Platinum Underwriters Holdings Ltd Q4 2008 Earnings Call Transcript

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Platinum Underwriters Holdings Ltd. (NYSE:PTP) Q4 2008 Earnings Call February 19, 2009 8:00 AM ET


Michael D. Price - Chief Executive Officer

James A. Krantz - Chief Financial Officer

Neil J. Schmidt - Chief Actuary


Matthew Heimermann - J.P. Morgan

Larry Greenberg - Langen McAlenney

Ian Gutterman - Adage Capital

Ron Baughman - Capital Returns

Josh Shanker - Citigroup


Good morning ladies and gentlemen and welcome to the Platinum Underwriters Holdings Limited investment community teleconference, to discuss the financial results for the quarter of full year ending December 31, 2008. This call is being recorded. A press release with these results and financial supplement, along with access to the webcast of this call, is posted to the company’s Investor Relations section of their website at

A replay of this call and webcast will be available from 11:00 am Eastern Time today, until midnight Eastern Time on Thursday, February 26, 2009. The call can be accessed by dialing 888-203-1112 for U.S. callers and for international callers by dialing 719-457-0820; specified pass code 1402089.

Management believes certain statements on this teleconference may constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as may, should, estimate, anticipate, intend, believe, predict, potential or words of similar import generally involving forward-looking statements.

These forward-looking statements are based upon the company’s current plans or expectations and are subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions and the company’s future financial condition and results.

The uncertainties and risks include, but are not limited to, those disclosed in the company’s filings with the Securities and Exchange Commission. As a consequence, current plans, anticipated actions and future financial condition and results may differ from those expressed in any forward-looking statements made by or on behalf of the company.

Additionally, forward-looking statements speak only as of the date they are made and the company assumes no obligation to update or revise any of them in light of new information, future events or otherwise.

At this time we will turn the call over to Michael Price, Chief Executive Officer of Platinum. Please go ahead sir.

Michael Price

Thank you, Operator. Welcome to this morning’s call. With me today are Jim Krantz, our Chief Financial Officer and Neil Schmidt, our Chief Actuary.

2008 was a challenging year for the insurance and reinsurance companies. The underwriting, investing and capital management environments all put companies to the test. Platinum performed well.

In today’s call I will provide an overview of our financial results for the fourth quarter and full year 2008 and then Jim will review them with you in more details. Following that I’ll discuss our recent underwriting activity, our outlook on market conditions and capital management. We will then be happy to take your questions.

We produced net income of $64 million in the quarter, which is $1.18 per diluted common share. With the full year of 2008, we produced net income of $226 million which is $3.98 per diluted common share. Our return on average common equity was approximately 13%.

For both the quarter and the year, our results reflected a disciplined approach to underwriting and investing and we’re achieved despite one of the most costly property catastrophe years in history. Strong current period underwriting profits were aided by favorable prior period development and solid investment income.

Jim will now take us through the numbers in more detail. Jim.

Jim Krantz

Thank you, Michael and good morning to all of you on the call. I’ll now provide some details on our financial results for the quarter and full year ended December 31, 2008. Platinum’s performance in 2008 was very good, especially when considering the stress our sector experienced during the year.

We produced net income of $64.1 million for the quarter, which included underwriting income of $6.5 million, net investment income of $42.5 million and net realized investment gains of $42.9 million. Underwriting income in the quarter included an increase in the loss estimate of hurricane Ike of $58 million, net of reinstatement premiums and tax benefit.

For the full year we produced net income of $226.2 million, which included underwriting income of $90.1 million, net investment income of $186.6 million and net realized investment gains of $26.6 million. Underwriting income for the full year included net losses from major catastrophes in 2008 of $184.5 million, net of reinstatement premiums and tax benefit.

Net realized investment gains were $42.9 million in the quarter and $26.6 million for the full year. These net gains were comprised of the following, gains from the sales of investments, plus mark-to-market gains in our traded portfolio, less charges for other-than-temporary impairments.

Please note in the fourth quarter we reclassified mark-to-market adjustments on our trading securities from other income to net realized investment gains. We’ve also expanded the scope of securities we classify as trading, to include U.S. Treasury Inflation Protected Securities or TIPS.

Net gains from sales of investments were $52.8 million for the quarter and $47.6 million for the full year. In the quarter we sold positions in TIPS, U.S. Treasuries, U.S. agency debt and U.S. agency residential mortgage-backed securities.

The mark-to-market gain on trading securities was $7.7 million for the quarter and $9.7 million for the full year. Throughout most of 2008, our trading securities included non-US dollar denominated European and U.K. Government securities and the yield on these securities decreased resulting in an increase in fair value.

Other-than-temporary impairments were $17.6 million for the quarter and $30.6 million for the full year. In the quarter we reported impairment charges on mortgage related debt, principally non-agency RMBS, Alt-A and subprime securities, as well as incorporate bonds in the banking sector. We used both retrocession and derivatives for catastrophe loss protection. The net change in fair value of derivatives resulted in an expense of $14.1 million for the full year, as compared with $5 million for the full year 2007.

Turning back to underwriting results, net premiums earned were $274.2 million for the quarter, a decrease of 9.2% from the same quarter in 2007 and $1.12 billion for the full year, a decrease 5% from the full year 2007. The net decreases reflect less business written in the Casualty segment, partially offset by more business written in our Property and Marine segment.

Looking at the segments, net premiums earned in the Property and Marine segment were $152.2 million for the quarter, an increased of 18% from the same quarter in 2007 and $599.1 million for the full year, an increase of 19.3% from the full year of 2007. The increases were primarily attributable to North American crop and catastrophe excess business.

Net premiums earned also include reinstatement premiums of $11.8 million for the quarter and $28.3 million for the full year related to major catastrophes in 2008. Net premiums earned in the Casualty segment were $118.2 million for the quarter, a decrease of 28.8% from the same quarter in 2007 and $503.3 million for the full year, a decrease of 21.1% from the full year of 2007.

The decreases were due to reductions in most North American Casualty classes. The most significant reductions were in the umbrella, currency-based, excess-of-loss and first dollar general liability costs.

Net premiums earned in the Finite Risk segment were $3.8 million for the quarter, a decrease of 45.5% from the same quarter in 2007 and $12.4 million for the full year, a decrease of 62.4% from the full year of 2007, reflecting diminished demand for finite business.

Our overall combined ratios were 97.7% for the quarter, an increase of 22.4 percentage points from the same quarter in 2007 and 91.9% for the full year, an increase of 10.9 percentage points from the full year of 2007. The increase from the quarter was primarily attributable to the increased loss estimate of hurricane Ike of $58 million compared with non-catastrophe losses in the fourth quarter of 2007. The increase for the year was due primarily to losses from major catastrophes in 2008 of $184.5 million as compared with losses of $38.7 million from major catastrophes in 2007.

Net favorable prior year premium loss and acquisition expense development was $49.3 million for the quarter and $147.6 million for the full year. The net favorable development for the year was split almost evenly between Property and Marine and Casualty segments. Of the $69.6 million net favorable development in the Casualty segment, most is from the claims made in classes of business.

Net investment income was $42.5 million for the quarter, a decreased of 21.9% from the same quarter in 2007 and $186.6 million for the full year, a decrease of 12.7% from the full year 2007. The decrease resulted from lower yields on cash and cash equivalents.

Operating expenses were $20.2 million for the quarter, a decreased of 22.4% from the same quarter in 2007 and $88.2 million for the full year, a decreased of 14.9% from the full year 2007. The decrease for the quarter primarily reflects the reduction in compensation related accruals as compared with the fourth quarter of 2007. The decrease for the year reflects these same factors, as well as the expiration in September 2007 of the RenRe Agreement.

Net foreign currency exchange losses for the quarter and full year were $3.5 million and $6.7 million respectively, reflecting the result of holding more in non-U.S. dollar denominated assets, than non-U.S. dollar denominated liabilities. During 2008, the U.S. dollar strengthened against many currencies in which we do business, almost significant along foreign currency position was in the pound sterling.

Our effective tax rate was 5.4% for the full year, compared with 6.3% in 2007, reflecting an increase from the proportion of our pretax income being generated in Bermuda. During 2008, our book value per share increased 1.6% to $34.58. Additionally we paid $0.32 in regular dividends. Our total shareholders equity decreased 9.5% to $1.81 billion reflecting the impact of share repurchases in the year.

During the fourth quarter of 2008, we repurchased 227,200 of Platinum’s common shares at an average cost of $27.12 and a total of $6.2 million. One final note, on February 17, all 5.75 million of our preferred shares, automatically converted into common shares at the conversation rate of one-to-one.

Michael will now discuss our recent underwriting activity, market conditions and capital management. Michael.

Michael Price

Thank you, Jim. We hold capital to support the underwriting and asset risks inherent in our business. During 2008, we observed significant volatility in prices for all financial assets, one of the most costly catastrophe years on record. Access to the capital market was and remains limited and expensive. As a result, underwriting conditions have begun to improve for certain classes of business and stabilized for others; however, some classes of business have continued to deteriorate.

As always, but especially in the current environment, we seek to operate from a position of financial strength. During the January 1, 2009 renewal season, we continued with our approach of underwriting for profitability not market share.

We consciously cut back our peak zone catastrophe exposure for three reasons. First, due to 2008 share repurchases we have less shareholders equity than last year; second, to enhance our capital cushion; and third, because we think some of the best underwriting opportunities for 2009, maybe ahead above.

The net effect of our efforts at January 1 was to underwrite a significant and well balanced, albeit a smaller portfolio of reinsurance business. Overall we had approximately $469 million of non-crop premium expiring at January 1 and we wrote approximately $373 million, a decrease of 20%. Additionally, there is approximately $125 million of crop business up to renewal that is still being negotiated; there may be potential for growth in this class of business.

In Property and Marine, catastrophe rate adequacy held firm or improved. Most of the improvements came from hurricane exposed business in the United States. We had approximately, $79 million of North American catastrophe excess of loss business up for renewal at January 1 and we wrote approximately $55 million, a 30% decrease. We wrote $43 million of North American Property Risk business compared with an expiring book of $46 million. We wrote very little pro rata premium in either period.

Internationally, cap rate adequacy generally held steady. We had $81 million of international property catastrophe premium expiring and we wrote $64 million of 21% decrease.

For all other Property and Marine business, including marine, international risk and international proportional business, we wrote $54 million versus an expiring base of $71 million. These reductions in premium come with improved expected margins and a decrease in exposure.

Our one in 250 year, probable maximum catastrophe loss estimate, outstands a $293 million, which is approximately 14% of our total capital. This is lower than in prior periods and allows us room to expand during the year as desired. We generally expect Property and Marine reinsurance rates will show further improvement over the course of the year.

For casualty, the January 1 renewal date represents about one-third of the overall book of business. While we saw some improvements in reinsurance pricing at January 1, underlying primary rates generally continue to deteriorate, so it was not feasible to sustain our book of business at an expectable level of expected profitability. Consequently we wrote less premium compared to last year.

We had approximately $182 million of renewal business expiring and we wrote approximately $131 million of casualty business, representing a decrease of approximately 28%. The greatest productions came from financial and non-medical professional lines, whereas we wrote a similar amount of accident and health, medical amount practice and the clash business versus last year.

Given the prevailing low level of interest rates and generally unsettled nature of the capital markets, we anticipate market conditions in the casualty segment will slowly improve over the course of the year.

We wrote approximately $25 million of Finite business compared with $10 million of the expiring premium. This increase was attributable to a larger share on one specific program. We expect only minor activity in this segment for 2009 and we’ll continue focusing our efforts on our other lines of business.

Overall we expect the reinsurance marketplace to show further improvement over the course of the year. We will continue with our strategy of responding to changes in market conditions, underwriting for profitability not market share.

Based on our current reserve position, our net enforced portfolio of reinsurance business and our asset portfolio, we believe that we are strongly capitalized with a comfortable cushion of capital above the rating agency targets for a company with our ratings. If the business performs as expected we anticipate that our capital cushion will grow during 2009.

Under those conditions we would have the flexibility to expand our underwriting, hold riskier assets or buyback shares. We intend to take a balanced approach to the opportunities we face and will be guided by the pricing we observe in the various markets.

During 2008, we bought back 7,763,292 shares for $266 million, an average cost of $34.31 per share. We currently have approximately $244 million of authorized buyback capacity.

Overall 2008 was a challenging, but successful year for Platinum. We produced adequate returns on equity and increased book value per share, despite heavy cap losses and the poor environment for all risky assets. We believe 2009 will be a turnaround year for underwriting conditions and we expect to broadly participate in a range of reinsurance classes. While we intend to operate from a position of financial strength, we will nevertheless be open to share buyback at attractive evaluations.

We’ll now be happy to take your questions.

Question and Answer-Session


Thank you. (Operator Instructions) We’ll take our first question from Matthew Heimermann with J.P. Morgan

Matthew Heimermann – J.P. Morgan

Hi, good morning everybody. A couple of quick questions; Michael or Neil, could you speak to, it looks like the loss ratio in the Casualty segment ex development increased, could you just speak to that a little bit?

Neil Schmidt

Sure. There are two main items Matt. You may know that we had exposure to automobile, residual value to one contract that we wrote, we determined in the current quarter there’s a high likelihood that we would have a maximum loss on that contract, so we recognized full limit loss there.

During the current period, the impact in the quarter there on losses was about $25 million and after earned premium and acquisition cost, the effects on the bottom line was about $19 million loss. All this is booked in the current accident year. That’s the largest impact.

The second item within our U.S. companies claims made excess-of-loss class were we reviewed the 2005, 2006, 2007 underwriting years and we feel very good about the pricing of our contract, the experience to date has been better than expected. We have a relatively small P&L book, but we do have some exposure to credit crisis claims so we have a very little in the way of reported losses of to date, mostly in the 2007 underwriting year.

So as a result of our review, we lowered the 2005 and 2006 underwriting year loss ratios and raised the 2007 underwriting year loss ratio. Now the changes on an underwriting year basis were largely upsetting; however, on an accident year basis, it resulted in about $10 million of prior year favorable development and about $10 million of current accident year research strengthening.

Matthew Heimermann – J.P. Morgan

Okay, very helpful. Thank you. The other question I had was, with respect to crop, I missed the number, but I’d also just be curious Michael, where the opportunities you see, is that mostly just picking up from share gains from competitors who might be a bit wounded and people are looking for other partners. We just would like some color given that obviously crop prices aren’t what they were year ago or at six months ago I should say?

Michael Price

Sure the amount again for reference is about $125 million of expiring premium and the suggestion was that there maybe an opportunity to write a little bit more of that. I’m hopeful that we will write for a little bit more of that, but it remains to be seen as the [cedents] are still determining the exact nature of the programs that they’d like to buy for the current period. We saw a 1-1 incepting contracts, but they don’t get resolved for another couple of weeks yet.

Our clients tend to be growing clients and so that’s what gives us the opportunity to generate more income from this business, plus we have an opportunity to write one new client that we’re working on now. So if we experience growth, it would come from a larger portfolio with our existing clients, plus possibly one or two new client relationships.

Matthew Heimermann – J.P. Morgan

Okay, thank you very much.


We’ll take our next question from Larry Greenberg with Langen McAlenney.

Larry Greenberg - Langen McAlenney

Thank you and good morning. I was wondering, if you could just elaborate a little bit on the derivative loss in the quarter. I mean, you obviously broke it out as a separate line item and I don’t know if that portends anything for the future, but I assume to a vary capitals involved in that. Where there any other contracts involved there?

Then secondly, if you could just perhaps weight the outlook; I think what you indicated was an expectation for improvements in pricing in both Casualty and Property and perhaps compare your outlook for both?

Michael Price

For the derivatives, the derivate is related to Topiary agreement and the derivative contract we have with Topiary and there are a couple of other derivative contracts that we have during the year, a couple were options to purchase retro session. So, the derivative contract with Topiary will be ongoing, that’s a three year derivative contract we have with Topiary.

Neil Schmidt

Larry as to the outlook, as you know, we were anticipating a turnaround in market conditions starting January 1 of this year, led by reinsurers and impacting the shorter tail of lines of business and especially property cat first and we have seen that starting to occur and we expect that it will continue during the course of this year.

We still think that Casualty is going to lag behind Property in these improvements and yet we’ve already begun to see a slowdown in the rate of decrease in underlying primary casualty rates, so that’s a hopeful sign.

We’re anticipating that over the course of 2009, we will have even better opportunities to write our short tailed lines of business than what we saw at January 1 and we will have an opportunity, maybe to preserve the amount of casualty business that we have on the books, but not necessarily.

As you saw, we’ve reduced the Casualty portfolio at January 1, by about 28% and we would expect to continue to decrease the casualty book, unless things start to improve. We think they will start to improve, but I don’t know that implies growth for us. It might simply imply a slower rate of decline.

If things go as we anticipate, casualty improvements could be a multi-year process and we might see better market conditions in 2010 than what we see in 2009 and we’ll be ready for that if it happens.

Larry Greenberg - Langen McAlenney

Great; thanks and just curious if you have any thoughts on Swiss Re’s downgrade by SMP to A plus from AA minus?

Michael Price

Well, it’s a move in the right direction from our point of view. The company lost a significant percentage of its capital and that has to be of concern to its clients and it’s obviously of concern to the rating agency.

We have as I indicated in our prepared remarks, always intended to operate from a position of financial strength and we think that means insuring for our customers, that we can demonstrate a strong ability and willingness to pay claims even in difficult conditions and I think we’ve done that during 2008.

As a consequence, we’ve seen a demand for our reinsurance participations go up and we’ve been very selective about the opportunities that we will participate on. We’ve seen the troubles of some others benefit us and I would expect that the difficult situations that Swiss Re currently finds itself in to be of even further benefit to us, especially in casualty business as time wears on.

Larry Greenberg - Langen McAlenney

Great, thanks.


We’ll take our next question from Ian Gutterman at Adage Capital.

Ian Gutterman - Adage Capital

Hi Michael, my first question is just a follow-up on the crop. I think a couple of the primary crop insurers have suggested that they found reinsurance pricing to start to be aggressive on the crop. Can you just talk about what you’re seeing on the pricing side on crop?

Jim Krantz

We’re expecting that the pricing for the current period will not be materially different than last year and we think that will give us suitable opportunity for profit, particularly in light of the fact that it’s largely a non-correlating class of business and I think we’ve seen in 2008, a year when we did have the significant or a couple of significant landfall and hurricanes that that really had no material adverse effect on the crop business in and now itself from a portfolio perspective for a reinsurance company.

So it’s a good test of the assumption that we’re dealing largely with the non-correlating line and as you would expect, the margins in the crop business are lower than they would be in cat exposed classes of business reflecting the fact that they are non-correlating line.

I think for 2008, the profitability of our crop book is largely inline with our expectations, despite the fact that it was perceived to be a difficult year for the crop reinsurance market. You had the early flooding and then you had the collapse in commodity prices later in the year, neither one of which is necessarily good for the results and yet we think results will be acceptable.

I think 2009 is likely to be even better than 2008, because you have now wetter conditions going into the growing season, which maybe favorable for yields and give you some crop resistance that you didn’t have going into 2008 and you have now depressed levels of commodity prices, perhaps suggesting that the potential for another steep drop-off, such as we saw this year and somehow been lowered.

Ian Gutterman - Adage Capital

I think that makes a lot of sense. I guess next one I had is on the cat side, obviously you have a lot room to grow the aggregate as the market continues to harden and I guess I’m wondering how you do that in a balanced manner.

I assume you want to go for 14% of equity to over 20% just through Florida, because I knew it maybe too over weight at Florida and under weight in other regions. So, can you just talk about how you’re balancing an opportunity to grow with what other, where you can essentially to play the aggregate outside of Florida, since 1-1’s behind us?

Jim Krantz

Well, in anticipation of the demand that were becoming out of Florida Ian, we have modified the portfolio to some extent already, that will enable us to expand our position in Florida, without necessarily even increasing what we currently report as our peak PML.

So, we have room in Florida even without increasing that total percentage of capital, but as you point out, we also have the ability to increase the total percentage of capital that we might expose. So, whether we allow Florida to become the very peak zone in parallel or not remains to be seen, but even if we equalize it to the other peak zones, that would allow us to do more in Florida this year than we’ve done in prior periods.

Ian Gutterman - Adage Capital

Right agreed, I understand you can increase it where you are. I guess I’m wondering if you wanted to take the book back up to 27% of equity as your limit, could you do that without making Florida by far your highest peak or is that not possible at this point, because you didn’t get enough diversifying business at 1-1. Do you see where I am going?

Jim Krantz

I do see where you are going. I do think it would be possible to expand the portfolio in a balanced way, but it would have to be through retrocession probably more so than through straight reinsurance business.

Ian Gutterman - Adage Capital

Okay, that make sense and then my last one is on the casualty side. First I think it makes a lot of sense that you’re shrinking the book and I guess I’m just wondering, given where yields are today in the world, at least if you are not going to take credit risk to be rating at accident years over 100 and investing 3% arguably, how far away are we on pricing? If the yields aren’t going to be increasing anytime soon, can you really write above 100 or do we really need to see 10, 15, 20 points of pricing before Casualty’s attractive to you or more?

Michael Price

I think it’s difficult to write over 100 on anything, but the longest tailed lines of business and even then I don’t think you can go far over 100 before you get yourself into trouble. So, we are in a situation where casualty needs to improve.

Now, we can achieve some of that improvement through reinsurance terms and conditions and we’ve done some of that at January 1, but there is a limit to how far you can go as a re-insurer, without your primary company partners aiding in the process by them increasing their rates on the original business. So, that’s what we’re going to need to see. We’re going to need to see primary Casualty rates increase.

Now, as I suggested I think it’s possible that they have started to decrease at a lower rate than they had been, that’s not good enough. They need to move into positive territory and they need to do it this year, in order for the health of the market to be sustained.

Ian Gutterman - Adage Capital

Okay and then just my final question just to bring it all together is, again I think it make sense to be cutting back the casualty, but to the extent you continue to cut back casually when you find the opportunities to grow on the property side, I guess similar to the question on do you become a balance in cat, would you become a balance in your total portfolio begin too much property, too little casualty and how do you think about that?

Michael Price

Yes, it’s a good question, but don’t loose track of the reserves that we carry on our balance sheet as being a diversifying aspect of our overall company. I don’t think that you need to have a balanced portfolio between Property and Casualty in any one underwriting year. Over the course of time, we have written a lot of Casualty business and those reserves sit on our balance sheet and will continue to sit on our balance sheet for years to come.

So, we look at the capital requirements and the balance that we’re trying to achieve as not being specific to the portfolio at any one point in time, but rather the dynamics of the business that we write over a longer period than that.

Ian Gutterman - Adage Capital

Okay that makes perfect sense. Thank you, Michael.


We’ll take our next question from Ron Baughman with Capital Return. Mr. Baughman, your line is open; please go ahead with your question.

Ron Baughman - Capital Returns

Sorry about that, good morning. I have two questions. The residual value, which I guess I’ll call it sort of a limit loss, you’ve taken it through, I guess the contract limit. I’m curious to know through the vintage of that contract, sort of from what year that contract and the associated losses are emanating from?

Michael Price

We entered into that contract I believe in 2005, Ron and then there was a three year seasoning period before auto started coming off of lease and we could observe the actual values that were being achieved on those vehicle.

Ron Baughman - Capital Returns

Thanks, and then my second question was, I believe you’re reinsurance relationship with AIG has shrunk and it’s now sort of coverage or recently it’s come down in size and really is limited to sort of certain specialty lines. I’m wondering of late what’s your going forward plan as far as what level of reinsurance support you’re willing or wanting to provide at AIG.

Michael Price

We have been taking the approach of evaluating each treaty on its merits. We do take in to account the overall competitive position of the company, the ceding company and when we make those individual treaty assessments.

Given the challenges that AIG faces today, we have found it difficult to continue supporting them in certain classes of business, but there are other areas, for example in the catastrophe areas, where we have felt comfortable continuing or even expanding our relationship with them.

So, it’s not the case that we take a broad brush approach. We’re trying to be thoughtful about each and every opportunity as it arises, but also be mindful of the specific challenges that they may face.

Ron Baughman - Capital Returns

Is this fair to say, I assume that you’re not going to the extent of looking to commute any of the past contracts that you provided them.

Neil Schmidt

We have Ron, from time-to-time, made offers to more than one of our clients to commute old year’s business and are always open to commutation discussions. Typically, we found that that’s a difficult thing to achieve. You end up with differing negotiating positions, each backed-up by professional actuaries on each side of the argument and not to malign the profession, I’m an actuary myself, but it does take some time to work through those differences of opinion and often times you just cannot come to terms. So, we’ve made offers, we’re open to it, but frankly I think our clients have a bigger fish to fry right now.

Ron Baughman - Capital Returns

Got you. Okay, thanks a lot and best of luck. Hope it continues.

Neil Schmidt

Thank you.


We’ll take our next question from Josh Shanker with Citi.

Josh Shanker - Citigroup

Thank you. I want to follow on that Larry’s question about Swiss Re and the statement that you are finding in the way to a lot of industry changes with greater demand for your coverage and I believe it’s true, but I also note that everyone said it last year and everyone is saying it this year. I’m wondering, if you can give me some tools for ferreting out whether people are saying the truth or how do we know that specifically when you’re saying it, it’s absolutely true and how do we know some others are really just sort of talking off their mouth?

Michael Price

I think we have observed, particularly recently a desire on the part of seating companies to diversify their panel of reinsurers. So, you could have a situation now where many companies who formed after 9/11 and who are perceived to have strong balance sheets and now a track record of good performance, all of these companies or many of these companies might be experiencing what I just described, which is that their clients or perspective clients are more interested in doing business with them now than they were a few years ago.

A few years ago, it might have looked speculative. Initial ratings might have been too low. Over time these companies have been upgraded. They’ve demonstrated a track record of good performance and sensible judgment and perhaps they look more appealing now as a counter party.

Joshua Shanker - Citigroup

So, with that statement, can you continue and I’ll ask my follow-up? Then that being said, when people are seeking out your coverage to a greater extent through diversification, is there a greater move towards looking at you to anchor some programs or is this merely a general industry program you’re seeing the change?

Jim Krantz

No, I think we lead a lot of the Casualty business that we write and are consider to be an anchor of reinsurer, less so on the Property, but certainly on Casualty and in particular on complex classes of business with 3D structures that are difficult to understand.

I think we are known as a market that you can talk to and work with over an extended period of time and once you get up satisfied, I think it’s the case that many others will come on to program. So, there’s a benefit for the broker and the client of working with us and structuring, particularly getting us involved early on.

Joshua Shanker - Citigroup

In terms of that balancing your specialty in the Casualty space with you desire to downsize, what sort of risk is there about reputational situations?

Jim Krantz

No, you mean not being relevant to clients?

Joshua Shanker - Citigroup

Or is it same like we’ve trusted you’ve been an important name for us; we’d like to be in business with you, but now if you’re not going to be juristic when the pricing changes, we’d rather go with a more malleable offer of that kind of security?

Jim Krantz

Right and without questions, those kinds of conversations occur and what we try to do to mitigate the risk there Josh is to mitigate clearly, early on, that we’re going to be driven by the economics and to the extent that the client is overreaching and making us on a comfortable with the balance in the relationship.

It is our intention to pull away and if they can replace us with capacity that they find to be acceptable at a lower price, there are not hard feelings. We’d rather see them go and be happy than trying to wrestle us to the ground to get a price that’s less than we’re happy with.

As far as becoming irrelevant, we have a couple of billion dollars of obligation sitting on our balance sheet that are going to be paid out over the coming decades and so when they’re expecting us to cut them a check on a routine basis to reimburse them for their paid claims, I think they’re not inclined to forget who we are.

Joshua Shanker – Citigroup

Well, good luck. I hope this to be a good year for you. Congratulations.


(Operator Instructions) It appears there are no further questions at this time, Mr. Price I’d like to turn the conference back over to you for any additional or closing remark.

Michael Price

Thank you operator. Thanks everyone for your participation and we’d look forward to speaking with you next quarter.


That does conclude today’s conference. We appreciate your participation and you may disconnect at any time.

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