Endurance Specialty Holdings' CEO Discusses Q4 2012 Results - Earnings Call Transcript

Feb. 8.13 | About: Endurance Specialty (ENH)

Endurance Specialty Holdings Ltd. (NYSE:ENH)

Q4 2012 Earnings Call

February 8, 2013 08:30 am ET

Executives

David Cash – President & Chief Executive Officer

Mike McGuire – Chief Financial Officer

Gregg Schroeder – Senior Vice President, Investor Relations and Corporate Development

Analysts

Matt Carletti – JMP Securities

Amit Kumar – Macquarie Capital

Meyer Shields – Stifel Nicolaus

Ian Gutterman – Adage Capital

Operator

Good morning, everyone. Welcome to the Endurance Specialty Holdings Q4 Earnings Results Conference Call. This call is being recorded. (Operator instructions.) I would now like to turn the call over to Gregg Schroeder, Senior Vice President of Investor Relations and Corporate Development. Please go ahead, sir.

Gregg Schroeder

Thank you, Mark, and welcome to our call. David Cash, Chief Executive Officer, and Mike McGuire, Chief Financial Officer, will deliver our prepared remarks.

Before turning the call over to David I would like to note that certain of the matters that will be discussed here today are forward-looking statements. These statements are based on current plans, estimates and expectations and include but are not necessarily limited to various elements of our strategy, business plans, growth prospects, market conditions, capital management initiatives; and information regarding our premiums, loss reserves, expenses and investment portfolio. Forward-looking statements are based on our current expectations and assumptions regarding our business, the markets in which we operate, the economy and other future conditions, and involve inherent risks and uncertainties.

A number of factors could cause actual results to differ materially from those contained in the forward-looking statements and we therefore caution you against relying on any of these forward-looking statements. Forward-looking statements are sensitive to many factors including those identified in Endurance’s most recent Annual Report on Form 10(k) that could cause the actual results to differ materially from those contained in forward-looking statements. The forward-looking statements speak only as of the day on which they were made and Endurance undertakes no obligation publicly to update or revise any forward-looking statement whether as a result of new information, future developments, or otherwise.

In addition, this presentation contains information regarding operating income and other measures that are non-GAAP financial measures. For a reconciliation of these items to the most directly comparable GAAP financial measures please refer to our press release which can be found on our website at www.endurance.bm. I would now like to turn the call over to David Cash.

David Cash

Thank you, Gregg. Good morning and welcome to our call. For the full year Endurance generated $129.8 million or $3.00 per share of net income to common shareholders and $54.3 million or $1.25 per share of operating income to common shareholders. Full year results were impacted by catastrophe losses mainly from Super Storm Sandy and from severe drought losses in the Midwest which were partially offset by lower expense levels and strong investment performance.

Book value per share ended the year at $52.88. Our return for 2012 as measured by growth in book value per share plus dividends paid was 7% on beginning book value. Strategically 2012 was a year of progress for Endurance as we announced several leadership appointments and added new specialty reinsurance and insurance teams, including trade credit maturity, engineering, weather, and [marine]. We expect that each of these businesses will contribute to Endurance’s growth and diversity going forward.

In Q4 we welcomed Jack Kuhn to Endurance as the new CEO of our Global Insurance segment. Jack is a proven leader in the US specialty insurance space with a track record of building high-quality, profitable specialty insurance platforms. We’re very pleased to have Jack on our team and we’re very optimistic about the future of our Global Insurance business under Jack’s leadership.

Later in the call I’ll provide some detailed commentary on the market conditions we’re seeing across our key lines of business, an update on our 1/1 renewals and some commentary on our agricultural business. First I’ll hand the call to Mike McGuire who will review our financial results in more detail.

Mike McGuire

Thanks, Dave, and good morning everyone. In Q4 Endurance generated a net loss to common shareholders of $40.8 million and $0.96 per diluted share and an operating loss of $76.4 million and $1.80 per diluted share. For the full year, net income to common shareholders was $129.8 million and $3.00 per diluted share, and operating income was $54.3 million and $1.25 per diluted share. Our diluted book value per share ended the quarter at $52.88, up 4.6% for the year and up 7.0% when adding back the $1.24 per share of dividends that we paid during 2012.

Our results this quarter were driven by the losses related to Super Storm Sandy which impacted both our reinsurance and insurance segments. Accident year margins, excluding catastrophe losses and crop insurance improved in Q4 and for the full year in both segments. Net premiums written in Q4, which is our lightest written premium quarter, were $187.9 million or flat compared to Q4 2011.

Within our Insurance Segment, Q4 net written premiums of $106.7 million increased 10.5% compared to Q4 2011. The biggest driver of this change was in our agriculture business which increased $16.3 million due principally to the shifting of certain policy inception dates to Q4 from Q3. Partially offsetting this growth was an $8.4 million decline in professional lines as one large program relationship was terminated.

For the full year insurance net written premiums of $942.4 million declined 6.3% from 2011 as agriculture insurance premiums decreased 5.6% due to a reduction in commodity prices which was partially offset by strong policy count growth. Property premiums also declined as we have actively reduced this line to reallocate capital to the higher margin catastrophe reinsurance business.

Within the Reinsurance Segment, net written premiums were $81.3 million in the quarter, down 11% from Q4 2011. Casualty premiums declined $34.3 million as we non-renewed one large contract where profitability no longer met our return targets. Growth in catastrophe premiums due to reinstatement premiums and growth in property premiums due to a large premium adjustment and new business partially offset the casualty premium decline.

For the full year, reinsurance net written premiums of $1.1 billion increased 11.6% compared to 2011. The growth was predominantly driven by our short tail lines as we expanded in catastrophe and property lines where pricing has improved and we remained fairly flat in the casualty and other specialty lines.

Our consolidated combined ratio for Q4 was 119.2%, an increase of 6.7 points from Q4 2011. Our current quarter combined ratio was impacted by 30.1 percentage points of losses related to Super Storm Sandy compared to 22.0 percentage points of catastrophe losses recognized in Q4 2011. Partially offsetting the impact of higher catastrophe losses were lower acquisition and general and administrative expenses compared to a year ago. For the full year 2012, the improved combined ratio was driven by lower levels of catastrophe losses in 2012 that was partially offset by higher losses in the agriculture insurance line related to the Midwest drought.

When evaluating our full-year general and administrative expense ratios in both our segments, there are a few items worth highlighting. First, personnel costs were lower in both 2011 and 2012 as incentive compensation expenses were lower. In addition, given the high levels of losses experienced in our agriculture insurance business in 2011 and 2012 we received supplemental expense reimbursements under the federal crop insurance program which offset some of our operating costs.

Turning to segment results, in our reinsurance segment lower levels of favorable prior-year reserve development were the primary driver of the five point increase in the current quarter combined ratio. In the current quarter we recorded 7.2 percentage points of favorable development compared to 16.6 percentage points a year ago as we experienced less favorable development in short tail lines.

Sandy losses of $123.7 million or 45.5 points were incurred in Q4 2012, one point higher than the $109.9 million or 44.5 points of catastrophe losses in Q4 2011. These increases were partially offset by lower acquisition and G&A expense ratios. Reinsurance segment expense ratios were lower in the current quarter due to reduced incentive compensation expenses, reduced loss-sensitive commissions and some mix changes.

For the full year 2012 the reinsurance segment reported a combined ratio of 94.7% compared to 126% in 2011 from lower catastrophe losses, improved attritional loss experience, and an improved general and administrative expense ratio. Within our insurance segment the Q4 combined ratio was 119.1% compared to 111.0% in Q4 2011. The current quarter results included $35.1 million or 14 points of losses related to Sandy, compared to negligible catastrophe losses in Q4 2011. In addition, our agriculture insurance business generated a net underwriting loss in Q4 of $13 million.

For the full year 2012, the insurance segment generated a combined ratio of 110.6% compared to 100.1% a year ago. The increase was driven by drought losses and reduced favorable prior year reserve development in our agriculture insurance business. In our non-crop insurance business, results were relatively flat as higher catastrophe losses from Super Storm Sandy were largely offset by improved underlying results from a lower expense ratio and better attritional loss experience.

Turning to investments, our portfolio’s total return was a positive 60 basis points in Q4 and 4.7% for the full year. Q4 net investment income of $38.6 million was $2.0 million lower than Q4 2011 driven by lower yields in our fixed income portfolio and were partially offset by improved alternative investment performance. For the full year, our net investment income of $173.3 million was $26.3 million higher than 2011 as stronger results in alternative assets more than offset lower returns on fixed income investments.

Our fixed income portfolio duration remains short at 2.5 years. Over the past year our investment portfolio has become more diversified as we’ve increased our allocation to equities and alternatives. Turning to reserves, we have maintained consistency in our reserving process and ended the quarter strongly reserved with $394 million of IBNR in our catastrophe and other specialty reinsurance lines, and in our property insurance and reinsurance lines of business. In addition, $2 billion or 74% of our casualty and professional lines reserves are IBNR.

On the topic of reserves, we will be publishing our global loss triangles concurrent with the filing of our 10(k) which should occur no later than March 1. Our year end capital position remains strong with total shareholders’ equity of $2.7 billion and total capital of $3.2 billion. Capital levels remain comfortable above rating agency requirements and that buffer expanded during 2012.

During Q4 we did restart our share repurchase program and we repurchased 251,000 shares for $10 million. I’ll now turn the call back to David for some additional comments.

David Cash

Thank you, Mike. I will now take some time to discuss the 1/1 reinsurance renewal season, our view of current market conditions and our crop insurance business. Starting with our January 1st renewals, Endurance had a very successful reinsurance renewal at January 1. Reinsurance premiums written this 1/1 were $486 million, an increase of 25% from last year. Solid growth was achieved in each of our major reinsurance units driven by improved pricing, incremental organic growth from our existing operations and new business from recently launched specialty capabilities.

In our North American reinsurance business premiums grew 24% from a year ago as we experienced growth across most lines of business. Property reinsurance rates increased reflecting recent loss experience from Sandy and other events while casualty reinsurance pricing began to show the impact of underlying rate improvements. Even as this segment is showing improved pricing it’s fair to say that pricing remains competitive.

Our global catastrophe business expanded 6% from a year ago, primarily driven from growth in our US and European property cat books. It was partially offset by declines in Asia-Pacific cat. In the US risk-adjusted rates were generally up in the low-single digits overall, as rates have been trending up for the last few years. On loss impacted exposures such as the Midwest and Northeastern exposures, strong double-digit rate increases were achieved.

In European property cat pricing was mostly flat to modestly down. This relative softness can be attributed to the absence of significant catastrophe events in the region. The one exception to this observation was the Nordic region where pricing was up 15% to 25% in response to the very large cloudburst losses experienced in Denmark in 2011. In Asia-Pacific, risk-adjusted rates were flat to down 7.5% in Australia and New Zealand following strong price increases in the last two years.

Within our international reinsurance group premiums grew over 50% from 1/1/2012. Part of this growth was driven by our recently added trade credit maturity team which had a very successful renewal season. We also experienced strong growth in our London and Zurich offices. The international reinsurance market remains quite competitive although at the same time the market is a more consistent and disciplined market than we have seen historically. In this sector rates were generally flat adjusting for trends with some ups and some downs depending on the specific line.

Looking broadly at market conditions, it’s evident that the market continues to try to push for price increases across many lines of business even as this abundant capacity continues to seek new business. Primary companies continue to push for upward rate adjustments and continue to be willing to retain premiums, a clear sign that insurers feel increasingly good about the economics of the business. In casualty insurance lines, rates continue to improve as the impact of low interest rates continues to drive book yields down, increasing the resolve of companies to push for price increases. Typically rate increases in these classes are modestly above loss cost trends leading to modest margin expansion.

Within our Bermuda insurance business, the excess casualty lines are experiencing the most significant price increases with rates generally up mid-single digits, while professional lines are experiencing more modest rate increases and healthcare experiences declines. Within our US casualty lines, rates are up in the mid-single digits with professional lines’ rates remaining flat. In the international casualty lines rates remain challenging and were closer to flat for the quarter.

Turning to crop insurance, 2012 was clearly a tough year given the significant drought experienced in the US and our crop insurance business generated a combined ratio of 110%. In a more typical year it’s quite reasonable to think that this business would produce a 90% combined ratio. Even as 2012 was an extreme loss year for crop insurance the results were quite manageable from a risk management perspective. Given how severe the drought was I’m pleased with how well our crop business managed through this year.

We achieved solid growth in policies, continued to diversify our portfolio and efficiently managed the significant claims volumes generated by our agents and farmers. We continue to be well positioned in this business and 2012 demonstrated both the resiliency of this business and the benefits of our operating service model.

Looking at current conditions, drought conditions persist as moisture levels have not been replenished. The winter wheat crop that was planted in the fall is currently under stress and will potentially experience production challenges if timely moisture isn’t received. From a financial perspective we do not expect to see material losses from this crop as we have placed approximately three quarters of our gross winter wheat premiums in the assigned risk fund where the federal government shares in losses at close to 100%.

With respect to spring crops it’s currently too early to predict what weather conditions will be during the critical planting and growing season. As we move towards the beginning of the spring crop growing season we will continue to monitor weather and moisture conditions to determine our session strategy. At this point we’re currently evaluating a number of risk management strategies for 2013 including our federal sessions strategy, the [tentful] use of third-party reinsurance, and commodity market hedges.

To close the call I would just summarize and say that while the market remains competitive and the headwind of low interest rates remains we continue to see signs of improvement in our markets and in our portfolio. I’m pleased with the progress we made in 2012 to attract new leaders and specialty teams to Endurance and I’m encouraged by the pipeline of opportunities and talent that we’re already seeing in 2013. And with that I would now like to open the line questions.

Question-and-Answer Session

Operator

Thank you very much. (Operator instructions.) Our first question today will come from Matt Carletti, JMP Securities.

Matt Carletti – JMP Securities

Thanks, good morning. Dave, I was just hoping you could kind of refresh us on your thinking on capital management. You guys are putting up some growth and thinking about kind of incremental capital generation, how should we think about it in terms of what’s going to be allocated to growing the business, what’s going to be allocated to returning to shareholders and kind of just on a static basis how you feel about your capital as it stands at the moment?

David Cash

Certainly. As listeners will recall back in 2011 we did a very significant share repurchase of a block of shares and after that we made the decision to scale back our share repurchases essentially to zero. We’ve been in that position really through 2011 and into 2012 and that was driven as much as anything by just a challenging loss experience for us and for the industry.

Our position has always been that we would like to be a steady manager of capital, both in terms of having a steady dividend and to repurchase steadily over time and I’m pleased to say in Q4 we got back on track. I think we did about $10 million worth of repurchasing in the quarter and we continued to maintain our high dividend level – I think our dividend yield is something in the 3% to 4%, or a little bit lower.

Turning to 2013 I would see us staying on that path of steady repurchases through the year, maintaining a strong dividend but then frankly taking the balance of our capital and deploying it in growth. And what you saw 1/1 on the reinsurance side was pretty significant growth – about 25%. I think it would be hard to see that sustained, that rate of growth in the reinsurance books sustained for this year but I’m expecting growth in that book.

Turning to our insurance book of business, we’ve been adding new teams of individuals and obviously with the addition of Jack Kuhn as the leader of that business I’m seeing growth there. And so I wouldn’t expect a slowing of our rate of capital management but by the same token I can see many uses to that capital going forward. And so I think between this quarter and the next quarter you’ll see what the long-term trend is to capital management. It’ll be pretty clear I would say by the end of the next quarter.

Matt Carletti – JMP Securities

Okay. Just to play devil’s advocate a little bit, when I look at where your stock’s trading and kind of the accretion and the return on that investment of buying back your shares, can you help me understand how that compares to the ROEs that you think you’re garnering in the businesses you’re putting it into? Because at the surface it seems that even take what I think is maybe commonly viewed as one of the better returns in the market, property cat or some lines around that, it seems like the return from repurchasing shares at a 20% or more discount to book value would arguably be greater.

David Cash

It’s a fair question. I think that the answer to that kind of lies in the difference between taking a strictly sort of short-term financial view and taking a longer-term view of what your strategy has to be as a company. And over the last couple years we’ve been very clear that we think reinsurance companies are going to become increasingly international and global and we do think that it’s important for companies to have strong, robust insurance capabilities.

And 1/1 you saw growth in our reinsurance business internationally – that was consistent with that strategy. When I also look at 1/1 what I’m seeing is evidence that insurance companies hold premium back when they think the returns are strong, and that just gives me a caution about the need to have an insurance strategy or the desire to have an insurance strategy and the caution about being a strictly short-term player in the market.

And so for that reason we think over the long term it’s important to accumulate capital and to reinvest in our business, and where you have short-term and even long-term lifts in terms of valuation it’s important to be able to manage capital through that and buy back but you don’t want to do it at the expense of your long-term strategy. That’s where we sit and that’s the message we’ve been consistently delivering over the last few years.

Matt Carletti – JMP Securities

That sounds great. Thanks for the answers and best of luck in 2013.

Operator

And next we’ll hear from Amit Kumar with Macquarie.

Amit Kumar – Macquarie Capital

Hi, thanks and good morning. Maybe we can start off with a few questions on our favorite topic, crop insurance. In terms of when you look at your crop book for 2013, and based on what has happened over 2012, how do you foresee that book turning out to be? And I know it’s early and there are a lot of moving parts, but all else being equal you know, does the size remain the same, expand, contract? What is your view just based on the loss experience we’ve seen in the past?

David Cash

I’m going to take it in two parts. Let me talk about size and then we can talk about loss experience. On the size side, this business is really, the dominant strategy is the scale strategy. Companies that are more efficient and do a better job of servicing become larger and it’s just there’s no sense in trying to resist that trend. And so I think our model is a good one and I think we’ll tend to see policy count grow steadily over time – pick a number, 5% policy count growth. And so I wouldn’t seek to stop that happening.

We do want to see it happen more in the Group 2 states which are ones that performed relatively speaking better this year, but we’re certainly not against growing in the Group 1 states. And so that’s where we have always been and where I think we will be going forward.

When you look at loss experience in this industry, you’ve got a couple of things that are sort of out there that are very visible to investors. Some years you have very good weather – 2010 was a year where weather was good. Some year you have bad weather and the results are going to vary accordingly. What’s a little less evident to investors when they look at the book of business but gives me quite a bit of comfort is where we see a tough season shaping up there are often tools that are available to us to manage the losses to a degree that you can’t quite appreciate on the outside.

And so at the beginning of last year we knew that Texas was in a tough spot. They’d just come off of a very pronounced drought the year before in Texas and so we took a much more, not much – we were already relatively cautious, but we took an even more cautious approach to how we handled sessions in Texas last year. Texas was in a much better year than the year before – we actually generated a profit in Texas. What we didn’t have the benefit of back in April when we were setting session strategy was the foreknowledge that it was going to be a tough year in the Midwest in 2012; and so we set our sessions strategy accordingly.

Coming into this year we do know it’s going to be a relatively speaking dryer year in 2013 and so we can take more precautions than we were able to take last year. So I do think that gives us the ability to manage even what will be a slightly sort of tougher year than normal. I doubt it can be as tough as the year we just experienced. And so I tend to have a sort of an optimistic view of this business, to generally have an appreciation for the volatility. I think what’s a challenge for all of us is the weather changes and so it makes a part of our sort of returns a little bit less predictable than investors would like. But I appreciate it. I think the long-term value in that though is real for investors and that’s why we stay the course in this sector.

Amit Kumar – Macquarie Capital

I guess that’s the point I’m trying to make – investors generally don’t give you credit for the crop book, and hence don’t you think that perhaps the size of the company in some senses is limiting the understanding of the book; and maybe it’s better to merge with a larger platform to really unlock the value in this business?

David Cash

I think looking at the question, for one the idea of say shrinking a part of your business to make your overall complexion better doesn’t make sense to me so the idea is going to say shrinking crop relative to the rest of our book doesn’t make sense.

In terms of how best to move the business forward, the businesses that we operate in are relatively complicated and I think in some ways many management teams feel that the better company model to work with is one where you have a great deal of control over internal infrastructure and you’re building organically. I think that’s what most management teams would say is desirable.

And the idea of trying to merge to sort of resolve a scale issue comes with the cost of a great deal of complexity and integration challenge, and so from my side I like the idea of organic growth and organic building. That’s the model that we’re on right now.

Amit Kumar – Macquarie Capital

But at the same time there are several options available in Bermuda in a similar market cap range which might have a slightly, I would say a simpler business model and hence it becomes a deterrent, based on my conversations, for many investors to sort of dig deep and understand the book. Then they can look at another company which has somewhat of a binary business model. And I’m just wondering, we’ve been talking about this book, we’ve gone through this in great detail but the reality is many investors find understanding the crop book a bit daunting especially as it relates to the market cap of the company.

David Cash

I think the question as to valuation today is a legitimate one and I think where we are today as investors is a little bit cautious about where we are in our growth and our build out and so as a result our valuation is a little lower than I think it should be right now. And I think it’s very much lower than it should be in the long run. Starting from that point, I don’t think that’s the right point to think about discussions of combinations and mergers. I’d really rather see our value grow, which I think it will grow over the next couple of years and then reevaluate. I understand the point but I don’t think the time is the time.

Amit Kumar – Macquarie Capital

Okay. The only other question I had is did you mention a growth number from the new teams and all the new hires? I think you mentioned a growth number, sort of premium expectation – I might have missed that. How much was that number for 2013?

David Cash

The number that I mentioned was at January 1 our reinsurance book of business grew. Last year our written premiums for reinsurance were about $390 million and this year January 1st they were about $485 million, $486 million of premium. About $30 million of that came from our new trade credit maturity business on the reinsurance side and the balance of the growth there was really organic growth in our different businesses – the international, the North American and the cat businesses. Our weather team that came online, they joined us late last year – we would expect to see their impact really in Q1 this year in terms of premium. So I didn’t provide any kind of more breakout than that in our comments earlier.

Amit Kumar – Macquarie Capital

Okay, that’s all I have for now. Good luck for the future, thanks.

Operator

Meyer Shields with Stifel Nicolaus is next.

Meyer Shields – Stifel Nicolaus

Thanks, good morning everyone. When we look at the mix of business on the reinsurance side combined, well let me start with that – is the mix likely to have any impact on the expense ratio in 2013?

David Cash

On the reinsurance side probably not. I would see us continuing to expand our operations but I don’t think the rate of expansion there will particularly influence the expense ratio no the reinsurance business. On the insurance side I would expect to see more expansion over the next few years and in that space expenses tend to lead revenues and to lead sort of profits, and so there I think you’d have to imagine some expense shifts. And then beyond that Mike did refer to the fact that we had some expense adjustments in Q4 that reflected some changes to our accruals for compensation, and that would likely be nonrecurring.

Meyer Shields – Stifel Nicolaus

Right, okay.

Mike McGuire

Meyer, I’d just add on to that that to the extent that our reinsurance book is more cat, has more cat as a component of the total premiums, that would generally have a lower acquisition ratio than some of our risk treaties. So that may have an impact.

Meyer Shields – Stifel Nicolaus

Okay, yeah, that’s what I was thinking. Is the Q4 investment income run rate something reasonable to rely on for 2013 even if it’s a little dampening for continued rate pressure?

Mike McGuire

Yeah, Meyer, I think the important things to look at in the portfolio would be the components of income and I think the trend that we’ve seen in our fixed income portfolio is certainly what is being reflected broadly in the market, that yields continue to decline. Our book yield is still close to 100 basis points above our market yield, so as that portfolio ages we would expect to see a continued decline in the book yields. The growing portion of our investment income is from our alternative assets and that tends to be lumpier and more volatile. We’ve added some diversifying investments in that asset class over the past few years that should help moderate some of that volatility but it is more of a marked to market component to income. So I think it’s tougher to predict the run rate because then you’re trying to predict what is the volatility going forward rather than just an embedded yield.

Meyer Shields – Stifel Nicolaus

Right, okay, that makes sense. And the last question I guess for Dave – are you seeing any increase or decrease in the availability of underwriting talent?

David Cash

It’s a fair question. I feel like we’re in a spot where we’re seeing strong underwriters who are looking at times at new careers and movement. And so we’ve had some very interesting résumés and teams and presentations made to us, and so it does feel to me like in places talent is mobile. At the same time in our industry there is I would say an overall shortage of talent. We’ve got a lot of companies out there that are participating in a lot of markets and so talent is short but talent does appear to be mobile right now.

Meyer Shields – Stifel Nicolaus

Great, thanks very much.

Operator

(Operator instructions.) Next we’ll hear from Ian Gutterman at Adage Capital.

Ian Gutterman – Adage Capital

Hi, good morning. I guess first when I look at the PML it looks like you came down a bunch at 1/1, and even I was looking back to post-Japan where you were bumping up to close to your 25% of capital limit – now we’re down to about 15%, and shareholders’ equity basically hasn’t grown a whole lot, about $100 million it looks like since then in the last seven quarters. So that would imply you’re well north of $500 million of freed up capital. Is that math close to accurate and if so, is that a reasonable representation of your excess or is there some other gating factor?

Mike McGuire

Ian, it’s Mike McGuire. Yeah, I’d say that certainly looking at the PML, the message there in terms of reduced consumption from tail risk PMLs is an accurate statement. I think I’d have to look at your math because that number sounds inaccurate based on what we’re seeing. Our equity was up about $100 million year-over-year so that obviously increases the equity base. Our reserve base also did increase, our premiums have grown so those are also consumers of capital that would offset some of that decline in those PMLs that you would have noticed.

David Cash

I think the only other point is a lot of the runoff in the wind PML is runoff of some of our insurance exposure and some of that was consciously by design to give us the ability to use that capital on June 1 and July 1 in the wind markets on the reinsurance side. So I think these two quarters in some ways are kind of catching an old trend but not really reflecting positioning in the year.

Operator

At this time we have no questions in the queue. I will turn the call over to David Cash for any closing or additional remarks.

David Cash

Thank you. Thank you again for joining us on our call today. During Q1 I’ll be presenting at the Bank of America-Merrill Lynch conference next week and then we will be presenting or meeting investors at the Credit Suisse conference, the JP Morgan conference, and AIFA and we hope to see you at one of those conferences. Just before signing off, good luck to everyone who’s in the Northeast with the weather and hopefully you all come through it unscathed, and I look forward to seeing each of you in person at some point over the next quarter. Thank you, Operator, that concludes our call.

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