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The Chubb (NYSE:CB)

Q3 2011 Earnings Call

October 20, 2011 5:00 pm ET

Executives

Richard G. Spiro - Chief Financial Officer and Executive Vice President

Dino E. Robusto - Executive Vice President and President of Personal Lines & Claims

John D. Finnegan - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Chairman of Finance Committee

Paul J. Krump - Executive Vice President and President of Commercial and Specialty Lines

Analysts

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Jay Gelb - Barclays Capital, Research Division

Ian Gutterman - Adage Capital Management, L.P.

J. Paul Newsome - Sandler O'Neill + Partners, L.P., Research Division

Michael Grasher - Piper Jaffray Companies, Research Division

Jeffrey Cho

Mark A. Dwelle - RBC Capital Markets, LLC, Research Division

Joshua D. Shanker - Deutsche Bank AG, Research Division

Gregory Locraft - Morgan Stanley, Research Division

Brian Meredith - UBS Investment Bank, Research Division

Vinay Misquith - Evercore Partners Inc., Research Division

Michael Zaremski - Crédit Suisse AG, Research Division

Jay A. Cohen - BofA Merrill Lynch, Research Division

Operator

Good day, everyone, welcome to The Chubb Corporation's Third Quarter 2011 Earnings Conference Call. Today's call is being recorded.

Before we begin, Chubb has asked me to make the following statements. In order to help you understand Chubb, its industry and its results, members of Chubb's management team will include in today's presentation forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. It is possible that actual results might differ from estimates and forecasts that Chubb's management team might make today. Additional information regarding factors that could cause such differences appear in Chubb's filings with the Securities and Exchange Commission.

In the prepared remarks and responses to questions during today's presentation of Chubb's third quarter 2011 financial results, Chubb's management may refer to financial measures that are not derived from generally accepted accounting principles or GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP and related information is provided in the press release and the financial supplement for the third quarter 2011, which are available on the Investors section of Chubb's website at www.chubb.com.

Please also note that no portion of this conference call may be reproduced or rebroadcast in any form without the prior written consent of Chubb. Replay of this webcast will be available through November 18, 2011. Those listening after October 20, 2011 should please note that the information and forecast provided in this recording will not necessarily be updated and it is possible that information will no longer be current.

Now, I'll turn the conference over to Mr. Finnegan.

John D. Finnegan

Thanks for joining us. This afternoon we reported our results for the third quarter and for the first 9 months of the year, both periods of large catastrophe losses for Chubb and the property and casualty insurance industry. Notwithstanding these cat losses and other industry headwinds included in the sluggish economy, margin compression and lower reinvestment yields on fixed maturity investments, we reported operating income of $252 million for the third quarter and $1 billion dollars for the first 9 months.

Operating income per share for the third quarter was $0.88, reflecting a $0.95 impact of catastrophes. In last year's third quarter, operating income was $1.69 but the impact of cash was only $0.12. The third quarter combined ratio was 102.6% in 2011, compared to 86.2% in 2010. That x cat combined ratio for the third quarter was 88.2 in 2011, compared with 84.1 one last year. For the first 9 months, operating income per share was $3.50 and the combined ratio was 97.1, including an 11.7 point impact of cats. The x cat combined ratio of 85.4 for the first 9 months of 2011 compares with 83 in the first 9 months of last year.

During the third quarter, our investment portfolio produced a net realized gain before tax of $71 million or $0.16 per share after tax, bringing our net income to $298 million or $1.04 per share. At September 30, our net unrealized appreciation before tax stood at $2.3 billion, which is an increase of about $200 million as of June 30. Reported book value per share at September 30, 2011, was $56.23, 7% higher than a year ago. Despite the significant cat losses that we incurred in the third quarter, we maintained the pace of our share repurchases and expect to complete our current program by the end of January 2012.

We're also pleased with the continued firming in the market. It's best evidenced by the 4% rate increase we achieved in the third quarter in our standard commercial business, while maintaining strong retention levels. In the second, Paul will talk more about the market environment in detail. As we announced in our press release today, we're reducing our 2011 calendar year operating income per share guidance to $5.10 to $5.20 from $5.55 to $5.85. This reduction is largely due to the far higher level of cats we experienced in the third quarter than we had assumed in our July guidance. Ricky will elaborate on our updated guidance in his remarks.

Let me now turn it over to Paul, who will talk about our commercial and specialty insurance results.

Paul J. Krump

Thanks, John. The Chubb Commercial Insurance net written premiums for the third quarter were up 9% to $1.2 billion. The combined ratio was 101.1 versus 89.1 in the third quarter of 2010. Excluding the 11.2 point impact of catastrophes, CCI's third quarter combined ratio was 89.9, compared to 87.1 in the third quarter of last year. We are encouraged that CCI's average renewal rates were up 4% in the United States, up from the 2% renewal increase we reported in the second quarter of this year. And even more encouraging sign is that month over month, average rate increases accelerated through July, August and September. Retention for the third quarter was 85% and our new-to-lost business ratio was 1:1, both are down moderately from the second quarter.

With respect to CCI's United States renewal rates, more good news is that we're seeing increases not only in property but across-the-board, including general liability, workers compensation, excess umbrella, package and commercial auto. Approximately 80% of the CCI business we renewed in the United States in the third quarter was flat or had positive rate increases. That compares to about 70% in the second quarter of this year and 60% in the first quarter.

In markets outside the United States, CCI renewal rates in the third quarter were down slightly, largely unchanged from the second quarter. The exception is those geographic areas that have experienced recent catastrophes where we continue to secure substantial property rate increases. There were several factors in addition to higher renewal rates that contributed to CCI's 9% premium growth in the third quarter. As in the second quarter, premium growth was bolstered by mid-term endorsement activity, premium audits and a positive impact from currency movements.

Turning now to Chubb Specialty Insurance, net written premiums for the third quarter were down 1% to $665 million. CSI's combined ratio in the third quarter was 88.3 in 2011 versus 83.3 last year. Within CSI, net written premiums for professional liability were up 2% in the third quarter of this year to $594 million. And the combined ratio was 92.5 compared to 89.3 in the third quarter of 2010. Renewal rates for professional liability in the United States in the third quarter of 2011 were down 1%, an improvement over the second quarter, when they were down 2% and the strongest rate performance since the first quarter of 2010. As in CCI, month-over-month average rate improved through July, August and September for CSI. Renewal retention was 89% in the third quarter of this year, the same as in the second quarter, the new-to-lost business ratio was 1.3:1 in the third quarter, also unchanged from the second quarter.

Within the overall third quarter, United States renewal rate decrease of 1% professional liability, we were particularly encouraged to see that our D&O rates for public companies moderated to a low single-digit decline. This, coupled with flat D&O rates for private company customers and slightly positive rates for our not-for-profit clients resulted in our directors and officers booked, in total being down only 1% in the quarter, about the same level as the other product lines in our specialty book. The rate environment for professional liability outside of the United States was largely unchanged in the third quarter from the second quarter with rates down in the low single digits. With respect to the Surety business portion of our CSI book, net written premiums in the third quarter were down 18% and the combined ratio was 55.5.

And with that, I'll turn it over to Dino, who will review personal lines and claims.

Dino E. Robusto

Thanks, Paul. Chubb Personal Insurance net written premiums increased 5% in the third quarter to $1 billion. This represents our seventh consecutive quarter of positive growth with particularly strong premium increases outside the United States. CPI produced a combined ratio of 115.6 compared to 85.4 in the corresponding quarter last year. The impact of catastrophes on CPI for the third quarter of 2011 was 28.5 points compared to 3.7 points in the third quarter of 2010. On an x cat basis, CPI's combined ratio was 87.1 in the third quarter of this year compared to 81.7 in the third quarter of 2010.

Homeowners' premiums were up 4% for the quarter and the combined ratio was a 126.1, which included 44.7 points of catastrophes. The Homeowners x cat combined ratio was 81.4. Personal auto premiums increased 9% driven by growth both within and outside the United States and the combined ratio was 99.3. In other personal, which includes our accident, yacht and personal access liability lines, premiums were up 4% and the combined ratio was 97.6.

Let me say a word or 2 about the personal lines market in the United States. As I mentioned last quarter, we perceived a greater sense of urgency in the market for securing rate increases with the industry averaging low single-digit increases in filed rates in personal auto and mid-single digits in Homeowners. Similarly, we have filed and received approval for Homeowners rate increases in the 3% to 4% range in a number of our larger states and we anticipate filing for additional rate increases as needed.

We are pleased with the growth momentum of Homeowners and personal auto in the U.S. in both premiums and policy count. Homeowners policy count retention improved 1 point to 91% compared to the third quarter last year and personal auto also improved 1 point to 88%. This quarter represents the seventh consecutive quarter of improving retention in both Homeowners and auto.

Turning to claims for the company overall, as you have already heard, the big story for the quarter was catastrophes with 9 U.S. cat events in the third quarter. Our total estimated losses from all third quarter cats was $420 million pretax or 14.4 points on the combined ratio, consistent with the range we announced at the end of September. About 2/3 were in CPI and 1/3 was in CCI. The largest third quarter event for us was hurricane Irene from which we estimate losses at $335 million pretax.

As I mentioned last quarter, the silver lining to these extreme cat events is that they allow us to demonstrate our superior claim service to our customers as well as our agents and brokers. Our customers has told us that they are very pleased with our handling of their hurricane Irene claims. Based on returned customer surveys to date, 98% of personal lines claimants responded, they were highly satisfied, which represents our top rating.

And now, I'll turn it over to Ricky.

Richard G. Spiro

Thanks, Dino. Looking first at our operating results, we had an underwriting loss of $47 million in the quarter reflecting the impact of catastrophes. Property and casualty investment income after tax was up 1% to $321 million in the quarter as a decline in yields was offset by an increase in our average invested assets and a favorable effect of currency fluctuations.

Net income was higher than operating income in the quarter due to net realized investment gains before tax of $71 million or $0.16 per share after tax, largely driven by gains from our alternative investments. For comparison, in the third quarter of 2010, we have net realized investment gains before tax of $54 million or $0.11 per share after tax.

As a reminder, we account for our alternative investments on a quarter lag because of the time required to receive updated valuations from the Limited Partnerships Investment Managers. Accordingly, our alternative investment results for the third quarter reflect market performance in the second quarter and our fourth quarter 2011 results will reflect market performance in the third quarter, which was less favorable.

Unrealized depreciation before tax at September 30, 2011, was $2.3 billion, an increase of approximately $200 million from the end of the second quarter.

Turning to our investment portfolio, the total carrying value of our consolidated investment portfolio was $43.4 billion as of September 30. The composition of our portfolio remains largely unchanged from the prior quarter, the average duration of our fixed maturity portfolio is 3.7 years and the average credit rating is Aa2. We also continue to have excellent liquidity at the holding company. At September 30, 2011, our holding company portfolio included $2.6 billion of investments, including $1.3 billion of short-term investments. A large increase in our holding company investments compared to the second quarter is due to the timing of dividend payments from the operating companies to the holding company.

Book value per share under GAAP at September 30, 2011, was $56.23, compared to $52.24 at year end 2010 and $52.41 a year ago. Adjusted book value per share, which we calculated with available-for-sale fixed maturities at amortized cost was $51.11 compared to $49.05 at 2010 year end and $47.25 a year ago.

As for reserves, we estimate that we have favorable development in the third quarter of 2011 on prior year reserves by SBU as follows: In CPI, we had approximately $5 million, CCI had $95 million, CSI had $45 million and reinsurance assumed had $10 million, bringing the total favorable development to approximately $155 million for the quarter. This represents a favorable impact on the third quarter combined ratio of about 5 points overall. For comparison, in the third quarter of 2010, we had about $200 million of favorable development for the company overall, including about $40 million in CPI, $90 million in CCI, $65 million in CSI and $5 million in reinsurance assumed. The favorable impact of the combined ratio in the third quarter of 2010 was about 7 points.

During the third quarter, our loss reserves increased by $293 million including an increase of $323 million for the insurance business and a decrease of $30 million for the reinsurance assumed business, which is in runoff. The impact of catastrophes increased reserves by about $210 million and the impact of currency fluctuation on loss reserves during the quarter resulted in a decrease in reserves of about $35 million.

Turning now to capital management. We repurchased 8 million shares at an aggregate cost of $480 million during the third quarter. The average cost of our repurchases was $59.97 per share and for the first 9 months, our repurchases totaled $1.3 billion with an average cost of $61.24 per share. As of September 30, there were 6.9 million shares remaining under our current repurchase authorization and as we have said previously, we intend to complete this program by the end of January 2012. As a reminder, we plan to review our 2012 capital management plans with our Board of Directors in January.

Before turning it back to John, I want to provide you with an update on the FASB upcoming change in accounting for deferred policy acquisition costs and then I will give you some details on our revised earnings guidance.

In the first quarter of 2012, we will adopt new guidance related to the accounting for cost associated with acquiring or renewing insurance contracts. The new guidance requires that only costs that are directly related to the successful acquisition of new or renewal insurance contracts are eligible for deferral. Accordingly, the amount of acquisition costs we will defer upon adoption of the new guidance will be less than the amount deferred under our current accounting practice. We expect to elect retrospective application of the new guidance. As a result, in our first quarter 2012 financial statements, we will reduce the amount of deferred policy acquisition costs and related deferred taxes for prior periods with a corresponding reduction to shareholders' equity. While we are continuing to evaluate the impact of the adoption of this guidance, we expect that it will result in our deferred policy acquisition costs being reduced by approximately 22% to 27% and our GAAP shareholders' equity being decreased by approximately $250 million to $300 million at December 31, 2011.

Let me conclude with a few comments on the revised guidance we announced in today's press release. Based on the high level of catastrophe losses in the third quarter and our outlook for the fourth quarter, we are revising our 2011 full year operating income per share guidance to a range of $5.10 to $5.20 from the previous guidance range of $5.55 to $5.85. This revised guidance is based on operating income per share of $3.50 in the first 9 months and a range of $1.60 to $1.70 for the fourth quarter. The revised guidance assumes 2 percentage points of cats for the fourth quarter, which would result in 9.3 points of cats for the calendar year. This compares to the full year cat assumption of 7.5 points included in our previous guidance, the increase being due to the higher than expected cats in the third quarter. The impact on operating income per share of each point of cats in the fourth quarter is approximately $0.07.

Consistent with our previous guidance, we are assuming flat property and casualty investment income after taxes for the full year. This implies a decline of about 3% in the fourth quarter due to a decrease in invested assets at the operating companies as a result of dividends paid to the holding company, as well as lower reinvestment rates. Lower yields will continue to have a negative effect on P&C investment income as we move into 2012. The revised guidance is also based on an assumption of 291 million average diluted shares outstanding for the full year.

And now, I'll turn it back to John.

John D. Finnegan

Thanks, Ricky. Here's a recap of some of the highlights: Third quarter operating income per share of $0.88 despite 14.4 points of catastrophe losses; 9 months operating income of $3.50 per share, notwithstanding $1 billion of pretax cat losses; x cat combined ratios of 88.2 for the third quarter and 85.4 for the first 9 months; net written premium growth of 5% for both the third quarter and the first 9 months; continued incremental rate improvement in the third quarter, especially in our U.S. standard commercial book, where renewal rates were up 4% on average; and overall, we see a firmer toning in the market which would suggest that we could see a further increase in the rates going forward. Net increase in book value per share of $56.23, which is 7% higher than a year ago.

In summary, despite $1 billion in catastrophe losses in the first 9 months, we expect operating income per share in the range of $5.10 to $5.20 for the full year. And we are well on track to complete our stock buyback program by the end of January 2012.

And with that, operator, we'll open up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] We go first to Mike Zaremski with Credit Suisse.

Michael Zaremski - Crédit Suisse AG, Research Division

I'm curious if you could elaborate on -- sounds like you're bullish on market pricing firming, and should we expect margin, underlying margin improvement eventually in commercial and personal lines specifically if current rate increases stick?

John D. Finnegan

Well, why don't you talk about the market environment first then I'll answer the second part.

Paul J. Krump

Yes. I think a couple of things. The feel as John had mentioned, is certainly a positive out there. We were really excited about the acceleration that we've picked up in the last quarter here. And I think that it's fair to say that we talked to agents and brokers, they clearly see the need for affirming market environment. They're well aware of the cat activity, the low interest rate environment, the 7 years of soft market pricing and the ever present loss trends that we all put up with. So of course, that's putting a lot of pressure on insurance rates. So I think there's a lot of compelling logic out there as to why rates will continue to move up. That said, we know that deep down the market has been illogical at times, at least in the short run, it can be. So we can't actually predict where it's going but certainly we've been very encouraged at where it sits right now.

John D. Finnegan

Let me talk about margin compression or margin expansion. We have 4% rate increases on our standard commercial book in the quarter as we said, up from 2% in the second and 0% in the first. If you look at that versus as we tend to do versus longer-term cost trends, we'd say that's just about in line with longer-term cost trends. It's hard to suggest that longer-term cost trends are 1% or 2%, I mean, 4% seems reasonable. Now on the short-term, loss experience can deviate significantly. In fact, as we've talked about frequently in calls over the last few years, we've enjoyed a long period of very benign loss cost, well below the loss cost trends. To some degree, this probably reflects the lower inflation environment in which we've been operating. The bottom line is the 4% rate increases are a big improvement from what we've experienced over the last 4 years. At this point though, significant margin expansion in 2012 will require either continued very benign loss trends and not a reversion to the longer-term loss trends or that our market rates further increase. As Paul said, fortunately the trend line in commercial rate seemed to be up, but that we are hopeful we'll see further rate increases in the fourth quarter of this year and in 2012, which will allow for margin expansion on the business written during these periods. It should be noted, however, that there is a lag effect on earnings from such rate increases and that they only flow through the reported results that they are now. And the analysis is pretty much the same for Homeowners business, the level of recently filed rate increases combined with our automatic construction cost adjustment should offset longer-term cost trends. Of course, losses can be lumpy in lines such as Homeowners and our commercial property, where x cat results are much more dependent on the number of fire and non-cat-related weather losses which can fluctuate significantly and are difficult to predict. If you try and talk about profitability going forward, again, they're kind of caveat, this is just talking about margins on business we are writing as a lagged effect. You'd also have to take into account what you think is going to happen in prior period development. And as Ricky talked about, what's going to happen on investment income where we're obviously going to feel some pressure from lower investment yields. So I hope that gives you a snapshot of what our perspective on margins.

Michael Zaremski - Crédit Suisse AG, Research Division

That's helpful. Regarding the investment yields since you brought it up. If unless I'm incorrect, it's held up pretty well recently. What are your new money yields and how should we think about this perspectively?

Richard G. Spiro

Sure. it's Ricky, I'll take a shot at answering that. I would say, today, it varies by the different asset classes, but across our book, we're probably looking at reinvestment rates as fixed maturities mature over the next few years that are on average call it 100 basis points, maybe 125 basis points, below the maturing book yields. And if we have, if you look on our 10-K, we have about $14 billion of maturities over the next 3 years, 2012, '13 and '14.

Operator

Next we'll go to Jay Gelb with Barclays Capital.

Jay Gelb - Barclays Capital, Research Division

To follow-up on the last issue in terms of the potential for further rate increases, I'm still trying to understand, what's changed in the mind of buyers and agents that they're so agreeable that rates need to go up?

Paul J. Krump

I think one of the things that we see is that underwriters are more willing just to walk away from business if they're not getting an adequate price. Another item out there, along the litany I gave earlier, Jay, was the pressure that people are seeing from some model changes. So I think there is people that are willing just to not renew business and walk away from the marketplace and that is certainly helping prices to move along.

Jay Gelb - Barclays Capital, Research Division

Then for Ricky on the DAC charge, another company yesterday tell us there aren't going to take any charge, so trying to get a better handle on why more of the acquisition costs are being deferred to Chubb and whether this is going to have any impact on the pace of share buybacks in 2012 or any impact on the expense ratio going forward?

Richard G. Spiro

A lot of questions in that. I can't comment on what other companies are doing as it relates to DAC. I'll tell you from our perspective. Historically, we've been able to defer commissions, premium taxes and other costs and included in that group of costs were salaries, benefits and overhead costs for all employees involved with underwriting and its related support functions. And also included in the pool of eligible costs, where those costs incurred related to risk that we underwrote or quoted but which we did not issue -- for which we did not issue a policy. Under the new guidance, we'll defer only costs that are directly related to the successful acquisition of new or renewal business. Similar to our current policy, these costs would include commissions and premium taxes. In the future, however, other cost eligible for deferral would generally only include underwriting-related salaries and benefits excluding related support functions and excluding all overhead and only with respect to those policies we successfully renew or acquire. So at the end of the day, under the new guidance, some of the things that we were deferring previously, we won't be able to anymore.

John D. Finnegan

Jay, there had been 2 companies, I think, that have announced, one, as you said, recently, they will along [ph] in their filings have indicated that wouldn't have any material impact. There was a second company, announced about 2 or 3 weeks ago, that had a very significant impact in terms of the new accounting for DAC.

Jay Gelb - Barclays Capital, Research Division

Right. And then, so, Ricky, on the impact of -- are we going to see a drag on earnings next year from higher operating expenses?

Richard G. Spiro

Well, Jay, we're still evaluating all the effects of adopting the new guidance. While there may be some impact or likely will be some impact on future earnings as a result of growth in premiums or expenses, we currently do not expect that the change will have a material impact on our income in 2012.

John D. Finnegan

Well to some degree, on premium growth and expense growth.

Operator

Next up we'll hear from Vinay Misquith with Evercore Partners.

Vinay Misquith - Evercore Partners Inc., Research Division

The first question is just wanted to get a sense on the competitive environment out there. Your retentions and you do a loss business actually declined a little bit in CCI. So just trying to get a sense, are you sort of first on the line to raise pricing and what sort of behavior are you seeing from competitors?

Richard G. Spiro

I don't want to comment first in line, second line, third in line, those kinds of things. I would tell you that we've really enjoyed good retentions in the mid to high 80s in both our standard and specialty lines for a long time. We spend a lot of time, Vinay, making certain that the business is being analyzed very objectively, policy by policy, case-by-case, so that we in fact lose the business that, for the most part, that we want to lose. And it's actually through that proactive re-profiling, we can improve the book of business. So it's not just taking rate, it's also making certain you understand your walk away price on each individual customer and each individual customers' policy if we write multiple policies for them.

Vinay Misquith - Evercore Partners Inc., Research Division

Okay, fair enough. The second question was unfavorable development and the specialty lines. That declined this quarter to about $45 million, what's happening in that line? Are you seeing less favorable development here going forward?

John D. Finnegan

We've had historic levels of favorable development at the company as a whole and certainly on professional liability. Still a pretty good quarter if I read this right, we still had 6.5 points of favorable development in the quarter in specialty. So it's a good quarter. We've just had very high levels of previously.

Vinay Misquith - Evercore Partners Inc., Research Division

So one last thing, if I may, some of the growth in the Personal lines, I recall you've been trying to expand your Homeowners product outside of the Northeast and yet your premiums have grown just 4% at Homeowners, so what's happening on that? And if you could add some color on the auto 9% growth, which seems really great.

Richard G. Spiro

I'll start with the auto. As I've indicated on prior calls, we have continued to accelerate our state-by-state roll out of our latest base of Panorama automobile, which is our sophisticated segmented rating plan for our U.S. personal auto business and our latest model was introduced in some additional states. And our goal is clearly to increase sales of our auto product in response to a growing sort of proportion of our current national customers' interest in receiving similar higher levels of quality of service and coverage. And we're seeing some nice growth in the United States at 2% and as I've indicated, we are also growing our automobile outside the United States, in particular, in places like Latin America, in Brazil. Similarly on the Homeowners, we continue to expand our business, diversify our business, geographic diversification. We're now growing Homeowners outside the United States in the aggregate. Our total Personal lines represents now about 27% outside the United States. And we're also growing our Homeowners in the Midwest, in the western states, so diversifying it away from the Northeast. And it's playing out very favorable for us. And we're also going to be rolling out Panorama, also for our Homeowners. We already have it in a few states and we'll continue to do that in the fourth quarter and in the first quarter of 2012, which will also help us out.

Operator

Next up we'll hear from Josh Shanker with Deutsche Bank.

Joshua D. Shanker - Deutsche Bank AG, Research Division

First question pretty quickly, in terms of the fourth quarter DAC charge, does that go through operating or it just go through net?

John D. Finnegan

It's not an earnings side.

Joshua D. Shanker - Deutsche Bank AG, Research Division

Only balance sheet, there's no charge to be taken?

John D. Finnegan

It's only balance sheet and it goes into effect effective January 1, 2012, so when we file our financial statements at the end of the first quarter, we'll go back and restate prior periods.

Joshua D. Shanker - Deutsche Bank AG, Research Division

Okay. Excellent. And then second, one of your competitors, which I won't name, they showed their loss cost trends or at least what's the result indicated, sort of fast acceleration of loss cost trends during this past quarter. Do you see any similar situation going on with your book of business?

John D. Finnegan

Well, I mean, I think that we clearly experience higher losses in the third quarter and let's take it just a simple measure. We had about 4 point deterioration in our x cat combined ratio. So we saw a higher loss cost now but that was mix between, the mix was about 2 points of less favorable development and 2 points of higher accident year combined. We've again talked in past conference calls about what a benign environment we've had for loss trends over the last few years. So I don't think that the push-up and the deterioration, any of these was a surprise, although we never knew it was coming. Whether or not it's a trend or not, that's another -- I don't know, it's only 1 quarter.

Operator

We'll hear from Michael Nannizzi with Goldman Sachs.

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Question on the expense ratio, in particular, in commercial lines. It looks like it was above 33% for the first time in a pretty long time. Is that related to growth initiatives, outside of the U.S. or something else? And I also have a follow-up.

John D. Finnegan

Our expense ratio was all roll up in the quarter and it was really -- all of it was due to increased commission costs but not from higher internal operating expense and the increased commission costs largely reflect the sharp growth of our overseas C&H business, which is structurally a higher commission business.

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Got it. On the specialty segment, you had a 1% decline in rates on retention but you're -- actually, your combined ratio looks deteriorated about 3 points compared to last year. Just trying to understand how to reconcile those trends.

John D. Finnegan

I think if you look at in CSI, you're probably 2.5 to 3 points. But it's almost all in Surety. All but a half a point is in Surety. And Surety never bad quarter, still ran at 55, but that's versus the 40 the prior year. So only about half a point in professional liability.

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Got it. And then just one more if I could. It sounds like you're growing outside of the Northeast in Homeowners and outside of the U.S. So if you're growing in the U.S. 2% and you are doing all this stuff to grow outside Northeast, are you actually shrinking in the Northeast? Or how should we think about that?

John D. Finnegan

I think what you have to think about is the big places where we are. It's a law of large numbers here. You got a huge percentage of your business in the Northeast and in Florida in the cat-prone areas. We are not growing that business. So you have to grow the rest of your business, the other 20% of your businesses considerably to even generate a 2% increase overall in your book. In some areas, we're even practicing triage and reducing business in the cat-prone areas. That is the core of our business. So all of the growth has to really come from the non-cat areas.

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Got it. And Ricky, can I get the pretax investment income number and I'm done.

Richard G. Spiro

Hold on.

John D. Finnegan

Why don't we go on and Ricky will mention it after the next question.

Operator

Then we'll go on to Greg Locraft from Morgan Stanley.

Gregory Locraft - Morgan Stanley, Research Division

Wanted to get a sense as to what our ROE goal is for the corporation. Obviously, you've mentioned all the pressures on the income statement into next year, low yields, core margins are a bit under pressure and cats, obviously, aren't behaving. So what is the ROE goal and then how much rate do you need to achieve to get to back to those levels?

Richard G. Spiro

Greg, it's Ricky. I'll take the first part and then I'll let John and my other colleagues answer the second part. But as we stated our past, in the past, our goal is to achieve a return on equity of inflation plus 10% but that's over the life of a cycle. So that would imply that we would expect to outperform this target in hard markets then possibly underperform it in soft markets. And despite the drop in interest rates that has occurred recently, we're still sticking to that as our target again over the life of a cycle. And if you look at our historical results, we've tracked pretty well with this objective through past cycles and so, at this time, we don't really see a need to change our target. If you look at our average ROE, operating ROE from, say, 2005 through the end of last year, it's about 16%. So that's the ROE target and then...

Gregory Locraft - Morgan Stanley, Research Division

I guess the question is to get, let's say, it's the mid-teens, how much rate do you need to get in your book in order to get back to mid-teens given all the pressures that you outlined.

John D. Finnegan

I wouldn't say, I think Ricky -- it's inflation plus 10, so it's closer to 12 than it is mid-teens. We've been able to run it pretty much without the major cats. There's no really easy answer to what you're asking. If you earned a point of rate for the full year and you earned it through to be $0.26, $0.27, $0.28 per share, so if you roll that forward in farmer's math, you got 2 points of rate, you improved your earnings by 10%, which would improve your ROE by 10%. Now, that starts to get you pretty close to that target, depending on where favorable development comes out. But having said that, you got to remember that you have to earn this rate out. So if you get an extra point or 2 and rates soften in February or March, you're only earning out a quarter of that or half of that over a course of the year. So you're not going to see that full impact in the immediate calendar year. It's complicated by the year in our part and you also would have to know again prior period development.

Gregory Locraft - Morgan Stanley, Research Division

Okay. And then again, as we think about '12, little different question, but on cat losses, you started the year with 3.5 points of guidance, it's about $400 million or so and unfortunately, we just had that in one quarter, should we be thinking about a higher level of catastrophe loads going forward in our models?

John D. Finnegan

We're going to have to visit that as we go into our business plan and forecast for 2012. The bias is clearly upward but like it's always very easy to extrapolate from the most recent data, just for some perspective. I just tell you it's to indicate that we're not crazy when we picked the 3.5. Over the last 30 years, our actual cat losses have averaged 3 points. Over the last 15, we've averaged 3.5 points. If you exclude the World Trade Center in 2011, they've averaged below 3 points. Now, we all say we've experienced a higher level of cats in recent years and certainly we need to take that on account. But on the other hand, we have less than a point of cats in 2009. And despite 2008, 2010 being big years on cats, our average cat losses over 2002 to 2010 period, still 10 years, have averaged only a little over 3 points. Now throw in 2011, and our updated guidance for cats are over 9 points. Even with that, our average cat losses over the 10-year period is still less than 4 points. So what I'm saying is, we're not going to say that the cat loss is going to be 9 points next year. We have to look at the 3.5, we have to determine that certainly is still validatable by historical standards, but should we roll it up a bit for most recent events? The answer is probably. We also take into account the cat models, but that's more important to our pricing than it is to our cat assumptions. So, I don't know, I hope that gives you a little perspective on what we're looking at when we make these decisions.

Richard G. Spiro

And before we go through the next question, just so I can answer the question that was left over. In terms of our pretax investment income, it is $396 million in the third quarter.

And I think now we can move on to the next question.

Operator

And go to Jay Cohen with Bank of America Merrill Lynch.

Jay A. Cohen - BofA Merrill Lynch, Research Division

Just one clarification, the DAC-related charge, the write-down, that's an after-tax or a pretax number?

Richard G. Spiro

We gave after-tax numbers.

Jay A. Cohen - BofA Merrill Lynch, Research Division

That's after tax. Okay. I guess I just want to ask you how you're looking at some of the longer tail lines of business given the reduction in interest rates. Clearly that changes the economics of that business, but you grew in the Professional Liability business, the Commercial Casualty business also expanded this quarter. When the rates aren't doing all that much yet and interest rates are coming down, how much do these lower rates affect how you look at the pricing and your margin targets?

Paul J. Krump

This is Paul, Jay. Let me take a stab at that, or maybe just take it, as you say, a little bit by product. Right now, we're getting a good rate in our umbrella and excess book of business. And as you know, we've stated in the past, we've had some wonderful reserve releases in that class of business and we think we really run that extremely well. We've been at it for a long time, a specialist in that. We know when to back away and what areas to target, to go after. So I can tell you honestly, we're pushing the teams to get more and more all the time just because it is a long tail business and this can be very lumpy and you get strange spikes when you're writing a large diverse book of product's liability, that type of thing. So we take it very, very seriously. When you move over to the professional liability lines, there are 2. We've specialized in that for over 25, 30 years and we've been working at it a very long time, and we try to break it out that's why I spent some time kind of showing you the difference between the public D&O and the private, the not-for-profit and the rest of it in E&O, et cetera. So again, John mentioned in his comments that the minus one that we're seeing in CSI is not acceptable for where we want to be in the kind of margin expansion we'd like to see in that class of business. So we are pushing very hard in those rates. And looking to make certain that we write the best business we can hang in and we are growing our professional liability outside of the United States, where we've got plant [ph] equipment in another 27 countries and we have less competition. I told you how encouraged we were to see the rates move in the public D&O space. One area that really tickled us was the primary public D&O because that really helped move along in the last quarter and I think people are seeing the need for that in the marketplace.

John D. Finnegan

Let me ask Ricky. I think you are also kind of getting at the mechanics of what happens and how we adjust to this. Let Ricky talk about the process a little bit.

Richard G. Spiro

Jay, I thought it might be helpful to help answer your question would be to give you an overview of how from a corporate level we look at the return on equity that I just batted and how that get down to the field level and the underwriters and so they understand what their targets are and how we bring investment income and the investment environment into that. And obviously, as you've heard us say on the call a couple of times already, lower investment rates is one of the reasons why we think that we need to keep pushing hard on rate and need to get more rate. So we're certainly taking that into account. But broadly speaking, the way it works here is we start off with what we have as the corporate return on equity target that we talked about a question or 2 ago and then, from that, we allocate capital to each of the lines of businesses and to the SBUs taking into account that return and what combined ratios they need to achieve with the current investment environment in order to get to those returns and ultimately what comes out of that are gross combined ratio targets that get put down into the field that drives what -- the way we think about our business, how much rate we need, et cetera. So again, the return hurdles are over the life of the cycle but we do take into account the investment income and the short answer is, with interest rate environment where we are now, to get the same level of return in equity, we obviously have to get better combined ratios.

Jay A. Cohen - BofA Merrill Lynch, Research Division

Sounds like you're massaging the business mix to some extent both geographic and product to at least defend those return as much as you can.

Paul J. Krump

Yes. So this is Paul again. Absolutely. As I mentioned before, when Ricky talks about the components there, when we look at the different rates that we've gotten where we think their levels of adequacy are at, given the jurisdiction if it comes down to something like liability or if we're looking at, say, a coastal area for property and we're looking at the models, we have to adjust for all those types of things. Well Ricky mentioned, we might have a target for a monoline property for office classes and we give a target for gross combined ratio on feel for that. That will vary dramatically from, say, northern California to Wisconsin to Harris County in Texas.

Jay A. Cohen - BofA Merrill Lynch, Research Division

Got it. And if I could be a little obnoxious to sneak one more, just the Surety premiums were down quite a bit. I'm wondering if there's any unusual in that number?

Paul J. Krump

As we've described in our past calls, our quarterly Surety growth can be very lumpy, especially on a quarterly basis. Through 9 months, our Surety growth is only down 1%, which is quite good given the sluggish economy. In the first 2 quarters of 2011, our Surety growth was aided by our existing customer's success in winning jobs and conversely in this past quarter, 3 large construction jobs were canceled and we accordingly processed return premiums to our customers. I could tell you that a very strong philosophy in our Surety business here is profit first, profits second, profit third and we would -- especially in this difficult economic times, we focus the team on profit and just going back to the previous question you had, that's an area where the growth pressures are nonexistent for our underwriters. They're analyzing each deal very carefully.

Operator

Let's go to Brian Meredith with UBS.

Brian Meredith - UBS Investment Bank, Research Division

Two quick questions here. First, Ricky, wonder if you could tell us, what was the impact of the effects in investment income, kind of maybe in a year-over-year basis we get a sense.

Richard G. Spiro

It was about 1% or so.

Brian Meredith - UBS Investment Bank, Research Division

Excellent. And then the second question I had, it's kind of drilling down on some of the rate environment here. Can you give us a sense of kind of what property rate increases are looking like in workers comp versus some of the other ones, is the rate that you're seeing in CCI kind of skewed more towards like property and workers comp or is it pretty balanced?

Paul J. Krump

This is Paul again. We're pleased that it's pretty darn balanced. Like I gave them in descending order when might [ph] [indiscernible] the commercial auto, actually had the smallest rate increase but the others were pretty clumped closely together. So we're out there pushing on each and every line. Our rate, for example, John just asked what the rate is in workers comp. Our rate for the quarter was slightly over 4% in workers compensation. If I can talk a little bit about that, I mean, and we got a great book of workers compensation. We're running through 9 months of 92.5. And best just came out with numbers this week that suggests that the industry in the United States will come out at a 121.5 for this year. So you've got nearly 30-point gap between our book and the industry's and we're getting 4 points of rate. We're very conscious of medical inflation, so we're very happy to have that, that kind of our rate portion. We're going to continue to go at it. Our book is very specialized by industry and customer size, as we've said in the past, but we're going to continue to focus on it and if rates continue to go as they've been, it will portend some good things for us.

Operator

Next up we'll hear from Mike Grasher with Piper Jaffray.

Michael Grasher - Piper Jaffray Companies, Research Division

Just a follow up on that. Sounds like you would agree then that we're early here on the comp rate movement. That there would be a lot more pain to come with the industry and that you're probably positioned very well to take advantage of that, is that fair?

Richard G. Spiro

Yes.

Michael Grasher - Piper Jaffray Companies, Research Division

Is there any specific geography or specific state that maybe is impacting this lines of business for you more than others?

Richard G. Spiro

That's a really great question. We write in all 46 states up in District of Columbia where comp carriers can compete. Our book tends to be in the states where the largest populations exist. So we're looking at those states because, frankly, that's where we have our deep expertise in things like technology and law firms and other areas where we have subject matter experts going after the comp. I want to be careful though and let you know that we're not a big -- we occasionally will write a monoline comp with the idea of picking of the package of the property at the renewal date. But we're not a monoline comp market, that's not something that we do at Chubb. We look to round out accounts and give our value-added proposition and service to the customers where we write mostly the package policies.

Operator

Next up we have Paul Newsome with Sandler O'Neill & Partners.

J. Paul Newsome - Sandler O'Neill + Partners, L.P., Research Division

Last time, I recall we had some firm and we also had some declines and retention as people were generally were willing to walk away. Is it your anticipation that, that will also happen if you keep pushing rates, that retentions will slip a little bit?

Richard G. Spiro

It's tough to call. We have studied this for many years trying to see the price elasticity on this. It varies by where we specialize, by line. There is not a direct one-to-one correlation. We watch them in concert with each other and we try to drill in if we see anything aberrational happening. Well, my comments earlier were about the fact that what I think we're seeing here in the last couple of months that's so encouraging to us is that the agents are seeing people pull away from markets where they're just not getting adequate returns for the risk that carriers were absorbing for. And that's allowing those that want to stick in there and specialize to take prices at least higher.

John D. Finnegan

Wouldn't be surprised if we see some rate retention trade-off, of course, it depends on what the other players in the market do.

J. Paul Newsome - Sandler O'Neill + Partners, L.P., Research Division

Could you comment on the new versus -- pricing new versus renewal?

Paul J. Krump

Sure. This is Paul again. That's another thing that we monitor very carefully. And because we specialize, we were looking at SIC code and size of accounts and we try to match up what their net rates are coming on for new business versus our renewal book of business. There's been a little bit of a gap, that gap has been narrowing throughout the year, which is another really encouraging sign to us.

Operator

We have Mark Dwelle with RBC Capital Markets.

Mark A. Dwelle - RBC Capital Markets, LLC, Research Division

All my questions have been answered, but one further question related to the DAC for next year. Will the change in application, will that be uniform across all of the business segments, most companies are finding it's a lot higher on the commercial lines parts of their business than on the personal lines?

Richard G. Spiro

Again I can't comment on other companies. I think for us, it's pretty uniform across our different lines of business.

Mark A. Dwelle - RBC Capital Markets, LLC, Research Division

Okay. And second question related, let's say, financial crisis here, or D&O claims. Are you seeing any, are you seeing those claims move through the system or the claims process faster or slower than maybe what we've seen in past cycles where there's been a spike in D&O activity?

Richard G. Spiro

No, we're not seeing any really different trends. We watch very closely security class actions on the D&O side. And clearly, when you look at the way we focus on, which is sort of pure D&O class actions, which continue to be the driver of most of your losses, the fact remains that the total number of security class actions filed this year, well above sort of the levels we saw in '09 and '10, it's still below the pre-2009 averages on an annualized basis. So...

John D. Finnegan

Dino, I think he's asking about the time lag between when you get the claim in the door and how it settles out, is it a longer period and perhaps other things we've gone through.

Dino E. Robusto

I think right now I'd say it's pretty well been the same as it's been for the last few years. We're seeing a little bit of activity from mergers and acquisition claims. You can see some of the activity because it's a defense cost issue and you can see that play out a little bit quicker. But in general, the timing on our commercial liability claims is essentially stable.

Operator

We have Ian Gutterman with Adage Capital.

Ian Gutterman - Adage Capital Management, L.P.

Was there an impact on results from non-cat weather?

Richard G. Spiro

There were some non-cat weather-related losses, but we don't really track that like cats, it just forms part of our non-cat loss estimates. I can tell you that it was less significant than the non-cat winter storms that we experienced in the first quarter.

Ian Gutterman - Adage Capital Management, L.P.

Okay, great. I guess I was wondering on some of the earlier questions about your accident year trends, extra catastrophes, obviously, and John, I appreciate your comments about price still not catching over loss trend and you said that for a few quarters now. When I looked at the last 6 quarters before this one, you were kind of at a 91 or below, accident or x cat, and we've shown to a 93 this quarter. It just seemed like a pretty sudden spike. I'm wondering if there's anything going on beyond sort of the normal price not catching up with trend yet?

John D. Finnegan

I would think, maybe look at it from the perspective that for 3 or 4 years, at least, maybe 5, we've experienced no rate increases in this business, in the commercial business. And we expected margin compression, and we got a little but we didn't get very much. As you say, we recorded some pretty good x cat combined ratios, it's an accident year basis. [indiscernible] But we weren't getting any rate to offset much of any kind of loss trend increase and this is a quarter in which, all of a sudden we saw some cost increases. It was sort of inevitable. So property class, as you see it especially, we weren't getting rate -- sort of inevitable to where we're caught [ph] but our loss trends can't continue forever. As to where the trends go from now, I'm not sure. Clearly what we have to do on the other side is to get some rate now to offset the potential loss cost increase.

Ian Gutterman - Adage Capital Management, L.P.

Okay, fair enough. And then on the CSI side, when I look at the PL business, looks like you're running about 99 to 100, which is not terribly higher than where you've been, but I guess I'm just kind of wondering given that has always been such a good book for you, why are we sitting picks near 100, is there something you're concerned about there? Or that just typical Chubb conservatism?

John D. Finnegan

Well, you only know if you're conservative after the fact, unfortunately. But right now our combined ratio for the accident year 2011 is about 98. So it's up about a half a point, I think, from last year we're talking about. Truthfully, in recent years we've had -- our picks were higher. I mean, our combined ratio picks for accident years let's take the credit crisis here was probably 105, 106. So we've always kind of set the picks reasonably -- we've really been in the lower 90 for a number of years. We've been fortunate enough that we've had some great favorable development from some of those earlier years like 3, 4 and 5, which benefited from tremendous rate increases of course. And we still get favorable development from whatever -- yes, actually, pretty much every accident year. But on the other hand what you have working against at here is that you haven't had rate increases in this business. So even when losses stay the same, there's a lot of pressure on accident year results.

Ian Gutterman - Adage Capital Management, L.P.

Okay, very good. And then my last one, really quick, is that Surety, you had a little bit higher loss ratio than we're used to seeing there, I mean, not that it was high, but as opposed to being incredibly low or just low. Was there any one-off claim in there? The reason I asked is a couple of your peers have reported some actually pretty disappointing reserves. So I don't know if there is any kind of general spike in losses coming through the economy.

John D. Finnegan

You have to remember in that business, with the volume of business they do that increase in combined of 10 to 15 points is $10 million or $8 million in losses. So there was no one big claim by any means.

Richard G. Spiro

It was just a little uptick.

Ian Gutterman - Adage Capital Management, L.P.

Okay. So nothing you're seeing in the economy that suggests that business might be starting to deteriorate a little bit?

John D. Finnegan

No. But again, I don't think -- we don't consider that long-term for the combined ratio business. No business is like that, 55 is probably closer to what we're thinking it would run over time and that would still probably be reasonably favorable. So no, not as duration, maybe reversion to more reasonable cost trends. Although again, it's 1 quarter, 1 $5 million or $6 million or $7 million claim in the quarter, just throw that 15 points.

Operator

Next we have Jeffrey Cho with MFS.

Jeffrey Cho

Can you just remind me of your capital management kind of philosophy, I mean, you've repurchased stock, historically, pretty aggressively and you were from at a valuation of 1x tangible to 1.7x tangible. Do you guys think about it on a certain return metric? And at what point would you accelerate, decelerate buybacks?

John D. Finnegan

We certainly think about the returns that we get from buying back our stock in the valuation. I'm not going, I think, give you any metrics. But our general view about buybacks is if we have excess capital, which we think we do, our first objective is always to reinvest in the business and if we don't see opportunities in the business, then our next step is to return it to our shareholders. So our philosophy has remain unchanged. We've given back almost $9.5 billion worth of buybacks since the end of 2005. I can't comment on our future plans for buybacks. But it is a core part of our strategy.

Jeffrey Cho

But what about dividend, any thoughts about potentially increasing that above the, I guess, I'm thinking about it as increasing about 5% over last 2, 3 years, would you accelerate that any higher?

John D. Finnegan

It was higher than that.

Jeffrey Cho

I mean, it was higher, yes, I was thinking it was higher than that in the mid-2005, '06, '07 and then it slowed down a little bit.

Richard G. Spiro

Again, I can't comment on our plans for the future. I can just tell you that the dividend like share buybacks or core component of our capital management strategy. We've increased our dividend I think in each of the past 29 years. So it's important part of the way we think about our capital and what we do with our capital. But I can't comment on what we're going to do in the future.

John D. Finnegan

Okay. How about 1 more question?

Operator

Then we'll hear from Matthew Heimermann with JPMorgan.

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

I actually just wanted to follow up on Jeff's question first. Just on dividends and policy and may be coming out of it from a different way, which is just how you think about it versus earnings on a payout ratio, and I guess the reason I'm asking is if I go back -- potentially we're on the cusp of an improving pricing environment here if things keep going the way they're going or maybe we're at the cusp already. But if I go back to the late 90s into 2000, the payout ratio kind of normalize in for cats based on where you're picking the business actually was close to, was 50% or so, kind of about the trough of earnings, so to speak. And right now, granted it's around 40, so I won't call that low, but just curious how you think about especially since I usually think about kind of the minimum -- there's always a minimum threshold you feel like you can afford.

John D. Finnegan

Let me say 2 things, none of us were around back then. So we don't remember those days, or at least Ricky and myself. But secondly, dividend payout ratios can be awfully misleading in this insurance industry, which goes through cycles. The reason it was 50% I'm sure is because earnings were de minimis back in those days. So I don't think that, that -- you really couldn't look at it that way. We'll look for steady improvement in the dividends. Fortunately, our earnings have been sufficient to support it. If we've got a dramatic increase in earnings, we look at higher increase in dividends. But I don't think that's on the immediate future. We'll continue to look at it, as Ricky said, as an important component of our capital management strategy. But I don't think you should expect anything too sexy in that area.

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

Okay. The earning were better than you've given yourself credit for but the other -- just 2 numbers questions for Ricky. One was just can you give us -- you gave us what the delta was between reinvestment and expiring yield. I was curious if you could give the delta versus reinvestment rates and book yield?

Richard G. Spiro

Total book yield on the portfolio today, what I gave you were the book yields on the maturing -- then now, I can give you that -- I did. I told you that...

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

You said it's 100 basis points versus maturing but I was curious what it was versus the total book yield today?

Richard G. Spiro

I think that the book yield of the whole portfolio today is 4.3 or something, something in that range. Our after-tax yield is 3.28% in the third quarter and that's with an 18.9% effective tax rate.

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

And then I guess where is your new money versus -- now, that's what I'm trying to get, you gave -- I think you said 100 basis points versus expiring. I was just trying to see what the basis point delta was on new money versus the numbers you just quoted.

Richard G. Spiro

It's going to be a little bit different but not dramatically different.

John D. Finnegan

Of course, the earnings impact will be first at the maturities.

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

No. I absolutely get that, but we don't necessarily know that exactly, so that's why I was asking. Then just my rough math was the dividend in the quarter up to the hold co is around $1.3 billion, is that close?

Richard G. Spiro

Yes.

John D. Finnegan

I will turn it back to the operator now.

Operator

That does conclude our conference for today. We thank you for your participation.

John D. Finnegan

Thank you very much for joining us.

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