W R Berkley Corp (WRB) 2008 Q4 法說會逐字稿

Good day and welcome to the W. R. Berkley Corporation fourth quarter 2008 earnings conference call. Today's conference is being recorded. The speakers' remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by using -- by the use of forward-looking words including without limitation believes, expects or estimates.

We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will in fact be achieved. Please refer to our annual report on Form 10-K for the year ending December 31, 2007 and our other filings made with the SEC for a description of the business environment in which we operate and the important factors that may materially affect our results.

W. R. Berkley Corporation is not under any obligation, and expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

I would now like to turn the conference over to Mr. William Berkley.

Good morning. It would seem the appropriate comment these are the best of times; the worst of times. When I look at our numbers at first glance it was upsetting to me to consider that a small part of our investment portfolio would have such an impact on what I think was really a pretty terrific year. We were really pleased with our operating results, with the discipline of our underwriters and where we stand in the market. We're especially excited about all of the new ventures that we have started and how we have expanded and positioned ourselves going forward.

On the other hand, roughly $300 million of our portfolio cost us a tremendous amount in our investment income, and other than a temporary impairment that one investment made our results look even worse. The good news is, even if they go to zero, it won't have a material impact on our financial statements. The bad news is you don't feel very good when you don't report great results.

We are excited about where things are. We are excited for several reasons and that is the dilemma you feel when you look at those results. Why are we excited? Number one, the biggest player in the industry, AIG, is at best in a difficult position, and at worst we don't know where it is going to be.

They have been very aggressive in their pricing, which is what we anticipated, and we expect that will continue because they're trying to hold their market position when their future is unknown.

At least three or four other major players have questions about their own capacity to be aggressive competitors, and in some cases these people are out there pricing their products at loss. That only can continue for so long. If you look at history, whenever the industry as a whole has an operating loss, which is where we think we are in '09, prices change, things turn around. And we are beginning to see that in a number of places.

A huge percentage of the industry capacity, we would say 25% of the industry capacity, and probably 30% plus of the specialty capacity, is in uncertain financial position. We believe that it will lead to the change in prices we anticipate, combined with the current state of affairs that there is no capital rushing into the business.

In addition, the strong dollar in the US represents roughly half of all the world's property casualty business, has made external capital sources less able to come in and provide capacity here, and that capacity is more limited. So putting that overall, we think the business is going to be much, much better by the end of the year. We think the first half of the year will be probably quite difficult and competitive, and later on in the year we think things will change substantially, with dramatic changes by the fourth quarter of '09 and the first quarter of 2010.

For Berkley Corp. we think our underwriting profitability will remain roughly constant. We have been very conservative in the numbers we have booked. We think we will be able to continue to book the numbers that probably are reflective of the current state of affairs going forward for this year.

We have been cautious, because we have been concerned with inflation. One of the consequences of deficit spending historically has been inflation in the long run. The balance between looking at those risks of inflation and the current state of affairs, where people are more concerned with deflation, are the balance we have to set for our reserves.

Our caution has erred towards the worry about inflation. We think at this moment we may have been slightly too pessimistic about inflation, and as we review that we will consider where we go from there.

We continue to see opportunities that will allow us to take advantage of other companies' problems as we add teams of people. We have added a number of teams of people in expanding our Berkley Asset Protection, FinSecure, Berkley Underwriting Managers of Canada, our professional liability business, and our Offshore Underwriting Managers. We have several other things we're currently looking at, and we think that we will be able to add some other outstanding teams of people.

For us, we probably have to get through a bit more of these difficult investment times; however, we're quite optimistic and very confident that we will meet or exceed our 15% target of after-tax return for '09. And certainly we expect by the end of '09 to be at a rate that is significantly higher than that.

With that, let me let Gene talk a bit about our financials, and then I will come back and answer questions.

I'm going to start as usual this morning with underwriting results, and then go through some of the details on our investments and investment income. But first, with regard to underwriting, our results were quite good in the quarter, and generally in line with our expectations.

Our combined ratio was 92.6%, which is an increase of about 4 percentage points from a year ago. The expense ratio was up 2 percentage points to 31.6%. Most of that is a result of an 11% decline in earned premium. And our loss ratio was also up 2 points to 61.0%.

We had favorable reserve development of $41 million in the quarter. And that represents 4 points on the combined ratio. It gives us an accident year combined ratio, that is a combined ratio excluding reserve releases, of 96.6% for the quarter.

Bill touched upon this, but when you look at accident year combined ratios and loss ratios reported by a number of other companies this quarter, it does look like our loss picks might be a bit conservative.

As you know, I say that because initial accident year loss picks are normally based on loss ratios from the last couple of years, which are then adjusted for price changes and expected loss cost trends. For us the 2008 lost picks are actually 5 to 6 points higher than our current estimate of the 2007 accident year loss ratio. That is quite a bit wider than we are seeing from a number of other companies.

We think you do need to be cautious in setting these initial lost picks, especially at this point in the underwriting cycle, and with the risk of inflation that Bill talked about earlier.

Moving on to other underwriting areas, weather-related losses were light in the fourth quarter as they usually are at $6 million. That compares with $3 million a year ago. We had no development on hurricane Ike or the other storms from the third quarter.

Our combined ratios by segment for the quarter were 90% for Specialty and Alternative markets, 95% for Regional, 96% for Reinsurance, and 98% for International. The International combined ratio, by the way, was impacted somewhat by the lag in earned premium for our new company in Australia.

For the full year our net loss reserves were up 4% to $8.1 billion. That is in spite of earned premiums being lower by 8%. And our prior year reserve releases for the year were $196 million.

With respect to insurance revenues, our net premiums written were $888 million for the quarter, down 16% from a year ago. The decline was mostly from the Reinsurance segment, which was off 35%, and from our excess and surplus lines of business, which was off 20%. Companies that began writing business in 2007 and 2008 wrote just under $100 million in 2008, and companies that began operations in 2006 wrote another $150 million.

Now with regard to investments. Our overall investment income was $114 million, down significantly from $166 million a year ago. Most of that decline is due to a loss of $11 million for the arbitrage trading account and to a decline in dividend income on equity securities. The trading account loss is comprised of a $15 million loss for two externally managed funds that were partially offset by a $4 million profit on your own fund.

Interest on fixed income securities, which represent 92% of our portfolio, was down 7%, primarily as a result of short-term rates -- lower short-term rates.

The annualized return on the fixed income securities was 4.5% this year compared to 4.7% a year ago. And the overall duration is now 3.1 years.

We also reported a loss of $32 million from investment funds that are now broken out separately on the income statement. This represents our share of losses reported by investment funds under the equity method of accounting. Since many of these funds follow fair value accounting, our share of their losses includes our share of their mark-to-market write-downs in the quarter.

Realized investments losses, including other than temporary impairments, were $109 million in the fourth quarter. Most of that is related, as Bill mentioned, to the write-down of a publicly traded common stock that we have owned since 2002, and that went into an unrealized loss position in June of 2008. That unrealized loss increased significantly in the fourth quarter, and the investment was determined to be other than temporarily impaired, and we wrote it down to its market value at year end.

Net unrealized investment losses after tax were $142 million at year end, which represents just 2% of our total portfolio. And that is an improvement in the quarter in the net unrealized loss position of $12 million.

At December 31, 2008 our book value per share was $18.87, and that compares with $19.80 reported at the end of '07. And all of that decline is the result of capital transactions.

Dividends where $0.23 per share. And the impact of share buybacks at prices slightly higher than book value was another $0.89 per share.

One more item I want to note is that we did restate our 2007 book value upwards by $0.12 per share. That is to reflect a change in accounting for cash distributions that we received from real estate investment in excess of our cost basis. This is an accounting issue that Bill has pointed to in the past. In December of 2008 the SEC expressed a view similar to our own that gain recognition could be applied for this type of transaction.

So we did make that change, and the effect of restatement was the increase of realized gains in 2007 by $35 million, and to increase net income per share and book value per share at the end of '07 by $0.12.

Lastly, and most importantly, I think, is that even with all the market turmoil this quarter, we were still able to deliver an operating ROE of 11.5% in the fourth quarter and 14.3% for the full year.

I think that there are a couple of things that I would like to just be sure I got in before anyone got their chance to ask questions. Number one, in the current environment, if you're trying to be conservative, and you tell your accountants you want to be conservative, the mark-to-market issues are really interesting. And that is we come to mark our securities to market, and then the accountants do an independent mark-to-market.

They check and compare a list out of our entire portfolio. There were maybe 100 odd things where they were different, 35 of which may have been a some consequent difference. And then what ends up happening you basically take whoever's position is lower.

You do that because it is not worth the argument. There may be one or two arguments where you disagree, but for the most part we would come up with a value of 49 and they would come back with a value of 24, and they agreed it should be 24. We would come up with a value of 65, they would come up with a value of 95. They would agree we were right, it should be 65. So because of that, we think we have quite a conservative mark-to-market portfolio.

There are all kinds of issues that that creates, but we feel like being cautious and conservative is a better approach. We certainly, unlike any other downturn in the market, we don't see an answer. We don't see a change. So being cautious and conservative we think is the right approach.

There are a number of things that are not here and there are a number of things that accounting creates. We still have what we would guess is several hundred million dollars of unrecorded real estate gains. The gain that was reported was where we got cash. It was unconditional cash. We never had to give it back, and we had no liability for it. So finally the SEC decided that was a correct valuation method.

However, there are still a number of pieces of real estate that, even in today's depressed market, have substantial gains, which aren't on the balance sheet. And there are a number of pieces on in private equity portfolio, small as they may be, that have gains, but you don't get to mark those up quite the same way either.

We think we continue to have quite a conservative balance sheet. You will note that, while we have shrunk our business for the past couple of years, our reserves have continued to go up in spite of the fact that they have developed redundant for the past few years. So we think those reserves also give substantial strength and credibility for our balance sheet, even if you are a pessimistic on inflation going forward.

So very optimistic that we will meet or exceed our 15% targeted return this year, and certainly we expect to exceed it by the end of the year. And that the cycle due to capacity in capital markets, competitors' problems and international currency will give us quite the unique turn in the cycle as we get towards the end of the year.

With that we will take questions.

(Operator Instructions). Dan Johnson, Citadel.

Just a couple of quick ones then. Bill, can you talk about the -- you mentioned the conservative marks, can you talk about where the munis were marked at the end of the year? And I have got two other quick ones.

They were marked to wherever the market value was. There was very little difference in our market or KPMG's market.

Our muni portfolio is all Level 1's. (multiple speakers).

It is all very -- totally marketable stuff and very high rated.

Are we talking upper 90s, lower 90s?

I wouldn't -- we mark each security to market. I can't give you an answer to that.

Do you have the paids for the quarter?

I'm sorry?

Do you have the paids for the quarter?

Paid losses were $685.3 million.

Finally, just to comment on the ROE, just to set it. You look at that on an average or on a beginning basis?

We do it on a beginning basis. Some years like this year it didn't work out so well.

Understood. If we are counting on pricing to realistically look like it is sort of fourth -- later in the year event, and just given the lag between when you write something and when you earn it, if pricing improves later in the year, why would would ROE move up concurrently, or are you talking about as it is being written as opposed to when it is being earned?

First of all, I think we said we expect our combined ratio to be reflective of this. I think we're expecting that the investment portfolio will be impacted, as in the fourth quarter and the first quarter of this year. We think those issues will be disappearing as we get into the year, because you can't mark things down less than zero.

That is more of -- that was more of an investment -- the ROE is more of an investment comment in the short-term than of pricing?

Yes.

Comment?

Yes.

Meyer Shields, Stifel Nicolaus.

Bill, are you seeing the same -- or do you have the same expectations for the timing of any turn in reinsurance as you do on the primary side?

Actually we think reinsurance is going to turn sooner. We think there is capacity constraints. Reinsurance pricing -- just hold on one minute, I have a note on my reinsurance pricing here. Reinsurance pricing was down less then 5% in January for our business. And we think that reinsurance pricing is going to start to get better on the 401 renewals. So in fact we think our reinsurance business is going to get better sooner, and we're optimistic about that business.

Within alternative risk transfer, is there any way of breaking out the impact from rates versus the impact from lower [use] exposure units?

In the alternative risk? Well first of all, that is a mixture of businesses on workers compensation that has to be looked at in two pieces. Part of it is fee business, and part of it is just simply workers compensation. I think that our prices are down a little bit, but I think that we would say that prices are down probably, again, last then 5%. And in January, in fact, prices are down substantially less. We would estimate prices are flat to down 2.5%. We think that that is the best information I can give you. Obviously, I can only measure that based on renewal prices.

One last question if I can. I understand the NEMI transaction didn't work out for various reasons. Are there a lot of distressed sellers as opposed to distressed competitors out there now?

I think you have to look at the market in several ways. First of all, you have distressed enterprises, some of whom know they are distressed and some of whom don't know they are distressed. You have to try and figure out what they are, and they have to figure out what they are, because some of the distressed competitors are in denial.

Then you have distressed competitors because they simply have capital problems, for example. Because with half of the world in dollars and the dollar being so much stronger, you have some overseas participants who have currency issues that they didn't face before. As well as when you combine that with portfolio declines their cushions that they left are not adequate.

Then you have teams of people at those places that see the problem with where the managements don't. And then you have a number of small to middle sized companies that are just distressed and trying to downplay it, and come out of the woodwork and we chat with. And then some who just don't know what their future is, who are worried about where they're going to go and what they're going to do.

In the case of NEMI, we thought it was a great opportunity. They were owned by an Icelandic company, and we thought it was a great opportunity. We were sorry that we were unable to get together. As you may have seen, the people who came after us were also unable to get together.

The problem with acquiring insurance companies, which is why we have to start them, why we choose to, is that someone has to be there to represent and warranty the liabilities that you are assuming, and that always creates uncertainty and concern.

We have always viewed that risk as to being something we weren't willing to take without confidence that somebody would be there to perform. That is frequently the problem with all of the acquisitions that are out there. So I think that you have to be confident of that.

The biggest problem these smaller companies have is how can you be confident of their liabilities. And very frankly, it is some of the larger companies that are trying to sell pieces, or sell themselves, have that same issue, how do you insure their liabilities are going to be paid for.

Jay Cohen, Banc of America-Merrill Lynch.

A couple of questions. First is what role -- you may have said this and I missed it. I apologize is that is the case. But what role did currency play as far as the premium growth, certainly in the international side?

It is not that significant. I think our declining premiums overall would have been better by 1 point, if you adjusted for currency changes.

Secondly, it looked like there were some unrealized gains in the quarter. Can you quantify that?

You may be thinking about the issue on the -- we made comments that I don't know if you heard, that the SEC came out in favor of us being able to have an accounting restatement on our real estate that we refinanced. And that account is for somewhat of a gain in increase in book value.

The other thing I mentioned was that the net unrealized loss position improved by $12 million, so there was a decline in the end realized loss position, but that is not on an unrealized gain.

That is what I mean.

Yes, the unrealized loss declined also.

Good. Then lastly, so the first quarter it is apparent that the investment funds will continue to have a negative impact. Given that it is reported on a lag do you have any sense of what that could be?

What I commented on earlier is that we expect for the year to do at least our 15% targeted return. It will have -- it will be -- well, our results will be substantially better than that in the latter half of the year. We don't have a significant number that we can say with definition, but we think that it will be there. It will be in the first quarter. If we knew exact members, we probably would have discussed the accountants putting it in, but we just don't have exact numbers.

The reason we're trying to be as accurate as we can is we have looked at what we think is the worst-case and said, how are we going to do for the year and tried to give people some guidance for the year, so no one would be particularly concerned about it. But we don't have an exact number. And obviously whenever you put a number up for a shore period of time, it tends to be more precise.

We think it will be there, and it will probably be in the first quarter. It may have a little drag into the second, but not consequential. But we are very confident, even looking at it from as pessimistic a point of view as we can at the moment, in taking a view that we will probably meet or exceed our 15% targeted return. And certainly we expect to exceed it by the fourth quarter.

Last question. Are there any lines of business where you are seeing price increases at this point?

Yes, we are seeing it in several places. I think I would like not go into them, because I'm not anxious to attract new competitors. But, yes, we have probably three or four lines of business where we actually have seen price increases at the end of the fourth quarter and the beginning of this quarter.

There are a couple of areas where clearly they are most competitive. Long-haul trucking and contractors business have gotten more competitive as volume is down a lot. As we use our disciplined underwriting approach we have lost a lot of volume. Commercial transportation is one of those most interesting lines, because it is the line that has relatively big volume. It goes down the first and it was the first to turn. In October of 2000 prices went up 30%. It was the leading carrier -- it was the leading change in prices going back up.

I might add when they went up 30% they were still inadequate. But it was one of the leading changes. It is leading us down, and it is why our volume is down so much in that area. And construction, everybody knows construction has dramatically slowed down and some people are cutting price, which we're not doing it. A significant reason that our volume is down in a couple of areas.

Vinay Misquith, Credit Suisse.

How much of topline do you think you could generate from the new segments, and especially from the new people you hired in '08 and '09?

I don't think I can tell you the answer to that, because we don't tell them how much business they're supposed to do. I would tell you that when they were at their prior employers they accounted for probably something over $1 billion of business. But we are writing with tighter parameters, higher -- lower targeted loss ratios, so we're not going to have anything approaching that. But these are -- we expect that by 2010 they will be significant business for us

Fair enough. In terms of share repurchases, now if read the numbers correctly, I think you did a small amount of that this quarter, maybe around $700,000. Just curious about your view on share repurchases and your capital and the growth opportunities in '09.

We bought back 1 million shares of stock in the fourth quarter at about $18.50 a share. And at a price -- that book value or less we would probably considerate it, because we think that that is an aberration. If you look at the history of the Company there have been very short-term opportunities to buy the stock at that kind of price.

And we think we will generate capital. And we always have had opportunities to raise capital publicly or privately at premiums to book value. So if there a short-term aberration, that is great.

We don't think we're going to grow tremendously next year -- or this year rather in '09. We think we'll grow but not tremendously. So given that we think we have adequate to more than adequate capital, so if the opportunity came about, we would considerate it.

But that is a decision you make at the moment and look at everything else. Most of the things we have seen that are of a quality that we would be interested in, we can't buy it at particularly attractive prices.

Fair enough. One last question if I may, on the margin. You have been pretty conservative. '08 was as '07, taking up your loss ratio by about 5 points. Do think that '09 you would not need to do that, just because you are being more conservative and therefore margins should be flatter than '09 versus '08, even though pricing has been coming down in '08?

We think that we have probably been -- what we do is we look at our pricing and we look at inflation, and we look at the cushions that always anticipated inflation. So we think for the past three or four years we have probably anticipated too high a rate of inflation in our pricing models. That is the issue that we're going to have to sit and talk about, and it is first on our list. We have a group of people here, led by the huge number of actuaries we have, in fact, excessive number of actuaries that we have.

We're talking about that number. Because I think that one of the things that happened is our volume is down by -- the amount of number is 20%, and our reserves are up by 20% during that same period of time. More than 20% actually. That is a discontinuity that you look at and your measure your reserves and you measure -- I think we want to be conservative, but we don't want to be stupid.

And my concern is that as we look at this we may be getting to be more cautious than is appropriate in setting our accident year reserves. Because it builds on each other. Each year you are a little cautious, and then you get cautious the next year, and then you get cautious the next year. So you are more than making up for that shortfall.

So we're going to try and look at. I don't have an answer for you. I probably wouldn't tell you even if I did, but in this case I don't have an answer. But I would say that I think we probably have been more cautious then even a cautious balance sheet would find appropriate.

(Operator Instructions). Larry Greenberg, Langen McAlenney.

You pretty much just hit on my question on inflationary trends. But are you -- can you say that you are actually seeing paid loss growth or other metrics you look at with reserving coming in lower then you are thinking or are you taking a more macro view of the economy and --?

I would say that we are slightly -- our paid losses are coming in slightly better than we thought, but they are not trending in the same direction of our reserves. So it is not -- you know, the reserving process is case basis and then bulk reserves and IB&R, all of which anticipate where you're going. And what I really trying to tell us we try to build in what we see as the directional trend of inflation and loss settlements. And at this moment we think that those directional trends have not been as severe as we anticipated when we set our aggregate reserves by company.

Then I'm not sure how to ask this, but what order of magnitude might we be talking about, high single digits to low single digits? Is there any --?

You could have saved yourself the work, because you knew I wasn't going to answer it anyway.

Fair enough. Gene, I assume that the new line in the income statement for the investment funds, that is just comparable to what you had in the Q in prior periods for partnerships and affiliates?

Exactly.

Okay.

It really is just funds basically that we are in.

Okay. Have you done anything to reposition the investment portfolio in any way?

We have cut in half our exposure to one, and we have moved out of some. But basically it is a small piece of our portfolio. It is really $300 million odd. Then there is one other.

It comes about because of two funds that were fundamentally invested in leveraged real estate, and one fund that had oil. The oil prices and the reserves and all that get mark-to-market. Generally speaking our oil enterprises produce oil at around $18 a barrel. I expected someone to ask me this. Our oil production is about $18 a barrel, so it is profitable even at this level. And we never marked it up to $147, but we did mark it up above the current prices. I think we marked it up to $60 or $70, and now we have to mark it down some. So that is one.

The other two particular assets were leveraged real estate that we don't know what happened there, and they are marked-to-market.

Even beyond this stuff, just in terms of equities and bonds, any changes in the mix there?

No, but I think we have -- we never had particular exposure there. I think we have -- the quality of our portfolio is up a little bit. The duration is down a little bit. We have a high-quality mortgage portfolio that is getting prepaid. At least it was for a short time when you could refinance at less than 5%, it started to get refinanced out very quickly, and then it seems like it stopped.

And he still had some equity in whatever you owned?

In those direct mortgages they were 2004, 2003, 2005. They were par mortgages. There were no issue there. They were trading at par and there was no issue.

Dan Johnson.

Can you run through the positive or adverse development? And then on the paids, do I have it right, the paid due incurred, it looks like about 110%. Can you just spike out -- if that number is right -- can you spike out some unusual items, if there are any?

We had hurricane losses in excess of $1 million for the third quarter, I guess. (multiple speakers) $100 million, excuse me. And a fair amount of that is going to be coming through the fourth quarter, but your number is close. We have $108 million, so you are pretty close.

But it was mainly hurricane losses that got paid in the fourth quarter.

Very good. Then on the development?

We generally don't do that on the call. If you would like to talk to Gene, please give him a call.

Meyer Shields.

If you are concerned about inflation on the longer term, is there anything that you can do in terms of speeding up claims settlements?

We in fact have done that. We have gotten a process to do that. We're out there actively. It is one of the things that made us recognize the issue of our reserve settlement. We have at almost all of our companies now, we have processes to move our claims settlement further along. And we set up various panels and other things to try to settle claims, go to various locales, meet with lawyers, try to get things settled. And we have had extremely good results. In fact, we are doing that.

Also, I guess a piece of conventional wisdom is that -- not your insurance -- but insurers in general are looking to diversify [temporary credit] risk by using multiple insurers. Is that -- generally are you seeing any of that?

We don't write jumbo risks for the most part. We are the beneficiary in some of our lines of business where some of those various uncertain and troubled insurers have big line slips, and we're getting bigger participations. We're the tortoise, slow and steady. And we're now being recognized for being there for a long time with steady rating and kind of consistent performance. We are getting offered participations now in a lot of things, and we're trying to position ourselves as a good alternative.

I think that is happening. I think it is probably going to happen more, especially on what I would call the large medium-size company risks. Not the jumbo risks where people buy insurance as an option, but where people buy insurance that they need, but they don't want to be too concentrated in any one company. I think that several of the companies that would be on the uncertain list are in that category. So I think that will inure to our benefit. And in fact, it is inuring to our benefit would be more appropriate to say.

Do you see any investment opportunities outside of insurance that you consider to be attractive, or are you going to be focusing whatever excess cash you have now within insurance?

No, we really don't expect to do anything of any consequence outside of insurance. We think that the property casualty business is going to offer us fabulous returns over the next three years. We can't imagine anything that is going to offer us better returns.

Are there little bits of the property casualty business that we're not in that we might like to go in? Yes. But we don't -- we think that we're going to become a lot larger Company over the next three to five years. And we think that there are just enormous opportunities. So we don't think we have to look for stress.

We have no further questions at this time. I would like to turn the conference back over to Mr. Berkley for any additional or closing remarks.

First, thank you for listening. We believe that this is going to be a very unique market. We're excited, and we see all the positives developing. Will they be here by the third quarter of 2009 or the first quarter of 2010, I can tell you with accuracy.

I can tell you that in this financial environment many companies are going to be held to a higher standard. So the ability of companies to avoid facing up to their problems will be greatly diminished. We think that is going to really work in our benefit. We think we're well-positioned to take advantage of it. We expect that we will make some additional advances in finding people to join us. We have high standards, but we're consistent, and people know we in fact do what we say.

So we look ahead and see a terrific 2010 with substantially higher returns, adequate returns in 2009 above our benchmark, and very possibly really spectacular returns going forward, with no negative tail, which we had to carry in past adverse developments as we went into the last turn of the cycle. We think the returns can really be outstanding. Thank you all. Have a great day.

Ladies and gentlemen, that does conclude today's conference. We appreciate your participation. You may disconnect at this time.