Markel Group Inc (MKL) 2002 Q4 法說會逐字稿

Good morning, ladies and gentlemen, welcome to the Markel corporation earnings conference call. At this time all participants are in a listen-only mode. a Brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone key pad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Steve Markel, vice chairman of Markel corporation. Thank you. Mr. Markel, you may begin.

Thank you. I appreciate all of you joining us today. As you know, we are going to report on our fourth quarter and year-end financial results. The press release was out earlier today. Before I begin, I would like to call your attention to our safe harbor and cautionary statements set forth in our press release in forms 8-K, 10-Q and 10-K. Our discussion today could be effected by the matters described in those statements and we encourage you to read those statements carefully. As with our previous quarterly conference calls, joining me today is Darrell Martin, chief financial officer. Tony Markel, president of the company. Tom gay Mer, chief investment officer. And before I turn it over to Darrell to start the process with a review of the numbers for the year, I have a couple of comments I would like to make.

First, the quarter which just ended was very solid. Again, I think there are no surprises in this quarter and that's something we are very pleased to report. Our international operations, which most of you know have been a challenge for us to complete the amalgamation and transformation of the former turnover insurance is continuing to track very, very well. Their results for the quarter were 104% combined ratio and there are ongoing operations throughout the year have consistently performed quarter to quarter in the first quarter we reported a combined Markel international of 110, improved to 107 in the second to 106 in the third and we're pleased that progress is continuing with the 104 in the fourth and we certainly are hopeful and expect with the price increases we have achieved throughout the year, that that will continue to track and that well earn underwriting profits from international operation during the course of 2003.

We're very pleased with the progress made so far and are very encouraged when we look to the future. an important milestone was reached in the fourth quarter with the international business continuing to perform better, our U.S. business was very, very strong and our combined ratio for the entire organization was less than 100% at 99%, so Markel corporation for the fourth quarter achieved underwriting profitability, something that was a long time in coming. The amount of work and energy we spent to reach this milestone, I can assure you, it is absolutely our intent that we consistently stay under 100 for a long-term in the future and in the current environment it is our expectation to start adding meaningful points of underwriting profit on the score board as we look to our long-term business plans.

Finally, premium volume and pricing continues to be very, very strong and we're very, very encouraged with the marketplace and the opportunities we see in this marketplace. I'll turn it over now to Darrell Martin, who will review the numbers for the prior year. When he is complete, Tony will talk about our operations and Tom about our investments and then I will coordinate the question and answer period. Darrell?

Thank you, Steve. Good morning. Before I get started, let me just mention that being this is year end, our 10-K is normally filed by the end of March, obviously and we fully expect to have our 10-K available in the annual mortgage mid to end of March. March. So the detailed analysis embedded normally in management's discussion analysis will be contained in the 10-K. I'm going to focus as usual on the year-to-date, in this case the full-year ended December 31, 2002. And begin with the review of the underwriting results, give you highlights on the investment side and a couple of comments on our balance sheet and some of the significant accomplishments embedded in the balance sheet this year.

First on the underwriting side, gross premium written for the year-to-date was 2.2 billion, up 25% of a year ago, of 1.8 billion dollars in gross written premium. Those trends we have noted all during the year, January we continue to see growth in premium volume over the prior year, not at the levels that we have seen historically, Steve will talk about our expectations for '03 a little bit in a few minutes. On a net basis we retained about 73% of the gross premium written, pretty much in line with a year ago. And on an earned basis we had in excess of 1.5 billion dollars of earned premium, 28% increase over the prior year. The key must be for us is always the combined ratio, we reported a combined of 103% combined for 2002, compared to 124% combined in 2001. As you'll recall embedded in 2001 were several unusual items, including the events of 9-11, the World Trade center and other reserve strengthenings and as you recall in the third quarter of this year, we also had a 44 million dollar reserve strengthening in the quarter, excluding the reserve strengthening and unusual events in both years, our combined for 2002 would have been 101, compared to 107 a year ago.

Again, an indication as Steve highlighted, of the improvements in the underlying ongoing business that we have been writing for the past three years. The real story, the loss ratio is pretty much flat on an adjusted basis, year to year. The price increases that we have been recognizing have not been earned and not been reflected to any great extent in our loss ratio picks. Most of the improvement is coming to expense ratio side, again, that's due to reduced commissions that we're paying producers as well as reductions in overhead and obviously the leverage improvement that we get with fixed costs spread over larger earned premium dollars. So we're very optimistic that 2003 we'll be back on track for underwriting profitability.

On the investing side, our portfolio for the year grew about 700 million dollars from 3.6 billion at January 1 to 4.3 billion at the end of the year. Major sources of that growth were cash flow from operations, significant $500 million. We did have additional borrowings that we infused in to underlying insurance operations which added about $100 million to the portfolio and about $100 million of growth from other sources, including change in unrealized gains and losses, et cetera. So significant growth in the portfolio in the current year. In terms of net investment income, the growth in our average portfolio was more than offset or equally offset by reduction in rates, if you would, in the interest rate environment that we're in. Net investment income was about $170 million in both periods.

Realized gains in the current year were total of 51 million dollars compared to 20 million dollars a year ago and current year most of those gains were driven or derived from the bond portfolio and the restructuring of some of those underlying assets during the course of the year. Change in unrealized gains was a positive $8 million in the current year for a book total return of about 5.9% for the year. On a tax effective equivalent rate of return basis, we had a terrific year, total return on a tax equivalent basis in 2002 was about 8.3%, compared to 8.4% a year ago. ago. Terrific results in a difficult environment and I'm sure Tom will talk a little bit about that in a few minutes.

Net income for the year was $75.3 million compared to a loss a year ago of $125.7 million on a per share basis net income was $7.65 this year compared to a loss of $14.73 a year ago. Shareholders equity increased to 1.1 billion, almost 1.2 billion dollars. On a per share basis that's $117.89 per share compared to $110.50 a year ago. 7% growth in the current year, obviously not on track to meet our corporate goals as a long-term of growing book value per share at 20%. But we're very optimistic that we are going to be returning to that type of growth rate in the future. So with that, I will turn it over to Tony Markel for some commentary on the current operating environment.

Thank, Darrell. I will make my comments relatively brief this morning, but the bottom line is I couldn't be more pleased with where we are from an operational standpoint. Simply put, we had another outstanding quarter, both North American units, excess and surplus and specialty admitted taking full advantage of the solid marketplace and the continuity and experience of respective staffs.

Our international operation continued its dramatic progress, there were no significant surprises. We had further reduction in the negative impact of discontinued lines, tremendous growth in staff continuity, matter racial of the people and a --maturation, continued embracing of our underwriting culture. In addition, we made extremely good progress on expense reduction that we have discussed for a long time, ever since the acquisition of Terra Nova. And last but not least, we think that our selection in pricing in London throughout 2002 is going to be extremely profitable.

At the risk of repeating some of Darrell's presentation, gross premium volume for the full year was 2.2 million dollars, which was up 25% over last year. And the fourth quarter was $572 million, up 15% over last year. It's certainly worthy to note that the growth in both the full-year and quarterly corporate gross premium volume numbers is, in spite of planned premium reductions in London, as our controls and underwriting discipline continue to take hold. Combined ratio, which is really what we look at and you can't emphasize it enough for the year, was 103% compared to 124 last year. And compared to 105 through the first nine months of 2002, reflecting dramatic improvement over last year and as Steve pointed out, continuing improvement quarter to quarter. Just some general note worthy operational observations, the market continues to exhibit very positive fundamentals and there's nothing in our estimation of consequence on the horizon that would lead to us believe that it will end any time soon.

Dramatic reserve increases such as those recently announced by a number of prominent insurers would clearly signal industry problems that form a part of a mosaic that would suggest legs for this positive environment. environment. Market turmoil, unrest and opportunity continue unabated during the last quarter, for example, at least two of our major specialty competitors announced substantial cutbacks in the desire to sell certain segments of their books. As a result, in addition to the organic growth that we have discussed at length, we sure don't see any lack of opportunities for additional product expansion and add on opportunities. Rate increases continue to hold up extremely well.

Even those classes of business that had incurred significant rate increases prior to September 11, with additional further exacerbation subsequent to the World Trade center occurrence seem to be continuing to carry reasonable additional price increases as we go forward through the full renewal cycles. On the London front, Lloyd's has hired a new chairman and a new franchise performance director, who have been charged with new disciplined oversight of the market and we deem that to be an extremely, very, very favorable and positive step forward. In that regard, we had the pleasure of meeting with both Lloyd Levine, new chairman and Ralph Toll, new franchise performance director last week in London and although the proof will obviously be in the pudding, as they move forward with the various initiatives that have to be tackled, I'm convinced that they are true agents for change and that they understand the absolute necessity of bringing more discipline in a business-like acumen to that very important market.

You probably have read that we announced the formation of a new business unit in the fourth quarter, naming it Markel Re. This is a real excising expansion for us in to the casualty faculty arena, I want to stress that, and not treaty. We see facultative placements as having all of the characteristics of control, individual risk selection and pricing that we value so strongly in all of our underwriting units. And in addition to this very, very positive gratifying product enhancement, it was a great opportunity for us to add talent to the organization, namely John Latham (ph) who has been hired to head up that division, with us 11 years ago and most recently had developed extremely enviable results as president of an excess and surplus lines competitor. John is past president of [inaudible] gives us four past presidents of that all important industry association here in the states and I think further cements our footing in the excess and surplus lines arena. So we're really tickled to death to have him and the opportunity to effectively grow this new division, we think is a great add-on to what we're already doing.

We just returned from a three-day offsite strategic planning meeting, which included the COOs, the chief operating officers of all of our eight operating companies, along with selective home office staff and the enthusiasm for future growth and profitability was both unanimous and contagious. And I think from your perspective, one of the outgrowths was an unwavering commitment by all of our employees to long-time stated objective of 20% growth in book value over time in spite of the current low ebb of the state of the investment marketplace right now and the returns that we're able to garner.

In summary, I think the maturity and focus of our North American staff, coupled with the growing competence, stability and cultural adaptation of our international employees gives us tremendous confidence in our ability to take advantage of this very brat tying environment in a nutshell, we are extremely bullish about 2003 and beyond. With, that I will turn it over to Tom Gaynor for the investment overview.

Thank you, Tony. Darrell gave you the numbers, so I would like to add a few qualitative comments on top of his report. I'm very pleased with the investment returns that we had in 2002. I'll break that in to both sides of the house. On the equity side we were down about 9% for the year, but that was in an environment where the S&P 500 by contrast was down over 21%.

For the last three years and all of us in the equity world suffering with pretty rough market, I'll remind you we're up approximately 35% over that time frame whereas the S&P is down approximately 37% over that same three-year period. So meaningful outperformance in a pretty tough market. The last 14 years, which is the statistics that I have, our weighted average return, which is when we actually had the money, was 11 1/2% versus a similarly calculated S&P number of 5.6%.

So the conclusion I think is fair to draw we're adding a ton of value in our equity investments. On the fixed income side, we had a 9.8% total return last year, very pleased with those returns. There are two major error that's are possible in managing the fixed income portfolio. You can either be too far out the curve, i.e. having your duration too long and be quite vulnerable to rising interest rates. Or too far above the curve, taking credit risk. We did not and will not make either one of those mistakes. We invest the fixed income portfolio pretty conservatively. We maintain the duration between 4 and 5 years, which reasonably matches duration of our insurance liabilities.

We select every bond on the bottom-up, one by one basis with thoughtfulness and name by name review. As a consequence, we protected the capital from a possible rise in interest rates, which didn't happen in 2002, but we will take the same protection in 2003 and we did not suffer credit losses from the implosion of the Telecom and technology sectors. I'm pleased with the fixed income results and the way we're managing that portfolio. In terms of asset allocation, just a word or two about that. At year end, equities were approximately 550 million dollars, which is about 12.7% of the portfolio, with bonds and cash of $3.7 billion, roughly, about 87% 87%. Bonds experienced positive returns during the year, the majority of the cash flow went in to the fixed income portfolio and equities were down as I previously mentioned, by about 9%. As a consequence, equities represent the lowest percentage of the portfolio since 1990.

During 2002, we began investing at an annual rate of approximately $100 million in equities and we would currently expect to at least double the rate of cash flowing to the equity portfolio in 2003. I believe that we now have the pleasant confluence of events of attractive equity investment opportunities, cash flow and a growing capital base. With, that let me turn it over to Steve.

Thank you, Tom. a Few comments to, before we open the floor to questions. As you know, our operations are very, very strong. But in addition, we're very pleased to have a strong balance sheet as well. As Darrell pointed out, investments in cash increased year over year by over 700 million dollars, cash investments are now 4.3 billion dollars, which will provide a great deal of opportunity for us to continue to earn high returns on shareholders' equity. Our leverage of investment leverage of investment portfolio to balance sheet to book value at year end is 3.7 to 1. a Year ago it was 3.3 to 1. So we're moving back towards our target, if you will, of about 4 to 1 of investment leverage to book value.

With the current cash flow, our optimism with the markets, both insurance markets and investment markets, we fully expect to be back at that level in the not too distant future. Our loss reserves, reinsurance recoverables continue to be conservatively stated, including our asbestos reserves. We continue to maintain the discipline we have long worked to achieve, not always successfully, but never the less, diligently worked to achieve, where our reserves are more likely to be redundant than deficient and our accounting policies and procedures we think are generally conservative, certainly in comparison to many others.

The markets continue to be very strong. The industry problems persist, and we expect this environment to continue for at least the next several years. Markel will continue to focus on earning consistent underwriting profits and adding superior investment returns to build shareholder value. Using Tom's words, our underwriters as well as those in the investment area are adding a ton of value for all of us shareholders, consistently focusing on discipline, underwriting profits and achieving superior investment returns. Whether this market lasts for one, two, three, or four years, Markel will maintain its discipline and prosper throughout, whether the cycle is long or short, we're running the business for the long-term and expect to be able to compound book value at a high rate and over a long-term. With that, I will wind up our comments and open the floor to questions, and again, thank you all for participating today. Operator, we'll start the questions.

Excuse me, ladies and gentlemen. At this time we will be conducting a question and answer session. If you would like to ask a question, please press star 1 our telephone key pad. To remove your question from the queue, please press star 26789 for participants using speaker equipment, it may be necessary to pick up your hand set before pressing the star keys. Our first question comes from Steve Farley (ph) with Farley (ph) Capital. Please state your question.

Hi, it's Steve Farley. Tom, I think you covered it, but I missed it. At what rate is money flowing in to the equity portfolio?

Well, last year it was running at about 100 million. This year I would expect that to more than double.

Okay. I want to say years ago your formula was that you figured the shareholders equity that that basically you could have invested in the market. You now have 1.1 billion of shareholders' equity. Why is it not at a higher level now?

Well, there's a couple factors behind that. One is right at the time of the Terra Nova acquisition, when the shareholders equity number went up, we looked at the Terra Nova equity portfolio and I think I shared this with you before, within 20 minutes I sold 95% of it because I didn't like what they had and it wasn't the kind of stuff that we wanted to own on a longer term basis. That proved to be a very good decision when you consider that was done back in March of 2000. Given the fact that the markets have been pretty tough, I felt that we have been working with a head wind as opposed to a tail wind, so I have been very deliberate and very thoughtful about redeploying that capital. In the middle of last year I did pick up the pace and got to it that 100 million rate. Right now it's 200 million and if I had complete confidence in my own market timing abilities and knew the bear market ended yesterday, I would put a lot more in quickly. But given that I know my own limitations, I would say that using a flow and putting cash in gradually is a more appropriate way to do it. And that's what we're doing, working back exactly towards your goal that you mentioned of having the capital invested in equities and the reserves invested in fixed income.

So long-term, that concept still holds, that you would be willing to have as much as all of your, you would be willing to have an investment portfolio in equities that would be as large as your stated shareholders equity?

Pretty much. Assuming we had good investment ideas. That would be the long-term target if we, you know, if everything in the world, everything was just operating as we would hope it to be. Today the portfolio, equity portfolio is about 550 million, only 50% of shareholders' equity only 13% of the total portfolio. We could clearly move up the weighting in terms of equities as a percent of shareholders' equity to 57 or 80% and we would like to do so. That would make it 20 to 25% of the portfolio. You know, ultimately we have to compromise decisions on the investment side with what's really going on in the real word on the underwriting side, and we are first and foremost an underwriter and want to have capital available to write insurance premiums, especially in today's market when we could, have an opportunity to grow very, very profitable. We were tempered as Tom said in the last couple years, the underwriting results were not where we wanted them to be.

And just a follow up on that trade-off between equities and underwriting, what position do the regulators take? If you have some of your investment portfolio in equities, do they say that's less business you can write?

Not specifically. specifically. But the insurance industry is broadly regulated on a risk base capital formula and equities carry a higher risk base capital allocation than say treasury bonds.

So is the issue that ultimately will be reflected in the ratings on your debt?

No, I mean we have the capacity very easily to move it to the sort of 75 to 80%. With the volume growing, we probably don't have the capacity to move it to 100%.

I guess what I'm trying to upped, to what extent is this a perception issue with regulators or credit, credit rating agencies versus just that prudence our own part?

I think it's the latter.

Thank you.

Certainly to a larger extent. Although the risk based capital rules are very, there's a formula. .

Our next question comes from John Keefe with Farris Baker Watts. Please state your question. .

John, did we lose you? .

Good morning. Congratulations on the quarter. This looks to be an all-time record from an operating point of view. I've got a couple questions. First for Darrell, on the increase in the bank lines, was that done mostly to fund Lloyd's capacity for 2003?

It was a combination of both Lloyd's capacity as well as our U.S. insurance operations as well. We did make capital contributions through all of our underwriting legal entities at year end, and probably half of that capital came from internally generated cash, if you would, redeployment of existing capital internally, but the other portion, the $100 million we did pull down from our credit facility to fund that as well.

Okay. a Couple of questions for Tony. In your comments, Tony, you mentioned regarding London, that risk selection in 2002 is going to be extremely profitable for the London operation. Does that imply that you think as 2002 accident year develops, that you expect that it could develop positively?

I think very much so, John.

Favorably?

It's hard to effectively go in and totally predict now. But everything we see shows solid price increases, a real solid focus on risk selection and we don't feel any less bullish about 2002 than we difficult at the end of the first, second, third or fourth quarters. As I indicated in my general remarks, the adaptation to our culture of underwriting profitability, without concern for volume, has really taken hold and we've got a real solid group of motivated, enthused people who are really starting to see the fruits of their labor right now.

Would you say, Tony, in terms of personnel that you now are where you want to be in London? Or is there still a little more heavy lifting left?

No. We have made significant changes over the last three years, more so than even on a perspective, on a relative basis, more so than any other acquisition that we have ever made. But I was telling Steve and Darrell this morning, having just returned from London as a full week last week, I think the moral, the excitement and frankly the types of people that we have heading up each of our underwriting division and staff positions is solid. They're working together as a team. There's a real feeling of enthusiasm and, you know, you always have issues. But right now I think frankly, we are in great shape with people in all the right spots and, you know, with product platforms that we're very, very comfortable with. You know, there are always issues to deal with, as they are continuing in north America. But I couldn't feel better about the development of our staff overseas. .

Last question, Tony. You had mentioned in your discussion of the domestic operations that a couple of competitors have withdrawn or are no longer competing with you. Can you give us a little color on that?

Well,, you know, the Kemper, with their issues, have effectively publicly announced the sale of a number of their specialty books and obviously we are one of those people that would have looked at them, I'm not sure that, you know, there's anything specific. But royal has downsized their specialty operation in the U.S., with attempted spin-offs of a lot of the specialty business and obviously at the very least, the impact to us is continued growth in opportunities through our organic, our existing distribution systems. But the repositioning in the specialty marketplace clearly creates additional opportunities for us, as a result of the stability of our staff and the stability of our distribution system.

Very good. Thank you.

Our next question comes from Shawn Reid with Salomon Smith Barney. Please state your question.

Yes, thank you. Good morning. Could you please talk about your liquidity situation that your holding company and also kind of walk through maybe sources of cash and the uses of cash for '03? '03? Thanks.

Darrell, I will have to let you deal with that.

Well, we have as sort of a corporate objective to have on hand at the holding company level at least two times debt service at any point in time. So at year end we have an excess of that by a fair amount and looking at our plans for '03 in terms of the sources and uses of cash, we have debt maturing in November of '03 of about $60 million, $65 million of public debt. That is the only maturing issue out there. We have more than adequate cash on hand at the holding company level to cover that and debt service. And we also have I think it's $125 million of available capacity, if you would, at our credit facility at the holding company level. So we think we're in pretty good shape for '03.

Another point I think it's important is holding company cash flow, the overhead in the holding company is very, very modest and most of the costs in the holding company in fact are allocated to all of the insurance companies. And as a result, we don't have a meaningful issue of maturities or cash issues at the holding company. Important aspect of that, unlike a lot of companies, the combined ratio that's we report are fully loaded and in fact include 100% of corporate overhead, whereas a lot of companies who might have heavy corporate staffs and heavy corporate overhead don't allocate those costs and the insurance companies combined ratios don't necessarily include those costs. But as Darrell said, only significant maturity that we are looking at in '03 is $60-some million, which is the last piece of originally $100 million debt issuance of ten years ago. And our cash balances, certainly credit facility are more than adequate to meet that maturity.

Excellent, gentlemen, thank you. One further question, if I could. could. The bank draw-down that you took, that's due in '04, the end of '04?

Yes, the bank facility currently starts in December of '04. In all probability during the calendar year of '04, we will renegotiate and establish a new credit facility, which is very, very customary and in fact we could easily do that sooner. But it's not a matter of much urgency.

Okay. Excellent. One more thing, if I could. Do you have an idea yet what your dividends available from the subs will be for this year?

We do, but our plan is not to take any dividends out of the subs.

Okay. Fair enough. Thank you very much.

Our next question comes from Beth Malone with Advest. Please state your question.

Thank you. Congratulations on the quarter. I have a couple of questions. One to Tom about the investments in equities. What areas do you think you'll be, what kind of industries or opportunities do you think you'll be making in the investments? And also, could Steve or Tony comment on, Steve made a comment that you expected the cycle to last in to the next several years and what do you base that expectation on? And do you think, how do the announcements by AIG this morning and certainly ace and travelers early, do you think that will have an impact on the longevity of the cycle? And then finally, on the underwriting side, how are you staffing up for new underwriting? And has that been a problem or have you been able to get the right kind of people in as you have grown the business?

Why don't you deal with the investment question and Tony, I'll let you pick up when Tom is finished, the cycle and the staffing.

All right. Thanks. Beth, our target is to invest as Steve and Tony and Darrell and everybody else remind me, in stocks that go up. So that's the number one goal. The longer answer to that short goal, I think you're familiar with, there's four basic thoughts that I have when I'm looking at a potential investment. First is that we're dealing with profitable businesses, the second that we're dealing with management teams that are both talented and honest. The third is that the companies either have reinvestment opportunities or capital discipline to pay out dividends or do share repurchases when they can't reinvest the capital. And the fourth is to pass fair price for companies which meet that criteria. I would expect you'll see a lot of the cash flow in to things that we already own, because when you use those filters you get a relatively thin list of companies that really can deliver on all those four points. And then the about news is that the world spins and things change and I'm hopeful that by going to work every day, we'll find some new opportunities over the course of '03.

Okay. .

Thanks, Tom. Beth, as far as the cycles are concerned, I mean hell, I have been in this business a long time and that's the main topic of discussion and has been forever. But our view is that there is really, as I said in my comments, I think Steve repeated in his own fashion, our view is that there's not a single dynamic out there that would indicate that this attractive marketplace has, is going to come to a screeching halt. When we talk about the long-term view of the next year, two, three or four, we certainly are not talking about 50% increases on top of 50% increases on top of 50% increases. But at this stage of the game, with the rate increases that have been enjoyed in a late '01 and '02, if we can just continue to have effectively moderate increases of an inflationary type and be able to take care of those few products that may have not quite gotten to where they need to be, that's a hell of a nice environment for us. If you look at the outside world, I mean clearly the fact that, what was it a year and a half or two years ago, or such, that 25 billion dollars or so was raised in Bermuda, clearly in our estimation falls well short of filling the hole that the industry had through losses and continued projection of underreserving of a number of changes at the tops of these organizations would lead us to believe that there's going to be a fundamental addition of conservativism. You know, the reserve increases that have been announced in the most recent quarter, as well as over the last year, coupled with the projections of continued under-reserving and resulting capital inadequacy would lead us to believe that there's not any real dynamic that is going to dramatically change the general platform and you couple that with a lot of the companies that have had problems and have had to downsize the instability and opportunities that that's created in sort of our safety net of excess and surplus lines companies, including some of our London products, gives us a tremendous optimism for a pretty dog gone good run. Of this very positive environment, again, recognizing that we're not going to get exponential in top of exponential on top of exponential. So we're very, very bullish. And in our offsite couple three, weeks ago, I think the feeling from our entire organization across the geographic spectrum was a feeling that this market has got legs and that's the (inaudible) we're setting up.

All I can say, we feel it's very positive. How long it's going to last, whether it's another year or two or three, we'll take it as it comes, apply our consistency and dedication to underwriting profitability and deal with the market as it is. But we think it's a very, very positive long-term future. As it relates to being able to take advantage of the increased activity, I think I'm going to give you a very, perhaps oversimplistic answer: Obviously some of the growth has been in price increases, which does not demand any additional staff. And the other side of the equation is that I think that we have become a very, very attractive employer. I think that our culture is, has taken on very solid recognition in the industry and being able to attract top talent to join us, hear me raping on wood, it's because you hate to talk about it, but we have been very, very fortunate in being able to bring really solid people like John Latham that I mentioned aboard to effectively join and our philosophy, you can't have too many good people. So, you know, ever since the acquisition of Terra Nova, which sort of stretched us a little bit from a personnel standpoint, we have been rebuilding bench strength consistently and very consciously and although I would tell you our people are working extremely hard in relation to the opportunities, we have got the talent to take care of it.

One last question. Are there new markets or programs that you're seeing out there that you would consider outside of what, the programs you already Vin place, either in Europe or in domestically?

We're not going to venture outside of specialty property casualty insurance, Beth. We will stick to what we know best and where we have the resources. So there are lots of things out there that would, could be distractions, but we're not wasting a loft time looking at them. So you won't see us getting in to standard lies, you won't see us getting in to surety, you won't see us getting in to workers' compensation, you won't see us getting in to long-haul trucking. You know, there's some things --the stuff that, where we're good and where we have experience and we have great talented people, there's more than enough new business coming over the horizon and people opportunities as well. So we're taking care of that.

One other point I wanted to add to Tony's comments, he talked about the operational side of the house and some factors as to why you could perhaps expect a more durable up-cycle. The same set of circumstances can be talk about from the investment side. And that is, I don't think anybody made any money to equity side last year and is not really starting off gangbusters this year, so doesn't look like we will make a whole lot of money as an industry from the equity side. On the fixed income side, last year was the year in which we and other people with long bonds earned more in terms of total return than what the stated coupon was. So you're eating a little bit of your future return whenever you have a year like that. Should interest rates back up, the reverse would be true. The total return would be less than what the coupons are and that would be yet another item to add to Tony's list of capital constraint for the industry, all of which comes to the point where the industry to recover needs to make its profits on the underwriting desk and that should create endurance for a hard cycle.

Thank you very much.

Once again, if you would like to ask a question, please press star 1 on your telephone key pad. .

It sounds like we have responded to all the question that's are out there. Thank you all for participating today. If there are other questions you need to ask or want to ask, don't hesitate to give us a call. Again, thank you for your support and we look forward to seeing you at the next opportunity. Have a great day.

This concludes today's conference. Thank you for your participation. .