Aspira Women's Health Inc.
Q3 2014 Earnings Call Transcript

Published: 23 Oct 2014

[Operator:]

Good morning and welcome to the Allied World Assurance Company Third Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded. And now, I’d now like to turn the conference over to Sarah Doran. Please go ahead.

[Sarah Doran:]

Thank you. Good morning everyone. Our press release, financial supplement and 10-Q were issued last night after the market close. If you’d like copies of any of these documents, please visit the Investor Relations section of our website at www.awac.com. Today’s call will also be available through November 7 on our website as a replay. Dial-in information for this replay is included in our earnings press release. Our speakers this morning are Scott Carmilani, Allied World’s President and Chief Executive Officer; Tom Bradley, the company’s Chief Financial Officer; Marshall Grossack, our Chief Actuary; and John Gauthier, our Chief Investment Officer. Before we begin, I will note that statements made during the call may include forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements are subject to a number of uncertainties and risks that could significantly affect the company’s current plans, anticipated actions and its future financial condition and results. These uncertainties and risks include, but are not limited to, those disclosed in the company’s filings with the SEC. Forward-looking statements speak only as of the date on which they are made and the company assumes no obligation to update or revise any forward-looking statements in light of new information, future results or otherwise. Additionally, during the call, management will discuss certain non-GAAP measures within the meaning of the U.S. federal securities laws. For more information and a reconciliation of these measures to their most directly comparable GAAP financial measures, please refer to our earnings press release. With that, let me now turn the call over to Scott.

[Scott A. Carmilani:]

Thank you, Sarah. Good morning everyone and thanks for joining our call. This quarter Allied World achieved a combined ratio of 91.7%, operating income of $61 million, or $0.61 per diluted share, and a net income of $30.9 million, or $0.31 per diluted share. Our top line grew by over 20% for the third quarter to $708 million of gross written premium, compared to $581 million in the third quarter of 2013. As with the last few quarters, we had healthy rate increases across our U.S. segment in particular. They averaged 7.5% for the quarter. This is now our 9th consecutive quarter in which we managed rate increases across our casualty businesses of 5% or more. Individually each line obtains a bit of different story and I’ll get into that. Much of the quarter’s growth came from our U.S. segment where top-line increased by 25% or $80 million. Let me describe some of the shifts. Our general casualty book grew by 43%, driven by our specialty in this causality lines like construction, environmental, and real estate, but led by our government contractor, primary casualty business known as Defense Base Act liability. This was partially offset by a 10% decrease in our healthcare insurance book. As we continue to work on our ongoing corrective actions to the component of that portfolio, which are under performing. Causality rates were up almost 9%, and property rates were down mid single digits, 4%. For the quarter, our overall rate retention in the U.S. was a healthy 88%. Gross premiums written increased 9% in the international segment, driven by our London specialties like our newer marine cargo business, as well as some growth in existing lines. Overall, rate changes in our international segment were down 3.5% for the quarter, causality down at mere 1%, property driving the way down 13% in that segment. Our retention rate for the international insurance segment was a healthy 85% for the quarter. Finally, gross premiums in the reinsurance segment increased by 27% primarily as a result of two big treaties. First was a large new professional liability treaty that was in excess of $20 million. And the second was a treaty that had previously renewed in the second quarter prior year that was renewed in the third quarter of this year. As we may have mentioned that in last quarter, there was a timing issue with one of our big treaties. Because that second treaty included a significant component whereby Allied World acted in a fronting capacity for the insured and then outsides impact to our top line that does not carried through the net written premium. We continue to take an opportunistic view of the reinsurance business and we’ll look to adjust as needed getting market opportunities. While we will likely finished this year with less business growth in 2013, much of that business including the cap portfolio looked to be strong contributors to our overall earnings in 2014. As mentioned in our press release, last night, effective December 31st of this year, we are reorganizing our segments and reporting to better serve our customers and our trading partners, specifically our distribution network. Our current segments are U.S. which includes U.S. and Canadian insurance, international insurance, which is globally including Bermuda and reinsurance. Going forward, the company will report across North American insurance, which will consist of all North American business, U.S., Canada, and Bermuda, and the global insurance marketplace which will include all business outside of North America, Europe and Asia in particular. Reinsurance segment will not change. In conjunction with these changes, I am happy to announce the realignment of some of the – and a few several strategic positions. Frank D’Orazio, who has been currently running Bermuda and international insurance, is being promoted to newly created position of President of Global Risk and Underwriting. He will be based in New York and will assume the responsibilities of managing the enterprise risks and underwriting across our group. As Allied World continues to grow, Allied World will benefit from this new position in managing the organization across all the critical areas that will help to maintain our underwriting discipline, controls and processes on a global scale and consistency. Lou Iglesias, who is currently President of North American Insurance, will assume the over side of Bermuda operations as well as rest of North American platform. So we may approach our product offerings consistently. Mike McCrimmon currently in Bermuda will lead the Bermuda office, reporting the Lou. Julian James, who is currently the President of our European insurance operation including our Lloyd’s Syndicate, will assume the additional responsibility for Allied World’s operations in the Asia-Pac territory and any other initiatives that come about from our future growth plans. Since the signing of our definitive agreements two months ago and of which we’ve announced, we’ve been working hard on multiple fronts to gain regulatory approval and then integrate the Hong Kong and Singapore operations, what was the RSA. We continue to expect each of these transactions to close during the first half of next year. Now, let me turn it over to Tom Bradley, our CFO, to discuss the financial aspect of the quarter. Tom?

[Thomas A. Bradley:]

Thanks, Scott. In the third quarter of 2014, Allied World generated underwriting income of $45 million, operating income of $61 million, and net income of $31 million. We benefited from favorable reserve development of $47 million, largely on par with that of recent quarters. Net investment income increased 11% from the comparable quarter last year, but the portfolio was impacted by higher interest rates and wider spreads driving a negative mark to market. For the first nine months of the year, our combined ratio stands at 87% and annualized return on average net income ROE at 13%. This quarter, the company experienced $29.8 million of cap losses, $18.5 million related to Hurricane Odile in the Cabo peninsula, of which $15 million was reported with our international insurance segment and $3.5 million within the reinsurance segment, $8 million related to Windstorm Ela in Western Europe, and $3.3 million related to PCS 45, a windstorm in U.S. Midwest both within the reinsurance segment. Our year-to-date cat losses all from these three events was $43 million, bringing a total of $12 million for Ela and $12.5 for PCS 45. While these two events occurred during June and we’ve recorded belated losses in the second quarter, information received in the third quarter pushed the events above our $10 million per event cat reporting threshold. These losses are our first reportable cat events since Superstorm Sandy in 2012. For the quarter, the company’s expense ratio was slightly lower at 29.7%, compared to 30% for the third quarter of 2013. This decrease was largely driven by the impact of a lower stock price on compensation expense. We recorded operating cash flow of $221 million in the quarter, compared to $205 million in the prior year quarter. Turning to capital management, for the quarter we repurchased 654,851 common shares in the open market at an average price of $38.17 per share at a total cost of $25 million. When we announced the acquisition of the RSA Asian businesses in August, we indicated that we’d paused our share repurchase program. At this point, we expect to restart our 10b5-1 plan during the fourth quarter, assuming no major events. We ended the quarter with diluted book value per share of $37.12, which is up 8.5% from December 2013 and largely flat from June. We had shareholders equity of $3.7 billion, up $154 million from year end 2013. Our total cap is $4.5 billion with financial leverage of 17.9% and net premium leverage of 0.6 times for the quarter. I’ll now turn the call over to our Chief Actuary, Marshall Grossack, to provide some commentary on the loss ratio for the quarter.

[Marshall J. Grossack:]

Thanks, Tom. Our reported loss ratio for the third quarter of 2014 was 62%. This includes 8.7 points or $46.9 million net benefit from reserve releases for the quarter. The accident year loss ratio, excluding prior year adjustments, was 65.2% for the quarter, which compares to 66.2% in the prior year quarter. Drilling down by segment; in the third quarter of 2014, the international insurance and reinsurance segments had net favorable development of approximately $29.3 million and $18.2 million respectively, while the U.S. insurance segment was approximately flat. This included an increase in healthcare specifically medical malpractice. Reserve releases from our public D&O and programs, business largely offset that increase. As of the end of the quarter, our reserve position sits at 4.1% over the midpoint of our actual range. This is largely consistent with that position of the prior year quarter. During the second quarter, we announced the renewal of catastrophe reinsurance program with a new structure. As of September 1, 2014, our 1 in 250 hurricane and earthquake PMLs decreased 1% and 3% respectively in third quarter compared to June 1, 2014. Our largest 1 in 250 PML U.S. hurricane currently represents 15.7% of total capital, down from 15.9% on June 1, 2014. You will note that the PML page in our financial supplement now shows the ratios that our key PMLs as a percentage of total capital for the past six quarters. Let me now turn the call over to John Gauthier, our Chief Investment Officer, who will discuss our investment highlights for the quarter. John?

[John J. Gauthier:]

Thank you, Marshall. Good morning, everyone. Allied World’s investment portfolio was approximately flat for the quarter returning 10 basis points or 8.3%. While net investment income was up 11% compared to the same quarter last year to $43.4 million, the gains in NNI were offset by mark-to-market losses. As Tom mentioned, most of those losses were in the fixed income portfolio related to both higher rates and wider spreads. On a year-to-date basis, net investment income was up 16% compared to last year. And our year-to-date total investment return stands at 2.7% or $232 million, which compares favorably to the first nine months of 2013 of 1.2% or $102 million. Overall, there were minimal changes to the portfolio during the quarter. While the markets have been choppy we continue to believe that a diversified portfolio makes sense in this economic environment and has maintained our allocations to leverage credit, equities, hedge funds and private equity vehicles. Within Allied World Financial Services early this month we announced a strategic partnership and the acquisition of a minority interest in Blue Vista Capital Management. Blue Vista invests across the real estate asset classes and capital structures through limited partnerships and separate accounts. As part of our acquisition, we agreed to commit to invest $225,000 to various funds and strategies managed by Blue Vista over the next several years. Beyond our association with Blue Vista’s best-in-class investment team, we’re particularly excited about the partnership in part because it’s our first allocation to direct real estate investments. When we started Allied World Financial Services our goals were fairly simple; to get the best value for the fees we pay, to increase our knowledge and expertise by participating with our partners that are experts, and to participate in the economic returns of those partnerships. We feel we found one more great partner here that we hope to grow with over time. And with that I’ll hand it back to Scott.

[Scott A. Carmilani:]

Thanks, John. Thanks for that. I’m somewhat pleased with our progress and result so far this year. While we’ve had mixed results for this quarter we’ve made very good progress in our goals and initiatives that will continue our company’s prospects going forward, in our underwriting platforms, in our claims and service initiatives, and our investment portfolio positioning as John just talked about. And, of course, now the first strong step into a bigger platform in Asia through our announced acquisition. The execution of these initiatives will help to forge our working progress into long-term successes. And with that, I’m going to open up the call and questions from the group. Thank you, operator.

[Operator:]

(Operator Instructions) And our first question comes from Michael Nannizzi at Goldman Sachs.

[Michael Nannizzi:]

Thanks. Quick question on the international segment, the tick up in the accident year loss ratio. Can you talk to maybe some of the parts that might have been driving that? Was it something more general? Thanks.

[Scott A. Carmilani:]

Mike, I’m going to pass that to Marshall Grossack who is here. It’s largely driven by some of those European property storms that we talked about, but go ahead Marshall.

[Marshall J. Grossack:]

Yes. It is mostly property that’s driving the increase in 2014 with six kind of largest property claims that weren’t cat claims. They were fires and things like that. It was global, wasn’t just Europe, other storms in the U.S. One example was some losses from the flooding in Detroit, would be one of the losses that we had.

[Michael Nannizzi:]

So there was no change to the loss pick for healthcare, professional liability in the current year?

[Scott A. Carmilani:]

On the international side?

[Michael Nannizzi:]

Yes.

[Scott A. Carmilani:]

Yes. Well, not in the international or the U.S. side.

[Michael Nannizzi:]

Okay, got it. And then, just also in thinking about the buyback, I guess, Tom, you talked about restarting. I mean, do you expect that you’ll kind of pickup the same sort of pace in terms of or relative to your operating earnings that you had in the past or should we assume that we’re just going to wait for that transaction to close to kind of get back to a run rate level?

[Thomas A. Bradley:]

No, we’ll have a similar 10b5 plan in place, so that some of the historical trends that we had in the buybacks for the first half of 2014 and what you saw in 2013 are likely to be the kind of pace that we would have.

[Michael Nannizzi:]

Got it. And then, Scott, maybe on the re-segmentation. What’s the profile of that book that you’ll be kind of moving out of international and into kind of the North America segment? Is it similar to what’s in the U.S. insurance business now or they’re looking different?

[Scott A. Carmilani:]

Well, the question is very similar to distribution. 80 somewhat percent of what we ride in Bermuda is largely account business generated by half a dozen brokerage firms, the retail in Bermuda that may represent 20 or somewhat other producing offices in the U.S. So as we grow and as we mature, I think it’s important for us to look at the holistic relations for some of our distribution partners and manage them accordingly So while it’s larger account business typically than is in our U.S. professional liability and casualty business. It’s similar by distribution and where the risk is (indiscernible). And that’s why we’re going to manage it holistically, so we can maintain to see across platforms. For example, we run large hospital systems in Bermuda and medium sized hospital systems and facilities in the U.S. So if you want to manage healthcare more holistically from an international scale both in terms of coverage, exclusions, endorsements, premium and pricing and things like that. You can say that for professional liability, which – you’re asking questions about the professional liability book, was there any changes? No, I think that’s doing quite well these days and we want to make sure we take some of the things we’ve done over the last couple of years to make that book much better and carrying them through on the U.S. side as well.

[Michael Nannizzi:]

Great. Thank you very much.

[Scott A. Carmilani:]

Sure.

[Operator:]

Next question comes from Amit Kumar, Macquarie.

[Amit Kumar:]

Thanks and good morning. I guess just going back to the discussion on the U.S. insurance that was last development in the healthcare side. Can we just sort of talk about that and what might have been different this quarter versus the past quarter? I guess what I’m trying to understand is, are these still the one of issues we have talked about? Or is this a bigger problem? Or do you think this is an industry problem and maybe you were just early onto this problem?

[Scott A. Carmilani:]

Well, I mean, let me take that in reverse. I do think the industry has faced with some significant problems in the healthcare space. And I do think there is a significant amount of parts of the industry and careers industry who are not yet recognizing it and in fact I’ve heard of new entrance into the space of a late in a – what I think healthcare has been a minefield for the last 18 months. And you don’t have to be a rocket scientist to read the news paper, read the front page of today’s Wall Street Journal and you’ll see an article that depicts the issues that face both doctors systems and what not – there is a multitude of consolidations going on in this industry. Integrations in a non-profit world come in many shapes and forms, some of those are nightmares, and some of them are well done that in the hospital world, in the healthcare world, some of those are profit entities and a lot of them are not and a lot of them are getting quite big as a response to the new rules and regulations that are being posed to them, the Medicare and Medicate and through the new ACO rules and regulations. That has created also a cluster of regulatory investigations, which sometimes turns into fines and penalties. That’s more than just a threat to that industry. It’s a real concern and I think if you talk to any hospital or CFO of any institution, that’s a big concern of theirs. As much as any cyber risk might be, which is also a pretty big concern that most of these guys now have and must deal with patient records and the mistreatment of those or the not well kept records of those is causing many problems. And there is also a lot of tests and stress being put on anti-trust matters as a result of all the things that I’ve just mentioned. So both frequency and severity trends are increasing. It’s an area of business that we’ve been quite proud to be a leader in for a long time. We continue to and want to be a leader in this business for a long time. I think there is diminishing potential for our outsized returns. We’ve made lot money of that underwriting book for a long time and the expected results are pushing much closer to breakeven. Now, we’ll say there has been a lot of noise and we put up a lots of reserves and claims and paid lots because there has been a lots of situations where entities have had made mistakes as well on the severity side and that’s what we’re there for. But we have to manage that business better and we’ve been taking lots of corrective actions. In my commentary, I said our premium writings are down 10% and number of the clients we have has probably shrunk by more than that. Because the marketplace doesn’t see the world the way we do or probably even the way the insured see it and they’re willing to buy cheap insurance if they can get it in an increasing manner. So, it’s just something that doesn’t get fixed overnight on a rather large portfolio of business. And we started this time last year and we’re just giving the forms redone, coverage’s realigned deciding what – you have to pick the good doctors from the bad and try to help the medium risk get better and we have a risk management team that does that, but that’s doesn’t all sink in automatically and when hospitals merge, it takes a while for the integration to take place. And for how they treat their patients to get onto one system, which in most of their systems in the healthcare field are pretty antiquated. So there is a lot going on there.

[Amit Kumar:]

And that’s helpful. And I guess the only other questions I have and thanks for the detailed answer. Just going back to the discussion on the growth on the U.S. insurance general causality side, I think you’ve mentioned they were certain one-offs in a government contracts and other things. So is this quarter’s growth rate more of an outlier? Or should we think about a redefined trajectory if you will?

[Thomas A. Bradley:]

Well, it’s hard to predict a redefined trajectory. I think our team is doing a great job, show us a new opportunities in new businesses that general causality book grew by $47 million added $80 million that we grew in the U.S. book. It’s detailed on page 14 of our supplement and you can see all the lines and the changes almost line by line in the major categories that we have.

[Amit Kumar:]

And then that’s what I was looking at. What I was trying to figure out is that if there is more to it going forward, but I’ll stop here, thanks for all the answers.

[Scott A. Carmilani:]

Sure.

[Operator:]

Your next question comes from Charles Sebaski of BMO.

[Charles Sebaski:]

Good morning. Thank you. Just first off just a follow-up on that healthcare business in the U.S. Given all the color you gave us Scott about the changes that are going on there. I guess – why wouldn’t there just be a one-time true-up and a move-up of the loss pick, so that the noise stops like what…

[Scott A. Carmilani:]

We have incrementally moved it up and we moved it up to the point where like I said – there is just much, much reflection of what we see as reality today. What was reality two years ago or a year ago or even beginning of this year was we’re optimistic than what we see today. So we have changed that and that’s where a lot of – Marshall, do you want to comment on that.

[Marshall Grossack:]

Yes, I’ll also make one another comment. I mean healthcare as we show it here is a bit of a broad category. So I think last year, the issues were more in the E&O and D&O side where we took those actions that you’re speaking about. This year, it’s been a little bit more on the HPL side. So that’s why we’re kind of taking those actions right now on that, that HPL is hospital professional liability…

[Charles Sebaski:]

Okay. I guess the other question I have is sort of on the Bermuda growth that’s going to be going into the U.S. segment. Is that business growing in a similar fashion, I guess I’m thinking once you realign the businesses when we’re thinking about growth trajectories and those businesses get amalgamated. Are we going to lose some of the color on how that is developing? Is there a…

[Scott A. Carmilani:]

No, I don’t think so. I mean if you’re going with – the Bermuda portfolio has been developing rather nicely and has been a big contributor to a lot of reserve releases over time. The large excess accounts rates have deteriorated. So that’s why you’re seeing more growth and upside in our primary or lower attaching business where we get better rate and better terms and conditions. So when they are combined, it’s really just going to be a full picture of both primary and excess business for large account in small business that which is North American business.

[Charles Sebaski:]

And you’ve mentioned the cyber liability regarding the healthcare, but cyber liability in general is this a business that you guys are looking at think that there is opportunity in, there is just sort of a lot of headline discussion about the growth side of that as a product platform if that’s attractive in your thoughts.

[Scott A. Carmilani:]

The way the product has sold today and how it’s offered I think every company will buy it and buy it and droves. If I would just predict here the future I would doubt it would stay the way it is because it’s a very broad cover, it’s very underutilized and a severe threat to every entity that’s out there, big, small, fat or skinny. We are in the business in a very small way on the lower end in a more predictable fashion, that’s more service oriented than it is big limit or retail oriented. The headline stuff that you see that’s out there is just tip of the iceberg. I think it’s an industry that’s going to create lots of opportunities, but has brought with lots of minds as well that has to be really, really carefully underwritten.

[Charles Sebaski:]

I appreciate all the color.

[Operator:]

Your next question comes from Ron Bobman at Capital Returns.

[Ronald D. Bobman:]

Hi, I think you covered but I’m sorry if not. The problem inside of the healthcare area insurance is that sort of malpractice coverage related to doctors or institutions or is it other casualty, liability related loss activity?

[Scott A. Carmilani:]

Yes, it’s definitely malpractice.

[Ronald D. Bobman:]

Okay. And is it more institutional as opposed to sort of smallest doctors and doctors group or both?

[Scott A. Carmilani:]

I mean, it’s institutional and miscellaneous facilities.

[Ronald D. Bobman:]

Okay. Thanks, gentlemen.

[Operator:]

(Operator Instructions) Our next question comes from Ian Gutterman at Balyasny.

[Ian Gutterman:]

Hi. Thank you. I guess, first, Scott, can you comment just on competition and the environment. It seems like things are getting a little bit more heated. I was just kind of wondering what your take was.

[Scott A. Carmilani:]

I don’t know that’s more heated than it’s been in the last few years. The competition environment has been very heated for a long time. Geo-politically and geo-economically around the globe the U.S. is the biggest market in the world by multiples. So the world is focused on the U.S., North American insurance market. We’ve done a pretty good job running in that space. For the last five years or six years, I think our results have shown that. We’re in a pretty attractive place, but it’s definitely a very competitive environment, no doubt.

[Ian Gutterman:]

Okay. I mean you mentioned medical specifically a little earlier. I mean, are you seeing anything that would slow your growth in casualty in U.S. as far as new entrants or just current entrants being a little bit more aggressive?

[Scott A. Carmilani:]

I think current entrants in existing markets are being more aggressive than they should be in healthcare, but I don’t see that as much in casualty, in general casualty.

[Ian Gutterman:]

Got it. Great. The RSA business, Hong Kong, has there been any impact on that business that you’re aware of just from the investor over there?

[Scott A. Carmilani:]

You mean, in terms of loosing people or business?

[Ian Gutterman:]

Yes, I mean just as a disruptive business at all, making it harder. I don’t know if people can get to work or can transact or whatever it might be.

[Scott A. Carmilani:]

No. It’s been business as usual for them and for us, and we’re putting an interim CEO effective December 1. So we’re all – systems going. We have folks over there next week and then a bunch of us will be over there in January as well.

[Ian Gutterman:]

Any concerns just on the, I guess, unsettled protocol environment if things do get a little bit more on relief or were they going to cause any issues or delay close possibly?

[Scott A. Carmilani:]

You mean like the protest and what not?

[Ian Gutterman:]

Yes, I mean as the protests become a Tiananmen tech situation.

[Scott A. Carmilani:]

Yes, I guess you have to be concerned for people’s safety and what not. It’s been a non-issue from their perspective. I can tell you that.

[Ian Gutterman:]

Okay. Good, good. Marshall, I have some questions on the reserve movements. International look like – I’m looking at the 2012. Actually you had $15 million of adverse and professional lines. Was that one insured and maybe you can give a little color on that.

[Marshall J. Grossack:]

Yes, I mean that is just too large D&O claims that are close to full limits.

[Ian Gutterman:]

Okay. Was there any particular class UK [solicitor] (ph) is there something like that or it’s just more broad?

[Marshall J. Grossack:]

No, they’re large account public D&O companies.

[Scott A. Carmilani:]

Right.

[Ian Gutterman:]

Got it, okay. And then on the reinsurance side, it look like certainly this quarter and even the year-to-date, the great majority of the releases for the year are property from the most recent accident year. Can you just give a little bit more color? I’m guessing that’s sort of attritional property losses held that. That just didn’t happen. You get to release it or is it proving to have a lot of (indiscernible) so I’m just thinking what’s driving that?

[Scott A. Carmilani:]

Yes, I mean you’re correct. I mean, we typically try to wait until after the year is over to release from those lines and they continue no loss emergence at all on the increase side. So we’re just been releasing our ultimate estimate.

[Ian Gutterman:]

Perfect, perfect. And then, my last one. Scott, I don’t know I can ask this and what you can comment, but I will try. There’s obviously a lot of rumors about potential new ventures on the reinsurance side. I guess I’ll say is it – should I look at the reinsurance growth at all in the quarter and think that maybe some of that is, I’ll say, potentially warehousing business for a potential future venture that you could ramp-up more quickly if you grow in the near-term?

[Scott A. Carmilani:]

Definitely no correlation or a simulation to any of that.

[Ian Gutterman:]

Okay. I just was guessing. Okay. Thank you.

[Operator:]

Our next question comes from Amit Kumar, Macquarie.

[Amit Kumar:]

Hey, just a quick follow-up. Can you refresh us as to size of your property insurance build? I thought it was close to $60 million or something like that. I’m just trying to think about how we should think about size and any potential impact from that.

[Scott A. Carmilani:]

It’s close to $100 million or 10% of our overall reinsurance portfolio and there is a pretty big component of the excel value, which is not an issue. So we expect that to be profitable this year in the combination of the two portfolios.

[Amit Kumar:]

And what is it running at right now?

[Scott A. Carmilani:]

I don’t know we’ve published that. Have we? No.

[Thomas A. Bradley:]

We haven’t. As you know, it’s a lower margin business. It probably targets 90s, low 90s type of tax combined, but we expect it to be modestly profitable this year.

[Amit Kumar:]

Got it. That’s helpful. And only other question I had is, I think in the opening remarks you mentioned that the capital book management will depend on, I guess, Q4 loss activity and I know we’ve had Gonzalo and other things. Do you have any initial comments regarding Q4 loss activity?

[Scott A. Carmilani:]

Gonzalo really only hit Bermuda and Bermuda doesn’t have a lot of insurable risk. From our standpoint, it has a lot of local home owners risk obviously. Gonzalo was a lesser storm than Fabian was in 2004 or 2003, rather I’d say that was 2003. I was there. For instance, our building in Bermuda never lost power in Gonzalo and very limited damage. There were somehow that I know we had minor damage, but the causeway and the airport were open that Sunday, which compared to 2003 where airports were closed and closing was there for months. People were out of power for weeks. Although, it was build to be a much worse storm the night before, seems to have died down and only hit on the back end of the turn of the storm at all late in the day and it was at a much lower hit rate than previous storm. So, it wasn’t that bad of a storm. We had any loss to it? I can’t say we will have no loss to it, but it’s early days to say. We’d come from our reinsurance portfolio if we had any at all.

[Amit Kumar:]

Got it. Okay. That’s all I have. Thanks for all the answers.

[Scott A. Carmilani:]

Thanks.

[Operator:]

(Operator Instructions) This concludes our question-and-answer session. I would now like to turn the conference back over to Scott Carmilani for any closing remarks.

[Scott A. Carmilani:]

I don’t have any closing remarks. I took here that in my last statement. So, thank you very much for the call and have a great day.

[Operator:]

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.