Validus Holdings, Ltd. (NYSE:VR)
August 1, 2011 8:00 AM ET
Greg Vijay (ph)
Edward Joseph Noonan – CEO
Joseph Consolino – President and CFO
Ryan Novak – Pilot Advisors
Good morning ladies and gentlemen, welcome to the Validus Holdings Limited August 1, 2011 Conference Call. As a reminder this call is being recorded. At this time all lines are in a listen only mode, after the prepared remarks there will be a question and answer session. (Operator Instructions).
It is now my pleasure to turn the call over to Greg Vijay (ph) representing Validus. He will be introducing the company.
Greg Vijay (ph)
Thank you and good morning. Welcome to the Validus Holdings conference call. On this morning’s call we will be following a slide presentation which is available on the IR section of our website located at www.Validusholdings.com. Today’s call is being webcast and will be available for replay following the completion of the call. These details are provided in our press release which we issued yesterday which is also available on our website.
Leading today’s call are Validus Chairman and Chief Executive Officer, Ed Noonan and Validus’ President and Chief Financial Officer Jeff Consolino. Before we begin I would like to remind you that comments made during this call may be deemed forward-looking statements as defined within the U.S. Federal Securities Laws. These statements address matters that involve the company’s beliefs, risks and uncertainties many of which are beyond the Company’s control and reflect the company’s current view of current events and financial performance. Accordingly there are or will be important factors that could cause the companies beliefs or actual results to differ materially from those indicating such statements. And therefore you should not place undue reliance on such statements.
More details about these risks and uncertainties can be found in the company’s most recent annual report on Form 10-K and the quarterly report on Form 10-Q both is filed with the US Securities And Exchange Commission and in the Registration Statement on Form S-4 that Validus filed with the SEC on July 25, 2011. Except to the extent required by law, Validus undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. Management will also refer to certain non-GAAP financial measures when describing the company’s performance. These items are reconciled and explained in appendix with the slide percentage.
With that I’ll turn the call over to Ed Noonan.
Edward Joseph Noonan
Thank you very much and thank you all for taking the time to join us this morning. I’m going to commence on slide number six and I’d like to start my comments by saying that in our view the Transatlantic Board is ill-serving its shareholders.
On July 12, Validus announced a Superior Proposal for a combination with Transatlantic and we reached out to engage with Transatlantic’s Board. We saw a clear opportunity to create a clear leader in the global reinsurance space and we offered higher market value than Allied World’s inferior takeover offer.
Unfortunately on July 19 Transatlantic Board determined that Validus’ proposal was reasonably likely to lead to a Superior Proposal and that its failure to enter into discussions with Validus would result in a breach of the Board’s fiduciary duties.
Transatlantic then proposed the confidentiality agreement with a restrictive standstill as a precondition to discussion. Validus provided Transatlantic with a mutual confidentiality agreement that Validus was and still remains prepared to execute. On July 28 the Transatlantic Board inconsistent with its July 19th determination, recommended rejection of Validus’ higher market value exchange offer. Further, the Transatlantic Board adopted poison-pill design to entrench themselves, commence meritless litigation and changed Transatlantic’s corporate by-laws in an attempt to more easily manipulate stockholders meeting.
Regardless, Validus has a path to pursue a transaction without the Transatlantic Board to bring the higher market value of its Superior Proposal directly to Transatlantic stockholders. We have already commenced on no vote campaign against Allied World inferior takeover offer. We’ve commenced a higher market value exchange offer for Transatlantic shares and we will remain open to a consensual transaction.
Regarding the confidentiality agreement, the issue is obviously the standstill agreement. In the same press release where the Transatlantic Board reaffirmed the AWAC offer, they are questioning why we have not signed the confidentiality agreement. This after they have adopted a rights plan, changed by-laws and rejected our offer. As you can appreciate, in light of these actions, we’re concerned whether we’ll be getting a fair hearing from the other side on our offer.
Turning to slide seven. We believe that the Transatlantic Board has rushed in to an inferior and ill-conceived Allied World takeover the company. They’ve taken no steps to address concerns publically raised by major Transatlantic stockholders despite acknowledging their duty to do so. They have ignored Transatlantic stockholders’ interest by refusing to enter into discussions with Validus. They have adopted misguided tactics to attempt to prevent Transatlantic stockholders from obtaining the benefit of Validus Superior Proposal. But in the end, Transatlantic stockholders, not the Board will determine the outcome.
Collectively, the Board does not have a material holding in Transatlantic, with non-executive directors owning 0.03%, and even this predominantly comes from restricted stock grants and options rather than personal purchase. The Board has also made Transatlantic a target for class action lawsuits brought by the very stockholders that they have duty to serve. This is an entrenched Board exhibiting anti stockholder behavior. We think it’s a case study in poor governance.
Sorting out the winners and losers in the AWAC takeover Transatlantic, who wins, well quite obviously, AWAC. Although a smaller company, they acquire a genuine franchise at a lower price. Virtually all of the Transatlantic Board members are winners as they would continue on after the AWAC takeover as directors of the new company. And selected members of the Transatlantic executive team come out winners in this transaction. Who losses? Transatlantic stockholders, unfortunately.
The Transatlantic Board is attempting to prevent them from receiving the highest market value for their investment or the ability to participate in the more attractive returns with the Validus combination. The stockholders would be subject to a fully taxable AWAC takeover and they will be exposed to what we believe to be lackluster AWAC business results going forward.
Transatlantic’s clients and employees are also losers. They will be managed by organization, evidencing limited historical interest in the reinsurance business. AWAC has consistently stated its desire to be seen and valued as a specialty insurance company, not a reinsurer.
Moving on, I’d like to spend a few minutes talking about what Transatlantic stockholders will be subject to with AWAC takeover. We have serious questions about the value of AWAC and its long-term prospects starting on page 10. Since separating from AIG, AWAC has struggled to establish itself as an independent entity. They have been growing into a solidus causality market to maintain volume without creating a leading U.S. franchise despite their claims. They have a stagnant international business, that’s largely irrelevant in a global market.
Their expenses have ballooned. They relied on ever increasing and unsustainable reserve releases for earnings. They have even revealed their weaker financial prospects going forward in their projections. Their poor underwriting margins will create significant headwinds in achieving even these weak returns. We believe their asset management strategy creates a significant exposure to a spike in interest rates. They have an acquisition record of destroying book value and their capital management has been selective and not open to all stockholders.
Turning to slide 11. AWAC was an offspring of AIG in many regards. In the post 9/11 hard market, AIG created the company as a way of capturing more market share in the best hard market the industry had seen in 20 years. As such, AWAC received much of its business from AIG. Operated on AIG underwriting systems, received a quality share from Lexington. AIG DNS Company and reinsurance from another AIG affiliate, IPC.
On page 12, since the separation from AIG, AWAC has struggled to recreate much of its business. AIG deprives the AWAC a great asset however. The result of those hard-market years was so good that reserves were tremendously overstated. AWAC’s results have been greatly assisted by those reserves. However, we know this can’t go on forever and there likely much closer to the end then to the beginning and this boost to their earnings.
In looking to recreate themselves, AWAC has expanded rapidly in the U.S. market and opened offices all over the world. With their re-domestication to Switzerland, their Bermuda operation, which was the source of their historic profits, now looks like a branch office. Their growth initiatives have led to an outsized expense ratio and in conjunction with decreasing rates in the causality business their underwriting profits have essentially disappeared. When AWAC talks about their record of higher returns, they are really talking about the reserve redundancies that AIG created in the company and left behind for them.
As you can see on slide 13, AWAC has been growing rapidly in the United States during a self-market while shrinking its Bermuda business. AWAC hired a very large number of underwriters from AIG in 2008, when AIG had its problem. As it turns out, AIG’s business was not up for grabs and they fought very hard to keep it, which made rate competition even more ferocious.
AWAC has grown very rapidly in a softening U.S. casualty market and things will get worse before they get better. This also means that the type of reserve redundancies from the AIG years will not be replicated, if there are any at all.
The U.S. is a big competitive market. AWAC competes with Chubb, Chartis, Liberty, Zurich, ACE, Barclays, Arch, AXIS, et cetera. All well entrenched companies with longstanding market positions and relationships that are not easily dislodged. Winning business in the U.S. market is most often about having a cheaper price. AWAC’s rapid growth in a declining market should be a significant source of worry. Believe me they haven’t been getting this business by charging higher prices.
If you look at AWAC’s competitors, the company is run by executives, who have been through on entire underwriting cycle. You won’t see this type of growth pattern. It’s an extremely aggressively strategy at the wrong time.
Moving on to slide 14, AWAC has described itself as a leading specialty casualty insurer and superb specialty company. This is simply not factual. As you can see AWAC is not a leader in any class. In even their biggest classes, they are not in the top 10 in the market. Despite huge expenditures, AWAC has failed to rank in the top tier of any of the lines that writes in the United States.
The story is very similar on slide 15, when we look at the international business. AWAC also describes themselves as a global leader. But in truth, they don’t have meaningful market share in any major international market. It’s not easy to break into these markets either and they are well established companies in every territory they have entered. This seems to me to be much more an aspirational statement than a reality.
With that, I’d like to turn it over to Jeff Consolino.
Thank you, Ed. From this point forward, Ed and I’ll be passing back and forth on slides. I’m on slide 16 and I’m going to be elaborating on some of the themes that Ed identified with some further financial details. On slide 16, you can see the progression at AWAC’s expenses ratio. I would take particular note of the bottom segment in the segmented bars, which is the general and administrative expense ratio. AWAC commence this operation in 2005, in the low-cost operator in Bermuda. However, once AWAC no longer rely on AIG for its infrastructure, its expense structure has ballooned. Between 2005 and 2010 AWAC’s gross premiums written top line grew by 2.4% annually. In contracts G&A expenses have grown by 25% annually, driving the G&A expense ratio of up from 7.4% to 21.1%. This is a 185% increase.
On slide 17 we show that AWAC has relied on ever-increasing reserve releases for earnings. Starting in 2003 reserves releases hovered at $100 million or lower, there was a step up in 206 and 2007 to over a $100 million and by 2008 and through 2010 reserve releases have crossed $200 million annually closer to $300 million. This has contributed significantly to earnings.
Turning to page 18, you can see that those reserves release are concentrated into 2005 and prior years. As I’ve referenced market conditions have become substantially more competitive since that point and Validus believe that Transatlantic stockholders will not benefit from similar reserve releases from AWAC’s hard market AIG years as they have been aggressively released already.
On slide 19 we highlight we highlight pricing trend in the domestic U.S. commercial insurance market, we showed the rate adequacy from 2001 to 2005 and then beyond. Rate adequacy is significantly lower than the hard market AIG years. This will have a deleterious effect on AWAC’s going forward financial results. While AWAC advertise as a high five year historical growth rate and book value per share, it has achieved this record through reserve releases. The underlying growth in AWAC’s book value per share is consistent with the 9% return on average equity projected by AWAC itself in the merger proxy statement filed jointly with Transatlantic.
Excluding reserve releases, a nearly 19% compounded growth rate intangible book value per share is under 10% at 9.9%. AWAC’s projections in the merger proxy indicate a 9% average annual return on shareholders’ equity over the five year projection period. Likewise that’s an 8.85 compound annual growth rate in shareholders’ equity, AWAC’s figures not ours.
On slide 21, we think there are reasons to believe that in the current competitive market conditions and with interest rates at historically low levels that achieving this 9% goal will be a challenge. AWAC’s high expense ratio, a high accident year loss ration excluding reserve releases and the low interest rate environment will make it challenging to achieve this 9% projection. AWAC’s results are affected by reserve release, catastrophe losses and investment gains and losses.
If you analyze AWAC’s first quarter 2011 results, normalizing for these items, this reveals the underlying annualized return on average equity on an operating basis of 6.2%. This is composed of a 1.6% ROE on underwritings and 6.75 ROE for investment income offset by two points of ROE drag from interest and tangibles and taxes.
In order to generate the 9% ROE, AWAC would need to stay in a 58.7% loss ratio in the first quarter of 2011 based on current expense and investment performance. This is 7.2 percentage points better than the 65.9% ratio that AWAC has achieved on average over the last five years on an accident year basis excluding catastrophes. AWAC’s underlying return on average equity at6.2% is currently below the estimated cost of equity of 8.5% to 10.5% delineated by its own financial advisor in the merger proxy statement.
We consider the 6.2% return now to achieve with some risk. AWAC’s disclosure about market risk highlights the significant exposure that AWAC has to an increasing yield curve. As of March 31, a 100 basis point rise in interest rate would have reduced AWAC’s shareholder equity by 6.9%. This is nearly a whole year’s worth of operating income and in excess of the underlying ROAE.
Moving on to slide 23. We’ve heard a lot in this transaction about book value. Despite the acquisition track record that AWAC has of destroying book value, AWAC and Transatlantic continue to maintain that book nor market value is what should matter to investors. If this is the case, we’d like to point out that AWAC is reducing its book value per share in this transaction by 6.9%. Further if it’s tangible book that matters, you can see that AWAC destroyed $7 per share of intangible book value in the last significant acquisition they made in 2008 for Darwin Professional Underwriters.
Finally, we’ve seen some comparatives that effect capital management between Validus and AWAC. The pie chart on page 24 shows clearly that less than 30% of the capital management done by AWAC has been shared with all of its shareholders pro rata. AWAC’s concentrated capital management efforts on privately negotiated repurchases from founding shareholders rather than treating all shareholders equally. Out of $1.6 billion returned to shareholders over $1.1 billion has been directed solely to founding shareholders.
Moving on to slide 25. I’d now like to make some comments on Transatlantic’s statement that have come into public domains through their 14D-9 and other filings. On page 26 we would like to talk about the tax inefficiency argument that’s been put forward. AWAC and Transatlantic claimed that Validus’ Superior Proposal was tax inefficient even though we’ve structured the stock component to be tax free.
It’s hard to see the logic and a tax free stock roller being tax inefficient, is this supposed inefficiency caused by the provision of $8 to Transatlantic shareholders. If so, is the Transatlantic Board saying that its stockholders shouldn’t or don’t want to receive cash. If it’s not the cash, is it tax inefficiency bond and the fact that Validus is offering a higher market value than AWAC, if so, is the Transatlantic Board saying that its stockholders would prefer a lower price for their shares in order to reduce their taxes. On the other hand AWAC’s takeover structure is tax efficient even though it is a fully taxable stock-for-stock transaction.
Validus is prepared to accept the transaction structure including the tax aspects with the Transatlantic Board, but the Transatlantic Board as I’ve noted refuses to talk to Validus. Transatlantic and AWAC are trying to use their dubious tax claims to distract from the real issue that Validus has Superior Proposal based on market value for Transatlantic shareholders.
On slide 27, we believe that the Transatlantic Board and AWAC are deliberating mischaracterizing financial leverage to distract from the higher market value and cash component of the Validus offer. On a standalone basis, Validus has lower financial leverage than both Transatlantic and AWAC. Debt to capital for Validus at March 31 was 6.4% of total capital. For AWAC 21.3% and Transatlantic 19.9%.
Our proposed transaction with Transatlantic yields the company with 20.7% debt to total capital after paying $8 per share to Transatlantic shareholders or $500 million in the aggregate. This is comparable albeit slightly lower than Transatlantic and AWAC pro forma. The reason this debt leverage is comparable is because of the $500 million cash component being offered to Transatlantic shareholders where we’d structure this offer as all stock, the pro forma debt leverage of Transatlantic Validus would be 14.8%. We don’t believe that Transatlantic stockholders want a transaction that contains no cash component. We therefore think the talking about the revised leverage of the company which is comparable to Transatlantic and also AWAC is a distraction from the real issue. Validus is putting $500 million of cash on the table for Transatlantic shareholders and AWAC is offering no cash.
Edward Joseph Noonan
The Transatlantic Board denigrates Validus’ Superior Proposal because Transatlantic stockholder would have 48% ownership interest on a fully diluted basis. But, at the same Transatlantic entered into an agreement with AWAC that requires it to ignore any competing proposals that would provide Transatlantic stockholders with ownership of 50% or more, regardless of the proposal’s value. It’s intellectually dishonest to the Transatlantic Board to challenge Validus’ Superior Proposal for being structured to comply with its own merger agreement.
As you can see on slide 29, comments being made about rating agency views about deal have been clearly misstated. I think I would first respond to this with a question. Do you think that we would go through this process, if had doubts about the company having an acceptable rating level at the end. I also think it’s wrong to speak on behalf of the rating agencies particularly selectively quoting things out of context.
Each rating agency has publicly commented on the deal and now the information is readily available. That having been said, we’d be happy to have a discussion with TRH Board about acceptable rating level contingencies on the deal along the lines of those laid out by Mike Sapnar. That again, would require the Board to talk to us.
Looking at slide 30, there has been an allegation that we bring something called dyssynergy to TRH. In fact, we think it’s just the opposite. But, I do feel compel to point out that whatever that dyssynergy is, it would probably be captured by Allied World attempting to compete with most of Transatlantic’s largest customers.
While, it’s true that most reinsurers are part of insurance group, Transatlantic currently has an advantage in that it is not. Every time a client loses an account to AWAC, the Transatlantic underwriters going to hear about it, with accusations that they are stealing the business, that the client’s data is being shared et cetera. I will list through this and the fact is, it demoralizes underwriters and it does lead to loss of business, a clear dyssynergy.
Looking at slide 31, this is perhaps the most puzzling aspect of the AWAC takeover. Somehow they claim that adding a casualty company to a casualty company is diversification. It isn’t. In fact, Transatlantic is massively doubling down their bet on the casualty market in the weakest pricing environment we’ve seen in close to a decade. Rather than diversify, it magnifies the risk of declining prices, claims inflation and ultimately reserve adequacy. Combining with a short-tail specialist like Validus on the other hand unarguably brings true diversification and much better cycle management opportunities.
Turning to slide 32, another issue that Transatlantic and AWAC have claimed is if Validus brings Transatlantic’s risk levels above their tolerance level. Let me start by saying, first we don’t rely on models and modeled outcomes to determine our risk tolerances. We literally add up our limit exposed in each zone and restrict them to a percent of capital we’re willing to expose, which is far more conservative.
We do also state our risk tolerance as a percentage of one in 100 year event or one in 250 year event. But, we always are capped up by our absolute constrained people, we reach this threshold. But, if we go with the criticism that has been made of Validus, I would offer the recent Japanese earthquake as an example of the benefit of a 30 person team of researchers and analysts. Despite their concerned about our risk tolerances, both AWAC and Transatlantic lost a much larger percentage of their one in 250 year risk tolerance than Validus did. In fact, AWAC may be up to 50% greater and Transatlantic over 100% greater than Validus. Validus leadership in the global cat market is based on superior analytics and superior risk management.
Turning to slide 33, we’ve heard repeatedly that Validus’ Superior Proposal is a conditional proposal. Slide 33 is designed to get Transatlantic shareholders and easily understood chart comparing to conditionality of the AWAC takeover and the conditions inherit in the Validus proposal.
As you can see, each transaction requires Transatlantic stockholder approval, stockholder approvals by the counter party buyer, insurance department approvals in various jurisdictions, antitrust approval, effectiveness of registration statement, NYSE listing, no Material Adverse Effect and we believe credit facility amendment. Those items that Validus has, that are conditionals not resident in the AWAC takeover or largely within the control of the Transatlantic Board.
The key condition for both Validus and for AWAC is securing Transatlantic stockholder support. As I said earlier, ultimately it’s not the Transatlantic Board it’s the Transatlantic shareholders that will decide this. Given Validus’ Superior Proposal and higher market value offered by Validus, AWAC appears to say, the most challenging hurdle completing this deal not Validus.
On slide 34, we want to talk further about Transatlantic carried loss reserves. Transatlantic vehemently argues that Validus’ proposed reserve increase is not necessary Transatlantic then refuses to provide any information reasonably required to support its assertion. Transatlantic and AWAC state that internationally-recognized consulting firms performed independent reviews of the other’s loss reserves.
These consulting reports were important enough to be discussed by their respective boards and alluded to repeatedly in public presentations, however not even summaries of these reports have been provided for shareholders to consider. To the point that independent reviews cannot be released to shareholders as part of transactions, we might point you to a recent filing as part of CNA’s acquisition of CNA Surety, which provides has an exhibit the full text of Milliman report of CNA Surety’s reserve adequacy. This information has been made available in other situations and should be made available.
Edward Joseph Noonan
Turning to slide 35, some questions that we think Transatlantic stockholders should be asking. AWAC and Transatlantic seem fixated on book value. But, I think the fair question is when was the last time AWAC shareholders have been able to sell their shares at or above book value?
Given that a critical component of AWAC’s growth in book value per share has come from reserve releases over the past several years, how does it plan to support its future growth in book value?
Is AWAC satisfied with its projected 5-year average 9% return on average equity in light of its cost of equity as estimated by its own financial adviser?
How can AWAC assert the ratings agencies view an AWAC/Transatlantic combination is more favorable than a Validus/Transatlantic combination? There is certainly nothing in the public domain that suggests that.
How does AWAC come up with its 2012 estimate for a Validus/Transatlantic closing date? Validus’ Exchange Offer is already outstanding with a September 30 deadline. And how can the Transatlantic Board purport to represent stockholders, but refuse to discuss Validus’ Superior Proposal despite concerns about the AWAC takeover raised by major Transatlantic stockholders?
I would like to talk now about the Validus’ Superior Proposal. We offer a superior current value and most importantly future upside potential that we think is far better as well.
On slide 37, this shows the Validus proposal compared to the AWAC takeover offer. Simply put the market value offered by Validus is and has been since we made our proposal at a premium, the AWAC offer. Validus is offering compelling value to Transatlantic stockholders consistently and excess as that offered by AWAC.
Looking at the stock component of our offer on page 38, Validus had outperformed AWAC on total returns since our IPO, the only period for which both companies have comparable data. Any statement in the contrary is misleading.
Likewise, on slide 39, Validus has an established record of trading at a book value premium to AWAC, consistently trading at or near diluted book value per share. This is not been the case for AWAC.
Edward Joseph Noonan
Looking at slide 39, pardon me looking at slide 40. The combination of Validus and Transatlantic will be a global committed leader in the reinsurance business. Our strategy at all times is to maximize underwriting profitability to achieve superior growth in book value. We will not any class that cannot generate acceptable risk adjusted underwriting profits. We don’t factor investment income into our capital allocation while making underwriting decisions.
Validus’ is in the best price risk classes in the global market and we have been since the day we opened our doors, that’s no accident. We think the long-tail lines offer attractive opportunities at the right time. But, we also think the current market suggest a defensive posture.
One of things I always wished when I was American race was to have to the luxury to underwrite without top line premium goals from our parent. That’s the only sensible way to approach the business and the approach we take at Validus. When we can’t get paid for risk, we don’t take it. In our view, it’s highly unlikely the casualty classes are broadly being compensated for the risk they are taking on today.
Consequently, we expect that the casualty business at TRH will shrink. But, when the time comes, when we can get paid for the risk, we’ll be happy to write as much of it as we can. We think every good underwriter loves that type of environment and we will be happy to pay our underwriters to invest in their technical skills and keep up relationships while we wait for the right market.
Turning to slide 42. We see a very compelling opportunity in catastrophe reinsurance and other short-tail classes where we currently have a strong and leading market position. With the size and geographic scope of the combined company, we can press our advantages in these classes and become a significant player in short-tail reinsurance in every class we find attractive. The upside in this business is outstanding. It was our analytical skills and risk management we believe that this will be a compelling source of additional value for our shareholders.
From an overall cycle management strategy, Validus brings the diversification into short-tail lines on a hardening part of their market cycle at the same time the Transatlantic’s casualty business is softening. We can’t think of a more logical, straight forward and value creating combination.
With that I’d just like to close and describe what you get with Validus as a Transatlantic stockholder. Obviously you get higher market value for your Transatlantic stock today, but we also bring superior long-term prospects. We don’t project a 9% return on average equity. Our Board and management are devoted to maximizing shareholder value not premium volume. Validus has leading franchise positions in Bermuda and also at Lloyd’s where we have the 12th largest syndicate also a short tail business.
We have a deeply experienced reinsurance management team. We have proven expertise in integrating two class transformational business combinations in our short life. And we have a commitment to very active and aggressive capital management treating all shareholders equally. We think the choice is clear and compelling. Validus brings far more to the table than Allied World.
And with that I’d like to stop and we’d be happy to open the floor to any questions that you may have.
Thank you. (Operator Instructions) Your first question comes from Ryan Novak of Pilot Advisors.
Ryan Novak – Pilot Advisors
Hi, good morning.
Unidentified Company Representative
Ryan Novak – Pilot Advisors
I was just curious given the reserve releases of Transatlantic over the last few quarters, if you had reconsidered your $500 million reserve addition and would potentially add that to your transaction value.
Edward Joseph Noonan
Ryan, we’ve looked very, very closely at all the available data, both SEC data, statutory data. We’ve looked at ourselves using a variety of methods. We’ve hired one of the big actuarial firms look at it using not only the public data and their database and development factors. What we see though is that the company has had adverse development for; I think it was eight years running, through 2008. And even with the overall favorable development there is still slippage in casualty reserves embedded in that. And so we would love the opportunity to sit down with the Transatlantic Board and understand why they are as comfortable as they seem to be with the reserves, and if in fact that’s the case then so much the better. But in the absence of the Board being willing to speak with us, our best judgment is to be prudent and in recognition of the company’s reserving track record we think $500 dollar is necessary.
Ryan Novak – Pilot Advisors
Okay. And my second question is just given the expenses Transatlantic has already undertaken and the significant breakup you see in the transaction is there any other reason you can think why they are unwilling to speak to you other than to keep going where they want to?
Edward Joseph Noonan
I think that would require us to infer motivation to other people and I always hate to do that. I mean that breakup to your argument that was essentially the same as killing both your parents and then asking the judge for leniency because you are an orphan, and so I don’t have a whole lot of time for that. But as far as their motivation, that’s for the Transatlantic Board to provide not a…
Ryan Novak – Pilot Advisors
Great. Thanks very much.
Edward Joseph Noonan
Well, thank you again. And we appreciate everyone making the time on a Monday morning. We know it’s a busy earnings season and with the just deal apparently coming together in Washington, you’re all – you’ve got lots on your plate. So we appreciate you making the time for us and we look forward to continuing our discussions going forward.
Thank you for participating in today’s conference call. You may now disconnect.
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