in cash and invested assets.

Now I will turn to our balance sheet. Our book value continued to grow during the quarter in spite of a rising interest rate environment. In determining our book value, our net income of 433 million was partially offset by net unrealized losses of 270 million relating to rising interest rates and other adjustments including dividends. Net of these adjustments, our book value grew 129 million or 1.3% for the quarter. The significant rise in interest rates had a relatively small impact on our portfolio due to our management of the portfolio's duration. During the quarter, we decreased our duration from 3.4 to 3.1 years to reduce sensitivity to interest rates.

During the quarter, we also identified approximately 3.2 billion of our fixed income portfolio, which we intend to hold to maturity as part of our investment strategy. This is now reflected in our GAAP financial statements.

In addition to growth in shareholders equity, we have continued the reduction in our reinsurance and financial leverage. Since year-end, our reinsurance recoverables have decreased 646 million. Our reinsurance leverage, that is our recoverables over shareholders equity, dropped to 146%, down from 155% at year-end and down from 219% at the beginning of 2003.

During the quarter, we successfully completed a novation of approximately 600 million in seated reserves, relating to CIGNA. This transaction completes the return of this business to CIGNA, as was intended, under the 1999 purchase agreement. Through our management of recoverables, our current retention ratios and our growth in capital, we expect to continue to reduce this leverage.

Our financial leverage has also decreased. As of March 31, our debt-to-total-capitalization ratio was 16.1% and our debt plus trust preferred to tangible equity was 32.7%. These ratios continue to be below the average of our peer group and we remain very comfortable with our financial leverage.

With respect to our guidance, there are two areas I would like to comment on. First, we have said that our investment income will be in the range from 1.140 billion to 1.160 billion. We now believe that investment income will be in the high-end of this range.

Second, we have said that our tax rate will be between 23 and 25%. During the quarter, we recognize an $8 million benefit under the American Jobs Creation Act. The act provides, among other things, tax relief for dividends paid by our foreign operations to the US. This benefit lowered our tax rate to 21% for the quarter. We believe it's too early to change our full year guidance for taxes since this estimate is impacted by the mix of earnings in taxable and non-taxable jurisdictions. We'll update you as the year progresses.

Finally, during the quarter, S&P has removed their CreditWatch and affirmed all of our ratings. Our balance sheet continues to gain strength, and we are well positioned for continued profitability and growth in book value.

With that, I would like to turn the call back over to Helen.

Thank, Phil. At this point, we would be happy to take your questions.

Thank you. Once again, in order to ask a question or make a comment, please press "star" followed by "one" on your touchtone phone.

Our first question is coming from Ron Frank of Smith Barney.

Good morning. A couple of things, if I could. First, Evan, you mentioned softness in the D&O market a couple of times. And there's a pretty interesting divergence of viewpoints on that market right now. And I am wondering, if you could elaborate for us on what you're seeing there? And second, is there any update you can give us on the status of the sales of the two Brandywine units and/or the protests related to that?

Yes. Ron, I think I mentioned D&O really once. And I believe I said that the rates in the US are 0 to 10 off.

Okay.

And it varies by whether you're talking large account, major account, or you are talking mid market. Mid market public company has been more competitive.

In the D&O major account business, the rates have been flattish, which, you know, there is just not that much business moving around. And we refuse to reduce pricing from where pricing is right now because that simply to us would be business that would not meet our standards at that point. So, it's at a level where I don't see it really declining in the large account business but there's not any room to -- there is really no room to move.

On the Brandywine side, things are on track with the sale, as we see it right now. We've just finished -- the state is going through their prescribed method for handling these matters. There was a comment period for all interested parties to make comments. They had all been made and then the company, the seller, and the buyer have to respond to comments that were made and we have done that. And we are in discussions with the department in this formal process. There may be a hearing that will take place as a next step. My sense is, we're on track and our outlook about -- for completing this has not changed. And I believe it's a transaction that could be completed by the end of the third quarter.

Okay. One follow-up, if I could. You mentioned that you're seeing competition in the higher layers in excess liability. And that interested me because my recollection from the last soft market was that the competition started in the lower layers because that's where the premium volume was. And it was sort of an issue of chasing the denser premium that comes with the lower layers. And that as a result, both you and XL kind of got chased up to higher layers. You seem to be indicating that the reverse is happening now. And I was wondering if you could elaborate there a little?

Well, Ron, the market overall is softening. And so it's not simply that the primary layers are staying firm and the excess layers are softening. It's all softening. But it's -- you see a greater impact at the excess layers. And the reason the market is structured differently today. Bermuda is a major market and you have many more players who have capital and don't have a lot of reach beyond that and so they are capable of providing capacity. And they are chasing -- but they have a harder time competing on the primary business where it requires a lot more infrastructure to support it.

Okay. Thanks a lot, Evan.

You're welcome.

Thank you. Our next question is coming from Charles Gates of Credit Suisse First Boston.

Good morning, Charles.

Good morning. To what extent do you believe that there will be a third investigation of your relationships or your operations when you worked for AIG?

You know, Charlie, I can't speculate on that. That's a question to ask the regulators. And I really can't tell you any of that. I sit here pretty comfortable, frankly. And I am focused on my business and I am focused on ACE. And I don't spend my time really thinking about that. We have no indication that I am the focus of attention.

Okay. My second question, on the State of Connecticut website, they have this civil suit, the Blumenthal suit against the company. Is there any comment you can offer on that?

Well, Charlie, we made a comment back in January, as you will recall, where we believe that that suit is without merit. And we are fighting it, and we will fight that. We will fight anything that we think is without merit. Where we have made a mistake, we will recognize it, we will stand up to it, we will clean it up, and we will make our company better. But where it is groundless, we will fight it. And that's how we feel about this.

Thank you.

You are welcome.

Thank you. Our next question is coming from Michael Lewis of UBS Securities.

Good morning, Michael.

Good morning, Evan. I have a few quick questions. Could you give us a little more detail on your strategic initiative in your ACE North American operation? I understand you want to broaden your regional presence, I understand you want to basically add product and basically got to get more submissions. You said your submissions are up, but you really didn't give us any real detail on the product broadening, on the regional office network expansion, and the submission activity. That's my first question. Can you address that first?

Sure. Charlie, I think I gave you a little flavor of it, that you can see that the Michael, I'm sorry, that you can see the broadening of products because look where our growth came from, beyond risk management, which has been a mainstay of our company for many, many years.

Our medical mal business, which has been -- we've had for a few years, experienced nice growth in the quarter. And we think the underwriting makes sense in there. Our work comp initiatives were bearing fruit this quarter and continue to grow, our environmental business has been growing.

So across the board, the products that we have been planting the seeds for the last couple of years, they've been showing themselves and they continue to show where we see that we like the underwriting. And as far as, regional presence goes, our regional presence -- we're pretty happy with it and we're not really adding a lot of resource now. We add a few here and there, where we see an opportunity. It's a product we're still filling out. But other than that, as I mentioned last year, we had slowed that down dramatically in the third quarter because we really achieved what we needed to achieve.

As regards to submissions, I'll add a little color to that. Total submissions in the US -- in USA and I'll distinguish that from Westchester. I'll give you Westchester also because remember, we didn't just build out USA, our retail brokerage. We really worked a lot to build out Westchester, our wholesale brokerage, as well.

Last year, in the first quarter, ACE USA received about 6600 submissions. And that continued to climb through the year. It is seasonal there but seasonally adjusted it climbed. This year in the first quarter, that 6600 grew to 10,900. The total submissions in Westchester in the first quarter last year, was 21,125 and that was up from 17,000 in '03. In the first quarter this year, the submission activity was up to 27,300. So submissions continue to go up. And obviously, our close ratios on business continued to decline in line with selectivity. We are quoting less of what we see, and then we're binding less of what we close.

Great. Just two quick follow-ups. Number one, on the issue of guarantee you sold off I think 65%.

Yes, sir.

So why keep 35% is one question and number two on the internal investigation, you said it's underway regarding finite. When you expect completion on that?

I'll take that one first. I really can't make any more comments about that. Our own internal -- except I'd say this. I think our own internal investigation should be concluded in about a month's time. And don't hold me to -- don't mark your calendar for an exact day, please.

Sure.

But in that timeframe. On AGO, when we sold down 65%, we did we are very clear to make the comment that we're holding 35, because we have the confidence in that business as an investment for ACE. And in the management's ability to execute its business plan and that it would ultimately show itself to be a good investment. And though, we don't preclude ourselves from and didn't at the time from divesting overtime of our remaining share, our view hasn't changed to that, Ron.

Thanks. It's Mike.

Right. I'm sorry, Michael.

Let Charlie question...

I'm about 10 seconds slow today.

Thanks Evan.

Thanks.

Thank you. Our next question is coming from Mark Lane of William Blair & Company.

Good morning, Mark.

Good morning, Evan. Three questions, first of all, just to clarify, so the legal expenses, the $30 million that you identified, is actually an estimate and an accrual for future costs, so you would not expect anything to hit the income statement over the next few quarters?

You got it.

Okay. And then...

I hope beyond a few quarters.

Okay. The loss ratio within reinsurance -- the loss ratio seemed to hold in -- within Insurance North America and Overseas Gen and even if you kind of do it back of the envelope estimate for product mix changes, it seemed like the loss ratio in reinsurance have crept up a little bit relative to the other two segments. Is there anything specific going on there or?

No, it was a mix of business you got that right and secondly last year we actually in Bermuda in the CAT business ran, I believe a negative loss ratio, because we had some reserves from prior CATs that just ran off a little bit redundant. So there was a little noise from that, it wasn't a lot. But that would make the difference there.

So everything else equal pretty stable on.

You got it. Very stable. We understand this business and we're managing it conservatively.

We have a supplement to that $13 million prior periods benefits in the first quarter of last year. So that would distort the relationships.

Within reinsurance.

Right.

Okay. Just then one last quick clarification regarding the finite discussion. Is this internal investigation is this your first formal internal investigation, or had you -- when these issues had kind of come out more broadly, hadn't you taken a pretty good look at your exposure in finite at some point?

Yes, we did. We looked at the transactions and I believe I said that over -- I want to say 18 months ago, approximately. We had had both outside counsel and our own internal group on both accounting and legal take a look at it. We looked at the transactions. We're now going much and on the face of them, we were not concerned with anything.

And now we're doing an investigation that goes a step further. It's looking at all of the documentation, including all of the e-mail correspondence, et cetera, that might surround any of those transactions. Okay. And place a different color on them so we're looking in every [frickin’] corner.

Okay.

Okay?

Thanks Evan.

You're welcome.

Thank you. Our next question is coming from Paul Newsome of AG Edwards.

Good morning, Paul.

Good morning. Just back to the finite? Are you still writing finite or is that market shut down?

No, we're writing it. It is very slow, as you can imagine. But we are writing it. We have formal corporate guidelines for doing this. We have a committee of both legal and accounting that reviews all transactions done, and that committee reports to me and to the Board on a quarterly basis. Our units in the US and in Bermuda continue to do. They're open for structured product transactions, and we continue to believe -- and I firmly believe that these products will have a place in managing risk and a proper place in managing risk. And, so there you go. It continues to generate income and revenue, but it's very slow.

Separately, as the topline begins to slow, have you rethought your general strategy as to how to use capital in terms of stock buybacks, acquisitions? Are you still pretty much holding to your current philosophy?

Our current philosophy doesn't preclude. We've left all options open to ourselves. However, what we have said, and it's true, we really -- this slowdown is basically in line with our thinking, Okay? It's not beyond what we projected to ourselves. When we look at our capital requirements and our views of capital, we had a pretty good ROE. We think that we don't sit with excess capital.

All right. Thank you very much.

You're welcome.

Thank you. Our next question is coming from Jay Cohen of Merrill Lynch.

Good morning, Jay.

Good morning. Actually my question was asked, so I'm all set. Thank you.

Thank you. Our next question is coming from Tom Cholnoky from Goldman Sachs.

Good morning, Tom.

Hi. Good morning.

Good morning, Tom Cholnoky.

Thank you, Evan. Just two quick questions, and help me out, I'm slow this morning as well. Was there any impact of the novation on your numbers at all that we would see?

No. The only thing you would see is the reduction in the asset and liability.

Okay. But, so no income statement (multiple speakers) premium or anything?

That's correct. Good question.

And then, in terms of the net to gross, that continues to climb. Is there a level -- I mean, do you expect that ratio to continue to climb throughout the year? And is there a -- how should we think about your leverage of surplus?

If you're looking at net to gross over the year, I mean, it bounces around. One of the things you're seeing in this period is that we paid about 165 million of storm claims.

I'm talking about net premium...

I know, I'm sorry. I am -- you know what, I think it will bounce around a little bit, but we're in the range of where our net to gross will be.

Okay. So you don't expect that to...

I don't expect a dramatic change. It can move within a point or two..

And having said that, what are you seeing in terms of the buyers of reinsurance in terms of their willingness to retain more risk?

They are looking at pricing and they are willing to retain more risk, because of pricing or because of their own view of net premium. There are -- there is also -- it's not simply buyers to retain more risk, there is a little more appetite in the reinsurance market in chasing the same risk. So, you can have a little pressure on signings of share. So you have both of those going on to a degree. But that, the buyer appetite, didn't -- hasn’t had a material impact on us.

Okay. All right. That was it. Thank you.

You're welcome.

Thank you. Our next question is coming from Ken Zuckerberg of SuNOVA Capital.

Good morning.

Yes. Good morning. Evan, just a point of clarification with regard to the finite investigation, and I don't want to beat a dead horse, but just want to ask a question. Does this cover any former units that the company has divested? And, in particular, does it go back and look at any inter-company transactions that may have been done with Assured Guaranty or former subsidiaries of Assured?

I’d really rather not. Don't read anything into this, but I have to shut off the comments and questions on finite.

Okay. Thank you.

Don't read anything into my comment. There's nothing dark in there.

Okay. Thanks very much.

You're welcome.

Our next question is coming from Ron Frank from Smith Barney.

He's back.

I tell you. Evan, I apologize if you did this already, but you mentioned the terms and conditions were loosening somewhat in property and that you'd talk more about that later. If you did, I missed it, and I was wondering if you could elaborate? And also, there was a nice pop in the life reinsurance earnings in the quarter, I believe it was the best quarterly number you've ever had, and I wondering if we could get some elaboration on that?

I didn't comment further on terms and conditions, I commented on rates, so good question. Terms and conditions, particularly in property, we're seeing behavior that concerns us. We're seeing deductible erosions, we're seeing business interruption, waiting periods, changes, we're seeing supplier extensions, wordings changes in coverage provided, and the contingent BI area. Those are worrisome, and it's particularly in property. You see offshore energy, which is another kind of property related area, is in pretty good shape, but onshore energy is soft. And there we see terms and conditions, particularly deductibles on the loosening.

So sort of de facto giveaways of additional coverage...

It absolutely is, and we do it, and you hit it. We do a risk adjusted on rate. We insist on that with the underwriters, obviously, or you're kidding yourselves. You know the stroke of a pen on some of those wordings can have much more power than a little bit of rate. Your second question?

On the life?

There is nothing unusual in the life. We're doing the same business. We're not really growing it in terms of new accounts because we do risk-manage, how much exposure we're willing to take. You're getting a buildup, which we have projected of volume because you write the same contracts continue to give you business as you understand how that business works for years to come because you write a portfolio for a client. All the customers, all the individual policyholders that you attach cover for, you continue to collect premium on them year-on-year. So it has a natural accumulating effect.

We continue to book the business as conservatively as GAAP will allow us. In fact, we argue with FASB and argue with the auditors. We would like to book it more conservatively. So we take it right to the line in terms of being conservative in the accounting of the business. I’m comfortable. It is steady as she goes.

Ron, you'll see that the swing was really just a small increase in earned premium, perhaps 6%. And then, we had an improvement in our benefit ratio, but very small. Net growth was about $6 million.

So it sounds like there's really just a lot of leverage and small changes given the size of the book in terms of the earnings?

No platform base.

You said it better than me.

Okay. Well, that wasn't my intention, but thanks.

Thank you. As a reminder, for any additional questions or comments, you may press "star" followed by "one" on your touchtone phone. Our next question is coming from Brian Meredith from Banc of America.

Good morning, Evan. Good morning, Phil.

Good morning, Brian.

Couple of quick questions for you; the first one, expense ratio benefit in the quarter from the lack of contingent commissions, PSAs?

Let's see, we went through this. And what I'm going to tell you is if you take the PSA that we accrued in the first quarter last year, and you took also that we had Sarbanes costs in the first quarter of last year that we didn't have this year, okay, and you normalized for that and you also normalized for the investigation related legal expense we had this quarter. Okay? The improvement in our expense ratio is about 7/10ths or 8/10ths of a point year-on-year, normalizing for all the noise.

And that's P&C. You follow me?

Yes. Absolutely. The second question is, if I look at your -- I would call, action your combined ratio, I mean I've excluded the onetime legal expense adjustment; it runs, I think, in 87.1 right now, and looking at what your guidance is for the year, to me that looks like you're assuming some pretty substantial deterioration in your combined ratio over the next three quarters. Is it that, you know, loss costs are significantly higher than what's going on with pricing right now, or is there something else that I'm missing there?

No. I mean, firstly you've got CATs that will -- that we assume we're going to have over the next three quarters, and we really had an absence of any CATs in this quarter. Secondly, international has just run so well, you know, that bounces around a little bit by quarter. There's a little bit of noise in there. You can't project every quarter exactly that it is going to be the same, because we look back on a period of time and we take what you assume the loss ratio to run over a given period. Within that there will be a little up and down. And so, nothing sort of -- those are really the two answers, if it makes sense to you.

Yes. Absolutely. Thank you.

You're welcome.

That does conclude the question and answer portion of today's call. I would like to turn the floor back over to management for closing remarks.

Thank you operator, and thank you everyone for your time and attention this morning. We look forward to speaking with you again at the end of next quarter. Thank you, and good day.

That does conclude today's conference. You may disconnect your lines at this time and have a wonderful day.