Everest Group Ltd (EG) 2003 Q2 法說會逐字稿

Good day, everyone, and welcome to the second quarter 2003 earnings release call of the Everest Re Insurance.

Today's conference is being recorded at this time for opening remarks and introductions.

I would like to turn the call over to Mr. James Foster, Senior Vice President of Investor Relations.

Please go ahead sir.

Thank you good morning everyone and welcome to the call.

With me this morning as usual is Joe Taranto our CEO, and Stephen Limauro [Inaudible] our CFO.

Before I turn the call over to Stephen Limauro to review the numbers, I'll preface our comments by noting that our SEC filings include extensive disclosures with respect to forward-looking statements.

In that regard we note statements made during today's phone call are forward looking in nature, such as statements by projections, estimates, expectations and the like are subject to various risks.

As you know, actual results could differ materially from current projections or expectations.

Our SEC filings have a full listing of the risks that should be considered in connection with such statements.

Now I'll turn the call over to Stephen Limauro for his comments.

Thanks, Jim, and good morning.

I'll briefly highlight our results, then Joe and I will take questions you may have.

The second quarter was another quarter of record volume in income with operating earnings of $107.1 million or $1.90 diluted share, up 54% over the $69.7 million or $1.34 cents per share earned in the second quarter of 2002.

Net income, which includes realized capital gains and losses was $109.6 million or $1.99 per diluted share.

This was up 105% from the $53.4 million of net income recorded in the second quarter of 2002, which was impacted by write downs on our WorldCom investments.

On a year-to-date basis, operating earnings were a record $211.2 million or $3.96 per diluted share, up 56% from the $135.7 million or $2.68 cents per share earned in the first half of 2002.

Net income, also a record at $203.9 million, was up 78% from 2002.

Taking full advantage of continuing very strong market conditions and the capital we raised in April, we again wrote over $1 billion of gross written premiums in the quarter.

World wide gross written premiums on the year to date basis were up 69% to $2.07 billion.

Our worldwide reinsurance operations are up 84% to $1.48 billion while our insurance operations up 40% to $587 million.

On a year-to-date basis, our U.S. reinsurance operations are up 116% with the increase reflecting strong pricing across the property and casualty spectrum, with a particular emphasis on casualty lines.

Our U.S. specialty reinsurance operations are up 14% reflecting a more moderate growth in new opportunities thatwe've seen in the medical stop loss reinsurance, marine, aviation surety lines.

International reinsurance operating operations are up 67% reflecting strong conditions in our Asian, Latin American and Canadian operations as well as our London operation, which includes the improving European markets.

Our Bermuda operation produced $123 million of premium, which is nine times the first half of 2002 and reflects a significant shift toward more traditional business resulting from our rollout of treaty, facultative and individual risk capabilities in a market which continues to develop, even though it already rivals in New York and London.

The 40% growth in our insurance operations reflects moderating growth in our California workers' compensation writings but we're actively managing exposure growth to a very modest increase, growing contributions from the excess surplus lines business and other program business markets.

It's important to avoid putting too much emphasis on any one quarter.

Our year tends -- our view tends to focus on the full year, which we expect should be upgraded 50% on a gross written premium basis, with the ultimate level dependent on the opportunities we see.

Net written premium is up 67% year-to-date and given our modest retrocessional programs the full year should pretty much parallel our gross written premium growth.

Our combined ratio for the quarter was 95.5% compared to 97.6% for the second quarter of 2002.

Excluding catastrophe losses, which were negligible in 2002 and $28 million in 2003, the second quarter combined ratio improved 5.4 points from 97.6% in 2002 to 92.2% in 2003.

Our combined ratio for the first half of 2003 is 94.5% compared to 98.4% in the first half of 2002, despite the increase in catastrophe losses.

The improvement, excluding catastrophe losses, reflects the improving rates, terms and conditions we are seeing in a 2003 underwriting year, partially offset by minor reserve adjustments.

We continue to expect that our action here combined ratio, excluding catastrophes, is running in the very low 90s.

We continue to reserve prudently recording increases to our net loss reserves of $250 million for the quarter and nearly $0.5 billion here to date.

Pre-tax investment income at $102.1 million for the quarter is up 12% from 2002's $90.8 million, reflecting strengthening cash flow from operations and our capital raise partially set off by the impact of the lower interest rate environment.

After tax investment income was 87.8 million, up 16% from 2002, reflecting the greater asset growth in our Bermuda operations.

The embedded pre-tax and after tax yields of the quarter end portfolio are 5% and 4.4% respectively down from 5.3% and 4.6% at December 2002.

Basically, reflecting the lower interest rate environment.

Duration was 5.5 years, up .1 from the end of 2002.

Late in the quarter, we initiated action to protect a portion of our unrealized appreciation and we expect this will shorten our duration modestly over the next quarter.

The quarter included after-tax capital gains of $2.4 million, reflecting normal portfolio activity, and saw $131 million of a after-tax unrealized appreciation recorded through equity.

Cash from operations for the quarter was $353 million, compared to $170 million for the second quarter of 2002.

Cash from operations for the first half was $681 million, up 148% from the $275 million recorded in the first half of 2002.

Cash in invested assets stand at $8.5 billion and are up $1.207 billion or17% from December 2002 with the change mainly reflecting our $681 million of cash flow from operations, the $317 million net proceeds over April secondary offering and $157 million of year-to-date pre-tax unrealized appreciation on investments.

Total assets stand at $11.4 billion with $2.7 billion of these held in the investment portfolio of our Bermuda operations.

Share holders equity at $3.055 billion or $55.09 per outstanding share is up $686 million from the $2.368 billion and $46.55 per share at December 2002.

Our annualized year to date ROE stands at 17.6%, up from 14.1% for the year ended December 31st, 2002.

With the common equity raised in April, combining with our earnings to push our shareholders' equity over $3 billion, with ratings which position us among the highest rated companies and with proven underwriting expertise, our focus is squarely on growing our business and profitability.

We recently filed a $975 million universal shelf registration, which is not yet effective, but have done so mainly as a prudent capital management action.

We see no need for additional common equity on the horizon and frankly intend the shelf registration to give us capital flexibility over an extended period.

Overall our record-setting first half reinforces our view of our markets and our opportunities.

As a result, absent unusual loss activity, we continue to track with the $7.75 to $8.25 operating earnings range we commented on last quarter.

We continue to expect that the strong markets we now see should persist through 2004.

As a result, we continue to expect 2004 operating earnings in the range of $9.50-$10.50, again absent unusual loss activity.

Overall, we're very pleased with the way 2003 is shaping up and in particular the opportunity it gives us to fully use our capabilities and infrastructure.

The fundamentals underlying our business and franchise remain compelling, and our focus is firmly fixed on the disciplined execution of our strategies.

Joe and I will now take any questions you may have.

Thank you.

The questions and answer question will be proceeded and conducted electronically.

If you have a question today, please press star one on your touchtone telephone.

We will take as many questions as time permits and will proceed in the order you signal us.

Additionally if you're using a phone that has a mute function, please make sure that it's turned off to allow your system to reach our equipment.

Once again, that is star one if you would like to ask a question.

We will pause for just a moment.

Our first question will come from Tom Cholnoky with Goldman Sachs.

Good morning Stephen Limauro, good morning, Joe.

Just three quick questions, if I can.

First of all, the growth in the U.S. reinsurance, up 148%.

Can you give us a little bit more color of where that's coming from?

Secondly, can you give us the split between property and casualty premiums for the book?

And then finally give us a little bit more color on the growth in the ENS markets that you're talking about outside of, I guess, in the insurance area outside of workers comp.

I'll double back to Stephen Limauro for some numbers in a moment.

But we saw some very good growth opportunities in the last few months in the U.S. casualty reinsurance market.

And I would say that that would be the main driver.

Having said that, we grew pretty nicely in the property side, property reinsurance U.S. business as well.

Tom, as you know, in the soft market, we took a large step back in the casualty market.

But we kept our people, infrastructure, expertise and relationships in place.

And six months or so ago, where we saw the casualty market seriously starting to improve, we just saw more opportunities that we could tap into that we thought would be profitable.

And you're starting to see in this quarter a large part of those efforts and those changes in the marketplace that took place six or nine months ago.

We continue to see good opportunities in the casualty side.

We continue to see rate increases at the insurance level and positive changes on the reinsurance fields as well.

We continue for property and casualty to see a flight to security, where more and more people want our paper.

The growth has taken place both on the treaty and on the facultative side.

Property, you know -- property we see rates generally flattening.

But having said that, we see them flattening at a very good level.

So we again see more opportunities in the property side.

And we see that flight to security helping us on the property side as well as the casualty side.

So it's been growth in property and casualty.

But I would think this recent quarter more led by the casualty.

Our insurance operation, which is mostly casualty, almost exclusively casualty at this point, with comp being the number one product line, continues to see very good increases.

The California comp we continue to raise rates but in our other comp operations we continue to raise rates.

But, we're seeing some good opportunities in the medical malpractice side and we're seeing good opportunities in the specialized general casualty, general liability line of business.

So it's really in those three areas -- general liability, specialized classes, medical malpractice and workers' comp that's been the growth opportunities in the insurance side.

Tom, I don't have a complete split across the book of property and casualty.

But if I focus at the U.S. reinsurance operation, at present, the volume is near two-thirds casualty, one-third property.

Both the casualty and the property operations are up over 100% year-to-date.

Casualty is closer to 150%.

So casualty is certainly the -- you know, a significant driver for us.

Okay.

Great.

Thank you.

We move on to Michael Lewis with UBS Warburg.

Good morning.

Two quick questions.

Number one, can you go into the reserve action you took on the property U.S. property casualty reinsurance side, what it actually had to do?

Was there any specific coverages that you saw developing adversely?

And, Joe, you do a pretty good job of giving us a lay of the land for the overall market conditions.

Now that we've had -- how important was the July renewals?

How do they go and do they change the flavor of the marketplace much from the last time we had a chance to do this on the first conference call of this year?

I'll start with the market and let Stephen Limauro double back to reserves.

July was, I think, just more or less a continuation of what I expected.

It's still a very healthy market.

Again, we've seen a flattening in the property side and we've certainly seen more reinsurers looking to do more in the property side.

But with the flight to security, we were very pleased with the outcomes for us.

The casualty market, it's -- frankly, it's less players.

The security requirements are even higher by the ceding companies.

We're in very, very good position there and with underlying rates continuing at the insurance level, we continue to be very pleased as to where the casualty market is at, where it seems to be going.

Other parts of the market, again no major changes.

Marine and aviation perhaps flattening a bit down, given the fact that rates went up pretty dramatically a year and two years ago.

Medical stop loss, Stephen Limauro indicated that we've seen flattening of the rates.

Those three areas are not particularly big growth areas for us.

Security market, modest changes from where it's been.

The international markets, as you can see, from our numbers are getting more interesting to us.

And London is a very good growth opportunity for us, Europe and Asia.

These were markets that really had languished for some time.

Now we're starting to see rates -- particularly property rates in these areas going up.

The flight security is just working terrifically for us as many of the companies in Europe and in Asia no longer cut it for many of the ceding companies.

So we see good action in continental Europe, in the U.K., in Asia, in Canada, Latin American.

So we're pleased with the trend lines on the international side of the business, pleased with the trend lines in U.S. casualty.

Other pockets of the business, as I noted, are kind of flattening, perhaps even dipping down a bit, but at a very good level.

And given the fact that our security is just top shelf, we pretty much are doing very well in those areas as well.

Michael, switching to the reserves, the U.S. reinsurance portfolio is where probably 80% of our catastrophe losses resided in our facultative and treaty property areas.

In addition, during the quarter, we continued to see a little bit of development on the treaty casualty, D&O book and the fact D&O book and we did record principally development in 2002 such that we ended up ceding $35 million to our 2002 accident year.

We had minor adjustments on '99 as well.

But pretty comfortable at this point that we continue to have a clear line on what's going on there.

And, again, this was in two fairly limited areas, principally the D&O book.

Thanks very much.

J P Morgan's David Sheusi has a question.

Just a couple quick questions.

First, on the balance sheet and in the tax side, I'm just trying to reconcile what occurred on the deferred tax asset line and then overlaying that, if there is a parallel on, I guess, a tax benefit on the realized gain that we recognize in the quarter.

Can you talk to that a little bit?

Sure.

Most of the change in the deferred tax asset on the quarter was really coming from the $150 plus million of unrealized appreciation that we had that significantly increased deferred tax liability, which would pull down the deferred tax asset.

Jumping to the realized capital gains in the quarter, essentially we had realized gains in our Bermuda operation not subject to tax and we had realized losses in our U.S. operation where we got a tax benefit.

So you get an odd looking result.

As respects the actual effective tax rate for the quarter, you know, this continues to move around and is very sensitive to the balancing of any company in a given quarter coming through our Bermuda versus our U.S. operation.

And, you know, that does move around a little bit.

Basically, you know, what we do is target what we view as our best call at the full year effective tax rate.

And what we're showing is down a little bit from the first quarter.

But we think should hold up over the course of the year.

Okay.

And I guess moving over to the capital allocation question, you know, we did this secondary.

You guys executed the transaction there.

And I guess looking out, if you had to prioritize over the next 18 months, you know, what lines of business, segments, in terms of E&S on the U.S. side or European or just pure reinsurance in the Bermuda, how would you line that up?

And I guess, how are you thinking about that side of it?

Well, let me start that and Joe can comment.

We certainly wanted to solidify our capital base to take on the opportunities we saw.

We did that during the second quarter.

We'll continue to do that over the course of the year.

And wherever those opportunities are, we feel we have the capital to go after them.

Having said that, you know, we continue to view our operating leverage as being in a reasonable range.

We are seeing still a lot of impact from rate terming conditions as compared to exposure growth.

So as we look out, we think we've got the capital we need to continue very solid growth in our writings and believe that we really have it positioned pretty well.

Now, there is a little bit of an imbalance between the capitalization of our Bermuda operations versus the capitalization of our U.S. operations.

We continue to monitor that carefully and there are some actions that we're taking internally to better balance that.

And we'll continue to watch.

But overall, I think we're very comfortable that the capital we raised earlier in the year really solidifies our position to continue the growth.

Yeah, I would just second that.

I mean, yes, we have some great opportunities for growth in Bermuda, Europe, U.S. casualty, both insurance and reinsurance.

But the equity offering that we did, plus expected future earnings, pretty much makes us comfortable with the overall global capital at this point in time, even considering the terrific opportunities that we currently have.

Great.

Thanks, guys.

You're welcome.

We'll take a question from Marco Pinzon with Solomon Smith Barney.

Good morning.

Got a couple of questions.

Joe, can you expand your comments on the European marketplace and how that's really changed since January?

I think your comments last quarter were that you were still very disappointed in how market conditions were shaping up in Europe and it seems it's improved quite a bit since then.

My second question is what are you guys writing in medical mal?

Is that docs or the institutional business?

And then finally, it looks to me that the aggregate amount of reinsurance asbestos-paid losses were actually down this quarter versus the amount that you were showing last quarter.

And could you just tell us what's going on there?

Okay.

Let me try the first two of those.

With regard to the European market, I guess a few months ago I got excited about the U.K. marketplace, both property and casualty, local U.K. market.

And saw some very meaningful change in the last six, nine months in that area.

I continue to believe that that end of the market is in the -- in very good shape.

Our London operation is doing a great deal more with local U.K. business.

What I was most disappointed in three months ago and six months ago was the continental European market, which really had thrown off some very poor results for reinsurance for many, many years.

And even though there were some changes under way, I thought they were modest changes.

And really, before we got very interested, more needed to be done.

Now, we have continued to see positive changes in Europe, continental Europe, so we are doing some more business.

We are also seeing a flight to security as some of the European reinsurers, their quality has become suspect.

Having said that, we're still not doing cartwheels about the continental European marketplace and it's still a very small portion of our book of business.

If we see just a handful more of opportunities that we like, that could give us good growth on that small base.

And the European marketplace for reinsures is improving, but it's still not, to me, what it needs to be overall.

It's still not having the changes that we've seen in the U.K. and in the U.S.

So continental Europe is improving.

Small pockets of it look more attractive.

We have a small book of business there, so just a little bit more for us could be a good growth opportunity.

We certainly are hopeful that the continental European market continues to improve so we can do more there.

So it's looking better, but it still isn't looking great.

And still, in my mind, doesn't compare all that favorably with other parts of the world.

As far as the med mal, we are both in the doc business and in the hospital business.

Most of the insurance med mal that we are doing is doctor groups.

We do have some partners on that.

We do have some reinsurance on the insurance opportunities that we're writing.

On the reinsurance side, most of what we're doing is actually hospital business.

So we're really in both sides.

As far as the asbestos, I'll turn that over to Stephen Limauro and James Foster.

Yeah, David.

James Foster and I were just kind of looking offline at the change.

I'll be honest.

I'm not sure I have a solid answer for that at the moment.

I'm guessing that what it is, is some inception to date reallocations that have gone on between either our inter-company contracts which do have an impact on both Mt. McKinley and reinsurance or between long tale casualty non-asbestos exposure and an environmental exposure.

So I'll have to take a look at that and come back to you.

Overall as we look at asbestos for the quarter, it really was a fairly quiet quarter.

Our pace did pick up a little bit largely as a result of one settlement we made on a coverage in place case.

Absent that, payments were relatively benign.

We continued to do our normal quarterly monitoring.

I think on the reinsurance side, we're getting some more intelligence on the reinsurance books, so we did move some IBNR to what we call additional case reserves, which is our term for case reserving we do before we actually get loss reports.

But absent that, we really didn't see the need to make any substantive adjustment on the -- on the incurreds.

I will take a look at that other number and come back to you later on today.

Okay, great.

Thank you very much, gentlemen.

We'll take a question from Susan Spivak from Wachovia Securities.

Good morning, Joe Taranto and Stephen Limauro.

Can you hear me?

Yes.

I was hoping you could give us some more color on the workers' compensation market and what you're writing there, the state of the California market.

And your comment was you're taking on less exposure, if you could just elaborate.

Well, we have continued to raise rates in California.

And I guess in January, we put about a 10% rate increase in place.

In May, we put another 15%.

In July, we put another 20%.

So that's quite a bit of rate increase.

Through the first half of the year, we wrote roughly the same exposure that we did last year.

But with increased rates, we were writing increased volume.

We probably wrote about, oh, $450-ish million last year.

So we're expecting something in the neighborhood of $550-600 million this year.

That's probably still tracking.

I will tell you that some of the latest reports that we have with regard to July business is this latest rate increase may be affecting business a bit more than we'd anticipated.

We are now in some pockets of the business, certainly higher than most anybody else.

And that did seem to cause us, for at least the month of July, to write less business than we had anticipated.

So we'll see how that continues to play out as the estate fund and other companies continue to make their changes, as many are putting through rate increases as well.

So we're writing at a much higher rate.

We'd expect it to come in at a very nice combined ratio through the first half of the year.

It's relatively flat exposure but up premium-wise on the back of rate increase.

And, again, I'd still expect for the year that we'd probably be in that $600-ish level in terms of California workers' comp business.

We continue to see 2001 and 2002 season and make our projections for 2003 on the back of those seasoned years and we continue to be very pleased with our position with the classes that we've gone after, with the people skills that we've kind of built out in that area.

So that gives you a quick lay of the land in California in the sense that 2003 looks good.

We've raised rates.

We are -- we do seem to have hit that inflection point where some business has tailed off because of the overwhelming rate increases that we've put through.

That's terrific, Joe.

Thank you very much.

You're welcome.

Moving on to Bill Wilt with Morgan Stanley.

Good morning.

Wonder if you could quantify the gross and net reserve development in the quarter.

The gross reserve development in total was order of magnitude $60 million.

The net reserve development was $25 million. $35 million was ceded to our 2000 accident year cover, which leaves us $50 million of cover remaining on that accident year cover.

Now, as you know, Bill, when you use that cover, you have an adjustment premium.

We actually paid an adjustment premium of $20 million for the quarter.

So the practical matter is that cover really only relieved us of about $15 million of underwriting loss.

Was your question the growth, the actual dollar growth in net loss reserves?

Loss reserve development, no, Stephen Limauro.

On California workers' comp, you mentioned that 2000 -- at, what, accident years 2001 and 2002 are seasoning.

Any changes there that give you -- or that you can share, give insights into, you know, different nuances of the business that we haven't previously considered or been aware of?

No.

I don't think we have anything new to tell you on that front.

We still look back at 2002 and project underwriting profit.

And look at 2003 and expect to do better.

Very good.

Thanks a lot.

We have a question from Ira Zuckerman (ph) from FX Securities.

Follow a little more detail on the California comp.

Can you give us an idea what's happening with the state fund in terms of what they're doing in terms of rates and whether there's going to be any rewriting of the whole workmen's comp program?

The state fund took about a 19% rate increase in July.

The state fund seems to be making an effort to not grow the way that they've grown in the past, although it still remains to be seen exactly how they go about that.

You may have seen in the press there are some differences of opinion between the people running the state fund and the insurance commissioner.

So they're still kind of working on that.

But we did see the state fund a bit less of a factor recently.

Having said that, we've seen some commercial carriers a bit more of aa factor for us recently.

So it really remains to be seen exactly what the state fund does.

But certainly most immediately just this past July they took a 19% rate increase.

And another question is do you have any opinions, feelings about the current asbestos litigation -- legislation program as to whether you think it's going to go through or -- and how it's going to affect you?

Well, I'll give that to James Foster, who spent a great deal of time involved with this process.

But I don't think we're offering any odds on whether this makes this it to the finish line at this stage of the game.

Ira, as you know, there has been a huge amount of effort on the part of a lot of people, I think, that most in the industry, including Everest, have been trying to look to see if there is a trust fund type of solution which will work for all the various constituents.

A bill has been marked up in the Senate judiciary committee.

Frankly, at this point, most people are in sort of a wait and see mode, because the bill hasn't actually been fully written yet.

So people don't even actually have a written bill to react to.

The industry groups, for the most part, have indicated that they're not terribly happy with what came out of committee.

I think that over the course of the next three, four months, there will be continuing discussions amongst both the private constituents and the people on the Senate and the House to see what can be done to either improve what is in the committee form now or come up with something else.

I think the roles continue to be a lot of effort.

As Joe said, we try not to be Congressional prognosticators and we wouldn't try to put odds on it.

But there is still a huge amount of effort being put out both amongst the industry participants and within Congress to try to get something done.

We'll have to see over the next three to four months how that plays out.

Okay.

Thank you very much.

We have a question from Cochran Caronia Securities, Stephen Petersen.

My question has been answered.

Thank you very much.

If you find a question has been answered, you may remove yourself from the queue by pressing the pound symbol.

We'll go to Ken Zuckerberg(ph) Stadia Capital.

Good morning Joe.

I guess a while back we had spoken about the possibility of further positive action from the rating agencies just in the wake of flight quality and company's performance.

I wonder if you could give us an update there.

Well, were main in great shape, I would say with all of the rating agencies.

We've been on positive outlook for a while with S&P.

I guess we're getting close to the point where they'll be convening to decide what our rating would be.

We obviously are hopeful that we can kind of translate the positive into an upgrade.

But that is no means anything that's cemented at this point.

Nonetheless all the conversations we've had with S&P and Best and Moody's and others remains quite positive, they like the results, they like pretty much everything that's going on at the company.

They're very comfortable with our capital levels.

Best, we have recently been reaffirmed at A plus, second highest rating.

Again, I think all the conversations with Moody's have been quite positive.

They actually reaffirmed this quarter as well.

Ok.

I guess recently we started talking to Fitch and some others.

Long story short, we have great ratings to begin with and there certainly won't be any diminishment in that.

Hopefully here and there we'll continue to build on the terrific ratings that we have.

So we're in great shape.

And just a follow-up.

There are a number of smaller reinsurers obviously both U.S., non-U.S., that have run into issues.

You know, at the margin, when you talk with the agency folks, do you think they, you know, really do sort of an in-depth analysis about where you guys are relative to others?

Because it would seem that on that basis, given the internal capital of generation, sort of a ratings upgrade here would be a no-brainer.

I just wonder if they try to -- segmented it in that analysis.

Yeah.

We'll bring you along the next time we go to visit with them.

I might have a conflict.

You know, I think overall they do a pretty good job.

Some you think do better than others.

But I think there's general recognition that things are going very well at Everest.

Great.

Thanks very much.

We'll hear from Barry Cohen (ph) with Maverick Capital.

Yes, good morning.

I was wondering if you could help me out with a couple of things.

One is, could you give us a better idea of what kind of hedging or locking in of gains that you were doing on the unrealized portion of your book?

That would be my first question.

My second question is could you -- when we look at the operating cash flow, could you do us a bit of a favor and help us understand maybe how much of that is being driven by the workers' comp book, given how that works?

And my final question, is given that you're premium rates on a gross and a net basis are growing a little bit faster than I think you might have mentioned during the last conference call, what kind of capital need do you I know you mentioned you don't want to do common.

But if these rates continue to go this way, I was wondering just how you're looking at the balance sheet.

And maybe you want to talk a little bit about how you're balancing in the corporate actions you're doing between this and the U.S.?

I think on the premium growth you're correct, that it's a bit higher than we might have been thinking three months ago.

But not so much that I think it changes our point of view about capital at this stage of the game.

Let me comment on that capital need issue.

We have a lot of capital it's employed around the group in a way we're that trying to kind of adjust.

That certainly is something we continuing to watch with a particular focus on our statutory entities in the U.S.

But at this point in time, we think that, you know, these kinds of rates or premium growth rates, you know, are fairly sustainable based on what we can generate internally and what we've already got in the till.

When it comes-- backing up to the hedging question.

Basically, what we've looked at is strategies to essentially carve into our duration to try to lock in the gains.

Not a big believer in selling off the portfolio and exposing us to tax, particularly on the U.S. side.

So we tried to look at other mechanisms to manage duration.

We really only began to do some things in the -- at the tail end of the second quarter.

I believe we probably pulled duration down from what it otherwise would have been by about 0.2 of a year.

We continue to work on that.

We're probably working with the portfolio duration as of today.

That is something just under five.

Continue to play atthat, trying to protect as much of our unrealized appreciation as we can.

As you know, rates have changed fairly dramatically in the last couple of days.

But, you know, we are using a couple of different strategies to go at it.

Barry, if you would like, we can talk more about that offline.

Great.

Jumping down to cash flow from operations, we're seeing extraordinarily strong cash flow from operations across all of our businesses.

I don't have an exact split of the workers' comp piece of that, about -- but I can tell you that the workers' comp piece is probably a little bit more than it's representative share on premium just because on balance that has a little bit more of a tail to it.

So I would guess that we're probably looking at something in the 30-ish% range of our cash flow from operations, which is pretty close, maybe a tad above what they make up as an actual percentage of the written.

Thank you for your help.

The comps had good growth and don't have older years that are paying out.

Thank you.

You're welcome.

And that does conclude the question and answer session for today.

Mr. Foster, I would like to turn the call back to you for additional or closing remarks.

Good, thank you.

Once again, we appreciate you all joining us.

As always we'll be here if you have any more detailed follow-up questions.

Thank you.

That does conclude today's conference.

We thank you very much for your participation.

You may disconnect.