Brenton Slade – Director, IR
Mark Byrne – Chairman
David Brown – CEO
James O’Shaughnessy – CFO
Jay Gelb – Barclays Capital
Susan Spivak – Wachovia
Flagstone Reinsurance Holdings Limited (FSR) Q3 2008 Earnings Call Transcript November 4, 2008 9:30 AM ET
Good day, ladies and gentlemen, and welcome to the third quarter 2008 Flagstone Reinsurance Holdings Limited earnings conference call. My name is Jasmine and I’ll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.
It is now my pleasure to introduce your host for today's conference, Brenton Slade, Flagstone's Director of Investor Relations. Brent, please proceed.
Thank you very much, Jasmine, and good morning, ladies and gentlemen. Thank you all for joining us on the call today. With me are our Chairman, Mark Byrne; David Brown, our CEO; and James O'Shaughnessy, our CFO.
Before I turn the call over to Mark, please let me remind everyone that statements made during this call, including the questions and answers, which are not historical facts, may be forward-looking statements within the meaning of the US Federal Securities Laws.
Forward-looking statements contained in this presentation may differ from actual results. We therefore caution that you should not place undue reliance on such statements. We speak only as of the dates on which the statements are made and the company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
On that note, I’d now like to turn the call over to Mark Byrne, our Chairman. Mark?
Thank you, Brent. Good morning, ladies and gentlemen. The third quarter was a challenging one for our industry, in that we combined an active hurricane season with tremendous capital markets distress. The combination of these factors has had a negative effect on our financial results which of course we would have preferred to avoid.
Nonetheless it has proven that we’re well-capitalized. We have proactive risk management and we’re capable of surviving an unprecedented investment environment where 12 of the 14 asset classes we follow have negative returns for the year-to-date, many of them severely negative.
We in management are committed to Flagstone shareholders and are optimizing our capital as illustrated by our share buyback program and our large shareholdings in Flagstone. We must be one of the most investor-aligned management teams in this business.
We have repurchased some of our own stock in the quarter when we felt the value was especially compelling compared to our book value. The two factors weighing against an even greater repurchase are, first, our desire to see the stock continue to benefit from an adequate float, and second, the excellent business opportunities we see on the underwritings side.
But when we can buy our stock at a meaningful discount to book value, we plan to continue to do so. The negative financial results should not be allowed to overshadow some of the significant organizational success we achieved during the quarter.
We successfully reorganized our operating platform with the merger of our Swiss and Bermuda operations to a single Swiss platform that gives us significant operational and capital efficiencies. By consolidating our capital into one world-leading regulatory regime, we now benefit from larger underwriting potential for the same total capital while continuing to meet all rating agency requirements.
Switzerland provides us a base in a very stable country and various fiscal and financial benefits. We continue to operate business as usual in Bermuda, now writing on Swiss paper. Our Holding Company remains in Bermuda and we’re committed to the Bermuda marketplace.
We were also successful in re-branding our South African operation into Flagstone Reinsurance Africa Limited which has just received its A-minus rating A.M. Best and is thus one of only two South African reinsurers with internationally acceptable paper.
With this addition, we should begin to see growth in this regional book of business which benefits our global portfolio diversification. We also have recently completed a tender for all the remaining shares of Alliance Re in Cyprus, which we will be rebranding Flagstone Alliance Insurance PLC, and that company will focus on mean origin [ph], facultative treaty and insurance business.
Flagstone Alliance will add considerable depth of relationships to our existing presence in Dubai and the Gulf. This continued expansion further expands the geographic composition of our book and gives us even more access for our expanding specialty lines including engineering and petroleum.
Finally, in an exciting development early in quarter four, we agreed to buy Marlboro Underwriting Agency Limited, operators of Syndicates 1861 at Lloyds. This is a key strategic addition for Flagstone, allowing us to complete our mission of being a multi-line reinsurer and an insurer in selective markets.
It provides the company with a Lloyds platform, with access to both London business and that source globally from our network of offices. We will shortly close this transaction and are in the process of licensing our own corporate capital vehicle which will be the capital provider for 1861 for 2009 onward.
It’s important to note that this transaction excludes previously written business. We have applied for 100 million pounds of stamp capacity for 2009, when we expect the markets to harden for the first time in three years. The transaction is subject to Lloyds and UK Financial Services approval.
I’d now like to discuss the investment results. Quarter three was a bad investment quarter of historical proportions for the market. Our analysis indicates the broad asset returns to be worse than any period since 1929 and it’s not possible to plan for those periods without sacrificing satisfactory investment results 99 of 100 years.
Our investment approach is to diversify across multiple asset classes with a goal of producing a superior risk adjustment return. That approach did not work well in the quarter or this year, as most asset classes correlated highly on the downside. Our exposure to equity and commodities has hurt the performance while large allocations to cash and treasuries has mitigated, so it could produce an overall return for the quarter of 7.2% down.
While we still expect to outperform this with this approach over time, in early October, we reached the circuit breakers and the decision of our Board's Finance Committee was to reduce greatly our equity-linked and commodity-linked assets. As a result, today, we’re in over 90% cash, treasuries and short-tern AA+ or better rated assets. And our total return from investments over the year as of last Friday is minus 15.4%.
We regard the increase in diluted book value per share plus accumulated dividends, measured over intervals of three years, as the best measure of our performance to shareholders. Since the founding of the company, that growth has been 10% inclusive of dividends, which is below our target. Although this quarter has had a detrimentable affect on our historical return, we do expect to see a hardening market, since so much capital has been destroyed in this industry this year.
Therefore, we’re bullish on the prospects of achieving our financial targets going forward. Because our reinsurance book is exposed to catastrophes, our results obviously won’t be smooth from quarter to quarter. But as our diversifying business lines continue to become more significant to our overall book, our overall earnings variability should decrease.
With that summary, I’ll turn the call over to David.
Thank you, Mark. Good morning everybody. When we formed Flagstone, one of our aims was to create a company that could endure large industry events and emerge to prosper in a healthy underwriting environment that typically follows. At the time of course, we weren’t anticipating that one such event would come from the financial markets. However, we’re very proud that our business model has withstood the test of what looks like the third largest natural catastrophe in history, together with the financial market catastrophe that dwarfs all natural catastrophes.
Several recent studies have estimated this combined loss of approximately $42 billion with the top end reaching $80 billion by the end of the year, if markets do not correct as a loss to our industry. This amount, of course, is larger than either KRW or 9/11 and is clearly an unprecedented event.
If I look at our own underwriting results for the quarter, we were well within our expected range despite the occurrence of two significant hurricanes. We have revised upwards our estimated net combined loss for Ike and Gustav to $115 million from the early estimate of $85 million we published two business days after Ike.
Despite Ike being a Cat 2 storm, damages were greater due to its larger wind field and higher impact sustained inland. We actually remain comfortable with our own model estimate of the industry loss in the range of $10 billion to $16 billion for onshore losses. The vendors of commercial cat models and some other reinsurers have recently published estimates indicating a somewhat higher loss than our range. This higher range has been adopted by many of our cedents in estimating their own losses, but our reserve levels reflect this more conservative amount indicated by this larger industry estimates. So to be clear, our own reserves are based on the higher industry estimates and not on our own range, but we still think our own range is reasonable; we’re just trying to be conservative.
Overall, when we compare our results for the quarter with our peers, we see that our net loss and combined ratios, when you exclude the release of reserves from prior periods, is at the low end of the range. We think this reflects the risk control and diversified nature of our portfolio. This, combined with our investment losses, resulted in a decline in fully diluted book value of 8% for the year-to-date which is just below the industry average over 8.5% as recently published by one of our industry analysts.
Another important observation about Flagstone is that we’ve managed to grow our business in terms of gross premium written by 34% over 2007. As I’ve mentioned before, investors should question growth when others are shrinking. But our growth comes from increasing diversification and not from increased concentration of risk. This can be demonstrated when you compare our Ike loss as a percentage of our premium written to that of our peers. Our gross loss from Ike was 28% of our net premium earned to date. Our peers are typically in the mid to high 30% range. The substantially low percentage indicates the degree to which we have been able to diversify our source of premiums both geographically and by line of business.
On the more important topic of the future, we see the investment and underwriting losses in the industry and the serious problems of some major industry participants as creating an excellent opportunity for Flagstone. We expect an increased demand for reinsurance and a reduced supply to be available. More specifically, we see property catastrophe rates improving for next year and a positive but smaller impact on specialty rates.
This will mostly occur in North America after the losses experienced throughout the year in multiple events. But we also expect this hardening environment to occur globally. Several large global reinsurers are experiencing significant financial stress and we would expect capacity to diminish globally for the first time in many years. Having built our global platform, both organically and by select acquisitions, we are ideally positioned to participate in this market upswing.
Not only is the rate improvement likely in the reinsurance business but we also see the problems at major insurers like AIG producing opportunities in the direct market, which our new colleagues at Marlborough are ideally placed to exploit, having expanded our platform into Lloyds.
Regarding Marlborough, as Mark said, we are very pleased with this transaction and expect the further diversification into specialty lines and insurance to benefit our portfolio immensely. As we take advantage of this platform, our portfolio should become less volatile. I fully expect that we will see more business this year that meets our return criteria. We’ll have more business than we have had capacity to write. Of course, we hate to turn away good business but access to additional capital is extremely limited in the current market and by having to reject this business, we will be even more discriminating than usual about the business we choose to select.
I’ll now pass the microphone to James to discuss the financials.
Thank you, David, and good morning, ladies and gentlemen. I’m going to give some brief remarks regarding some of the financial aspects of our third quarter, focusing on premium growth, the hurricanes, our investment portfolio, capital managed, liquidity and the strength of our balance sheet.
Flagstone’s net loss for the quarter was $186 million. Our quarter ended with a diluted book value per share of $12.62, a decrease of 12.7% adjusted for dividends for the quarter and a decrease of 3.9% over the last twelve months. On a year-to-date basis, it has declined by approximately 8.1%.
Gross premiums increased by $49.5 million, or 40% to $173.2 million over the prior year quarter. The increase was driven by a strong property cap renewal, growth in specialty lines, reinstatement premiums on the third quarter hurricanes and the addition of new clients; partially offset by the non-renewal of certain treaties that did not meet the company’s profitability objective.
The net impact of Hurricane Ike and Gustav on our net income was $115 million. This is net of reinstatements and minority interest. I caution you that it is still early in assessing these events. We applied our usual prudent reserving methodology to estimate these losses and as with any estimate, they will evolve.
In the current quarter, our net favorable reserve development for cat events from prior periods was $4 million as our cedents continue to reevaluate their estimates of their exposures to these events. Our net paid claims for the quarter were $44.2 million.
Moving on to investments, as you’re all aware, we adopted FAS 159 at the beginning of 2007 and so both realized and unrealized losses on substantially all of our invested assets are booked directly to the income statement. Given the reduction in the market value of our portfolio this quarter, this accounting standard caused us report a net loss substantially larger than we otherwise would have under different accounting standards, and so I would caution you to consider that when you analyze our results or compare them to those of other companies.
The metric we focus on is total return on our investment portfolio. Out total return was a negative 7.2% this quarter which reflects the mark-to-market adjustments on our fixed income portfolio totaling $27.1 million, realized and unrealized losses on our equities of $29.1 million, other investments of $13.1 million primarily due to real estate exposure, $51.3 million loss in commodity futures, and $19.6 million loss in global and US equity futures.
In October 2008, given the turbulent worldwide financial markets, the finance committee of the Board decided to revise its asset allocation and accordingly significantly reduce the risk of the company’s portfolio by largely eliminating its direct exposure to equities and to non-US real estate and by lowering the exposure to commodities.
As of September 30, 2008, the average credit rating of our highly liquid fixed maturity portfolio was AA-plus with an average duration of 2.9 years. At September 30, 2008 and December 31, 2007, we had no exposure to subprime-backed investments or collateralized debt obligations of subprime-backed investments. At September 30, 2008, our holdings of Alt-A securities were $4.6 million with an average rating of AA-plus.
Moving on to our capital position. On September 22, 2008, the company announced that the Board had approved the potential repurchase of company stock to take advantage of attractive valuations. The buyback program allows the company to purchase from time to time our outstanding stock up to a value of $60 million. During the period from October 2, 2008 to October 20, 2008, the company purchased 660,429 shares for a total consideration of $6.3 million at a weighted average price of 8.89 cents per share.
The timing and amount of repurchase transactions will be determined by the company’s management based on its evaluation of a number of factors including the share price and market conditions. The company may decide at any time to suspend or discontinue the program.
I am pleased to say we remain in a strong capital position. We are looking at our current risk portfolio and we are comfortable with our capital relative to risk. We believe we have ample capital resources at our Holding Company and our operating subsidiaries are well capitalized and combined with appropriate levels of reinsurance protection, we’re appropriately capitalized to take advantage of the future opportunities.
Our debt to capital ratios at September, conservative, at 18.9%. Our liquidity position remains very strong with cash and cash equivalents at September 30 of $635.6 million. We benefited from strong net operating cash flow for the nine months in 2008 to the tune of $247.4 million.
And with that summary of the financials, I will now pass it over to the moderator to open the lines for questions and answers.
(Operator instructions) Your first question comes from the line of Jay Gelb of Barclays Capital. You may proceed.
Jay Gelb – Barclays Capital
Thanks and good morning. I wanted to touch base on the capital position heading into 2009, or taking into account the investment losses in October, I am assuming that Flagstone will roughly have $1.25 billion of capital to deploy for the underwriting year. First, do you feel that that’s an adequate level? And second, what type of operating leverage can you deploy on that capital given the entry into Lloyds as well?
Thanks, Jay. This is Mark. I’ll comment on that and I'll let David comment on the number. I think it depends if you’re including the subordinated debt or not whether that’s a good number. But the answer is we think we have adequate capital; if we could have more, we would like to have more. But if you look at the sort of the four ways we can get more underwriting capital, two of them are closed basically. The equity market is essentially closed; the whole industry is trading between 70% and 80% of book value at best, so that’s not an environment which is friendly to raise equity.
In terms of debt, I don’t know if the community is aware, but the kind of subordinated debt and preferred stock that many companies in this industry have issued, the 30-year non-call five structure that I’m sure you’ve seen that gets underwriting capital credit from the key rating agencies, that market is essentially closed. My understanding is that the main buyers of that were pools that have also invested into SIV commercial paper and other things and so the main buyers, at least the traditional buyers of that kind of subordinated debt don’t appear to have any appetite and some of them are not around anymore. So that market is closed.
The third thing we can do is raise sidecar capital of some kind and while we continue to dial the phone a lot, since most of that capital is hedge fund capital and most of the people we know in the hedge fund industry are, shall we say, not looking for newer liquid investments today, that market appears to have significantly dried up.
And the fourth thing you can do is buy retrocessional coverage to increase your ability to write top line and that is something that we have done a bit more of this year than in prior years. We got out a bit ahead on the curve on that and I think we may continue to do still a little bit more. So those are the four main ways we can increase our underwriting capital from a model perspective to be able to write more business and with essentially three acquisitions closed, all of which would consume certain amounts of cash, none of them were huge acquisitions, but Marlborough with 100 million pounds of stamp is going to take certain amount of capital to support for sure.
Alliances is sufficiently capitalized already, as is Flagstone Re Africa, but there will be some capital needs for Marlborough. So there’s no question that capital is tighter than we wish it was, especially in an underwriting environment in which we think we’re going to have a lot of opportunity, but the only reaction we can really have to that is to just be as selective as we can and continue to write the business that we think will be the highest ROE business and obviously pay some attention to maintaining the relationships and franchise as well. So we’re certainly deeply focused on making sure we could deploy our capital in the optimum way at the renewal season and if we had 25% more, we think we could deploy it in good business and it’s a pity we don’t. But we don’t see any options at this moment for reasonably priced addition to our capital base.
David, do you want to add to that?
I echo the comments on the capital. Regarding operating leverage, you have followed this company from the beginning and we’ve always said, a 40% to 60% range and getting to higher end of that range, that’s premiums to surplus, as we get more diversified. I'd invite you to do a little analysis. I’ve done some of our own numbers here, but you can do this for the peer group.
As of the end of September, our premiums to opening capital is about 50% to 51%, Flagstone, so we’ve clearly grown the book of business. And that’s a high ratio I think compared to most of the companies in our space, particularly those of the cat focused and that really demonstrate the fact that we’ve been able to grow by diversification. You can verify that by looking at, for instance, our Ike loss relative to premium. I calculated that our Ike loss compared to our premiums earned to date, again in September, was about 28% of premium. It’s 22% on a net basis. And again, you can look at the space up there with other people and typically their ratios were in the mid to high 30s for that ratio. So we’ve grown that book. We have got good operating leverage through great diversification and not through concentration of our bets and that’s one of the things we’re pleased about. This quarter is how that’s proved to be a valuable business model and it’s controlled our loss from Ike.
So I think going forward as we continue, as Mark mentioned, we've got diversifying business coming through Marlborough and Alliance and Flagstone Re Africa and some other things we are working on. I would hope that our operating leverage can start to move towards the higher end of the range we've always given to you. Obviously, there are those times in the constraints of the capital models that we operate under and from rating agencies.
Jay, I wouldn’t be surprised to see us at 60 or even above in 2009.
Jay Gelb – Barclays Capital
Okay, so I guess that translates into perhaps taking into account that the reinstatement premiums in 2008, maybe not too much in the way of gross written premium growth in 2009, but you’re saying you can deploy that at higher returns on equity?
Yeah, I think that’s right. I think we and others will be turning away business we would otherwise like to write because of the capital positions.
Jay Gelb – Barclays Capital
Right, okay. And then, Mark, just so I understand on the investment portfolio, I understand that the circuit breakers were triggered. Does Flagstone intend at some point to re-engage on those investment strategies, the alternative investments, or should we think of Flagstone's investment portfolio going forward to be more traditional?
Well, we never had alternative investments of any significant amount unless you call commodities alternative. Essentially, what we have was index exposures to equity markets around the world, that's what hurt us. About 23% of capital was deployed on that and about 8% more in commodities and those are the assets that didn’t perform. I think you won’t see us back at that level anytime soon, because the allocation was based on modern portfolio theory allocation and we have a new data point, which is the September and October 2008 can happen which really had no precedent in the 30 years of data we were using. So for example, the worst year in the last 30 years for the portfolio we had was minus 3 and then we get to minus 15 with that portfolio in 2008. So it was a very diversified portfolio that based on a lot of thoughtful analysis looked to us like it had a pretty modest downside and the downside exceeded any previously measured period.
So now that that new period is in the database with a given level of risk tolerance, even if we did what a model said we should do, for many years it would never allocate that much again particularly to the equity market. So while in effect, I am not trying to be evasive, but I would say the Board hasn’t met and discussed that matter yet.
I think for 2009, you should expect us to stay in a very tame investment portfolio until market circumstances have calmed down and until we are again in a comfortable excess capital position where we think the opportunities for investment return are better than the ones through underwriting return which is not our perception today. And I would say, in the long run, you might see that that combined allocation to assets that are considered to be the risky assets, you might see it get back into the 10% or 15% range.
I’d be surprised to see it get it back up to 30 kind of in my lifetime. So I hope that’s a reasonable answer to the question. I would also point out that some of the assets that have stunk have been the assets everybody thought were low-risk assets. TIPS for example, we have a decent type allocation to TIPS and they have been a terrible performer. And the TIPS market today is basically, if you look at the TIPS to treasury breakeven, the TIPS market today is forecasting a big deflationary period. And in the absence of that big deflationary period, there aren’t many things more interesting than a 3% real yield for the next five years. I think that the pretty attractive investment asset class.
So you have to be somewhere and unless you want to be in T-bills earning one, it is pretty hard to get a zero-risk portfolio. But I would expect that the overall level of investment risk measured on a value-risk basis is currently at 15% to what it used to be and I’d be surprised to see if go up by more than a few percentage points than that, at least in the timeframe of your 2009 model of Flagstone.
Jay Gelb – Barclays Capital
Okay, that’s helpful. And if I can just get one more, the disclosure in the press release was helpful with the total return year-to-date. What does that implying in terms of impact to earnings in October from the investment losses dollar amount?
Yes. I guess, you have the number, just put it into your model and do the math. You have to make some implied return for the investment portfolio now for the fourth quarter and so far, there has been no tax in this quarter. You can tell me if they’ll be any at the rest of the quarter. You could put that number and –
Jay Gelb – Barclays Capital
As you know, so I would just say, with those factors then you can make a reasonable conclusion about the fourth quarter.
Jay Gelb – Barclays Capital
Just to clarify, I just meant strictly on the investment side in October.
Yeah, you’ve got the kind of return to date and as Mark mentioned, we now have basically de-risked the portfolio, so you can pick some low-risk return for the portfolio for the rest of the quarter and that’s how I would calculate the fourth quarter earnings.
Jay Gelb – Barclays Capital
Okay, that’s helpful. Thank you.
Thank you, Jay.
Next question comes from the line of Susan Spivak of Wachovia. You may proceed.
Susan Spivak – Wachovia
I have two questions. The first would be, you talked about the 28% of earned premium and the loss and how that compares with your peers, yet the loss represents, what I calculate, of about 9% of 630 shareholder equity which according to our statistics would put it at a high end of any peer group range. So I was hoping you could address how going forward, should we just view you as having putting 10% of your capital at risk in any one quarter or for any one major loss, I mean? And then, my second question is following up on what Jay was talking about with the retro capacity, with capital so tight and the reinsurers being careful with their own capacity, can you talk a little bit about the pricing, the terms and conditions and what’s out there in the retro market?
Yeah, on the first one, we’d have to do that offline and get back to you with a number there. I don’t have that in front of me and in terms of the percentage of equity. Everything I’ve look at, Susan, in terms of ratios, looks good. I look at our combined ratio ex-releases, I look at the loss ratio and in terms of the business we’ve written, it looks pretty good. Obviously, we’ve written a large amount of premium relative to our capital than all those in the industry. As I said, 50% premium to surplus so when we do have a loss, it obviously has an impact on capital bigger than others, but in terms of what that loss is relative to the business we write, it has shown how diversified we are. So I think that’s – there’s an offset there, we have a conservative style to get more balanced, but we have more leverage, so there’s an offsetting impact there. And I don’t have the crossover of those two calculations but we can certainly work on that and get back to you.
I would say 10% in a quarter wouldn’t be a way look at it though, Susan. I think the real – we have a 60% cap on aggregates per zone. So the worst event in a thousand years should be a 60% gross event for us which would make it probably a 40% or 50% net event for us. That will be something much, much worse than a Katrina. That’s our cap on aggregates per zone and that’s low by industry standards.
A couple of our competitors published their cap and they’re typically in the 90% to 100% range of aggregates per zone. So we are conservative on that basis. The other limitation we have is a limitation on PML overall for the company and I don’t think that’s published but it’s also low relative to the peer group in terms of – the probabilistic number is actually a more useful number to look at and that one also is low relative to industry numbers. I guess you can pick your ratios to look at, but to me the loss to premium ratio is the more useful ratio, but you could pick a different ratio to look at if you prefer.
On the second one, we’ve essentially placed our retro program already. So I do think that market is tightening up, and I think it was good thing to get out ahead of it, but we’re pretty much done with it now.
Susan Spivak – Wachovia
Could you give us some details on that program? How much did you buy and what were the terms?
Yeah, preferably I will not do that. This is effective at 01/01/09 Susan, so I’d rather not release that information.
Susan Spivak – Wachovia
Just one quick thing, I mean on your first question, I’m just looking at some numbers I got here. What I did look at is I looked at if we ignore the total return, if we back out the investment losses for the quarter and I look at the change in diluted book value for our company, ignoring those losses, I get a relatively modest, a minus 3% hit from underwriting. When I look at the peer group, I am seeing numbers in the minus 5, minus 9, minus 10 range. Again, we’re doing it based on public information and you’ve got access to that better than I do, but our calculations seem to differ from what you’re saying in that we think our losses is not as relative to (inaudible) capital, very modest relative to our premium writings, so we’re obviously reaching a different conclusion than you.
Susan Spivak – Wachovia
Well, no. I am including investment losses and what the third quarter earnings are as well.
Yeah. You separate those out, certainly from an investment point of view, you would say that it is probably little worse than others, but on the underwriting point of view, the core of our business, that’s been a very satisfactory result. So going forward, to answer your question, what Mark said about investment portfolio, you shouldn’t make the same assumption that that’s likely again. You can break these numbers out too, Susan, and you’ll see that on our underwriting side, we have a very, very solid result which we are very pleased with despite the loss.
Susan Spivak – Wachovia
Okay. I’m sorry. I’m just looking at what your loss was, what you pre-announced your loss relative to your 630 shareholders equity. Maybe that’s too simplistic, but –
Yeah. It is too simplistic. It is too simplistic. You’re taking the third biggest – you’re taking a one quarter period with the third biggest insured cap loss ever and the worst financial market in a hundred years and saying is that representative of the future and I would say, no, I don’t think so, it might be. You could have a Japanese earthquake, a California earthquake and a huge European storm all at the same year, too. I mean any of those things can happen. I would expect a quarter like the summer of 2008 will not happen again, but I can’t promise it won’t happen again, of course, but I don’t think that’s agreeable way to look at it.
Susan Spivak – Wachovia
No, no. I’m looking at your peers in the same way. So I am looking at your peers in the same way.
I understand. We don’t think it’s a reasonable way to look at it.
Susan Spivak – Wachovia
Okay. Thank you for your answer.
(Operator instructions) I'm showing we have no further questions; I’d like to return the call back to Brent for closing remarks.
Thank you very much. Before I let everybody go, please let me remind you that a replay of this webcast will be available on our web site from 12 noon today until midnight on December 4, 2008. Please visit the Investor Relations section of our web site at www.flagstonere.com for further details. And that concludes the proceedings for today. We very much look forward to speaking to you again at the end of the next quarter.
Thank you everybody.
Thank you for participating in today’s conference. This concludes your presentation. You may now disconnect. Good day, ladies and gentlemen.
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