Everest Group Ltd (EG) 2011 Q3 法說會逐字稿

Welcome to Everest Re Group Limited third-quarter 2011 earnings release call.

Today's conference is being recorded.

At this time, I would like to turn the call over to Beth Farrell, Vice President Investor Relations.

Please go ahead.

Thank you Katrika.

Good morning and welcome to Everest Re Group's third-quarter 2011 earnings conference call.

With me today are Joe Taranto, the Company's Chairman and Chief Executive Officer; and Dom Addesso our President and Chief Financial Officer.

Before we begin, 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 risks that investors should consider in connection with such statements.

Now let me turn the call over to Joe.

Thanks, Beth.

Good morning.

I'm pleased to report $147 million of operating income or $2.70 per share for the quarter.

This is a solid result when you consider the catastrophes in the quarter, and the stock market decline during this period.

The story this year has been one of heavy catastrophes.

Property casualty re-insurers know when they budget for expected catastrophe losses, that the actual outcome will in all likelihood be anything but what has been budgeted.

Mother Nature doesn't work that way.

Typically losses will be much lower or much higher.

This year it was the much higher variety.

What is important is that Everest has the underwriting, the diversification, the underlying earnings and the capital to manage through this volatility.

Indeed, despite this year's earthquakes, hurricanes, floods and tornadoes, we still expect to generate an operating profit for the year, given a reasonable fourth quarter.

Loss protection is what we sell.

Without losses we don't have a product.

Heightened losses reinforce to our customers why they buy.

And reinforce to us and to our competitors the importance of charging rates that will lead to meaningful profits over time.

We expect property catastrophe rates to continue to go up into 2012.

We expect retro prices 1/1 to go up about 15%.

We expect catastrophe rates on programs without losses in 2011 to average a 5% rate increase.

Of course, 1/1 programs with losses will have significant increases.

This will include Australian and New Zealand accounts, as well as some US regional accounts.

As we move forward to the 1/1 renewals in 2012, we will continue to execute the following strategies.

First, we will continue to reposition our reinsurance portfolio toward the better opportunities.

I expect that this will mean we will continue to write more property business as a percentage of the overall writings and less casualty business.

This is based on the expectation that property catastrophe reinsurance rates will continue to improve.

As we did for the June and July renewals, our mindset will be more rate, better terms, better upside with no increase in our higher PML zones.

I expect our portfolio will continue to move toward more excessive loss and less pro-rata.

This is based on the expectation that property excess of loss rates will continue to improve, while underlying insurance rates generally will not meaningfully improve.

Of course there will be exceptions to this rule.

For example, Florida homeowner rates are increasing, improving pro-rata results.

Second, we will continue to extend our global footprint and distribution capabilities.

Whereas we already operate around the globe with a great reputation in ratings, there are always seeds to be planted for the future in different countries and in different products.

Our operation in Brazil is a good example of a recent success.

Our entry in to the China market makes for future opportunities.

Third, we will continue reposition our insurance operation toward the better opportunities.

I expect we will continue to grow our short tail book including Heartland, our crop insurance company.

We will continue to push for higher rates on our property facilities in Florida and California.

In the third quarter, we averaged 3% rate increase on this property business.

We will continue to remain in the workers comp market, where we are most recently averaging 15% rate increases in California.

We will continue to maintain our profitable D&O business written out of New York.

We will continue to push for rate increases on our general liability book of business, where we averaged 9% rate increase in the third quarter.

We will continue to reduce the amounts of stand alone excess and umbrella business that we write as this space continues to be very competitive.

At our last report we expected our crop book to be profitable this year, as it has been most prior years.

However, severe weather will now likely make for unprofitable year when you include our transition and start-up costs.

This is 1 of the factors that drove the poor results for the quarter in the insurance segment.

Again, most years we expect this book to be profitable.

Given the significant restructuring and rate activity, I expect our insurance book will be much improved in 2012.

Fourth, we will continue to look for the best opportunities for our $16 billion of investments.

Finding yield at the appropriate risk level maybe more challenging today than ever, and disciplined underwriting is needed, both in our insurance and reinsurance deals as well as our investment strategy.

Fifth, we will continue to buy back stock.

Since our last call, we bought back 700,000 shares at a cost of $55 million.

Since this timeframe was hurricane season, we were more cautious than we need to be between now and the next call.

In summary, our quarter demonstrates the underlying strength of our organization as we posted reasonable results despite unusual losses.

Going forward, our market offers select opportunities as parts of our market are showing improvements in response to losses.

Dom will now drill down through the quarterly numbers and explain what drove these numbers.

Thanks, Joe, and good morning.

Before I begin, I would like to bring your attention to the changes in our segment reporting where the Specialty segment was combined into the US Reinsurance segment, except for primary accident and health which is now included in the Insurance segment.

In addition, we have provided additional disclosure on our non-US investments which highlights our limited exposure to European banks and sovereigns in distressed European countries.

As mentioned, despite additional cats in the quarter, we had positive operating results with a combined ratio of 95.6.

I will start with a review of premiums as this important in understanding the underwriting results for the quarter.

Overall, net written premiums are relatively flat quarter-over-quarter and up slightly over 2% for the year-to-date.

These modest changes, however, do not adequately convey the underlying component changes in our book of business.

For example, although total net reinsurance premium is down 6% for the quarter, and 5% year-to-date, the cat excess of loss component of the book within the total is up approximately 15%, while maintaining relatively flat PMLs.

The offset to the increase in the cat excess of loss was in the pro-rata property book, which was down by 12%.

The remaining offset was from a continued reduction in our casualty lines.

These changes are significant, in that they explain the year-over-year improvement in the year-to-date attritional combined ratio for all reinsurance segments from 85.2% to 82.2%, excluding the effect of reinstatement premiums.

A significant portion of the shift in premiums earned occurred in the third quarter as a result of the June and July renewal dates.

And since expected loss ratios and commissions are much lower for cat XOL business, we are beginning to see this favorable impact on the loss ratio and the expense ratio.

In addition, our projected attritional loss ratio includes provisions for cat events less than $10 million.

The amount reserved exceeded reported losses in this category and, therefore, this provision was reduced by $35 million in the third quarter.

Both the shift and mix and the effect of lower than expected small cat losses resulted in an attritional current year combined ratio for the quarter of 77.3%, excluding the impact of reinstatement premiums.

Adding approximately 15 points of cats in the quarter, and positive reserve development, resulted in a reinsurance combined ratio for the quarter of 89.3%.

The 15 points of cats in the quarter are a result of hurricane Irene, estimated at $35 million, an increase of $65 million in the Japan earthquake estimate, and an increase of $27 million for the New Zealand earthquake.

The increases for Japan and New Zealand were largely in response to additional information provided to the market in general by large cedants and brokers during the third quarter as they work through the actual losses.

We believe our estimates are at the high end, or above certain industry estimates, and therefore reflect a conservative view of ultimate losses.

Turning to insurance operations, the net written premiums were up 44% and 40% for the quarter and year-to-date, respectively.

These increases were primarily driven by our new venture in crop insurance, plus rate increases in California workers comp, and the recent initiative in primary medical stop loss business.

It should be noted, again, that the medical stop loss business has been reclassified to the Insurance segment since it is primary business.

Results in the Insurance segment for the quarter have been impacted by 11.6 points of prior development on excess casualty business and workers comp.

On the year-to-date, this had a 3.9 point impact.

In addition, cats for the 9 months were half a point.

After adjusting for these items, the current year attritional combined ratio stands at 101.8.

This compares to 103.8 for the fist 9 months of last year.

This improvement reflects improving rate conditions across the commercial lines of markets, in particular for workers comp, as well as structural changes to our portfolio with a termination of underperforming programs, and growth in professional lines and California DIC.

Current year continues to be impacted by soft casualty rates, albeit improving, and higher than expected losses on the crop book due to severe weather conditions.

The latter adversely impacted the quarter by 6 points and the year by 2 points.

Looking ahead, though, we continue to view the Heartland acquisition as strategically important to the Insurance group and expect that it's future profitability will add meaningfully to this segment.

When taking this in to account, it further highlights the improving trend in the insurance results.

Net investment income amounted to $156 million, which for the quarter was up $15 million over last year, primarily due to limited partnerships which had a gain of $16 million this year, versus a $1 million loss in the last year's quarter.

Income from fixed maturities is down due to lower yields, while income from equities is up, reflecting our increased investment in dividend paying equities.

Also our equity securities income includes fixed income exposure through bond mutual funds, which are classified as equities.

Our realized losses for the quarter were $138 million before tax, and $84 million after tax, due primarily to fair value adjustments on the equity portfolio.

While not impacting earnings, we also had unrealized losses net of tax of $35 million from our bond portfolio.

Although interest rates declined during the quarter, we experienced widening of spreads on high yield and other corporate bonds.

Nevertheless, on a year-to-date basis, our unrealized gain position, net of tax increased $52 million.

And when combined with realized losses net of tax, the overall portfolio experienced just a slight decline of $26 million.

As you know, though, subsequent to the quarter end, the markets have rallied and as of last Friday, the overall portfolio is now at a net gain for the year of $48 million.

This, of course, along with rising rates recently, should have a positive impact on the derivative loss we experienced in the third quarter that resulted from falling equity markets and interest rates in the third quarter.

And finally, book value at $6.1 billion is down modestly from the second quarter despite good operating income.

Due to the realized and unrealized losses on investments and foreign currency translation adjustments reflected in other comprehensive income.

Plus, the impact of dividends to stockholders and share repurchases.

However, book value per share is up slightly to $113.26, reflecting the fact that we had share repurchases of 597,000 shares during the quarter, amounting to $47 million or an average price of $78 per share.

After the quarter closed, we settled on an additional 105,000 shares for $8 million or an average price of $78.57, which is not reflected in the third quarter financials.

Our capital position remains in excess of what we need to support the portfolio on a modeled basis.

That position has served us well, particularly in a year like this for the industry.

While we intend to maintain some level of excess capital for market events and opportunities, we are still committed to continued share repurchases in the absence of new opportunities.

Thank you, and I will turn this back to Beth for Q&A.

Katrika, we are now open for questions and answers.

Thank you.

(Operator Instructions) Jay Gelb with Barclays Capital.

Thank you.

Can you give us a sense of what drove the reserve strength ending in the US insurance segment in the last quarter?

Sure, Jay.

In overall, we generally wait until the fourth quarter reserve studies, unless our inter-metrics point us to something else.

This year we've seen some unusual large losses on the insurance side, which indicated a need for strengthening.

If we see this in our metrics, we should not and do not wait for the reserve study.

Similarly on the reinsurance side, each quarter our metrics have been improving.

This was also the case last year.

And therefore, given that our overall metrics still point to total adequacy, we felt it appropriate to re-bucket certain reserves, but clearly the internal metrics pointed us to needing some reserve additions on the insurance side.

What lines were they in particular?

Work comp and excess casualty, mostly excess casualty.

(multiple speakers) Pardon?

I'm sorry, go ahead.

No, I was going to say that -- which is a turnabout from last year where we actually -- our reserve study work actually indicated some slight redundancies in our excess casualty book, so just something that emerged this year.

Would it be unreasonable to expect some further reserve strengthening in 4Q then?

We really can't say which way that will go in the fourth quarter.

We have our reserve studies.

As I said, we reacted to what we saw emerge in the third quarter, and obviously we took that action.

But it's too early to say what our reserve studies will come up with.

Okay, and then turning to the investment portfolio, we were anticipating instead of showing profits in the partnership income, and investment income line, that given what happened with hedge funds and private equity, and that third quarter might actually be flat to down, so what drove that in 3Q?

What should we put in there for 4Q?

I don't know what you should put in there for 4Q, I would not dare an estimate on that.

As you know, that, Jay, that can be very volatile.

It is on a quarter lag.

And most many of the limited partnerships use the equity markets as a basis for providing their fair values, or estimated values.

In our particular case, we've also had some particular individual limited partnerships that had some unique transactions that led to gains, Kinder Morgan, for example, was one of those that was a very positive outcome for us.

For the -- given the one-quarter lag then, based on the equity market performance of 3Q, would it be reasonable to expect a loss in 4Q?

As I said, that's your business, not my business.

Okay.

But that would run through the partnership income line, right, not just through the realized?

Correct.

Thank you.

Josh Shanker with Deutsche Bank.

Good morning, everyone.

Couple of questions, historically obviously workers comp has been an important part of your business, and a lot of that business got competed away a few years back.

Would you be more aggressive given the market trend?

Where do you see the business that you lost in the past?

How do you think that's performing now, and how do you look at your own book today?

Well, as you know, we have a long history in the comp market getting into it in a small way in 2001, and then building in a very big way through 2003, 2004, and 2005.

Yes, subsequent to that, our book, we took it down in part because we did lose some business, but in part because rates started to come down at that point.

So, we are still an important player in the market, probably doing about $200 million worth of business, but that's down from what was once $900 million.

When the market hit its peak in 2004 and 2005, we were very pleased with the business with reforms going in, rates going up, and of course, that business led to outrageously wonderful results.

Today, it's not quite that, we are pleased with 15% rate increases that we are currently getting, that kind of comes on top of rate increases of 9%ish last year.

So the market is certainly taking a favorable turn.

Keeping in mind some of that rate is needed to cover medical inflation.

If we don't look at it like we looked at the business in 2004, where it was fantastic, we look at it as if it's okay today and we would like to see rate increases continue to build.

If that's the case, we may look to grow the book some, more than we are currently thinking.

But right now, we are a bit cautious, and I think we are pushing for more rate as opposed to more business, and of course, these things work against one another.

The more rate you push for, the less business that you do, to some degree.

So, long story short, we are pleased with the book, the direction, the rate increase, and we expect next year to be a good year in that market.

And we may grow some, and it may be even more than that, depending upon how the rest of the market reacts in terms of joining us in rate increases.

When you say next year is going to be a new year on a written or an earned basis?

Well, I guess I talk written premium, at least that's what I'm thinking what we actually put on the books next year.

And do you think given a call to a risk free rate of 3.5% on the 10-year, 3% on the 10-year, that it's an attractive market overall for the industry or particularly for Everest?

Well, you know, the interest rate -- you're getting into the investment income aspect, and it certainly is that.

It's casualty business; there is a tail on it.

But we toss that to the side to some degree, even though it does figure into ROE models.

We are more old school and wanting to achieve an underwriting profit on this business.

I do believe that the current rates -- it generates a fair rate of return, but as I said, we are looking for it to increase so we can be even more confident in the business.

It's still casualty business, that once you write it, it takes a few years to play out before you know exactly where it's at.

So, you need to be paid for that.

Understood.

And finally, on the derivative, if I'm not mistaken the liability for equity puts is about equal to where it was in 1Q 2009.

I would just like to run through a little bit of how that's calculated a little bit, it's not severe, but I would be surprised that it would be that high today given the market has rallied about 45% since that time.

Let me tackle that, Dom, you may want to add to it.

We have a bit of a black box formula that we follow to come up with that evaluation.

And even though these deals at the end of the day will be determined strictly on stock market price, and we are confident we will do well on these deals, the interim evaluation, the quarterly evaluation, the two most critical components are -- one is stock market price, but the other is interest rate.

Even though that doesn't figure into the final resolution of these, it's kind of a discounted black shoals type model that's being used.

So, with interest rates and the t- bills in particular going down pretty dramatically for the quarter, and for that period of time that you are talking about, that's had an impact on the estimates, if you will, even though it has no real impact on the ultimate resolution.

With the market up pretty strong through October, if it just stays the same, clearly -- and interest rates are up a bit, too, as Dom noted, this will swing the other way in the fourth quarter.

All right.

Thank you very much.

You're welcome.

Brian Meredith with UBS.

Yes, good morning.

Couple of things here for you.

First, to them, Dom, I wonder if you could talk a little bit about what trend you actually were seeing in the excess liability business that resulted in the adverse development?

I wouldn't particularly call it a trend, as much as it was a higher than expected number of large losses.

Okay.

Great.

And then the next question, I wonder if you could talk a little bit about your comments about the attritional combined ratio in the quarter, and I think you said part of it is because you went to more property cat excess of loss versus primary property.

Does that mean that going forward we're also likely to see maybe higher catastrophe losses?

No, because the business that -- the shift in business from pro-rata to cat XOL was done with basically the same PMLs.

So, the expected loss would be approximately the same.

And that's just obviously a modeled number.

But obviously what is happening in the attritional is -- essentially if you have no cats, the XOL is booked at zero, right?

But you still have, in the pro-rata book, you still have some underlying attritional normal loss ratio.

And much of the growth in the XOL premium is rate increase.

Right.

Got you.

And I guess because of that shift also, should we expect that you will have some pressure on top line?

Well, I would not call it pressure, but you are right, Brian, pro-rata pound for pound does give you more top line than XOL.

So, generally speaking, that trend means we won't be building top line as fast, but clearly the goal here is to focus on the bottom line.

Right.

Terrific, thank you.

You're welcome.

Thanks, Brian.

Greg Locraft, Morgan Stanley, Smith Barney.

Hello.

Good morning.

I actually missed the opening comments, Joe, because I was on another call.

So, if you mentioned this, please just -- I can review the transcript.

But can you go kind of through each of the lines, and give us, at a broad brush, sort of where pricing is and where loss trend is?

Yes, I think you are probably more looking at the insurance side than the reinsurance side, Greg?

Well, I would love pricing color on reinsurance, but yes.

All right.

Let me give you some overall commentary, because I know there has been a lot of discussion, particularly this quarter, about pricing.

Clearly we've seen a broad effort by many insurance companies to draw a line in the sand and stop rates from declining, and in fact get rates rising.

I think this recent quarter showed more success in this effort than we've seen in prior quarters.

We had mentioned in the opening that we continue in our insurance book to see some pockets certainly responding.

California workers comp in the third quarter, we continued to get rate increases that averaged 15%.

Our general liability primary rates, third quarter, we saw a 9% rate increase, which was up pretty significantly from the prior quarter.

Our insurance rates -- property rates, were up on the order of 3% for the quarter, which is okay, but more is needed.

Other areas didn't respond as well.

For example, the D&O and the commercial umbrella space I think continues to be flat at best, and is in need of some rate increase.

So, I'm not particularly forecasting a hard market, although I certainly hope that that's what's coming before too long.

In 2001, we did feel as if it was coming, and we increased our market share in many areas.

Now our strategy will be kind of to selectively increase where we believe rate to exposure will be quite good, but selectively decrease where we think rates to exposures aren't quite what they need to be.

So, I think it's good that the latest trend is beneficial.

We will broaden the opportunities, upward corrections are overall helpful, but I don't particularly expect this to snowball.

Taking that from the insurance side to the reinsurance rate side, I think the biggest issue, the biggest event that's happened is property cat rates being up in response to all the losses that we have had in the last 1.5 years.

And we see that correction continuing into January and beyond.

I noted that I thought retro rates would be up 15%.

Cat rates, if you didn't have a loss in 2011, up 5%ish, and if you did have a loss in 2011, and now you are coming up to January like many accounts in Australia and New Zealand and many of the US regional accounts, you will be facing some meaningful rate increases.

So I still think, from a reinsurance point of view, likely our book will push into more property given the dynamics.

The overall casualty market, I don't see reinsurance rates changing particularly for re-insurers, and when you get to underneath it, some of the areas that are most supported by re-insurers, D&O, commercial umbrella, because they require big limits and have a lot of volatility, they are not moving just yet as they need to be.

Greg, hopefully that answers your question.

That's perfect, Joe.

I guess some leaders of the companies have been opining that this looks a lot like a 2000 timeframe, do you echo those comments?

It sounds like you are more conservative, quite frankly, based on the commentary.

You know, I think you can take away that I'm more conservative.

But what I think won't matter in terms of what really happens at the end of the day, so, yes, I think -- I'm happy that things have taken a positive change and I hope it continues.

But in terms of anything getting back to what happened in 2000 to 2003 and 2004, I don't feel anything that extreme is going to happen.

Okay.

Excellent, thanks again for the color.

Vinay Misquith with Evercore Partners.

Good morning.

The first question is on your capacity to grow your property cat.

I believe you mentioned that your PMLs are flat; if you could please remind us about your PMLs and how much you can grow in 2011, please.

Remind you of what, Vinay?

Your PMLs.

For which territories?

For your peak territories.

Florida, for example, would be our peak territory, which is $940 million, but on an economic basis it would be $640 million.

Okay.

That's great.

And do you have a significant amount of capacity to grow that business on 2011?

Go ahead, Joe.

Yes, you know, we're trying -- our plan right now is to not grow the PMLs in the major zones.

Now, that doesn't mean that we won't write more business because we may write in zones that aren't in the major zones.

We might write second, third loss.

We may write in some of the US regions.

We haven't been big in the regional space, and now we believe rates will be going up, and it may offer better opportunity.

So, there may be some opportunity for what I'll call sideways growth.

Okay.

That's fair enough.

Second, if you could remind us what the dollar value of your excess capital is.

You had, in the past, disclosed that number.

We are -- and I will answer this in the context of what I will say is excess excess.

And by that I mean that which we think about in terms of our share repurchase program.

And we'd like to think about it as approximately a $500 million number.

Okay, that's great.

And then just one last numbers question.

Did you mention that you had about $35 million of prior quarter favorable reserve development this quarter?

Prior year development?

No, the $35 million I was mentioning was a reduction in our provisions for small cat.

Those cats that are less than $10 million in losses.

(multiple speakers) Sorry, go ahead.

Is that the $35 million that you were referring to?

Yes.

So, that's not a prior year development, that's a prior quarter development, correct?

Correct.

That's great, thank you.

Matthew Heimermann with JPMorgan.

Hi, good morning.

A couple of questions, first just maybe, Joe, could you give us -- I would just be curious kind of your conviction around some of the comments you have on reinsurance pricing specifically.

Because it feels like some of the market tone and commentary has softened a bit since Monte Carlo.

Sure.

I mean, the reality is, we will see what happens in 2011.

But I think, let me go back three spaces.

The convictions I had for June and July, I think those pretty much came to pass.

And much of what I say in terms of where I expect rates to go is where we are looking for it to go where we think it should go and where we will be proactive in trying to make it go.

Now, this is pretty simple.

A lot of this is based on the last 18 month's worth of catastrophe losses.

If my competitors are saying something different, I don't think they are paying attention to what has happened in the last 18 months.

So, now you will have some regional companies coming up that had some pretty good losses at 2011.

You will have some New Zealand and Australian companies coming up that have had mega losses, and they are coming up for the first time since those losses in 2011.

You will have retro business, which has continued to percolate as more losses have gone up in Japan and Australia, those have gone into increasing losses in the retro space.

And so to me, that heightens what the price should be going forward.

So, I feel that it will happen, and certainly we will be looking to do our part.

If it doesn't measure up to that, we will do less.

But you now have at least the logic, which I think is pretty clear and evident, as to why I think that's the case.

Okay.

That's fair.

And then with the shift to XOL versus, from pro rata, can you give us a sense of what layers that shift constitutes within XOL structures?

Whether that generally by zone, if that's the easiest way to do it?

That level of detail, Matt, we really wouldn't have for this call.

We can get back to you with color on that, Matt.

That's fair.

And I guess maybe as you think about it, I guess I would just be curious kind of thinking about kind of shorter return periods versus what you normally would disclose in your SEC filings.

I guess the other question is just a numbers question on the reinstatements, if you could just give us those figures by segment.

Well, I can give you those figures overall.

For the quarter, we've had $13 million of reinstatement premiums.

On a year-to-date basis, just shy of $54 million.

Okay.

And that's overall.

Obviously, that's all in the reinsurance segment.

Give me a second here, I can -- Bermuda was most of the third-quarter number, $12.9 million.

On the year to date --.

I've got the rest of them from prior quarters, so that's fine.

I just wanted to make sure that this quarter I had right.

Okay, and then just a follow-up on your comment on the underlying loss ratio, did I hear you right, there was a $35 million benefit from lower, affectively lower RBNI provisions, IBNR, excuse me, provisions in the current quarter?

Yes, we looked at the small cat events, those less than $10 million that occurred during the year.

And we looked at the reserves we were carrying through the first 2 quarters and the third quarter, against the actual results, and we've had $35 million of excess reserves relative to those smaller cat events.

Also, realize that we'll be positively impacted -- the provisions for small cat events will by definition go down, again, as the shift into an XOL versus pro rata.

The provision for small cats is more relevant when you have a larger pro rata book.

That makes sense.

When we think about this going forward, is it fair, should we expect some seasonality then as we look into next year and years beyond that, on a quarterly basis with potentially a more favorable back half, IBNR or lower IBNR provisions on the back half assuming that either activity is light or you don't see upward push to the events you do book earlier in the year?

Well, I don't know that I would go -- put it quite that way.

First of all, there is seasonality for certain types of cats, but there obviously is no season for earthquake events.

So you have to keep that in mind.

Secondly, again, as we shift more towards the XOL, and that becomes a bigger proportion of our cat premium, then the provision that we put up for small cat events in each quarter will be less.

I don't know if that helps?

I might follow up, but that gives me a sense, thanks.

Ian Gutterman with Adage Capital.

I guess first, Dom, on the crop you mentioned were at a loss due to some start-up costs and such, can you quantify how much that is?

Our start-up costs that we've included in this year-to-date results approximate $6 million, somewhere in that range.

What would that be on the combined?

That would be in the combined, yes.

I'm sorry, about how many points on the combined?

I'm not sure what the net premium is.

The premiums for the crop year to date, give me a second here, about $120 million.

Got it, okay.

And those will be one-time events, Ian, so they won't repeat next year.

I was trying to get a sense of what sort of the core was.

I guess I thought outside Texas, and maybe I'm unfamiliar just with your geographies, but I thought outside Texas has come out to be a pretty close to normal crop year.

Well, we had some very hot weather during the summer, over 100 degrees for an extended period of time in the Midwest and the northern part, if you will, that affected the corn crop quite considerably.

So, that's kind of what -- in addition to the other things.

We won't realistically -- we are not going to know.

Obviously, it's a function of not only yield, but also commodity prices.

So we are really not going to know the true results of that until February.

But given those drought conditions, we felt it prudent to just add something to our reserves for that potential outcome.

It could work back to be a more positive result.

Okay.

That's why I was wondering.

Because from the people I've talked to, it sounds like the harvest is coming in pretty good so far.

I just want to make sure that there wasn't something I missed.

The other area is, when you talked about growing your property book, but without raising PMLs, I know you mentioned the regional contracts, Joe, but outside that, I mean that kind of implies growing in non-peak zones, like international and places like that; is that where the growth is going to come from?

Well, I don't know that there will be -- how much expansion there will be, but I think it might more mean second event, third event, things of that nature.

Because, again, when we talk about PMLs, it's for the one major event.

Okay.

Got it.

I just wanted to make sure you weren't going into the lower ROE places over seas.

No, in fact, you would note that our -- through our Bermuda segment, which has been generally trending down of late, that's due to backing away from some of the European exposures.

Got it.

So, basically the growth will be in sort of low ROL type business, but hopefully higher ROE.

I would say in part, yes.

Okay, and then just my last one is, Dom, any update on when we can see triangles?

Someone had to ask.

That's fine.

We do have the work done.

It's being, as I might have mentioned previously, we're having an outside third party take a look at that work.

So I will just say it's soon.

It's certainly before the year end, but I'm hoping well before that.

Great, look forward to it.

Thank you.

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Thank you.

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