Everest Group Ltd (EG) 2004 Q1 法說會逐字稿

Good day, everyone, welcome to the first quarter 2004 earnings release call of Everest Reinsurance.

Today's conference is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Ms. Beth Farrell VP of IR.

Please go ahead, ma'am.

Thank you.

Good morning, welcome to the call.

With me this morning are Joe Taranto, our CEO and Steve Limauro our CFO.

Before I turn it over to Steve for review of the numbers I will preface our comments by noting that our SEC filings include extensive disclosures with respect to forward-looking statements.

In that regard, I note that statements made during today's call which are forward-looking in nature such as statements about 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 investors should consider in connection with such statements.

Now I'll turn the call over to to Steve Limauro.

Thanks, Beth and good morning.

I'm very pleased to report Everest's first quarter results were the best ever, moreover, market conditions and company fundamentals on balance remain favorable and continue to suggest 2004 will be an excellent year for Everest.

After tax operating income at $151.5 million or $2.67 per diluted share is up 46% from 2003's $104.1 million or $2.02 per diluted share.

Net income which includes realized capital losses was $126.1 million or $2.22 per diluted share.

This is a 34% increase from 2003's $94.4 million or $1.83 per diluted share.

In the quarter we wrote $1.2 billion of gross premiums an increase of 22% from the first quarter of 2003.

This includes a 26% increase in worldwide reinsurance premiums and a 14% increase in insurance premiums.

Worldwide net premiums at $1.2 billion and earned premiums at $1.1 billion were up 24% and 42% respectively.

Highlighting gross written premiums for our segments, our U.S. reinsurance operations are up 8% to $368 million, reflecting continued solid demand in pricing with a continuing emphasis on casualty lines.

Our U.S. specialty operations are down 7% to $122 million, reflecting flat markets for Marine, Aviation and Surety, and a modest reduction in our Accident and Health business.

International reinsurance operations, which, with the sale of the U.K. branch from Everest Re to Everest Bermuda have been restated to shift the results of the U.K. operations to the Bermuda segment, are up 64% to $148 million reflecting strong conditions in all the markets we serve.

Our Bermuda operation, which includes the U.K. operations for both years, which also include our European business, is up 84% to $233 million from $127 million in 2003.

Basically, Bermuda now offers a full suite of Treaty and Individual Risk coverages, as well as Treaty coverages through its new U.K. branch.

Our insurance operation is up 14% to $354 million reflecting continued moderation in the growth of workers' compensation and growing diversification into ENS, lines and select direct brokerage writings.

The quarter was uneventful from a loss perspective, resulting in a combined ratio of 90.8% compared to 93.5% in the first quarter of 2003.

The improved combined ratio generally reflects our underwriting year expectation for this quarter's blend of 2003 and 2004 earned premiums, although, it does include approximately four points of net reserve strengthening, mainly on asbestos.

Importantly, we continue to reserve prudently, including a $367 million increase in the quarter for net loss reserves.

Pre-tax investment income at $101 million for the quarter is up 8% from 2003's $94 million, reflecting the continued strong cash flow from operations we have seen as well as the impact of 2003 and 2004 capital transaction proceeds, all against the backdrop of a lower interest rate environment.

After-tax investment income at $89 million is up 10%.

The embedded pre-tax and after-tax yields of the quarter end portfolio are 4.6 and 4.0% respectively, compared to 4.8% and 4.1% at December 2003.

And these are impacted partly by the cash position at the end of the quarter, which is elevated as we hadn't fully positioned the proceeds of our trust preferred offering.

The quarter includes after-tax realized capital losses of $25 million mainly reflecting accounting basis impairments of our interest-only strip investments in extraordinarily variable credit market conditions.

After-tax unrealized depreciation increased by $70 million.

Cash from operations for the quarter was $400 million, a 22% increase from the $328 million recorded for the first quarter of 2003.

Cash and invested assets stand at $10.2 billion, up $861 million or 9%, from December 2003, mainly reflecting the very strong cash flow from operations together with our trust preferred issuance.

Total assets stand at $13.7 billion with $3 billion of these held in the investment portfolio of our Bermuda operations.

Our balance sheet remains strong including shareholders' equity of $3.365 billion, or $60.17 per outstanding share, which is up 2$00 million or $3.33 per share from the $3.165 billion and $56.84 per share at December 2003.

Total capital including borrowings is 4.4 billion.

Our annualized ROE stands at 20.5% compared to 18.1% for the full-year 2003.

Turning to capital, I'm pleased to note that we completed a $320 million trust preferred issuance during the quarter at a 6.2% coupon.

We've downstreamed $140 million of the proceeds to our U.S. operating company, and the remainder gives our U.S. holding company flexibility as respects both the U.S. capital position, and potential debt repayment.

This transaction together with the completed sale of the U.K. branch to Everest Reinsurance Bermuda effectively deals with the operating leverage issues of our U.S. operation in a very efficient fashion.

As respects the group capital picture, we continue to monitor growth opportunities with a clear view with balancing capital efficiency with our strong ratings.

With the U.S. operating leverage issue resolved, an excellent earnings year in front of us and with $655 million of remaining limit under our universal shelf registration, we have maximum flexibility.

We had a great quarter and our continuing strong fundamentals position us for a great year.

Accordingly, we are reaffirming our guidance for 2004 for an operating earnings range of $10 to $11 per diluted share, absent unusual loss activity.

Overall we remain focussed on using expertise, capital and infrastructure to maximum advantage against still plentiful business opportunities.

Joe and I will now take questions you may have.

Thank you, sir.

Our question-and-answer session today will be conducted electronically.

If you would like to ask a question today, please press the star key followed by the digit 1 on your touch-tone telephone.

If you're using a speakerphone today, we ask that you please disengage your mute function to allow your signal to reach our equipment.

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

Once again, please press star 1 on your touch-tone phone to ask a question.

If you find your question has been answered you may remove yourself by pressing the pound key.

We'll pause for just a moment to assemble a roster.

We will take our first question today from Mr. Cliff Gallant with KBW.

Good morning.

Could you talk a little bit more about the asbestos additions that were made in the quarter and give a little color and background on it?

Sure.

This quarter we saw gross and net incurred on asbestos of $63 million, but about $41 million of that was offset by reserve redundancies recaptured from the pre-1995 period.

We typically look at the world because of the old IPO stop loss treaty as pre-'95, post '95.

As we looked at the pre-1995 period, what we saw was effectively favorable development on what are essentially long-tail casualty reserves, summary classifications as well, but effectively, of the $63 million net that were showing on asbestos, only about $24 million of that is actually net from an income statement perspective as regards that '95 and prior period.

As we went through the quarter, effectively we continued to work hard to monitor and update our exposures, looking at new information coming in, at the claim level, and at the macro level, as well as what we're doing on the claim adjustment and settlement side.

As we looked at mount McKinley, where we are seeing and looking to see an increase in potential settlement activity, we did make incremental adjustments on individual high-profile accounts, which basically reflected approximately $15 million of the 63.

As we looked at the reinsurance book, where we've continued to do our analytical reviews and continued to see data coming in and continued to asses our exposure, we made an adjustment of approximately $48 million, and that was where you do have this effectively a reclass coming from the pre-'95 non-A&E accounts.

We've updated the financial statement supplement disclosure, and I think at this point we continue to focus on carefully but aggressively managing these asbestos exposures.

Thank you Steve.

Moving on, we will take our next question from JP Morgan's Dave Sheusi.

Hey, just a quick follow-up on the first question here.

Can you just talk about some of the new information that you saw in the current quarter that really was the catalyst to kind of make the move, especially on the reinsurance side?

Well, certainly, starting with the smaller piece on the Mount McKinley side, we have aggressively set a course to try and develop settlements, and as we move on individual cases, with respect to potential settlements, we've felt the need to adjust the actual reserves.

And, in fact, move some of our IBNR down into the actual case reserves so that it's kind of assigned to the individual claims.

Moving to the reinsurance book, we continue to work as hard as we can to develop, generally speaking, anecdotal information concerning reinsurance exposures, as affects many people in the reinsurance side of the business, there is delayed and very slow and sometimes no real reporting of what's going on on the asbestos side.

Having said that, we work very hard with the claim operations of folks that we are reinsuring to try and develop a sense of what's going on there, and as we looked at the information that we've seen, and as we attempt to make certain that we are keeping abreast of that information, and as well looking through, you know, where we think ultimate settlements may lie, you know, our feeling was that we needed to take these actions.

That's a process that we really go through every quarter, and, you know as it turns out this quarter, on the reinsurance side, we felt the need to do a little bit more.

Yeah, I mean, it appears to me, it's -- looks like a little bit of sleep insurance for you, because and I guess if you take a look at the data from a paid trend perspective, it looks like it's, you know, fairly in line with historical levels.

And so, you know, I guess is that the appropriate conclusion, I guess, pretty conservatism at this point?

Well, you know, I think it is, I don't know that conservatism is the right word.

We're trying to take the prudent reserve action, there is variability with respect to paid, certainly more so on asbestos than on the non-asbestos element of our books, and while we don't focus on survival ratio, we certainly are seeing the survival ratios tick up.

But at the end of the day, what really is driving our view, is what are the ultimate exposures.

Okay.

And just one last question.

On the growth side, outside the U.S., you know, the international and Bermuda operation grew far better than what we were thinking about.

Can you just put some color around that, Joe, and drill down on where you're seeing opportunities in the market?

Sure.

Let me actually take that question and give you not just the international, but let me spend a few minutes to kind of give you the other pieces as well.

The market, we continue to see overall is a very good market, which is offering us solid opportunities.

But it's also a changing market and there's certainly areas that we need to be a bit more cautious in.

Let me start actually with the U.S. property and casualty reinsurance.

I guess a few months ago we started seeing some decline in property rates coming off of, you know, the peak rates that we had, rates that were excellent.

And we still see the rating environment where it's a good one, but we continue to see rate decline in this area.

And our facultative operation and our individual risk operation in Bermuda, those are certainly two of the areas where we expect going forward to do a little bit less business.

On the treaty cat side, modest decline in rates is pretty much what we're seeing.

I think that's holding up better than some of the individual insurance property rates.

A lot of reinsurers use similar if not the same cat models, and that seems to be causing that market to be a bit more disciplined in some other pockets of the market.

Keep in mind on the property side, the last two years, rates in the market have just been excellent.

They've been outstanding.

So that's causing some of this rate competition.

Which we continue to see.

On the casualty side, we've had three years now of excellent rate increases.

But we're starting to see casualty rates more or less hit their peak.

We are seeing a flattening of rates, including some of the tougher classes, like medical mal, directors and officers, umbrella business.

At the insurance level, rates are holding up a bit better for the primary insurers than the excess insurers, a lot of the new capacity that's come in has come in at the excess level.

For reinsurers, security remains a very, very important issue.

That benefits us greatly.

Again, when people pick their reinsurers, especially on the casualty treaty side, they know that they need people that will be around 10 and 15 years from now, ratings are extremely important.

That serves us very well.

Putting it all together, property and casualty, on the U.S. side, we had modest growth for the first quarter.

That's more or less what I would expect for the remainder of the year in that sector.

Specialty reinsurance, Aviation and Marine, again, a bit off the peak rates.

Medical stop loss, we are seeing some decreases in rate to exposure.

The Surety markets holding up okay, especially for the small regional companies which is where we play.

But when you put that whole sector together, we've had a modest decrease through the first quarter.

And that's pretty much what I would expect for the remainder of the year as well.

On the U.S. insurance side, on the California workers' comp book, we continue to post a modest premium reduction.

Having said that, our rates that we're charging this year continue to be higher than what they were last year.

So it's even more of a unit or exposure reduction.

We're very pleased with the legislative reform that I believe was just signed into action by the governor, as you know, it looks to control claim costs, and at the same time, it really does not impose any rate regulation on insurers.

So it still allows them to charge what they believe is a proper rate.

Very pleased with our 2003 results in the comp program.

Expect 2004 to be quite good.

Our other programs continue to run well.

Our medical malpractice, excess and surplus general liability, other workers' comp programs, we've added some new programs to the mix in the last few months which include a national restaurant program, and some Midwest comp business.

I expect that we will grow in the insurance operation reasonably so in 2004.

The international, which is the question you posed, we've seen outstanding growth in the first quarter.

And we really are doing very well on the international scene.

We see continental Europe and Asia, we see rates in those areas, property, especially, but casualty picking up as well, offering us the best opportunities we've had in many years.

So we're increasing our base in those two areas.

Latin America continues to be a very strong region for us.

The flight to security, again, is very important on the international scene.

And companies that have been on the international scene with good ratings for many years, and know the seating companies, like ourselves, are doing very well.

Canada and the U.K. continue to perform quite well.

So I would expect some very good growth in 2004 on the international side.

Bermuda, I would expect that to continue to grow in 2004, even though we may do a bit less property business in Bermuda.

As Steve noted, we've increased the products that we offer in our Bermuda operation, most notably, casualty.

And I think the casualty growth in Bermuda will offset any potential decline on the property side.

The Bermuda market continues to grow, it's really the most vibrant market in our business in the world.

Putting it all together, and I expect top-line growth for 2004, I had indicated last quarter something like 10 to 15%.

And I'm really not going to change that, even though we exceeded that in the first quarter.

But I do expect us to grow reasonably in 2004.

I also expect to us continue to have an excellent bottom line results.

We're pleased that the ROE was north of 20% for the first and we'll look to continue those good results.

Great, thank you so much.

Thank you.

And we'll take our next question from Mr. Michael Lewis with UBS.

Good morning, I have a few quick questions.

Number one, does the legislative change in California do anything to your existing book of business, have any impact going back?

Does it change your appetite for business going forward?

That was number one.

Number two, it seems that your investment income fell off a little bit more dramatically on a sequential basis than I would have considered based on all the data you gave us.

Am I missing something there?

Can you touch quickly on the $25 million loss from the strips and is that an ongoing situation based on that being in place?

And lastly, have there been any changes in terms, I mean, it's one thing to talk about rates.

The way of talking about terms and conditions, we're hearing more and more discussions that maybe some of the insurers or reinsurers are being a little more aggressive under terms and conditions, keeping rates but altering that.

Are you seeing anything on that side, Joe?

Thanks a lot.

Okay, Michael, let me start with the workers' comp the changes that we signed into effect really will affect claims on a going-forward basis.

We're pleased with the changes, because I think it really kind of sets up containment, if you will, in terms of what the costs can be.

It makes the costs a bit more predictable going forward, should make the cost in the system less going forward.

Having said that, it will take a while of seasoning to see exactly how all of these changes get executed into the marketplace.

And precisely what they add up to.

So we're very pleased about that.

And if anything, it makes us more bullish on the market place.

In terms of doing more business, let me simply say that we want to make sure that we continue to have rates to exposure that we're very, very pleased with.

We want to be conservative in that regard.

So that's kind of our, you know, our first thought, is profit and making sure that we believe we're making a very, very nice profit in this area.

So it's not like we've suddenly launched ambitious growth on the back of these changes, that's not the case.

We tend to be really just about the highest price in the market now.

Of course we're offering the best security, there's not much A-plus security out in that market right now, so we think we deserve to be the highest price.

I expect we will continue to stay the highest price and we're happy with the book, and we're happy with the changes, but we're not launching any ambitious growth scenarios.

Thanks.

Steve, you want to take the second question?

Sure.

As we look at investment income, more on a sequential basis, than year-over-year, there are a couple of minor things that effectively, probably push the fourth quarter income up.

And then one that pulls the first quarter income down.

Fourth quarter we had an exceptional quarter on the under a handful of investment oriented limited partnerships that we have, but there's probably 5 or $6 million in the quarter coming from those partnerships that kind of over and above what we would typically expect.

So that's pushing the fourth quarter up a little bit.

In the first quarter, we actually had about a $2.5 charge on the return of a block of light business, where our sedent effectively decided they wanted to commute off that business.

So that had a one-time effect in the first quarter.

So, on balance, as we look at those adjustments, a little bit of noise is introduced but we're very comfortable that investment income continues to build off the exceptionally strong cash flow, and now that rates are turning up a bit, we ought to have better opportunities going forward.

Michael, moving on to the strips, there are some very arcane accounting guidelines that tell you when you must impair a strip-type investment.

What I can tell you is all -- virtually all but -- well, virtually all of the losses that were incurred in the first quarter on the strips have been reversed as of yesterday in terms of the move in the market.

Now, what happened was when there was the downside surprise on employment early in March, interest rates plummeted.

We -- generally, the strips probably best track the 10-year treasury which went as low as, say, a 10 -- I'm sorry, a 367.

What happened with the upside surprise, just after the quarter closed, is virtually all of that rate reduction turned around, the 10-year treasury went up into the 430-ish territory, so everything we ended up impairing at the end of March has effectively been recovered as unrealized quarter-to-date in the second quarter.

Great.

And just lastly on terms and conditions.

I really haven't seen any trend that I would cite, saying that there's been a real change in reinsurance terms and conditions, putting prices aside, you know, I think what we're seeing mostly at this stage is changes in rates.

First at the insurance level, more than at the reinsurance level and then some minor changes at the reinsurance level as well.

But terms and conditions, I mean, certainly there are all these deals you can point to where there are changes, but as far as overall, I'm not seeing anything important to report.

And Joe, just as a final thought here, there's really, under magnitude of what you talked about with rates versus what you said three months ago, are things tracking pretty much right spot on target to what you thought they would be doing?

I would have to say yes to that.

I mean, obviously, you know, you'd like the market where rates would go up forever, you know, well in excess of exposure changes, but given the fact that the results for the last couple of years have been excellent in the market, property has just been outstanding, casualty by our measurements recently has been very, very good, you have to expect some changes in the marketplace.

I think what we've seen is pretty much what I did anticipate.

The guidance that we've put out in terms of top line and bottom line, we really aren't changing either of those.

Because pretty much three months later, it's still playing out the way we thought it would.

Thanks very much.

But I would add to that, Michael, it takes things like the California comp, there's still some very solid situations for us and for well-rated companies and still overall a good environment.

Thanks again, Joe.

You're welcome.

We will take our next question from Mr. Tom Cholnoky with Goldman Sachs.

Good morning.

Two questions.

Just one clarification, Steve.

I thought in your commentary you said that there were four points of reserve strengthening for asbestos.

Yet if I take the $24 million or so or $22, $23 million, it looks like only 2.3 points of reserve strengthening that actually impacted the income statements.

Could you clarify that for her me?

Yeah.

And Tom, I said it was mainly asbestos.

We did have minor adjustments across the non-A&E kind of territory.

Nothing really of substance.

More just kind of noise among you know the reserving positions of our individual business units.

Net-net at the end of the day, the bulk of that additional 20 is probably going to end up in the U.S. reinsurance side, a more modest amount on the insurance side.

I will say, you know, for folks who are tracking our California small agency book of business, you know, at the end of the day, I can comment that we saw no need to record any net strengthening on that back of business which pleased us quite a bit.

And, you know, everything else, more Tom on the order of noise than anything that's indicative of a trend.

I guess my second question, maybe I just need a little help with some math here, but if you take sort of four points of reserve strengthening in the quarter, it looks like your run rate of earnings is well north of $3 per share on a quarterly basis.

And if you simply apply that to kind of the next three quarters, it seems to me you're talking about earnings power that is in the kind of 11.50 to 12 range, so why be conservative on your guidance?

The main reason, Tom, is we continue to look at the first quarter as if it was light in terms of losses.

Certainly on the cat side, even though we had some cat losses, we regard the quarterly number as less than average and light.

And even when you get outside the property area into Aviation and Marine and Surety and all the other sectors of our book, we thought it was a team quarter in terms of losses.

So that really is what was mostly, I think, behind our thinking in terms of not upping our guidance, based on the math that you just did.

If I just a quick follow-up, Joe, not to beat this to a -- but it was interesting, if I go back to my note of when you did your fourth quarter of 2002, I think you were looking at earnings guidance that was kind of in the -- it was probably in the -- where was it, about 650 to 7 range, you ended up strengthening reserves pretty strongly in '03 and you came in at 829.

Do you think there's a chance that we might get some similar upside surprises if the weather stays normal?

Tell us what normal means to begin with.

Uhm, well, obviously what we've just said is we expect more in terms of losses in average for the next nine months, in kind of property losses, cat losses than what you've seen in the first three months.

So if it continues to run as to what we saw the first three months, all other things being equal, yeah, you would expect more.

Okay.

I don't want to beat it.

But anyway, thank you.

And moving on, we will take our next question from Wachovia Securities, Susan Spivac.

Actually, my questions have all been answered.

Thank you.

As a reminder, if you would like to remove yourself from the queue, simply press the pound key.

We will now move on to Mr. Stephan Petersen with Cochran Caronia Securities.

Good morning.

Most of my questions have also been answered.

Steve, just a quick one on the commission and expense ratio in U.S. insurance of 15.4% seemed rather light.

I'm wondering if there's some sort of math I'm missing there that would have taken that number down?

Stephan, I think as you know, generally we do aim to be a low-cost provider.

We've also talked specifically on the insurance side over the last couple of years about tightening up the relationship and the commissions that we pay on the California comp business.

Additionally, as we've diversified the insurance portfolio, you know, we've seen several programs come on which are very low commission.

And so what that is, is really seeing the full benefit of the changes we've made in the California comp, arrangements on both the commission and expense side, as well as lower commissions, more broadly as you look across the diversified insurance book, as well as continued emphasis on expense ratio.

So in terms of our own modeling on a go-forward basis, would that 15 1/2 or so be.

-- the insurance book, yes.

Okay, thank you.

And we will take our next question from JF Tremblay with Credit Suisse First Boston.

Good morning.

Good morning.

Can you elaborate on the source of your catastrophe losses?

Yes.

They basically were losses that we -- they were risk losses out of our direct and facultative property portfolio in Bermuda.

You know, I won't get into the actual events, but effectively, you know, these are 2, 5, $6 million kind of losses that as a practical matter, are provided for, generally speaking, when you write that kind of a book and put out a 6 or $8 million line.

So we kind of look at these as not being the classical huge catastrophe, but rather these are risk losses coming, again, out of the Bermuda portfolio.

Thank you.

And then regarding your Bermuda operations, are you seeing some kind of pick up in demand for finite transactions?

I wouldn't quite call it pick up.

I mean, certainly we're seeing a few deals come into us.

Those deals tend to be very limited in number.

And a lot of these finite deals, the hit ratio on them is actually quite low.

So it's always very difficult to predict whether you'll do more in that area.

But seeing a bit more, but nothing particularly important to report.

Okay.

Thank you.

Our next question will come from Mr. Bill Wilt with Morgan Stanley.

Hi, good morning.

I want to first revisit the California worker comp, John, maybe I just misunderstood your comments about changes in rates in relation to the reform, I thought maybe you said they were going down, but then you elaborated further about per risk, changes in per risk.

I guess I just missed.

The question is: What is going to happen with rates, you know, now post the reform?

Bill, I don't think I commented on what is going to happen with rates.

Certainly, in our case, we will study the changes and really we have to do that just yet.

This bill was just put together in the last few days, and just passed.

And kind of assess what we think it means.

We've made no determination with regard to any changes in rates at this point in time.

What's going to happen for the rest of the market?

I don't know.

I mean, all the other companies will have to do their own assessment.

There's no change in terms of rate regulations, so there's nothing that's going to be forced upon insurance companies.

They will really have to make their own determination.

Schwarzenegger was very clear that he wants competition to return to the insurance industry in California.

And that being the case, he wants people to be able to charge what they think is appropriate, such that they will make the returns that they need.

Obviously, he's hoping that these changes drive down costs, and so people can charge less and still make a very, very good return.

But at this point, all of the insurance companies have to do their analysis and decide what they want to do with regard to rates on a going-forward basis.

And it's really up to them.

So we'll see what the market does, but, you know if there are those out there that take down rates more than we think appropriate, well, then clearly we wouldn't follow that.

And that's one of the reasons why it starts to get difficult in terms of projecting volumes going forward.

I think from our point of view, we just will make sure that we take a very cautious approach in terms of what we charge relative to exposure.

And we'll see what that leads to in terms of what we produce.

We've been doing that, that's not something new going forward, that's what we've been doing all along.

And frankly, in the last nine, 10 months, it's produced a bit less premium for us than it did in the nine -- in the year before.

But it's produced a level of profit for us that we think is quite good.

So to be determined in terms of what the market does going forward.

Fair point.

Is the next step a study from the WCIRB on the scoring the bill?

I don't know if --

Yeah, the Workers' Comp Rating Bureau is now going to be required to come up with an assessment of these changes.

It's going to be a little difficult to do that, but they will be required to do that, and to factor that into all of the other issues they have to take into account to basically make a recommendation, if you will, as to how rates should change.

But again, the insurance carriers have the ability to pretty much charge what they think is appropriate.

That's great.

And if I could, on the growth in international and Bermuda, I know you commented broadly on the areas of growth, I wonder if there were specific opportunities or specific lines of business being pursued just maybe a little more granularity on this?

Well, we want into that a bit.

I mean, I think continental Europe and Asia are two pockets of the world that we had really stayed away from for many years.

We had very, very small book of business going into this year, and those two areas have improved as there's certainly more of a flight to good security.

So those are two areas which still haven't become real big areas for us, but certainly are growing quite nicely.

Latin America we've just been very strong in that area for 30 years.

And with all the changes that have taken place in the last couple of years and the flight to security, people are just giving us bigger shares of their program.

We're seeing some new programs.

The growth is quite good.

U.K. and Canada remain quite good.

Most of the growth is property business, but we do see in the U.K. and even in continental Europe some casualty opportunities.

So there's some of that as well.

Very good, thanks.

And we will take our final question today from Mr. [Richard Diamond] with Inwood Capital.

Good morning, gentlemen and congratulations on a solid quarter.

Thank you.

On, you know, providing a little bit more of granularity on California's workers' comp, is it fair to say your bias going into the bill evaluation is towards lowering rates?

I know that there was a lot of haggling among the various constituencies in California in assembling the bill, and the expectation among the legislature is that rates will drop fairly --

Yes?

Hello?

One moment, please.

It looks like his line has disconnected.

I apologize for the inconvenience.

Did you wish to take another question or go ahead and close the session at this point?

Okay, we can't reestablish him?

No unfortunately, not.

Okay, all right.

I think we'll just wrap it at that point, then.

Okay.

All right, then I will turn the call back over to you for any closing or final remarks.

Well, it was an excellent quarter for Everest Re.

We continue to work diligently on our marketing, on our infrastructure, and on executing our strategies in a very disciplined way, and we continue to look forward to a very strong year this year, and I think with that, I'll just close the call.

Thank you very much.

Thank you.

Thank you, everyone, for your participation.

That does conclude today's conference