Kestrel Group Ltd (KG) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Maiden Holdings first-quarter 2015 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 follow at that time. (Operator Instructions). As a reminder, today's conference is being recorded.

I would now like to turn the conference over to Noah Fields, Sir, please go ahead.

Good morning and thank you for joining us today for Maiden's first-quarter 2015 earnings conference call. Presenting on the call today we have Art Raschbaum, Maiden's Chief Executive Officer, along with Karen Schmitt, our Chief Financial Officer. Also in attendance today is Pat Haveron, President of Maiden Reinsurance Limited.

Before we begin, I would like to note that the information presented here today contains projections or other forward-looking statements regarding future events or the future financial performance of the Company. These statements are based on current expectations and future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from these expectations. We refer you to the documents the Company files from time to time with the Securities and Exchange Commission, specifically the Company's annual report on Form 10-K and our quarterly reports on Form 10-Q.

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.

Please also note that unless otherwise stated, all references to common share data in today's discussion are on a diluted share basis and comparative comments will refer to Maiden's results in the first quarter of 2015 relative to the corresponding period in 2014.

I will now turn the call over to Art.

Welcome and thank you for joining us today. During the first quarter of 2015, we were pleased with the core performance of Maiden's lower volatility non-catastrophe business. Notwithstanding a challenging operating environment with low interest rates, a strengthening dollar and an increasingly competitive marketplace, Maiden continued to profitably expand its business while growing its investable asset base. During the first quarter, we accumulated a significant level of cash. A volatile interest rate environment led to a slower rate of deployment of cash into invested assets which temporarily slowed our growth in investment earnings. While the decision has a short-term impact on the quarter's investment earnings and earnings per share, we are confident that prudent investing will ultimately enhance our earnings run rate for the longer term.

For the first quarter, Maiden reported net operating earnings of $26.6 million or $0.35 per diluted common share compared to $25.6 million or $0.34 per diluted common share. Annualized operating return on common equity was 11.4% in the first quarter of 2015 versus 12.6%. On a net income basis, Maiden earned $32.4 million or $0.41 per diluted common share and our return on common equity was 13.9% in the first quarter of 2015.

We are focused on strengthening our operating return on equity throughout the year as we put our significant cash balance to work and take appropriate steps to improve our combined ratios. Already in the second quarter we have made significant progress to that end as interest rates continue to recover.

Book value per share was $13.11 at the end of the first quarter, a 3.3% increase compared to year-end 2014 benefiting from strong net income in the quarter. Karen will provide more detail on our financial highlights later in the call while I would like to focus on business development and underwriting.

We are experiencing good growth in the quarter with both operating segments registering increased premium levels. Now that we are more actively using retrocession as a capital management tool beginning this quarter, we are including gross premium written comparisons in our segment disclosures. For the quarter, gross premiums increased by 15.5% to $834 million from $722 million in the first quarter of 2014. Maiden's net premiums written increased 12.3% to $797 million compared to the same period last year.

In the diversified reinsurance segment, net premiums written totaled $294 million reflecting a deceptively modest increase of 1%. In the US, the diversified segment growth was approximately 8% which came from a variety of sources but the majority of the growth reflects continued growth from existing clients. In addition to organic client growth, we also expanded a number of relationships with new reinsurance programs. We also selectively added a number of new clients.

As we have indicated in the past quarter, our submission levels remain strong but our hit ratios are lower reflecting continued discipline and selectivity in a competitive market.

We are working to develop differentiated solutions for a number of prospects to date who are seeking long-term capital support and we believe that similar opportunities will develop over the balance of the year. In most instances these opportunities are new to the market and afford us the opportunity to develop customized solutions.

In our unique auto original equipment manufacturer focused international insurance service business, or IIS, net premiums for the quarter were down 40% to $24 million reflecting both the negative impact from the strengthened US dollar and weakness in the European auto market. As we have commented previously we anticipate a recovery of revenue growth during the latter two quarters as we begin to implement several new programs. In this segment, our business development activity remains strong and we are actively entertaining a number of new OEM opportunities and preparing to implement several of them in the latter half of the year.

Also in the international market specifically Europe, we are actively pursuing a number of blended capital solution opportunities utilizing Maiden's traditional reinsurance products enhanced by insurance regulatory capital subordinated debt offerings.

As you may recall, we initiated our relationship with Dublin-based IRC last year. IRC is a unique asset manager that focuses on originating and developing subordinated debt solutions that effectively respond to regulatory capital needs of private insurers. Together Maiden and IRC offer highly differentiated capital solutions through a combination of traditional reinsurance and subordinated deb. As the implementation of solvency to approaches we expect to see a number of opportunities that respond to our blended capital solutions capabilities.

The largest attribution to first-quarter 2015 premiums came from AmTrust where strong US Workers Compensation pricing and the continued growth from Tower Group business resulted in net premiums written increasing 20% to $503 million. While the impact of the Tower acquisition will begin to normalize in the future, AmTrust continues to enjoy significant business opportunities in their core segments. Importantly, we continue to observe a rational and disciplined approach by AmTrust in the market.

Maiden's combined ratio for the first quarter was 98.2%, an increase over the 97.7% reported in the first quarter of 2014. The diversified reinsurance segment combined ratio was 101.2% compared to 97.6%. In the first quarter of 2015, we recognized the impact of several large European auto liability losses along with the effect of a strong dollar which negatively impacted the IIS segment and diversified segment results.

Additionally in the US, our combined ratio continues to operate at elevated levels driven by weak commercial auto performance. As we mentioned in last quarter's call, we are closely monitoring these results and are taking necessary actions to improve profitability. We are pleased that margins have remained strong in the balance of our casualty business, particularly general liability, umbrella liability and our certificate facultative business and we continue to emphasize growth in these more profitable lines.

AmTrust combined ratio has continued to perform better than target with the first quarter coming in at 94.6% benefiting from improving Workers Comp rates and a business mix trending toward higher-margin business. We remain committed to strengthening operating performance and continue to emphasize underwriting discipline.

In the US diversified segment, our focus is focused on areas of business that have historically been the most profitable for us while of course effectively dealing with underperforming accounts.

I would like to now turn the call over to our Chief Financial Officer, Karen Schmitt, to review the first quarter in greater detail. Karen?

Thank you, Art, and good morning. As Noah said earlier, unless otherwise stated, all references to common share data are on a diluted share basis and comparative comments will refer to Maiden's results in the first quarter of 2015 relative to the corresponding period in 2014.

Maiden reported first-quarter 2015 net operating earnings of $27 million or $0.35 per diluted common share compared with $26 million or $0.34 per diluted common share. Net income attributable to common shareholders was $32 million or $0.41 per diluted common share compared with a loss of $4 million or $0.06 per diluted common share.

As you may recall, the first quarter 2014 net income was impacted by a nonrecurring non-cash charge of $28.2 million representing the accelerated amortization of both the original issue discount and issuance costs associated with the 14% coupon junior subordinated debt.

Foreign exchange gains of $7.8 million have been excluded from operating income. This favorable impact is the result of the revaluation of primarily euro denominated balance sheet reserves and is reflected in net income. The adverse impact of the strengthening dollar on non-US dollar-based underwriting income and fee revenue is included in operating income for the quarter.

As these revenues and premiums convert into lower dollar amounts, operating income was reduced by approximately $2 million or $0.024 per diluted share. The balance of a foreign exchange adjustments flow through the balance sheet as all other comprehensive income. Foreign exchange impacts in total reduced book value by $15 million or $0.20 per share largely due to the level of collateral held for euro denominated accounts.

In the first quarter of 2015, gross premiums written increased 16% to $834 million from $722 million. Net premiums written totaled $797 million in the first quarter, an increase of 12%. The diversified reinsurance segment's net premiums written totaled $294 million, an increase of 1%. In the US, net premiums written grew by approximately 8% as we increased programs with existing customers and added new business. Net premiums written in the international IIS portfolio were down in Q1 partially due to the impact of a stronger dollar but also due to weaker European auto market.

In the AmTrust Reinsurance segment, net premiums written increased by 20% to $503 million. Net premiums earned of $577 million increased 11%. In the Diversified Reinsurance segment net premiums earned decreased 3% to $193 million. In the US, earned premiums were essentially flat in the quarter relative to the first quarter of 2014 impacted by a large account that was restructured at January 1.

International premiums were lower due to foreign exchange impacts and the effect of the weakness in the European auto market. The AmTrust Reinsurance segment earned premiums were up 26% to $385 million with much stronger growth in the small business commercial segment which includes the growing Workers Compensation premium. This growth was primarily due to the continued impact of the Tower acquisition.

Net loss and loss adjustment expenses of $377 million were up 7%. The loss ratio of 64.8% was lower than the 67.0% loss ratio in the prior year. The total expense ratio increased to 33.4% for the first quarter of 2015 compared with 30.7%. Both loss and expense ratio changes which partially offset, are impacted by changes in business mix.

General and administrative expenses for the first quarter of 2015 totaled $16 million compared with $15 million. The G&A expense ratio was 2.8% in the first quarter of 2015 which was the same as the first quarter of 2014.

As Art discussed earlier, the combined ratio for the first quarter of 2015 was 98.2% compared with 97.7% in the first quarter of last year. Excluding the impact of nonoperating other category adverse runoff, the combined ratio was 97.9% for the first quarter of 2015 versus 97.3%. These losses totaled $1.9 million this quarter largely from the NGHC runoff. The diversified reinsurance segments combined ratio 101.2% in the first quarter of 2015 up from 97.6%.

During the quarter, there was more pro rata business than in the first quarter of 2014 causing the expense ratio to rise and the loss ratio to fall on a relative basis. Underperformance in the US commercial auto has also continued to have an impact on the diversified results. This quarter there was an underwriting loss in the international division which was driven by foreign exchange and also the impact of large loss activity in the quarter.

The AmTrust Reinsurance segment reported a combined ratio of 94.6% in the first quarter of 2015 compared to 95.6%. This segment's underwriting results benefited from change in mix as the proportion of the more profitable Worker's Compensation business was higher and the proportion of hospital liability premiums were lower. The latter has a much lower commission structure resulting in an increase in the commission ratio this quarter versus first quarter of 2014. On a combined ratio basis, the improvement is largely due to the Worker's Compensation growth versus the prior year.

In the first quarter, we had net investment income of $28 million, an increase of 1.5% from the first quarter of 2014 and 11% lower than the $32 million in the fourth quarter of 2014 which benefited from approximately $2 million of corporate calls which did not occur this year. The average yield on the fixed income portfolio excluding cash is 3.49% with an average duration of 4.43 years. The new money yield on fixed maturities in the first quarter was 2.5% with an average duration of 4.68 years. Including cash, the average duration is 3.71 years versus an average duration of liabilities of 4.39 years.

As we deploy the accumulated cash during the second quarter, the duration will increase but will remain within acceptable tolerances.

Total investments decreased 3.1% to $3.4 billion compared to (technical difficulty) 2014 as paydowns on mortgage-backed securities increased during the quarter and this combination of paydowns and sales exceeded purchases by $99 million. Unrealized gains decreased by $7 million during the quarter with gains in US denominated corporate bonds and mortgage-backed securities largely offsetting declines in non-US dollar bonds.

Operating cash flow was $170 million during the quarter, up 18% compared to $144 million last year. Cash and cash equivalents were $641 million at March 31 or $249 million higher than year-end. With 10-year treasury rates experiencing elevated volatility during the quarter, we have delayed some purchasing activity and allowed cash balances to grow instead investing in very short term commercial paper. Since the end of the first quarter as interest rate environment has moderated, we have been actively investing in high-quality corporate bonds and government agency mortgage-backed securities and have committed over $300 million of investments thus far in the second quarter. For comparison purposes, total purchases were only $116 million during the entire first quarter.

Total assets increased 7% to $5.5 billion at March 31 compared to $5.2 billion at year end. Shareholders equity was $1.3 billion, up 3% compared to year end. Book value per common share was $13.11 at March 31 or 3% higher than December 31 after the $0.20 per share adverse impact of foreign exchange during the quarter. Total capital resources remained strong at $1.6 billion, an increase of 2% since year end.

I will now turn the call over to Art for some additional comments.

Thank you, Karen. I would like to provide you with some market context and discuss the environment in which we are doing business. In the US, the reinsurance market remains competitive although the most significant level of competitive pressure still remains the severity-oriented programs. That said, as we have commented in the past, no segment is immune to competitive pressures. We do believe that our highly efficient operating platform and balance sheet and our client focused approach with strong competitive levers, our strategy of staying close to our clients and delivering value has permitted us to grow established relationships while remaining discipline. As I mentioned previously, we are also carefully adding clients.

Demand in our sector remains stable. In the US primary insurer market, the level of rate increases in commercial lines continues to diminish but on balance it is still positive. We continue to see benign loss costs in most casually lines. However commercial, auto and property lines are experiencing some adverse performance.

We are maintaining a disciplined approach to these lines and are removing or restructuring accounts that are performing poorly. For the AmTrust segment, we believe the operating environment remains generally favorable as they continue to leverage their unique Specialty Business model.

In Europe, the market is also competitive; however, our unique positioning provides Maiden with a number of strategic advantages. Our long-standing unique IIS auto OEM business is working along with our insurer partners on a number of new opportunities to profitably expand branded consumer insurance solutions for our manufactured client base. And in the broader European reinsurance market, we continue focusing on bringing highly differentiated and customize capital solutions in combination with IRC to assist companies in transitioning to more rigorous Solvency II capital-based standards.

We are confident that Maiden's highly differentiated, diverse and low volatility on non-catastrophe reinsurance business model will continue to expand profitably by serving the needs of our regional and specialty oriented clients. As we deploy our large cash balance, we will continue to strengthen our earnings run rate. Our focus remains on improving underwriting performance which will further enhance earnings in ROE.

Importantly, we continue to maintain a highly efficient operating platform and capital structure which was recently enhanced through the retrocessional quota share agreement with a highly rated global insurer. Our clients remain the focal point of everything we do with the intent of ultimately creating value for our shareholders.

As we look out to the remainder of 2015, we see a number of opportunities to grow the business and to improve profitability.

Thank you.

Operator, can you please open the lines for Q&A?

(Operator Instructions). Randy Binner, FBR.

Thanks, good morning. So on the loss activity in the European book as well as the US commercial auto book, and I apologize if I missed this but did you discuss how close to the ultimate limits you might be on those losses? If you can give us more color there on how much more we might see because this has been I think a multi-quarter process for both of those areas meaning we saw some of this in the fourth quarter 2014 as well.

The issue I think up until this point has been dominantly the US commercial auto market and so as we've commented before when you look at the limits that we put up on most contracts and where we attach -- and some of this is pro rata -- they are fairly short. So in terms of a lot of additional development on individual claims, that is pretty well-controlled but obviously we have seen an elevated level of frequency as well and that has been driving some of the increased loss activity. I don't think we are unique in that respect. Other companies have reported similar phenomenon.

We probably hear about it sooner than some of the reinsurers because of the lower attachments and we are relatively close to the ground. We also spend a lot of time doing on-site audits and making sure that our case reserves are appropriate as well.

We think that we are responding effectively but as I said last quarter, when you fix something, it sometimes takes a while to bleed in.

With respect to the international insurance services, the quarter is sort of unique in the sense that it does represent probably the first time that we have seen the effect of kind of loss activity on some of our European auto business. We don't see this as necessarily a sustained problem but it certainly influenced us in the quarter. We had seen some elevated loss activity. In that segment as well, we do have some inuring protections that reduce our potential volatility and that is personal auto. The European business is all personal auto.

So as far as any caps -- obviously we have a body of outstanding claims and there can be loss development anywhere in that body but in terms of the large loss activity we think they are well reserved. We think our partners have responded quickly and we think we have controlled the issue.

On the US side, what accident years are these commercial auto claims coming from?

It is coming from a couple of different accident years but really the more recent, we are not seeing very old development so in the last -- I think most of it is contained in say underwriting years 2012 through 2014.

Okay. And do you have any explanation for what is happening out there? I mean the pricing should have been better by the primary companies for commercial auto because it also had trouble during the more soft market years. There has been some notable issues with some companies there. So what is the kind of theme that is driving it from your perspective?

I mean I don't have the exact answer but at least our sense is that exposure is growing. There is definitely an improved economy that could be influencing loss [costs]. I think I have heard some commentary about less experienced drivers on the road as well. We don't see it from every commercial auto client, we see a from a handful of clients. So we do have commercial auto accounts that perform well. I think in some cases ultimately it relates to a pricing issue and we have to work with our clients to strengthen pricing when we see adverse loss activity but as you correctly point out, we are not the only ones seeing the trend.

All right. And then on yields, can you tell us -- you said you are investing now in investment grade corporates and then agencies I believe, that is the bulk of what you are investing in. And if I got that right, what kind of yield are you getting on that now versus what you might have gotten when the 10-year was bottoming out in the middle part of the first quarter?

Interestingly, during the first quarter our new money yield was 2.5% which is actually up from the fourth quarter. So I think we were just being very selective about where we invested. This quarter we've actually put a lot of money to work and the yield is about 2.5% so far on what we have committed. Now we are still pretty early on in the process. We have got a number of weeks to come and as we see some of the more recent stuff is looking maybe a little bit stronger.

But I think had we made those investments during the first quarter, we would have had a much lower yield because the opportunities that were available to us would have just pulled that yield down. So much happier with the opportunities that we are seeing to put money to work in this quarter.

Okay, great. I am going to sneak one more in just on net premium learned and I don't know if I missed this in the commentary but your net premiums earned were lower than we had forecasted by a pretty good margin. So we have timing issues on that all the time but was there anything unusual in the quarter as it relates to net premium earned timing and what actually kind of accrued to revenue in the first quarter?

We had actually at the beginning of the year we had an account restructured that had an impact on earned premium in the quarter. I think we still have certainly over the course of the year an opportunity to offset that with some of the new business development but it did affect the way earned premium came in in that quarter.

What was the nature of the restructuring?

It was essentially a contract that was reduced in size.

Okay. Great. Thanks a lot.

Thank you.

(Operator Instructions). Joab Dempsey, KBW.

Good morning everyone and thanks so much for taking my questions (technical difficulty) and I know he certainly wishes he could have been on the call today. But my first question in your comments you mentioned OEM. As you work a little more into the year and kind of improving clarity there, just curious if you see any change in current expectations for second half growth?

No, I mean I think we still feel pretty good about our opportunity. We have a couple of OEM opportunities that we expect to come live sort of July/August period. That business will bleed in and sort of start to ramp up and it will continue on into 2016. I think our prospects for 2016 are even stronger but we are working today with our insurer partner to implement several opportunities as we get to the third and fourth quarter.

Okay, great. That is helpful. I think you guys are probably trying to hold the line here but are you seeing any upward pressure on ceding commissions here lately?

You know, we tend to look at our business, we commented in the past that particularly our quota share business which is essentially where we have ceding commission issues, we look at the expected combined. So when we price the business we sort of independently establish our expected lost cost and then we afford a client a ceding commission that ensures that we are generating a reasonable margin.

As markets become more competitive sometimes we will switch some of our quota shares to more loss responsive contracts but with the focus on ensuring that we are generating our targeted underwriting margin or expected targeted underwriting margin. So commissions may move and we do from time to time have clients that have asked for sort of reductions -- or excuse me increases in commissions but it is on a specific client basis. If the performance warrants it, we will consider it. But we are trying to provide stable long-term capital solutions to our Company so we don't generally like to see a lot of variation in the commission rates that we are paying.

Okay, great. And then my last one is just sort of a more big, broader picture. As you guys build out the customized solutions, I imagine it takes a little bit longer than a more simple transaction oriented business. I'm just curious how you feel about the new and expanded business pipeline based on some of those (inaudible) discussions that might be on the way but just not really live yet so of speak?

There is certainly a bigger lead time and a lot more work as we work alongside our partner IRC. And so the important thing is that we always have something in the pipeline. Today we have several transactions that are not just in the pipeline but actively being evaluated and it starts with a diligence process and then obviously structuring and the like.

So I think it is going to be as we commented in the past, we don't expect meteoric growth but we do expect the opportunity to sort of incrementally enhance our business. When we do these, when we drive these capital solutions we generally expect larger transactions as a result of them. In terms of when we start to land the first one, I think it is hopefully it is sooner than later.

All right. That is all I had. Thanks again for taking my questions today. Best of luck.

Thank you very much

Ken Billingsley, Compass Point.

Good morning. First, I wanted to follow up on Randy's question about the premium earned pattern. One thing I noticed in the last three years it seems like the first quarter tends to be below at least my expectations and then it ramps up and is a little bit higher in the last three quarters. And I understand you mentioned the restructuring this year but is there something with the way you are writing the business or the type of business that is coming through that this is a pattern that we just need to anticipate irrespective of the restructuring this quarter?

There can definitely be some noise and I think a lot of it does happen at 1-1s. If we have an account that is either terminated or has a significant change, we can have a loss portfolio that goes out during the first quarter and that can create some noise in the quarter and this particular quarter was not a loss portfolio but I know in some prior years we have had some of that. So it does make it a little tricky I think to predict what that earned premium will be for Q1.

And that is just something that we are just going to have to anticipate maybe more regular going forward if the first quarter can be weaker than a traditional pattern but it is not like you lose the business, you do capture it from what was written in later quarters?

Yes, it is a difficult one to predict in that first quarter because if there is a portfolio issue and we write a 1-1 contract obviously that will have an effect. We can also have a contract that for whatever reason terminates and it terminates on a cut-off basis and we don't see the earned premium. So it is very hard to predict. We don't, we don't contemplate that it is really a function of what the client wants to structure.

Okay. And then I want to ask a tricky FX question here. I believe you said that you had FX impacted book value negatively by about $0.20 per share on the euro book and then some of that is excluded and I thought you said it was $0.02 to $0.03 negative impact to operating EPS. Could you just clarify that and then explain the operating EPS part that you did not [explain]?

Yes. We have foreign exchange impacts really in three different ways. So the operating income, which is the one that I talked about, we've got about $2 million, $1.9 million, 2.4% per diluted share and that is the conversion of first, the international fee income which comes in in foreign currencies and gets converted to US dollars. So that difference was about $1 million.

And then the rest of it was the earned premium coming in converting to a lower amount. So the margin on that earned premium that we would have earned and when you combine those two together it is about a $0.024 impact as we calculated on the quarter. Then we have -- so that is a negative.

We have a foreign exchange impact of $7.8 million which was actually a positive and that is some euro and Sterling denominated reserves that are being converted to US dollars and so we are receiving a gain on that basis. That goes through net income but it doesn't go through operating income.

And then the rest of it, really the majority of our business, the business that is in divisions or in companies is designed to flow through the balance sheet, not the income statement. So as those liabilities and assets adjust, those differences go through comprehensive income and that is where we have the loss. Actually the loss in book value is a combination of all of those things. It is the comprehensive income impact, the net income and the operating income. When you put all of those together, it is a $15 million decline in book value and that is $0.20 per share.

Thank you. This is a quick one, I don't recall if you said this, were there any reserve releases our net reserve releases in the quarter?

No, we actually had a little bit of adverse during the quarter in diversified. AmTrust is pretty flat. Diversified was adverse by about $5 million or 2.5 points on the quarter.

Which are really what drove the --.

The 98.7 excluding the prior your development for Diversified.

So it was about 2.5 points -- so anyway, is it 2.5 of total or just on the Diversified segment?

Just on Diversified.

Okay.

And the 98.7 is just on Diversified as well.

The 98 points?

Yes, if you take the 2.5 points out of Diversified, it would be 98.7 run rate without the prior year development.

Okay, great. And then restricted cash, looking at the balance sheet, restricted cash jumped pretty dramatically to $173 million from $284 million. Can you talk about what is going on there and just kind of explain to me how that might have any future impacts?

Yes, a lot of our investments go into our trust accounts for our customers and it is in cash now because it didn't get invested but as those funds get invested, they will be in other restricted accounts. It is just that this quarter we ended up with a lot of cash.

But that is you earned, that is not something that they earned the investment (inaudible) you earning that investment income (inaudible)

Correct.

And then I had one other question, the retrocessional agreement that you have in place, can you just talk about how this is being used to drive earnings? But why implement it now? I mean just the tangible benefit you get from entering into that agreement?

It is really not an earnings play so much as a capital management tool so this is something that we implemented at January 1 to allow us to -- it is just another capital tool in our arsenal.

If you think of our business, it is growing at a healthy level and we want to be able to continue to support that healthy growth. We view this as relatively neutral in terms of P&L effect and we think it is a good capital tool. We sort of set it as an objective in 2014. We really have multiple capital sources that we want to be able to apply on a proactive basis and so it is really something that I think gives us some headroom to continue to build the business.

Are there guaranteed commitments in this agreement or is it flexibility based on how much you want to write? How is that structured?

It has at this point we have a range of premium sessions. I think we said last quarter $150 million to $200 million. Our partner is -- these are early days. If we got to the point where we needed to cede more than $200 million with our quota share percentages, we would talk to them. I don't really have any sense for how that would work. If they said that $200 million was all that we wanted we would stop at this point but at this point they are committed up to the $200 million.

At this point we don't really see a need to upsize it. And as we have said before, I think it is a pretty healthy market in terms of capital providers for retrocessions so we think we would have other options if we needed it.

And this is obviously to support future growth, not replace?

It is. We want to be ahead of our capital needs always and so it is really for future growth.

Great. Thank you for taking my questions.

Thank you very much.

I'm showing no further questions at this time. I would like to turn the conference back over to management for any closing remarks.

Thank you all for joining us today. We know it is a busy day for earnings calls and we look forward to speaking with you in the future. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day, everyone.