Kestrel Group Ltd (KG) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Maiden Holdings second-quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions).

As a reminder, this conference call may be recorded. I would now like to turn the conference over to Noah Fields, Vice President of Investor Relations. Sir, you may begin.

Good morning, and thank you for joining us today for Maiden's second-quarter 2012 earnings conference call. Presenting on the call today we have Art Raschbaum, Maiden's Chief Executive Officer, along with John Marshaleck, our Chief Financial Officer. Also in attendance today is Pat Haveron, Executive Vice President.

Before we begin, I would like to note that any forward-looking statements on this call are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, and these forward-looking statements are based on the Company's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that the actual developments will be those anticipated by the Company.

Our actual results may differ materially from those projected as a result of significant risks and uncertainties, including non-receipt of expected payments; changes in interest rates; the effect of the performance of the financial markets on our investment income and fair value of investments; the impact of the competition and pricing; changes in demand for the Company's products; the effect of general economic conditions and unusual weather-related activity; adverse state and federal legislation and regulations and the regulatory investigations into industry practices; developments relating to existing agreements; heightened competition; changes in pricing environment; and changes in asset valuations. Of course, the Company undertakes no obligation to a quickly update any forward-looking statements except as may be required by law.

Some of our discussions about the Company's performance today will include reference to both non-GAAP financial measures and information that reconciles those measures to GAAP, as well as certain operating metrics, and may be found in our filings with the SEC and in our news release located on Maiden's Investor Relations website.

And with that, I will turn the call over to Art.

Thank you, Noah. Good morning, and thanks for joining us. During this morning's presentation, I will begin with a review of the operating results and then I will turn the call over to John Marshaleck, our CFO, to provide more detail on the financial results for the quarter. Then I will come back in and conclude with prepared remarks -- with some of the comments regarding market conditions.

At Maiden, we continue to benefit from our highly-differentiated strategy of delivering stable returns and profitable operating performance by serving the non-catastrophe needs of our regional and specialty insurer clients with solid results for the quarter and for the first half of 2012. In the quarter and for the six months, we continued to generate profitable underwriting performance, strengthen investment earnings, grew book value per share by 1.7% during the quarter and 7.2% in the first six months of the year, and maintained an operating return on equity of 9.9% for the first six months.

Operating income was $19.7 million or $0.27 per diluted share, a solid increase over $11.2 million in the second quarter of 2011. You may recall that last year's second quarter was impacted by frequency of severe weather-related losses in the US, and while our second-quarter 2012 operating income is essentially the same as our first-quarter operating income, it is important to note that this quarter reflects the additional impact of $2 million of interest expense that is associated with the issuance of our 30-year senior notes in the first quarter. Strengthening investment earnings have helped to offset this incremental cost.

Despite a challenging yield environment, we were able to increase our net investment income to over $20 million as we deployed cash into productive investments in the quarter, with total investments up nearly 26% to $2.4 billion compared to the end of the second quarter of last year.

As we've discussed in the past, we typically expense our largest quarterly premium volume in the first quarter, with subsequent quarters running a bit lower, reflecting some of the seasonality in our business. Similarly, we don't expect to see the same accelerated level of premium growth this year that we experienced in the recent past.

You may recall that in 2011, a significant amount of our growth reflected a combination of the impact of our international acquisition late in 2010, the expansion of the AmTrust quota share to include hospital liability in 2011, and a full year of ACAC writings.

The second quarter and first six months of 2012 are very much in line with our expectations. Maiden's net written premium for the quarter totaled $412 million. That is down $25 million or 5.7% from the same period in 2011, but importantly, last year included the nonrecurring $45.9 million incoming unearned premium portfolio that was associated with the AmTrust hospital liability program. Absent that portfolio, our second-quarter net written premium actually increased by $20.9 million, or 5.4%, which reflects a healthy but more moderate growth rate.

Through the first six months, total net written premium is up $116.3 million from 2011, with total written premium of $1 billion or 13%. If we exclude the nonrecurring unearned premium portfolio from the six-month comparative, premiums were up 19% or $162 million for the six months ended June 30, 2012 in comparison to the first six months of last year.

Looking at the written premium by operating segment, in our diversified segment, which includes our US platform, Maiden Re, our international business and our non-AmTrust ACAC Bermuda underwritten business, net written premium was down slightly from the prior year's second quarter at $144 million versus $158 million in 2011. Through the first six months of 2012, net written premiums of $432.3 million reflect an increase of 3.7% or $15.4 million.

Our US operations generated very strong growth in 2011, and while that pace has moderated some, we continue to see strong deal flow. As we have commented in the first quarter, we have seen a bit more active interest in larger quota share transactions from competition, and we've essentially let what we feel are lower margin opportunities go. Clearly, our business has to conform to the return requirements necessary for our business.

Our client retention levels remain over 90%, and as we typically do, we are seeing some growth in individual client relationships.

We've seen some reduction in revenue in our International Insurance Services businesses and other Bermuda underwritten business that reflects a general weakness in the European economy and the impact that has on our auto-centric underwriting portfolio. The IIS team is currently working on a number of new programs which should benefit the continued development of this business.

Earned premium for the diversified portfolio is up significantly from the prior year, reflecting the strong growth in 2011, which included the International Insurance Services portfolio acquisition and the stronger growth at Maiden Re. Net earned premium of $403.6 million grew by $59.1 million or 17% from the first six months of 2011.

Net written premium in our AmTrust segment for the quarter reflects a year-on-year reduction as a result of the nonrecurring unearned premium portfolio transfer that we've already spoken about in the second quarter of 2011. Absent that nonrecurring transaction, run rate net written premium of $195.6 million reflects year-on-year growth of $25.1 million.

For the six months of 2012, net written premium of [$421.6] million is up 22.9%, mostly reflecting the strong first quarter 2012 growth. AmTrust is continuing to benefit from the acquisition of its California Workers Compensation platform, as well as continued rate strengthening in its largest market segments.

Net earned premium for the AmTrust segment totaled $167.8 million versus $136.3 million in the second quarter of 2011. And for the first six months, net earned premium for 2012 totaled $335.7 million versus $250.8 million, and reflects the strong growth in 2011, significantly driven by the addition of the hospital liability business, as well as the expansion of AmTrust's core business.

Then finally, in our ACAC segment for the quarter, net written premium totaled $72.4 million, up from $62.5 million in 2011. That growth reflects the combination of rate strengthening and selective expansion of the underlying portfolio. Through six months, ACAC net written premium of $148.9 million is up from $126.5 million in the first six months of 2011. Earned premium for the quarter was $70.2 million and $136.3 million for the first six months of 2012 versus $61.2 million and $119 million in 2011.

Underwriting performance has improved versus the second quarter of 2011 with a combined ratio of 97.9%. Our results for the quarter remained somewhat above our combined ratio target level of 96%, and we continue to work diligently with our clients to improve profitability and to focus on the areas with the most return potential.

I will provide an overview of pricing a bit later, but briefly, we are seeing indications of price improvements in the primary market across many business lines. However, there to varying degrees, and in cases such as primary commercial auto, we are seeing some regional inconsistencies in pricing trends.

Diversified segment combined ratio improved to 98.6% relative to the second quarter of last year, which was negatively impacted again by the high frequency of tornadoes and thunderstorms in the US. Results for the Diversified segment were largely impacted by our International Insurance Services' German auto business, which performed at a higher than acceptable combined ratio for the quarter. We are working with our partners to implement underwriting and pricing changes, along with changes in the claim process, to bring this business more in line with our return criteria.

The AmTrust Quota Share segment reflects a combined ratio of 96.5% compared to 97.9% in the second quarter of 2011, essentially meeting our expectations for the segment. The ACAC Quota Share segment had a combined ratio of 96.3% in the quarter versus 97.1% in the second quarter of 2011.

We believe that we are well-positioned to benefit from any improved pricing in the broader insurance environment and increased demand. We've made substantial progress in the quarter investing cash and improving the earnings contribution from investment income despite the challenging investment environment. And I will now turn the call over to John to review second-quarter financial results in a bit more detail. John.

Thanks, Art, and good morning. Net operating earnings for the second quarter of 2012 were $19.7 million or $0.27 per diluted share compared with $11.2 million or $0.15 per diluted share in the second quarter of 2011. As a reminder, the second quarter last year was negatively impacted by $9.5 million in losses related to thunderstorms and tornado activity across the US, net of the Company's quarterly provisions for normalized catastrophe activity.

Turning now to capital management, at the end of the first quarter of 2012, we issued $100 million of 30-year 8% coupon senior notes to take advantage of excellent market conditions. This additional capital provides Maiden with financial flexibility to participate in continued rate improvements in the near-term. The deal strengthened our balance sheet, and we have successfully deployed these funds within our investment portfolio during the second quarter.

An equally strong feature of our balance sheet is the continuing high levels of operating cash flow our business continues to generate. We have operating cash flow of $95.1 million for the three months ended June 30, 2012, which contributed to the $166.4 million in operating cash generated in the six months ended June 30, 2012.

The combination of strong asset growth, operating cash flow and capital management activities continue to provide significant amounts of cash be available for investment. And we have worked very diligently during the quarter and first half of 2012 to invest that cash productively and keep our cash and cash equivalents within the range of our targeted levels of approximately $100 million.

At the same time our invested assets are providing strong growth, the investment environment remains a challenge for many P&C companies like Maiden, who maintain conservative fixed-income investment portfolios. We believe that keeping the duration of the securities relatively short remains a prudent strategy in the current environment, as there is inadequate return for the risk associated with extending our aggregate duration meaningfully.

Nevertheless, we did increase our allocation to investment-grade corporate bonds in the first half of 2012, with 45% of the portfolio now invested in that asset class, up from 38% at December 31, 2011. This modest shift in our allocation has brought our portfolio duration to 3.4 years from under three years at year end, still well below our liability duration of 4.5 years.

In total, Maiden's new bond purchases during the second quarter of 2012 totaled $248.4 million at a weighted average yield of 4.1% and a duration of six years. As of June 30, the average yield on the amortized cost of the fixed-income portfolio excluding cash now stands at 3.74%. Of these investments, $205.2 million were in new investment-grade corporate bonds at an average yield of 4.4% and a duration of 6.3 years.

As a result of the investing activity, total investments increased $372.9 million, up 18.4% to $2.4 billion from December 31, 2011. In addition, total cash on hand at June 30, 2012 was $143.3 million, down 53% from year-end 2011. Net investment income benefited from putting this cash to work long-term, producing $20.1 million in the second quarter, an increase of 8.9% from the first quarter of 2012.

Net loss and loss adjustment expenses of $300.4 million were up $49.8 million compared to the second quarter of 2011. The loss ratio increased by 0.7% to 68.4% versus the second quarter of 2011.

The general and administrative expense ratio improved to 3.4% compared to 3.5% in the second quarter of 2011. This ratio is one of the controllable factors contributing to our profitability and puts us among the most efficient reinsurers in the market. Efficiency is very important to our business. In the long run, a lower G&A expense ratio will allow us to generate stronger margins and more competitive pricing.

The effect of the recently implemented accounting rules issued by the Financial Accounting Standards Board, which limits the capitalization of costs incurred to acquire or renew insurance contracts, was to decrease second-quarter 2011 earnings by approximately $0.8 million or $0.01 per diluted share. The impact on the Company's combined ratio was an increase of approximately 0.2%.

Total assets increased 10.5% to $3.8 billion compared to $3.4 billion at the end of 2011. At June 30, 2012, shareholders' equity was $824.3 million and book value per share was $11.41, both up 7.2% compared to December 31, 2011.

I'd like to turn it back over to Art for some additional comments.

Thank you, John. Speaking briefly about market conditions, primary insurance pricing is continuing to trend higher across many lines of business, and as I mentioned earlier, the degree of improvement can really vary depending on the type of risk, the size of risk and the location. Many of our clients are seeing the most improvement in rates in workers' comp, personal lines and property. Business lines such as commercial multi-peril and general liability are also benefiting from price increases, although to varying degrees, depending again, on location and specifics of the underlying risk.

As I mentioned earlier, one area that was below our expectations this quarter has been primary commercial auto. While we have seen rate increases, they've been inconsistent by geography.

As a provider of reinsurance, we do adjust the profitability of a specific risk by adding margin or protected features as required by the client's account experience, the operating environment. In a hard market, we expect to see demand for our products grow, and we do see some benefit of price increases through our primary insurance clients. However, relative to a more catastrophe-oriented reinsurer who may see rate increases more immediately following significant losses, the benefits of a hard market to Maiden are a bit less direct.

At this point in the cycle, it is clear that we are seeing some price improvements. However, the magnitude and breadth to which this will continue remains unclear. We do believe that ROEs in the P&C space continue to be dampened by sustained low interest rate environment, and ultimately companies will be forced to continue to raise rates in order to maintain a certain level of profitability. We see this as the most likely outcome for the foreseeable future.

Through superior risk selection, our client-oriented, lower-volatility focus on the non-catastrophe needs of our target market, we will continue to focus on improving profitability and growing book value for our shareholders. We believe we are well-positioned to strengthen earnings and to grow in a highly disciplined manner in the future.

That concludes our prepared remarks, and operator, if you could please open the lines for Q&A.

(Operator Instructions) Randy Binner, FBR.

There is a lot to cover, but on the Diversified segment, the loss ratio is higher than we had forecasted. And I think I heard in the comments that the European economy might be affecting some of the auto business that you write over there. But was there anything unusual with loss activity in that European book, or what drove the higher than kind of trend loss ratio there?

I think for the most part, Randy, it is kind of a physical damage issue that we are seeing in Germany. And we sort of through the course of our underwriting and our claims audits identified some increase in frequency.

And so we have an action plan that is under implementation. Some of that is on the kind of management of the loss cost side, change in claim practices, but also underwriting and risk selection and then ultimately pricing.

So it is -- we've seen -- we talked in the fourth quarter about sort of some cat-specific activity and our efforts to eliminate that more cat-oriented element of the business. And we have been successful in doing that. This is more of kind of a frequency-driven issue that we think we are focusing on quickly and we should start to see benefit from the actions. But ultimately, we will keep a very close eye on it and do whatever is necessary.

That issue in the fourth quarter was like that cars were parked in a parking lot, like a dealership, I think.

That's right.

In this case, are you talking about like vehicle -- like individual vehicle accidents being more expensive? And is that following the trend we see in the US, where there is -- I mean, you're saying it is property damage, it is not bodily injury. So it is just the actual -- like the replacement cost of the vehicle is higher -- is that what it is?

Yes, I think we are seeing more frequency than we would have anticipated on the physical damage side. We are not seeing a big spike on the casualty side.

Okay. So do you have a feel for how those initiatives might kind of kick in? Do you have any kind of update on what kind of loss ratio we should expect there? I think we have tended to try and expect something like a 66 on the loss ratio.

Obviously, we are running higher than we'd like to. Quarter to quarter, we are at about the same combined, and we've always said the combined is probably the most important number because of the varying relationship between ceding commission and the premium.

But I think with respect to this portfolio, we are attacking it as quickly as we can. It will take a little bit of time for some of these things to sort of kick in. Probably the claim practice side of it will have the most immediate effect, but I think pricing actions will probably take a bit more time to make their way through.

On the other hand, the German auto component of our overall portfolio is relatively small. So obviously, there are other components of our business that are performing at target and performing well.

Okay. Then as long as we're talking about auto, ACAC had good results for the second quarter in a row. So I think, thinking back ACAC in the back half of last year, they were implementing I think new data systems and multivariate pricing and kind of fine-tuning their geographic expansion.

How much confidence can we take in two quarters of good results there? Is this book set up to kind of run like a good auto insurance book, or is there still potentially more kind of a little bit more volatility to come?

You can never be 100% certain of anything, but we are pretty confident that the actions that they have taken, specifically in markets that were driving some of the elevated loss, the pricing actions are really the right things to do. There has also been some risk selection changes that they've made. And also, frankly, just strengthening of sort of -- as you said, the system and multivariate pricing capabilities. I think all that bodes well for trend as it stands today.

Okay, I will drop back in the queue. Thanks so much.

Matt Carletti, JMP Securities.

I just wanted to follow up on Randy's question a little bit on the Diversified Reinsurance loss ratio. Really two questions. First is, should I look at that in more of a six-month capacity in that -- a part of the higher pick in the quarter is getting the year to date to the right level? So that would be more --0 closer to say a 67 maybe? Or is the 69.5 kind of the starting run rate and then we will build in some improvement from there?

We are not happy unless we can make progress to getting the combined down to our target level. So I won't try to kind of guess what our next quarters' loss ratios will be. But I will say that we are actively working to improve the performance.

And in specific, our US portfolio actually improved quarter to quarter, so we did see improvements there. And we will continue to focus on kind of strengthening the underwriting performance across the platform.

I think the German auto issue could affect us a bit going forward, but we will try to offset that with sort of payable performance in other segments of the business.

And the expense ratio, same segment was one of the lower ones we've seen in the past, say, 18 months. Is there any sort of direct sliding scale commission arrangements there that have a direct link to when the loss ratio is elevated, there is lower expenses, or is it just kind of coincidental timing?

Yes, there are a number of contracts with expense adjustment features, and that does have an impact. The business mix certainly -- and you saw that in this quarter -- certainly has an impact on both the loss and the expense ratio. So yes, that is happening, and it is something we have built into our contracts going forward, as well.

Okay, and then the (multiple speakers) --

(multiple speakers) year to year on AmTrust, obviously, with blended expense ratio with the hospital liability, the ceding commission rate has gone down a bit.

Okay. And then I guess on AmTrust, looking at the loss ratio there, likewise was a little -- not a lot, but a little higher than trend. I know mix can shift kind of quarter to quarter. Is that more mix shift related or there is anything else happening there?

I would say it is more mix shift related. It is sort of meeting our expectations, which you've seen -- their loss ratio is generally in line with where we have been probably over the last several quarters, not too far (inaudible). John --

It is a business mix issue for this quarter, yes.

Okay, great. Thanks a lot.

Ken Billingsley, BGB Securities.

Good morning. One more follow-up on the expense ratio there. I see the total expense ratio for Diversified is down, but there is a shift in kind of where it is coming, whether it is acquisition or G&A related. Because the G&A side seemed to kind of pick up. Can you comment maybe what maybe caused the shift that caused the acquisition expenses to drop? Obviously, it may be a mix of business, but why the G&A side went up?

Yes, during the quarter, we still are seeing some impact from the DAC adjustment in this quarter, and that had an impact on the G&A expenses. We are not capitalizing or we are not deferring as much, so that had one of the impacts.

And then when you compare that certainly to last year, that is a change. And that is something that works -- through this year really will have an impact on each of the quarters. That is probably the biggest single impact in the G&A expense category.

Okay, so mostly that is just related to the DAC side. And then the shift -- I'm sorry -- on the investment portfolio, you talked about obviously you've been focused a little bit more on investment-grade corporate bonds. Is there a dividend focus on that, or is it just investment-grade forward bonds in general?

It is investment-grade corporate bonds in general, and there is no real change in our overall philosophy. We did increase that category slightly over the quarter, but we are sticking with our conservative investment portfolio philosophy and that is really not a change.

Ken, there are no equities in the portfolio currently, nor do we have any immediate plans to change that mix.

A few other companies, obviously with investment yields being so low for so long now, trying to find opportunities, especially if they feel comfortable with their balance sheets. In your case, have you taken any other opportunistic investment strategy? For example, maybe taken a little bit more liquidity risk in some of your investments to try and generate a little bit better yields or any other strategy?

In some of the new purchases that we've made, we've slightly pushed the duration out a little bit, but still well below our liability duration. Our general view is that we are using our balance sheet pretty efficiently. We think that one of the abilities to do that comes from maintaining a fairly low risk underwriting and asset portfolio. And so we think to the extent we bring in alternative investments, that is going to obviously have a fairly significant impact on capital required to support that. And we just frankly think the volatility associated with it doesn't lend itself to our model. We always look, but we really don't see anything that makes sense for us.

Just a last question here. On the pricing side, I believe you said that your customer retention was over 90%, based on information you've received. On an average -- with pricing in general, is the average premium up [with] customers in line with the rate increases that you are seeing?

It is kind of hard to draw the exact comparison, because some of our contracts change structurally from period to period. But in terms of what see from our average customers, I think that rating movement seems to make about sense. So I think we are talking about something in the -- depending on the line of business, 3% to 5% to 6%. That is probably pretty common.

And it seems like the customers are willing and able to absorb it, at least at this stage of the market, at these (multiple speakers).

I'm speaking of their pricing activity, really. Our pricing remains pretty much as always. We price every account sort of individually and specifically focusing on loss cost developments, the primary company's pricing environment, et cetera, and we focus on really the same target. So we really haven't changed our view in terms of how we price and underwrite the business.

On a reserving side, any reserve releases or additions in the quarter?

We had approximately $6 million of adverse development in the quarter, but a lot of that -- that doesn't necessarily fall to the bottom line. We have adjustable-rate provisions in our contracts, as we talked about. So when the losses increase, the commissions in certain cases will decrease.

So we had some. And that balance relative to -- that amount relative to our overall portfolio of $1.5 billion of losses is very minor; certainly within our acceptable range in a quarter-to-quarter basis. So it was a very minor issue.

And you hit on my next question I was going to have, is there any other adjustment that you had? It seems like a number of smaller specialty-focused insurers have been taking some reserve increases here. So how much room do you have to make those adjustments? Can you completely rewrite a policy and get out of it if needed, or is there just a range of essentially recovery that you can get within so many loss ratio points?

I'm not sure I totally follow the question. I think -- I guess I would say when we see sort of weak performance in an account, we try to react quickly to it. We have a quarterly, very robust, by account reserving process where we analyze performance. And when we get to renewal, we assess the kind of ultimate expected performance of that business.

If we see that account was underperforming, we will adjust pricing immediately for the subsequent year. We don't typically let underperforming accounts stay underperforming without taking action. Hopefully, if we are doing our job effectively, we are offsetting quickly the effects of any weak pricing or any sort of unexpected frequency or severity in the underlying business.

Okay, I guess in the case of ACAC and AmTrust, I believe those are multiyear contracts, correct?

That's correct.

And so on a diversified (multiple speakers)

I think in the case of -- AmTrust is a good example. I think in 2011 it was, we did comment on a business mix change in how it was influencing the business. We worked together with them. We had a shift in the ceding commission terms to reflect that changing business mix and how it affected our performance.

So to the extent that we see performance issues, I think, first and foremost, we want to identify those with our client and work together to find solutions. With respect to AmTrust and ACAC, they are meeting our performance targets, so we are not particularly concerned at this point with respect to need for additional rate there.

Okay. And as clarification on what John said about the $6 million of adverse development, not all that would fall to the bottom line. During this quarter, does the $6 million impact this quarter, (inaudible) the future you are going to be able to make the adjustments? Or if that's not the case, what was the actual -- or near the impact to the bottom line in this quarter?

The $6 million was the impact on the loss ratio portion, but not the combined ratio portion. It was somewhat less than that. Significantly less than that. So it was not a -- it was a minor issue.

So that adjustment -- but that adjustment was made during the quarter; it is not just going to be some future benefit?

No, adjustments -- we do look at these on a quarterly -- on contracts that have adjustable features, we do look at them on a quarterly basis and they move both up and down. That's not unusual, to have that type of activity. So you really have to look at that in combination with the adjustment features.

Again, that is why we focus on -- the combined ratio is very critical. That is what we are targeting from a pricing standpoint.

Great. Thanks for taking my questions.

Bob Farnam, KBW.

I guess one more question on the reserve development. It is modest, but is that -- was that from any particular line of business or lines of business?

No, not really. The auto probably is -- the auto line is our biggest single line, so there is some adjustment there. That is -- frankly, from a quarter-to-quarter basis, that is where we do get adjustments, because we do see activity both up and down in a given quarter. And that is -- probably from an adjustable rate commission standpoint is the most -- has the most volatility in it. But not anything -- nothing stands out from an overall standpoint. It was my adjustments within a number of contracts.

In loose terms, what is your premium breakdown these days US versus international?

The international piece of the business -- well, there is some business from AmTrust International, as well as our international operation in Europe. And I believe it is in the 10% range. Maybe it is slightly less than that.

And do you see more growth potential internationally or in the US these days?

I think we have opportunities in both areas, but obviously, we are still very optimistic about the international opportunities. We are actually actively seeking additional resources in Europe to begin to kind of roll out our kind of Maiden Re US model into Europe. While Solvency II tends to be delayed further and further, we still believe that the operating environment is such where there is an opportunity for us to add value to some of those clients.

But the US I wouldn't say is at all in a stagnant mode. I think there is a lot of opportunity and a lot of deal flow. We do think that our target market continues to selectively require capital support and assistance through ceded reinsurance. And so we see growth opportunities there, as well.

In the last 12 months, absent the acquisition of the international platform, really a lot of our growth came out of the US portfolio. And so while it is muted a bit this year, we still see significant opportunities in North America as well over time.

Great. Thank you.

Randy Binner, FBR.

I just wanted to clean something up. So I guess in kind of the topic of investment income, what was your -- and if you covered this, I apologize -- but did you cover the new money yield versus your runoff yield on your book?

Yes, the new money yields on the invested assets during the quarter was 4.1%, which is a little bit above our current portfolio.

Okay, so you are running off at like 4%?

The percentage on amortized cost is 3.74% for the whole portfolio. So that is running (inaudible) basically.

Kind of, I guess, a dumb question, but the cash flow of $95 million in the second quarter, how much -- it looked like a decent amount of the cash flow in the first quarter went right into the portfolio. But is there any call against that cash or is most of that going into the portfolio?

It goes into the portfolio.

And you had planned on being -- if we look ahead a quarter, you think you can stay under $100 million in your cash balance until you get all of that money to work?

Yes, we were slightly above that at June 30, but our goal is to get that to around $100 million.

Just reinforcing John's point, clearly, we want to put cash to work quickly. On the other hand, we have found periods of time over the last year where the opportunities have just been a lot scarcer. We have been very fortunate, a lot of hard work on the part of the investment management over the last quarter. But it is our objective to get it invested as quickly as we can.

No, that has been a huge challenge for lots of insurance companies, is getting the money to work. That is the problem.

Then just run number question. Do you have an updated stat surplus number, outside of the total capital number in the press release?

We don't have that. I think it is about $1.1 billion -- or $1.2 billion in stat.

Okay, 1.20. Got it. Thanks so much.

Thank you. There are no further questions at this time. I'll turn the call back over to management for closing remarks.

Thank you all for joining us today. We will chat to you soon. Thanks.

Ladies and gentlemen, this concludes today's program. You may now disconnect. Good day.