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Executives

Noah Fields - Head of IR

Christopher O'Kane - CEO

Richard Houghton - CFO and Principal Accounting Officer

Analysts

Jay Gelb - Lehman Brothers

Alain Karaoglan - Banc of America

Sy Jacobs - Jacobs Asset Management

Aspen Insurance Holdings Limited (AHL) Q2 FY08 Earnings Call July 31, 2008 8:30 AM ET

Operator

Good morning. My name is Shuana and I'll be your conference operator today. At this time, I would like to welcome everyone to the Aspen Insurance Holdings Limited Second Quarter 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. [Operator Instructions]. Thank you. It is now my pleasure to turn the floor over to your host, Mr. Noah Fields. Sir, you may begin your conference.

Noah Fields - Head of Investor Relations

Thank you and good morning. The presenters on this morning's call are Chris O'Kane, Chief Executive Officer and Richard Houghton, Chief Financial Officer of Aspen Insurance Holdings.

Before we get underway, I'd like to make the following remarks. Yesterday afternoon, we issued our press release announcing Aspen's financial results for the quarter ended June 30, 2008. This press release as well as corresponding supplementary financial information can be found on our website at www.aspen.bm. I would also like to draw your attention to the fact that we have posted a short slide presentation on our website to accompany this call.

This presentation contains and Aspen may make from time to time written or oral forward-looking statements within the meaning under and pursuant to the Safe Harbor provisions of the U.S. federal securities laws. All forward-looking statements will have a number of assumptions concerning future events that are subject to a number of uncertainties and other factors. For more detailed descriptions of these uncertainties and other factors, please see the risk factor section in Aspen's annual report on Form 10-K filed with the SEC and on our website.

This presentation will contain non-GAAP financial measures which we believe are meaningful in evaluating the company's performance. For a detailed disclosure on non-GAAP financials, please refer the supplementary financial data and our earnings slide presentation posted on the Aspen website.

Now I'll turn the call over to Chris O'Kane.

Christopher O'Kane - Chief Executive Officer

Thank you, Noah. I am pleased to report a very good second quarter for Aspen with net income of $126.9 million or $1.44 per share for the quarter, an increase of 11% over the same period last year and an increase of 56% over the first quarter in 2008.

This reflects strong performance by our underwriting units plus solid returns from our investments. The combined ratio was 78.2% versus 88.4% in the same quarter last year and 85.4% last quarter this year. The annualized operating ROE was 21.2%. We increased book value per share by 2% in the quarter and by 22% in the last 12 months.

A short summary of our results is set out on slides 3 and 4.

Overall, insurance and reinsurance prices continue to fall across the majority of our book. In contrast to this, we had a very strong performance in our financial institutions and political risk insurance units where rates have moved significantly in our favor. Both lines, but political risk in particular are benefiting from increased demand and an attractive pricing environment as sentiment in the credit and financial markets continues to deteriorate.

I am now going to turn the call over to Richard who will take you through our financial performance in more detail.

Richard Houghton - Chief Financial Officer and Principal Accounting Officer

Thank you, Chris, and good morning everybody. I am very happy to report on a good second quarter performance for Aspen on our diluted earnings per on operating income for the quarter of $1.44 compared with $1.14 in the second quarter of 2007. This increase is driven by strong trading performance on our active approach to capital management as we have taken opportunities to buy back shares at attractive prices over the past year.

For the half year, our diluted earnings per share on operating income of $2.23 compares with $2.40 in the first half of 2007. Our diluted book value per share increased by 23% to $28.99 from $23.63 when compared to this point last year, reflecting primarily $381 million of retained income over the last 12 months. We have also increased diluted book value per share by 7% from $27.8 at the start of the year.

Our combined ratio for the quarter was 78.2%, comparing favorably with 88.4% for the second quarter of 2007. This reflects our disciplined underwriting approach and quality of risk selection in addition to a lower incidence of cat-related claims. On a year-to-date basis, our combined ratio was 81.7% compared with 83.9% for the half year of 2007.

Turning in more detail to our underwriting performance. Our gross written premium has increased by 5% to $529 million over the same quarter last year, benefiting from our measured diversification into new business lines. The increase in gross written premium reflects the incremental contribution from lines such as political risk and excess casualty insurance which are being developed over the past year. On a like-for-like basis, our gross written premium has decreased by 7% over the second quarter of 2007, reflecting softening market conditions. On a year-to-date basis, our total gross written premium is broadly in line with last year.

The ceded written premium has decreased significantly from $85 million in the second quarter of 2007 to $23 million this quarter with a corresponding impact on net written premium, which has risen by 21%. As a reminder, we purchase several multi-year catastrophe reinsurance covers in the second quarter of 2007 which are still being earned in 2008.

Net earned premiums have fallen by 12% to $397 million when compared to the second quarter of 2007 and are a function of the reduction in gross written premium in the second half of 2007 and in the first quarter of 2008. Net earned premiums decreased by 11% to $780 million compared to the first half of 2007. Our loss ratio of 47.4% is 13 percentage points lower than the second quarter of 2007, reflecting our relatively benign cat loss experience during the period.

Our exposure to the storms and floods in the U.S. Midwest is within our expectations of less than $10 million for our Property Reinsurance segment and we don't anticipate any crop losses. Our exposure to crop insurance is through our treaty reinsurance book where we have premiums of only $6 million.

We recorded $40 million of net prior releases in the quarter, an increase of $22 million on the second quarter in 2007. The current period releases have arisen mainly in our causality reinsurance and international segments and reflect better than expected loss experience. On a year-to-date basis, we have booked $80 million of net reserve releases compared with $44 million in 2007. These reserve releases account for less than 3% of our net reserves at the start of the year.

Excluding solely the impact of prior year reserve releases, our combined ratio has improved by 4 percentage points to 88.3% for the quarter from 92.4% compared with the same period last year.

On an accident year basis, our loss ratio for the quarter was 57.4% and compares favorably with 68.2% in the second quarter of 2007. On a year-to-date basis, our accident year loss ratio was 60.1% versus 62.6% in 2007, evidencing the high quality of our risk selection capabilities in a softening cycle across a number of our business lines.

I would like to draw your attention to a new exhibit in our earnings supplement on pages 15 and 16, which provides a comparison of our key performance ratios on a financial year and accident year basis by operating segment.

The accident year loss ratios reflect changes in both prior year reserve and premium movements including the impact of commutations and updated advice on premium estimates from cedants to get a more representative picture of current year performance.

Our expense ratio increased [ph] of 13.8% from 27.9% in the second quarter of 2007. Within this, our policy acquisition expense ratio has decreased by 1.7 percentage points when compared to the second quarter of 2007. On a year-to-date basis, the acquisition expense ratio of 17.9% is in line with last year.

Our operating expense ratio have increased to 14.4% for the quarter from 9.8% in the second quarter of 2007, being pushed up by set-up costs associated with new teams and by our investment in our new platforms including entry into Lloyd's during the second quarter. The contribution to earnings from these ventures will have a more meaningful impact during the second half of 2008, which we anticipate will return our expense ratio to lower levels.

I'll now turn to the highlights from our operating segments. Our Property Reinsurance segment has achieved a combined ratio of 65% for the quarter, a 12.3 percentage point improvement over the same period in 2007 with no significant loss activity in the current quarter other than reserves attributable to Midwest floods of less than $10 million.

On a year-to-date basis, our combined ratio is 64.2%, comparing favorably to 73% in 2007. Gross written premium for Property Reinsurance has decreased by 10% for the quarter and 7% for the year-to-date compared to the same periods last year, reflecting continued pressure on pricing.

Turning now to our causality reinsurance segment. Combined ratio for the quarter have improved to 91.5% from 94.7% last year. The improvement in the combined ratio is due largely to $24 million of reserve releases during the quarter. On a year-to-date basis, combined ratio increased to 93.4% from 90.1% in 2007. Gross written premium in the segment is down by 28% on the second quarter of 2007 and down by 21% for the half year. The reduction in written premium is further evidence of our disciplined underwriting approach in difficult market conditions in addition to downward premium adjustments in our international and U.S. casualty lines.

On an accident year basis, the combined ratio for our causality reinsurance segment was 99.7% for the quarter compared with 93.3% in 2007, reflecting challenging market conditions. For the half year, the accident year combined ratio is 100.6% compared with 96.3% last year.

Our International Insurance segment reported a combined ratio for the quarter of 79.2% compared with 88% for the same period in 2007. The loss ratio has improved to 51.3% from 61.3% in 2007 for the quarter. This decrease is driven by more favorable loss experience this quarter compared with 2007, which suffered from large losses in our marine hull and UK commercial property lines. On a year-to-date basis, the combined ratio was 87.1 % compared with 85.5% in 2007. Gross written premium was up by 30% at $259 million, reflecting incremental contributions from business lines such as political risk, excess casualty and financial institutions insurance, which have been developed over the past year.

Turning to our U.S. Insurance segment, the combined ratio was 91%, down significantly from 122.6% for the second quarter of 2007. On a year-to-date basis, the combined ratio is 96.6%, down from 107.7% in 2007. I'm very pleased to report that the loss ratio has improved significantly from 71.2% at the end of June last year to 49.4% on a year-to-date basis in 2008 as we have reshaped the book, particularly in the property line. The expense ratio continues to be adversely impacted in the short term as a result of the investment we have made to rebuild the book and reshape the organization.

Gross written premium on a year-to-date basis have increased 3% when compared to the same period last year. Our property book in particular has changed significantly with greater diversity and reduced loss activity.

Turning now to investments. Our net investment income for the quarter was $71 million compared with $79 million in the second quarter of 2007, due primarily to the performance of our funds of hedge funds and the slight reduction in book yield. Although a decrease on the second quarter of last year; this is a significant improvement on the first quarter of 2008 as a result of the positive contribution from funds of hedge funds. These funds contributed $11 million in the quarter against the backdrop of volatile market conditions compared to a loss of $17 million in the first quarter of this year.

Book yield on the fixed income element of our portfolio has remained stable at 4.8% when compared to the end of the first quarter of 2008 and decreased marginally when compared with 4.9% at the same point last year. We carry no impairments in our investment portfolio and continue to be satisfied with the credit quality of our fixed income book at an average of AA+ with 89% of our portfolio being rated A or higher.

Turning briefly to capital management, as a reminder, we completed the share repurchase of $100 million in May from Candover Partners, the last of our founding private equity shareholders.

Lastly, I would like to update our guidance for 2008 based on our experience year-to-date. You will see an updated set of metrics on page 15 of the slide presentation. We expect that pricing will continue to soften for the remainder of 2008 in most of our lines with some exceptions as Chris will discuss. We anticipate that total gross written premium will remain within original guidance of $1.8 billion plus or minus 5%. Volatility in the capital and equity markets is expected to continue throughout the remainder of the year and as a result, guidance for investment income has been revised to a range of $230 million to $265 million with fixed income and short-term investments expected to contribute $230 million to $245 million and funds of hedge funds expected to contribute less than $20 million.

The assumed cat load has also been revised to $150 million for the full year, reflecting our experience in the half year-to-date. Return on average equity is unchanged in the range of 13% to 16% for 2008, assuming normal loss experience for the remainder of the year.

To conclude, I am very pleased with yet another quarter of strong results across all elements of our business. This was the 11th consecutive quarter that we have increased book value per share. I am confident that we are addressing the margin challenges of the soft cycle with the benefit of broad and deep experience from previous cycles. I am also pleased that we have the confidence to continue to invest in our people and diversified business model.

And with that, I'd like to hand the call back to Chris.

Christopher O'Kane - Chief Executive Officer

Thanks Richard. As Richard has indicated, I cannot emphasize enough the importance of maintaining underwriting discipline as the market continues to soften, and this is a critical focus of our attention at Aspen.

I am now going to discuss what this means in terms of the market conditions in each of our business segments as shown in slide 16. As a reminder, we measure rate relativity on a premium weighted basis on the business we renew.

Starting with property reinsurance, our catastrophic account has seen rates continue to decline with average reductions of 7%. We have reduced our position in Florida as a result.

Also, a number of our clients have chosen to increase their retentions and buy less reinsurance. Average rate reductions on our risk excess book amounted to approximately 10% with rates for complex risks less impacted. Pro rata pricing continues to soften and we wrote less business than we'd expected due to inadequate pricing on certain accounts with rates [ph] down on average by 6%. Our property facultative reinsurance book saw an average decline of 10%. Decline in the U.S. were more marked than in the UK and Continental Europe, reflecting the fact that international rates began to fall roughly a year ahead of the U.S.

Turning now to Casualty Reinsurance, our international treaty unit had a better than expected July 1 renewal with relatively flat rates. Competition on U.S. casualty reinsurance remains acute and we non-renewed [ph] a number of contracts on rating grounds. The average rate reduction in our book was approximately 5%, which was better than our planning assumption and reflects the deliberate pruning [ph] back of our account where rates are insufficient.

Moving on to International Insurance, we have recorded a average decrease of 5% on our renewal book as rates have continued to decrease across most lines. In marine hull insurance, loss impacted accounts have seen price increases and rates on our book have averaged a 2% increase. In energy physical damage insurance, we have seen some signs of rating pressure beginning to abate on Gulf of Mexico programs with brokers experiencing some difficulty in placing certain programs.

In excess casualty, rates are continuing to reduce and have fallen by on average 10 to 15% in the U.S. with higher reductions outside the U.S. market. July is the biggest renewal month for our aviation account year-to-date and the rates were generally flat with some risk-free declines subsequently being offered... reoffered at higher prices. We recorded an average rate increase on renewal business on our aviation book of 1%.

In UK commercial property insurance, competition remains strong with large rate concessions in the property [indiscernible] sector. We were, however, able to achieve average rate increases of 1% on our renewal book. Market conditions are also challenging in UK employers' liability insurance with larger accounts continuing to see sliding rates. The average rate reduction on our renewal book amounts to 11% although there are some signs that pressure may be abating. In our UK under strain [ph] and professional lines account, conditions remain very challenging and we have scaled back our underwriting appetite as a result.

The pricing dynamic in political risk and financial institutions, however, is a very different story. In political risk, we are seeing increases of as much as 100% in certain segments of the market such as contract registration and credit insurance. Our financial institutions accounted by towards the UK in the international and emerging markets, but we are seeing rates increases of up to 10% on non-UK business with UK business being somewhat more competitive. In the U.S., we are seeing significant increases, sometimes up to 200%.

Finally, our U.S. Insurance business is seeing a great deal of competition with average reductions of 16% on E&S property and E&S casualty is down about 10%. We expect property rates to continue to weaken overall. However, the forward count here is beginning to show signs of a slowdown in rate reduction. U.S. casualty insurance saw rate reductions slow in June compared to earlier in the year.

In conclusion, I want to draw your attention to the concern I have which will adversely affect property and casualty insurance around the world and from which Aspen will not be immune.

A specter is again haunting the global economy, the specter of persistence inflation. As you know, inflation rates are higher than they have been for some years. Year-on-year percentage increases in consumer inflation indices have increased globally with the U.S. at 5% versus 2.7% a year ago, Euro zone at 4% versus 4.9 a year ago, China 7.1 versus 4.4 and India now at 8.6 compared to 6.6 a year ago.

Many commentators believe that these increases usher in a period of renewed global inflation and higher interest rates. Others believe the economic slowdown caused by the extended credit crunch will ease inflation. Our concern is that insurance claims historically have tended to rise at rates that are greater that consumer price inflation. Most of the increases so far are attributable to increasing commodity prices. What will be even more worrying, though, is if an increase in inflationary expectations feeds through to increases in interest rates and corn price inflation, while will have a larger ranging impact on the cost of setting insurance claims. In these circumstances, we can expect the cost of U.S. casualty claims where the rate increase have been muted for many years now to begin to increase again.

Beyond these general inflationary indicators, there has been tremendous volatility, sometimes approaching hyperinflation affecting certain commodities. Although many commodity prices have fallen significantly in the last few weeks, nevertheless, in the last 12 months, the price of steel products have increased by 30%, natural gas by 42% and corn by 85%. And we are all painfully familiar with the price of oil.

It follows that exposures from certain types of complex risks, particularly those associated with the oil, gas, petrochemical as well as agri business industries will rise accordingly and so will the cost of claims. Clearly, this presents an industry wide challenge. Aspen's approach to strategic risk management has caused us to focus on this has emerged and it's early on [ph]. We are reviewing insurance values where appropriate to ensure that we are quoting rates, terms and conditions on the correct basis. We are also evaluating the likely cost of future claims.

Within our reinsurance underwriting, we are examining our insurance company client practices to ensure that they are identifying exposures correctly, which will give us the transparency to ensure we continue to receive the appropriate premium for the risk we assume. However, I am not yet convinced that all of our clients have thought the issues through and I expect that we may lose some business going forward as some clients may not appreciate the full gravity of the inflationary shock that may come.

If instead of persistent high inflation, we see limited global growth dampening down inflation, then our concerns will be more related to the effect on renewals of new business opportunities of slower economic growth, particularly in those markets with already high market penetration. This scenario will likely exacerbate and extend the already visible softening across most of the P&C market.

In addition to our concerns about the inflation, we are also continuing to seek a better understanding of the potential risks and opportunities arising from climate change and the rapid evolution of global energy policies.

In summary, we believe these challenges will provide net positive opportunities for specialty insurers and reinsures, but we will need to continue to build our financial strength, product range, geographical reach and risk management skills if we have to make the most of them. These ambitions lie at the core of our current strategic thinking. It is important to note that I would characterize our activities as getting ourselves to a state of readiness to take advantage of any opportunity when the time is right rather than as the search for any quick fixes to current soft market challenges.

And with those thoughts, I would now like to open the lines for Q&A.

Question And Answer

Operator

[Operator Instructions]. Our first question comes from Jay Gelb with Lehman Brothers. Please go ahead.

Jay Gelb - Lehman Brothers

Thanks and good morning. First, I just had a couple of quick numbers questions. Did you have a impact from catastrophe in dollar terms for the most recent quarter?

Richard Houghton - Chief Financial Officer and Principal Accounting Officer

Yes, it's something like $10 million Jay.

Jay Gelb - Lehman Brothers

Okay.

Richard Houghton - Chief Financial Officer and Principal Accounting Officer

Just on... U.S. Midwest floods.

Jay Gelb - Lehman Brothers

In that case, does the cat load for the full year seem particularly high?

Richard Houghton - Chief Financial Officer and Principal Accounting Officer

No, we're reducing guidance down to 115 from 135. So we have taken it down. But that's I think appropriate just on this particular time of year.

Jay Gelb - Lehman Brothers

All right, so it's definitely building in some conservatism, though, with wind season and things like that?

Richard Houghton - Chief Financial Officer and Principal Accounting Officer

It's building in what we would call our normal expectations of a cat season.

Jay Gelb - Lehman Brothers

Right, okay. And then on the expense ratio, the general and admin, that was up 4 points for the quarter and the year-to-date. I think you mentioned that rate of increase may slow. Can you give us a sense of why that is and where it may ultimately settle out at?

Richard Houghton - Chief Financial Officer and Principal Accounting Officer

Yes certainly Jay. Pleased to do that. The vast majority of that increase is attributable to new teams and to new platforms, which we alluded to, so we've got more bodies creating income for us and undoing it in new places for us as well, such as in Zurich, Singapore and Dublin and also Lloyd's which we opened up in Q2, so delighted to be there. But of course the written premium they're producing will feed through into well in the second half of this year and that's expected to bring the ratio down in the second half of this year. So it feels like, a bit of a high point right now as the new teams get going.

Jay Gelb - Lehman Brothers

And that trend should continue through next year?

Richard Houghton - Chief Financial Officer and Principal Accounting Officer

I would certainly hope so, but of course we've got less inflationary pressures which Chris was referring to, so it's our job to address those pressures. But you have the new teams, should continue to produce income and it will be earned through the book next year.

Jay Gelb - Lehman Brothers

Okay, that's great. And then, I was just looking back to my notes from the investor day and I... Chris, I think you'd said that $2.5 billion was the appropriate level of capitalization for the company. It's currently $2.8 billion, even with the $100 million buyback from Candover. So I just wanted to get your view on capital management at this point. Essentially, is everything you weren't going forward excess capital and retained earnings?

Christopher O'Kane - Chief Executive Officer

Yes, I think it's one that we keep on review all the time, Jay. I think one of the differences today versus a couple of years ago when there was a lot of talk on this, is I think raising capital is quite difficult now. I think it was relatively easy a couple of years back, the way capital of its own, now it's different. That makes me think having a somewhat bigger cushion makes sense. It's not to say that we... capital that is actually needed to address the reserving risk or an underwriting risk. It just seems to me more sensible, not to be running it too tied to the margin at a time when raising capital could be very difficult and very expensive.

With that sort of proviso, I kind of think I agree with what you say and clearly as we add reserves, we look at the underwriting increases the need to hold more capital against those increased reserves. So we do not want us to put that on the negative side of the equation as well. But I think your analysis is roughly correct.

Jay Gelb - Lehman Brothers

Alright, that's great. Thanks very much.

Christopher O'Kane - Chief Executive Officer

Sure.

Operator

Thank you. Our next question is coming from Alain Karaoglan with Banc of America. Please go ahead.

Alain Karaoglan - Banc of America

Hi, good morning. Thanks for the call and great results in the second quarter. Just a numbers question first. On the fund of hedged funds, what have you... what was the dollar amount so far this year? I know for the full year, your expectation is around less than $20 million. But at the six months mark, where were we? And if you could give the cat impact also at the six months mark, how much in cat losses? I think you mentioned $10 million in Q2.

Richard Houghton - Chief Financial Officer and Principal Accounting Officer

Sure. At the half year Alain, in terms of funds of hedged funds, we are down by $6 million and in terms of total cat, it's something approaching $15 million. I think we have Windstorm Ana in Q1, about $3 million to $4 million.

Alain Karaoglan - Banc of America

And in terms of Chris, your comments on inflation, what have you done on the reserving front on the business that you have written already, your specialty, the casualty line. If your expectations of inflations are going up, have you increased that in the reserves yet or what have you done there, what you plan to do there?

Christopher O'Kane - Chief Executive Officer

I think there is more of question of getting that issue right up the agenda and giving it a lot of provenance, keeping the situation under review. At this point, we would look at everybody's forecast of future inflation and frankly they are not horrific so far. So, a point or two more on inflation might mean 2 or 3 points more on claims inflation particularly U.S. casualty claims inflation, so we can make sure that our reserves are reflecting that. It's more a question of watching that and seeing you view and see out of hand and not forgetting that that means we put in more plans.

I think you know this a lot but there is a lot of roaming evidence that if CPR picks up, insurance claims inflation picks up bit more and we don't want to find our reserves being debase for that process, it isn't going to happen. So far though would not been required to take any action at all, there is still a reasonable good cushion in there.

Alain Karaoglan - Banc of America

Thank you very much.

Christopher O'Kane - Chief Executive Officer

Okay.

Operator

Thank you. Our next question is coming from Arthur Winston [ph]. Please go ahead,

Unidentified Analyst

Thank you, Chris and the team thanks for really a great result in the second quarter, we appreciate it. I have two questions. The first is, I may have missed it, in this segment, this international insurance segment where these premiums are really escalating. If you didn't describe it, could you describe what you are writing, and what's going on here?

Christopher O'Kane - Chief Executive Officer

I think it's really two areas; you are talking about whether rates are moving...

Unidentified Analyst

No, no, where all these premium... the area has all these premium growth, the lines yes.

Christopher O'Kane - Chief Executive Officer

Okay. So one is political risk, which we start writing to the end of last year. Essentially what we're doing there is think project finance in a usually with the bank loan for infrastructural products in emerged economies. It is not a lot, but a lot of it is. Basically, the cost of money had gone up, more money in the system and the risk aversion of the banks has also increased. So more banks are insisting that insurance policies to be taken out and such as they were to insure those in force that say, the same when the price goes up, that's okay. And people... the developed, the people on the other side of equation when no option but to pay. So it is what you might call a summer's m. That's the real story on political risk.

We feel we might write $20 million to $30 million of this business in our first year. Today, I'd, say it could be $40 million, maybe even $50 million. And that's not that we are writing more policies than we thought, this is not the little bit of it, it's mostly which is getting a much better premium write for the job.

The other area is financial institutions insurance. Well, basically that's selling client policies to financial institutions, sometimes in some E&O, sometimes with a little bit of D&O. Our focus here is again in emerging markets and the UK, but some U.S. in there as well, and there really is the whole credit crunch, the fallout from the subprime crisis, the kinds of losses that's created, turning on, so essentially the price of that product, especially in the U.S. has gone up. I mean we're seeing and in some cases, some smaller financial institutions in the U.S. paying three times on renewal what they paid in the expiring policy. The average in the U.S. for that private customer is probably more like 40 to 50%, but those are the big numbers. However, the U.S. isn't a big part of our books, so that's not the story and generally we are seeing more in the 10 and 15% increase.

Unidentified Analyst

And this has nothing to do with MBIA and MBEC do, it's totally different?

Christopher O'Kane - Chief Executive Officer

No, we are not in that business at all.

Unidentified Analyst

And there should be a very small amount of large claims, you shouldn't have so many claims or when you have one, it's going to be very big?

Christopher O'Kane - Chief Executive Officer

I think that's definitely true on the political risk side, on the FI side. There will be some potential filtration, not much.

Richard Houghton - Chief Financial Officer and Principal Accounting Officer

There was also reinsurance, again these books to cover ourselves against those various seasons.

Unidentified Analyst

Okay, good. My second goes back to what Jay asked, you have to cut through it, number one, where is our stock purchase... repurchase authorization situation now and given that I think rightly so, we got to keep more capital and I think you are right. What does that mean in terms of future stock repurchases?

Richard Houghton - Chief Financial Officer and Principal Accounting Officer

We still have 200 million we have standing from Board authorization that we got earlier this year. Those, as Chris says, given the state of the markets, it seems like a comfortable thing to hold it on our balance sheet right now as we sit here in the middle of hurricane season.

Christopher O'Kane - Chief Executive Officer

And my view on that one really is as Richard says, we are right, out of the middle or more of the start of the hurricane season, let's get through the third quarter and see how the landscape looks. I think it wouldn't be smart to do anything to be in your rolls [ph].

Unidentified Analyst

So was this the right to the fourth quarter and see what happens in the hurricane?

Christopher O'Kane - Chief Executive Officer

Yes.

Unidentified Analyst

Yes, okay. And dividend, there is no interest in dividend increases?

Richard Houghton - Chief Financial Officer and Principal Accounting Officer

Not at present. No, we always listen to what investors have to say to it, but we think across the board, we are pretty comfortable with having a consistent dividend.

Unidentified Analyst

Thank you very much. That means you don't want to raise the dividend from what you say?

Christopher O'Kane - Chief Executive Officer

I think you probably do that...

Unidentified Analyst

But you guys speak English, you got to say it in English.

Unidentified Company Representative

Okay, that would be a good definition to contest in, yes.

Richard Houghton - Chief Financial Officer and Principal Accounting Officer

Okay, thank you very much.

Operator

[Operator Instructions]. Our next question comes from Sy Jacobs with Jacobs Asset Management. Please go ahead.

Sy Jacobs - Jacobs Asset Management

Thanks. All my questions have been answered.

Christopher O'Kane - Chief Executive Officer

Okay, Sy. Thank you.

Operator

[Operator Instructions]. Our next question is a follow up from Alain Karaoglan with Banc of America. Please go ahead.

Alain Karaoglan - Banc of America

Yes. Just a follow up on the share repurchases, Chris and Richard. I understand the concept of keeping more capital and what you said about we are in hurricane season. But your stock is at 85% of book value today. Any purchases is accretive to your book value per share. You've decreased significantly your hurricane exposure and I don't know what you think one in a hundred of 1 in 250 years, will lead to. But isn't that likely to lead to a different environment of pricing if that were to occur and therefore your stock price is not likely to be at below book value if that were to occur. So why not... so the question that I have is why not do some share repurchases in the third quarter as opposed to not?

Christopher O'Kane - Chief Executive Officer

I mean I agree with you Alain that our stock represents an excellent buy for everybody including the company itself. But we balance the issues and I think we are coming out on the side of coach [ph], we would not become full buying anything back as attractive as it is at this price at this time. As I said already, I'd rather wait, get through the hurricane season and take a proper stock at that point.

Alain Karaoglan - Banc of America

Could you remind us what is your 1 in 100 year or 1 in 250 year exposure on the cat side?

Christopher O'Kane - Chief Executive Officer

We monitor the... we stay within $0.705 surplus of 125% of surplus at the 1 in 250. As far as the 1 in 100, because it is consent, we are a little bit within our tolerance. I have to make sure that figure in dollars is responsible, but we accounted about 16.5, 17% of surplus. Actually, just as a matter of interest, that has moved up a little bit recently in the last 12 months, so there is not so much flow to get out to where we've written a little bit more cat than we had on our books so in a year ago, so within tolerance, but slightly closer to tolerance.

Alain Karaoglan - Banc of America

Thank you.

Operator

Thank you. Our next question is also a follow up from Jay Gelb with Lehman Brothers. Please go ahead.

Jay Gelb - Lehman Brothers

Thanks. I may have missed it, did you give July performance in the fund of hedge funds?

Richard Houghton - Chief Financial Officer and Principal Accounting Officer

No, we didn't, Jay. But I think they are reasonable to say that it's been another tough month. I don't have the fine results into the month yet, so we will have to see how the course plays out. But it won't be a surprise that always in the market to note it has been a difficult month.

Jay Gelb - Lehman Brothers

I don't mean to push you, but can you give us a degree of magnitude?

Richard Houghton - Chief Financial Officer and Principal Accounting Officer

I can't at the moment, Jay.

Jay Gelb - Lehman Brothers

Okay, thank you.

Operator

Thank you. I am sure that there are no further questions. I'd now like to turn the floor back over to management for any closing remarks.

Christopher O'Kane - Chief Executive Officer

Well, thank you very much for joining us in the call this morning. Have a good day. Good bye.

Operator

Thank you. This does conclude today's Aspen Insurance Holdings Limited conference call. You may all disconnect and have a great day.

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Source: Aspen Insurance Holdings Ltd. Q2 2008 Earnings Call
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