W R Berkley Corp (WRB) 2007 Q4 法說會逐字稿

Good day and welcome to the W.R. Berkley fourth quarter 2007 earnings conference. Today's call is being recorded. The speakers remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words including without limitation believes, expects, or estimates.

With caution -- we caution you that such forward-looking statements should not be regarded as a representation by us in the future plans, estimates or expectations contemplated by us will be in fact -- will in fact be achieved. Please refer to our annual report On Form 10-K for the year-ended December 31, 2006, and our other filings made with the SEC for a description of the business environment in which we operate in the important factors that may materially affect our results. W.R. Berkley Corporation is not under any obligation or expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.

At this time I would like to turn the call over to Mr. William Berkley, Chief Executive Officer, and Chairman of the Board. Please go ahead, sir.

Hi. We were very pleased with our quarter and with the year. I think that recognizing that our reserves continued to strengthen and our results continued to be excellent, overall, we're pleased with where we stand. The market is getting softer without a doubt. Prices are down year-over-year, something approaching 5%. This is on top of a decline last year of a little more than 3%, so you've had a decline in price from 2005 to now of about 8% on average. It varies from prices actually increasing in some lines of prices to being down somewhat more than 8% over the past two years. But there's lots of margin business still continues to be written at underwriting profits although things are certainly moving in the wrong direction at the present time. Before I talk about each area of the business, I'll let Gene Ballard our Chief Financial Officer talk about our financial results.

Okay, well, as Bill said, we finished 2007 with another strong quarter. Our operating return on equity was 22%, which makes more than five years of consecutive quarters with an ROE above 20% and our operating income per share was $0.97 up from $0.96 a year ago. For the full year, our operating earnings per share were up 9% to $3.73 which is also a return on equity of 22%. Our per share earnings reflect the impact of our ongoing stock repurchase program and the repurchase of 15.2 million shares in 2007 of which 3.2 million shares were purchased in the fourth quarter. The average cost of those shares was $30.12 for the full year and $28.93 in the fourth quarter. We still have 16 million shares available for repurchase under the repurchase authorization.

Our net premiums written were 1.1 billion in the fourth quarter which was an overall decline of 5.5% from the prior year period but if you look at all the businesses other than reinsurance, you'll see that they performed much better than that with just a modest decline of 0.3% in the quarter. The regional and international premiums were up 3% and 23% respectively while the specialty and alternative markets premiums were down 5% and 4% respectively.

Reinsurance business on the other hand has been much more competitive in both the treaty and facultative markets and our reinsurance premiums were down 30% in the quarter. We've seen significant declines in reinsurance business throughout 2007. Treaty premiums for all 2007 were $287 million down 15%. Facultative premiums were $224 million down 12%. Lloyds premiums were $131 million, down 10% and all other reinsurance premiums were $40 million, down 25%.

Our overall loss ratio was 58.9% in the fourth quarter compared to 59.6% and last year's fourth quarter, reserve releases in the quarter were 34 million compared to reserve increases of 7 million in the preceding year quarter and for all of 2007 reserve releases totaled $105 million with most of that coming from the specialty segment. That compares with reserve increases of $27 million for all of 2006. Weather related losses were minimal in the quarter at $3 million, down slightly from $8 million a year ago and our paid loss ratio was 46% in the fourth quarter, 42% for the full year, as our loss payments continue to run well below our expected loss pay-outs. At year-end 2007, our net loss reserves were $7.8 billion which is an increase of $221 million for the quarter and $875 million or 12% for the full year. IB&R reserves were $4.7 billion and now represent 60% of our overall reserves and approximately 100% of our earned premium for 2007.

The expense ratio was 29.8% in the quarter compared to 27.4% in the prior year. That increase reflects the impact of lower premium volume as well as higher accruals for contingent commissions and the continuation of start up cost for some of our new businesses. So overall our combined ratio was 88.7 for the quarter with combined ratios by segment of 85.3 for specialty, 90.9 for regional, 85.4 for alternative markets, 97.4 for reinsurance and 87.9 for international.

The carrying value of our investment portfolio was $13.2 billion at the end of the year. That includes $11 billion of fixed income securities, $855 million of arbitrage securities, and approximately $1.3 billion invested in common and preferred stocks and in partnerships and affiliates. Our municipal holdings made up approximately $5.2 billion of fixed income investments at year-end, and you'll see on page nine of this quarters earnings release that we've showed -- shown the ratings profile for the municipal portfolio. Approximately half of the municipals are uninsured and have an average rating of AA plus and the other half that is insured has an average rating for the underlying security, that's without considering any insurance enhancements of AA minus. And the aggregate for all the fixed income securities, the average rating with insurance enhancement is also AA plus and without enhancement is a straight AA. Page nine also presents some details on the residential mortgage backed securities which total 1.6 billion at year-end, and as the schedule shows most of those mortgage backed securities were issued by government or government sponsored agencies and there are no subprime exposures.

Our earnings from the investment portfolio were 173 million in the fourth quarter, up 5% from a year ago. The average yield on the average all portfolio was 5.3% down from 5.6% in the prior year quarter. On a taxed equivalent basis, that is adjusting for the tax benefit of municipals, the average yield is 6.1% for both the fourth quarter and the full year. For the arbitrage trading account, the average yield was 6.8 % in the quarter, down from 11.8% in the prior year period, and the overall duration of the fixed income portfolio was 3.4 years at year-end.

On a cost basis, the carrying value of the portfolio increased 11% for the year as our operating cash flow continues to be strong with cash flow of $350 million in the fourth quarter and approximately $1.5 billion for the full year. Of course, both investments and investment income are less than they otherwise would be as a results to the stock repurchases which totaled $450 million. All that gives us an ROE of 22% and a growth in book value per share, again after stock repurchases, of 14% on a pro forma basis, adjusted for the stock repurchases, book value per share grew by 19%.

Thanks, Gene. Unfortunately, I might add that while we believe over a period of three or four years stock repurchases benefit all of those individual numbers in the short run, they do tend to confuse them and in some cases have an adverse impact. Let me try and take you through the general outlook about our business. First by segment and then overall.

Specialty business, very competitive. It is the place where the business now is being entered by new competitors, lots of the people in Bermuda who were primarily reinsurers have decided the specialty business is attractive and the marginal specialty business is now being entered by the standard lines companies who have softened their underwriting standards to accept certain kinds of risks that heretofore were viewed as not acceptable and went to the excess in surplus lines market so it's the place where we're concerned about our volume. The reinsurance business has been the first place where volume has been hit as Gene mentioned and it's an easy place to just enter and in both those areas, it's not only pricing that's gotten softer but terms and conditions, especially things moving over from the E&S market to the standard market. The terms and conditions of the policies are substantially different so it's much more attractive to move that standard market.

The same is true in the reinsurance market. People are accepting business without the kinds of safeguards and verifications that we think are necessary, so re insurance down substantially in premium volumes and we see our specialty business beginning to be impacted on a greater level than our standard market business. The regional business, pretty much holding its own, prices are down modestly, very modestly, probably less than 1% overall. We're pretty pleased with where they stand. The biggest risks in that market are being impacted the most, the smaller risks the least but that business continues to do well and hold its own. Alternative market business, the core parts of the business continues to do well. The service areas where we're managing assigned risk plans and so forth are being adversely impacted because when you're in a softening market, less business goes at the assigned risk plans so you're seeing business leave there and in the international area, we're pleased with what we've done with holding up well in Argentina, while Berkley Europe continues to do well, although pressure there is beginning to increase and we're seeing London market becoming more competitive. Overall, our new businesses which are spread amongst a number of divisions are contributing to our business but not an enormous amount. They're in line with our expectations with almost everyone at or exceeding our expectations with one exception.

Overall, we think business will be okay for us for 2008. We think our returns are clearly going to go down. It will be a struggle for us to make 20% return and it certainly is going to be difficult. We're not ready at this point to make a forecast although we're optimistic that business will continue to be good. 20% is what we're hoping for for the year, but at this point in time, investment income softer, how many shares will we repurchase? There's lots of issues out there. We're pretty comfortable with where we stand, however.

I think that our balance sheet at the moment is not particularly leveraged. Our capital account is strong. We've continued to miss the crisis that have affected many of our competitors. In the case of subprime, not only do we have no consequential investments in subprime. Not only did we avoid some of those kinds of risks, but from an insurance point of view, we have no consequential exposures as far as we can see. I think a lot of people have said we have no exposure and if you'd listen to everyone in greater composite that means there will be no losses in the insurance industry from subprime which is not what we think. But we think that the losses will be focused on financial institutions, they will be focused on mortgage brokers and real estate agents and those kinds of things and we don't have a lot of exposure in those areas. I'm sure we will have some losses as will every insurance company in some way or another because it's likely the losses, like every other kind of very large loss, people will be searching for pockets to contribute. We don't think it's going to be of anything to us, substantial for us.

In general, we're pleased with the year. We're pleased with the quarter. The environment is going to continue to get more competitive. We continue to look for niche opportunities where we think we can find ways of doing business. We see them out there, whether we can do transactions or expand into those areas one never knows but we're optimistic that we'll be able to continue to deliver outstanding returns. With that I'm happy to answer any questions.

Thank you. (OPERATOR INSTRUCTIONS) We'll take a question from Charles Gates from Credit Suisse.

Hi, good morning.

Good morning, Charlie.

I have three questions, two are numbers questions. My first, the reduction in reserves for earlier losses during the period was $34 million?

Yes, sir.

Okay, the second. I didn't understand footnote Number 2 on page six of the news release. Footnote Number 2, page six.

I guess we're in a different footnote number two, the one where it says "Represents insured bonds for which the underlying securities are not rated".

Oh, that's page nine.

Oh, I'm sorry.

We must have printed yours upside down. Well, there's some, we see Number 2, the 155 million.

Yes, sir.

Those are not rated, there are a number of people who have issues where the bonds don't get rated for some reason or another. Frequently when they get wrapped or put behind a guarantor or there's a small issue but the same issuer has a rated bond with the same characteristics. So it would be where we have an identical issuer with the same exact terms, conditions, and so forth, but they didn't get that particular bond rated for some reason or another.

And the other thing if I could add to that, Bill, is on this table, we've put those in the NR category but when you calculate, when we calculated the overall average rating for the portfolio, we treated them as BBB minus which so -- which was very conservative but we didn't give them a zero for non-rated but we treated them with a very conservative rating even though we consider them all to be investment grade based on the ratings of similar securities for the same issuers.

In other words what we did was sort of confuse you. And that is, when we took the ratings for the comparable securities with the same terms and conditions, it would have been A, but since we were making the assumptions that that would be the rating we chose to use a lower rating for the average because the accountants want to be conservative, but it wouldn't have changed the average, Charlie, if they had used A, they assured me so it wouldn't have gone to higher than a AA, whether they used an A or BBB minus. The average would have been AA.

Could you elaborate, this is my third question. Could you elaborate on the comment that you made in your prepared remarks about standard markets companies seeking to build basically positions in excess and surplus volumes? As well as the Bermuda companies doing the same thing?

All right, well first of all, they're really doing two different things. The Bermuda Company they're trying to get in the excess and surplus lines business through wholesalers just in the same way we're in business. The standard markets are doing something different. They are trying to extend or by amending the kind of underwriting guidelines they use. For example, a simple example would be someone who writes restaurants but they don't write sushi restaurants, because if you sell sushi you have certain inherent additional exposures because of raw fish and all of that. Well, they took away the exception we don't write sushi restaurants, that which would have in the past gone into the E&S market they now suddenly become qualified for the standard markets.

A health club, health clubs were probably not really in the standard market. They were marginal, but in 2006 they decided health clubs were okay and in 2007, they decided health clubs that had tanning machines were okay so what the they are is they're changing their underwriting guidelines to allow things that had heretofore gone into the E&S marketplace to come back into the standard market. The real problem is that they're charging standard market-rates, so what will ultimately happen here is they're going to charge for that risk half or even a quarter of what the E&S market would have charged, so it will prove to be unprofitable in a few years, it will go back into the E&S market.

If you were an Analyst and sitting here in New York, how would you attempt -- this is my last question, how would you attempt to monitor that.

Well, for first of all, you told me you were going to ask three and now you ask a fourth.

I apologize.

But that's all right. Second of all, I think it's a very difficult thing to monitor. I think that the most important thing to look at is if you see someone growing substantially, you probably have to start to ask more questions. This is not a market where growth is going to be attainable very easily when you see the overall insurance marketplace declining by 5%, 6% which is what price declines are, it's difficult to grow. Now, you can grow, you can add new lines of business, you can expand, you can buy things, and there are opportunities, but anyone who is growing I think requires an Analyst to ask a lot more questions.

Thank you.

Next we'll move to Meyer Shields with Stifel Nicolaus.

Thanks, good morning. I'm trying to think of how to ask this. Is the underwriting cycle that we're in now deteriorating faster than previous cycles?

No. I don't think it's deteriorating faster. I think there are a couple of things that are happening that are different. I think first of all, many people are releasing reserves much more quickly so you're seeing the historic redundancy coming out more quickly because people are worried about redundancies. I think that there is less total craziness. There's not anyone out there who is being a lunatic at the moment. There are people who are being aggressive. I think that what people haven't figured out is that in a general sense, if you have prices down 8% over two years and inflation of let's just say six, seven, or eight, you'll have a 15% change in pricing and that means it's going to be very hard for many companies to report underwriting profit and investment income especially if you have any kind of a short-term portfolio.

It's going to be at pretty low levels. So I think that we have very quickly gone to where profitability for certainly average underwriting companies is going to be gone in '08, and I think a good underwriting companies will still have good profitability in '08 but not as good as it was. So I think the end result of those things is the cycle will take people down and I think they're going to, people will generally be reporting numbers more quickly and more accurately, and I think that's a part of the results of Sarbanes-Oxley, but I think you're unlikely to get this huge build off of short reserves that you've seen in the past. And I think that because of how bad things were in the last cycle in '99 and 2000, I think there's a lot more attention being paid to the situation in this case.

So I think overall, I don't think the business itself is any different. I think how it's reported, how people are reacting is a bit different. I think that that there's a lot more people looking at things with mathematical models which creates their own problems, so I think that you're going to see more truth in labeling and I think that's going to make the cycle be more honest so it will look like it's happening more quickly.

Thanks, that was very thorough. With regard to the Bermuda coming into the specialty lines through the wholesale brokers, is there any, can you tell us your thoughts on maybe changing the competition structure for the wholesale agents as a competitive tool?

I think that I'm sure that some of the wholesale brokers would like that to be the case, but I think that it's in our best view is not something that's here now, and we certainly are not going to consequentially change the compensation of wholesale brokers.

Okay, thanks so much.

Brian Meredith with UBS will have our next question.

Good morning, a couple quick questions. First, on the reinsurance, Bill, was there anything unusual in the quarter as far as unearned premium going out just because of the big drop off we saw in written and the expense ratio popping up a little bit?

Yes, the next expense ratio had more to do with contingent commission accruals.

Yes. I think we had a substantial contingent commission accrual on some of that, but I think that there wasn't a lot, but I think that our -- generally speaking, I think that we've really been pretty selective about getting out of certain segments of the reinsurance business and the facultative area much to our surprise was softer than we would have expected.

And following up on that, Bill, are you, yourself, kind of taking the opportunity to actually buy additional reinsurance here at 1/1? Are we getting to the point in the market where you can arbitrage the reinsurance marketplace given what's going on with the current conditions and pricing?

Well one of the problems with arbitrage for reinsurance is you have to have reinsurers who have the capacity to pay it.

Okay.

And a number of people have tried that and they haven't always been paid. I think that there certainly are some aggressive reinsurers who will be around and as you can do that, but we don't think that that's the strategy to follow at the moment, but even if we did, we wouldn't say it because then we couldn't do it.

Understood. And last question, looking at your loss picks for 2007, looks like they're up roughly 150 basis points on average across the Company. Given that pricing continues to deteriorate here and maybe even a little bit quicker than it was in the early part of '07 should we expect loss picks to similarly go up by 150 and maybe even worse than that 200 basis points in 08?

First of all, I think there are more than 150 points. You have to adjust back that the we try and take out any what the we think would be redundancy from the prior years so I think our loss picks were probably up more like 300 basis points than 150.

Okay.

To where we thought they would be and maybe in some cases as much as 400 basis points. We think that that probably sort of reflects where we think our pricing is at the moment , but recognizing that some of that the is our best estimate from where we look on our expected redundancies that we're pretty confident of. If anything, we think that our current loss picks and the ones for 2005, 2006, and 2007 continues to be quite conservative. We're always looking for something bad to happen, and just because something bad hasn't happened doesn't mean it won't and one of the things we pride ourselves on is we, in spite of what some of our people who evaluate our companies for rating agencies think that we have that embedded risk management system that means everyone who works for us and runs the Company is scared to death of being stupid, so we try very hard to look ahead and I think that we're concerned that there's something bad out there because that's been the history of the

Okay, thank you.

Next we'll move to Bill Wilt with Morgan Stanley.

Good morning.

Good morning.

A couple questions. First, California workers comp, looked like data coming out of the WCIRB late last year showed an upward inflection point in medical loss trends in California workers comp. I was wondering if you were seeing the same thing or have any observations about trends, medical trends in the workers comp line?

In general, medical costs overall in the whole industry have been the real risk, Bill, for cost inflation, overall inflation has been sort of 1.5 or 2%, medical inflation has been 6, 8, 10% depending on where and what. Certainly, medical cost inflation in California is substantial. It's a concern. There's lots of stuff going on. Everybody is worried about the impact in California. I would say in general, things have in fact stopped getting better in California and are getting somewhat worse since prices have come down and it's still a profitable line of business.

It's just not as wonderful as it was. So on the other hand if you go back prior to sort of 2002 which was a pretty terrible line of business for a long time, so my guess is on average, it's probably been a breakeven line of business in the aggregate th e for the prior 10 or 15 years and now it's reasonably and rationally profitable but it's not the wonderful results that we saw for a few years.

Okay, that's great. And second one, very general question. Bill, how do you think about the intersection of it sounds like the rapidly softening market and arguably, I guess the rapidly softening economy. What risk factors or high on your radar screen, softening of terms and conditions, I don't know if claiming behavior of policy holders changes during an economic downturn, but just in general, how do you think about the intersection of those two, the confluence of those two events?

Well, I think clearly, there's real concern. I think in general, our industry is less impacted by a softening economy than most industries; however, I think one, the place that's most impacted is generally property markets and arson claims and those kinds of things increase. It's not a significant part of our business, but there are other claims. There is stuff that happens that will have an impact. I think it requires more careful examination. I think especially important in things like workers compensation where you've historically picked up lots of premium from audit premiums and you aren't going to get that so you're not going to see the boost in the fourth quarter or the first quarter that may come about from audit premiums and when you are looking and expecting historic results, that's going to probably be a change from your pattern because business is arc expanding.

I think that clearly you're going to see some claims that are more difficult to resolve because of the financial difficulties of your claimants and/or your insureds, so I think it will have some impact unless it's an extended recession. It's not going to generally be a huge impact but my guess is it will be a modest impact on top of the declining profitability. So it's likely to make the second half of 2008 worse than it would have been otherwise and that's assuming we have a modest recession. If we have a severe recession it will start to have a greater and greater increase.

Thank you, and one last numbers one for Gene. Just the reserve releases this quarter by segments, the $34 million?

We generally don't go through that on the conversation but I'm sure Gene will go through whatever you'd like if you give him a call.

Perfect, thanks.

(OPERATOR INSTRUCTIONS) Next we'll move to Josh Shanker with Citigroup.

Good morning.

Good morning, Josh.

Two questions. The first question is if we continue to see declining volumes for your business 5, 10% over the next one or two years, what's that going to do to your expense ratio? And the second question relates to something you answered with Meyer. You said that average companies with probably produce an underwriting loss this year. Do you think this year is a year for industry underwriting loss given the normal distribution of a storm activity?

If you have a normal distribution of storm activity I'd say it's underwriting breakeven to underwriting loss for the industry as a whole, but first of all as underwriting profits decline and even though I think we'll have an underwriting profit this year, we will be paying less contingent commission. Number two, while we don't go out and fire people, that is just not what we do, everybody here is conscience that you can't ignore your expenses when volume goes down, and from our offices here, every one of our operating units, people are quite conscience that expenses are something we need to be cognizant of, all the positions aren't getting filled and we're attempting to examine what we do and how we do it. There's some expenses from start-ups that we're just prepared to eat, but that's really the price of starting things instead of buying them, it doesn't help in the short-term, our income is before as reported but it gives us more confidence in expanding into the new business for the next cycle, but overall, we are far more conscience of expenses as our ability to generate new volume declines.

Is there some kind of ceiling for expense ratio that we can think about in terms of the way you do your business?

I'm not sure what you mean.

I mean clearly it goes up as you write less business and of course you're trying to monitor that but is there a cost of doing business ceiling I guess? Like I mean, you don't expect your expense ratio could go up another 300 basis points?

It would be very disappointing. I think that we try, when all else fails, we direct the people and the operating unit to what to do but at the moment what we do is tell them this is an issue and we try and persuade them to understand the issue and to get focused on it and let them decide how and what they're going to do. I think that the before it got the to that point we probably would step in and be more directive.

I think one of the cornerstones of trying to have a decentralized operation as we do is not only giving the authority but conveying the idea that people have the responsibility for dealing with these issues. It's a hard thing because nobody likes to not hire people, nobody likes to fire people and nobody likes to say no raise, nobody likes to do that stuff. We started a year and a half ago telling people that this was going was going to be an issue, this was going to be a problem. They know we're very serious and I think that, I'm not particularly concerned that it's going to be out of control at all.

Okay, well thank you very much.

But I can assure you, long before it gets up 300 basis points, we will end up, we will not be a tugboat anymore. We will be lashing people to the decks.

I'll wait for that.

I hope not.

Very good very good, thank you, thank you.

Next we'll hear from Jay Cohen with Merrill Lynch.

Yes, two questions, and maybe they're related, maybe not. The first is Bill when you talked about the industry and price and claims inflation, you made an assumption on claims inflation but clearly, one goes back two or three years in the liability side and the claims inflation has been much more modest than what you've talked about, so I'm wondering kind of what your view is on underlying claims inflation on the liability side? And then secondly, qualitatively, how do you feel about your loss reserves today or year-end '07 versus year-end '06?

Well, first of all the answer is of course they're related because the reason our loss reserves are conservative is because we've made conservative assumptions about inflation because we don't want to be wrong, and the reason our assumptions are more conservative than everyone else is reporting is because we think medical cost inflation is built in at a higher level than some of my competitors think, so we think 6 or 8% for medical cost inflation is probably an okay number, which means you take on a smaller number for real cost inflation and then you put in 6 or 8% for medical cost, and you come up with a higher inflation number for claims. We don't have an answer per se but I think that we would tell you that our reserves have become more adequate over the past few years because the risks of inflation and the risks of bad things happening have increased.

I have the view that our reserves are probably somewhat redundant but the nature and the process of our establishing reserves includes a lot of weight, although not 100% of the weight on the financial officers, the Actuaries and the Presidents of our operating units, the ultimate decision is made here but we have to feel very strongly. Our Actuarial team here, our financial team here, the people who operate the units, myself and Rob, we have to feel very strongly that things have gotten to where the redundancies are just overwhelming. The numbers would tell you that if you went back to 2002, our numbers would be, the IB&R would be about between 80 and 90% of our earned premium, but things have changed from 2002.

The risks of inflation are greater, the other risks are greater, but it says that we're probably more cautious, but being more cautious is appropriate when you're in these uncertain economic times, so yes, we've made some more cautious assumptions than history might say. It's based on what we see as medical costs. What we see as the risks of inflation. It's what we're concerned about as a liberal court turn as opposed to a conservative court turn. It's our effort to have enterprise risk management, to try and say what if things aren't as we think they're going to be? What can go wrong? That's what our job is, to be sure that if things go wrong, we're not stuck. So yes, we're probably a bit more cautious and conservative than some others.

Thanks, Bill.

We'll take a follow-up question from Charlie Gates with Credit Suisse.

Mr. Gates?

I'm still here. I had my phone on mute.

Oh.

That doesn't help my marketing, sir.

No.

The one question that I had was given the pressure--.

This is your fifth question.

Oh, yes, sir, I apologize. Years ago I followed a Company where if you'd asked the CEO what the stock price was, he wouldn't have been able to answer. Clearly, here is something different. But here is the question, given the pressure on your stock, I would have foreseen that you would have bought back more stock during the period than you did?

Well, I think that we bought back $450 million worth of stock last year and I think we bought back 1 million or a 1.3 million shares this year so far and we certainly welcome if anybody is on the phone and has a block of stock they want to sell us give us a call. We're happy to make a bid for a block although there are all kinds of restrictions, how we buy, how much we buy, so you have to remember, Charlie, on the day when everyone wants to sell, we only can buy 375,000 shares that day unless you call us a day ahead and say tomorrow, we would like to sell you a block of stock, so we can't always buy everything we want. So there are all of these restrictions on how you do it and how much you do and all that stuff. If we were able to buy on the days everybody wanted to sell, we probably would own a lot more stock. But there are other people who want to buy the stock too, and you know? We try and use our best judgment on when to buy the stock and where, and I don't think the stock has been under any particular undue pressure. We certainly, and yes, I own 28 million shares so I do have a vested interest.

Thank you.

We'll take a follow-up question from Meyer Shields with Stifel Nicolaus.

Thanks. Bill, earlier you said that you think that companies are going to see deteriorating underwriting results for the year including some breakeven.

I said I'm sorry?

That industry wide basis we expect either breakeven or a modest industry wide loss?

Yes.

Do potential sellers of small insurance companies recognize that in their pricing expectations?

The problem isn't whether they recognize it or not, the problem is do they recognize how they priced the business yesterday in their loss reserves? I think the answer is many people are still very optimistic about the level of business, where business is, and I think at the moment, there's probably more optimism in general than is warranted. Most of the companies for sale are being sold because people think taxes are going to change, the environment is worse, the insurance cycles is worse, I want to get out and they think that the buyer doesn't know any of those things, so their pricing for sale has not gotten realistic.

But that will change. We just need to give it a little time and then I think some of the issues Bill Wilt brought up which is the difficult economy will make the insurance business a bit more difficult and prices are declining still and that's going to make it more difficult. So my guess is that people who want to sell and who care about their companies we'll hear from, but it's hard to find good companies at rational prices. Hello? His line is still connected.

Oh, no, I'm fine, thank you.

There are no further questions. I'll turn the call back over to Mr. Berkley for any additional or closing remarks.

Okay, well, I thank all of you. We were pleased with the quarter. We're quite optimistic about the year. We think that 2008 will be an excellent year. As I say at this moment, we're still optimistic that we can get to that 20% return but it's certainly not a sure thing with the huge number of variables in the economy and in investment returns, so we're going to wait and see and we will update you as we get into the first quarter further. Thank you all very much. Have a great day.

That will conclude today's call. We thank you for your participation.