Everest Group Ltd (EG) 2007 Q2 法說會逐字稿

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  • Operator

  • Good day, everyone, and welcome to the second quarter 2007 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 Miss Beth Farrell, Vice President of Investor Relations.

  • Please go ahead, Ma'am.

  • Beth Farrell - VP IR

  • Thank you.

  • Good morning, and welcome to Everest Re second quarter 2007 earnings conference call.

  • With me this morning are Joe Taranto, our CEO; Tom Gallagher, our President; and Craig Eisenacher, our CFO.

  • Before I turn the call over to Craig for a 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 S.E.C.

  • filings have a full listing of the risks that investors should consider in connection with such statements.

  • Now let me turn the call over to Craig.

  • Craig Eisenacher - CFO

  • Thanks, Beth, and good morning.

  • I'll first summarize our financial results and comment on our investments and balance sheet, then I'll turn the call over to Joe for his comments on the markets and our underwriting activities, and after that, Joe, Tom and I will take questions.

  • We had another solid quarter.

  • Net operating income was $213 million compared to $219 million for the second quarter of 2006.

  • Net operating income per fully diluted share was $3.36, up a penny from $3.35 in the second quarter of 2006.

  • Because of our share repurchases, we had almost 3% fewer shares outstanding in the second quarter this year than in the second quarter of last year, which was the driver of.

  • the earnings per share growth.

  • Net income including net after-tax realized gains was $283 million, up from $220 million in the second quarter of 2006.

  • On a per-share basis that's $4.45 compared to $3.38, or an increase of 32%.

  • Our annualized operating returns on average equity were solid at 16% for the quarter, and 19% year-to-date.

  • The annualized net income returns on average equity were also strong at 22% for the quarter and for the six months.

  • For the six months, net operating income was $481 million, up 28% from $377 million for the first half of 2006.

  • Our realized capital gains year-to-date were $133 million, almost all of which derive from our common stock portfolio.

  • Net income including after-tax realized gains was $580 million for the first half of this year compared to $389 million for the first half of last year, an increase of 49%.

  • Gross written premiums were $935 million for the quarter, up 3% from the same quarter of last year.

  • Our year to date gross written premium, at almost $2 billion, is essentially flat compared to 2006.

  • By segment, U.S.

  • reinsurance at $272 million was up by 4% for the quarter, up nicely on the property side, the result of several new quota shares, but down in both Treaty and Fac casualty.

  • In previous calls we've talked about the more competitive environment for U.S.

  • casualty and this is causing us to write less in this business.

  • U.S.

  • insurance recorded gross written premium of $162 million which is down 17% compared to the second quarter of 2006.

  • This is a result of further decline in our workers compensation writings and lower writings on our New York contractors program.

  • Partially offsetting these declines are fairly significant growth from the CV Starr program and the Florida Property program.

  • International, at $203 million, was up by 13%.

  • We are seeing opportunities in the international arena to pick up additional share on existing business and write new business.

  • Ceding companies have gravitated towards our strong ratings and reputation particularly as some of our competitors have merged out of existence or received financial rating downgrades.

  • In Bermuda we wrote $223 million, and that was up just a bit from the second quarter of 2006.

  • The specialty segment, at $76 million, was up by $23 million compared to the second quarter of 2006, largely due to growth in marine premiums from existing, as well as new quota share business.

  • Our combined ratio was 89.2% for the second quarter of 2007 compared to 87.7% for the second quarter of 2006.

  • Year-to-date our 2007 combined ratio is 85.8%, 5.5 points lower than during the first half of 2006.

  • Our combined ratios for the quarter and six months, are excellent.

  • While market conditions and relatively modest level of catastrophe activity have contributed to the excellent results, our strong competitive position, experience and expertise have been key drivers as well.

  • Looking a little below the surface, our attritional accident year loss ratio in the aggregate for the quarter was 54.1%, down 3.7 points from the same period of last year.

  • The overall loss ratio including catastrophes and development was up by 1.1 points at 62%.

  • For the most recent quarter we experienced catastrophe losses of $70.4 million net of reinstatement premiums.

  • And this added eight points to our loss ratio.

  • The largest catastrophe losses for the quarter were the London and New South Wales floods which we have estimated at $25 million and $42 million to us respectively.

  • It is still early days for assessing the insured losses arising from these storms, but recent industry estimates have these losses pegged or estimated at 1.5 billion pounds sterling and 1.5 billion Australian dollars respectively.

  • Overall our reserve development was negligibly unfavorable for the quarter both in dollar and percentage terms.

  • Our attritional loss reserve development was a favorable $36 million and asbestos reserves developed upward by $38 million, so the net was just over $2 million unfavorable.

  • The take away for the quarter then is a calendar and accident year loss ratio of 62% including eight points of catastrophe losses.

  • Cash flow from operations was $96 million for the quarter, down from $152 million for the second quarter of 2006.

  • Our federal income tax payments were $109 million higher in the second quarter of 2007 than in the second quarter of last year, otherwise operating cash flow would have been higher in this years second quarter.

  • Of course this is not surprising due to the large catastrophe loss payouts on the 2005 storms in last year's second quarter.

  • Cash and invested assets were $14.4 billion at quarter end, up by $450 million from year end and $1.2 billion from June 30th, 2006.

  • Since year-end we've generated $259 million of cash flow from operations and we raised $400 million from the issuance of subordinated debt.

  • Over the same period, we returned $260 million to shareholders in the form of re-purchases and shareholder dividends.

  • Net investment income was $180 million for the quarter an increase of $26 million, which is 17% from the second quarter of 2006.

  • We had 10% greater average assets which drove the bulk of the increase.

  • The pretax yield on the fixed income portfolio was 4.6%, essentially unchanged from 4.5% in the second quarter of '06.

  • As well, our other invested assets, and that's our limited partnership investments, earned $28 million in the quarter, and that's an increase of $15 million from the same quarter a year ago.

  • The quality of our portfolio remains high, at Aa2 on average, and the duration is short at 3.8 years.

  • We trimmed our equity portfolio some in the quarter partially in response to the appreciation we've seen and partially to keep the equity exposure including our limited partnership investments, under 45% of our net worth.

  • Looking at our liabilities, our loss reserves were $8.7 billion, at June, 30 and that's down by about $100 million from year-end, largely the result of $269 million plus of payouts on prior year catastrophe losses, partially offset by reserve additions for current year exposures.

  • You'll also note the addition of $400 million of 6.6% long-term notes due in 2067.

  • These were issued shortly after our first quarter conference call.

  • At present we are feeling quite good about the spread we paid which was 192 basis points and the all-in rate.

  • As we noted before all other things being equal, it's our plan to call in the $200 million of 7.85% trust preferred securities in November when they become eligible to be called.

  • Our balance sheet even prior to calling in that debt is conservative with a debt capitalization ratio of 21%.

  • We have $5.3 billion of equity compared to about $4 billion of annualized writings which is conservative as well.

  • Our book value per share stood at $84.46 on June 30, and that's up by 8% from year end.

  • Clearly our stock has appreciated since the first quarter when our repurchases averaged $95.32 per share.

  • As well we're heading into peak exposure period for Southeast U.S.

  • wind.

  • And consequently we did not repurchase any more stock during the second quarter.

  • We do continue to be focused on capital management in maximizing shareholder value.

  • And in that context we believe it's prudent to continue to husband our capital in the near term.

  • And with that I would like to turn the call over to Joe.

  • Joe Taranto - Chairman, CEO

  • Thanks Craig.

  • Good morning.

  • We're most pleased to have earned a net income of $580 million for an annualized ROE of 22% through six months.

  • That's quite a good result for us.

  • We are also pleased that our worldwide gross premiums are essentially flat through six months.

  • Given the changes in the market, that's also quite a good result.

  • I'll give an overview of the market before we take your questions.

  • I'll begin with our International Property and Casualty Reinsurance book.

  • This sector is roughly one-third of our worldwide business.

  • It includes the U.K., Continental Europe, Latin America, Asia and Canada, approximately 70% of the business is short tail and 30% is casualty.

  • Generally insurance rates in this area have continued to decline on the order of 10ish percent.

  • Although it varies widely by product line and by country.

  • Reinsurance terms have weakened modestly.

  • We continue to believe a reasonable return can be achieved on the better business.

  • Through six months our international premium has not declined.

  • The fact that we are a large, established player with great long-term relationships, terrific ratings and highly regarded employees around the world, continues to be a great advantage for us.

  • And has so far helped us combat the marketplace decline.

  • Recent losses in the U.K.

  • and Australia may mitigate some of the decline on property business but we do not expect they will produce material upward market corrections.

  • Next, our insurance operation which represents roughly 20% of our overall worldwide premium through six months.

  • All of this business is written in the U.S., 95% of the business is casualty and 5% is property.

  • Through six months, the overall book is down 8%.

  • We are down because we are finding that competition has intensified for many classes of U.S.

  • casualty.

  • In particular, we are finding the competition for contracting liability business is much tougher.

  • Competition on workers comp has intensified.

  • And rates in California have now settled back to one-third of what they were at their peak in 2003.

  • Further, rates for medical malpractice business have reduced to the point where we are essentially out of the market.

  • As always, we will remain disciplined underwriters and not bring in business that does not meet our standards.

  • We have recently agreed to three new programs.

  • In classes of business that we believe are more insulated from the current market erosion.

  • Two of these programs will go live in the third quarter and one will go live in the fourth quarter.

  • I will move on to the U.S.

  • property reinsurance sector which represents about 25% of our business through six months.

  • This business has shown good growth six months versus six months and has largely offset declines in the U.S.

  • casualty reinsurance operation.

  • Much of our growth came from Florida opportunities that we wrote in the middle of 2006.

  • As we reported earlier, with all the changes in Florida, it was initially unclear as to what we would achieve in 2007.

  • We have now concluded our 2007 Florida deals and expect to write as much, if not a bit more, in the next year.

  • We are finding that our clients are not having to adopt rate decreases.

  • That represents significantly more savings than what they will receive from switching to the Florida hurricane catastrophe funds.

  • We are also finding that Citizens has tended to write the business that our clients don't want and has not meaningfully invaded their portfolios.

  • Further, many clients have purchased pro rata and excessive loss reinsurance from the professional reinsurance market, beyond what was contemplated in this past January.

  • Accordingly, I expect our writings in this area to be as strong in the second half of 2007 as they were in the second half of 2006.

  • Our U.S.

  • casualty reinsurance book represents about 16% of our business through six months.

  • This sector is down the most for us.

  • As we continue to experience casualty insurance rates declining, ceding companies keeping more net and ceding companies looking for more favorable terms on their reinsurance treaties.

  • Again we will continue to maintain discipline and only write the business that meets our standards.

  • Our specialty book represents about 6% of our worldwide writings that includes marine, aviation, surety and accident and health business.

  • We see these markets as much the same in 2007 as 2006, and expect to have level premium writings.

  • In summary we will continue to modify our portfolio as the market changes.

  • We're pleased with the portfolio as it is today and expect it to continue to generate quality earnings.

  • Tom, Craig, and I will now, take your questions.

  • Operator

  • Thank you.

  • (OPERATOR INSTRUCTIONS) Our first question today will come from Tom Cholnoky with Goldman Sachs.

  • Tom Cholnoky - Analyst

  • I have three questions if I can.

  • Number one, just on the asbestos charge, Craig.

  • Historically, if I recall, you tended to become a little bit more aggressive or kind of put up charges after you settled claims, and I'm just wondering if you can give us something on what caused you to put this charge up this quarter with no real change in your high-profile claims.

  • Craig Eisenacher - CFO

  • Sure, we had one change in a venue in one of our high profile cases and that resulted in an increase to our ultimate loss exposure.

  • That explains what we put up on the direct side.

  • Additionally, we received some claims from national carriers on the reinsurance side and some clarifications on some existing claims that made us conclude that those losses were going to be a little higher.

  • So we reserved for those and as well we added $7 million to our IBNR.

  • Tom Cholnoky - Analyst

  • And how do you feel about your ability to settle high-profile claims this year in terms of -- do you feel as though by the end of the year we should be lower than where we are today?

  • Craig Eisenacher - CFO

  • In terms of what is outstanding?

  • Tom Cholnoky - Analyst

  • Yes.

  • Craig Eisenacher - CFO

  • Yes, I think we -- well we have one settlement in place that we have agreed to.

  • We have another one that I -- that could come to settlement during the year.

  • Certainly we have an agreement -- I guess an agreement in principle, is the best way to describe it.

  • So I think what you're surmising is probably true, yes.

  • Tom Cholnoky - Analyst

  • Okay.

  • The tax rate seems to be a bit higher than what is has been running at.

  • Is that because of the cat losses were more in Bermuda than in taxable jurisdictions?

  • Craig Eisenacher - CFO

  • Yes, that's generally true.

  • Treaty property, actually had a terrific quarter from a loss ratio standpoint, you know current accident year loss ratio standpoint.

  • And also some favorable development as well.

  • But, yes, if you look on the analyst supplement, on page four, I think it is, you can look at -- you can see the combined ratios for the various operations and if -- if you look, you can see the U.S.

  • operation is much lower than international and Bermuda.

  • So essentially what's happening is while our underwriting income is pretty much in line with what we expected it would be when we did our tax estimate for the first quarter, the situs of it has changed and more of it is on shore and less of it is off shore, which causes us to have a higher tax rate overall.

  • Tom Cholnoky - Analyst

  • Okay and then sorry, and then one -- just one last question, the U.K.

  • floods.

  • Just to clarify, you said, I believe $25 million in the UK, and given what is going on in the UK as we speak, I guess it's a sunny day in London today, but --

  • Craig Eisenacher - CFO

  • Thankfully.

  • Tom Cholnoky - Analyst

  • If it continues to rain, I mean these levels of losses of around $25 million would probably not be out of the question if it continues to rain?

  • Craig Eisenacher - CFO

  • I think that's -- maybe Tom should answer it.

  • But from my perspective, I think it's -- it's obviously a third quarter event now.

  • Tom Cholnoky - Analyst

  • Right.

  • Craig Eisenacher - CFO

  • So what we -- what we reported was for second quarter and with that I'll just turn it over to Tom.

  • Tom Gallagher - President, COO

  • Well now it's the wettest June on record in England and it hasn't stopped raining since May.

  • So if the activity continues the way it is right now, on all of the English -- England land mass, then I would expect losses to continue.

  • It is now, raining-- now, going through central and southern England.

  • The previous storm was in central and northern England.

  • So I can't give you an answer of exactly what it would be but I would expect loss activity.

  • Tom Cholnoky - Analyst

  • Do you have more exposure in today's floods than you did in June's floods?

  • Tom Gallagher - President, COO

  • No, I suspect they are about the same.

  • Tom Cholnoky - Analyst

  • Okay.

  • Let me hop off and I will come back on.

  • Thank you.

  • Operator

  • Next we move on to Josh Shanker with Citi.

  • Josh Shanker - Analyst

  • Good morning.

  • In terms of the net modestly unfavorable development, can we put some numbers around the moving parts?

  • I assume are part of the unfavorables, obviously the asbestos, how much unfavorable development is that being offset by favorable development in coming to those numbers?

  • And Tom, got most of my other questions.

  • Tom Gallagher - President, COO

  • We have around a $39.5, $40 million of asbestos development and $38 million of favorable development in our core loss reserves, if you will.

  • Most of that was in treaty property and treaty casualty in the U.S.

  • than it was in more recent years.

  • Josh Shanker - Analyst

  • That is perfect.

  • Thank you.

  • Operator

  • And next a move on to Vinay Misquith with Credit Suisse.

  • Vinay Misquith - Analyst

  • Hi, good morning.

  • Two questions.

  • First a numbers question.

  • Craig, the interest -- the interest expense on your credit facility was just $0.3 million in the past two quarters, but it's back to about $2.8 million this quarter.

  • Was there something special happening there?

  • Craig Eisenacher - CFO

  • Well we issued the $400 million of sub debt.

  • I want to say it was the 23rd or 24th of May.

  • So it is the interest on the additional $400 million.

  • Now having said that we have $200 million of trust preferreds that we're going to call in November and that will offset a big -- a big piece of that.

  • Vinay Misquith - Analyst

  • Do I think that is the interest in the long term notes which is $4.3 million, correct?

  • You also have a $2.8 million interest expense on your credit facility which is substantially higher from the past few quarters?

  • Craig Eisenacher - CFO

  • Hold on a minute.

  • I don't know where you're looking, so give me a second here.

  • Vinay Misquith - Analyst

  • Okay.

  • Beth Farrell - VP IR

  • That is an acceleration of the amortization of the bond costs for the potential retirement of the debt that is coming due in November.

  • Vinay Misquith - Analyst

  • Okay so it is --

  • Craig Eisenacher - CFO

  • Because the expected maturity has been accelerated.

  • I am sorry.

  • You caught me unaware.

  • Beth Farrell - VP IR

  • Yes, we had to think about that.

  • Craig Eisenacher - CFO

  • So what that is --is unamortized costs associated with the $200 million that we're going to call in.

  • Vinay Misquith - Analyst

  • Sure.

  • Craig Eisenacher - CFO

  • We accelerated the amortization on that.

  • Vinay Misquith - Analyst

  • So that expense should continue into the next quarter but after that, that should be sort of zero, correct?

  • Craig Eisenacher - CFO

  • Correct.

  • Vinay Misquith - Analyst

  • Okay that is great.

  • The second question is more on your profitability.

  • Your profitability for the last two quarters has been really exceptional with your accident year combined ratio, ex Cats and about the 82 -- about 82 %, down from a rate of -- off about 86% last year.

  • Could you add some color as to why it's developed so favorably despite pricing being down and should we use this other run rate for the rest of '07 at least?

  • Joe Taranto - Chairman, CEO

  • Well I think part of it has been a bit of a shift that we've had in the last year or so toward the property side.

  • You could see our growth within U.S.

  • treaty property has really been quite good and has been offsetting some of the decline in the -- in the casualty side.

  • I would say property, especially some of the areas that we have most particularly been in, like Florida, we're still seeing business mature on deals where the rates were really quite solid and quite good.

  • Going forward, as I said, for the second half of the year, I see our property business holding up quite solid, including the Florida business.

  • So I would -- I would believe that the underlying run rates should continue in the immediate future.

  • Vinay Misquith - Analyst

  • How much did rates go down this year versus last year on the Florida business?

  • Joe Taranto - Chairman, CEO

  • Well the Florida businesses concluded, when we talk about a year, we tend to talk about July 1 to July 1.

  • That's when really most of the business is concluded.

  • So what you're seeing in the second quarter is still the business being booked -- is business being booked on last year's deals, if you will.

  • Going forward, we really did not see much in the way of rate decline.

  • We had to offer more coverage, if you will, going forward, as last year's terms were extremely tight but pound for pound, we're still quite pleased with the business as we renewed it this July 1.

  • Vinay Misquith - Analyst

  • Alright, thank you.

  • Operator

  • And Matthew Heimermann with J.P.

  • Morgan will have our next question.

  • Matthew Heimermann - Analyst

  • Good morning everyone.

  • A couple of quick questions.

  • First was just, Craig, on the sub-prime can you just talk about your mortgage back exposure, I guess, in three ways?

  • One, just give us a flavor for credit quality, what percentage might be the form of CDOs, CLOs, and the vintages?

  • Craig Eisenacher - CFO

  • I don't know that I am prepared to give you all that detail right now.

  • I can tell you, in terms of sub-prime, we have virtually none.

  • The credit -- and I know as well, that the credit ratings on what we do have are very high, they're AAAs.

  • I can give you more detail on the portfolio offline in terms of how much there is, and the vintages, if you want that.

  • Matthew Heimermann - Analyst

  • Okay, that would be great.

  • Thank you.

  • Craig Eisenacher - CFO

  • Its being reviewed very carefully though.

  • Matthew Heimermann - Analyst

  • Good to hear.

  • The other -- the other, I was wondering, Joe or Tom, if you could give a little bit more color or willing to give more color on the three programs you mentioned in your commentary?

  • Tom Gallagher - President, COO

  • Sure.

  • Sure.

  • We have, right now, agreed to three programs.

  • The three programs come out to be -- one is related to moving storage facility, some forestry, some agricultural.

  • Another one is a towing and recovery.

  • And the last one is a brownstone program, covering brownstones in New York, and in Boston, for both property and casualty.

  • The total premium volume on an annualized basis would be probably about $150 million.

  • Matthew Heimermann - Analyst

  • Okay.

  • That is a big chunk of change.

  • Tom Gallagher - President, COO

  • I would say so.

  • Matthew Heimermann - Analyst

  • And then the last question was -- this is just a big picture question.

  • There has obviously been an increase in consolidation activity in the industry.

  • There's been rumors of a number of transactions which haven't panned out or haven't been announced as of yet.

  • From your perspective, if consolidation activity impacts -- increases, what type of impact do you think it would have on your relative competitive position and do you think it helps you or hurts you in terms of business flow, client retentions, etc.?

  • Joe Taranto - Chairman, CEO

  • I don't know if there was massive consolidation that it would really change our world very much.

  • We still have the best ratings and will continue to have that.

  • We still have client relationships that go back quite a long time.

  • It is true sometimes, as a result of consolidations you get some shakeout, it offers us some small opportunities.

  • But, I honestly don't look at that as if it would change our world too much.

  • Matthew Heimermann - Analyst

  • Alright.

  • Fair enough.

  • Thank you.

  • Operator

  • And next we move on to Susan Spivak with Wachovia.

  • Susan Spivak - Analyst

  • Good morning.

  • I just wanted to follow-up on the questions on some of the flood and catastrophe losses.

  • So is it -- my understanding that the $25 million -- million loss that you took in the quarter for the UK, is that based on a $3 billion U.S.

  • loss in the U.K.?

  • And that if the June losses were to increase higher then you could have some additional reserving for that in addition to what you might have in the third quarter for what has happened since then?

  • Joe Taranto - Chairman, CEO

  • You are correct.

  • Susan Spivak - Analyst

  • Thanks.

  • Joe Taranto - Chairman, CEO

  • You're welcome.

  • Operator

  • And we'll move on to David Small with Bear Stearns.

  • David Small - Analyst

  • Yes, good morning.

  • Just, you've grown your property reinsurance book as you talked about, can you just tell us how the book has changed geographic -- in terms of geographic mix year-over-year?

  • Joe Taranto - Chairman, CEO

  • Again, the biggest growth that we've had so far this year versus last year has been in the Florida sector.

  • And of course all of this started in 2006 on the heels of the 2005 losses where that market was transformed dramatically.

  • Having said that, we do have other parts of the U.S.

  • where we have increased quite nicely, not necessarily national coverage but North Carolina covers New Jersey covers.

  • We do have some national business but I would say most of our growth has come from just the one state deals we have done.

  • David Small - Analyst

  • Okay then just a second question, Joe, on the first quarter call you said you expected the U.S.

  • insurance operations would grow modestly in '07.

  • So given the performance we have had now, should we just be reading that those three programs come on and take up the slack?

  • Or has this rate decline been faster than you expected and we should no longer assume those comments on the first quarter call don't hold any more?

  • Joe Taranto - Chairman, CEO

  • Well, the rate changes for the first six months in the U.S.

  • market have been disappointing for us.

  • And so whereas we thought there would be some market decline in January, there has been so far on the casualty side, especially for the heavy duty stuff, including things like contracting liability, there has been more decline than we anticipated which is why we are down in the first six months.

  • Now you are right when we get to the second six months, we have some new programs coming in.

  • We believe the second six months will compare well with the second six months of last year, meaning I think we'll be at least level.

  • I don't know if we will make up the shortfall from the first six months.

  • We will see again and that depends on how the market changes.

  • The programs that we are adding that Tom described, are not what we would call heavy-duty casualty.

  • They're very specific, small premium niche areas, which, as I noted, is insulated from some of the tougher competition.

  • Having said that, we'll still probably see the contracting business as one that is going to be tough to deal with the market changing and the workers comp California business is getting smaller for us.

  • But the second half of next year, of this year, excuse me, should compare well to the second half of last year.

  • But yes, I have been disappointed through six months at the market decline in some of the casualty, is more than I would have guessed six months ago.

  • David Small - Analyst

  • Okay, great.

  • Thank you very much.

  • Operator

  • Next we move on to William Wilt, with Morgan Stanley .

  • William Wilt - Analyst

  • Hi, good morning.

  • I think the answer to this may have been touched on in the previous question, but I just wanted to observe and ask for your comments on the combined ratio for the quarter and year-to-date in U.S.

  • reinsurance.

  • Extraordinarily favorable, I think, even making some adjustments for catastrophes or catastrophes and reserves.

  • Is that primarily attributable to the business mix change and that being more heavily property than it had been in the past?

  • Craig Eisenacher - CFO

  • Yes, I would -- I would say for the most part the answer to that is yes.

  • The U.S.

  • treaty property book has been extraordinarily profitable through the first six months.

  • I mean there just really haven't been any catastrophe losses affecting that book of business.

  • As well, I think I noted before that there was favorable development in both treaty property and treaty casualty, which favorably impacted the reported loss ratios.

  • So what while we're seeing some deterioration on the treaty casualty loss ratio, overall, it's from a very strong level and the deterioration isn't that significant.

  • William Wilt - Analyst

  • Thanks for that.

  • Could you give a sense for the treaty property, treaty casualty split within -- within U.S.

  • reinsurance or more broadly property-casualty splits?

  • Craig Eisenacher - CFO

  • In terms of premium?

  • William Wilt - Analyst

  • Yes.

  • Craig Eisenacher - CFO

  • Through the six months, treaty properties had $365 million of written premiums, treaty casualty and Fac was about $260 million.

  • William Wilt - Analyst

  • Thanks for that.

  • The one other, if I may, just an update on S&P, I believe they have -- and maybe you could clarify, that ratings on CreditWatch are negative -- or perhaps it's a negative outlook, so if you can clarify that.

  • But just an update on what they are looking at, I believe enterprise risk management was a focal point of the review or comments they've made, an opportunity, if you would to -- to just provide an update on that issue, given the importance of credit ratings?

  • Craig Eisenacher - CFO

  • Sure, okay.

  • As you know, AM Best and Moody's have each reaffirmed us.

  • We have a stable outlook in both cases.

  • With respect to S&P, we continue to be in discussions with them.

  • We've had several meetings.

  • We think we're making progress.

  • We think that they better understand how we do things here and our enterprise risk-management capabilities.

  • But that comment is from my lips, not theirs.

  • We really need to hear from their lips at some point.

  • To clarify, the rating is on negative outlook, not on credit watch.

  • Just to give you an idea of the schedule, we will meet with them, I think again in August and then we'll have a formal rating meeting with them in October.

  • Then the rating committee should meet in November and the new report should come out in November.

  • We're, I guess I should say, cautiously optimistic, or optimistic, as the case may be, that we will retain the rating and the negative outlook will come off.

  • That's -- that pretty much summarizes where we are.

  • Operator

  • Next question, we will hear from Kevin O'Donoghue with Banc of America.

  • Kevin O'Donoghue - Analyst

  • Thank you.

  • I have one more question from the -- on the U.K.

  • catastrophe loss.

  • Wondering if the $25 million, and also I guess the loss in Australia, were those gross numbers or were those reinstatements premiums?

  • And were reinstatements really -- does it have any kind of materiality in the quarter?

  • And then secondly in the U.K., what kind of losses are you primarily seeing, is it homeowners or commercial property or business interruption?

  • Craig Eisenacher - CFO

  • Okay, just in terms of the losses, those are gross losses.

  • I think the re -- the reinstatement premiums in the aggregate for all of our catastrophe losses we estimated at about $10 million.

  • But we didn't identify them to specific loss.

  • And then in terms of the mix of business, Tom.

  • Tom Gallagher - President, COO

  • Well, the losses are coming from both personal and commercial areas.

  • Kevin O'Donoghue - Analyst

  • Okay.

  • And then I have one question on Florida.

  • Did I understand you correctly that your clients are purchasing coverage from you in lieu of the much reduced coverage for -- from the fund for the optional layers that were introduced this year, or are they buying enough coverage around what the fund's offering now to -- to make up the difference from what the fund is essentially taking away from the private market?

  • Joe Taranto - Chairman, CEO

  • No, they wouldn't purchase from a professional reinsurance market if they could get the layer from the Florida hurricane Cat fund.

  • That is going to be much cheaper.

  • There's going to be no comparison.

  • But there is much more purchasing going on around it as you referred to it.

  • Both below where the fund attaches, above, where the fund attaches, on the co-insurance because the fund is just 90% within that layer and the second loss events, the fund is just for one -- one event.

  • And quota share as well, after all of their Cat protection, there's a few companies that still are purchasing pro rata reinsurance.

  • Kevin O'Donoghue - Analyst

  • Okay.

  • Thank you very much.

  • Operator

  • And we'll take a follow-up question from Tom Cholnoky with Goldman Sachs.

  • Tom Cholnoky - Analyst

  • My question was answered, thank you.

  • Operator

  • We'll move on to Ian Gutterman with Adage Capital.

  • Ian Gutterman - Analyst

  • I also had a follow-up on the U.K.

  • floods.

  • I was hoping, I guess a couple things, one can you tell us a little bit about how you play that market, are you a frequency player, a severity player?

  • And then I guess just to follow up also on just as how losses work in that market, I guess?

  • Are each of these floods separate events?

  • Or what are the hours clauses?

  • Are there geographic splits?

  • I mean if it's all on one river, but 50 miles apart is that one event or two events?

  • Just how do we define losses so we can think about what's going to stay in a primary market versus what will hit the reinsurance market?

  • Tom Gallagher - President, COO

  • Let me say this.

  • On the U.K.

  • floods, our exposure is both on the primary and excess basis.

  • The amount of flooding that occurred, we will take it as one event, though it covered both central and northern England, the storm in June.

  • It is based on the coverages that were reported.

  • Some coverages have some time limitations, others don't.

  • So it's based on the coverage that was applicable on the date of the event.

  • Ian Gutterman - Analyst

  • So if two weeks from now there's -- there's some more rain, the river rises again and we hit some of these same towns?

  • That's going to be a separate event probably?

  • Tom Gallagher - President, COO

  • Yes, right now the second events that occurred over the past weekend were in central and southern England.

  • A different location.

  • And it will be a second event.

  • The time difference between them was roughly about a month.

  • Ian Gutterman - Analyst

  • Okay that's what I was trying to figure out, is sort of what -- how long between events -- sort of what are the typical hours clauses on floods in the U.K.

  • Tom Gallagher - President, COO

  • I can't say it is typical.

  • Ian Gutterman - Analyst

  • Okay.

  • There's not?

  • Okay.

  • Joe Taranto - Chairman, CEO

  • It may be typical next year.

  • Ian Gutterman - Analyst

  • Have it.

  • Okay.

  • Thank you so much.

  • Operator

  • That will conclude today's question-and-answer session.

  • At this time I would like to turn the call back over to Beth Farrell for any additional or closing remarks.

  • Beth Farrell - VP IR

  • Thank you for participating on the call.

  • Certainly if you have any further follow-up questions, you can give myself or Craig Eisenacher a call.

  • Thank you again.

  • Operator

  • That will conclude today's conference.

  • Thank you for your participation.