威達信集團 (MMC) 2010 Q1 法說會逐字稿

Welcome to the MMC conference call.

Today's call is being recorded.

First quarter 2010 financial results and supplemental information were issued earlier this morning.

They're available on the MMC website at www.MMC.com.

Before we begin I would like to remind you that remarks made today may include statements relating to future events or results which are forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are subject to inherent risks and uncertainties.

In particular, references during this conference call to anticipated or expected results of operations for 2010 or subsequent periods are forward-looking statements and MMC's actual results may be affected by a variety of factors.

Please refer to the MMC's most recent SEC filings as well as the company's earnings release, which are available on MMC's website, for additional information on factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

I will now turn over this call to Brian Duperreault, President and CEO of MMC.

Good morning and thank you for joining us to discuss our first-quarter results reported earlier today.

I am Brian Duperreault, President and CEO of MMC.

Joining me in presenting on the call today is Vanessa Wittman, our CFO.

I would also like to welcome our operating company CEOs to today's call, Dan Glaser of Marsh, Peter Zaffino of Guy Carpenter, Michele Burns of Mercer, John Drzik of Oliver Wyman and Ben Allen of Kroll.

Also with us is Mike Bischoff, our head of investor relations.

I will begin with some brief comments on the quarter before turning it over to Vanessa to provide additional information regarding our financial results.

Then we would be happy to take your questions.

I'm pleased to report that Marsh & McLennan Companies' first-quarter earnings performance was very encouraging.

Vanessa will go into more detail, but let me say that each of our operating companies is doing an excellent job in managing their respective businesses, including carefully controlling their operating expenses.

Our performance is all the more impressive in light of the substantial charges presented by the global recession.

Despite signs that recessionary conditions are ebbing, economic weakness continues to affect our operating segments.

Also we continue to face soft market conditions in the global property casualty commercial insurance marketplace.

We're now in a seventh year of price declines and frankly we see no indication that the overall insurance market will change anytime soon.

In addition to successfully managing Marsh and Guy Carpenter through extremely turbulent times, Dan, Peter and their management teams are continuing to position their businesses for the future.

In the first quarter, several positive trends that Marsh has generated over the past two years continued -- growth in new business, solid client revenue retention rates and a focus on controlling operating expenses.

At the same time management is implementing its strategy to improve operational efficiencies, strengthen financial results and deliver superior risk and insurance capabilities to clients.

And with its improved operating performance, Marsh is turning its attention to growth.

In the past six months, we have announced seven acquisitions, the largest being HSBC Insurance Brokers.

HSBC is a strong fit with Marsh both operationally and geographically.

The transaction was closed April 1, deepens Marsh's presence in the UK, Hong Kong, Singapore, China and the Middle East.

This acquisition should add annualized revenue of approximately $200 million.

As part of this acquisition we've also entered into a strategic partnership with HSBC Bank, one of the largest banks in the world, giving us preferred access to provide insurance broking and risk management services to HSBC and their corporate and private clients.

Five of our recently announced acquisitions are part of the Marsh & McLennan Agency initiative.

On last quarter's call I mentioned that we acquired Insurance Alliance based in Houston, NIA Group based in New Jersey, and in February of this year, we acquired Haake Companies based in Kansas.

In March, we announced our largest agency acquisition yet, Thomas Rutherfoord, Inc.

based in Virginia.

Rutherfoord, with revenues exceeding $80 million, has more than 300 employees located from Philadelphia to the Gulf Coast.

And yesterday we announced the acquisition of Bostonian Group, one of the largest regional insurance brokerages in New England.

The firm specializes in employee benefits and has revenue of approximately $14 million.

As you know our strategy for the Marsh & McLennan Agency initiative is to establish about ten hubs throughout the United States.

As you can see we're making great progress toward this objective.

Guy Carpenter's results in the first quarter of 2010 reflect the positive themes we've talked about for the past year; excellent new business development, strong client revenue retention that remains at historically high levels, and a disciplined approach to expense management.

Together these factors resulted in underlying revenue growth in the quarter, which is impressive when you consider the difficult operating environment and that Guy Carpenter achieved a 10% increase in underlying revenue growth in the first quarter of last year.

Furthermore, management continued to implement its strategy to grow internationally -- and to enhance his industry-leading analytical capabilities -- while at the same time expanding operating income.

We recently announced that Vicky Carter will join Guy Carpenter in September as Vice Chairman, which will further strengthen Carpenter's international operations.

Vicky has more than 30 years of experience in the reinsurance industry.

Based in London, she will report to Henry Keeling, President and CEO of Guy Carpenter International.

She joins Carpenter from Towers Watson where she served as Chairman of the UK International Operations.

Finally, Carpenter will enhance its capabilities this year when it releases three industry-leading analytical models that will deliver significant value to clients.

Moving on to our Consulting segment -- both Mercer and Oliver Wyman have been feeling the effects of the economic downturn for the past two years.

However, growth and profitability reemerged in the fourth quarter of last year and accelerated this quarter.

Mercer saw underlying revenue growth in the majority of its practices but in total was down 1%.

We would expect to see more positive growth starting in the second half of the year.

Nonetheless, Michele and her team were able to obtain double-digit growth in operating income as well as margin improvement in the first quarter.

Before we move on I would like to give you a brief update on the Alaska lawsuit against Mercer.

Since our last call, there've been a number of motions that have been filed in the litigation and a trial is scheduled for early July in Juneau.

We take this matter very seriously as it represents a significant potential liability for Mercer.

We cannot give any assurances regarding the ultimate outcome of the case.

Since this is a pending litigation matter we will not comment further at this time.

Please refer to our public filings including the 10-Q, which we will be filing later this week for more information on this matter.

Moving on to Oliver Wyman, revenue growth was evident in the majority of its businesses.

For example, financial services, which is Oliver Wyman's largest practice, continued to be a bright spot among industry specialties producing a double-digit percentage increase in revenue.

While uncertainty remains, leading indicators across its business support our expectations that Oliver Wyman will continue to produce favorable comparisons in 2010.

Now, moving onto Risk Consulting and Technology, Kroll reported another quarter of improved profitability.

Kroll OnTrack, its largest business, representing nearly half of its revenue, drove first-quarter results with strong underlying revenue growth.

As a result of substantial management actions Kroll is reestablishing higher levels of profitability.

In summary, let me say again, that we feel very good about what we've accomplished throughout MMC in the first quarter.

Now let me turn it over to Vanessa.

Thank you Brian.

Good morning everyone.

There are several areas I will cover in my remarks this morning.

First I will give an overview of MMC's consolidated earnings for the quarter.

Next, I will discuss the results of the individual operating companies, and finally I will close with some observations regarding MMC's capital structure.

Let's start with earnings per share.

On a GAAP bases EPS from continuing operations rose 48% from $0.33 in the first quarter of 2009 to $0.49 in this year's first quarter.

On an adjusted basis at EPS was $0.51, an increase of 31% from $0.39 in the first quarter of 2009.

As we indicated on last quarter's earnings call our restructuring activities have been substantially completed.

Although we will continue to search for efficiencies, we expect that future activities, as reflected on our schedule of non-GAAP measures, will be focused on the refinement of our support and back-office functions as well as integration of acquisitions such as HSBC Insurance Brokers.

Additionally, I should point out that discontinued operations, net of tax, in the quarter was primarily due to the February sale of Kroll's substance abuse testing business.

It had 2009 revenue of $37 million and a sale price of $110 million.

Reflecting the de minimis effect on MMC's overall results, we've not restated prior periods for this sale.

Let's look at the results of MMC's continuing operations.

Unless specifically indicated, my references will be to underlying revenue, underlying expenses and adjusted operating income.

In the first quarter we are pleased that our strong earnings growth reflects increased operating income for not only each of our three operating segments, but every one of our five operating companies.

On a consolidated basis, MMC's operating income rose 18% compared with last year's first quarter.

This is a significant increase, especially considering that higher net pension expense reduced profitability in the first quarter by $20 million.

This is in line with the guidance we gave on last quarter's call.

Investment income was $8 million in the first quarter.

In addition to the mark-to-market gains in our private equity portfolio, we took advantage of favorable market conditions to sell some of our direct equity investments.

Looking ahead, we currently anticipate investment income of approximately $10 million in the second quarter of 2010, which should result in a positive swing in EPS of about $0.05 compared with the second quarter of 2009.

Turning back to this quarter, corporate expenses decreased 6% to $37 million in the first quarter from $39 million last year, consistent with our comments on last quarter's call that we expect corporate expenses to decline.

Next I would like to review the performance of our operating segments, beginning with Risk and Insurance Services.

On a reported basis, first quarter revenues rose 9% to $1.5 billion and underlying growth revenue growth was flat.

Risk and Insurance Services' operating income rose 4% from $343 million to $357 million.

Looking at insurance broking, Marsh's first-quarter revenue rose 8% on a reported basis to $1.2 billion.

On an underlying basis revenue was flat.

Despite difficult industry conditions, Marsh increased revenue in many areas of the world including US-Canada, Asia-Pacific and Latin America.

The positive momentum in new business generation Marsh achieved in the second half of 2009 continued with strong new business in the first quarter.

Marsh's operating income rose in the first quarter as the continuing focus on controlling expenses more than offset increased pension expense.

At the same time, we understand the importance of reinvesting in Marsh.

We're continuing to develop and improve our client technologies.

Solutions like Marsh Market Information, Marsh Business Analytics and the CS Stars enterprise edition are tools that help our clients make better, more data-driven decisions.

Moving to reinsurance broking, Guy Carpenter continued its strong revenue performance in the first quarter.

On a reported basis revenue increased 12% to $315 million, primarily due to acquisitions.

Underlying growth was 1%, a good performance considering the headwinds from continued declines in reinsurance pricing in all lines of business and increased retentions by clients.

The revenue growth reflects Carpenter's strong new business production that we've seen each quarter since the third quarter of 2008.

A continued focus on cost containment kept operating expenses flat in the quarter, contributing to operating income growth.

Overall, Carpenter achieved double-digit growth in operating income, which includes the 2009 acquisitions of Collins and Rattner MacKenzie.

We're extremely pleased with these acquisitions.

Now, let's turn to our Consulting segment.

Reported revenue rose 7% to $1.2 billion.

Underlying revenue growth was 1%.

Strong expense control continued, producing a 3% decline in operating expenses in the quarter despite an increase in pension expense.

These management efforts resulted in a 57% increase in operating income, from $74 million to $116 million, with the operating margin for the Consulting segment increasing 320 basis points.

Mercer's reported revenue increased 6% and the first quarter to $849 million.

Underlying revenue was down 1%.

In the first quarter, retirement declined 5% on a year-over-year basis as we continue to see clients deferring discretionary projects.

We're very pleased to report the Health & Benefits grew 2% in the first quarter.

The major geographies that contributed to this growth were Canada, EMEA and Asia Pacific.

This growth was in spite of a decline in the US due to a near-term disruption in demand as Congress debated significant legislative changes to the US healthcare system.

Since this legislation has been passed, we expect an increase in demand for Health & Benefits services, which should start in the second half of this year.

Outsourcing revenue rose 3%, driven by a new business in Asia-Pacific and the US.

Investment consulting and management increased 17% due to very strong growth in the US, EMEA and Asia-Pacific.

Assets under management were $30 billion.

Over the past two years Michele and her team have done an excellent job of anticipating that economic conditions would dampen discretionary spending on the part of clients.

As a result, Mercer continues to manage expenses closely.

In the first quarter even including the impact of higher pension expense, operating expenses fell 2%.

Mercer achieved double-digit growth in operating income as well as margin improvement.

Oliver Wyman generated strong revenue growth in the first quarter.

Reported revenue grew 10% to $306 million and underlying growth was 6%.

This continues the improving fundamentals for Oliver Wyman that began to develop in the second half of 2009.

Among its industry specialties financial services continued its strong performance.

Reflecting the improving health of this sector, revenue rose double digits in the first quarter.

Oliver Wyman is also seeing modest growth in the consumer sector and stabilization in the industrial sector.

While some areas continue to experience weakness we're very pleased at Oliver Wyman's revenue and profitability improvement in the first quarter.

Let's move to Risk Consulting and Technology.

Kroll had another strong quarter of improved profitability.

Revenue was down 3% to $162 million on a reported basis and 2% underlying.

Operating income doubled.

Since we sold Kroll Labs in mid-February, its results are included for only half of the first quarter.

Given the underlying trends, the operating leverage created in 2009 and seasonality, we expect Q1 to be Kroll's lightest.

Kroll's improved profitability was made possible by a turnaround in risk mitigation and response as well as strong performance from OnTrack.

OnTrack, Kroll's largest business, had revenue growth of 8%.

While background screening was down 9%, pre-employment reports, which were more of a leading indicator, increased, reflecting an encouraging sign in the US and UK employment markets.

Due to the introduction of a new income verification product, the outlook for Kroll's mortgage origination business is more encouraging than current market conditions might indicate.

Additionally, Ben Allen and his team continue to do an excellent job managing Kroll's cost base with an 8% decrease in operating expenses in the first quarter.

This positive leverage resulted in substantial growth in operating income and margin improvement on a year-over-year basis.

We expect Kroll's growth and profitability to continue as we move forward in 2010.

Turning to MMC's capital structure, net debt was $2.4 billion at the end of the first quarter.

As you know, our cash utilization is typically greatest in the first quarter primarily due to the funding of incentive compensation payments.

Also, we used approximately $200 million of cash for acquisitions.

This was primarily for HSBC Insurance Brokers.

Although this deal closed on April 1, the cash was put in escrow on March 31.

Shares outstanding at the end of the first quarter were 541 million, an increase of 24 million from one year ago.

The primary use of stock was 18 million shares for acquisitions, the largest of which were Collins in the second quarter of 2009 and Rutherford in the first quarter of 2010.

Six million shares we used for restricted stock and an employee stock purchase plan.

With that, let me turn it back to Brian.

Thank you Vanessa.

I think we can start the question period.

So who has a question?

(Operator Instructions) Keith Walsh, Citigroup.

Good morning everybody.

Two quick questions, one for Vanessa, one for Dan.

Vanessa just thinking about your EBITDA is running about $1.4 billion over the trailing four quarters.

You have dividends over $400 million.

At the rate you are doing deals, you are still accumulating cash on a go forward basis.

What are the priorities for uses of cash going forward?

Thanks Keith.

Clearly over the last 12 to 18 months we've been very conservative with our cash.

Really the economic instability and the lack of visibility in the businesses has led us to that conclusion.

And of the acquisitions done, you saw us using a lot of stock over that period.

As we go forward we will continue to make very conservative decisions as we look at acquisitions.

And you saw us use cash at the very end of the first quarter for HSBC.

As you noted, we are accumulating cash and we want to begin using some of that for acquisitions, but continue to balance that with other demands on the cash.

And for Dan, I think you said on one of the last calls we should judge you on the top line.

You certainly delivered there in the US especially relative to your biggest rival, Aon, when I looked at you're plus 1 and they're minus 5 in the Americas.

Maybe you could give us a little color on the new business generation that you had in the quarter and why your results and Willis's have contrasted so much with maybe some of your other rivals.

Thanks.

Thanks Keith.

Our new business in the quarter was very strong.

But our new business really throughout all of last year was good, on both a new new and an expanded basis.

If I look at this first quarter specifically, the US/ Canadian new business was up 14% and international was up 2%, so our total was up 7% and it was actually $221 million of new business in the quarter.

So I feel very good about that.

We're certainly winning in the market place and ultimately when I look at things like our RFP performance over the last few years, or 2.5 years to be exact, there's been continual progress.

So, as I said early in this journey, I believe we are the finest insurance brokerage and risk advisory firm in the world and now we're executing on that.

Great, thanks a lot.

Brian Meredith, UBS Warburg.

Good morning.

Dan, can you talk a little bit about contingent commissions and what successes you are having in putting agreements and what impact it could potentially have for revenues here going forward?

Okay, let me start by saying that we've been very consistent in our approach.

As I have said before, we believe the broader issue relates to all carrier revenue streams and the potential conflicts of interest they present.

All brokers receive carrier compensation in one form or another and each of these arrangements require a good system of internal controls to manage conflicts, and in our opinion complete transparency to clients.

At Marsh, we operate in many different businesses in many different parts of the world and the compensation norms differ significantly among them.

So we recognize there's no one-size-fits-all model for compensation.

The one thing we are committed to, however, is transparency and putting the interest of our clients first.

When we look specifically at contingent commission, we made a statement a month or so ago which was that we will not accept contingent compensation or contingent commission on any placement anywhere in the world for any US client served by our core US brokerage operation.

We did that not out of any concern for the propriety of contingent commissions nor any concern about our ability to manage conflicts of interest.

Rather, we did it in response to discussions we had with clients, but more particularly because we can be fairly -- our belief that we can be fairly compensated in that segment without contingent compensation.

So, the short answer or the summary is we will take contingent commissions in certain parts of the world and in certain segments.

But in our core US brokerage segment, we will not.

Second question, Peter, I wonder if you could give us your thoughts on your mid-year renewals and what you expect particularly with the Chile quake and what has been going on?

The mid-year renewals from what we have seen so far will behave very similar to what happened in the first quarter.

Rates are still off.

We saw that as we looked into the second quarter.

Capacity is still plentiful.

While there have been an inordinate amount of catastrophes that have occurred over the last three months, none of them are going to really drive pricing in the reinsurance segment.

And we can expect to see the headwinds continue throughout the year absent any large catastrophes.

Thank you.

Larry Greenberg, Langen McAlenney.

I'm just wondering if you could elaborate a little bit on the risk and insurance services margin, which was down versus one year ago.

I know probably a point of that or so was increased pension expense.

I'm wondering if you could comment on possible FX impact in there.

And I think you suggested you would expect that to be up for the year.

Is there anything that has changed in your thinking on that?

Well, let me start and then I think Vanessa will talk about the FX.

I'll let her do all that FX.

But the margin I think if you took the pension out, but we haven't, it was flat.

We've made and the last couple of, 2.5 years with Dan and Peter's work, tremendous progress on the margins.

So, we believe we've gotten the margins to a level that makes us kind of reasonably in the ballpark.

But we know we've got to do better.

And to do better, we have to grow.

And the question before about Dan's growth, I think he is showing his growth.

Peter's certainly showing his growth.

And it's growth and it's mix of business and we're working on both of those.

That is the ultimate for us.

And our margins will achieve a level appropriate for the market place and given what our clients are prepared to pay us.

That's really the answer to the question, but Vanessa do you want to comment on the foreign exchange?

Sure Larry.

On the FX trend it was a slight positive in the quarter but fairly de minimis, and we would expect that we're reverting to our normal course of it being de minimis over the course of the year.

So no large impact.

Thanks.

And Brian just a follow-up on your market commentary on the cycle and pricing, have you guys seen a deterioration in terms and conditions since the beginning of the year?

Deterioration; well I would say it's -- maybe Dan and Peter can comment more than I could.

I'm not sure of that deterioration, but I think it continues to decline.

We're in the seventh year of essentially a softening cycle.

From a rate standpoint in the first quarter, rates were pretty consistently down on a line by business basis, but maybe not in certain areas -- not quite as deeply down as last year but probably more uniformly.

So last year there were some pockets such as D&O for financial institutions and mining risk, etc.

we saw rate increases and we've actually seen some of that come off this year.

So, there really is only downward pressure across virtually every line of business, but it's not a pell-mell rush to the bottom.

And when we look at insurance companies' results on a profitability basis, it's getting tighter but still over a long period of time the results aren't bad.

I guess the thrust of my question is yes, prices have been down for a long time.

We've heard from some sources that just in the last few months' terms and conditions, which had been holding up reasonably well, seemed to be deteriorating at a pretty aggressive pace.

When you're talking about terms and conditions, you're usually talking about contract language and also usually deductible terms.

I would say when you look at levels of self insured retention and deductible levels -- that has over the last couple of years, there has been downward pressure.

And there has been more incentive for clients to reduce their deductibles.

In terms of broadening coverage, that is what brokers do.

We negotiate with carriers to obtain the best terms and conditions possible in the market for clients, and I would say that that is a continual process.

I wouldn't say over the last few months we've seen any material change in the contractual terms we negotiate for clients.

I think that's fair.

Meyer Shields, Stifel Nicolaus.

Thanks.

Good morning.

Question for Michele if I can start there, with the Rewards, Talent& Communications follow-up from organic growth -- how should we think about that going forward?

I think you will see the Rewards, Talent & Communications group gradually improve.

What we're seeing there is a significant spike in demand in the pipeline as clients, after taking probably as much as eight quarters off, are beginning to see places in their business where they really need to do some strategic thinking about hiring, about retention and about the shape of their workforces.

So I would expect actually globally for us to see continued strong demand in that segment and some improvement in results.

In risk and insurance side, I guess this is a question for Dan.

How do you typically estimate the lag between economic growth and when that flows into organic growth, just looking at that single contributing item to revenue growth in insurance brokerage?

Well, I think the best way to look at it on a macro basis would be that insurance renewals are typically once a year and the economy is changing every day.

So, from that standpoint at a maximum you have a 12 month period before that flows into the actual exposure units in an insurance policy.

And certain lines of business have a little bit of a quick review.

Something like Marine cargo, etc.

as an example, in stock throughput policies you will see a month-to-month movement in premiums paid on the actual shipment and we have begun to see some green shoots.

Now what we haven't seen is to say there's been a dramatic global turn around and we're seeing a tremendous amount of flow, but having said that, we're not seeing the declines we've seen before.

And we have seen in some areas like Marine cargo, a bit more volume on shipping and a bit higher values associated with the units being shipped.

And if you look, exposures get adjusted.

So I think if you see last year when the exposure adjustments, it was double-barreled because you had the current business reduce and then you also had a reduction of the previous year.

So, when the economic turn takes place you could see the reverse of that.

Got it.

Thanks.

Jay Cohen, BofA Merrill Lynch.

Thank you, good morning.

I have one question.

A lot of them have been answered and I guess for Dan.

Dan, you talk about the pricing on acquisitions.

Is that changing at all in what kind of competition you are seeing when it comes to buying other agencies?

Okay.

So I'll take that question to be really in the agency space rather than with regard to captives or HSBC Insurance Brokers.

So, in terms of the agency, I'm very satisfied with where -- what our progress has been.

Right now with our acquisition which we announced yesterday of the Bostonian Group, we would be the ninth largest agent broker in the United States once you exclude the three global brokers.

So I'm very positive about that.

Our strategy was to start by purchasing high-quality hubs, platform hubs in which to do bolt-in and bolt-on acquisitions later down the road and really that is where our focus has been.

There's always competition in the marketplace for these assets.

But we've not been in any auction environments.

In fact, I don't think we would participate in that kind of environment.

We're interested in finding agencies in which we believe they have high-quality management teams, management teams that focus mainly on capabilities and driving value for clients and that fit in with Marsh's overall values and culture.

Even though the agencies themselves won't be integrated within Marsh, they'll be integrated with Marsh & McLennan Agency, Marsh as an organization still stands for certain things.

We want to make sure that any acquisition that we make meets that criteria.

So, in terms of our hub and platform acquisitions, there are other people interested, but we have not seen dramatic levels of people.

I think it's fair to say some of the players who had been active acquirers before are more on the sidelines now.

In terms of multiples, you know, I'm a buyer.

I'd always prefer lower multiples.

The multiples, it's clear, are significantly lower than what existed three or four years ago, but as a buyer I would always want a lower multiple if we could.

But they are definitely consistent with the strategy we outlined in terms of our five-year plan as to what range of multiple on EBIT we would be willing to pay for hub and platform acquisitions.

That's great.

Two quick questions for Vanessa.

On the share count, other than for deals, we saw the increase in the first quarter obviously for compensation purposes.

I assume that use of shares is much more heavily weighted toward the first quarter.

The 18 million of shares between last quarter and last year's first quarter and this year's first quarter, Jay?

Is that your -- (multiple speakers)

I was thinking more just from the fourth-quarter to now obviously with compensation purposes, share use, what about going forward?

Does that continue or is that a smaller amount I'm assuming in the forward quarters?

You are correct on both counts.

It is more heavily weighted in the first quarter and it will be smaller going forward.

Lastly, on the private equity side you gave us some guidance for the second quarter.

Beyond that, is there a number we should think as a normalized number for private equity gains?

I wish, I'm sorry.

I will let you finish the question.

Go ahead, you understand what I'm saying.

Yes, I do.

I wish there was.

We report on a lag and I think it's as much news to us as it is to you.

There isn't predictability in that.

Fair enough.

Thanks a lot.

Meyer Shields, Stifel Nicolaus.

Thanks.

I think this is also for Vanessa.

Looking at page 9, you have $274 million of MMC consolidated results.

And then there's a $10 million difference between that and the portion attributable to common shareholders.

How can we model that difference going forward?

The discrepancy is because of the two-class method.

And I think probably from a modeling perspective if you follow up with Mike off-line that's your best bet.

Okay, perfect.

Thomas Mitchell, Miller Tabak.

With the sort of general concern and interest that should be emerging from what happened with the Deepwater Horizon, and I guess it is still happening, I'm wondering if you are seeing inklings, A, of some people in some businesses possibly being inclined to do a little bit less self insurance and also whether or not the environmental sector is getting any significant new inquiries.

Sounds like a question for Dan.

Well, one, I think you have to bear in mind that the insurance market place is huge.

So, any individual loss other than a catastrophe loss which involves many, many insureds, any loss to a single insured has a remote possibility of affecting the entire market place.

So, I think what you will find is there may be some upward pressure or concern in the offshore drilling rig market place.

I don't even think this loss is large enough to extend that concern to the entire energy market place.

And in terms of size of loss, we don't have precise numbers.

But in terms of the insurable amount of this loss, most prognosticators are using a number between $1 billion and $2 billion.

So, even if you say it's the upper end of that or even more than that level, it would not be enough to in itself impact either buying behaviors or the overall insurance market place.

Okay Thomas?

That's good.

Thank you.

Very good.

Well, we are going to wrap this up and again I want to thank you for your interest and we will talk to you next quarter.

We would like to thank everyone for their participation and that does conclude today's conference.