丘博保險集團 (CB) 2007 Q1 法說會逐字稿

Good day and welcome to ACE Limited's first quarter 2007 earnings conference call. Today's call is being recorded. At the end of today's conference there will be a question-and-answer session at which time you can press star one to pose your questions.

For opening remarks and introductions I would like to turn the call over to Ms. Helen Wilson, Director of Investor Relations. Please go ahead, ma'am.

Thank you and welcome to the ACE Limited March 31, 2007 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, pricing and market conditions, renewals, closures, lawsuits and reserves, reinsurance leverage and legislative impact. 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 Web site, more information on factors that the could affect the forward-looking statements.

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

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

Now, it's my pleasure to turn the call over to Evan Greenberg.

Good morning.

We had a very good quarter and so a good start to the year. Net income for the quarter topped $700 million, a first for our Company, while after-tax operating income was a record $663 million, $1.98 per share.

Our after-tax operating income grew 39% over 2006. As you recall, last year's first quarter included a $66 million after-tax investigation related settlement charge. After adjusting for the impact of that charge, our net operating income growth this quarter was 22%.

Quality of earnings was very good with underwriting and investment income each contributing about 50% to our operating income. Our underwriting benefited from very good short tail lines, current accident year results and modestly from short tail lines prior period.

Net investment income increased 22% over prior year to $451 million. We had strong operating cash flow for the quarter of approximately $1.2 billion and our cash and invested assets grew to almost $39 billion.

Shareholder wealth measured by tangible book value per share grew 6% and our annualized ROE was 18.5%. We're continuing to deploy our capital efficiently.

It wasn't an uneventful quarter for natural catastrophes and ACE had a modest level of CAT losses for the period. $34 million pretax stemming primarily from the tornadoes in the U.S. and the windstorm Kyrill in Europe.

P&C net written premiums overall were down 2% and adjusting for foreign exchange were down 4%. Our P&C insurance businesses in aggregate grew 2% while our P&C reinsurance business shrank about 21%. Premium growth was consistent with market conditions and our drive to maintain discipline.

Let me make a few comments on both the insurance and reinsurance markets. Soft market conditions continue and rates are declining at a moderate pace in both short tail and long tail lines.

Overall for our P&C renewal business globally, the rates are off about 4%. As I continue to emphasize rate of decline varies widely by line and by territory.

New business pricing is more aggressive than renewal pricing and again, varies depending upon line and territory. Overall new business pricing is about 8 to 10% lower than renewal pricing.

I believe we are focusing on the right management actions. First preserving our in force book, the book we know and second, driving for growth in those areas of our business around the world where we still see favorable underwriting opportunity, while shrinking where rates or terms are inadequate.

New business volumes in this quarter versus last year are down in the U.S. and flat internationally. Our retention ratios are holding up reasonably well. We're closely monitoring new versus renewal pricing and comparing that to the pricing contemplated in our loss ratios.

In this environment we're particularly focused on these measures. I might add we are also actively monitoring terms and conditions which are for the most part holding but beginning to come under greater pressure.

Overall around the globe, opportunities for growth are offsetting the substantial portion of the competitive headwind we face in major areas of our business. Again, broadly speaking in the U.S. retail, our middle market and large account specialty casualty businesses are experiencing growth as are our energy and commercial property and A&H businesses. On the other hand, our workers comp and marine businesses are down from prior year.

On the U.S. wholesale side overall, our E&S business is down. Again, specialty casualty and property are up, while general casualty and inland marine are down due to severe, and I might add naive competition, and a general downturn in the construction industry. Our crop business also had an excellent quarter, and this is part of our E&S business.

Turning to the international side, our retail property and casualty lines grew mid single-digit and our A&H business continued to grow in the mid teens. Looking at our retail premium volume by territory, the U.K. was flattish, continent of Europe and Latin America were up, Asia, excluding Australia, was up slightly and Australia was down.

ACE Global Markets, or our U.K. based international wholesale or E&S business is down from prior year. In London by the way, we are seeing an increased level of competition in both the Company market and the wholesale or subscription market. Lloyds has become noticeably more aggressive of late in long tail lines and that effect is being felt particularly in the U.K., U.S, and Australia.

John Keogh and I spent approximately four weeks of the quarter in Latin America and Asia. I'm as encouraged as I've ever been about the opportunities for the Company in those regions, particularly China, Southeast Asia, Korea, Brazil, and Mexico to name the large ones.

One highlight of the quarter was the official opening of our P&C office in Vietnam which now compliments our life operations which while small are going gangbusters. I might add all of our life operations in Asia, again, while small were ahead of plan in the quarter. They're off to a great start.

Our P&C reinsurance business was down 21% in the quarter and that was for three reasons. A portion was one-time issues related to reinsures who are simply no longer in business and that's about five points of the reduction. The balance is from increased client retentions and increased competition, particularly in our U.S. operations, which is heavily E&S casualty oriented.

Our Bermuda CAT book was modestly off last year with roughly half due to competition and the balance due to increases in client retentions. I expect premiums in our reinsurance business will continue to shrink through the balance of the year but don't expect the magnitude of reduction to be as great as this quarter.

In closing, again, we've had an excellent start to the year. I'm encouraged by our earning power and the opportunities we see around the globe.

While the soft market presents the obvious challenges for ACE, we see many areas of opportunity around the globe and here our challenge is one of excellence in execution. In this regard I can tell you around here, we're impatient to continually lift our game.

And with that, let me turn it over to Phil and then we'll take your questions.

Thank you, Evan. Good morning.

Our first quarter results were very strong. We had high quality earnings and our balance sheet has continued to strengthen. Our tangible book value grew by $680 million, or 5.9% for the quarter and $2.8 billion, or 29% over the last 12 months.

Our operating cash flow was $1.2 billion. Operating cash flow has been consistently strong and has ranged between $4 and $5 billion each year since 2003. Our cash and invested assets grew $1.8 billion, or almost 5% for the first quarter and the mark-to-market effect increased the value of our invested assets by $64 million.

The credit quality of our residential, commercial and asset backed portfolios is Triple A, and as such, we saw no impact from the developing problems in the subprime mortgage market. Our duration remains at 3.3 years and our overall credit quality remains at Double A.

Reinsurance recoverables decreased by $200 million in the first quarter and our reinsurance leverage dropped to 96%, down from a high of 217% in 2002. We continue to manage this important asset. Our net loss reserves increased approximately $500 million for the quarter and now stand at $21.4 billion.

I have a few points on our first quarter earnings. First, our P&C earned premium included a net increase of approximately $145 million relating to a large risk management contracts written in the first quarter. Adjusted for this, our growth in earned premium would have been 4%.

Second, our earnings were benefited by $18 million of after-tax positive prior period development which related to short tail lines. In addition, our property experience for the first quarter was $30 million after-tax better than expected. These items together represented $0.15 per share of our earnings for the quarter.

Our P&C expenses declined by 7% over last year's first quarter. As Evan mentioned, last year's included a charge of $80 million related to the New York AG settlement.

If we remove this item from last year, our expenses would have decreased 4%, but our expense ratio would have declined from 26.4 in the first quarter 2006 to 25% in this quarter. I'm sorry, our expenses would have increased 4% if we had removed that item.

We are making no changes to our 2007 full-year guidance at this time. If necessary, we'll update it later in the year.

Now, I'll turn the call back over to Helen.

Thank you, Phil. At this point we'll be happy to take your questions.

(OPERATOR INSTRUCTIONS) We'll take our first question from David Small of Bear Stearns.

Hi. Good morning.

Evan, maybe perhaps you could give us a little more detail in the pricing environment by line, perhaps a little look at what's going on in the D&O business?

Yes. Okay. A little bit of what's happening by line. I'll give you the U.S. first. How's that?

Sounds good.

I said the overall prices are off globally around 4%, so if I break it down a little bit, D&O in particular, we saw rates off about 8% on renewals and on professional risk, or E&O, we saw rates off about 3%. Our D&O business in the quarter, by the way, shrank and our professional risk business, our E&O business, grew.

Risk management business, renewal pricing was off in the higher single digits. Medical casualty related, medical risk was off about 7%. General casualty was off about 4%.

Property overall rates were up, and particularly as reflected on the wholesale side where we write quite a bit of CAT business and CAT exposed business, property rates were up about 9.5%. Make any sense?

Yes, that sounds great.

And then just the other topic maybe you could hit on is obviously, you guys have a lot of capital. Could you just give us a sense of what your strategy would be on the M&A side?

You know, look, we said it before it is strategy, M&A is opportunistic. Really, you have to know what's your overall company strategy and you want M&A to complement your basic strategy. We won't do an acquisition simply to get bigger for size sake.

We'll do it because it makes us better, it adds a line of business or it gives us greater capability in a territory than we have today, and it has to be at the right price. It has to work economically. And look, we'll look and but the right thing at the right time.

Would you say that you would be more likely to do an acquisition abroad maybe in Asia where you're seeing a lot of growth rather than in the U.S.?

You know, given our strategy is global, we could, it could come in many sizes and shapes and it could come from a number of different territories.

Okay. Great. Thank you.

You're welcome.

(OPERATOR INSTRUCTIONS) We'll take our next question from [Adnon Alem] of JPMorgan.

Actually, it's Matt Heimermann. Thanks. A question on retention. I guess one of the things that surprised me is the net to gross relationship hasn't increased like it has at some periods. Is this just timing and you haven't gone through reinsurance renewals or is this something we should expect to stay relatively flat?

You know, it varies by line of business. Our overall mix of business was such that it came out the same. I don't expect any significant change to occur.

Matt, we look at it by line. We look at it, literally, by line, as it comes up for renewal. We look at what is the best reinsurance structure.

We know what our appetite is for retention. We have capital to increase retention but we also look at reinsurance options and whatever comes out the best economically is the decision we're going to make.

Could you just give us a flavor maybe then of what net to gross looks like by broad product category, casualty property, accident and health, just so as we are thinking about the growth rates in those businesses maybe we can actually have a better sense of where things might go?

I'd rather not go by line on what is our net to gross. What I could tell you is this: most of the accident and health business is retained. We do do an awful lot of risk management business here, that covers both property where we can do fronting business and casualty, so we can bounce around.

We more approach it as setting what is our appetite to retain risk, any one risk, or CAT, and our line retention then drives us to either place a quota share or an excess cover. But you don't really know the growth rates in our individual lines of business and so if I start going there, giving you retentions it won't help you do your work.

Okay. Fair enough.

The other thing was for Phil, did financial leverage pick up. I guess is that just working capital or should we read more into the leverage picking up?

I think we announced last quarter that we were issuing some debt during the first quarter to pay off other debt that was maturing on April 1st, so that's already been paid down and our net leverage is back to where it was.

That's right. Thank you for that reminder.

And then any changes in bad debt provision on the run-off business, given the Equitas change of ownership or given the Brandywine changes, is that not really something that we should worry about?

When we look at Equitas, it looks like our assessment of their financial condition, before Berkshire, was closer to Berkshire's than to others and so we've shadow rated them when we've done our bad debt provision to a level that makes us believe we won't have a significant change in a provision.

Okay. Thank you much.

We'll now take a question from Joshua Shanker of Citi.

Good morning.

Two questions related. One was whether or not you guys could speak to vintages of where the favorable development you're seeing is coming from, and two, whether you could talk about more in general educationally how we should think about seeing from some competitors favorable development, how we can tell maybe if it's coming right on time, whether it's premature and how we should think about that with your own book?

Well, hardly am I going to comment on competitors, and I'm sorry, Joshua, that's your job to analyze that part. With us, what we told you was, and I'm not sure I'm going to answer your question precisely because I'm not sure I completely understood it, but I'll take a stab at it and if I didn't, then ask me.

Our short tail, our prior period was due to short tail business that developed better than the loss ratio we had pegged it at, as it's running off, and that's what you're seeing benefiting the quarter modestly by $17 million. That was it.

The balance, yes, we're seeing and we've talked about this before. We are seeing casualty business in some of the medium years, I'll say the '02 to '05 years right now. They're showing signs of developing better than had been contemplated, but for us, it is too early to say whether that is a trend or that is some kind of just short-term anomaly.

And secondly, we grew our casualty books very quickly and there's a lot of risk in a new book so that goes along with it where you just don't want to interpret on that too early and you don't want to be an optimist with the casualty business.

I understand. But just thinking about the '02 and '03 years in medium to longer tail lines, typically how long after the --

Those are 10 to 15-year tail lines, okay? And more than half that, you know, and generally, the trend on long tail is you don't know much until, call it, seven years out.

Okay. That's actually helpful. Thank you very much.

You're welcome.

Our next question comes from Steve Labbe of Langen McAlenney.

Good morning.

I was curious as to what would be your updated thoughts on some of the proposals floated around in Congress and in Committee about the prospects for changes in how catastrophe risk is handled perhaps at the federal level?

Well, I'm loathed to see the fed's in the center piece of addressing CAT capacity, or CAT risk, as a federal solution. I think there are other, the private sector should play the primary role and can play the primary role.

I think the problem right now you have is artificial barriers established by states where they hold back rates and they themselves compete for risk and crowd out the private sector that in fact can play a greater role than it's playing today.

And I think where legislation ought to come in, if at all, is at the state level and at the federal level with optional federal charter to help encourage greater capacity creation by the private sector. And then once that has been wrung dry, then there may be a role for the fed's where there is a shortage of capacity or where there is loss of such a great magnitude.

You could imagine a $250 billion event and it goes beyond the ability of the private sector to handle it. But other than that, I am loathed to see the fed's involved.

How about some of the other or some of the features I've heard about as far as perhaps being able to set aside catastrophe reserves?

Well I'm a big proponent of that but I feel kind of Don Quixote-ish out there on it because I don't think there are many talking about it. I think that, frankly, that's part of creating private sector capacity because right now, it would be inability to set aside reserves, we call it all profit, and then investors call that excess capital, and that gets dividended out, and so, or it gets bought back in shares and so therefore, where is the where with all built up by the industry to be able to take more risk and I think catastrophe reserves would allow that.

Secondly, one of the big political problems right now is because of the volatility in pricing following a CAT. That's very hard on consumers. But if there were reserves, you would over time, as they built up potentially dampen that cycle of volatility and that, too, would be [salutable] to, that would be a benefit I think on the consumer side.

Do you assign a probability of better than 50% that something like that could happen?

I do not. But that doesn't mean that if it's the right thing to do, we don't work to get it done. I think in the short-term getting Congress to wrestle with something like that is very difficult.

I think they're pre-occupied with other issues and I don't think this will be a priority and in the short-term, this could hurt tax revenues and I think that anything like that is probably dead on arrival. That doesn't mean around here we won't try.

How about, I guess, staying on sort of a similar theme, how about, there's an awful lot of talk or perhaps just what I read in the papers about the insurance industry losing its partial anti-trust exemption. I'm not sure I worded that correctly. Where do you stand on that issue?

Well, there's been some talk and I believe that Senator Specter has said that he'd like to, he and others in judiciary would like to hold hearings on this subject, so look at McCarran. I think there's a misunderstanding about what McCarran does for the insurance industry, and I think as they look at it, they'll understand that we don't collude, it doesn't give us an ability to collude on paid claims or on setting together prices or terms and conditions.

What it does is, pools data so that we all, in a blind way, so that it allows those who, and remember data and insurance can be a barrier to entry. You can't really enter if you don't know how to price and you don't know how to price if you don't have data, and so what McCarran really does is make data available.

That's its primary and that increases competition in the industry and I think as they understand that, I think cooler heads will prevail. I think it's an emotional reaction right now.

Wouldn't it, though, be a positive for you all because of your size that you would actually have more data and wouldn't it eliminate smaller players that perhaps contribute to the fragmentation of the industry which facilitates cycles?

You know, I have to tell you, I think that sharing of data is, you know, you have to, I think we have to let others get on and ask some questions, but I think what you'd see is that, frankly, the law of large numbers says the more data you have, the more credibility to any of your analysis, and it's good for all of us, that sharing of data simply. So I hear what you're saying but I don't mind the competition.

Okay. Thanks a lot.

You're welcome.

We now have a question from Brian Meredith of UBS.

Good morning. A couple of quick questions for you.

First, Phil, on the overseas operations, it looks like loss picks have come down fairly dramatically year-over-year. Is that because of mix with more A&H in there or is there something else going on?

It's due primarily to short tail lines had higher loss experience last year in the first quarter than we experienced this year.

Okay.

And then generally, also with respect to North American operations, what are you doing with respect to loss picks right now? Are they relatively consistent with last year or higher or lower?

You know, look, they're trending, you have to trend them with pricing and inflation, so all things being equal, they trend up.

Okay. And then last question.

The $145 million earned premium that came in, what was the profit impact on that in the quarter? That was in North American operations.

There's no profit emerges. It's just a revenue and expense, so it goes into earned premium and it goes into losses and there's virtually no P&L.

Okay.

There's modest profit.

Excellent. Thank you.

We have a question now from Charles Gates of Credit Suisse.

Hi. Good morning.

My first question, one of you in your introductory remarks made reference to some $0.15 that you called attention to. What was the $0.15?

The $0.15 was the combination of our positive prior period development and it was the better than expected property experience in the first quarter. The combination of those two things was $0.15.

Okay. There's my first.

My second question. On the W. R. Berkley conference call yesterday, Mr. Berkley implied that they had not bought back stock and then he went on to say the reason why we haven't bought back stock in part is we expect to be able to buy the stock later at a lower price. To what extent is your absence of share repurchase in any way colored by that thinking?

Charlie, rarely am I stunned, I'm silenced but I have to tell you, if Bill said that, that he expects to buy it back at a lower price, wow. No, around here, we have no, we don't speculate about the ACE share price, and anything to do with capital management is hardly speculating on the share price of ACE. So when we think about capital management, we think about what is the capital required right now to manage our business.

And then secondly, if we do build through strong results excess capital, what would be our ability to deploy that capital over a reasonable period of time. So it might be 12, 18 months, 24 months, a period we can see, and if not, and we can't use it, then there would be, we would look at ways to return that to shareholders. That's how we think about it and we don't think about kind of arbitraging on the share price of ACE.

Thank you.

You're welcome.

At this time, we'll take a question of Bill Wilt of Morgan Stanley.

Good morning. I have a, I guess a far less interesting question than the last one.

Could you, keeping with the same kind of time frame, 12, 24 months, could you expand on the A&H business and your strategy there, plans for growth?

You know, we continue to grow it organically. That's it. It's a real on the ground operator's business.

Asia, Latin America, Europe are where we're seeing best growth. It's direct response related. I've talked about that numerous times, and we have a good management team.

We have good systems and processes in place to manage it. We have very good marketing capability, particularly call center related.

We've built up a great brand and sponsors, we're known to the major sponsors who have a brand and have a customer base that we market our product using their brand name, that's what I call a sponsor. We market to their customer base using their brand, using telemarketing ACE's marketing capability. You know, that business continues to grow and I expect it to continue to grow at the kind of pace we're seeing now and in fact maybe faster.

Would your major competitors and I guess would you consider breaking out the contribution to profit from an A&H specifically?

I'd prefer not to do that, though I have said it runs at attractive combined ratios, and what I have said as well is, look, it is about underwriting but unlike P&C, it's less about underwriting and more about marketing. And you do take a marketing risk for the pleasure of taking an underwriting risk.

So if you layout money up front, like life insurance, to gain the client, and to gain the stream of revenue, and so you have gap asset you carry and if your returns on marketing and your lapse rates aren't reasonably within what you projected then you have a gap asset exposure. We manage that all pretty well here.

Thanks. And the major competitors?

You know, they vary. We have some of the large global players, such as in AIG and then there are regional players.

Don't worry, there are plenty of competitors.

Very good. Thank you.

You're welcome.

We'll take our next question from Jay Cohen of Merrill Lynch.

I have an even more mundane question than that.

North American, the acquisition, the policy acquisition ratio was the lowest I've seen in at least several years. Anything unusual there, Phil?

Well, remember the earned premium acceleration from that one large transaction did help to distort that a bit.

Oh, I see. Yes, that makes sense.

Okay?

Great. Thanks.

You're welcome.

(OPERATOR INSTRUCTIONS) We'll take a question now from Jay Gelb of Lehman Brothers.

Thanks and good morning.

Phil, on the guidance for 2007 for earned premium growth of 3 to 5%, did that take into account the large risk management contract you wrote in the first quarter?

It would not have.

Okay.

And then just separately on the tax rate, 19% effective in the first quarter. Is that a reasonable run rate or was that depressed by anything?

I'm sorry, say that once more?

The effective tax rate of 19% in the first quarter, was that depressed by anything or is that a good run rate going forward?

It's not a good run rate. It was suppressed based on where our income emerged, our taxable versus non-taxable jurisdictions, that's just the way it happened in the quarter but I wouldn't expect that to continue.

So what would be a good level to think about?

You know, historically I think in prior years, we've given ranges in the 20 to 22% range. It bounces around quite a bit.

Okay. That's helpful.

And then secondly, in terms of the follow-up to the excess capital question, given the reduction in premiums and exposure and reinsurance, which takes up typically a lot of capital and maybe deployment into areas that require less capital, and given how much organic capital you're generating, wouldn't that put you in a pretty good position to return capital to shareholders?

Well, I think you've jumped to, you did a quick back of the napkin right there and said ACE sits with excess capital. We didn't see ourselves sitting with excess capital at this moment.

We have other things that offset on the other side. You have to understand that. We're biased, but the fact is right now, we have other issues and other items and our book is more than 50% casualty now, too, that has earned its way into the book.

I see. And then separately, Evan, could you address the industry discipline issue? You talked about how new business pricing is 8 to 10% below renewal pricing.

ACE is clearly being disciplined. Many other managements say they're following suit, but clearly someone's cutting prices on new business. Can you talk about how you think about that over the next year or two, how it may play out for the industry?

Yes. I can't call the timing of when it shows up but the fact is, is that, and look, everybody says it and that's the, you always hear that in a softening market that everyone maintains discipline and I suppose the job you guys have is to figure out who is and who isn't. But, and you'll hear this I'm sure from everyone.

Renewal pricing, I told you what it is. I told you where new business pricing is, but I'll give you a more stunning example that helps to explain it to you a little bit. I look at something that is down, a book of business that is down substantially for ACE this quarter, and that is, and I'm going to refer to this to really make the point.

Our construction related casualty business, our wholesale book in the Westchester, is a very good franchise we have and a large business. Westchester overall, our wholesale business in the U.S. overall is down in the quarter, I should say that first.

Our property is up, our specialty casualty is up, and that is offset substantially by our casualty, general casualty business in the Westchester which is heavily construction related. That business shrank about 40% in the quarter and retention rates are holding reasonably well but it's wholesale business.

Now there, our renewal pricing was down, let's call it almost zero, and, but we're losing the book to competition that is 25, 30 and 40% off of the pricing we have. That's what we see and when we look at our new business growing at 8 to 10% off of our renewal pricing, our new business is down in the U.S. and it is flat internationally.

What we're losing new business opportunities to are rates that are far more aggressive than what we're able to follow. And so what we see on some classes we can follow that 8 to 10 off of what renewal pricing is, we're seeing things that are stunning in that 25 and 30 range. Now, who it is, you guys have to figure that out.

Would you characterize it more as new capacity entering the market or capacity that's been there for a while?

You know what, that's what makes the market chaotic. That varies truly by line and by region, and it varies by month in the quarter. It's very interesting to us that the third month of the quarter is generally more competitive than the first month and the second month of the quarter.

That is interesting. Thanks very much.

You're talking about January 1 and then that's competitive, too, just like the third month of a quarter.

Great. Thanks very much for the answers.

You got it.

And we now have a question from Tom Cholnoky of Goldman Sachs.

Good morning, Evan.

Let me just go back to the capital question real quickly. I don't want to beat a dead horse here, but if we look at kind of consensus numbers for ACE and assuming that they're somewhat close, you're going to be earning well in excess of $2 billion for the next couple of years barring any major CATS, and with the prospects of a more competitive environment, how many more billions of dollars do you need to earn before you do get into an excess capital position?

Tom, as I said, first of all, the rating agencies assess capital adequacy, I'll start with that, and our ratings are important to us. Then we do our own capital adequacy measures. We do a risk adjusted return on capital for each of our areas of business.

We start with, from those two perspectives, there's where you arrive at capital adequacy. After that what you got left is excess capital, and hardly do you want to take it to the bone but then after that, as I said, we will look, I'll repeat myself if you like but we will look at the 12 to 24 month time horizon, we'll look at the market conditions, we'll look at our prospects for deploying capital that is excess, and if we don't see that ACE can use it in an efficient way, then we will look at ways to return that to shareholders.

Okay. All right. Well, I tried a different angle.

I'm not going to come to it. I know the angle but I'm not going to come to a number.

Okay. That's fine. Thank you.

You got it.

And at this time, I would like to turn the conference back over to Ms. Wilson for any closing or final remarks.

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. We thank you for your participation. Please have a good day.