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Validus Holdings, Ltd. (NYSE:VR)

Q4 2012 Results Earnings Call

February 1, 2013 10:00 AM ET

Executives

Jon Levenson - Executive Vice President

Ed Noonan - Chairman and CEO

Jeff Sangster - Executive Vice President, CAO, and In-coming CFO

Jeff Consolino - President and CFO

Analysts

Mike Zaremski - Credit Suisse

Amit Kumar - Macquarie Capital

Sarah DeWitt - Barclays

Ryan Byrnes - Langen McAlenney

Michael Nannizzi - Goldman Sachs

Matthew Heimermann - JPMorgan

Brian Meredith - UBS

Josh Shanker - Deutsche Bank

Ian Gutterman - Adage Capital

Operator

Good day, ladies and gentlemen. And welcome to the Validus Holdings Limited Fourth Quarter 2012 Conference Call. My name is Erica, and I’ll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions)

I would now like to turn the call over to Jon Levenson. Please proceed.

Jon Levenson

Thank you. Good morning. And welcome to the Validus Holdings conference call for the quarter and year ended December 31, 2012. After the market closed yesterday we issued an earnings press release and financial supplement which are available on our website located at validusholdings.com. Today’s call is being simultaneously webcast and will be available for replay until February 15, 2013. Details are provided on our website.

Leading today’s call are Ed Noonan, Validus’ Chairman and Chief Executive Officer; Jeff Sangster, Executive Vice President and Chief Accounting Officer, and In-coming Chief Financial Officer; and Jeff Consolino, Validus President and Chief Financial Officer.

Before we begin, I would like to remind you that certain comments made during this call may be deemed forward-looking statements as defined within the U.S. federal Securities laws. These statements address matters that involve risks and uncertainties, many of which are beyond the company’s control.

Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements and, therefore, you should not place undue reliance on any such statements.

More detail about these risks and uncertainties can be found in the company’s most recent annual report on Form 10-K and quarterly report on Form 10-Q both as filed with the U.S. Securities and Exchange Commission.

Management will also refer to certain non-GAAP financial measures when describing the company’s performance. These items are reconciled and explained in our earnings release and financial supplement.

With that, I turn the call over to Ed Noonan.

Ed Noonan

Well, thank you, Jon. Good morning and thank you all for taking the time to join us today. We are very pleased with our full year results particularly in light of the large losses in the marine and catastrophe business this year.

Validus generated $408 million in net income for year, on the strength of our 86.8% combined ratio. We grew our premiums written and under management by 8% to just under $2.3 billion, and most importantly grew our book value per share plus dividends by 12.2% during 2012. We finished the year with $4 billion in shareholders’ equity and $4.8 billion in capital solidifying our position as a leader in the global short tail classes.

Hurricane Sandy was obviously the big event in the quarter. Our estimate for the loss is unchanged and we see the industry gradually moving up toward our view of the industry loss which was at the high end of original market estimates.

Sandy affected our two biggest classes, catastrophe and marine. However, we write a diversified global portfolio and we collect a lot of premium for the risk we’ve taken in these classes. Consequently, we still generated attractive underwriting income for the year.

Talbot underwriters at Lloyd’s Syndicate had another excellent year, despite the large losses in its key classes. Talbot had net income of $115 million with an 89.9% combined ratio, while growing premiums by 6.4%. Likewise Validus Re had another strong year, with net income of $356 million and 78.2% combined ratio.

Our AlphaCat subsidiary continued to enjoy strong success in both the quarter and for the full year. Managed premiums were $148 million for the year, a 96% increase over 2011. AlphaCat generated $41 million in net income for the Group and between the new AlphaCat 2013 Sidecar and additional money raise for other funds AlphaCat added $404 million to assets under management.

The Flagstone acquisition is proceeding very well with no surprises to date. While January 1 was a relatively light point for Flagstone renewals, we kept virtually all of the business which we sought to.

We are well on track and the entire portfolio integration will be complete by the July 1 renewals. Our January 1 renewals went extremely well with managed premium in Validus Re and AlphaCat by combined 12.7%.

Finally, we’ve signed a letter of intent to acquire Longhorn Re. Longhorn is a very small Bermuda reinsurer which writes a single crop insurance contract. This move gives us access to a portfolio that we know and like and also adds to the depth of our crop team. Longhorn is a very, very small transaction for us, but brings us some other strategic benefit that we’ll be in a position to discuss after the acquisition is complete.

So, with that, I’d like to turn the call over to Jeff Sangster to walk through our financial results in more detail.

Jeff Sangster

Thanks, Ed, and thank you all for joining the call today. In particular, I’d like to welcome those of you who became shareholders this quarter as a result of the Flagstone transaction.

Before I provide an overview of the full year and fourth quarter 2012 results of operations and our financial position, I’d like to mention that we’ve included details of our January reinsurance renewals in our press release. We have traditionally provided renewal details in the separate press release. However, with our earlier earnings release date this year it was logical to combine the two.

I’ll now discuss the year we had in 2012 from a financial point of view. As Ed mentioned, the fourth quarter of 2012 delivered Hurricane Sandy losses to the industry, which we estimate to be in excess of $25 billion, which make Sandy one of the most costly U.S. landfalling hurricanes in history.

Despite the Sandy loss, we recorded net income of $408.4 million for the year and by doing so we have now produced a full year profit in each of the seven years we’ve been in business.

Return on average equity for the year was 11.3% and operating return on average equity for the year was 9.2%. Diluted book value per common share at year end was $35.22, an increase of 12.2% from the prior year, inclusive of dividends. We’ve grown our diluted book value per share plus accumulated dividends since our IPO at an annual rate of 12.4%.

I’d like to point out since we close the Flagstone transaction on November 30th we’ve consolidated only one month of Flagstone’s financial results in the fourth quarter. Our revenues and net income would be higher if we had a full quarter of Flagstone consolidated. However, our diluted shares would also be higher.

In order to give a full picture of the quarter as if we consolidated Flagstone for the entire period, we provide a pro forma income statement for each 2012 quarter in our Investor Supplement.

The results for the quarter were impacted by $21.5 million bargain purchase gain on the acquisition of Flagstone net of expenses. This is the negative goodwill associated with the transaction. This gain is also net of a full write-off of intangible assets recorded in the transaction.

Begin more detail to the quarter’s results of operation, net loss attributable to Validus common shareholders for the quarter was $90.7 million. This was $0.94 per diluted common share. Net operating loss attributable to Validus common shareholders was $100.8 million or $1.05 per diluted share. We paid a $0.25 per share dividend in the quarter.

Total managed gross premium written in quarter increased by healthy 12% to $311.8 million from $278.3 million. This is an increase of $33.5 million over the prior year’s quarter. The increase is a result of increased gross premiums written primarily in the Validus Re segment. Ed will cover the January 1 in detail in his comment.

During the quarter we incurred one notable loss event Hurricane Sandy of $361.0 million, representing 72.3 percentage points of loss ratio. Deducting reinstatement premiums of $36.4 million and adding Validus’ $8.4 million share of AlphaCat losses, our net Sandy loss is unchanged from the pre-announced $333.1 million.

Accident year loss ratio excluding catastrophes and change in prior accident year was 31%, compared to 50.3% in Q4 of 2011. Favorable development in the quarter was $57.2 million, which benefitted the loss ratio by 11.5 percentage points.

Our gross IBNR at quarter end stands at $1.8 billion and our net IBNR at $1.61 billion. We allocated $9.1 million from the reserve for potential development on 2011 events to the Christchurch earthquake and the Gryphon Alpha mooring failure.

There was no reserve for development on events established in 2012 and the 2010 reserve for potential development on events has been fully allocated. Our net IBNR now stands at 52.4% of our $3.08 billion net loss reserve.

Beyond underwriting results, I’m going to comment on our quarterly investment results, our balance sheet and the status of the Flagstone integration.

Our consolidated investment portfolio is $7.98 billion at December 31, 2012. This includes the consolidation of PaCRe’s investments for which there is an offsetting 90% non-controlling interest.

Net investment income for the quarter was $28.8 million for a quarterly annualized effective yield of 1.53%, a decrease of 15 basis points from the Q3 2012 annualized effective yield of 1.68%.

Excluding the effect of the consolidation of the Flagstone investment portfolio, the annualized effective yield would have been 1.69% for the quarter. The Flagstone portfolio we assumed contained majority cash and short-term investments. We will invest the Flagstone portfolio over the quarter. However the new money rates are lower than our current investment yield, resulting in reduced yield going forward.

In the quarter we realized $4.5 million in investment loss, our net unrealized investment loss in the quarter was $35.9 million on a consolidated basis. This was driven primarily by the PaCRe investment portfolio, which contributed $31.3 million to the unrealized loss on a consolidated basis.

The amount of PaCRe’s net unrealized loss which is attributable to non-controlling interest was $28.2 million, leaving a net bottom line loss attributable to Validus of 31 -- $3.1 million. The duration of our investment portfolio continues to be short at 1.34 years as of December 31st. As with the yield, the Flagstone portfolio has had a downward impact on our duration.

Our total shareholder’s equity available to Validus shareholders at December 31st is $4.02 billion. Total capitalization at December 31st is $5.2 million. Debt to capital at quarter end was 4.7%. And debt and hybrids together as a percentage of capital were 15.0%. Our financial leverage remains very low we have a substantial capital margin above our targeted risk appetites.

Looking forward to 2013, we will continue our history of prudent capital management with our stock trading at or slightly above book value, we continue to reassess our capital management approach. We will be discussing capital management options with our Board over the next week.

Regardless the conclusion of those discussions, our share repurchase authorization currently stands at $122.3 million and we plan to be back in the market buying our stock upon the expiry of our blackout period.

Finally, I’d like to take a few minutes to provide an update on the Flagstone transaction. As Ed mentioned, the Flagstone business renewed at January 1st was written entirely on the Validus Re balance sheet with no business renewed in the Flagstone management.

From a financial perspective, the transaction was accretive to our December 31st book value by $0.30 per diluted share and $0.45 per tangible diluted share. While we close the Flagstone transaction on November 30th, we began working on integration with the Flagstone management immediately following the announcement. So we are well along in the process.

We had largely agreed the course of action regarding personnel and assets by the closing date and those plans were immediately post closing. The year end close has gone smoothly, especially when considering the challenge of bringing results of two organizations together under very tight timeline.

I would be remiss if I did acknowledge the effort the Flagstone management and staff throughout the process. They have approached the task at hand with the up most professionalism under difficult circumstances and for that we are grateful.

Now back to Ed.

Ed Noonan

Well, thank you, Jeff. Let me start by discussing our results and the market conditions for Talbot in London. The Syndicate benefitted from unusually low attritional loss ratio in the quarter, as well as the near absence of large claims other than the Hurricane Sandy.

Given the nature of Talbot business we expect volatility in both of these areas and this quarter it work to advantage. Talbot also benefited from ongoing reserve releases, which were the normal result of burn off of IBNR and reflective of our reserving philosophy.

The trend in the Lloyd’s market is for loss affected classes to pay higher premiums with other classes being essentially flat. We are currently seeing double-digit rate increases in many of our largest lines including hull, property and both on and offshore energy.

The only negative outliers in terms of rate are the war on land class, which is seeing a bit of the rational behavior, and direct aviation where there continues to be too much capacity in the market. Interestingly, our aviation reinsurance account continues to see much better pricing discipline in the direct market.

Finally, our terrorism account continues to standup well in the market with rates flat to down point or two.

We think there’s a squeeze building in the marine market in London. In our reinsurance account at Validus Re at January 1st we saw marine rate increases in access of 30% and new restrictions on terms and conditions.

While rates are rising for direct marine in London, they are not coming anywhere near the increase in reinsurance costs. Consequently, we expect marine rates to continue to harden throughout the year in the London market.

Moving on to Validus Re, we had an excellent January renewal season. Rates in the U.S. catastrophe market were sensible at January 1st. Loss affected accounts saw risk adjusted rate rises of 15% to 35% with the rest of the market essentially flat or slightly off. While there is abundant capacity in the market it was applied with good discipline. The most competitive area was on regional catastrophe business.

And looking at our January 1st, Flagstone was not a significant portion of our U.S. portfolio as they only had $41 million in renewing premiums in the U.S. at January 1st. As is typical, we did significant reshaping of our catastrophe book as we continually seek to optimize return relative to volatility.

Overall, our U.S. property book was flat at January 1st, but we like the shape of the portfolio. As our observation, I would caution that year-on-year PML comparisons aren’t meaningful as Flagstone is in this year’s numbers but was not in last year’s.

We had very strong growth in our specialty segment at January 1st, primarily driven by crop -- by growth in crop insurance. Crop fits as a part of our portfolio and we see this is an attractive time to expand in light of last year’s loss activity.

We grew our crop book by $55 million at January 1st. This is the class that we see is having good long-term global growth potential and we’ve been patience in waiting for the right opportunity. We think the combination of market improvements and the addition of Longhorn provides a great foundation for this class.

As for the rest of the world, the international property market was somewhat uneven at January 1st, particularly in Europe. We saw large buyers consolidating their programs, capacity was abundant and market wide pricing was down by 5% to 7.5%.

However, the largest placement held up better and this is an area where we have a particularly strong position and where we sought to and more broadly successful in keeping Flagstone shares. Our international managed premium was up by 17.5% at January 1st.

From a competitive standpoint, we saw the local market in Zurich as being very aggressive, particularly for the smaller regional European clients which are not our target market.

Direct to session market was also very competitive and this is the area that we see many collateralized and IOS type investors playing in. Surprisingly, only one year after the losses across Asia, we saw the worldwide retro market reducing rates and broadening coverage, in some cases rather aggressively.

AlphaCat continues to enjoy excellent success. We are able to attract capital wherever we see opportunity to generate acceptable returns for investors. Our new Sidecar AlphaCat 2013 had a very good January 1 and deployed the vast majority of its capital.

The value being closely aligned with Validus Re in the market continues to allow AlphaCat to acces more and different pools of business and to structure programs as part of a comprehensive solution to clients. At January 1, AlphaCat’s managed premiums grew 18% over the same period last year.

Let me spend a few minutes talking about Hurricane Sandy. As Jeff mentioned, our estimate is unchanged and we see very little movement from our seeding companies with none having reported deterioration.

Personnel and small commercial claims are settling quickly with little of any debate over wind versus flood. We do expect the Manhattan commercial claims to take the longest to settle due to their complexity.

More broadly I’ll offer few observations about the storm and model performance. First, despite nomenclature and governmental proclamations, Southern New Jersey was in fact subject to hurricane force winds before the storm weakened ahead of landfall. Policy deductible worrying has been shown to have some limitations that the market is beginning to address.

When RMS announced their last model update, on one of our call we spoke about our disagreement with the flood model they use. Consequently, in our own modeling, we use the FEMA-based slosh model. Sandy was an excellent test for this.

While the commercial models had a miss factor of around 20% for storm surge, our models forecast to surge with strong precision being essentially spot on for surge at New Haven, Battery Park in New York and Atlantic City.

In general, our models performed very well particularly for the property catastrophe portfolio. The one area that continues to require further development however is modeling of cargo exposure of major ports, specifically the tracking of values and shipment. The industry continues to wrestle with this problem and while there has been some meaningful progress its nowhere near the standards that we seek.

The other area I would highlight on Sandy is to return period. When large infrequent event occur there is a tendency to see them as part of some new trend or causative agency, and Sandy has certainly received this reaction.

The alarm over the occurrence of Irene in 2011 followed by Sandy in 2012 misses the fact that since 1900, there have been four different occurrences of this type of two-year activity with storms making landfall at Virginia or north.

In thinking about Sandy, I think it’s helpful to separate the probability of financial loss of the size from the meteorology attributes of the event. A landfalling storm of this size in New Jersey is about a 1 in 28 year event. However, the storm surge associated with high tide and the full moon occurring simultaneously with a landfalling storm is a much, much more remote event.

In short, events like Sandy are not terribly unique, other than the coincidence of timing associated with the storm surge. Ours and broadly the industry exposure on pricing models fully contemplate individual storms of this nature as well as multi-year period such as 2011 and ‘12.

Finally, this is the last call that Jeff Consolino is participating as part of Validus’ management. In addition to being one of our founders, Jeff has been the driving force in the direction and success of Validus.

Jeff has also strived to make Validus as transparent and open as possible, and has never wavered in his commitment to create the greatest value for our shareholders. Personally, Jeff has been an extraordinary part of it in the last seven years and I’m grateful for his friendship and for his work in creating extremely strong team behind him to carry on.

So with that, we will be happy to take any questions you might have.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Mike Zaremski with Credit Suisse. Please proceed.

Mike Zaremski - Credit Suisse

Hi. Thank you. First, I’m hoping we can touch on the managed premiums segments. I know there is a number of initiatives there. Couple things that stood out were the low other income levels this quarter. I believe there could be incorrect management fees flow through to that line, and I was also hoping to get your thoughts on the recently launched ILS fund.

Jeff Sangster

Sure. Thanks, Mike. This is Jeff Sangster. The other income really, what’s driving that is with losses in the quarter developing from Sandy. The profit commission, I think you would normally see through that flowing through that line didn’t show up this quarter with the loss, so that’s the primary driver of the difference there on the managed. Your second point was development in the funds under management at AlphaCat, is that correct?

Mike Zaremski - Credit Suisse

Correct.

Jeff Sangster

Yeah. So as we announced earlier in January, we had new capital flow into the AlphaCat structures of $404 million and that was split between AcRe 2013 of $185 million and the ILS funds of $219 million.

Mike Zaremski - Credit Suisse

So the -- I think the ILS fund structure is different from the other fund. It’s one kind of a sidecar and one charges. So it might charge a management fee and a profit commission. One of them just charges a management fee and doesn’t have any of your own capital net. I guess we can kind of talk through the structures.

Jeff Sangster

Sure. So the Sidecar AlphaCatRe 2013 is a very similar structure to the previous sidecars where Validus is in the side of third party investors. And so our share rate in those, it’s not exactly the same in each of those three restructures. But roughly low 20% is what our share is there and beyond those, we get a management fee and a profit commission on the ratings there.

The ILS funds are something that we funded internally from Validus exclusively since their inception several years ago. And so this infusion of capital from third parties represents the first third-party money that we’ve taken into those funds at year-end, that’s the $219 million into the ILS funds. And so, as those have developed and developed a strong track record with our internal funding, we have attracted third-party capital into those. And you are correct. They do just achieve a management fee.

Mike Zaremski - Credit Suisse

Okay. And then lastly in regards to prepared remarks about the specialty good due to crop insurance. So, I’m curious on details of that. Is that all U.S. crop insurance and if so, is it excess of loss, quota share and if you could comment on why crop was attractive, was pricing up?

Jeff Sangster

So the crop market, the business we got was one-one. We had a mix of XOL and pro rata. The growth was largely as a result of a single pro rata contract and that contract is also linked to our acquisition of Longhorn Re. The crop insurance line is attractive for a few reasons. First, it obviously has little or no correlation with our other big risk classes, things like hurricanes, marine, terrorism.

And so from a diversification standpoint, it’s a short tail of class that fits our model and doesn’t correlate with other risk we take on. The dynamics of the crop insurance market are such that there aren’t -- it is not easy to disrupt established relationships and getting into the crop insurance -- reinsurance business. We’ve been pretty patient. There is a number of different portfolios out there. There was one that we know well and like and that’s the one that we wrote at January 1st.

We see the crop business a good long-term fit. From a capital standpoint, it requires relatively little capital and the return profile actually is very attractive no matter the capital requires. It’s going to be a growth area globally for the foreseeable future. And so the U.S. is the world’s biggest crop market and a good foundational play, as we to add to our crop team and look to grow the business both in the U.S. and internationally.

Mike Zaremski - Credit Suisse

I think that’s mostly U.S. crop business.

Jeff Sangster

That is U.S. crop business. Okay. Thank you very much.

Jeff Sangster

Okay.

Operator

Your next question comes from the line of Amit Kumar with Macquarie Capital. Please proceed.

Amit Kumar - Macquarie Capital

Thanks and good morning. Just, I guess two or three quick questions. The first question relates to your opening remarks regarding capital. I’m curious, as you look at 2013 directionally, should the capital return exceed the earnings for 2013?

Jeff Sangster

Yeah. Amit it’s Jeff Sangster, again. I think that’s a fair assumption with the excess capital that we had in place at year end. If you look at 2012, we were essentially blacked out second half of the year between Flagstone and Sandy. The loss from being in the market is actively as we would like to be.

So we carried that $122.3 million over the year and so in addition to that if you look at full-year earnings and then excess capital that resulted from the Flagstone transaction, it’s probably a fair comment that we would anticipate managing capital in excess of our earnings for 2013.

Amit Kumar - Macquarie Capital

That makes sense and you mentioned the Board Meeting and in terms of mechanics of capital management, is everything on the table in terms of a special dividend and accelerated share repurchase and in debt option, or how should we think about that?

Jeff Sangster

I think you are fair to assume that all options are on the table. We will be discussing all of those options over the course of the next week, and we will be looking to make final decisions on it by the end of next week as to how we move forward.

Obviously as I mentioned in my remarks with our share price trading stronger in terms of valuation than the recent past, it does cause us to rethink our approach there. It’s not a simple as just automatically reverting to share repurchase, which are -- the obvious answer when we are trading below books. So we are having those discussions actively with everything on the table.

Amit Kumar - Macquarie Capital

Got it. And I guess that means a special dividend is more likely. The second question relates to the Flagstone book. You mentioned $41 million was in Q1. $290 million is the total, trailing 12 month base. Does all of that -- do you expect to keep all of that going forward based on the market conditions from what you see today and how should we think about that number?

Ed Noonan

Amit, this is Ed. Good morning.

Amit Kumar - Macquarie Capital

Hey.

Ed Noonan

$290 million was the U.S. component of the Flagstone portfolio available for renewal at January 1st. And we renewed a subset of that business. I don’t think that we’ve given guidance at this point on how much of Flagstone portfolio we expect to keep. As we go into January renewal season, we certainly kept a significant amount of the international Flagstone business, really everything we sought to.

Our expectations from here are pretty clear account-by-account and we’ve talked to most of the brokers and customers involved in. So, I think we feel pretty comfortable with it. But until we see what market conditions we encounter in places like Florida and the rest of the renewals through July 1st, I’m not comfortable suggesting a guidance number on how much of the remaining portfolio we’ll keep.

Amit Kumar - Macquarie Capital

Okay. That’s fair. And then final question. In terms of the combined retrocessional cover, you have a proportion of retro cover. Flagstone has some left over covers, beyond Montana and some other bonds, how do you think about that for 2013?

Jeff Sangster

Quickly, I’ll let, Ed comment on the strategy. Quickly, in terms of Flagstone, most of their third-party cover expired at 12/31, actually all their third-party expired at 12/31 and so all that remains running into to 2013 is the Montana recap on and that’s three of the five layers there. They cover both -- occurrence covers for both U.S. hurricane and quake and then more of the worldwide back cover, so that’s what builds forward in 2013 from their book.

Amit Kumar - Macquarie Capital

Okay.

Ed Noonan

Regarding the overall approach to it, the Montana recap, don’t necessarily fit the shape of our portfolio particularly well. They provide benefit certainly, but if we are starting cleaning today we certainly wouldn’t be cleaning those bonds out into the market.

But having said that, the balance of our portfolio, we have been hedging and we will continue to hedge at those points in the curve where we think purchasing retrocession enhances the overall returns of our portfolio relative to volatility. And that will vary between U.S. and worldwide certainly.

So we have kind of the broad plan of what we know we’ll put in place and then we are very much active in the spot market everyday in putting hedges in place wherever we see attractive pricing relative to our portfolio.

Amit Kumar - Macquarie Capital

Okay. I will stop here and requeue. Thanks for all the answers and thanks, Jeff.

Operator

Your next question comes from the line of Sarah DeWitt with Barclays. Please proceed.

Sarah DeWitt - Barclays

Hi. Good morning. On the January 1st, reinsurance renewal premium data that you gave, I estimate organic premium growth excluding the Flagstone acquisition was about 6%. And despite with that higher given your commentary on pricing, so can you just help us understand how much of this was priced versus how much was more, less business renewed and how you see those factors playing out going forward?

Ed Noonan

Sarah, I think I will probably leave you a bit unfulfilled in it. We don’t necessarily track everything in the way that makes it easy to answer your question. First, in combining the two portfolios where Validus may have had $50 million on a program and Flagstone $10 million, we didn’t necessarily seek to simply keep $60 million. In some cases, we wrote more. In some cases, we wrote less.

In those cases, it’s hard to say if we reduced the Flagstone participation, the ILS participation or both. And so measuring organic growth at this point in time is really a bit arbitrary in that regard. And particularly in line of Flagstone, that significantly skews the discussion around that.

I think what you saw in North America was the portfolio essentially flat with premium standpoint with significant rate increase saw loss affected accounts. And so I think inherently, getting more premium for pound of exposure for one month and having slightly less exposure in the book.

Although again, I would just caution that using PML comparison aren’t particularly useful at this point because right now we’ve got the Flagstone PMLs in and last year we didn’t. But we look at the U.S. book and say we are getting a bit more price per exposure and taking on a little bit less risk in the aggregate.

Internationally, a different picture. In fact, we did expand the international portfolio largely on very biggest accounts in Europe and to some extent Asia and there we did very actively seek to keep a lot of the Flagstone participations. A lot of it at the request of the ceding company themselves and so most of the organic you see there is, I would attribute to Flagstone. But again you have that situation where it’s impossible to say with certainty and was that Flagstone growth or Validus growth if the numbers don’t match up perfectly.

But I think the international is where you see the biggest pickup from Flagstone, I think domestically moving hard to track and a very small renewal point for Flagstone, so difficult to measure.

Sarah DeWitt - Barclays

Okay. Thanks. And then just on the acquisition pipeline, what are you seeing in terms of opportunities for future deals and what’s your appetite to do another deal? Would you take a breather after Flagstone or are you seeing a lot of opportunities?

Ed Noonan

Sure, Sarah. Thank you. This is the point where I get to say. We really don’t think of ourselves as an acquisition company despite our behavior I guess. We look at growing the business organically and we see reasonably good opportunities to do that. As far as acquisitions, there is the two components. There is the strategic acquisitions, which are hard to come by, difficult and right now we look at it and say, anything that we might do, the strategic seems to be pretty well valued already.

So we are not spending a whole lot of time focused on that, but if the right circumstance arises, certainly we will look at it. And then beyond there is the opportunistic point. And we’ve had a couple of those where there is a good fit for our business and we could acquire a company at a very reasonable price, we are more than happy to look at it.

I think I certainly would expect that we will be spending the next five or six months completing all the internal integration around Flagstone. And so, I wouldn’t think that we would be active in any type of engagements.

Longhorn Re is an exception. As I say, it’s really the acquisition of our company that brought a single reinsurance contracts. So really it doesn’t look like a real acquisition in terms of all the complexities usually associated with it. Although it does add significant benefit to us and certainly brings events and lay them on board deep into our crop insurance team significantly, so.

But I think the broad answer to your question is we are probably quite for a little while and we continue to -- not to think of ourselves as an acquisition company and I leave open the possibility that we may stand correct.

Sarah DeWitt - Barclays

Great. Thanks for the answers.

Ed Noonan

You’re welcome.

Operator

Your next question comes from the line of Ryan Byrnes with Langen McAlenney. Please proceed.

Ryan Byrnes - Langen McAlenney

Hey. Good morning everybody. Ed, you gave some nice details about the primary marine market up 30%, but you also had said that that the reinsurance market was maybe squeezed at one-one. I know that’s a big renewal time for marine business. Just want to see if you can give little more details there on and what really went on?

Ed Noonan

Actually, Ryan, if I communicated that I misspoke. It’s exactly the opposite. The marine reinsurance market was the hardest that we’ve seen since we’ve started the company, certainly significantly more difficult than the 2006 markets. So, marine reinsurance was outstanding at January 1st and that’s where we saw rate increases north of 30%, and significant changes in terms and conditions to our benefit.

It’s the primary reinsurance of marine classes that where rates are moving and we are seeing double-digit rate increases among them, which is the primary direct marine market. But we are not seeing anywhere near the change in rate at the primary level that matches up with reinsurance. But we are not seeing companies react to their change in terms and conditions.

Typically what happens is, if you think of Lloyds’ for example, a syndicate will put their reinsurance program in place as of January 1st, at which point it becomes evident to the underwriter what the embedded cost of reinsurance is and it’s effect on the book and may either end up subsidizing the reinsurance out of their pocket or they start charging more money for the risk. But our expectation is that that squeeze is taking place today and they will be charging more money for the risk, probably at an increasing rate over the course of the year.

So as I say, for the whole line, we’re already seeing double digit rate increases, that’s good but it’s not enough for primary underwriters to keep up with the increasing reinsurance cost. So that squeeze is taking place, I think as we speak in London and my expectation is that underwriters will begin adjusting their pricing in recognition of the increased reinsurance cost.

Ryan Byrnes - Langen McAlenney

Okay. Great. And then quickly just on crop, can you guys maybe just mention what kind of diversification credits you guys get for that business and what kind of premium to surplus you think you can write at?

Ed Noonan

I think, I would say that the capital diversification because the line is relatively small to us. The capital diversification per se isn’t much of a driver. Conversely, the amount of capital you actually have to allocate to support the risk is relatively low in relation to almost everything else we do.

And so therefore the returns are attractive growth into the capital we have to employ but as far as diversification, it’s on a crop book of our current size, it’s fairly trivial.

Ryan Byrnes - Langen McAlenney

Okay. Great. Thanks for the answer guys.

Ed Noonan

Welcome.

Operator

Your next question comes from the line of Michael Nannizzi with Goldman Sachs. Please proceed.

Michael Nannizzi - Goldman Sachs

Thanks. Just one quick question and then just one follow-up, can you breakdown the Sandy loss marine versus property, Talbot versus Validus Re. And maybe Jon, you could clarify or -- Ed, the impact of the unusually the loss ratio impact in Talbot just to think about, kind of, what the underlying really kind of look like?

Jeff Sangster

Sure, Mike. It’s Jeff Sangster. The Sandy breakdown, property, marine and specialty is, property $252.0 million, marine $71.7 million and specialty $9.4 million. And so in terms of percentage, that’s 75.7%, 21.5% and 2.8% respectively. And so if you take the marine and specialty together, it’s 24.3% so materially about a quarter of a loss.

Michael Nannizzi - Goldman Sachs

Got it. And then in terms of Validus versus Talbot?

Jeff Sangster

So that’s unchanged from our pre-announced which was about 248 at Validus Re.

Michael Nannizzi - Goldman Sachs

Okay.

Jeff Sangster

76 at Talbot on a net basis. And then there was $8.4 million, kind of the, our earnings -- our equity and earnings of the AlphaCat fund.

Michael Nannizzi - Goldman Sachs

Got it. Thank you. And then it seemed like Talbot saw some pretty favorable condition but premium growth was slow. Was there -- can you connect those two points as far as, one maybe there was more growth on that platform?

Ed Noonan

Sure. First, your question regarding the attritional loss ratio of Talbot, which was excellent this quarter. The attritional component of the loss ratio is where you have the most predictable frequency claim. For Talbot, they don’t write frequency lines. They don’t write auto. They don’t write personal lines. They don’t write things that have great frequency and predictability.

And so when you write a book of business, it’s comprised of things like offshore energy and terrorism and war risk and marine. Even your attritional loss ratio is going to have more volatility around it than someone who is writing a much more predictable portfolio. So as we look at Talbot over the last eight quarters, we’ve had quarters where the attritional loss ratio ticked up into the low 60s and quarter like this where it’s come down into the low 40s.

We expect to see volatility around that. We’re very careful in terms of thinking about it and recognizing it. But the absence of losses is, I think, just part and parcel of type of business they write. And so that really is Talbot in the quarter, nothing -- it’s not a trend. We don’t now think that the underlying loss ratio, Talbot is at some new level. It’s going to bounce around more than your typical frequency of attritional loss ratio.

As far as the growth in Talbot, I think Talbot posted 6% growth last year which is pretty good. In a short tail book, the market place, Lloyd’s is competitive but disciplined in most classes and consequently, we’re in a kind of a plus or minus market on most classes, other than those where they have been big claims.

And so I think Talbot grew at a reasonable rate last year to grow faster than that, either we would be expanding our portfolio into new classes or territories or we’re competing pretty hard for the business. And so market has plenty of capacity and people are being disciplined about it. But I think if I had reported Talbot had come in with 12% or 15% growth, I’d be pretty cynical about the underlying pricing involvement.

Michael Nannizzi - Goldman Sachs

Great. As Ed mentioned, need a bigger picture question if could sneak one, last one. Ed, what do you think the next stage of your evolution, Validus’ evolution looks like. I mean, if you were to look back few years from now. I mean, is it going to be a more significant build-out on the managed cat side.

Is it kind of foundation environment remaining on the property cat side. Is it going to be kind of picking up areas opportunistically like crop or you see opportunities like -- how should we think about where do you take the platform given your size and capital base now. Where do you go from here?

Ed Noonan

So that’s a great question. And I guess, on one level, there are some things that I know we’ll be doing and then I’m quite certain if there is things that we’ll be doing that I won’t blow today because the opportunity we said hasn’t arisen. If you think of our business, our two core franchises, Validus Re and Talbot will continue to be more franchises. They will continue to be leaders in what they do.

Talbot is about the 11th largest syndicate at Lloyd’s but when you compare them just in the classes they write, they’re actually kind of top five syndicate and one of the clear market leaders. They’ll continue to be that. It’s an excellent business.

Validus Re has built a real leadership position and through its analytics and responsiveness, it’s built a genuine franchise. And so we’ll continue to be a leader in that business. And as I had said in the past, I think, fast reinsurance size matters. And so we’ll continue to be one of the largest in the world as well.

The managed premiums that we write and the AlphaCat business in general, we think that will continue to grow but we’re also mindful of the fact that’s a bit of a spread business. And right now, there is a cost of capital advantage that institutional investors have. They will intercept lower returns for high layer of risk than traditional reinsurers are.

So we know as interest rates rise, our other asset classes become more attractive. That spread will narrow and perhaps even disappear at times. So I think the long-term trend is going to be good growth in AlphaCat but I don’t think it’s a straight line. And I think we may hit lot of toes. One of the largest fund managers recently announced that they have closed to their fund to new money.

But I think that’s indicative of in some areas reaching a bit of a saturation point where you can’t actually say to the investors if you give us a $1 billion, we could put it to work and get you a 7% or 8% return.

And so it may well be that part of the marketplace at least momentarily slowing its growth or reaching a bit of a plateau for the time being. But that will be a core part of our activities. There are still opportunities out there for us. We haven’t had little bit of -- virtually no presence in the U.S. which is still the world’s biggest market and it’s the world’s biggest market for sure for short-tail risk.

We’re pretty patient about that. Someday the opportunity will present itself and we’ll jump. But we’re quite happy for the time being to wait. So if I think at three or five years, that opportunity might arise or may not. I suspect that as things like the ILS sector play a bigger role in the industry, some of the smaller companies will find it tougher to sustain themselves in the business. And we’re always happy to assist in that process. That wouldn’t surprise me if that were to recur. It wouldn’t surprise me if it didn’t occur either though to be honest with you.

But I think those are kind of a broad strokes of what I would imagine the company will look like if I think at three or four years.

Michael Nannizzi - Goldman Sachs

Great. Thank you. Sorry, I have taken so much time. Thank you very much.

Operator

Your next question comes from the line of Matthew Heimermann with JPMorgan. Please proceed.

Matthew Heimermann - JPMorgan

Hi. Good morning, everybody. Am I on?

Jeff Sangster

Hey Matt. How are you?

Ed Noonan

Good morning.

Matthew Heimermann - JPMorgan

Okay. Good. Sorry. Usually, at least one person right away, best wishes Jeff. I know, you’re in the background there somewhere. I guess, my questions are this and it’s -- there or so of them but bunch of them are pretty quick. So one was just Longhorn, can you at least give us a sense of -- you said it was one contract but give us a sense of other -- what the underlying crop exposure looks like or potentially kind of the size of that in the context of your existing crop portfolio?

Ed Noonan

In the near-term, Matt, the growth that you saw one-one was essentially related to the Longhorn transaction.

Matthew Heimermann - JPMorgan

Okay. And in terms of underlying crops states?

Ed Noonan

Probably, we won’t talk about that until after we complete the acquisition.

Matthew Heimermann - JPMorgan

Okay. Should I read anything into the name?

Ed Noonan

One point. I don’t know.

Matthew Heimermann - JPMorgan

All right.

Ed Noonan

Interesting.

Matthew Heimermann - JPMorgan

I guess, I’d be curious just when we’re thinking about AlphaCat this year whether or not the composition of the risk that or business you write in those facilities is like a bit of change relative to a year ago, given your comments on pricing broadly?

Ed Noonan

Yeah. I think they will. Certainly, the AlphaCat sidecar, the 2013 sidecar will generically look a lot like 2012 and 2011 sidecars. I think on the balance of the new money that we’ve raised will probably not look like that. We’ll go into different AlphaCat funds, the diversified funds, kind of, high-yield advantage type fund.

A lot of the growth you saw in our portfolio out of Europe in managed premiums reflects that. A lot of that business is actually worldwide but it emanates out of Europe and so we -- book-to-premium is part of our European account. A lot has been worldwide in nature and fairly high layer attachment point goes into the new ILS fund components of AlphaCat.

In AlphaCat, I should note that we don’t just -- even in those funds, we don’t just do AlphaCat, we don’t just do ILS transaction. We will do reinsurance transactions in conjunction with Validus really so.

I would expect to see more in the high-layer-type business into the new funds and the sidecar look generically liked they’ve looked in the past few years.

Matthew Heimermann - JPMorgan

Okay. And then just with respect to your own portfolio, as we go through the year, I mean, any changes in terms of -- even on this, supposed to get more regional exposure relative to nationwide aggregate in general. So I’m assuming that trend is still holding but any other new launch around kind of how we might think about the renewals as we go forward in terms of more focus on small regional versus large regional transactions or just composition change. And I guess, they need to some extent on the back of Sandy, any tweaks there?

Ed Noonan

Another good and interesting question. I think you’re right. In the general trend on our portfolio will be more towards regional but any moment in time, it’s all predicated on where the market is in pricing. So our underwriters are charged with, continually trying to move the portfolio towards the efficient frontier.

Within that in the model portfolio, we build, we built in a strong regional component and an increasing regional component. But at any moment in time, the world may not corporate with our desires either. And so that’s -- like all endeavors to get to the efficient frontier, that’s a forever process.

But the general trend should be more towards regional. I can’t really tell you until we get into live action in places like Florida and for that matter, Japan and the July 1 renewals, how the portfolio will ultimately look. I think we’re pretty comfortable with how Japan will look.

Florida is an island unto itself. And there is enough moving parts there. I don’t feel confident in projecting how Florida will turn out yet. So we’ll have to wait and see.

Matthew Heimermann - JPMorgan

Okay. And then just on, last one was on the buybacks, I just don’t really understand your commentary around the attractiveness of share repurchase out of premium to book especially something that’s basically 5% premium to book because I would, my maths and maybe its flawed but over the long term.

I would say that’s actually a more than reasonable payback period even if the stock was higher and it was a 10% premium, you’d still be looking at I think, it being accretive over the long term on a per share basis. So I guess, I get the short-term impact to book value but I guess, I just -- I’m a little surprised in the context of kind of thinking about things with a little bit longer view?

Ed Noonan

I don’t think you said anything that we would disagree with but I think point that Jeff was making earlier, it’s just that we have all the different tools available to us. And the relative attractiveness in any moment in time, when the stock was trading at 90% of book value that’s a slam dunk as it trades at different valuation, I think it caused you at least to do further analysis and be more thoughtful. But nothing you just said is in consistent with how we tend to think about things and how we’ll carry the discussion with our board next week.

Matthew Heimermann - JPMorgan

No. That’s fair. I guess, I just -- I keep thinking and hoping that the environment we’ve looked in the last five years where that had become the norm is in fact more of an aberration and therefore kind of I get it’s a slam dunk below. But it’s just kind of feels like when you talk about it and this is a perception. But at least I’m glad to hear your comments but it just feels like it’s a little bit more anchored to that than I would like that’s one percent for you.

Ed Noonan

Because we’ve been spoiled that.

Matthew Heimermann - JPMorgan

Fair enough. All right. Appreciate it. Thanks. Have a great day.

Ed Noonan

Okay.

Operator

Your next question comes from the line of Brian Meredith with UBS. Please proceed.

Brian Meredith - UBS

Hey, good morning. Couple of questions for you, first, Ed, I may have missed it but given your commentary on the pricing in the marine reinsurance market. Why did you see renewals down?

Ed Noonan

The big change there, Brian, is that we had a significant pro-rata components of Marine book up until January 1st and we reduced that dramatically. In a point in time where the market for reinsurance is harder than the primary market, inevitably excessive loss reinsurance is more attractive than pro-rata on a primary business.

So until primary rates start to catch up to where the reinsurance pricing is leading, pro rata is going to be less attractive than excessive loss. And yeah, honestly, we’re really able to charge very, very fully for excessive loss reinsurance and structuring and limit terms and conditions very assertively.

Brian Meredith - UBS

Just to say -- say that you’re from an exposure perspective not necessarily down.

Ed Noonan

It’s relatively neutral.

Brian Meredith - UBS

Okay. And then the second question, I’m just curious, with the potential for some demand increase done in Florida, given some of the deep thought that’s going on there. Curious as your comments, do you think it will create additional demand in this so, from Validus Re’s perspective. Are you more likely to put that kind of net on your own books, use your capital or do you think it’s more likely head to one of your sidecars?

Ed Noonan

I’m tempted to say yeah. As I said Florida, there are so many moving pieces every year. You can kind of get the general trend right but when you get into live action, it gets very difficult to have forecast it well ahead of time. What we expect to see -- I had some general observation is that the other priority will be demand because of deep thought activity.

Obviously, there will also be some material capacity taking out of the market. This is an area where we expect the ILS market to continue to deploy and perhaps grow the amount of capital they deploy. That will have a material impact on the dynamics in Florida. It certainly did last year.

If you think back the last year, there were some of kind of last minute surprises from the ILS community putting up very, very big capacities in places that we wouldn’t normally have expected them to play. That’s something incredible, just an observation so. It makes Florida more difficult to predict from that standpoint.

As far as our portfolio, we like the book of business we have on Florida. We don’t deal with a lot of Florida domestic companies. We’ve got very stringent credit quality and claims and underwriting quality criteria. So I wouldn’t expect to see a significantly expand the customer account.

If we added one or two that would be firmly a lot and by that I mean, significant participations of one or two. But until we get into live actions, see where the pricing is can’t tell you what part we will look at and say perfect for the Validus Re balance sheet and what part we would say this is really great for sidecar or the other parts that we look at and say yeah, this fits better in a PaCRe or in some of the other ILS funds that we manage, just as I say Florida is unpredictable until you really get deep into it.

Brian Meredith - UBS

Great. Thank you.

Operator

Your next question comes from the line of Josh Shanker with Deutsche Bank. Please proceed.

Josh Shanker - Deutsche Bank

Yeah. Thank you. Can you talk a little bit about capital or performance as the reinsurance book of all a little bit. How much more capacity do you have in adding this specialty business towards some of that increased amount of risk were sensed, could you have written more? Is there a way of framing it?

Ed Noonan

Sure. Actual, we have ample capacity for adding more specialty business. Our capital based is largely driven by our catastrophe-exposure. That tend us to be the most determinative factor in our required capital, both from our own internal capital models with some two standpoints and for ready industry standpoint.

So, virtually every other risk class would have implicitly lower cost of capital than catastrophe does. Just another way of saying that there is diversification benefit from taking on now correlating risk.

So we have lots and lots of room in the specialty business. We have lots and lots of room in many of Talbot classes. And in doing so we would have a lower cost of capital in growing those areas for the most part.

Josh Shanker - Deutsche Bank

So we would the return of capital for this business is definitely higher since your deploying capital already has, basically been fully deployed for cat or is there a way of thinking about how that transits to your ROE or about how you think about it?

Ed Noonan

I think your point is correct. I think it would be hard for me outside to see that. We actually broke out capital allocation by class of risk and you could compare the returns to it. You wouldn’t easily get that and that’s the level of disclosure, I think anybody puts out or we’d be comfortable putting out at this point. So I don’t know that it’s something that you easily would be able to get to.

Josh Shanker - Deutsche Bank

Okay. Maybe I’ll follow up a little later and just you may have mentioned this. I might have been distracted. Was any of the reserve releases from RDE this quarter?

Jeff Sangster

Yeah. There -- there was $9.1 million of developments on Christchurch and Griffin Alpha that was allocated to RDE. But no RDE was released into it.

Josh Shanker - Deutsche Bank

So there was only RDE that was reallocated towards case but no RDE that was given back to earning?

Jeff Sangster

That’s right. So we started the quarter were $51 million of RDE. We allocated nine to those two events and we end the quarter with $42 million that’s all on 2011. There is no remaining RDE on 2010. That’s been fully allocated and we’ve established RDE for 2012 at all.

Josh Shanker - Deutsche Bank

Make sense. Okay. Thank you very much.

Ed Noonan

Just observation, we’ve got a few questions left in queue and I’m getting the sign from Jon Levenson that we are running overtime. I don’t want to be rude and cut anybody off but maybe if we could -- I’ll try and be brief. Even Jeff will be brief and if we can keep to essential, that will be great. Operator.

Operator

Your next question comes from the line of Mike Zaremski with Credit Suisse. Please proceed.

Mike Zaremski - Credit Suisse

Yeah. I can take it offline or just kind of a follow-up to my earlier question about the other income levels being low and you guys said that was due to Sandy but if I look at the AlphaCat segment there were no losses. So I was trying to reconcile the [ex top] the other income came from AlphaCat segment. Thanks?

Ed Noonan

Thanks Mike. Maybe we could take that offline if you wouldn’t mind.

Mike Zaremski - Credit Suisse

Great. Operator.

Operator

Your next question comes from the line of Amit Kumar with Macquarie Capital. Please proceed.

Amit Kumar - Macquarie Capital

Very quickly, any exposure to the satellite loss today, there were some news report coming out that is $400 million loss maybe just how that?

Ed Noonan

Yeah. We have exposure to the sea launch failure this morning. I probably shouldn’t go into what our exact exposure is, don’t know…

Amit Kumar - Macquarie Capital

Okay.

Ed Noonan

… they would clear the level of an event to us based on our exposure, we’ll know but it’s certainly nothing out size to us.

Amit Kumar - Macquarie Capital

Yeah. Got it. Okay. That’s all I had. Thank so much

Ed Noonan

Thank you.

Operator

Your next question comes from the line of Ian Gutterman with Adage Capital. Please proceed.

Ian Gutterman - Adage Capital

Hi, guys. I’ll be quick, but all drop my joke about Longhorn. We’ll do that later. First, Jeff, the $696 million of net assets acquired for Flagstone, I assume that’s after the balance sheet adjustments, was there still $135 million a balance sheet adjustments or was that different from initial?

Jeff Sangster

Yeah. That adjusted slightly, the reserve adjustment was down less than $4 million, so materially flat. However, some of the fixed assets with the benefit of more insight and time to spend with them, we were proven to be somewhat conservative in our original adjustments and so there was a reduction in the adjustment for the fixed assets of about $30 million.

Ian Gutterman - Adage Capital

Got it. Great. And to see, and one month renewals international you talked about being disappointing on pricing you should a lot of growth there? Can you just talk about where the growth was from? And I guess, I’m specifically interested in AlphaCat, just in general what kind of international top events have a high enough freedom line to be in sidecar?

Ed Noonan

Yeah. Great. First, international was competitive but in my comments, I think, I said, where prices held up reasonably well were on the biggest programs…

Ian Gutterman - Adage Capital

Right.

Ed Noonan

… 10 in Europe and 10 in global, that’s where we tend to play out of Europe in particular and that’s where we’re showing the growth both from the Flagstone portfolio and from some AlphaCat involvement.

I would say that what you’re not seeing very much AlphaCat sidecar involvement in Europe, what you’re seeing is some of the high layer AlphaCat funds participating in European risk of one month, you’re right to think that there is whole lot of sidecar profile business there. But there is business that fits into more of the top layerish type facilities that we put in place and that’s where the growth from AlphaCat is coming from.

Ian Gutterman - Adage Capital

Got it. And was there any Flagstone renewals that you choose not to renew on Validus paper end up either in AlphaCat or the ILS fund?

Ed Noonan

Hard to say it’s a tricky situation where, if we had $50 million on Validus Re and $20 million on Flagstone it maybe $10 million on one of our top layer facilities or something like that and we ended up with $100 million in total, did some of that move from Validus to AlphaCat or did it move from Flagstone to AlphaCat. It really impossible to say, I -- what I would say is that, there probably was a little bit of that but I wouldn’t think it was a big driver.

Ian Gutterman - Adage Capital

Okay. And then last one, I’ll take the rest offline is, given the growth you had in 13% at January 1? Is that something -- it seems there would have been growth you could handled on your own balance sheet even fit it into Flagstone? Is that kind of right way to think of it is, is all this growth could have been accomplish on the pre-Flagstone balance sheet and therefore you didn’t use Flagstone at all from a capital perspective of one month?

Ed Noonan

Interesting observation, probably, directionally accurate and good topic for you and Jeff Sangster spend some time on I would imagine. But, yeah, I think that’s an interesting observation and directionally, I think, you’re on the right path.

Ian Gutterman - Adage Capital

Got it. Okay. I’ll take rest offline. Thanks guys.

Ed Noonan

Okay.

Operator

We have no further audio questions at this time. I will now turn the call back over to management for any closing remark.

Ed Noonan

Well, thank you all very much. I appreciate your participation. I apologies for running it bit long and we’ll look forward to talking you next quarter.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. Everyone may now disconnect and have a great day.

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