丘博保險集團 (CB) 2007 Q2 法說會逐字稿

Good day, and welcome to ACE Limited's second quarter 2007 earnings conference call. Today's call is being recorded. (Operator Instructions)

At this time, for opening remarks and introductions, I'd 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 June 30, 2007 second 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, exposures, losses and reserves, and reinsurance recoverable. 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 would also like to remind you that this conference call and its contents and any tape, broadcast or publication by ACE Limited is the sole copyrighted property of ACE limited and 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 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, Chairman 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 is my pleasure to turn the call over to Evan.

Good morning. As you can see from the numbers, we had a very good second quarter and an excellent first half of the year.

Second quarter earnings were strong with after tax operating income of $664 million, or $1.98 per share and that is a 15% increase over prior year. We had a combined ratio for the quarter of 87.6%. And as you have seen, these results include a pre-tax charge of $88 million for CATS attributable to the floods in northern England, Australia and the Midwest of the U.S. The U.K. floods were approximately $59 million of the $88 million.

We had $40 million of pre-tax benefit from prior period development, all from recent accident year short tail business. Net investment income was quite strong, increasing 21% over prior year to $471 million and operating cash flow for the quarter exceeded $1.1 billion. Our cash in invested assets now stand at approximately $40 billion.

In spite of the mark-to-market impact from interest rate movements, we continue to grow book value in the quarter, and year to date it has grown over 6%. We are confident in our ability to grow book value at a reasonable rate into the foreseeable future, softening market conditions notwithstanding.

Our annualized ROE was 18% for the quarter which speaks in our judgment, again, to efficient use of capital, and our balance sheet is in very good shape. Phil will comment further on key balance sheet and income statement items in a moment.

Revenue growth was essentially flat in the quarter. Net written premiums, overall, grew 1%. And this was a reflection of market conditions and our stated discipline to maintain a reasonable return on underwriting.

Our insurance business grew roughly 3% in the period, while reinsurance business shrank 20%. The environment for reinsurance, particularly casualty and non-CAT related property areas continued to grow more competitive. I might add so did the CAT-related quota share business for Florida takeout companies. There was also less demand for Florida quota share CAT capacity, so we shrank reinsurance at a modestly faster pace than expected. We had expected a contraction closer to 15% this quarter.

Our CAT-excess business in Bermuda had a good quarter and U.S. wind-related rates held up well. The 3% increase in insurance revenue is a relatively good performance given current market conditions and speaks to our ability to take advantage of growth opportunities worldwide. The 3% increase reflects 5% growth in our worldwide retail business, U.S. and international, while our wholesale and E&S business shrank globally around 8%. This pattern of retail versus wholesale is as expected, given global conditions.

Speaking of conditions, rates continue to soften around the world, broadly in-line with our expectations. The rate of decrease has accelerated in some cases in the second quarter. There is a continuing disparity between renewal pricing and new business pricing with the latter clearly more competitive. Beyond P&C, our international A&H, or personal accident business, continues to do well, growing 19% for the quarter. And our life business is growing nicely and tracking according to plan.

Regardless of market conditions, we remain focused on expense discipline. Our operating expense ratios are holding steady and in some cases actually improving. Our entire organization is sensitive to this issue. The more efficient we are, the more flexibility we have to invest in our franchise and the more competitive we can be in pricing.

New products are the lifeblood of a company like ACE. And this includes product delivery efforts that address global trends and issues. One such issue is the growing demand for energy in all regions of the world to continue supporting economic growth and the middle class life style. ACE is well-positioned to capitalize on this long-term trend, so yesterday we announced the creation of a new international Energy and Technical Risk division with dedicated underwriting and marketing capabilities on the ground in Europe, the Middle East, Asia, Latin America, focused on both upstream and downstream energy activities.

We are not new to these classes of business. In fact, we are among market leaders. We are simply better focusing our resources and delivering them locally around the world. Earlier in the second quarter, we launched a Mergers and Acquisitions Practice group that addresses the insurance needs of private equity firms and their portfolios of companies.

We will shortly announce a global construction business unit to focus our resources on the rapidly growing commercial construction and infrastructure development taking place in so many parts of the world. Additional global product and industry practice areas are in development and will be announced in the future. With that, I'll turn the call over to Phil, and then we'll come back to take your questions.

Thank you, Evan. Good morning. Our results for the second quarter were consistent with our expectations and included high quality earnings, strong operating cash flows, continued reduction in our leverage ratios and book value growth in spite of rising interest rates. Our book value grew by $225 million for the quarter, even with unrealized losses in our portfolio of $380 million after tax. For the first six months, book value grew by $900 million, or 6.3%.

Our exposure to subprime mortgages is negligible and we hold no CDOs in the portfolio. We have had no impact to date from problems in this market and we do not expect any. The credit quality of our overall residential and commercial mortgage-backed portfolio is AAA.

Our high yield fixed income holdings have a credit quality at the upper end of the range. These holdings represent a very diversified portfolio of corporate bonds across 500 issuers, are actively managed and are not held in credit structures. The average credit quality of our overall portfolio remains at AA and as interest rates rose, the average duration of our portfolio extended modestly from 3.3 to 3.7 years.

Our debt to total capital has decreased to 12.2%, down from 14.8% last quarter. Our reinsurance recoverables to equity continue to decline from 102% at year end to 93% at June 30. We continue to closely monitor our CAT accumulations around the world and have significantly reduced our U.S. wind exposure since the 2005 storms. Our aggregate 1 in 100 U.S. wind PML, net of reinsurance is $1 billion, which would translate to an industry loss of $125 billion. If the 2005 level of CAT activity were to recur our net losses on an as if basis, would be approximately 30% lower.

Our capital adequacy position remains strong, given our current ratings. We do not believe we hold excess capital of any significance. As we have said, if we find we are holding significant amounts of excess capital, and cannot foresee an ability to deploy it profitably over a medium-term horizon, we will consider alternatives, including returning it to shareholders.

One other item in the quarter. In the North American segment, we had a $16 million release for a bad debt provision, principally for a specific reinsurance recoverable we now expect to collect.

We are updating our 2007 earnings guidance. We now expect that our earnings per common share will be in the range of $7.15 to $7.50 with earned premium growth in a range of 2% to 4% and assumed net CAT losses for the second half of the year of $300 million. Now, I'll turn you back over to Helen.

Thank you. At this point, we'd like to take your questions.

The question-and-answer session will be conducted electronically. (operator instructions) We'll take our first question from Joshua Shanker of Citigroup.

Good morning. Congratulations on the quarter.

Thank you.

My question involves your perception about what is excess capital and how you'd come to understand that at ACE? And talk about perhaps using that going forward?

Well, I'm not going to pin it to a number. But I would say this. The way we think about excess capital, we look at what the required capital is by the rating agencies, to begin with, to be able to conduct our business and maintain our ratings or hold capital to a rating we think is appropriate.

And then we look at the future growth prospects, both internally generated or acquisition-related over what is a foreseeable time horizon for us that you could have some confidence in. And I have stated before, and Phil has as well, that we look at a time horizon there of, let's call it, somewhere between 12 and 24 months.

And where do you think you stand right now in terms of excess capital? Or can you put any color around that?

Well, I think Phil just did. I think what he said to you was that if we hold any excess capital, it is a modest level. We are not holding excess capital of any significance.

So can I interpret that as that your current rating generally is in-line with where you are? That is a correct statement? You would need significantly more free cash flow generation in order to either consider ratings upgrade or some sort of capital management opportunity?

Well, understand that ratings are based on more than just capital. And there is a whole host of things, including the composition -- the total composition of your balance sheet. And so it's a more complex answer than simply capital-related when it comes to a rating.

Thank you very much.

You are welcome.

Our next question comes from Jay Gelb, Lehman Brothers.

Thank you. I had a couple of follow-up questions on the guidance. In order to allow us to square our models out a little bit, if you would be able to give us your updated views on net investment income, the combined ratio range, and the tax rate related to the stated raised guidance, that would be very helpful?

Jay, as we said, we've selected a style of earnings guidance. And we're going to stick with that. The elements we have given are the elements we're going to give and we think you can make a reasonable estimate from what we've given you.

Okay, and then I was hoping, Evan, you could talk a little bit more about the accident and health business. That's a big growth area for ACE. If you could talk about the supply and demand components of that business and also, if you can, some of the profitability trends, at least qualitatively?

Yes, you know -- yes. Thank you. I will do that. One of the -- I had read some comments that some of you had written based on our, first blush, based on our earnings release. One of the comments asked the question what inning are we in, in terms of accident and health. And I found that an interesting question. So I'll frame -- I want to answer that question. You didn't exactly ask it. I'd say we are about in the second inning of that ball game.

I don't see, frankly to me, I don't see in the long-term horizon any reason that business just wouldn't continue to grow. We compete for the distribution. But after that, it's a matter of marketing to the customer. And the predominant growth is occurring, as we've said many times, in Latin America and Asia, where there is just tremendous scope to continue to develop the market as it is. And the market is expanding every year because the middle class is growing in all of these countries.

Distribution vehicles are becoming more sophisticated and more effective, whether it is financial institutions or department stores or utilities. We have great scope in terms of our own capabilities and the mechanisms we have built and the people. We have the products. And frankly, so much of what we're doing today is not because we are opening up a new territory or we're just entering something. We've built the apparatus and we just incrementally add onto the apparatus as we market into the potential customer bases in each of those countries.

It's mostly direct marketing-related business. Telemarketing, some direct mail. It is mostly personal accident and some supplemental health business. And you know, I was just in Chile and Peru in the last two weeks, and as you may know, we bought a little company in Peru in December and that is just -- there is an example of a market on the back of commodities that is just growing very significantly. The middle class is emerging and that business is about accident and health, that little company we bought. And it's not only meeting our expectations, we see in the medium-term horizon how it will succeed in a significant way, and that is just a tiny example of what's taking place in so many countries around the world in this business. We have a franchise in that area.

So most of that accident and health business shows up in the Overseas General segment?

It does. There is a portion of it in the life segment, as well. We're also, in our life business, we have complemented the accident and health business now with simple life products that are beginning to launch in certain areas. Some areas we launched them awhile ago and some we're beginning to and that will be simple credit life and health to go along with it.

And in some places, the life side is, in fact, bringing in distribution for the life. So they do the A&H, as well. So we grow it in both areas. I might add those two, the general and the life don't compete. It's very -- it's seamless and complementary.

And the margin profile for that A&H business, is it typically better than the mid 80% combined ratio range you'd print in the Overseas General?

I don't want to go into that. But what I would say is it's a good -- it's a good return profile for the risk we're taking. Remember, you take less loss ratio risk, it runs a higher expense ratio; a significantly higher expense ratio because you take the marketing risk. You lay out the marketing dollar up front to get the customer. So you take a risk that will you get the responses? And will those customers stay on your books? And we measure all of that very closely for the GAAP asset. And the loss ratios run lower and the combined ratio is quite reasonable.

Great. Thanks for the answers.

You're welcome.

Our next question comes from Matthew Heimermann, JPMorgan Security.

Hi. Good morning, everyone.

Good morning.

One follow-up on the accident and health side. How economically sensitive is that business in some of the emerging markets you operate in?

You know, look. It can be if you market to a credit card portfolio and all of a sudden there is a lot of defaults in a country on credit cards, that means they'll stop billing our accident and health because it is billed on a monthly basis.

If somebody defaults on a credit card, they lose that card, well, we can lose a policyholder. Or if we market to the auto leasing clients of a leasing company in a country, and there are great defaults in that area. We can lose clients. So it can have some sensitivity. On the other side of the coin, what I find is at times when there is an economic downturn and people become more fearful, they turn to buy protection. So you can get a negative and you can get a positive, in my experience.

Okay. So the second inning comment is kind of a secular comment and there is obviously a variation around whatever that trend line is?

Yes.

Just, Phil, a follow-up question on the subprime. Can you give us the split of residential versus commercial?

Yes. Let me dimension the portfolio for you a little bit. Our total mortgage portfolio is $12.3 billion, and as you can see that is 33% of the overall portfolio. As we look at that allocation, if you look at a Lehman Aggregate Index, for example, the mortgage allocation would be in the range of 45%, so we are a bit under weight and we are comfortable where we are.

If you look at the portfolio itself, of the $12.3 billion, about $2.5 billion is commercial and $9.5 billion is residential. By the way that is all a AAA portfolio. If you look at the residential split of that, the majority of it is Freddie and Fannie. So it is, again, AAA. And all of the residential portfolio is AAA. The other thing I would mention is the sub prime exposure, the dollar amount of the exposure is $280 million for the subprime. Again, that is in non-CDOs structures and our interest in that is AAA-rated.

Phil? This is Tim. I would add to that the subprime portfolio is floating rate with a very short duration of 2.2 years. This portfolio is very broadly diversified in over 400,000 loans. For the subprime sector it has a relatively high FICO score of 633 and a loan-to-value ratio of 75%, and finally, I would make the comment that there's been a modest widening of spreads, but there's been very little market value impact on these holdings.

Okay. That is extremely helpful. Thank you. I'll let someone else go ahead. Thanks.

That was Tim Boroughs, who is our Chief Investment Officer.

Our next question comes from David Small, Bear Stearns.

Yes, good morning. Evan, maybe I could ask you a little bit more about the rate environment, in particular on the E&S on the specialty line, where we have been hearing a lot of players are trying to enter that market, and others have commented about kind of rate declines there. Obviously, you have been a major player in that market. Maybe you could just give some color on what you see?

Yes, I'm going to ask Brian Dowd to comment on that. But what I might just say to you is, yes, we do see a lot of competition, and while our property business in the wholesale area grew modestly in the second quarter, we shrank our casualty business dramatically and I'll ask Brian to comment more on that.

Yes, I think it is a clear observation there are more competitors entering the E&S business. The barriers to entry are lower. You don't need all the filings and you don't need all the offices and all that. We are seeing competition, particularly in the primary and the umbrella casualty lines. It is more than we've seen.

And, frankly, we have been shrinking both in the first quarter and the second quarter in the casualty line significantly. We have seen the specialty lines, the E&O, the D&O and the environmental hold up reasonably well, only 4 or 5 points of price decline. Whereas we've seen high single-digit and low double-digit price declines in the casualty business. And we've seen new business, particularly hard to come by, but we often miss by 20, 30 points on new business, and we've written virtually no new business in casualty on the E&S side.

Okay. And, Evan, when you say you shrank your book significantly could you give us a range of what to think about there?

Well, what I'd tell you is what Brian was just talking about, the E&S casualty, general casualty business, we shrank that real double digits.

Okay, and how much FX impact was there on the revenue growth?

Overall for ACE, the non-- the property casualty business was affected by -- the FX had a positive impact of 2 points.

Excellent. Thank you.

You are welcome.

Our next question comes from Meyer Shields, Stifel Nicolaus.

Thanks. Good morning. Two quick questions, if I can. First, should I be surprised that your retention of gross premiums has not been rising?

You have the retention ratios there by area. And what you'll see, what you see overall is for the overall ACE Group, they're fundamentally flat. It varies by line of business a little bit. But overall in the organization the retention rates are steady. We look by line and we determine, there is some areas where we determine our appetite for risk, and the profile and reinsurance terms are such that we'll hold more net and there are some areas where we are holding less net and overall it comes out that our retentions are steady.

Okay. If reinsurance rates start to decline more rapidly is that likely to change? Or is it too hard to tell?

You know what? It's hard to tell at this moment to forecast precisely. But look. We keep our eyes open for the opportunity to make the, what is the strategy that will earn the best return on the gross exposure we are taking in and provide the best return to shareholders. And if that means a greater use of reinsurance, then that is what we will consider and will do.

Okay, thanks. In terms of a follow-up, can you give any color on the relative proportions of property versus casualty in the Overseas General growth?

I don't think -- we don't break it down by division, exactly. But John Keogh, I'll ask him to comment on the property casualty business overseas a little bit and give you a sense of casualty versus property.

Sure. You know already we talked about the A&H business and the growth in A&H. The P&C business on the retail side internationally grew 7%. Looking around the world, how that looked by region in terms of our growth, maybe that will give you some flavor. U.K. we grew 5%. On the continent in Europe we are up 15%. Latin America had the strongest growth of 25%. Asia Pac was up 9%, and Japan we were flat. I wouldn't say there was any material difference between our growth this quarter in casualty versus property that I would point to.

And the growth rate John just gave is A&H and P&C together by region.

You might also note on page 4 of the supplement we do split the premiums by property and casualty.

Right. On a consolidated basis.

On a consolidated basis.

Okay. Thank you very much.

You're welcome.

Our next question comes from Brian Meredith, UBS.

Yes. Good morning. Couple of questions. Just quickly, Phil, the bad debt expense, I assume that is in the prior period development in the North American Ops?

It is.

It is, okay, terrific.

No, I'm sorry, I'm sorry. Wait a second. No it's not. We don't consider changes in our bad debt as part of prior period development. Just by definition. So it is in the results of the North American segment. But it's not considered part of prior period development.

Okay. Terrific. And then, Evan, can you comment on the loss cost environment out there? Lots of companies are talking about how favorable it is and basically saying that is one of the reasons the market is so competitive.

Yes. First of all I think you have to distinguish, paid loss trends are running quite well. Are they running -- and keep in mind, paid loss trends lag incurred trends. So you will see -- and that's something that I'm not sure there's enough focus on. Incurred loss development will pick up faster than the paids. And the paids will lag for awhile. So cash flow generally will continue positive. And that will, that to me will continue to fuel the softer part of the cycle.

The incurred loss trends have been, as we all know, quite favorable. I think we saw them in its early days. And some more analysis has to be done on it. We don't see it as a permanent trend, so we continue to build in future loss cost development and consider inflation, in-line with what we have seen historically.

We think some of the more recent years had to do with terms and conditions. And, though that's a broad statement. We do see in '06, we believe that the '06 year starts to, unlike the '03 to '05, starts to begin to revert more towards the mean. We think it's starting to develop more in-line with what you'd expect normally, so that just adds some credibility to the, what you ought to continue pricing in for future loss development in our judgment. I hope that helps you.

That is very helpful. And you mentioned terms and conditions. Any change from the last quarter, as far as loosening in terms and conditions?

On the margin. You're seeing it around the margin, more in reinsurance, I might say, is what I'm seeing than we're seeing in insurance. But there are more anecdotal examples in insurance. And we're -- it's that death by 1,000 cuts. So you be very careful.

Okay, and last question. Competition in the risk management business?

Yes, there's competition in the risk management business. And rates in that area on the renewal business was off about 8 points. New business is about 5 to 15 point differential from renewals. And there is more competition in it.

Our risk management business had growth in the quarter. Reasonable growth. In-line with the competition. And we're writing more than just the large, multi-national, large accounts. We are doing, and have been for awhile, expanding into the upper middle market, where there is risk management client profile. That is where we are getting some of our growth.

Thank you.

You are welcome.

Our next question comes from Bill Wilt, Morgan Stanley.

Hi. Good morning. I was hoping to get you to speak for a couple of minutes on the global growth opportunities that you are pursuing. Maybe it might make sense to use a tangible example the global construction caught my attention. But how do you scope out the opportunity? What return hurdles do you use? What kind of time horizon do you think about as you contemplate when and where to make an investment? Thanks.

You know, Bill, a very obvious statement. Insurance is, and growth opportunities are simply a reflection of what the commercial activity is around the world. And so we, and/or legal environment changes or regulatory changes. There's where our opportunities come from in the P&C business. I spoke about the A&H already.

First of all, I want to work backwards. When we look at return profiles, no different than when we do a risk adjusted return on any of our product areas.

We do the same thing when we're looking at any new opportunity. And if I'm looking at construction that is a combination of short-tail and long-tail classes, and so there we look at the pricing environment. Sometimes that won't tell you whether the opportunity is ultimately good or bad, so I'll take an example. Construction in the Middle East; tremendous amount of money being poured in. Let's take Abu Dhabi by itself. It's going to put a trillion dollars in over the next decade and a half to building a modern financial services center. That is a lot of construction.

Now, you may, in the short-term, in a year or two, think that the pricing is inadequate. And so, therefore, you're not going to grow that quickly. But you are measuring the opportunity over a long-term period of time. When we know the price is right we grow quickly. We plant the resource with what is in mind for ACE and that is, we have the strength globally to bring all of our products and services locally to the client opportunity.

Finding good paper that is credible, like ACE, that has both the service capability in terms of claims, in terms of engineering, in terms of local management and being able to underwrite it on the ground is a strength ACE has and it distinguishes itself from most of the others. We are then in a small pool of competitors. We view an opportunity that way and I think that maybe gives you an example.

That is very helpful. Thanks.

You are welcome.

Another, shorter one, if I may. Phil, you gave the 1 in 100 PML. What event causes that 1 in 100 PML?

It's U.S. wind and it's over the course of a year.

Thanks very much.

Our next question comes from Thomas Mitchell, Miller Tabak.

I was just wondering if there is any reason for you and your plans to even consider share repurchases? We know that the world is always excited about share repurchases. But have you so few opportunities to invest and compound your capital that you are thinking of essentially reducing your base of resources? I'm just a little confused about all this discussion of excess capital. I'm not sure excess capital is something that an insurer ever can have too much of. So I'm just wondering what your thinking is on that?

I think our thinking is pretty well-known and you haven't seen us out there announcing share repurchases. We are not going to -- and thank you for your comments. You are reflecting the other side of the coin.

And I can guarantee you we are very focused on that side of the coin, and if we were thinking of returning what you might call excess capital, we would only be doing it because we see what our future capital generation looks like, and we see in the short-term what we can do with some of that, and at some point you have to balance out what you think about dilution and ROE, et cetera. But never taking your eye off the ball that this is a growth Company, and we are going to be seeking growth opportunities, profitable ones both internal and through M&A. It's a long race and we keep our eye on that.

Thank you.

You are welcome.

(operator instructions) We'll take our next question from Jay Cohen, Merrill Lynch.

Yes, couple of questions, most of them have been answered. One other company did take a bit of a charge in the second quarter related to asbestos. I am just wondering if you could talk about the trends you are seeing there, and then, separately, your debt-to-capital ratios continue to come down to a relatively low number. I'm wondering, Phil, if you could talk about what an optimal capital structure might look like?

I'll take the asbestos. Phil will come back on debt-to-capital. But some of that is a little bit like a pretty girl.

A&E. Our paids continue to trend as expected. Our reporteds continue low and in-line with what we've expected. The historic reporteds, as you know, on a historic basis they have been trending lower and are at kind of all-time lows. And, again, all in-line with our expectations, we see nothing.

And on the environmental side, it continues to trend down. And, again, in-line with what we have expected in all of our reserving activity. So no -- nothing to report here. No event for us.

And I'd say we continue to study our capital structure, both in terms of the amount of capital and the structure of it. As you say, the financial leverages continue to drop. But we do have other types of leverage. We talk about our reinsurance leverage and we consider that all together when we decide about our capital structure and we are comfortable with where we are right now.

Great. Thank you.

Our next question comes from Tom Cholnoky, Goldman Sachs.

Good morning. Just a quick question on the U.K. floods. Obviously, it's continuing to rain there. How bad could this get for you? Do you have any sort of geographical concentrations that might make it worse or better for you in terms of those U.K. floods? And I assume that your $300 million CAT assumption for the remainder of the year includes, obviously, some provision for that. And if you would just talk a little bit more to that?

Yes. First of all, our loss -- the loss we reported for the U.K. floods is all on the insurance side. We did not have any losses on the reinsurance side from that. And that is -- I'm sorry. My colleagues are correcting me, they are saying it was $4 million on the reinsurance side. So let me be precise.

That is due to, we have a big retail book of business in the U.K. You know it is not personal lines, and it is predominantly not small commercial. It is the larger commercial business. Large and upper middle market. We are not in the agency business there, the Aviva worlds and Royal Suns.

So that is predominantly the exposure. It continues to rain there. We do buy CAT excess in our Overseas General business. And so this is all manageable from everything I know of to date for ACE. It's not of great concern.

At the Moment. The $300 million. That is a worldwide number when we look at, when we developed that CAT number. So we take worldwide events expected annual loss, and this is the portion that relates to the second half of the year.

Okay. And then I was hearing just something on the radio that these weather patterns are actually now causing fires in Europe because of the extremely dry conditions. Are you going to have, potentially any exposure there? Or is that pretty minor, I guess?

You know at this time, I don't know how to comment without knowing all the detailed facts. But I think minor.

Okay. Terrific. Thank you.

Unless it burns down a major city.

Well, that's a problem. (laughter)

Then it's a problem. Thanks. (laughter)

It appears there are no further questions at this time. Ms. Wilson, I'd like to turn the conference back over to you for any additional or closing remarks.

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

This concludes today's conference. Thank you for your participation. You may disconnect at this time.