AXIS Capital Holdings Limited CEO Hosts Analyst Meeting (Transcript)

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AXIS Capital Holdings Limited (NYSE:AXS)

Analyst Meeting

June 12, 2013 01:00 PM ET


Linda Ventresca - IR

Albert Benchimol - President and CEO

Jay Nichols - CEO, AXIS Reinsurance

Bill Fischer - Chief Underwriting Officer, AXIS Re

Stephan Knipper - President and Chief Underwriting Officer, AXIS Re Europe

Jack Gressier - CEO. AXIS Insurance

Tim Covello - President, AXIS PRO

Joe England - President, AXIS Specialty

Chris DiSipio - CEO, AXIS Accident & Health

Michael Steel - Chief Risk Officer

Joe Henry - CFO


Linda Ventresca

[Abrupt Start]…that we have held and as it happens it coincides with our 10th anniversary as a public company. Our debut is on July 1, 2003 less than two years after AXIS was founded. Interestingly our theme today is strong fundamentals continued success we are all quite proud of what we have built since our founding and our initial public offering. Management will talk at length today about exactly that and what we intend to deliver shareholders as we move forward. In order that we might do that efficiently and allow for a robust question and answer session at the end I would like to keep to a schedule. We will take all questions as I said at the end of the presentation. Members of management will present until approximately 02:20 PM at which time we are planning for a short 20 minute break. Following the break additional members of management will deliver their presentations. We intent to conclude the presentation and commence the question and answer session at approximately 03:00 o’clock PM this session will conclude at 04:30 PM and we ask you to join us for a reception following the formal activities.

I have one final housekeeping item, I would like to draw your attention to the second slide of the presentation which is the Safe Harbor statements applying to our discussion today. And with that I would like to hand the presentation over to our President and CEO Albert Benchimol.

Albert Benchimol

Thank you Linda and good afternoon everybody and thank you for joining us today. We aim to demonstrate you today that AXIS is a superior specialty insurer and reinsurer with a differentiated franchise a demonstrable track record of success and the ability to sustain superior performance into the foreseeable future. We intend to do so by presenting and highlighting our management team and also describing to you some of the initiatives that we have to build on the strengths that we have already established over our first 11 years. Our results will demonstrate that AXIS is an exceptional underwriting company however what we hope you take from today’s meeting beyond the numbers is the strength, depth and focus of many of our teams and specialty franchises that speak to the sustainability of our underwriting leadership. But we are not just satisfied with that.

We are confident that we can approve on it you will hear of our plans for diversifying growth and enhance portfolio construction that should deliver enhanced risk adjustment returns. And while we have made changes around certain aspects of our risk management and organizational structure, we have not lost any of the positive aspects of our entrepreneurial underwriting culture. You can expect us to pursue our growth plans with the same vigor, creativity, energy and ultimately success as we have in our prior initiatives, all the while we intend to sustain our strong financial position characterized by prudently constructed balance sheets, ample capital and shareholder friendly capital management.

Our presenters today will include Jay Nichols, the CEO of our reinsurance operations who will discuss our positioning in an evolving reinsurance world, Jack Gressier, the President of our insurance company will talk about how we intend to grow our profitable specialty insurance franchises around the world. And he'll be followed by Chris DiSipio who'll provide more detail about our A&H initiative. After a short break Michael Steel our Chief Risk Officer will discuss some of the analytics that are backing up some of the changes that we're doing in our portfolio and Joe Henry our CFO will come in and discuss our balance sheets, our investments and our reserves, and as Linda said we'll conclude with the question and answer period.

The callers will also be supported by some other senior members of our management team including Bill Fischer the Chief Underwriting Officer of our reinsurance entity, Stephan Knipper who is the President and Chief Underwriting Officer of AXIS Re Europe, Joe England who's the President of AXIS Specialty Europe and the head of Marine in our London office as well as Tim Covello who runs our AXIS Pro professional lines business.

So let's get down to my part of the presentation, where I'll discuss who we are, review some of our performance, and our strategic and financial goals. We took the opportunity at our first companywide senior management meeting last year to challenge ourselves with regard to our mission, our values, our goals and our strategies. We are determined to undertake certain changes to reflect the increased size and complexity of our organization and also reflecting the evolving marketplace. But we also agreed that a core of our values, our skills, our approach to business represented a competitive advantage and that we should work hard to preserving them and building on them. We reformatted our mission statement and you may recognize our old mission statements in our goals, where we aim to position AXIS as the leading global diversified insurance and Reinsurance Company as measured by quality, sustainability and profitability. But we also reaffirmed our value proposition to provide our clients and distribution partners with a broad range of risk transfer products and services meaningful capacity and unquestioned financial strength.

Also, very important to us is how we would approach our business going forward, by nurturing an ethical, entrepreneurial and disciplined culture that promotes client service, intelligent risk taking and superior results for our shareholders, none of this is new and certainly not a fundamental change for our company. You may recall when I joined AXIS I said that we had a fantastic team, great relationships with clients and producers and a whole array of superior skills. At the time, I defined my job as making sure that we institutionalize these skills, these practices across the company that our superior performance can be sustained beyond the current generation and that’s what I intend to do.

Financial goals of our company included as a start to achieving ROV of 15% over time and we came very close to achieving that, we had a 14% ROV over the first 11 years of all that. But I think we all recognized that in the current interest rate environment such a goal is very difficult to achieve and so we’ve introduced a new relative performing goal and that is to achieve top performance across various metrics with volatility that approximated the industry average and you going to see this chart many times today, so let me just give you the geography and all cases volatility will be on the X-AXIS with low volatility on the left hand side and highest volatility on the right hand side and performance of course will go up Y-AXIS.

For many of you, context of this slide are already very similar, we’re high insurance company, we write both insurance and reinsurance, inception to date we wrote $36 billion of premium of which 56% were approximately $20 billion was insurance and 44% or $16 billion was in the reinsurance.

Our all in combined ration inception to date is 89% with the industry leading 83% in our insurance business and 89% in our reinsurance business. We generated 3.6 billion of underwriting income and we did that with an underwriting philosophy which is generally viewed to both prudent and conservative.

The underwriting profits that we’re showing here is particularly important to today’s environment with a low risk interest rate environment, every company that I know are facing lower investment income as we go forward and we only way to sustain profitability is to increase underwriting performance and to generate more underwriting income.

However, those companies don’t have the skills, the culture, the processes in place they’re unlikely to put that in place in time. Companies that don’t have history of underwriting profitability are not likely to achieve that anytime soon. We already have all of the ingredients of profitable underwriting company and we’re very positioned to outperform.

We built an international platform with closer to 1,200 employees in 29 offices across five continents and we did that to get closer to our clients so we can better access the business, better understand the business and better service our clients and distribution partners.

We have risk baring entities in Bermuda, United States and Ireland and we have branches in London, Switzerland, Canada, Australia and Singapore. Our outstanding team and geographic footprint are supported by strong and conservatively constructed balance sheet. Our $7 billion capital and ratings are competitive advantage in many markets and that capital is very secure underpinned by a very prudent reserved base 63% of which is an IBNR and high quality insurance investment portfolio with an average credit rating of double A minus in our fixed income assets.

Our compound annual growth rates in value creation which we define as book value growth adjusted for dividends has been an enviable 13.7%. As on march 31st our book value share per share was $44 and $0.57 and we pay an attractive dividend of $1 per share per annum and incidentally we’ve increased that dividend every year since its first declaration, so how we done well first of all recognized that we have a wider way of choice in terms of which industry and which company you can invest in and the insurance industry.

So we set for ourselves a peer group of better companies spanning all of the various approaches and strategies for the business that you can have and you can see in this chart colors representing U.S. specialty companies, U.S. scale companies, diversified reinsurers, pathway insurer and companies that like AXIS like both insurance and reinsurance.

So when you monitor the ROE over its inception over the last 10 years, how do we do? While you can see here that we achieved top-quintile ROE performance with volatility that approximates the average of the industry of our peer group but when you look at the Bermuda hybrid companies alone you can see that we actually delivered, top performance with less than average volatility.

Now some of these statistics might surprise some of you because I know that our results in the last few years have been marked by the occasional large losses (inaudible) we wrote in our early years but its undeniable that even including all of those events or performance are top performance is still there to be seen. And some of the changes that we are putting in place in portfolio construction and risk management are specifically targeted at reducing the incidents of these unusual large loss events and I am very confident that putting these in place will improve the quality of our earnings in the years to come.

This again is a similar chart but here that we are measuring underwriting profitability through the net underwriting margin and in this case I think it’s very clear that AXIS has the best underwriting performance in the peer group and it’s because we have in my mind one of the best underwriting teams in the industry. We have a great book of business focused on specialty lines and a broad geographic spread of our business.

I am sure there is not much that I can add to this slide I think it speaks for itself and my colleagues will give you more detail about the kinds of strategies that they have put in place to achieve these results. What I can say is that at the core we have a broad pool of underwriting talent with a depth of skills and relationships with producers and clients that few can match. We augment their work with the added input of transactional and portfolio peer review. So we can have the benefit of collective insight of the broader team and as you have heard us discuss over the past few months we intend to supplement that with an even greater focus on portfolio of construction and optimize risk adjustment returns. We believe that this combination of skills, insight and process will drive sustainable superior results for many years to come.

I am fortunate to have a very strong, very experienced and very stable executive committee and they are all here today. They are each accomplished professionals in their own right and their individual and diversified bases of skills and experience complement each other very well and I am pleased to say that the whole all together is much stronger than some of its parts. Over the last couple of years we have also done an excellent job of recruiting superior talent to add to our teams at all levels of the organization, as I have mentioned earlier we brought on Jay as the new head of the reinsurance business more recently we recruited Peter Wilson previously the head of CNA’s $3 billion specialty lines business to be the President of our U.S. insurance business. Joe Henry replaced me as CFO and recently Eric Gesick joined us as our first ever Group Actuary.

We have also been very active over the last few years bringing on experienced teams to establish or grow in attractive lines in markets including renewable energy, design professionals and architects, primary casualty, agricultural reinsurance and most recently weather and commodities markets. And of course since 1989 we've added 85 professionals to help staff up and build our A&H initiative.

Following our strategic reviews we've landed on four key imperatives to deliver our intended results. The first is to sustain further development of the people, skills and culture that have made AXIS the success that it is today. Our success will continue to be based on our team's superior underwriting and service.

AXIS will remain a talent magnet that recruits, retains, motivates and rewards the most talented team in the business. We are creating an environment that empowers talented individuals to execute on their best ideas and recognizes and rewards those for their efforts, and we'll provide them with a platform, a geographic spread and a capital base that facilitates their success and culture and environment that are aligned with our values and aspirations.

We will deliver diversified growth, bringing our specialty expertise to new markets via concentric expansion. We will sustain our entrepreneurial spirit and bring our new teams and new specialty franchises, the result of which will be more opportunity to build a more balanced book of business with less portfolio volatility.

We will optimize within the constraints of market realities our portfolio's risk adjusted returns, through better use of data and analytics remembering of course that the core of our scale is in the talent and experience of our staff and so we will we be guided, informed but not ruled by the models. And finally we will pursue operational excellence with an effective and efficient organizational structure, IT systems and competitive expense base.

So to conclude my part of the presentation, AXIS has all of the attributes to deliver on its quality, sustainability and profitability goals. Our track record of superior underwriting and strong value creation has been delivered by deep bench of talents led by a stable and highly experienced leadership team and we are singularly focused on executing the strategic initiatives that will deliver top ranked risk adjusted returns for the benefit of our shareholders.

And at this point I'll pass the podium to Jay. Jay?

Jay Nichols

Thank you, Robert and good afternoon everyone, thanks for showing up on such a beautiful day. I'm Jay Nichols. I've been with AXIS about a year and what a year it's been. We've had a lot of change in the reinsurance space and I think we've made a lot of progress. I'm really proud of what we’ve accomplished, really proud of where we are and where we’re heading. I’ll go through a lot of it today and try to get it to how we’re going to accomplish goals that we have in the future.

As I already mentioned here we have two of my teammates with case studies. Bill Fischer our Chief Underwriting Officer is going to talk about portfolio construction and Stephan Knipper who is the President and heads up our European Operation is going to talk about credit and surety and cycle management.

So, today I’m going to give you an overview of AXIS Re, talk about underwriting excellence at AXIS Re. I’m going to give some insights into my brain and how I think about strategic approach to reinsurance. I’ll give you an overview of centers of excellence, we’ve actually shifted to have a product line focus as well as a regional focus at AXIS Re and we’ve introduced four centers of excellence and leaders to lead those centers of excellence and we’ve had significant new initiatives within the reinsurance space and I’ll give you some updates on those.

So at AXIS Re we are diversified global reinsurer. We’re very well positioned for the way the worlds is going. We’ve evolved from a mono line company in the beginning to a company has an enviable portfolio of products to deliver to their customers.

We’ve delivered superior results as evidenced by our $1.6 billion of underwriting profit and an 89% combined ratio over that time. On the right side of the chart you can see a pie graph that talks about our 2012 portfolio. Fixed lines of business makeup 10% of more of the portfolio showing the strength of our diversification.

At AXIS Re on this chart, we’re depicting that AXIS Re has outperformed from an underwriting profit measure, the average of the peers and we’re in the far left side of the whole universe of our peer universe. We’ve outperformed the average peer universe by 700 basis points in the time frame 2003 to 2012.

On this chart we’ve done risk adjust those returns on annual volatility using sharp ratio and the returns that we have given the volatility are still very attractive in the industry and in the diversified specialist category, we’re very close of the top of our peer group.

Also on this chart we have depicted the general list on the bottom left side which has low volatility and lower returns and the, what I call the specialists which are mostly the property companies and those guys have higher returns and higher volatility. As you saw in the other chart they were ahead of us in returns too. Our goal at AXIS and you will see some of the initiatives were put in place is to move that positioning on that chart up into the left to become a stronger more diversified specialist overtime.

So here is the time you get inside my head. It’s a real exciting time in the market. It’s a real exciting time at AXIS Re as well. I think all the changes that are going on in the industry are right now real house in terms of whether it’s the skills that I bring that skills that we have or the skills we’re developing in AXIS Re. This cube is multidimensional look at the things you have to do well to win in the reinsurance business.

My view is you have to have the products and the focus on products. We have agriculture which we developed as franchise this year, Credit and Surety, Casualty and Property and we have franchises in each those product offerings.

We also have a geographic platform that allows us to distribute our products globally. We have strong presence in Latin America, in Asia Pacific and the U.S. and Europe. The third dimension on this cube which we haven’t spent as much time in the past but we will in the future is this dimension of capital. So introducing third party capital dynamic hedging of our portfolio and the utilization of retro to deliver lower cost of capital to our customers.

This is becoming ever more important and I’ll talk about it little bit later but for now we have hired Ben Rubin who is here and is available. Ben, what I refer to as a stocky, stock really talented folks in the business and talked to him long enough to convince him to join me and I’m really excited to have Ben on Board. I have worked with Ben for long time. We’ve executed successfully on many transactions and as we enter the third party capital space I want to make sure we had the right person for the firm and for the opportunity and Ben is absolutely the right person.

As Steve was asked me at the party what’s the how and how here in my mind, there is an element of how which is the position you have, which is the position of your products, the positioning of your products, the positioning of your geography and how you access the capital and then the second part of the how was execution and execution comes down to people.

So the reinsurance business and the third party capital business is well which we’re starting but it’s all people doing business with people. As you can see on this slide we have great people. The average is 2 plus decades of experience and I believe that as of now we have the right people in the right place doing the right things at the right time. We are very well integrated globally as a result of the integration of products across the globe and I'm very happy with the team we have got and it’s been a phenomenal experience for me in the first year to work with these guys and girls.

Our global platform we have underwriting hubs in New York, Bermuda, Zurich and Singapore. We just added Singapore as an underwriting hub. We have had it as a marketing office for a long time. It’s worked out phenomenally well. We have Rich Miller in Singapore. Being in the same time zone as your customers is a phenomenal benefit and has given us access to more business and actually in a market where they have differentiated pricing across all layers has allowed us to get better pricing.

It allows to service understand and react all of the unique elements of those jurisdictions. This chart talks about our global centers of excellence. I talked about our product line focus. In the inner side of this wheel are he four global centers of excellence that we have developed.

Now they have existed and we have developed them over the last 12 years but we now have product line leaders for property, we have a product line leader for credit maturity, we have a product line leader for casualty and a product line leader for agriculture. That is the person who makes sure that the delivery of those products across the globe is consistent and that we can serve our customers with the entire product offering.

Now to be a true center of excellence we have identified these attributes. In our minds you have to have the best underwriters with the best customers offering the best products and executing with a regional presence on a global basis and with the best decision support system.

So when we enter a new product line, when we are developing a new product or in the product lines we are in now, this is the aspiration that we are shooting for to make sure that that business is a franchise and sustainable and that we can lead in that business. It also allows us to be consultative with our clients and to be consistent support because we understand the risk that we are taking.

Behind these four centers of excellence, we have what I refer to as 15 franchise businesses and the unique thing about AXIS is even though we are a big company and the reinsurance company is a very sizable entity, as well as AXIS in its entirety is a very sizable company, we treat these as small businesses operating within a big platform but we have the focus of the small businesses, we have individual teams for each of these product lines and we have the focus of a small company with the platform of a large company.

So in May, in anticipation of the drought in the U.S. just kidding, I didn't really anticipate it but I hired Peter Griffin, who I'd worked with for long time and know very well, very talented guy in the agricultural space. You've heard about this development of the agricultural business. We developed immediately, got on the road, developed customer and distribution relationships and solidified our access to product.

We introduced products globally and expanded our product offering and then built proprietary decision support systems, ran it through the risk management systems of the firm with Mike and emerged with what I would refer to as an instant franchise. Obviously lots of work, lots of effort, but it was a great opportunity in the U.S. because of the dislocation and I'm very happy with this fourth center of excellence.

This chart just shows you the opportunity in agriculture. We've been more focused in the U.S. So our product is more deployed in the U.S. and Canada. Each ones of these jurisdictions, there's a unique combination of governmental and private market solutions that are very complex and the underlying math, the underlying data and the underlying interests are so specialized that you really have to have somebody who know what they're doing. This can't be a part time job. Like David Letterman says, you can't do this at home, you get hurt. I think we've got the right team and we're expanding that team as well.

Another new opportunity. We just this week announced that we hired two guys on the weather and commodity market side to bring weather and commodity risk transfer products to end users in the energy, agricultural and other industrial spaces. This is a real specialty market, I was very involved in it in my prior life. These guys are very well known to myself and a few other people in the firm. We had ongoing discussions with them for a while and we're very happy that they've decided to join us.

The great growth opportunity for us in this business is very complementary with our agricultural business as well as our CAT business. We will be delivering products both in reinsurance, insurance and financial products form. A large percentage of this is in derivative form of this business. That's a great product leveraging our weather capabilities.

Actually in one of the slides on the agricultural side, we've engaged and started what I refer to as the AXIS Research Park with a major university to get access to weather, information and research information, including hurricane and tornado, science and technology which I think will help us across all over lines of business.

In the weather and commodity markets, we’re going to be focused on more weather contingent products and outage products, we’re not going to be pure speculative, we will be providing whatever I referred to was risk transfer products that look like insurance maybe not in the insurance or reinsurance form but look like insurance and reinsurance. We will be using exchanges to dynamically hedge these portfolios where we can but it’s not a trading business per se.

And on third party capital, Ben decided to join us, and I think this is a great opportunity for us to leverage our platform, we’ve great capabilities in the agricultural space and in the property space, I’ve had discussions with capital markets folks ever since I joined and I believe that there are lot of capital markets folks who we could engage with to extend our franchise dramatically, serve our customers better with larger line sizes, collect the income for doing this.

I see it as a real triple win where our customers win, we win and the capital markets participants win are going through ourselves as the arbiter of where risk meets capital and I’ve always said this and I repeat it again that I believe that reinsurance company should be the arbiter of where risk meets capital and I believe that we should position ourselves at AXIS and we will to be the arbiter of where risk meets capital in the insurance and reinsurance world broadly.

With that, I’m going to introduce Bill Fischer who is well known to all of you. He’s going to spend few minutes on portfolio construction.

Bill Fischer

Good afternoon, nice to see you. So many familiar faces, I have a couple of questions from the people that have met me over the last 12 years of Bermuda. ties only on because it maybe putted on and coming to metropolitan club, yes I have socks on and no I don’t have a pair of red shorts underneath the suit.

It’s really my pleasure to be the longest standing member of AXIS, I’ve been here I think actually before there was money in the bank, I fondly remember the day it was deposited and it’s been a great ride since then and really I’m personally very excited having opportunity to work with Albert and Jay. I’m not fully inside of his brain yet but I’m mostly there, he’s got a lot of energy and is really revitalized the reinsurance business, it’s been a lot of fun, all the new initiatives are bringing that fun back to the business, it’s exciting and a lot of learning for me and for others it’s a wonderful experience at the moment.

As many of you know our DNA as a company and in reinsurance business as well as the insurance businesses in individual transaction of underwriting, we have a wonderful team of underwriters supported by very talented and commercial team of actuaries and analysts and we spent the first day here using that platform to build relationships with the number of customers around the globe. We are spending time today and really the most recent year and half or so building portfolio approaches to many of those lines of business and we’re trying to do that to make sure that the overall portfolio where the profit can be any point in time and that includes not just the reinsurance business but together with the other businesses that represented by my colleagues, how do we do that?

First starting point is to look at the traditional approach of the business, the transaction approach of the business. We have a very experienced group of individuals and all the underwriting teams and we’re using traditional actuarial and modeling techniques come up with the best full of risk that we can sort out the global reinsurance space and we’re overlaying on that variety of different portfolio tools, Mike will mention later of the group, capital model that’s probably the biggest and most sophisticated tool that we have.

We have tools that reached down into distributions across all lines of business probabilistic tools that informs us the margin in individual transaction or individual territory at different return period, tools that look at standalone returns on individual portfolio again perhaps in specific territories specific products and in the property space we obviously look at both on the current and aggregate basis.

We also have deterministic tools and by that I mean a number of events that are probably I would describe them as being more tangible more understandable than a distribution coming out of a statistic model and we have historical events that are things that have really happened whether they happened in property space so Hurricane Andrew once again running through our portfolio where they happened in credit and capital space so how does our DNO portfolio get affected by another 2008 or how does it get affected by another 1930.

We have hypothetical events in our sort of quiver of deterministic event events and those are events that maybe haven’t happened but we think they’re possible to happen and those are things we won’t understand how our portfolio is going to respond to and in particular around lines of business that are not property I think those are critical to have and to test yourself against those and then that really sort of really fits in with the customer events as well and those customer events are again here around lines of business that probably don’t have the same statistical science around portfolio approach and need to be tested in different ways and so we throw those customer events against our portfolio as well to make sure that they response in a way that we think is reasonable. And then of course we look at volatility and in the property space we start there by looking at values and force so we look at individual portfolios and territories we map those values and force to allow the underwriters to visualize what we are exposing ourselves to in a given territory or in a given transaction or whatever we might be looking at a point in time.

Then we overlay on top of that limits oriented view of the world so how big do we want to expose ourselves maybe on a given transaction, how much limit that we want to put out. It might be how much exposure, do we want to a specific territory in a specific payroll and the aggregate. It could be how much do we want exposed to an individual contractor in the assurity space. But we look at the limits that we are overlaying and we do that again on all the lines of business that we write not just property.

And then we approach that exposure base from PML perspective and as I said a couple of times earlier today to some of you I mean PML is a term that I really hate the way it is tossed around freely is always means one thing and it doesn’t mean one thing it means something in each line of business. It often has a statistical basis to it and particularly in the property lines but in many of the lines of business it’s a very judgmental view of the expected return period of certain types of events or probability of having a loss on a specific type of contract so we take a lot of time looking at PMLs and measuring those against values and force and against limits just to make sure that we are sanity checking and triangulating as the best we can our measuring risk and a potential volatility coming out of that risk for a given portfolio.

And then I am going to give you a little example of something that is also a focus of ours and that’s looking at the market share that we might have to a given event and the easiest way and probably another really tangible way of looking at it is it’s not a property side so this is an exhibit that comes up in front of the underwriters on the property side it’s a distribution of our returns versus industry returns in a given region and parole zone I have sort of noted it so you can’t really tell exactly what it is but -- and it’s important to us and it’s important why, it’s important for a couple of reasons well one to have a sound portfolio we have to be pretty focused on the constrains that exist in that portfolio and some of those constrains are around limits. we want to be very conscious of shares that we have and so we look at this and in particular on a more volatile lines like property to make sure that we are going to live within those constrains as best as we can analyze it through the tools that we have.

I mean it’s also important because the other side of that is not just what are limits we have but are we getting paid well enough in a specific territory for a specific parole or it might be in a different line of business for the risk that we're taking and I think that's probably as critical as the first, I mean we're very focused on being paid for the risk that we're taking and also doing that within the bounds that we built for ourselves around the risk that we're willing to take.

This is a typical tool; we have many, many tools around the portfolio analysis that exists within the underwriters' work-screens that they see when they're analyzing a given account or maybe on the casualty side more likely discussing an account with the pricing actuary. That's really it, that's a conclusion of my remarks. I'd like to turn it over to Stephan Knipper, Stephan's a President and Chief underwriting officer of our operations.

Stephan Knipper

Thank you Bill and good afternoon everybody. My name is Stephan Knipper, I am the President and Chief Underwriting officer of AXIS Re Europe, I am with AXIS since the very start of AXIS Re Europe in Zurich 10 years ago. Let's talk about trade credit and bond, AXIS Re has lead position in trade credit and surety an important specialist market. As you can from the slides, the size of the trade credit and the surety market is about 19 billion of which 30% is reinsured, it is an important reinsurance market with nearly 6 billion of volumes. Reinsurance is mainly bought on quarter share basis, and what does that mean, that means there's a strong alignment of interest between the parties, between the cedent and the reinsurer; the main products are trade credit insurance, covering the nonpayment risk of buyers of goods and services. This product is a short aid product a payment terms on average a 90 days, so we're really into short tailed space here. Surety, an insurance contract guaranteeing fulfillment of contractual, legal or regulatory obligation. These are mainly construction related bonds, but it could also be other types of bonds, like custom bonds or court bonds. The average tenure here is two to three years but we have bonds with tenures of five years and longer. With our experienced team and our market presence, we are leader in this growing specialist market.

The trade credit industry has proven track record of managing the cycle. When you look at the slides, above show the insolvency index from 2001 to 2011 with the 2000 representing 100, the red line shows a trade credit industry loss ratio. These numbers have to state are on fiscal year basis and includes the run off of prior years. What you see is a big improvement of loss ratios in the years 2002 and 2010 respectively, despite very high insolvency ratios. Trade credit insurance can be detest themselves from insolvency development after the first phase of the cycle to dynamic management.

In case of an adverse development of buyer risk, the credit insurer can cut or even totally cancel the credit limit of the next shipment of quotes already. After the 2008, 2009 crises, the loss ratio is even lower the after the 2000, 2001 crises. This shows the improved capability of the industry and respect of policy and risk management who better analytics and clearly better execution on the risk management. This business is a specialized business of people with the ability who successfully manage the cycle through risk underwriting.

Let's have look at AXIS Re in this market. AXIS Re has outperformed the credit and bond market. The graph you see here shows the gross written premium and the loss ratios of the whole credit and bond book of AXIS Re. These loss ratios can't be compared to the ones you saw on the prior slide, the slide before showed trade credit industry losses for insurance and reinsurance markets on a fiscal year basis. What you see here on this slide shows AXIS Re numbers but trade credit as well as showed bond business on accident year base.

From the years of book shows very strong results. After difficult 2008 we benefited from the dislocation of the market and improved our market position in the credit business as well as in the surety business which improved.

Currently you see a moderate uplift in claims frequency and a slight increase in the size of claims; this is reflected in our conservative reserving approach. We further outperform the market. We put the emphasis on client selection and underwriting discipline.

We believe that at AXIS we’re well positioned the benefit from a growing trade credit environment, you see a big increasing global trade flows in the Asian and the Latin American markets gaining importance. We follow this trend very carefully and are confident to improve our market position to actively pursue opportunity for the market.

And as I can tell you we have benefited from this proactive credit and bonds strategy the past already, this is what attracted us, the very positive performance of the Latin American surety market technically resolved about 30%, this business is mainly local business and we needed local expertise for that so what we did we hired a Latin American market specialist for this business and started writing it into some nine great success elective number of clients in core markets to conclude my case study.

The key success factor for trade credit underwriting is dynamic cycle management. The key success factor for surety are product discipline, solid technical and financial underwriting, this takes the specialist and leader, it’s our experience our strict client selection and underwriting process now standing in the market we are confident to benefit strongly from growing trade credit and surety market.

With that, I would like to hand back to Jay Nichols.

Jay Nichols

Okay, I am going to end very quickly, I just want to put to next slide but there is a slide I got to tell you I am loving what I am doing I am loving our position on the three dimensions of the product geography and capital access I love our people I think we have done a great job at executing in my first year the support from the firm and from the markets has been phenomenal and I am extremely excited about our future in what is a very changing environment and I am very happy with where we are positioned on the three dimensions that I think is the how of how we succeed. With that I am going to introduce my partner Jack, Jack Gressier who runs the insurance.

Jack Gressier

Thank you Jay and good afternoon everybody as Jay said I am Jack Gressier. I am the CEO of AXIS Insurance and I have been with the company since April 2002 that would help. As we go through the presentation I am going to give you an overview of AXIS Insurance perspective of our underwriting excellence and overview of some of the strategic initiatives we are involved with at the moment to develop a platform. I will give you an idea of the breadth of the AXIS Insurance franchise how we have demonstrated our ability to execute. Two of my colleagues Joe England that Albert mentioned earlier is the CEO of AXIS Specialty Europe and Tim Covello who is the President of AXIS PRO in the U.S. We will give to you some case studies later as to how we implement and the client relationships and bring on board new businesses and then we will hand over to Chris DiSipio who will give an overview of our accident and health business.

First and foremost it’s important to understand that AXIS Insurance is a diversified global specialist insurer with a very strong record for profitability through the cycle as you can see from the chart. We have produced an 83% aggregate combined ratio from 2002 to 2012 so pretty much an inception to-date. It’s only possible to achieve that kind of performance obviously if you have got extremely strong people a very broad range of product and a very strong geographic platform on which to build and we will talk more about that as we go through the presentation. As I said we have a strategic global presence we have over 700 people in eight countries organized into five major geographical groups. These groups provide us the perfect geographical platform to deliver our very dodoes range of retail wholesale specialty products to the global marketplace a combination of retail presence in the North American marketplace Canada and the U.S. and Australia and then very strong wholesale hubs in London, Singapore and Bermuda.

Underwriting has been absolutely critical and we have outperformed our specialty payers from inception to-date. Critical point about this is that it all hinges upon, it's all built on the foundation of risk selection of the highest quality and that is underpinned by the peer review environment that we have in place and have done since our inception, which is unique in that it takes prior to the acceptance of any risk.

As you can see from the slide it doesn't take much elaboration but across ever sector the US specialty, Bermuda scale, Bermuda (inaudible) across that period of time we've outperformed by considerable margin and again that's a demonstration of the quality of the people, breadth of the product and the diversity of the product and geography that we have.

As you can see on a risk adjusted basis similar exhibits that Jay showed you earlier adjusted for volatility, our returns yet of course they're superior to all of our peers but somewhat more volatile perhaps than the rest of, not quite all of the rest of the pack. I think it's certainly safe to say that at that level we have been rewarded for that volatility when you look at the underwriting profitability, but just to provide some context around that volatility, in that period of time from 2003 to 2012 there had not been a single year with an underwriting loss, and I think that's very important to remember provide a backdrop to that volatility. Obviously as I've said it's been a very profitable platform and that profitability though hasn’t been confined to any particular period of our history. This chart covers from some (inaudible) research, and you can see in the last three years or 2010 to 2012, taking a three year average insurance excap, (inaudible) combined ratio, we considerably outperformed most of the companies with our post peer group, we're comfortably sitting there at a 92% combined ratio, whereas most of the others are barely breakeven or worse.

Probably important to stress around this particular, looking at this particularly is that our platform is very well developed in the US, very well developed internationally, whereas most of those other competitors on that chart have been somewhat less successful perhaps developing their London platform or perhaps developing the US platform. None of them have managed to achieve both of those or on a profitable basis and if you compare it with the London peers, most of those haven't been able to successfully build US platforms.

Probably also important to stress at this stage that that 92% combined ratio on that basis has been achieved across this period of time while carrying at least an extra couple of points of drag related to investment in new initiatives and I'll talk to you about those other initiatives a little bit later.

We are sustainable, differentiated insurance franchise, very strong leadership, exceptional talent through the business and significant scale and diversity certainly in terms of the breadth of geography and the people that we have. That's positioned us very well to survive the cycle, to digest volatility and to manage the cycle without sacrificing the scale what we’ve build up through that period of time.

So, we’re very organized to meet customer needs. My colleague Jay talked to you about how we manage and service and deal with major global customers across our organization. We have a very strong U.S. platform selling a diverse range of retail, wholesale P&C products, our international platform similarly so. And then a professional lines platform that has a broad international and US space which is supplemented by our capital risk solutions division which provides credit policies, and then of course as Chris DiSipio will talk you about lighter our accident and health division.

We have a very, very strong leadership team, of course none of this is possible if you don’t have very, very good people about you, unlike Jay, I have not talked to any of them but a number of them I have worked with for a very, very long period of time and then fortunately - we’re fortunate enough to now to supplement those and raise some time with some exceptionally strong highs, important to state that across this management team that I work with every day, the 27 years of average industry experience six of which were at AXIS and across our 75 senior underwriters for our insurance operation and that’s in every part of the world the people that run all of those business units who were responsible for setting the underwriting strategies within them then average experience of 24 years and 7 years at AXIS, very-very strong bedrock on which we’ve build the underwriting business that we actually - that we run today and that’s particularly pretty all about the people.

I just talk to you about some of the strategic initiatives that we are implementing at the moment to delivery diversified growth. I’m not going to talk about all of the ways because as you see there is rather a lot of existing products, new products, new geography, new distribution and some of them are more than our existing distribution.

60 new initiatives, as I said I won’t talk about each and every one of them individually, but I’ll just give you a flavor that the type of initiative that we have going on and how we’re approaching them. Asia Marine as an example, we for a long time at AXIS inception of the company have had a very strong marine operation based at our London market platform specializing an off shore strategy at marine cargo, marine (inaudible) marine products, P&L pollution and we recognized that there are opportunities in other marketplaces throughout the world potentially to expand and to distribute and to export that product expertise to them, we were looking at the Asian marketplace as Singapore hub, we didn’t currently offer any products in that market. We carried out a very extensive analysis to determine whether it made sense to and of course in most cases it certainly didn’t. I can quite safely say that the offshore energy market and the Marine Hull market in the Singapore and the Asian market are probably the most over-served in terms of international capacity and local capacity in terms of marketplaces that you could find. But we did supply some (inaudible) of high specialism that require high expertise, marine cargos and (inaudible) business that are very, very underserved in terms of that marketplace.

We took someone with considerable expertise in that market, transferred them from our London platform and again embedded them with the Singapore environment and using the support and expertise and product expertise in development from our London platform and then the peer review to support that operation with established and started a very, very, small at the momentum but strong in terms of skill set marine operation in Asia.

A similar type of development we always had some very, very strong international property capability again in our London platform. it’s a wholesale market it attracts international business highly specialized business from all over the world but after the (inaudible) of 2011 in Japan and Thailand and New Zealand and so on we saw considerable opportunity, as prices increased, to broaden the product offering we had in that marketplace but we couldn’t just do it from our London platform.

Today, total business flows to London, some of it stays in the domestic markets and we had operations in Australia, we have in Canada, we have them in Singapore and we took approach of taking some of our existing operations supplementing them with additional property underwriters in all cases from the region itself and we set up a new property operation in Singapore at that stage using again the expertise, the support and then the peer review to maintain a common act and consistent access approach across the organization.

We established and set up three new and stronger property operations in the local markets to supplement the international product offering we have in our London market platform.

Just to give you an idea and of course and you know we’re not in habit guidance. and assuming it’s difficult to know what market condition will do over this period of time but there is no reason to believe this across the five year period that across these major initiatives and of course you can see that there is a very diverse range of new opportunities, we believe we could generate in access of $1 billion given the right market conditions from these initiatives alone over the next five years.

So where is AXIS going? Same chart again as you can see just top remind you very, very strong underwriting profitability, perhaps a little bit more volatility than most of the rest of the pack but not all of them. With the new initiatives we have in place approaching them in a way that we have implemented and developed all of the other operations that we have on board, we absolutely believe that we can dampen that volatility that we have exhibited to-date but of course maintaining that industry leading profitability and we believe we can do that.

So just to give you a little bit more perspective about some aspects of the platform, we are very well positioned in the international marketplace Of course London market specialty business was the origin of the AXIS Insurance business. It’s where we have been particularly strong or were particularly strong at the outset and as you can see a very diverse range of different products, highly specialized; terrorism, aviation, war, energy business, marine and so on.

But then also well-developed international P&C platforms that we support, that we underwrite from London but also via the rest of our international operation in Asia and Australia and so on. This gives us a great opportunity to continue to export that product expertise into new and emerging markets in different parts of the world and we are very well set to do that.

We have a very strong presence in North America. If you go back to the beginning of our U.S. platform, over 10 years ago now it started with very much a core presence in the U.S. E&S marketplace, property and casualty products. Today it’s considerably broadened. We now have 12 offices we have an office in Toronto and you can see from the product listing on the side there a significantly broader array of products that we sell in that marketplace.

We have broadened the geographic footprint we have broadened the product diversity and our distribution has changed significantly. It’s no longer concentrated in the wholesale markets as it used to be. We have a significantly larger presence within the retail sector and you will see that as a continuing thing. This platform alone, again to demonstrate the success I was talking about across multiple different parts of operation generates in access of $1.2 billion of gross premium. It still presents considerable opportunities for growth.

Just to further illustrate the point about the expanding distribution, you can see from 2004 to 2012 a solid shift, a greater shift into the retail business. That's as we have sold more property products and certainly more professional lines products in that marketplace, less of a focus on the wholesale marketplace and that's illustrated by that increase in distribution relationships from just under 200 of them to approaching 900, and I think you'll continue to see that as a continuing theme as we go on to build the business further.

We very clearly built a global professional lines franchise. From the very beginning in February 2003, when we did the camp for renewal rights deal, all the way through till today we've methodically built and invested in organically grown and then with some bolt on acquisitions; you'll hear from Tim Covello of our media professional insurance a little bit later, and we developed that acquisition and built in into the platform.

We've opportunistically added to the platform also. It hasn't all been as methodical, but for instance post the credit crisis, there was a huge opportunity in the UK PI market, Professional Indemnity market. The markets suffered loss; a lot of competitors exited the marketplace. FISI (ph) responded significantly. We chose that point to establish and set up our team riding in excess of $50 million of revenue on an annual basis and set up post the financial crisis.

So as you can see an organic approach, bolt on acquisitions but carefully over time, that's now left us with very off, we've been able to create as a result a very significant global platform, six key hubs for this class of business, a very, very diverse range of products with (inaudible), and important to stress also primary and leadership capabilities in all of these areas across most of these lines.

What that's enabled to achieve in terms of our total global professional lines operation, from 2006 to 2012 compounded annual growth of 9.2%, but not just from one area or one or two areas. The growth comes from across the platform, multiple different products have grown and geographies, but particularly focused in the global professional liability arena, particularly outside the U.S.

And of course again coming back to the people you cannot do any of this without an exceptional management team. We're fortunate enough to have a very, very strong team in place. Quite a number of people have been with us for a very-very long period of time, an average industry management experience of 19 years including six with AXIS, but a total team of 205 people. I think it's important to stress in all these cases it takes very solid teams of people to achieve any of this, to develop, build the products, to sell them, to understand them and (inaudible).

Capital risk solutions, capital risk solutions is the helm of our political risk and credit business. It currently constitutes 1.7% of our gross written premium. What we believe and also we believe it to be a very strong differentiating part of our portfolio that provides strong diversification.

It’s delivered a 56.3% loss ratio from inception to date but of course you can see that spike there back in 2009 from the credit crisis. We learned a lot of lessons from the credit crisis. I think a lot of people did in lot of different industries and but certainly, we have incorporated a number of the lessons that we’ve learned into our portfolio.

We have much stronger alignment of interest between ourselves and client base more robust limit management and more balance portfolio construction. We enforce standard AXIS contract wording and have more independent risk analysis and of course very strong continued and enhanced mentoring with the ongoing portfolio.

Since credit crises result to be implementation with the number of those initiatives, we’ve reduced the overall exposure and the average limits that we’re exposed to with a quite considerable amount which you can see.

The portfolio as it stands today is probably of the high credit quality as you can see from those right things. Strong portfolio distribution by product type and it also as a result provide us with attractive and diversify macroeconomic risk, maybe strong diversity across our portfolio and also regional profile presents again very strong diversifying risk with a very, very low co relation to our broader P&C portfolio.

I’ll now hand over to Tim Covello, as I said, the President of AXIS PRO to take you through our first case study.

Tim Covello

Thanks Jack and good afternoon everyone. My name is Tim Covello and I’m the manager of AXIS PRO. My group underwrites commercial E&O here in the U.S. which compresses our media, miscellaneous professional liability, Tech and Cyber products.

Today, I’m going to speak about the acquisition of Media/Pro in 2007, how we took the strength of AXIS and make the franchise even better. Media/Pro presented AXIS with a tremendous opportunity including the 28 year history of quality underwriting and claims handling the commercial E&O space.

Media/Pro is the leading writer of media insurance in the world with a strong history and miscellaneous professional liability Tech and Cyber insurance. Media/Pro also presented AXIS with a quality portfolio of small account business this business tends to be more profitable and less volatile from some of the larger account business.

In 2007, question became how do we take this incredible franchise and make it even better using the strength of AXIS and these strengths were many. Strong local offices throughout the U.S. amazing control and processing around individual account underwriting and portfolio management a wiliness to invest in people and technology or to be the best and strong relationships with notational brokers we took those strength and over the past six years have taken this franchise to a higher level.

We took advantage of the local access office and moved over half of our underwriters that they could be closer to our client brokers and insurer. This is resulted in increasing the mission in overall premium. We invested in the new system that increased our operational efficiency we have accomplished the foregoing increase in premium and submission with slightly fewer underwriters.

One of the huge benefits of Media/Pro was this 28 year history of data around premium and losses. We have been able to use that data to improve profitability and create a portfolio that is incredibly responsive changes and exposures in the marketplace. Our investment in people is laid to substantially enhanced capability generally particularly in the tech and the cyber area.

This investment in people is also laid to better capabilities on large national accounts which have complemented our strength on these accounts in other lines. Lastly the Media/Pro acquisition was the launch pad for other opportunities around the world. The Media/Pro operation in Canada was the starting point for AXIS’ current Canadian operation.

The Media/Pro team in London was integrated with the AXIS London operation to become the beginning of our E&O franchise there. We’ve also been able to take our expertise in the U.S. distributed around the world for example our media expertise was used to help develop in launch a media product in Australia. The Media/Pro acquisition is a great example taking a fabulous franchise to the next level for the benefit of AXIS globally.

Thank you. And I would like introduce my colleague, Joe England, for the next case study.

Joe England

My name is Joe England. I am executive vice president of AXIS Insurance. I responsible for all marine business and also legal end to responsibility as chief executive of our European Insurance Company based in both Dublin and London and this will be my 10th year with AXIS.

The second case study concerns one of our major client relationships and represents a good example of how we coordinate underwriting across the group. You all know about cross selling which I will take as read but it is about culture communication and underwriting focus.

This example is typical with the major customers insurance demands that is multiple products multiple markets supplying multiple insurers. In this case we are offering several very diverse products several underwriting offices and this relationship has grown over the years delivering $137 million gross premiums to AXIS since 2002.

We have chosen to organize ourselves around the principle of international market hubs give us the presence and access we need in this example the property placement is in the U.S. Bermuda and London markets one market may concentrate on primary risk another on access capital another on filling capacity in between now all international insurers have large customers like this key distinction is that our underwriters are not only in the right places but they deliver a consistent message from AXIS.

That may seem obvious but also often we see companies not only not communicating internally but actually competing against themselves. Our approach is in PRO a proxy underwrites in the U.S. Bermuda and London, hold a weekly conference call to coordinate terms and response the broader and better informed perspectives. This is underpinned by our peer review which is deeply embedded in our culture and ultimately takes place pretty reflect that’s all.

Takes place on a daily basis between senior underwriters in different locations and essentially helps deliver optimal performance to AXIS across different markets. This is just one of many examples that reflects how we harness on that work. Through AXIS can build serious long term relationships, it also remain nimble enough to execute more focused flexible, formed and ultimately better responses than our peers.

This is the third case study today which concerns development of our energy business into renewables and further emphasizes our underwriting focus. The first slide illustrates the landscape of the traditional energy sector. We have already built substantial energy business concentrating on our preferred areas at the upstream or offshore energy sector to the left of the slide through to the downstream for onshore energy sector to the right of the slide. It was a natural development of this business to extend the emerging renewable energy sector fully complements our products offering.

First the opportunity. I expect everyone will be familiar with the growth in the renewable sector driven by environmental concerns, depletion of fossil fuels and governmental imperatives. Timing was very important in converting what was a clearly emerging market opportunity to a practical business guide. We have many opportunities to enter this sector over the years and have decided not to for a number of reasons, not least due to less experience in a lot of prototypical equipments in the early days.

A wide ranging subject including the not so new such as hydro, environmental initiatives harvesting wave or tidal energy versus geothermal systems and biofuels. Our focus is wind and solar. Both emerged with well-developed technology and tried and tested project development. There's a limited of insurers in the space and the business opportunity for both construction and operational risk now exists generates fission critical mass and deliver a balanced insurance portfolio.

Second leveraging our strengths, we've already built a substantial energy business with a strong reputation and market position for both underwriting and claims. This provides us with the credentials to extend our product offerings with renewables, establish AXIS's lead position in the sector.

Third solution. Specialist risks require specialist underwriters. We hired an experienced underwritings teams focused on developing our wind and solar business. It's proved a success delivering $47 million in premiums last year.

Third slide illustrates our position and perspective on the energy sector today. To the right of the slide we show where we have a strong market position and that's deliberately geared to those areas which we feel deliver the best performance opportunity. The top half of the slide, those are the areas affording growth potential.

In summary we're already strong in the areas that we want to be and are well positioned in the future growth areas we want. This is a good opportunity to derive significant, sustainable and balanced growth, highly complementary to our current energy business and/or alignment with the future of the energy sector.

Okay hand back to Jay.

Jay Nichols

Thank you. As you can see I think we've demonstrated, we certainly have created a sustainable, global, profitable specialty insurer underpinned by extremely strong underwriting excellence with a very heavy focus on risk adjusted returns and a proven ability to deliver complimentary diversifying growth.

As we take the standard AXIS approach, our proven approach to implementing and developing these new initiatives that we’ve established, we absolutely will dampen the volatility of the portfolio and continue to develop and produce industry leading profitability.

Thank you very much and I will hand over to Chris DiSipio. Thank you.

Chris DiSipio

Good afternoon everyone. My name is Chris DiSipio. I’m responsible for the Accident and Health Initiative at AXIS. Those of you who are familiar with A&H know that every company defines it little bit differently. So, I’m going to walk you through our strategy but also try to give you some perspective about what the rest of the market is doing, so you have some comparison.

My first meeting with AXIS was on the day that AIG imploded. So when we talked about some opportunities considering they were the largest A&H underwriter in the world at the time, whether there would be some opportunities for a new entrant into the marketplace, was pretty confident that it was.

I joined the company in 2009; I had a one year sit out. We spent our first year organizing ourselves around getting our regulatory approvals. For reference using U.S. as an example, we have to get 50 states to approve our products and pricing. That’s about a two to three year process to get an insurance business up and running and we’re largely done that now.

But consequently, in 2010 we launched our business as a reinsurance business. We obviously had pedigree of AXIS Re and their reputation in P&C reinsurance market to establish us doing that and that was opened in Princeton, New Jersey.

We started to get some approvals in second quarter of 2010 and then as I was able to bring on some more colleagues, we launched our international reinsurance operation later in 2010. Since then it’s been a pretty rapid development of their A&H footprint. We opened our international insurance business in the UK and that gave us access to the full European market and then we begin opening offices on the continent for both insurance and reinsurance in the latter half of 2011 and then 2012, we kept moving further east first, just putting people in our Zurich office to handle central and Eastern Europe and then our very exciting opening our first Asian office to handle Asia based in Singapore. But the end of 2012, we finished with a $161 million of gross premium.

You can't move that fast and far unless you know exactly what you’re doing and what market challenges are entailed. So I'd point out that the six key people that we had, four of them I’ve worked with previously. Together we had done startups in both China, India, and Brazil at prior companies. So we knew how to do this and do this pretty rapidly.

There is a name not on this chart that you have seen press release about late last week. Rich Phillips's, who was former CEO of Munich Re Health for North America joined us as our reinsurance Chief Underwriting Officer and we’re pretty excited about that because he’s going to help us get into what we think is a pretty interesting health reinsurance market in the U.S. post healthcare reform, a lot of opportunities there.

So now we have 85 AXIS employees around the world in 13 of AXIS’ existing locations. I want to talk a little bit about our value proposition and just concentrate on a couple of points. The uniqueness of our strategy starts off with the fact that we are a hybrid. We do insurance and reinsurance.

Reinsurance has been extremely in terms of our development. It has allowed us to move quickly, it has allowed us to AXIS global markets and different types of risks in those markets, knowing that we have that path on insurance that would take a few years to move us along.

I move down to product led with compliance focus. I can’t stress how important this has become in our markets and everyone on this room is familiar with increasing regulation and we’ve gone from a marketplace in my view that has been very much led by marketing and distribution choices around who can really bring product to market fastest with an increasing amount of rules.

While we are a commercial business we do insure individuals. So you have this overlay in both commercial and consumer law that makes it much more complex than it used to be and one of things about AXIS is the first people that I hired were not underwriters. They were really attorneys, product development people and people that would help us get through this.

Especially in the U.S. post healthcare reform again where the rules are still being worked out, we did a tremendous job, I think of preparing lots of alternatives for what has come out of that and our products are the freshest thing in the market today.

I want to a bit about our distribution and our customers. From an insurance perspective our main customer choice is really to go after employer groups. That's where we sell most of our accident products. From an affinity standpoint we would call that students, travelers, ex-patriots, professional associations, anything that has definable aggregated group but also has in our view specific underwriting characteristics. We do not do mass marketing to the world. We pick specific industries or specific types of groups that had different underwriting characteristics that allow us to select risk.

We distribute our insurance primarily through brokers and managing general agents. 30% of our business today comes through brokers, 70% of it comes through the MGA world. We expect that to start reverse itself. We have a retail strategy and we will become more broker led over the next few years.

From a reinsurance perspective, just about every company is a potential sedan to us. So we reinsure health companies, P&C companies and life companies. I did note fronting companies down there because they dominate the MGU space. So these are companies that typically will offer paper to an MGU to write on but don’t really take much risk and really we do a lot of that business. We write large part of shares behind some of these fronting companies.

The difference is and this is where we try to use our hybrid advantage that is our knowledge of the insurance business, we are the people setting a product risk and pricing parameters but we are really in control of what is going on in those things.

We don’t let the fronting companies do that. We become an increasingly attractive partner to the marketplace in that way because we can help them do the product side as well. So good balance between that and but just more attractive to the marketplace overall because we can offer more solutions to more people with a common knowledge base.

And when we talked about distinguishing AXIS from the rest of the market, the best place to do it is in product because this is where I can tell you what we do and what we don’t do and where our preferences are. So very quickly on the insurance side, personal accident is our main product. That’s accidental death, disability and medical expenses due to an accident. Our business travel you are all I am sure covered here today for attending this seminar outside your office and you get covered for that and then specialty health and I do want to distinguish specifically what we mean on this. We are not obviously a competitor of United Healthcare or Aetna or Cigna or Human or any of the large healthcare companies. We are not in the managed care business.

We are really looking at specific segments that have healthcare needs or healthcare products that are different and require underwriting and risk selection. We don’t make money by squeezing provider costs that’s made by money. We are taking groups like ex-patriots who perform very differently than the general market. They get their care differently, they are located in different places, they are generally high net worth although that’s shifting a bit.

And we really underwrite those risks. We are not throwing ourselves again into the mass market. We are very much focused on the segmentation and businesses that must be underwritten to be successful.

Important in the product choices for us are what we don’t do. So when you look at our recent competition that is other companies who have gotten into the A&H business over the past few years, they have firstly all gotten in one way, something called employer stop loss and that is a market we very much choose not be in. We don’t like the dynamics of that market. We take it as a very short profit cycle compared to the down cycle and recently it’s become under pre-pressure from healthcare reform. It’s actually excluded from healthcare reform for the States have taken a disliking to it in the sense that they don’t like the fact that it’s regulated and are starting to impose some pretty strict conditions on it that I think is really going to hurt that business and there has been a lot of growth in our markets relative to employer stop loss but that is not a business that we would entertain from an insurance standpoint.

I will mention direct marketing as well. Direct marketing is where you either via phone or mail or the internet soliciting people. You are putting out large amounts of money upfront, soliciting people on hoping to hold on to them over a long period of time. And these deals are out there. We see them all the time. But we believe that the profit from that business has been stretched out further and further to longer and longer periods and we are staying away from that business today.

It’s also a business that, again more recent entrants into the marketplace have chosen to be that way to enter the market and I think it’s a pretty private space, especially amongst the life insurance companies that do some accident and health business.

From a reinsurance perspective, obviously it's not about product, because they are carving out exposures from the base products to reinsure with us. So they have a much broader appetite and do a lot of different things. What people come to us mostly for are accident cap cover. So they are concerned about terrorism losses, aviation losses, loss of life related to those type of big events.

From a health perspective they are looking for us to reinsure individual large catastrophic medical losses. That could be anything from organ transplants, premature babies, anything that really put spikes in the medical cost, and we are very happy to take on those type of risk. And as I mentioned before we do a lot of quota share business, the MGU market.

I wanted to give you an idea about our risk profile. So a couple of key things. One is we are in all short tail lines business and they are annual contracts. So every year we get to decide are we staying or are we going on any particular risk. So it's a pretty dynamic process, but within a few months after the turn of the year, we pretty much know the results of our lines of business. We don’t have any long tail exposure there.

This basically shows you our portfolio and we do want a portfolio of products with different risk profile within A&H. Our limited medical product at the bottom is generally pretty low risk, very predictable business, low use of capital to support that business as well, and as you go up the curve, where you can see the businesses that use a little more capital and are little more risky. Up top is our reinsurance business in essence and in the lower left hand corner are our insurance businesses, which are largely much more predictable.

So we want good diversification within A&H, which we achieve with this mix, but also A&H is not correlated with our P&C exposures. When we have natural caps we aren’t the guys that are worried. We don’t get loss of life from those type of events typically.

I won’t spent too much time on this. What I do want to stress is that, we take in an approach for A&H, that is very much focused on underwriting fundamentals and the P&C approach to the business. A&H is odd in the sense that’s written by health companies, life companies and P&C companies and we have a particular prejudice towards making sure that the main thing that we do is underwrite and understand our exposure.

I don’t think there is any company out there that does as much as we do in terms of risk management, in terms of cumulation management and catastrophe modeling. We build a lot of proprietary models and realistic disaster scenarios because they earn lot of commercial models available to us. We do the same peer review process, 100% of all of our reinsurance deals, 100% of our MGU deals are peer reviewed.

Each product has a combined ratio target that provides the proper risk adjusted return in that continuum that we showed you and then we do manage a global portfolio and most importantly, we try to achieve a global standard in underwriting. So, we’ll see business in London that we see in the U.S. We should have a different answer depending on where we handle the business of course.

I want to talk to you little bit about portfolio again because we’re trying the balance a number of things. One is customer. We do want mix of customers as I showed you before but also very critically geography and product.

So in 2013, our expected product balance is about 64% health, 24% accident and then a mix of our specialty and travel lines. That skewed today because we have a couple of large quota shared medical deals out there but over time in our long term target we expect Accident and Health to be roughly equal about 40% of the book each and then our travel business and our specialty business to grow a little. So, it’s important to our mix, it’s not mandatory. We don’t have to hit on any date to make our numbers but that's what we've envisioned in the long term.

I will note today too that our overall book of business is 30% insurance and 70% reinsurance. So, that mix is going to change over time as well. We will ultimately become much more of an insurance player then reinsurance player, it’s just taking longer to get in our insurance business up running of course but we see that trend moving pretty quickly right now and the change our numbers and you’ll see that on the next slide.

From a geography perspective, today makes sense that since we started in the U.S. first as I showed you on our timeline side that most of our premium today is in the U.S., 50% of it. We really expect that to change pretty dramatically over the next few years where we expect about a third of our business to be U.S. and two thirds of it internationally and those our target markets today U.S., Canada, North America, our UK continent, only Europe, Africa and Middle East and then Asia, that’s where you’ll see us over the next few years.

We haven’t chosen so look at Latin America yet. It’s generally a life insurance led market for us and that’s not really what we do but we may look at those markets from a reinsurance perspective. Reinsurance again from a geographical perspective is a way for us to get into these markets without big investments, participate where we want to participate. Some markets will never be big enough for us to get in from an insurance standpoint because we don’t want to make that level of investment.

Despite all the stuff I just said, I think this is the slide you really want to talk about which is when do we make a positive earnings contribution to AXIS and if you follow the story from the beginning here our reinsurance business was the first thing that we started, we did not have a big investment to get into that business we had excellent infrastructure and systems and technology in place because of our existing reinsurance and we were able to move that business along relatively quickly.

Our only real investment was putting offices up and hiring people, I can tell you at the end of the 2012, our reinsurance business the U.S. reinsurance business, the first thing that we started was in the black was already making money after two years that was considered pretty big accomplishment for us.

The insurance business as I described is still really getting off the ground and starting to accelerate pretty rapidly from a premium standpoint and is really more of a monthly building business so you will see it progressed as we go throughout the year. Most importantly on the right-hand side here couple of things I would like to point out to you

We had $161 million of premium at the end of 2012. We had a technical ratio that is our losses and our commission expense in the low 90s relative to that and we think we can get through outbreak even at roughly $300 million premium.

We’ve already written in the first quarter of this year $126 million that’s all that’s much as we wrote in all of 2011 so the premium progression and the growth that we’re getting it is very good and we believe and expect that to be sustainable.

Our insurance business is coming on more and more it’s not our January first business it’s a monthly business and in particular U.S. insurance business is how we cue toward the latter half of this year, our expectation is that we’re trying to continue to make this level of progress in terms of growth but faster we grow of course the more expenses are diminished and that’s of course key for us to move our business overlying.

So quick summary, very proud of the team that we have I don’t think we’ve really created a reasonably effective global company in less than three years and the marketplaces responded to us very well. The whole idea around compliance and products is a distinguishing factor and how we’re viewed in the market and a key part of our value proposition and I can’t tell you how much again this really means in today’s market.

This is what brokers and customers are talking about as supposed to a lot of things we talked about in the past and we really want to focus on product development over the next few years and we’ve staffed ourselves to be able to do that.

The hybrid model having the ability to do insurance and reinsurance has been a powerful tool for us to move quickly and lastly we’re technicians. We’re going to stick to business that really require underwriting expertise. We’re not going to be a marketer in that sense. We don’t believe that’s where the true profit is and we’re going to sustain our business that way,

Thank you for your time today nice to talk to everyone and I believe I am about to introduce a break. Thanks.

Linda Ventresca

Thanks Chris indeed we do have a break now we are running about 10 minutes behind schedule. We have coffee refreshments in the room across the hall here I would ask that you assemble back in this room at approximately 02:50 PM.


Linda Ventresca

Ladies and gentlemen, I ask that you assemble in the main hall here, so that we can commence with the final two presentations and move into the question and answer session. Ladies and gentlemen, please take your seats. Our next presenter is Michael Steel, our Chief Risk Officer.

Michael Steel

Good afternoon. I am Michael Steel, the Chief Risk Officer of AXIS. I’ve been with AXIS just about five years now. I’d like to talk you about a couple of things about the way we manage risk within AXIS. First thing I’ll do is I’m just providing an overview of our risk management framework and how we apply risk management in practice with a few examples and then I’ll talk about some of the strategic initiatives that you’ve heard about today from Albert, Jay, Jack, and Chris and how we think about them from a risk point of view and some of the things that we’ve been doing from risk management point of view with those.

The slide here talks about the key components of our risk management framework and I think the most important element of this and I think you’ve heard it from the presentations that we’ve talked about that’s we’ve had already is really about to our risk-aware culture, that risk management is embedded within the decisions that we make within the group and that risk-aware culture is really important.

From a governance point of view you’ve all have seen within our 10-K sort of how we describe our risk management framework. We’ve got a Board Risk Committee we’ve had since 2007, a risk management committee. I have got Chief Risk Officers within each of the business units and where necessary we've also got legal entity Chief Risk Officers.

We do a lot of natural catastrophe reporting on our reinsurance segment. We do daily rollups about natural catastrophe reporting. That comes up to a weekly reporting over all of our different businesses and that weekly reporting on natural catastrophe aggregates is reported to executive committee on every Friday.

For our counterparty credit, you’ve heard a lot about the initiatives that we’ve made in on the credit underwriting and we look at counterparty credit, we monitor those nationals across all our counterparts, across all of the formats but on the investment side and on the underwriting side to review the concentration risk that we’ve may have by taking counterparty credit risk within the different formats those reported on a monthly basis along with all of our other risks within the group dashboards which we report to our risk management committee and we sit down and review those risks within the dashboards and also all the risks within the organization.

On a quarterly basis those dashboards reported to our group board risk committee and for our legal entity boards we also report those legal entity dashboards on a quarterly basis. They are reviewed by the RMC and then they are reviewed by those legal entity boards.

We have a capital model which has been developed in-house and has been subject to independent review it assists us in really understanding the risk within the organization and as you have heard Albert say and others say we just don’t take models at face value we want models to inform our decision making not to rule our business.

And finally sort of the component on our risk management framework is about our business plans our risk management framework is embedded within the business plan process and our business are tested against the risk management framework to ensure adherence to the framework eyed to us underwriting that business plan. When we think about the composition of our capital at risk and we think about it in terms of a number of different elements if we break it down to the key components we have got the perspective underwriting risk we have got the reserving risk and investment and other risks, market risk, credit risk, operational risk, those types of things.

If we look at the perspective underwriting risk and this output is taken from our economic capital model. We believe that perspective underwriting risk represents about 50% of our overall risk and as you can see from this pie chart that we have here that property catastrophe risk is the largest driver of our capital round about 40% on that so you can also see that we have a diversified portfolio of risks from the professional lines the casualty the credit the more to -- and so it’s a very spread in terms of the diversification within our portfolio.

We talked about property catastrophe risk and we have had various discussions with the investor community over the last few years within earnings calls and other presentations which have been done. And there we have talked about how we have been rebalancing our natural catastrophe portfolio. Here we show the one in 250 annual results from our natural catastrophe portfolio and as you can see since 2011 that we have reduced those exposures in aggregate by around 25%. We expect the portfolio to stabilize at these levels particularly as for example with our AXIS Insurance business some of the MGA tax specific MGA relationships which we had will run off through 2013 and we will stabilize it around these levels. At these amounts we believe that our overall natural catastrophe risk appropriately sized for our business and our portfolio.

In the first slide we talked about some of the planning process. The capital model, our capital model is an integral part of that process and provides information for us to help us make decisions about our portfolio and as I said before it exists in our decision making that’s using these types of tools. Our risk managements at both the segments in the group level review all of the assumptions within our business plans be like current business plans or new strategies which we might pursue. Our actuarial team which is led, as Albert mentioned, by Eric Gesick, validate all of the business and loss ratios. We test our business plans against the risk appetite and tolerances to make sure that we are in compliance within our overall risk framework, and as we take the business plan on an annual basis to our board and to our management through the annual approval process, we also provide prospective risk dashboards showing how the plan fits with our overall risk framework. Through that planning process we review changes that may come up within the plans, to see the impact on capital. And having approved the plan we monitor the risk on an ongoing basis through the dashboard as I’ve mentioned previously.

Now looking at the overall risk and return profile of the portfolio, we calculate return on equities and the probability distributions around return on equities, on a number of basis; these are GAAP basis, GAAP financial basis and economic basis, we may look at return on rating capital, we can look at standalone return on equities, we can look at lines of business as part of subsets or parts of the overall portfolio. There are very many ways to look at our return on equity. Today we showed the probability distribution of our 2013 GAAP financial year return on equity. This is discussed at the planning as we go forward through the approval process. It’s discussed with management and the board, on that annual basis, as to what we are getting to write businesswise within the next financial year.

Financial numbers are on this. So I can take you back to the slide earlier where we looked at the prospective underwriting element of our overall portfolio. And if we look at that prospective underwriting elements and we look at it on an economic basis, we can say that when we look at that perspective underwriting, we look at the ROEs that it could generate, we think that those that prospective underwriting generates around about 10% ROE on a group wide basis. We see this as an improvement over our 2012 trends by about a 100 basis points and that’s really led by a combination of factors, the improvements in the rating environments, new initiatives that we’ve talked about and also the our overall diversification that we have within the portfolio.

How do we think about diversification and action and how do we use these types of tools to help us create the portfolios of risk that we want? We can start off by looking at business, if we were only a property catastrophe writer and this is similar to the sorts of slides that you’ve seen Albert and Jack and Jay present earlier. Property catastrophe only business we’d have high volatility and high expected returns from that overall portfolio.

But that in diversification to the portfolio has to impact, it lowers the expected return we think to so those adding that diversification to our portfolio lowered the expected return by about three or four percentage points but also significantly reduces the volatility within the portfolio.

We can then sort of look at how we can add these new initiatives and other sort of diversifying risk. So for example if we look at our credit underwriting line of business, we see for those underwriting lines of business that the marginal return as Stephan and Jack have talked about earlier. It’s much greater as we model it than the marginal risk and so it improved the overall portfolio.

We also see similar positive effects from the loss of the new initiatives that you’ve talked about earlier and that’s so it’s new initiative start to maintain scale, we believe that have positive impact on the risk reward profile of our business.

Now look at another dimension of our portfolio and this is sort of looking at our reinsurance purchasing strategy for our AXIS in insurance business. And we’re focused on non-natural catastrophe risk and our goal here is to optimize our reinsurance purchasing strategy to customize it for our scale and diversification within our portfolio as we see AXIS today not where we were previously as we see AXIS today. The blue square on this chart is the baseline which is the 2011, 2012 reinsurance program that we purchased and through this whole process we reviewed different strategies along with management, our risk team, and the actuaries.

We look at different strategies where we could increase the amount of retain risk we have within the portfolio and what we find through this again given our overall scale and diversity is that the premium save through not purchasing some of these covers far outweighs the amount of additional risk that we would retain from doing that.

As we said, models are only one aspect of any strategy that we may pursue and that will help in form our decisions but we anticipate that will likely increase the retentions and we’ve started some of this increasing of our retentions but we likely to continue to increase those retentions but we’ll also review changing market conditions, we’ll also review the overall portfolio composition to make sure that this still makes sense as we pursue this particular strategy.

Turning now to the work that we do on asset risk with our investment colleagues. As part of the planning process we performed an annual review of our strategic asset allocation. what we find as you would expect with this scale of our portfolio and the element of fixed maturity is that the portfolio is very sensitive to movements within interest rates and what we find through this process is that adding risk assets to the portfolio which are less correlated to our fixed maturity sensitivity to interest rates and proves the overall return and lowers the overall risk within the portfolio.

Our strategic asset allocation is again approved by our board as we’ve discussed previously and we also checked that it complies with our risk framework and the risk tolerances which replied to our overall portfolio. Joe in a few moments will talk about how to implement to this plan and move ahead with auctioning of this particular strategy.

Unless we think about risk within AXIS what we really looking for is the right balance here. We’ve talked about diversification its key to portfolio construction both across our underwriting and our investment portfolios. We’ve talked initiatives of reducing cat to the overall percentage of our portfolio and reviewing diversifying initiatives to improve the risk return profile but I think, so what we would conclude with is that our risk management at AXIS is not about risk avoidance it’s about taking risk more intelligently and allowing us to create a better optimized portfolio which will deliver a better risk adjusted return. Now I would like to turn to Joe to about finance side.

Joe Henry

Thanks Michael and good afternoon everybody I am Joe Henry I have been with AXIS for about a year and like Jay Nichols I am very happy to be here. I would like to cover three topics with you today, the first is our investment portfolio and how we positioned it for the environment we are in. Secondly our loss reserves and why we think we are maintaining the strength that AXIS has had in this area and finally our capital how we are managing it today and how we will manage it into the future. So first investments we have really three major goals the first and these are in order by the way the first is to protect the balance sheet as with underwriting the primary focus is to avoid outsize losses. The biggest risk to book value coming from the investment portfolio is rising interest rates and spread widening. I will discuss the things that we have done and we will continue to do and mitigate these risks based upon the cost of these mitigation strategies.

Second, to provide consistent annual income, this goal is frequently at odds with the other two but remains an important one. An example might be adding hedge funds to the portfolio that mitigates interest rate risk and contributes to book value growth but it adds to net investment income volatility.

And then third is to contribute to book value within risk constrains and the primary risk constrains we have are percentage and type of assets appropriate for this portfolio. AXIS Investments portfolio has made a significant contribution to book value over a period of time. You can see we have had good consistent contribution coming from the investment portfolio with the exception of 2008. 2008 dip was due primarily to a strategy leveraged to European credit spreads. We held this position for much of 2009 and ’10. Our last exposure to this strategy was eliminated in June 2011. These numbers by the way on this chart are pre-tax but given our very low tax rate, pre-tax and after tax are within $200 million of each other.

Our investment results relative to our peers have been very strong since the financial crises. The factors contributing to this performance include, remaining invested in strategies in asset classes which was significantly impacted by the 2008 financial crises until they recovered.

Second, hiring; AXIS’ first time Chief Information Officer, in June 2007 and the build out of the AXIS Investment team. We had three people on this team in 2007, we have 12 now. As Mike mentioned increased governance and controls, development of a more robust strategic asset allocation process, and meaningful increased diversification of the portfolio.

Let’s get into the investment process and controls a bit. The left side of this slide shows in blue what AXIS investment does and the green box shows what is done by the 28 investment managers we have, we use in our fixed income, hedge funds, direct lending and equity areas. So essentially our investment team determines how we are going to allocate the portfolio, designs customized benchmarks to monitor performance and select the firms that we outsource to. These firms select and execute the trades and then we monitor compliance and performance. Our management team monitors this portfolio on a monthly basis and our board does so on a quarterly basis. There is very close interaction between Mike’s enterprise risk management team and the investment enterprise risk management team.

Big question is the extents and the timing of interest rate increases. As you can see it from the charts, everybody knows, U.S. treasuries are at an all-time low. As rates rise, unrealized book value declines are likely. Then you might ask what are we doing about that? We are diversifying sources of investment income while maintaining overall quality. Our overall quality is AA management of portfolio and we are going to keep it there. But you can see on the right hand side that we made investments in CLO debt, emerging market debt, and short duration high yield securities. The aggregate size of the investments in these areas is approximately $3 billion. Are we offsetting the decline in interest rates in the fixed income portfolio? With 82% of the portfolio in fixed income, the short answer is no, but every bit helps.

As far as rising interest rates, what are we doing to mitigate that? We are maintaining our short duration in the portfolio itself and investing in assets which should benefit in an inflationary environment. As you can see in the right hand side of the see-saw there, inflation linked securities as well increased risk assets, specifically equities, hedge funds, and high yields. The aggregate size of these mitigating assets is approximately $700 million and we are keeping a duration short at approximately three years. The portfolio today continues to be high quality, when compared to many of our peers largely made up a very liquid investment created bonds with a relatively short maturity. Now let's discuss last reserved at how to proceed before I get into this chart, just a couple of introductory comments. First as you know AXS has always been conservative in terms of our policy, we set our initial loss ratio at an appropriate level.

And we react slower to favorable experience and we deal with unfavorable experience on a timely basis. We have a comprehensive governance framework; reserved analysis is performed by qualified actuary. As mentioned, we have added Eric Gesick as our Chief Actuary. He is an additional set up of (inaudible) looking at our reserves as well as advancing our analytical capability.

We have multiple levels of management review before management review before management selects in best estimate. And we have independent annual reviews and opinions by two outside actuary firms. And finally we have a robust, quarterly review process; we review actual versus expected experience and actuary real assumptions as appropriate. We have in debt discussions with the under running personnel and claims personnel and we discuss our actuary analysis with our segment and management reserved committees.

The top part of this chart shows the spilt of reserves between short tail, medium tail and long tail business and splits reserving between keys reserves in blue and IBNR reserves in red. Focusing on the medium and short tail, excuse me medium and long tail, the vast majority of the reserves sit in IBNR at 77% and 70% respectively. The bottom part of this chart shows historical reserved development over the last 11 years, every year has been positive and that has continued in the first quarter of 2013.

While much of those reserve releases were in short tail lines, we have also benefitted from the releases in professional lines and most recently we began releasing reserves in casualty lines in both our insurance and re-insurance segment which we have used in parts at the reserves and more recent accident years which are still green regarding development experience.

Last let's cover capital management, our overall capital position at March 31st on a pro forma basis for the recent preferred stock series de-issuance is just north of $7 billion, spilt between common and preferred stock and debt. We were very happy with the 5.5% rate we were able to achieve on the series D preferred and increased the size of the offering to help us fund stock buyback among other purposes.

Our debt and preferred stock to total capital is just over 23% which is well within our internal guidelines and the rating agencies were fine with that as well. We do not anticipate any major changes in our capital structure until 2014 when part of our debt comes due.

Okay, AXIS has a track record of efficient capital management and the solid blue bars below the line this graph illustrates capital rates in the early years of $2.1 billion as compared to the common dividends and share repurchased of $3.4 billion above the line for a net capital return of $1.3 billion, that represents an internal rate of return of 16.9%.

This slide shows that since 2009 we have brought back 28% of our shares outstanding and this has improved our compound annual growth rate and diluted book value per share by almost a full percentage point from 10.4% to 11.3%. In addition, we have increased our dividend every year at a compound annual growth rate of 8.6% is currently $1 per share on an annual basis. The dividend yield is 2.2% which is at the high end of the range of our peers.

So what is our overall philosophy in this area as you heard from Jack, Jay, and Chris we’re expanding our businesses organically and through new initiatives and we monitored capital carefully at a group and legal entity level but we will return capital to shareholder if we feel we can put at good use although we do not have a very complex organization structure, we do have to monitor regulatory capital in the U.S., Bermuda, and Ireland as well as various branches around the world and maintain an appropriate capital buffer.

In addition, we need to insure that there is very little chance that we’ve had issues with the rating the agencies that we have maintain an appropriate capital to protect our current ratings.

In summary, we are maintaining a high quality liquid portfolio that is positioned well if interest rate rise, our lost reserves are very strong and will continue to be so and our balance sheet is very strong which should enable us to fund future growth and continue to return capital to our shareholders as is appropriate and with that I will turn back over to Albert for some concluding comments.

Albert Benchimol

So, this concludes our prepared remarks part of the presentation. Hopefully, we have kept our word when it came to communicating where we believe were the strongest attributes of our organization, underwriting excellence, it has been the bulwark of our performance to date and we certainly expect that it will continue to be so in the future.

Hopefully again going through the various businesses, the various case studies, the strength, the depth, the focus of our multiple franchises across the world in multiple lines and multiple franchises, our commitment to continuing our entrepreneurial fashion, our diversifying growth and our enhanced portfolio construction which will deliver both top line growth in the company and more stable earnings going forward.

I think we have talked a lot about today about our DNA, how we work, the energy around the entrepreneurialism, the team-work, the peer review, all of these approaches and the things that we have had in our company now for over decade, they work well. We have broken down silos (ph) where we found them and I think ultimately the team approach that we have to our risk management to our business generation will continue to help us forward.

And again, as Joe just showed you our capital base, our balance sheet, our financial strength are nothing more than in addition of our promoter of our business strategies. We are not the largest company in the world but we certainly have enough capital to support our business, enough capital to be respected in terms of the capacity that we provide and in terms of the credit quality of our payables.

So that concludes the prepared remarks. Linda, I believe we are going to take a five minute break before we start up, no? We are going to just start up now. I am going to follow Linda’s advice.

Question-and-Answer Session

Linda Ventresca

Okay, we are going to have management assembled here on the stage, I just ask you to stay in your seats. Raise your hand with a question, we’ll have two microphones circulating and we’ll try to get all questions answered by 4:30 if at all possible.

Unidentified Speaker

Just wanted to ask about acquisitions, I know you have done smaller acquisitions in the past, what is your appetite today, and is the environment can do so that you think we might be in a period where there might be more opportunities or less?

Unidentified Company Representative

Strategically to speak about acquisition; we made them in the past; I think they absolutely serve a role in the strategic growth of the organization, and we will pursue those. I think the most important thing is that, one of the things that I hope would convince you about, is we already have a lot of what it takes to be an outstanding global company. We don’t need to make an acquisition to get to the next step in our strategy. That doesn’t mean that there are not a bunch of bolt on acquisition that could be very interesting to us. And we would look at them all the time. And I can tell you upfront; one of the areas that I am most interested in making bolt on acquisition is to support the franchise that Chris is trying to build here. Because obviously we are not yet what we want to be. We have got strong ambitions about the growth in each area, and that would be one of the areas. So well we don’t need it. And we are not spending a lot of our time diverting ourselves from the core business. We will continue to look at them and if they make sense or not, we will look at those. But it’s not the front and center item of our daily agendas.

Unidentified Speaker

I guess another question for Chris, if I can? Can you describe competitive environment that’s allowing for the rapid buildup in the A&H business that you are pursuing?

Chris DiSipio

Sure, couple of things, although separated from insurance and reinsurance. First on the insurance side, the events with AIG did open the door; it changed a lot in the marketplace and allowed us to get in on the entrant side relatively quickly in the U.S and UK. On the reinsurance side I would say, in my opinion, there really wasn’t an accident health leader in the marketplace so we staked out certain parts of the market that we’re interested in. Lots of the accident cap side which was traditionally done, most exclusively by Lloyds and then Bermuda (ph) for a while but that disappeared. So we were able to come in put more capacity, more focus on that kind of steal a little bit of a march on the market place there, and break in the programs.

Unidentified Speaker

But is it fair to say, Chris, that there is a couple of big gorillas, a couple of us smaller companies but other than that it's a very fragmented market with a lot of opportunity.

Unidentified company representative

It is; to come back to the insurance side too, we just tactically what we have attempted to do is if you think of the team that we have in a very fragmented morbid, and if we take the four of the largest insurance carriers out there, the AIG, (inaudible). There is about $10-12 billion of premium there, all we have to do is take half a point of that every year to make our number; we position ourselves very much in certain segments, our A team is generally going against their B or C team, we're going to win and from that standpoint, we've just been very select and very targeted about, what we want to do on the marketplace. The market highly segmented, it can be defined in many ways, but we go after things in a very narrow focus way and with more resource than they have even though they are bigger than us.

Unidentified Analyst

Hi I think Michael mentioned in his presentation that that risk is now appropriately sized for the company overall. Understand this is a complex question to answer because you are constantly reviewing the overall portfolio and managing to several different variables but I just want to make sure and understand the implication of Michael's comment is that we would not be looking to shrink cat risk further, we're comfortable where we are at this point overall for the firm.

Michael Steel

I don’t want to give you the sense that we are not going to shrink it or that we are not going to grow it. Right now, the book is where we are want it to be. The most important thing for us over the last 18 months was the fact that there was certain pickiness in certain parts of our portfolio where we felt, we were over exposed compared to our appetite for what we wanted. And frankly, there was some regions where we were under exposed. You saw Bill's presentation and on some cases, we're little low in some of these market shares and there was opportunity for us to grow. Given where our portfolio is today, given where the pricing opportunities are today, given the funding that we are utilizing to support our cat business today where we are makes sense for us. All of those things will change and all of those things have been causes to reconsider our appetite for cat in the context of the overall portfolio. But where we are today, is not a bad place. Anything you want to add to that in your perspective?

Unidentified company representative

No I think the qualification in that statement is retained cat risks.

Unidentified company representative

Yes obviously, Ben you hear that?

Unidentified Analyst

Couple of questions, there was a lot of talk about risk management and Michael your presentation was very good, hard to get a sense of what changed through in the last several years, let me just start I know it’s been in place for many years as there’s been an increased rigor that’s put in place over the last couple of years on risk management, really what changed?

Michael Steel

I think what’s changed, I joined the group in 2008 as our chief risk officer and really it was about formalizing a lot of risk management that we had in place previously that mentioned the pair of view process which is embedded within our underwriting. We had a lot of very good risk management practices which we just didn’t call risk with management they were as I mentioned earlier risk management was really embedded in a lot of what we do, it really what we said about doing in 2008 with formulizing the governance structure around risk management, formulizing the use of the capital model within our business planning process really putting more analytics behind all of this helping form some of the decision that we’re making that we can really use that to create to better construct the portfolio going forward, I think that’s all changed from AXIS internally but also I think you’ve seen whole regulatory environment changed around risk management well and the rating agencies looking at us from a risk management point of view as well and so we need to respond to that and make sure that processes are very strong they stand up to external scrutiny as well as being something that we value as part of our business.

Unidentified Company Representative

Even prior to my coming on board we didn’t have our own risk managers embedded in the individuals businesses, Michael mentioned earlier in his presentation he made a reference to that fact that he has embedded risk officers in each of our units. We now have our own risk infrastructure with much better data and analytics that we had in the past whereas we behaved as Mike said like a well risk managed company and its much better understood as to what's required of the process and actually we're able then to take the output of it and use it and apply to the business itself and I think that’s a critical phase but real output that has a demonstrable use in the business rather than just doing it for fun how do we did that before.

Unidentified Company Representative

Yes if I can add to that I think he's exactly right, nobody think that we didn’t have a risk-aware culture from the very beginning and if anybody gave you that impression that’s wrong, but I think what you do with it. You can measure the risk but if you’ve got higher risk appetite you say yes, I have got a high risk appetite. I think in my mind we’re spending more time now really with using the tools that we have to do more analysis in terms of portfolio optimization. I think to me that’s the biggest issue. You know we always knew what kind of exposures we have in the cat side; we are not thinking more in terms of how does it fit in the overall portfolio.

We had the information, we certainly individually, we have debates about what was the right reinsurance purchase and right level here or there. I think now we are saying well how do that all fit in, are we getting paid and to me the most important thing, Mike and I when talk about this, so the risk management is not about limiting risk, it’s about choosing what risk you want to take and today we spoke to you about two different directions of risk, three different directions of risk in terms of yes we are reducing cap risk but yes we are also going to be increasing retain risk on a progress basis. We talked about the, in fact we are adding, we are happy to add risk assets to the overall portfolio because in our mind that’s the right thing to do the investment portfolio. We talked about adding credit risk, talked about adding other diversifying risk. So what we are doing here is we are just adding one more level or one more layer since that we already had.

Jack has a great quote. When people say oh my god, (inaudible) what we are going to do, are you going to use the ROE to limit my business or whatever and Jack try to say oh why shut down businesses long before I heard about ROE. You know we knew, we know what the profitability of the business is. So it’s not like we have been discovering something new but we have different approaches, different angles to look at the problem and hopefully get to a better solution.

Unidentified Analyst

That’s really helpful. I have two other questions on the A&H side. The first one is, can you be long term in the insurance and reinsurance business or is there some conflict and then separately when you get to scale in that business, what kind of ROE will you generate, it doesn’t outlook like that there is a lot of capital that needs to back that business.

Unidentified company Representative

The first question is, I would say every, virtually every major insurer of A&H other than my old company is a customer of ours. So it hasn’t been any impediment for us to be in both sides of the business. We have a very distinct reinsurance operations that has its own underwriting actuarial risk resources, they operates in the reinsurance market. So, the intent is to be there and to build pretty strong global reinsurance platform, although we certainly assume that the insurance business will cliffs that in terms of the size one day, our goal is to I guess we'd say it this way is whatever percentage or premium I write as a part of the company’s overall premium, I want to have a bigger proportion of the profits in that. so if I can quote some general numbers from prior life, 3% of the premium, 6% of the profit, so we want to be something in say the mid-teens ROE; it’s what the target that we have talked about, and we think that’s achievable once we get to scale.

Unidentified Speaker

You guys spent a lot of time talking about teams and the employee base and the underwriting talent, and how long people have been at AXIS. There are a couple of competitors out there now that seem to be on a hunt for talent, one on the island, one in Omaha. Wondered if you can talk about, if you made any changes to employment agreements, employee retention, how you plan on maintaining the business that you have built here so far?

Unidentified Company Representative

I think the hunt for talent started way before the Island or Omaha. This is the business we are in. We are in the business of recruiting, and retaining people. We can't be spending so much time telling you but how good our staff is, and not expect that our staff gets approached all the time. And they do. What you need to do at the end of the day, last I checked, slavery was outlawed a long time ago. So if people want to leave, they will leave. They could take a contract, they could take a six months or three months or one year waiting period. We got one of those, we put on the ice for a year. You can't stop people from leaving. What you want to do is make them not want to leave. And that’s really what it is about. And the question that we have, that we are trying to do is what makes AXIS the kind of place that people don’t want to leave. It’s an organization where underwriters really feel appreciated, where they’re working with some of the best underwriters in the world where they engage with each other.

They challenge each other. I would argue that over the last couple of years we’ve done a lot in trying and further enriching and strengthening the bonds between ourselves and our staff in terms of giving them more tools and more authority, more empowerment to achieve their goals; more communications, more talent home meetings, breaking down the silos so that they feel even more strongly as a part of the team. In my mind it’s very difficult to imagine a lot of places that if you are happy, why would you want to go elsewhere? That doesn’t mean we won’t lose people. You must be clear about this. We lose people very often because we have got so many good people, that there is second, third and fourth in line. And they go, when am I going to get the (inaudible) [0:02:39]? So many comes to them and says look you are currently an SVP, in charge of this, and I am going to make you an EVP in charge of that, and I am going to double your sal, guess what, some people are going to take that. You can't stop that. But that’s okay. One of the interesting things, over the last year, we have of course lost some people, but in all but the one spot, we replaced that person with somebody within the company, that's speaks of the debts of the bench; people we know, we know they are under writing results, we know their culture, we know how they getting along with the business and that speaks to what we've got. And when we lost somebody and we replace it from the outside, we do a very good job of bringing in outstanding people as far as I am concerned Peter Wilson are great higher. And we have a stronger US insurance business today than we did before.

Unidentified Analyst

Back to Omaha, not specific on the teams but obviously a big player like that into the specialty market where you are a big player, can you talk about some mitigating factors as to why they wouldn't be able to take a lot of business from you? Are they going to be writing different types of business or will they?

Unidentified company representative

I'll have to stop, I am sorry, the siren is so loud that I can't hear you actually so if you don’t mind just waiting a second and repeating the question, that will be helpful, at least to me, I am the older guy in the group here.

Unidentified Analyst

Attacking the specialty business, can you talk about the mitigating factors that would keep them from either taking business from you or not having a negative impact on pricing be either them taking a long time to get going or some of the mitigating with their different types of business, why won't they be a threat to actually been superior specialty franchise.

Unidentified company representative

There are always been competitors starting up and with the same competitors start across many product lines and many geographies over the years. I am not sure yet, what kind of a competitor they are going to be certainly in terms of the ENS business that they have established, I have got lot of capital, they certainly seem to be hiring a lot of people. But quite a number of those are people with strong track records in industry and so being reasonably sensible; so one would perhaps have been more responsible competitor but I am not entirely, we don’t know about that yet.

Some of the other activity that we are seeing from (inaudible), there have been lot of publicity around London market especially panels with (inaudible) and we are reasonable confident that it has at this stage a limited impact on our business. We are very strong positioned in that London market specialty business with strong client relationships, strong broker relationships. From where we are seeing the impact more often than not is smaller organizations that have minor participations on business are been squeezed out. Those that have more significant participations add more value, add more expertise, better client relationships are being retained.

I think any new startups in the London marketplace for instance would have more difficulty getting on placements as a new market than they might have done in the past as a result, but even then, if you look at the (inaudible) deal that's 7.5%. That generates roughly $200 million of premium to Barcshare (ph).

Out of Lloyd's total revenue of $40 billion, it's a relatively small piece of the market and it's concentrated in a few very specialty lines. I can understand that. It’s more visible and I’m not particularly concerned about it. I don’t know what they will do in the U.S. and I certainly know that they appear to have an appetite but how consistent a player they will be in all these markets is another question.

I think we'd all acknowledge that Barcshare (ph) don’t have or never had a reputation for being consistent long term players behind any client or in any particular marketplace, and I have no reason to believe that they’re changing their approach in either the E&S play or the London marketplace.

Albert Benchimol

There is no question that we don’t know where this will take us. I think we’re competing as well as we can. As I said in the conference call, we've competed with very big very powerful competitors before and we still found a place for ourselves but that in fact is why it's so important for us to continuously look for new opportunities, new franchises new markets, because at any point a number of the markets that we’re in are not going to be attractive, either because the competitors decided they want to own that market or because the pricing or whatever else.

With the breadth of the opportunities that we have, we can focus on growth in other parts of the world. So maybe and I am not saying that it will but maybe we may not get as much growth in U.S. E&S for that reason but you’ve seen the number of other opportunities the Jack is pursuing, that Jay is pursuing, that Chris is pursuing and we’ll find opportunities there but the whole point if you would is all about not being focused on one market but having a whole range of opportunities.

Unidentified Analyst

Could you talk about the ROE profile that you're underwriting business at. I believe in the risk presentation it was mentioned that you’re writing at 10% ROE and that ROE was about 100 basis points higher this year versus last year because pricing is up on U.S. and you’re pursuing some growth opportunities?

John Gressier

So you’re asking rank by attractiveness?

Unidentified Analyst

No, so are you writing the business at 10% ROE for this underwriting year, that's correct what I have heard?

Jay Nichols

On average, I mean this rate literally goes from the very least, very low positive number, to in the case of a couple of line very, very strong double digit numbers. So when I talked about optimizing the portfolio within the constraints of the market realities, we don’t have the flexibility that you have. You can buy stock in the morning, sell it at noon and buy it again at 3 o’ clock. We can’t do that. Our clients and our brokers accounting on us to be a consistent market generally and so when we talk about moving in and out of markets, it’s on the margin moving in and out.

Now, at some point, we might see that our market is so troubled that we want to get out completely and certainly, Jack's Insurance Group, got out of Primary Casualty in 2010 after shrinking that for several years. So we will do that. And by the way we are going back into primary casualty as it’s starting to improve.

And so what we do as a part of the planning process, and each underwriter does this, is they decide whether they want to grow or shrink but it’s not getting in or out and so we will have lines of business that are less than 10%, but to be honest we have lines of business that are less than 5% but we are there because we believe at longer term, those lines of business will deliver an adequate return across the cycle.

If we believe that our line of business was always going to be a low return then we would ask ourselves why are we there. But today whether it’s our specialty line, obviously the CAT book, number of other lines of business are providing very, very attractive ROEs and we are very happy to grow those.

Other lines of business, we have talked USD&O (ph) for example, which has been lower ROEs. We haven’t grown that much in the last couple of years. So, it’s all about increasing or decreasing based on the relative attraction of any line of business.

Unidentified Analyst

Okay that’s helpful. Just a second question is on the reinsurance business. We have heard that there is more pressure on the business, not just the CAT business but because there is a significant amount of capital, so are ceding commissions going up and how do you view the profitability going forward of the reinsurance business, besides the areas that you are focusing on for growth?

Albert Benchimol

You mentioned ceding commissions going up but if we do the math on the primary rate increase coming through and the ceding commissions taking a percentage of that growth but there is a still growth leftover. So, still our margins are getting better than even though companies pushing from point here or point there of ceding commission and. that cycle comes and goes and they are pushing on ceding commission. So we are not getting a 100% of the price coming through on our participations, but we are still getting growth in margin on those lines though.

Unidentified Analyst

Just another follow up, do you think that more competition, I mean lower rates on property CAT would mean higher competition among reinsurers for the rest of the business?

Jay Nichols

I do, and I think you will see it, you are seeing some of the property CAT companies looking to hire teams in other lines business. I think we are very well positioned in those lines of business that other companies are trying to diversify into. I think we are diversifying ahead of some of those other companies into other lines as well.

But there is a knock-on effect that the capital markets come in and they push some capital out of CAT, chip that capital. If that’s a reinsurance company they think reinsurance, they just try to extend out in the reinsurance platform to other lines of business. We may see pressure a little bit at the natural effect. Our job is to position sales well with our customers and make sure we are making the right decisions where we are aligned to business we are in.

Albert A. Benchimol

There is probably a comment worth making the insurance versus reinsurance, and I think that although arguably the buyers are getting a little bit more out of the transaction today by getting a little bit more at the ceding commission and so on.

I think one has to recall that the reinsurance industry has had been a much better job of holding enterprising in terms and conditions over the last three, four, five years in the insurance side. And so the relative strength has been in favor of the reinsurers for a good part of the last several years.

And so what we are seeing now is more of a rebalancing, if you would between the buyer and the seller. We are both benefitting from the improvement at the primary level, but because of the relative position between insurer and reinsurer in the past there is a little bit more catch-up and as much the primaries are keeping a little bit more of the improvement so that they can have more equality between the reinsurer and the insurer, but this doesn’t mean that the reinsurance industry is unprofitable right now. Certainly that’s not the case in our book. We had a question over here?

Unidentified Analyst

This is sort of an obligatory Florida question. What’s happened in Florida 6/1 materially change the 10% accident in your ROE, given just how profitable Florida has been?

Unidentified company representative

You can talk about Florida and I can talk about the portfolio.

Albert Benchimol

Okay, I will talk about Florida and our presence in Florida as well. So there were, the brokers who are numbers from the 6/1 renewal thing, prices were down to 15% depending on layer and that's an important thing like that but 15 plus. It's coming from an attractive point through the floor in terms of the pricing and the return on risk on return on capital.

Our business as you remember from our discussions on conference calls or previous discussions where we shifted a little bit of our portfolio to Florida, we had historically not written Florida specifics as or had a big presence with the Florida specifics and we shifted somewhere our portfolio from the northeast to Florida last year but it was not a huge bite and so in terms of the impact on the reinsurance business, Florida has not been the primary focus of the reinsurance business, even though a significant amount of the global risk in the profit CAT reinsurance business emanates from the Florida, from the peninsula and the Gulf of Mexico and so I'll turn over to Howard but our scale in that is we are I think in terms of the percentage of our expected profits and renewal coming from Florida where further up to scale is to the impact on us.

Unidentified company representative

And that in fact is my answer, the Florida business is such a small part of the overall book, set moving up and down by that amount is not having a material impact on the overall average return and obviously some of the business that we are writing now, some of it is in fact doing a little bit better than we expected.

And that's the way it all works out. Some do a little bit better, some do a little bit worse and at the end of the day, one good gust of wind changes everything but right now, we are comfortable that we have got a better book of business today than we had last year and we're continuing to improve on that.

Albert Benchimol

Yes, Steven will get the mike at some point, go ahead sorry.

Unidentified Analyst

Just a general question on third party, if you've covered this before but it seems that the response to the proliferation of third party capital is going to make new hires and try to develop that capability. Is that correct and does that imply that you think that this is a secular change or would or is it still a cyclical type of phenomenon?

Albert Benchimol

Do I think that it is a permanent change?

Unidentified Analyst


Albert Benchimol

Yes, well it's been going on for long time and my answer to the question yes, I do believe so and I do believe that it's been going on for long time; 20% of the risk is placed into whether it's some form of capital markets vehicle, whether it's CAT bonds or (inaudible) that are collateralized. So I absolutely believe it’s here to stay. The question is how big it’s going to be?

Unidentified Analyst

And that’s the follow on is, how you see that changing the industry? What do you think that’s not maybe specific just to AXIS but how does that change island or the industry as whole?

Albert Benchimol

Doesn’t change my frame a lot in the way I think about the business which is I actually believe the reinsurer should be the arbiter where risk meet capital. We have traditional balance sheet which is good for preponderance of our risk and there are some risk that should end up on a different balance sheet that’s better, has different return characteristics, different volatility characteristics in our balance sheet and so there is portion of our risk that should end up on a customized balance sheet for customized risks and that’s what the third party capital initiative is all about.

And so I think it's continuum, it will become more but the markets been going that way since 1998, 1999 and they actually started this way long-long time ago in Lloyd. So just be clear this is not new in the industry. The way capital comes into our industry has been very dynamic over the 400 years but there has been a reinsurance industry.

So the big question for me is how we positioned the service capital and service to our customers and so that we’re still relevant in the arbiter where risk meeting capital. I think we're moving to that space to be well positioned to do that.

Jay Nichols

I am quite bullish about it. I have to tell you I think it gives us an additional way to differentiate the companies in terms of the intelligence and use of this capital. I see two or three things coming out of it. Number one I am really hoping that we won’t have a class of 200X, because if we do have an event of some sort, instead of creating new companies I think we can just increase the excess of third party capital and better leverage the intellectual capacity of this industry. And in that world again we’re in a good place.

I think that although arguably you could say that we’re quote late to the party, I feel we've got lot of people in this organization that are very comfortable, very familiar with the intelligent use of third party capital and that we can catch up pretty quickly in that space.

In my mind what our shareholders want is a very steady, hopefully high net retained profit and the use of third party capital is the way that is one of the tools that we can use to enhance that net retained profit.

Unidentified Analyst

I don’t know if the question for Joe or for Michael but obviously the industry has benefited enormously from unpredicted very low claim cost inflation over the past few years. In addition to company specific conservatism, do you have a good enough understanding of what’s been driving the sort of favorable period so that you can appropriately anticipate if and when it implies (ph).

Albert Benchimol

If you figure that out, I’ve got a job for you! I think there is no question that we have a lot of, and I'll open this up to everybody but we have benefited a lot from the Bush Supreme Court among the other things. I think that the justice system has actually being more pro-business, pro-insurance over a long period of time. And then we have just normal cyclical ups and downs in term of frequency.

But what I will say is that the industry studies that we are looking at would indicate that lot of our peers are starting to see increase frequency and severity in the professional liability lines, D&O lines so and so forth. I know that there is a lot of industry studies that are done on triangles and so on and lot of them are saying, a lot of people may have net positive reserve releases but when you go down to the details you will see a few reds in some of the recent years.

Now that may be some of things that we do which is early response to bad news and slow response to good news but I think you are hearing a lot of that. Certainly in the D&O side, one of the things that have been driving the pricing of the D&O is the increases in the loss frequency that we have seen. So I don’t have but anybody here is welcome to add their comments to it. We're observing it. I am not sure that I am prepared to say when the inflection point is. Eric do you have a view on what is the inflec? Sorry.

Unidentified Analyst

So I wonder if you can dig into the insurance initiatives a little bit further. Jack in your presentation you laid out the promise that you want to maintain the high profitability, you have to lower the volatility, you have laid out a number of these strategic initiatives that you are going to put forth with that. That’s kind of speaks to what you are doing in a vacuum. Obviously you are not operating in a vacuum.

There are lot of competitors out there. This business has to come from somewhere. The business you are talking about is often amongst the most cherished areas of business being high profitability and low volatility. So, can you talk about why that business is going to come to you assuming that you are going to be maintain your underwriting standards to get it?

Jack Gressier

Obviously, there is a way of incumbent or in most cases there is an incumbent market that has that business, and many of them may guard it jealously. But there are a lot of ways of presenting a better sales preposition, a better client presence, a better product in the first instance, perhaps better distribution, perhaps better claims handling and claim servicing. And then of course a broader suite of products perhaps to offer a particular client.

In the case study that Joe England presented earlier today around one particular manufacturing company; we sell that company a thousand different products. Out of our top hundred clients globally, we sell in excess of an average of eight different policy types across professional lines, across property, across casualty, across a host of other specialties.

And so yes, there are other carriers out there like us. But there are an awful lot of companies out there that don’t come close to being able to walk for the geographic footprint to us, to be able to be close to offering the products suite that we do. So we have some significant advantages from that perspective.

One thing also there is a degree of dislocation in the marketplaces at the moment and this is driven by the major brokers. Certainly one of the things that does come with a greater power that they have is that many of them place a great deal of business currently with thousands upon thousands of carriers. Some of them are very, very small. Many of them I assure you, you would never have heard of. And this is all over the world, this is throughout the U.S.

And they are making very significant strides towards concentration of placement of that business with fewer higher-profile, more professional carriers. And we found to date that we’re being one of those carriers that’s frequently chosen to participate and to be involved in meeting the initiatives, building on that basis. Would we be involved in all of them? No, absolutely not. But certainly we are at the forefront.

The important thing is to have enough product, have people of the right quality, the expertise, geographic footprint, and the capital to be involved in the conversations, not to find out about them in the newspaper after it has all taken place. We are in the right place strategically from that perspective.

Then of course there are the different types of initiatives. There is a whole different variety. Some of them involve acquiring new teams of people. Some of them assembling new portfolios of business. Some of that business is not necessarily renewable business. It could be project based business. It’s a whole host of different types; and distribution that we haven’t penetrated to date.

As Albert mentioned, our primary casualty initiative; as an example, we may closed that down, it was a purely wholesale operation. At its peak in 2004 I think it was about $94 million. We cut it back to $33 million in 2009, then 2010 we closed it down. We didn’t believe the wholesale marketplace could ever present us with an opportunity to produce a sufficiently broad diverse portfolio business through the cycle to be able to make a profit.

We retained all the claim staff, we retained the leadership of the team and we tasked them with creating an alternative approach to the distribution of our business, find a form of distribution and an approach, would enable us to assemble a portfolio with more balance scale and diversity.

And so the new platform that we have created is very much more of a retail focus, targeted in very specific industry sectors. Now are there competitors in those marketplaces? Yes absolutely. But it’s a much-much bigger market place. There is vast scale. Our current penetration of that market place, the major retailers at the second tier and the third tier is very, very light.

But from our perspective in the U.S., non-life ANC (ph) market, excluding professional lines, we currently write about a $150 million also our business. That's a marketplace working hundreds of billions of dollars. It doesn’t take a great penetration if we do it, if we are very sensible, cautious, take pricing in the right way, to actually make significant headway relative to our portfolio but not necessarily without trying to; we wouldn’t have to try and shift a significant number of major players to try and create that kind of significant share for us. It's still relatively minor in the overall scale of the market place.

And that's the scale of the opportunity in some circumstances that presents the opportunity for us and again we already have very, very strong relationships with those producers, provide them with multiple products in other areas. We're pretty confident. We know that with market timing, with the competitive state of the market, some of these initiatives would be tougher than others and if they prove to be too tough, than we will just scout, we will step back, we run high to people at the same rate but then at the same time, if we see the opportunity increase and present itself soon, than we will respond very quickly and accelerate them.

Albert Benchimol

Nothing to add to that one but I do want to make one comment with regard to your question. Specifically you've said if I heard properly, this is the business they want, low volatility, high profits, and I want to react to that.

Most of what we do is not low volatility in that line of business. I like high volatility business because that's the business where people are going to pay us to take the risk. Where we are looking to reduce portfolio volatility is not in the individual risk but in the construct of the portfolio.

So what I want is a portfolio of diverse of volatile lines because each of these volatile lines will hopefully give us a higher profits opportunity and it's through the diversification of the portfolio that we reduce the volatility.

Now some lines like ANH are in fact low volatility lines. We grew in the motor business reinsurance in Europe. That’s little volatility business, although we haven’t had a problem growing there and those are great ROE lines because they do that both. But the focus of what we’re doing is growing a specialty insurance franchise.

Unidentified Analyst

I thing during Bill’s presentation on the reinsurance segment he made a comment about the misuse or misinterpretation, I forget his word of PMLs and I am curious if you could share or elaborate upon that comment and perhaps what you think differentiates the PMLs that you publish versus what you think is being published by your companies?

Albert Benchimol

Bill what did you mean?

Bill Fischer

I think it’s an easy answer because I think you maybe misinterpreted me. Those PMLs are relatively standard PMLs using really sophisticated modeling tools, always really referring to PMLs associated with all the other lines of business where that terminology is also used where the characterization of that term is very variable. I think it was related to the CAT side which is what you’re asking the question on.

Albert Benchimol

But it will take a shot out it because when people used the term PML, some people think the one in hundred is the PML some people think is the one in 50, some people think that it’s one in 500. So when somebody says my PML is X, it doesn’t mean that it's the one in 250. That means that probable maximum loss and as Bill said in different businesses its defined as different thing; like is it a vapor cloud at a is a PML or is that MFL all this talk of PML, MFL, all this is the little jargonish. I like to think about it as where are you on the distribution and can you look at risk across the whole distribution.

So if you actually do get the right definition of PML and that’s time you say what is my one in 100 or what is my one in 250. The models are not very good absolute metrics and sometimes they are not even very good relative metrics. They’re estimates. So overreliance on models and especially overreliance on a point estimate of a model and overreliance on the comparative point estimate when people are using different switches and different factors and different inputs, just be very careful.

Bill Fischer

When we look at our book of business I mean it would be suicide to look at just one metric. So you are looking at the entire distribution. So you might have a great one in 100 and a lousy one in 10 and a lousy one in 20. Or it might be a great one in 20 and 50 but if you hit the one in 250, you lose your company.

So you really need to take a look at the entire distribution and in some cases, PMLs is a great way of looking at it. In some cases ROE is the best way to looking at it. Sometimes you just basically ask yourself what’s my expected profit versus my one in 10, one in 20, one in 50, one in 100 year loss. Am I going to make enough money over a cycle to actually pay for those losses?

The words of one of my old colleagues, make a dime, make a dime, make a dime, lose a buck. So you got to figure all of those things when you are building that portfolio. It's one metric but I would hate to say that we are managing our business on that one metrics.

Albert Benchimol

You were deciding which companies to invest in based on the one metric.

Unidentified Analyst

In another questions, if it’s okay. Much of the impressive capital return appears to be a function of the optimization of the portfolio and the changes that you have made particularly with your one in 250 and so forth. Now that that appears to have come a long way towards where you want it to be, what do you think is your most sustainable run-rate of capital return relative to the earnings you generate, thinking in the context of the growth that you can self-fund what might be there for shareholders?

Bill Fischer

I have tried very hard to keep us the short term guidance with regards to the stock repurchases but I can tell you that the way the portfolio is being constructed, given what our current capital base is, I can’t imagine that in the near foreseeable future that we are going to need all of our retained income.

So, I see stock repurchasing continuing for a period of time. How much? Well that will depend on a whole lot of things and we will give short term guidance on that but we expect stock repurchasing to continue for a while.

Unidentified Analyst

So question for Jay and Albert I guess. So I am just trying to square a couple of things. Jay, you kind of mentioned that alternative capital coming in could you cause some capital displacement I guess for property CAT writers or the traditional writers and Albert you said that alternative capital coming in, you are bullish, it's an opportunity. I'm trying to understand if, say hypothetically you lose a $100 million of business, property CAT business you wrote, how much would you need to manage in the form of structures to offset or replicate the profitability that you lost from the business that you were writing.

Albert Benchimol

We are huge buyers of CAT reinsurance. So it’s not simply how much we’re losing from the profits of the CAT. We have some great meetings. Every time Jack has a great meeting on reinsurance buying Jay moans, and so the point is we get benefits today. So, we’re talking about G-Florida’s difficultly this and that. Jack is really pleased with the most recent CAT renewal.

And so we have a lot of natural offsets in our portfolio here. We can write against a cheap CAT reinsurance environment. Even if we didn’t write a lot of it, we could write primary business against it and then just buy reinsurance on the back and that wouldn’t be a problem.

Unidentified Analyst

So, given this dynamic, proliferating that, that would imply that Jack would grow his business on a gross basis, maybe seed more and you could see some mix shift/ Is that, how are you buying these bonds…

Albert Benchimol

And Jay would find, depending on what the capital and the risk appetite is, Jay would find the right investors to fund that appetite and he’ll find the risk for. We can take advantage of it on both sides.

Jay Nichols

And the only thing I would add to that is, it’s not that two dimensional as well. There are many-many dimensions on which we can pull levers to optimize to outcome given what's going on in the market. You know what’s going on in the market; I will leave it with that, but the more levers we have. It’s not a two dimensional. If this goes up that has to down, or this goes down that has to go up. It's absolutely not a two dimensional equation. It would be a little easier and I wouldn’t be doing it.

Unidentified Analyst

I wanted to focus on the investment portfolio actually and ask you if you guys could see yourselves getting more aggressive, given how short and how safe it’s positioned and in a way I’ll preface that with - if you look at Allegheny buying Transatlantic, like Merkel (ph) and Toltera (ph), you’ve got the emergence of SAC and Third Point. You’ve got (inaudible) half the way doing lot of different things.

Every one of the companies that I’ve mentioned really is an asset. Their strategy is more on the asset side than the underwriting side. You guys have focused most of today on why you’re great in underwriting and why are you going to be even better. Do you need actually really re-risk or take more risk on the asset side to drive the ROE the next three, five, 10 years to compete with some of the guys I mentioned or you just playing a different game?

Albert Benchimol

Yes, I think the short answer to your question is no. We don’t want to go longer with the portfolio to mature, with the price and interest space rates. As far as the guideline for risks assets, we are at about 17.5% of our total portfolio in this and we have capacity from our board and our investment committee to go slightly higher than that if we choose to but we really look at it just quarter-to-quarter as to whether or not we want to change that strategy. So I think the short answer to your question is no, we wouldn't want to go longer and we might take a little bit more risks on the risk asset side but not a lot.

Unidentified Analyst

And then totally separate question-just this is for Jay; just looking at the cube; what is dynamic hedging. What does that mean within, that's one of the lines? I understood all the other things in there but.

Jay Nichols

It's one of the other levers that I just talked about. So if the opportunity to hedge a portion of our portfolio comes up or in the businesses that we have, we should be much more dynamic about hedging our portfolio. So it's not just about what's coming in, but it's about what can go out as well. So we should be much more dynamic about the way we are and we will be. And we have actually started to do that to be more dynamic about the, what we avail ourselves of terms of shaping our portfolio.

Unidentified Analyst

Okay but it's not retro, that's a separate line in the queue.

Jay Nichols

It's an element of retro but it’s a different component of retro. In retro it's more of a program. My differentiation is on retro it’s a reinsurance purchase, dynamic hedging can be inversely correlated transactions. It can be in just simple transactions in the ILW market they are more focused on our portfolio. It can be picking out very discreet portfolios to actually trade in and trade out of but I view it as a more new unsettlement of retro.

Dynamic hedging, I mentioned in the as a tool in the weather and commodity business as well that it's not something you put a risk and hedge it. You look at how that risk evolves and you are more dynamic about hedging it.

I have another queue or diagrams that I have. It talks about looking at conditional probabilities and as conditions change, do you change your view about how you should be hedging and I think the reinsurance business, they are talking about conditionality. Stephan gave his presentation about conditionality in the capital markets and how you react to the conditions in the trade credit market and the conditions in maturity market. We employ some element of conditional behavior and the question that I consistently pose is can we use that conditional nature of our business to dynamically hedge?

Unidentified Analyst

I realize it was just announced yesterday but your intro into the whether derivative market or rather whether risk market, just want to see what type of capital you guys are putting at risk there and how we should look at that risk profile because one of your competitors a year and half ago had some losses there due to warm UK winter. So just want to figure out how we I was just think about how are you guys taking risk there.

Albert Benchimol

In any business that we get into on the risk management side, first we set a limits profile, as to how much will expose in limits. So we’re very prudent in the limits that we will deploy and as we build our models and get more comfortable with models and mention the model, we then will expand to what I refer to MFL and then PML, but it takes while we get to that space. So we’re very prudent about the risk we take.

I can’t give you a specific number. I know the number that those people lost. I followed that business very closely and they actually made it back in three quarters and that was very extreme event in terms of the temperature issue but it wasn’t outside of it distribution of that entity but our view is to leg into these business we don’t want to lose our driver’s license. As you get into business if you have significant loss, in the first year, people will question how we do that. So we want to earn our driver’s license. We don’t want to get into the car and hit the gas.

Jay Nichols

I guess I’d like to give a broader comment. One thing one of the reasons of this appeal to us is that this weather and commodities rating derivative, insurance where we want to call it touches a lot of businesses. It touches the ad business. It touches some of the property CAT line, it touches the energy business and at the very least when you got a lot of smart people talking about a similar subject, good things come out that conversation.

And so there are as of yet unknown synergy that will come out of just having these conversation and these interactions with the team and I can’t tell you what it is but I am pretty sure that something going to come out of it. But the broader question which again I think is important today to talk about the philosophy, you are not going to have a book of business like ours or any like any large company where you’re not going to find in any one quarter something that blows up.

It was a bad winter here, it was a bad flood there, that’s the nature of our business. So, the nature of the business is not to avoid losses but to create a portfolio that can absorb individual losses and over the time generate a profit. And I’ve said this all time, risk management is not about avoiding risk, it’s about taking risk that you can afford to take.

And so, if we were afraid that one line of business would give us a large loss this quarter, this season, this year, there wouldn’t be a lot of lines of business we’re in and so, we’re going to have a lot of conversations over the next decade about why did this thing blow up and it could be surety loss, it could be CAT loss, it could be D&O loss, it could be liability, it will be something.

Absolutely we’ll not promise that we won’t have those losses, but what I will promise that we make sure that we absorb those losses and that over any period of time the totality of the results compared to the totality of the volatility of the portfolio will be better than the peers in the industry.

Unidentified Analyst

And then just one quick follow up. It seems like you guys are very interest in growing your agricultural business and it seems like you’re growing it globally and through the reinsurance side. Would you ever have any ambitions to I guess maybe go on A&H business to do a hybrid model and maybe do some primary in the ag space as well or if you get expertise.

Albert Benchimol

Currently, we are happy with our position the reinsurance business. The model of trend to be hybrid agriculture creates some conflicts that I’m not sure we want to expose ourselves to. We think we can access the portfolio we need to and provide consultative product development or consultative ceding strategies with our clients from the reinsurance platform. So, that’s not something that I’m very happy with what we've got right now. I'm looking to extend it, expand it and that company is about the U.S. (inaudible) primary market.

Unidentified Analyst

My question gets to the point you were making and you made earlier, a few questions ago or a few answers ago about being perfectly willing to take risks and the portfolio of risk will nonetheless be uncorrelated. So, yes we’re taking risk but we’re in fact improving our risk return, a risk reward profile. You’re talking about underwriting risk not capital market risk. So that make sense; the uncorrelated nature of those risks. Certainly in property, the floods in Europe have nothing to do with an earthquake in the Middle East, what have you.

My question is this and it's not an AXIS question, it’s more of an industry question and it’s for my own education I guess. Do you see correlations within the casualty side? Setting aside property and CAT are there correlations within casualty that you have spotted and try to avoid or has that not been a challenge to this strategy of yours?

Albert Benchimol

Mike you want to try that first?

Michael Steel

I guess within our risk portfolio as well as all of the modeling that you see and the interaction between the different lines we do, do a lot of stress testing on the portfolio. So looking at systemic shocks that may hit the portfolio and breaking that down into the different components that they could look at, to make sure and we are comfortable with those outcomes as well as, as we think about modeled approach to the portfolio and I can’t think of any one of those at the moment that would give us sort of a sight of the systemic shocks that we are putting through on the casualty side. I can’t think of any one of those at the moment that would cause us to rethink the strategy in terms of the casualty as it interacts with the overall portfolio.

I think we mentioned in some question earlier about what we think about inflation and its impact on that. I think again sort of those, a question that we are challenged with we are looking at suppressing the portfolios, looking to really trying to understand how those dynamics move. And again it’s about gaining better understanding in that.

Unidentified Analyst

I just have a question on the accident and health side. Just for a clarification. You said positive earnings contribution expected in 2014. If you had the premium mix that you want to have long term, you gave us this long term target premium mix, how are the profitability, how much premium would you need then to have a positive earnings contribution?

Albert Benchimol

Well it's really question of size. I don’t think it really would change all that much. The accident side is expected to produce a bit more profit but I think we just have to reach a minimum size first to cover our expenses. So I don’t know if I can calculate that for you as I sit here.

Unidentified Analyst

So if you get 300 million insurance versus reinsurance to mix it doesn’t really matter? You would get the profitability?

Albert Benchimol

It’s not that sensitive to it yes, based on our current mix and our plans for where we are going to grow, $300 million we are not going to see a big shift in the difference between insurance, reinsurance or accident and health in the next year.

Unidentified Analyst

And just one last point of clarification, on the long term target mix at 40% that health, how would that breakout between insurance and reinsurance?

Albert Benchimol

Let say a five year mark will be about, 50-50.

Unidentified Analyst

I just have follow up on the weather and the derivatives, how you’re going to go, are you planning on that being ready multiyear products in that or is it going to be more annual product as an insurance basis. I guess trying to understand if there is going to be mark-to-markets on that book going forward?

Albert Benchimol

Most of the most books almost all of that business that we looked at in the business plan is shorter than single year at single season. So there will be mark-to-market but the short durations should mitigate the mark-to-market impact.

Jay Nichols

Right, there are no other questions. I think we will call this to close and I'd invite you to join us for cocktails. Thank you very much.

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