Everest Group Ltd (EG) 2008 Q1 法說會逐字稿

Good day and welcome to this Everest Re first quarter 2008 earnings release conference call.

Today's conference is being recorded.

At this time for opening remarks and introductions, I would like to turn the conference over to Ms.

Beth Farrell, Vice President of Investor Relations.

Please go ahead, ma'am.

Thank you.

Good morning, and welcome to Everest Re first quarter 2008 earnings conference call.

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

Before we begin I will preference 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 that investors should consider in connection with such statements.

Now let me turn the call over to Joe Taranto.

Good morning.

In the first quarter the turbulence in the financial markets continued unabated, the credit market debacle added to its victims while concerns over the worldwide economic future grew.

And the stock market dropped significantly in response.

Meanwhile, in our own insurance and reinsurance marketplace, we continued to see market trends of reduced rates in virtually all P&C product lines and in virtually all countries.

Concerns have continued to grow as to what these economic woes will pose for the insurance industry.

We at Everest are pleased to report that despite these challenges we had $190 million in operating earnings or $3.03 per share, we modestly increased book value per share in the quarter, while giving back $130 million to shareholders through $100 million worth of stock buyback and $30 million worth of dividends.

Worldwide growth premiums were down 14%, as we remained disciplined underwriters and only accepted business that we have evaluated to produce an acceptable return.

Last quarter, we guessed that we would be down top line 5 to 10% in 2008.

Whereas the first quarter reduction was beyond that range, I believe it contained some booking anomalies, and we continued to guess that future 2008 quarters will be off 5 to 10%.

Premiums for our international book, our specialty book, and our insurance operations were essentially level in the aggregate.

Our international book continues to benefit from our ratings, reputation, and relationships.

Continuing to expand on our already extensive reach, we plan to open a new office in Brazil to capitalize on the legal changes in that insurance marketplace, and to capitalize on the economic growth expected from Brazil in the future.

Our overall worldwide decline was driven by U.S.

reinsurance.

We have reported for a number of quarters that most all casualty classes are seeing continued rate decline at the insurance level, coupled with many ceding companies keeping more business net.

Property insurance rates are also falling, and competition among reinsurers has increased.

Some dumb deals are now on the landscape.

Competition and rate reduction is higher in the U.S.

than has taken place internationally.

The combined ratio for the quarter was 89, and cash flow remained strong, reflecting the quality of the existing portfolio.

With disciplined underwriting, we look to continue to maintain the high quality of our portfolio.

In summary, despite a serious drag on the financial markets, we moved ahead.

We expect to continue to move ahead and hope for less future head winds from the financial markets.

Craig will now give the financial report.

Thanks, Joe, and good morning, everybody.

Operating earnings were $191 million or $3.03 per diluted share for the quarter.

Net income after realized capital losses was $78 million, or $1.24 per share.

Our annualized operating ROE was 13.6% for the quarter quite respectable, we think, given the environment.

Our GAAP equity finished the quarter at $5.6 billion, lower than at year end by $51.8 million.

In the quarter we repurchased $101 million of common stock, and I'll talk a little bit more about that in a moment, and paid $30 million in dividends.

So we generated $79 million of increased equity prior to the amounts we returned to shareholders.

The taxable equivalent total return on our fixed income portfolios was 1.1% compared to 2.2% for the Lehman aggregate.

The total return on our public equities was a negative 9%, compared to a negative 9.9% for the S&P 500, so we did a little better in stocks and a little worse on the fixed side.

Fair market and mark t to market adjustments for the portfolios as a whole resulted in a reduction to our GAAP equity of $114 million in the quarter, not too bad, we think, given the adverse performance of the financial markets.

Since quarter end through this past Friday, our portfolios have rebounded by about $66 million, basically driven by appreciation in the equity portfolio.

We repurchased 1,052,000 shares in the quarter for aggregate consideration of $101 million, or an average price of $95.85 per share.

Book value per share stood at $91.01 at quarter end, compared to $90.43 at year end, and that's an increase of $0.58.

Overall, a reasonable performance given the competitive nature of the insurance and reinsurance markets and the rather dismal performance of the financial markets during the quarter.

Our gross written premium, at $878 million was lower than in last year's first quarter by 14%.

The U.S.

reinsurance segment had gross written premiums of $234 million, which was 34% lower than in the first quarter of last year.

Although I should note down just 3% compared to the fourth quarter of 2007.

Both treaty property and treaty casualty were lower on the quarter.

In the case of property we received lower quota share premiums from some of our Florida clients.

This was due to increased purchases of common account covers which reduces the quota share subject-based premium.

Seasonality, and lower excess of loss writings at January 1, also contributed to the decline.

Casualty continues to become more competitive with lower rates, demands for higher ceding commissions and relaxed terms, and ceding companies retaining more business net.

As a result we continue to see less business that meets our underwriting criteria.

Gross written premium for the U.S.

insurance segment at $210 million was lower by just 3% compared to the first quarter of 2007.

While there were many ups and downs by program, the predominant trends are increases from our new programs and decreases largely in our worker's comp and contractor's programs.

Specialty was flat with last year's first quarter at about $55 million.

Marine was up a bit, and aviation where market premiums continue to look to be inadequate in the aggregate was down.

Gross written premiums for surety and A&H, the other components of our specialty area, were little changed from last year's first quarter.

International aided by the weaker U.S.

dollar was up 7.5% to $186 million for the quarter.

Currency movement accounted for growth of about 6.7%, but we saw slightly more new business and increased shares at January 1, particularly in the Middle East and Latin America.

Asia, due to timing was down slightly in the first quarter, but we expect that trend to reverse as the year progresses.

The Bermuda segment was down 11.5% overall to $192 million for the quarter.

Business written out of Bermuda was flat with last year's first quarter, while our London and European book was lower principally due to reductions in premium estimates for several Lloyd deals.

We continue to expect gross written premium for 2008 as a whole will be lower by 5 to 10% than in 2007 despite the somewhat larger negative comparison during this first quarter.

Our combined ratio was very strong at 89.1% for the quarter, the accident quarter loss ratio was 55.2% exclusive of catastrophe losses which was 1.4 points higher than in last year's first quarter.

Catastrophe losses were light at $21 million and consisted mainly of European storm Emma, the China snow storm and the late December 2007 hail storm in Sydney.

These contributed 2.3 points to the loss ratio for the quarter, so current business continues to run fine, continuing -- recognizing that most of the quarter's earned premium was written last year.

We experienced adverse development of $26 million, including catastrophes, or 2.9 points in the quarter.

An adverse award by an arbitration panel involving a 2001 retrocessional cover, resulted in a net loss to us of $32.6 million.

Otherwise net development across the group for the quarter was slightly favorable.

Operating cash flow for the quarter was $251 million, compared to $162 million reported for the year-ago quarter.

The growth coming -- the growth coming mostly from reduced catastrophe payouts from the 2004/2005 storms in this year's first quarter relative to last year's first quarter.

Cash and invested assets finished the quarter at $15 billion compared to $13.9 billion at March 31, 2007, our up by a little over $1 billion in the past 12 months.

The increase for the quarter was $60 million.

We had strong cash flow in the quarter, a little North of -- operating cash flow in the quarter, a little North of $250 million as I just noted.

However, the financial markets were uncooperative to say the least.

Our publicly traded stock portfolio declined by $94 million and our fixed income portfolio by $21 million both after tax.

As well, we used $130 million for dividends, and share repurchases, which is why we didn't see more growth in invested assets during the quarter.

Our net investment income was $150 million compared to $156 million for the first quarter of last year, that's down by $6 million or by 4%.

The net income from our fixed maturity, short-term and public equity portfolios grew commensurately with asset growth.

However, our limited partnership investments experienced a $5.1 million loss for the quarter, compared to a $7.6 million gain for the first quarter of 2007, and that's a negative swing of $12.7 million.

Our limited partnership investments can be broadly broken in to three categories.

First, public equities, and second project funds, and third, what I would call other, which includes private equity LBO and mezzanine finance.

We don't known any quant funds.

The loss for the quarter was driven by the public equity partnerships which are generally invested long in a small number of names.

They proved not to be immune to market forces and lost $15.6 million or about 9% of their value.

The remainder of the partnerships had an aggregate gain of a little in excess of $10 million representing a positive annualized return of 9.1%.

Nevertheless in the main, we're quite happy in with our investment portfolios.

They are well diversified, and while we did not escape the first quarter woes in the broader financial markets, they held their own and then some.

We ended the quarter with $5.6 billion in shareholder's equity, down by $52 million from year end.

More importantly, book value per share grew six-tenths of 1% to $91.01 during the quarter.

We are very well capitalized with a strong balance sheet, as well, we remain focused on maximizing book value per share over the long term, and at the same time maintaining our strong capital base and financial ratings.

And now we'll open it up for questions.

(OPERATOR INSTRUCTIONS) We will pause for just a moment to assemble the roster.

We will take the first question from Tom Cholnoky from Goldman Sachs.

Good morning.

I have got three questions, if I can.

Number one, just on the U.S.

reinsurance business, Craig, you indicated that you lost a large -- I guess, some sort of retro cover of $33 million, but that would -- I guess that would account for most of the prior year's strengthening.

If you look back on the four quarters of 2007, you were releasing reserves at the rate of about $35 million a quarter, which would suggest that there was, perhaps, $35 million less of something else there.

Is there anything else going on with the reserve prior-year development other than this loss -- this arbitration loss?

In terms of U.S.

reinsurance?

No.

Yes.

Yes.

No.

I think, the reserves continued to look strong.

We looked at emergence every quarter, and things continue to look quite favorable.

Okay.

So there's no other strengthening there then?

No.

Okay.

No, the U.S.

reinsurance in total was favorable, ex that.

Okay.

Okay.

I guess, second, I just want to clarify your views on the premium outlook, because Joe seemed to say one thing, and you seemed to say another thing, which was that gross premiums down 14%, and you still -- as Joe said -- I thought he said he still believed that future quarters would be down 5 to 10 per quarter, which would imply that for the year you will be down more than 5 to 10, and yet, Craig, I thought you said you are still comfortable with the 5 to 10 for the whole year.

I think we just said the same thing different ways.

I think we still believe we will be down 5 to 10% for the whole year.

Despite the hole you have in the first quarter?

Correct.

You are actually -- you are more optimistic now about the future quarters than you may have been relative to the year when you provided the initial guidance?

I think -- I think you are splitting hairs there a little bit--.

Well, I may be, but I just am trying to--?

We're still faced with competitive marketplace.

We still expect to be down, we are still guessing at the next nine months.

We still have to write the business yet.

We still have to bring what Florida brings in June and July, but we're just trying to give you our sense that what you saw in the first quarter was probably not indicative.

Craig used the word seasonality.

I guess I used some booking anomalies, but when we look back it just seems -- and there's always a certain amount of lumpiness to a quarter.

We just thought that the lumpiness worked against the first quarter this year and probably worked in favor of the first quarter this year.

Just my final question.

Just on the public equities, can you give us some idea of how much you have invested in these public equities that resulted in this $15.6 million loss?

In the partnerships?

Yes.

We have a total of about $650 million on the balance sheet invested in limited partnerships.

The public equity portion -- what I would classify as the public equity portion of the portfolio is about 25% of that, about $150 million, and then the project orient is about one-third.

And they are generally real estate, healthcare, energy specific types of partnerships, and the mezzanine and others, about 40% of the total.

Okay.

Great.

Thank you.

Yes.

We will now take the next question from Josh Shanker with Citi.

Good morning.

Good morning.

A few quick questions one is Centrix, the credit insurance, that's performing adequately at this point?

Yes, we put up a little more in reserves in the quarter.

We are not -- I guess our borrowers are not immune to general economic conditions.

So it continues to develop a little adversely.

Overall, though, the insurance segment was just about flat in terms of its development.

So we're nearing the end of the road on this thing, and there's not much more exposure to go.

Very good.

Second, you mentioned a weakening of terms and conditions.

Generally, your competitors have consistently been saying that despite a -- pricing coming out, terms and conditions have been holding up pretty well.

I'm wondering if you can speak to some examples of what you are seeing there?

Well, I think people talk about terms and conditions, you really need to kind of slice it into two sectors.

One is what is happening at the insurance level.

And I do believe that there's not a tremendous change in terms and conditions.

We do see some shifting in deductibles on the property side that works against insurers and in turn works against reinsurers.

What we were more inferring to is on the reinsurance we had entered into more debate in terms of terms and conditions than we had a couple of years ago.

A lot of the issues get into things like should there be disagreement and arbitrations?

What rights does the reinsurer have?

What rights does the insurer have?

There are also more and more debates about if there's changes in ratings, what does a reinsurer have to do?

In any event, there certainly is a movement to -- to weaken the terms and conditions that a reinsurer has.

And we're in a position where we look to maintain the strength that we currently have.

So there's more debate on that front today than there was a couple of years ago.

Okay.

Very good.

And finally, related, in terms of where we are in the cycle at this point right now, if you had a handicap, do you think the industry is writing at levels of underwriting profit right now as a whole?

And where do you see it sort of on a cyclical basis?

Where do we stand in the traditional cycle if you can be so reductive as to make it that easy for me?

Well, of course, it's not easy.

But I put us into the normal part, if you will, and not either extreme.

I think certainly most companies including us believe what we have written, we have written at terms -- at rates that we believe will make a profit.

You're still seeing combined ratio from us and from many others that are quite good, quite profitable, combined ratios, numbers that you really didn't see five and six years ago.

Now, it has been helped by good property losses or benign losses, but -- I think we're at a point where you can still get adequate margin on most of the business that you are presented with, most of your renewals, certainly, more and more of the new business that we seem to be looking at, people are shopping around, and it is not rated quite adequately as most of what we see in terms of our renewal base.

So it's not easy, but there's certainly adequate-rated business out there.

So I kind of put it in to that normal part of the cycle, where you have to work hard to get the proper margins, but it's doable.

Okay.

I appreciate the candidness.

Thank you very much.

Jay Gelb with Lehman Brothers will take the next question.

I was hoping to touch base on the margins.

Joe, the accident year loss ratio, pre cat, in the first quarter of '08 was around 84 or 85%.

What kind of a drag do you anticipate on that going forward based on lower pricing, reduced premium volume and lucid terms and conditions?

Well, we're trying to resist any drag on that.

We're trying to maintain that, whereas we did get a good cat quarter, we had some other items that went against us in the quarter.

So from that point of view on balance I looked at it like it was kind of a normal overall cat quarter.

Property side, I think we can still maintain the adequacy that we currently have.

Casualty, you see that we're -- we're reducing because we couldn't write as much business and maintain the combined ratios that we had.

The international front looks a little bit more favorable.

I'll ask Tom to comment on the international front.

Well, on the international side, we see some changes in price, but nowhere near what has happened in the U.S.

It's 5 to 10% reductions across the board, and in most jurisdictions in the world, and the overall combined ratio still seems to be very good, and is adequate not only toward the traditional losses but also for the cat element.

Okay.

And separate issue, can you touch base on the realized losses that ran through the quarter?

Was that reflecting a change in accounting?

No, that's almost all mark to market.

Our equity securities are almost all fair valued, and we started doing that in the first quarter of last year, so the bulk of that is actually unrealized -- actually almost all of it so unrealized, in this -- in the old sense of unrealized.

Yes, that's the change on our $1.5 billion of equities, and as Craig noted in the opening, about $65 million of that has already come back in the second quarter.

I see.

Okay.

And then can you talk about the potential opportunity for the state of Florida and the other wind pools with the reinsurance demand at midyear?

Well, I think that the insurance demand is largely equal to what it was last year.

There is a lot of dynamics going on in the marketplace from the governmental bodies, and the pressure is obviously to keep the rates down, not only for the primary sector, but for the excess.

There is some talk right now about them opening up more cat capacity so the market could fill in.

It is not finalized yet.

I believe we're in a very good position in that market, and have been now for over two years with a well-established position with a number of carriers there.

And the overall results have continued to be quite good.

The rate structures, though, that have been somewhat subdued in the last year, still have produced a very, very good combined ratio.

Right.

So what kind of market opportunity could that be if Citizens opens up more to the private market, the cat funds, and some of the other gulf wind pools.

Well, first of all let's say that it's far from clear that the legislature is going to make any changes whereby the state of Florida takes a lesser position and opens up more to the professional reinsurance.

That will be decided in the next month or so.

Obviously if more is put on the table for professional reinsurers to write in the form of excess of loss, we can participate in that.

And clearly, should Citizens decide to buy something as well from the professional market, we would have the ability to participate in that as well.

Having said that, the majority of our writings and our profits have really come from participating in quota shares with a few select primary insurers in the marketplace.

We continue to have very good relations with this group, and we continue to believe that that business will probably renew itself June and July, and look somewhat the same that it did in the last couple of years, but it looked very, very, very good and performed very well.

Okay.

Thanks for the answer.

Now we'll take a question from Susan Spivak, Wachovia.

Go ahead.

Good morning.

Joe and Craig and Tom, I was hoping you could answer a couple of questions.

First, are you exploring any changes to your investment strategy in terms of trying to take advantage of some of the widening spreads?

And then, second, historically, it just seems as if you have been even more aggressive on the share buyback front when your stock has been at these price levels?

And so what could we expect before the end of the year?

I believe last year, you repurchased 4%, if I'm correct.

And then, Joe, just an industry question.

It just doesn't seem as if this pressure on investment income will be enough to change pricing, so in your -- in your view, what do you think needs to happen?

Are we still in a situation where over all results are too good, the industry is too flush in capital so we could live like this for a few more years?

Okay.

Craig will start, and I'll finish.

On the portfolio, we are not really significantly changing our portfolio strategy, we are looking for pockets of opportunities.

For example, in the first quarter we bought a lot of Fannie May, and Freddie Macs.

So we have been buying munis, the suspense had been quite wide.

So we've been selectively deploying funds in pockets of opportunity as we see them.

Now, I have got to say about as soon as a pocket of opportunity appears, it disappears, because I guess there's a lot of us out there that have significant liquidity, and are looking for opportunistic places or places where we think we see opportunities for longer-term gains to deploy the funds.

But basically we continue to be a conservative investor.

We have a lot of liquidity.

We have significant short-term investments, our portfolio is high quality, with relatively short duration and I would expect to see it continue in that vein.

In terms of the buybacks?

Yes, I'll get in to that.

But, yes, just to kind of layer on to the investment.

As Craig noted we don't have any major shifts, but we're happy with the overall strategy, but when munis did spike a few weeks ago, and to levels that really had not been seen before, I guess we did shift about $250 million into these -- into these better-yielding munis.

Now since then we have seen them correct largely, and so we're starting to probably level out in terms of the shift that we made, but we're happy with the shift that we did make a few weeks ago.

So we'll always be moving to -- to take on current opportunities.

Buyback, yes, you are right, Susan, it was 4% last year, $250 million, it was another $100 million in the first quarter, so, we're making a very clear statement that's part of the mix, that's part of the strategy, and certainly stock price figures into these calculations as well.

We continued to not provide estimates and guidance in terms of what we'll do into the future, just to maintain flexibility, but it's pretty clear what we have been doing.

Pricing, I'm sorry to say, that I do believe the world is pretty much as you described it, flush with capital, still posting some very good earnings, and it's not a scenario that is going to begin an uptick in pricing.

Now what would do that, people have speculated and they usually come up with the big bang theory, and we're not hoping for the big bang, so not exactly rooting for that, but in the short-term, and I don't know for how long, you can probably expect an overall rate decline to continue.

Right.

Right.

Okay.

Thank you very much for your answers.

We will now take a question from David Small, Bear Stearns.

Good morning.

Could we go over to the insurance book for a second.

Could you sort of note -- you talked last year about three new programs that are now, should be fully online for Q1.

How much premium did those three programs generate in the first quarter?

In the first quarter, I don't recall exactly how much they have, but let me quickly go through the three programs.

One is the Brownstone program, the other is Manny, and the last one is Tips.

As it stands right now the premium volume, as Craig indicated in the insurance side has been offset, we have some declines in some of the line business contracting being one of them, and the fact that we had these new programs has really filled the gap.

The one that has performed right now the best has been the Brownstone.

I think we are doing -- in the first quarter probably 50 million or $60 million there.

The other two programs -- Manny is a little bit behind what we projected, and Tips I'm not sure exactly what the numbers are right now.

But they're -- the expectation is that they were perform as we originally indicated, and give us approximately about $150 million of new business this year.

Okay.

And then just from your guidance, should we assume that there are some new programs out on the horizon that you haven't talked about?

There is nothing that we're so close to or closing on that we can put it out as a done deal.

So there's always opportunities that we're working on, but really, nothing big and close to finalizing that we can report to you.

We still see a lot of activity and have so since the beginning of the year.

Nothing has come close to getting to where we think it is a good opportunity for us.

But tremendous amount of activity in the marketplace right now.

And then just -- on the reinsurance book, given how much the -- I guess, given how much premiums are off in the quarter, maybe just help us think about for the year, how much of that book do you think would be Florida-exposed by the end of the year?

Well, I guess the Florida business is probably $400 million worth of business, call it $100 million per quarter, and at this stage of the game, I don't really see -- I don't envision a big change one way or the other on that.

Now -- it is yet to be done, that's June and July.

But based on conversations to date, I don't see that number changing significantly one way or the other for us.

Okay.

And my last question is just in term of Florida, do you have any appetite there to be more aggressive writing primary either on the commercial or residential side?

No, we have done some commercial business.

If you are talking about homeowner's business, we're not looking to get into that market.

It's too much of a political game.

You have to wait every year to be told by the politicians, what kind of profit you can make.

What kind of rates you can charge, where you can write and where you can't.

It's a very difficult way to run a business.

As a reinsurer, you can decide if things are wrong, to get out.

But as an insurer, you are kind of stuck in the state and you are stuck with the politicians.

Okay.

Great.

Thank you.

And Matthew Heimermann with JPMorgan will have the next question.

Hi, good morning, everyone.

Craig, maybe opening question for you.

Do -- the -- it looks like you sold some equity securities in the quarter, and I just was wondering if you could quantify that?

And then building on that, I was just curious whether or not the equity portfolio was a constraint with respect to how much stock you could buy back.

Matt, we bought back -- or sold, rather, about $250 million of equity securities, early, early in the first quarter.

We just -- and we looked at the equity markets, and it just looked like there was more downside risk than upside potential.

I don't know that that has changed much at this point, but it seems to be bumping along at a range, at least at this point.

In terms of our buybacks, at some point, if we were to buyback enough stock, then we wind up with , a ratio of equity investments, to our GAAP equity that might be an issue from a rating perspective.

But given that our operating leverage is low, given where we are at this point, I think it is very easily

How far away are you from a threshold?

We're fine.

We look at it as we probably maxed at 50% equities to GAAP equity given our operating leverage, et cetera.

But we don't really want to go there.

We're running closer to 40 at this point.

Okay.

And then on the buyback, Joe, you have I think 1.4 million shares left on the authorization, and I'm just curious as to whether or not that gives you sufficient flexibility to do a -- if you really thought the stock was at an attractive price and there's nothing else going if that's enough powder, so to speak?

Or dry powder.

Yes, that's $150 million-ish worth of buyback.

The Board meets quarterly, the Board meets next month.

If we think we need more, we would chat about it.

I have no doubt that we would agree on it and just authorize more.

So that's easily changed if it needs to be.

Okay.

And then the last question just on loss trends in general, have you -- have you noticed any changes with respect to loss trends recently?

And just as important, have you made any changes with respect to how you are booking the business today versus the past?

We haven't really.

I mean, there's always the spike that comes with things like the credit crunch, but if you are talking about the more normal medical inflation, I guess we have seen a bit that may affect our worker's comp business, but nothing too severe.

We have read -- some analysts are seeing some uptick here and there, and I have been asking our actuaries and surveying our business to make sure that -- if there is any uptick that we're putting it into our numbers, but really most of our business is unaffected by any severity increase at this stage.

Okay.

And then maybe you can tell me if I'm reading too much into your opening comment with respect to that question, but you said, not really, but for, there is obviously pressure with the equity markets.

Is that a signal that you are perhaps holding IBNR or other things longer than you might have otherwise in the past on older business?

No, I think we're doing what we have always done, which is to release reserves when we get to the point where we're confident that we can do so, so I think the drill is always as it has always been.

Okay.

Thank you.

Now moving on to Vinay Misquith with Credit Suisse.

Hi, good morning.

Good morning.

On your Florida -- Florida business, how do you think the margins on that business would be impacted if the HFCF provides less cheap reinsurance.

Wouldn't it have to go out and buy ex on the private reinsurance

We constantly do a review of all of the activity as it respects to subprime, and we have kept in contact with our ceding companies, not only directly, but also we have done onsite audits, and we haven't seen much development whatsoever, but it's early times.

There's still a lot of discussions out there.

There's still a lot of activity in those markets, but at this point in time, we don't see it to be a material thing for us.

Sure, fair enough.

And one last question on the combined.

You combined the state pretty steady over the last few quarters, no significant uptick.

I'm just curious, is your business mix more towards property, less towards casualty?

Is that benefiting the combineds?

In light of the fact that pricing is declining 10%, sometimes even higher than that?

Well, there has not been a trend, in probably for the last couple of years, particularly in the U.S.

reinsurance, where we were doing more and more property and less and less casualty.

So the percentage of the overall mix that is property has been steadily growing.

Now I would tell you that that -- that has probably benefited the combines, because property results have been very, very good.

And in part, because worldwide losses have been relatively low.

Sure.

All right.

Thank you.

And now the next question will come from Ian Gutterman with Adage Capital.

Hi, Joe.

Just a couple.

First the $32 million arbitration loss was that related to the World Trade Center decision that came down in the quarter?

No, it was something else.

Oh, okay.

Just to go a little bit more in to Florida, your mix is pretty biassed towards the take-out companies, and I guess from what I understand they are going to be needing to buy more -- that basically because of all these new take-outs being formed there will be a lot of demand from them for reinsurance, and I guess you guys probably haven't heard it yet, but Platinum said on their call that rates may actually be up a bit in June.

I would assume they were probably referring to that take-out space.

So I was just wondering if you think rates and/or margins in the take-out space will be more favorably impacted in the Florida market?

And if that works to your favor?

That's unclear.

I didn't hear what Platinum said, so I don't know exactly what they are referring to.

If they are referring to reinsurers rates on excessive loss business in June.

Honestly, I don't think that will be up versus last year.

We had dinner with a client last night, who just got some excessive loss quotes for this June, and they were talking 10% down as to the consensus of those quotes..

So that -- that's the story at least with regard to reinsurance.

Whether or not these take-out companies will really be taking on other additional large blocks is unclear.

Most of the guys we've been talking to, we really haven't been hearing much about them doing big take-outs, so I don't see that affecting our book.

Okay.

The fact that they can now -- assuming the legislation goes through, can now write at higher gross premiums?

And therefore they needed to basically buy more reinsurance to get to the net requirement so that won't be a benefit?

Well, it could be a benefit based on the ratio of writing surplus you are referring to.

Right.

That's what I'm thinking about.

You bet, there could be some benefit, but we have a very select group of clients we have done business with down in Florida when we made the decision to go into that market.

And unless something changes, we'll stick with those guys, and look at some of the newer opportunities, but we have been pretty comfortable with the clients we have right now, and some of the new things we have seen, and we do still see some new ones, they haven't been as good as we have had with these other clients.

Okay.

That makes sense.

Thanks so much.

And it looks like we have time for one final question.

That question will come from William Wilt, Morgan Stanley.

Good morning.

A couple of -- and I'll make them quick, questions.

The storm losses in the U.S., did they contribute to your cat losses in the quarter?

Or were they typically below the reinsurance layers?

No, we saw virtually nothing from U.S.

losses in the quarter.

Okay.

Thanks.

And the arbitration ruling was Everest acting alone in that dispute or was Everest part of a syndication that was addressing issues with Retrocession if I understood it correctly?

No, it had only to do with us.

That's all I had.

Thanks very much.

Thank you.

With that I'll turn the call back over to your host for closing remarks.

Thank you for participating on the call.

Certainly, if you have any further questions you could reach us, Craig Eisenacher, or myself, again, thank you.

Once again, that does conclude your conference for today.

Thank you for your participation.

Everyone have a wonderful day.