Good day, ladies and gentlemen and welcome to the First Quarter 2015 Arch Capital Group Earnings Conference Call. My name is Kathy and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. Before the company gets started with its update, management wants to first remind everyone that certain statement in today’s press release and discussed on this call may constitute forward-looking statements under the Federal Securities Laws. These statements are based upon management’s current assessment and assumptions on a subject to a number of risks and uncertainties. Consequently, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may affect future performance, investors should review periodic reports that are filed by the company with the SEC from time to time. Additionally, certain statements contained in the call that are not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company intends the forward-looking statement in the call to be subject to the Safe Harbor created thereby. Management also will make reference to some non-GAAP measures of financial performance. The reconciliation to GAAP and definition of operating income can be found in the company’s current report on Form 8-K furnished to the SEC yesterday, which contains the company’s earnings press release and is available on the company’s website. I would now like to turn the call over to the host for today Mr. Dinos Iordanou and Mr. Mark Lyons.

Thank you, Kathy and good morning everyone and thank you for joining us today. Over all these years I thought I was the guy with the beautiful accent, but I think Kathy has put me to shame today. We had a good first quarter as earnings were driven by excellent reported underwriting and investment results. Our gross written premium grew by 1.3% in the quarter while our net written premium shrunk by 8.8% as growth in our insurance and mortgage businesses was offset by a decline in our reinsurance writings. Changes in foreign exchange rate reduced our net written premiums on a U.S. dollar basis by approximately $32 million or 3.4% of our volume in the quarter. On an operating basis we earned $1.17 per share which produced an annualized return on equity of 10.2% for the 2015 first quarter versus a 12.1% return in the first quarter of last year. On a net income basis, Arch earned $2.16 per share this quarter, which corresponds to a 15.8% return on equity on a 12 month trailing basis. Return on equity based on net income has averaged approximately 400 basis points higher than operating ROE over the past four years. Of course net income movements can be more volatile as these earnings are influenced by changes in foreign exchange rates and gains and losses in our investment portfolio. These effects have been more noticeable as we have increased our exposure to alternative asset classes and have remained focus on a total return strategy where some components of total return are classified below the line in our results. Our reported underwriting results were excellent as reflected by a combined ratio of 87.5% and were aided by low level of catastrophe losses and continue favorable loss reserve development. Net investment income per share…

Thank you, Dinos and good morning all. As was true on last quarter’s call, my comments that follow today are on a pure Arch basis which excludes the other segment that being Watford Re unless otherwise noted. Furthermore, since the accounting definition of the word consolidated includes the results of Watford, I will not be using that term but instead will be the using the work core to refer to our combined segments of insurance, reinsurance and mortgage. This permits an apples-to-apples comparison of Arch’s current results with prior periods. Okay, that being said the combined ratio for the year quarter was 87.5% with 0.6 points of current accident year cat related events, net of reinsurance and reinstatement premiums compared to the 2014 first quarter combined ratio of 84.6% which also reflected 0.6 points of cat related events. Losses recorded in the first quarter from 2015 events, net of recoverable and the reinstatement premiums totaled 4.6 million primarily emanating from our insurance exposures in Australia. The 2015 first quarter combined ratio reflected 7.8 points of prior year net favorable development net of reinsurance and related acquisition expenses compared to 9.5 points of prior period favorable with development on the same basis in the 2014 first quarter. This result in a current core accident quarter combined ratio excluding cats for the first quarter of 2015 of 94.7% compared to 93.5% for the comparable quarter in 2014. In the insurance segment, the 2015 accident quarter combined ratio excluding cats was 95.1% compared to an accident quarter combined ratio of 94.9% a year ago. The reinsurance segments, had similar accident quarter combined ratio excluding cats was 94% even compared to 92.6% in the comparable quarter last year. As noted in prior quarters, the reinsurance segments results reflect changes in the mix of premiums…

Thank you. [Operator Instructions] The first question comes from the line of Michael Nannizzi ,Goldman Sachs.

Thank you, thanks for that. Just one question -- a couple questions I had. One was on the decline in CAT premiums in the Reinsurance segment. I was a little surprised that the underlying didn't change more, just given I expect that business probably booked at a lower loss ratio. Were there other --? I'm sure there are other mix issues that are impacting the underlying measures, so I just wanted to get some context on that if I could. Thanks.

Well first our approach to the cat business was to maintain as much of that business with a client base. So in essence we committed to the client with purchases and then we looked at the risk characteristics of that portfolio and where we felt it was advantageous for us to buy retro sectional color to protect our book we choose to do so. So that was the approach for the quarter. We believe that some segments of the cat business is still depending on what part of the curve you are is profitable at very good levels meaning mid teens ROEs and then on some other parts of the curve, they might be in the mid single digits which in our view we don’t want to end the right cap business with an expected return of mid single digits. So that in essence being our approach, Mark I don’t want – do you want to add anything else to that.

Yes. Sure. I’ll just add that and you – and the way you phrased your question you kind of answered it. This clearly is mix difference beyond the pure CAT aspect that Dinos mentioned. And then example of that would be – we seldom talk about it other than the fabulous result is the facultative group, which add fabulous results for the quarter, but not quite as fabulous as the prior quarter. So, you get little bit of mix differences and in the case of property businesses the combined ratios can move. As far as longer and medium tailed businesses the combined ratios associated those are consistent with what you’d expect in the declining market. You’re inching up higher and this is simply a mix, the cost of the quarter there was up to be with this.

Got it. And then, should we think about in terms of like the capital intensiveness of your business declining as you continue to maybe mix away from more capital intensive business in reinsurance. Did that have an impact on your appetite for buybacks in the quarter or maybe the amount of capital that you’re willing to allocate to those sort of activities?

Yes. There’s a more fact that usually, historically I would say that in the third quarter we refrain of buying back shares even when we have big buyback programs on the basis that it’s the CAT season and when we were committing 20% or 21% or 22% of our equity capital to a single event – a singly – 250-year, a single event, that is changing and as you saw with the numbers we have reported we’re in the sub 10% of capital in any one zone. And for that reason I think buyback opportunities are not going to limited to the second quarter but also in my view in the third quarter, because the cat PML aggressions we have and the excess capital that I have -- we have in the company there are such that I don’t worry too much about unusual event that it will cause us significant harm during the third quarter.

Great, thank you. And then just one quick one, just in terms of thinking about Watford and the reinsurance business, I mean, should we be thinking that your gross premiums might stick around where they are, but that we'll see just the cessions line just increase as you sort of toggle the premiums between those two segments? Is that how we should be thinking about it, or just if reinsurance market conditions continue, should we expect to see gross premiums decline as well? And, thank you for all your answers

Mike, good question. It is a difficult one to answer because it is the vagaries of the marketplace that drives that as to what we might balance [ph] and what might be natively written on Watford paper versus written by our Arch, Arch Re, Arch Insurance and ceded. So it’s really hard to say, what that direction might be. Just like a similar comment on any one of our units, that it’s hard to predict that. So I really prefer to not give a strong direction of response on that. But all I can tell that we’re continued to be really happy with the flow, the kind of business that we’re seeing and the sources of that business.

It’s hard to predict the future. I don’t know where the market is going to go. At the end of the day every single reinsurance transaction we do is based on the written characteristics. If it fits for Arch first, that’s our priority. We put it on our paper and we retain the risk and if it doesn’t, but because of additional potential investment return in Watford, its fits their model then we will put it there. And that’s the guiding principles that we have and we have been operating since the formation of Watford, and that will not change. So, trying to predict where the market is going to be is a dangerous – it’s a dangerous proposition. I don’t know where the reinsurance will be six months or year from today. My instructions to our troops and I think we got great underwriters, all you’ve got to do is look at their performance over the last 10, 12 years is behave prudently in the market that has been given to you and make the prudent underwriting decisions and don’t focus just on volume, just focus on return. And that’s our guiding principles.

Great. Thank you so much for the answer.

You’re welcome.

The next question comes from Amit Kumar of Macquarie.

Good morning and congrats on the quarter. Just a few questions on the MI segment. The first question on the discussion on the staggered program, clearly that’s a meaningful number this quarter. How should we think about that opportunity I guess going forward?

I’ll make three points and I’ll turn it over to Mark. He knows the numbers better than I do, but well as well.

Time will tell.

Its lumpy business, however the incentives for both Fannie and Freddie have been increased. Their targeted amounts have been increase as I think we talked in the last quarter significantly by 50%. Last year the GSCs, they had a target of $90 billion each. This year’s its target is $150 billion for Fannie and $120 billion for Freddie, which we believe they’re going to reach, as they reach their goals last year. So in essence they’re going to be more in the marketplace. Of course, they can use the cash market, the bond market or they can use their reinsurance MI market for those transactions. We were the innovators of these stacked transactions. The first one we did it was a combination of effort between us and Freddie Mac and their incentive is to put more and more of that business into different sources of private capital pools including the reinsurance market. So it’s going to be lumpy. We don’t know how many of these opportunities that are going to be there, that they’re going to come away. But we believe there going to be at an increase level from a year ago. And depending on pricing, we will continue to participate and that’s the best I can tell you, because we’re not magicians. But we can’t predict the future. But we feel confident that stacked transactions or stacked-like transactions will be more in 2015 that they were in 2014.

Got it.

Yes. I’ll just add to that, because I think you’re trying to add some of the mechanics of it is as there’s the capital market securities and then there’s the insurance fee and the capital market as I’ve alluded to in my prepared remarks. The capital market incept quicker and the corresponding insurance transaction tend to get bound three to nine months later, so it has build-in delay, yet the GSC still want to incept identically and concurrently with the capital markets product. So once we bind we may have three months, six months or whatever of catch-up premium that we have to book. So any given quarter could have some components of catch-up given that we continue to have a stream of these staggered transactions for Dinos’s comment. The other way you should think about it is think about the notional loans that make these traunches up, just like a subject based on the treaty. You have the rates that applies to it. However this subject base declines over time. So each of these stacked deal have a 10-year maximum but the average life is probably closer to seven to eight years. But you have a declining pace to which these monthly rates are applicable and a decline basically through prepayments, people moving, refis, here are the normal reasons why these things would roll off. So that mechanically I think that’s how you have to think about.

And to make your life little more difficult for your modeling, right now all this is accounted as derivatives that’s the $7.7 million that we talked about in other income, but we’re hoping soon they’re going to be converted to insurance accounting, so you going to have maybe a little more clarity, because we’ll reporting premiums, but we don’t know exactly when that is going to happen, and is going to done one a perspective basis [Indiscernible] but also for existing ones. Because don’t forget everything we bound last year or this year it will still have a life of six, seven years into the future. So, it would get a little more complicated and I feel bad for your models but eventually you’re going to get it, when we get it.

Life is complicated. Just one more question and I’ll take the rest offline. If I look at the loss ratio for the MI segment and if I compare that with some of the other I guess non-legacy MI player what the guidance they give and your presentation from March, is there a loss ratio running higher because it just shows the level of conservatism or is there more to it?

Well, your reference point, well, our loss was in mid 20s. But underneath that that continues to have improvement on our -- basically our relative delinquency percentages and things like that that continues to drop. But remember, you’ve got other things going now. We are reporting a segment total. So we are seeing an U.S. MI decline, but you also have any readjustments associated with our reinsurance divisions, reinsurance mortgage transactions that’s come through. In prior quarter we had I think some revaluations favorably on an insurance contracts, in this win, made -- one big deal maybe have gone the other way. You’re going to get little bit in the ways, but I think the key core of your question is that you’re continuing to see improvements in the delinquency and claims in the U.S. MI book and the answer is yes.

And when you compare those numbers with the other public numbers from the U.S. MI we are as good as even slightly better than that. However when you get into the reinsurance sector we have a little more flexibility on the reserving side to be conservative and I rather do that than be very aggressive on those ratios because at the end of the day early on an any business and depending if it’s the P&C business or the MI business, [Indiscernible] is a self-grading exam and your real exam comes when the real results come. So, that’s been our approach in everything we do and if I have the opportunity to be a big conservative, I will take that opportunity than the alternative.

Got it. That is ours [ph] philosophy. Thank you so much.

Don’t forget we have excess capital. We’re not capital constraint, so in that sense we got a lot of flexibility there.

I’ll stop here. Thanks for the time.

You’re welcome.

The next question comes from Kai Pan from Morgan Stanley.

Thank you, and first question is on the CATs. Do you have any potential exposure to the Nepal earthquake, that the Baltimore riots as well as some other large losses like Pemex [ph]?

I can ever say none, because I don’t know every contract we roll, but it’s minimal. My phone hasn’t rang and nobody whisper anything. And usually I’m the first to know.

Okay. That’s great. Then on the insurance side you mentioned the casualty line pricing still outpacing loss cost trend. So but we haven’t seen that flowing through in your underlying combined ratio, just wondering are we going to see that in the near future?

Well, actually you have seen it. It depends on your time period over which you’re looking, but clearly the core ex-CAT actually and your combined ratio and loss ratio has improved. It been relative flat or move a couple of points here there from the corresponding quarter and that just make the noise.

Okay. So you continue to see that, is there overall for the insurance second because what I see is really flattish, but you do expect that even the pricing in casualty lines?

Yes. You see you got to look at the components. When you’re losing 8% to 10% rate on property which is a low attrition -- loan loss ratio business. So that has to move on.

Okay. So there’s

So if these are 45, you might go to 52 or 53 maybe 55. And then you get the improvement on the other. So when you do it as a mix you might be offsetting some of the gain, so maybe is not that visible to you, because you got to look at the mix. We’re reporting the numbers as we see them, we look at the segments. Some of their low loss ratio of business has been declining for us because rates that been actually decline significantly, but is not that we’re not trying to hold on to the business but we do. But that make also has to be taken into consideration to see if our casualty loss ratios have improve by more than a couple of points over the last I would say, six, seven quarters.

Okay. That’s great. Then on MI. I just want to follow-up on that, as you say, at what premium level do you think you can reach to kind of I don’t want to call it steady state, but more reasonable to leverage your expense?

I don’t think about it in that fashion, I think we’re going to reach probably steady state in approximately three years because you do two things. One, you have a minimum fix expense value requires for you as you building up the business. But also depending if that business built fast or slowly you have the ability to also adjust your staffing as you go along. I would think we’d not going to be at a steady state on the MI business until probably the end of the 2017, so probably 2018 will be our first year that we’ll say hey this is our steady state number. So that’s the way I think about it and I think our people think about it about the same way. Having said that, internally we look at the profitability of the business as we do with everything that we do independent of sector to ultimate. If I’m making an underwriting decision today what is that going to mean for the shareholders, because their shareholders they are forever and that’s the way we view shareholders. We don’t view them, today they are with us and tomorrow they are going to trade and get out. I view every dollar of capital is given to me that I have to guard it, that it there forever and that’s the way we think and that’s the way we behave.

That’s great. Lastly if I may, if you look at the Watford investment return over the last few quarters, have been about to 3%, 4% annualized run rate, I just wonder could you give a little bit more color on the portfolio allocation as well as that what kind of target of return you have in mind?

Well, portfolio is fixed income as we mentioned before. It’s a fixed income base portfolio and generally lower investment grade or some non-investment grade, and that hasn’t change. It’s more the function of the performance and what’s rebounded, really in this quarter. So, there’s really, Kai, no really change in the asset allocation to talk of.

And do you any target return for that portfolio?

Well, it’s not us, we have a target return. I think Watford Highbridge have target returns. I believe but you got to check with them. I believe their target returns on an unlever basis. It will be in their probably 5% to 6% and then on a lever basis because they expect to put about 50% leverage on it, it will boost return to high single digit. So that’s their target returns for the time, don’t forget the building up and they’re trying to invest all the investable assets that they have they are getting very close to that. But I think these are questions for Watford and not us, we’re just the minority shareholder in that.

Well, thank you so much for all the answers. Good luck.

Thank you.

The next question comes from Ryan Tunis of Credit Suisse

Hey, thanks guys. I guess my first question is probably for Mark, and it's a little bit of that pesky accounting one, just on understanding these stagger deals, but I just trying to think of how to think of the normalized run rate here on the 7-7. I mean, should we think about it -- if you guys don't write another deal in the second quarter would that stay kind of around here? Or, I think you mentioned $3 million of catch-up revenues; would it be $3 million less? Or would it be zero? I'm just kind of trying to understand how low these profitability

Well, again, without any forward looks and taking your assumption saying there’s nothing else written on a go forward basis what’s on the books. This said that around the number. The 7.5 million had 3.5 million of catch-up, so that’s 4 million and then you need to apply your own persistency exception of how fast those loans follow up. And that’s – you have to apply as the cases on that that your best way of doing it.

Okay. Let me give you a number and then you can do your decay factor yourself, right. All this staggered transactions we’ve done; they are pretty much last year, this year. They have $617 million of insure limit and our life time premium; it will be approximately $110 million, that’s the life time premium over the period. Now you can say it’s going to take six or seven or seven to eight years whatever. We believe that 2015 is approximately. We don’t do another transaction about 20 million, that will average about 5 million run rate a quarter, that will decline a bit if we don’t write any of it transactions in 2016 decline a little bit, in 2017 or until you get 11 million over the life time of contracts.

Yes, do you any clarification because that’s good view Dino that gave you but that’s an ultimate view or its nominal dollars. Secondly it’s ultimate. You who had asking a question on vagaries of timing, and timing of catch-up it’s hard to predict quarter by quarter by quarter. Dinos’s is right but it doesn’t address the timing of when they recognize.

Okay. That’s helpful, I guess kind of seeing on a GSC deals, it sounds little more I guess higher level, but I guess up until now I think I’ve either you guys have said it, I read it some it, 70% of the capacity has been I guess capital markets driven. You guys have a view maybe looking at over the next two or three years. How much of that comes to the MI side as oppose to capital markets?

WE don’t that. I think that’s a question for Fannie Mae and Freddie Mac. Actually in 2014 it was 80/20 it was only on the first quarter of 2015 that it was 70/30, they determine that and they – and that’s why it so hard to predict. They view I believe they view their reinsurance plays as more of a steady capital. We have a view that capital market is having a limited capacity, but that capacity it can difficult, it can be price very high at some points and very low at some other point. So it will depend on the pricing. They test the capital markets for us. They see what they can get from there they test the insurance and reinsurance market what they can get from there and they make those determinations. But they do have an incentive to broaden the base of private capital willing to take credit risk so they can de-risk pools significantly so they can go back to Congress and say we have the risk the entire portfolio, so the tax payer is only taking the very end tail risk, the black swan scenario, which I think is a good thing. It allows private market to price it and take the risk and nobody has the unlimited capacity to take unlimited risk. Only the government can do that. But that’s the very end and the tail even that none of us has the ability to do.

Got it. And then I guess just quickly, my last one on the MI business, it looked like half of the NIW, it sounds like, didn't come from credit unions. I'm assuming it came from banks. I'm just interested, I guess, in kind of the breakout of that NIW, how much of that maybe came from your top five-type banks, how much of that came from some of the other nationals and some of -- and how much of it then came from the smaller guys. I don't know if you can give me that level of granularity but I'd be interested in that?

I don’t have it in front of me that granularity maybe one we have – I think we have our Investor Day coming up in June 8th and probably we’ll – I’ll make a note and then we’ll have a little more granularity to share with you. Usually we don’t try to focus. At this level of our development to specific originators we’re trying to get as broad as we can and sign as many of these originators and as you saw we’re pretty happy with where we are, we have 15 of the top 16. I don’t know what that’s top 15 is, but it might be, maybe 60%, 70% of the market. Now the question is how does that flow? The fact that you have connected all the pipes and you have all the agreement it doesn’t mean that water flowing freely. It starts trickling in and then it accelerate because all these things have to – there is a lot of work that needs to done on getting the systems to work with each other and start getting the flow. But we’ll give you more of a color in our. We’re going to have our MI make people doing a presentation and then we’ll get into that granularity at that point in time.

That’s helpful. Thanks so much guys.

Thank you.

The next question comes from Charles Sebaski of BMO Capital Markets.

Good morning, afternoon, I guess it is now. I had a question in trying understand the ROE impact, the ceded business to Watford Re. So, we don't know exactly what it is but this quarter it seems like it's maybe $50 million of business ceded to Watford. And I assume that that's 10% ROE business like the rest of yours? But the income to you guys from Watford on the minority ownership and other fees and other stuff, how does that transition? How do you look at that? You go, okay, we transitioned $50 million of premium that's generating a 10% ROE -- how does that return from Watford look relatively? And does that free up capital?

You’re starting with the premise that is incorrect.

Okay.

If the $50 million had a 10% ROE it will be on our books. Based on the investment returns we achieve. Don’t forget we have an A plus rating, it requires a different capital and also it requires through the rating agencies and regulators at different investment philosophy. Now that business for us would have been maybe mid single-digit ROE, by putting it into Watford, we’re boosting the ROE because that set of shareholders they’re willing to take more investment risk. And the way you got to think about it is that about it is that they have at least I would say 250, 300 basis points investment advantage over a traditional P&C operation, having that advantage on business that it has approximately 3.5 year duration and 70% is loss and loss adjustment expense you can do the math you compound 300 basis points for 3.5 years, for 70% of the premium and you’re writing seven, eight points of ROE on an after tax basis. So you take something that is in the 6, 7 and it becomes 14, 15. So that’s the way you got to think about it. Now, 5, 6, 7 is not acceptable to us, because first of all, it creates a lot of pension within our ranks. Our incentive compensation for our underwriter is based on as achieving a minimum of 8% ROE. If we don’t achieve that I think we run home with empty pockets, our wives that really upset about that. So at the end of the year there is culture here when we get to our underwriting that we got heat on an accepted basis certain target if we don’t hit it that’s when we go. Now to do the math we get – not utilizing our own capital we get. Well, 11% we get by utilizing our investment which is our own capital, but of course we get fees and we get profit commission through the backend, we just have created to our shareholders because there is not utilization of capital for that. I haven’t done the mark on 50 million, but if you want me to do it I can do it and I have done, give you the arithmetic, but you can probably do the arithmetic yourselves.

That’s what I thought, I mean, regardless to the initial premise of 10% ROE being wrong and its mid-single digits, but when you see that conceptually whatever capital was supporting that to begin with is now free and clear, if it go on to capital management.

That’s correct.

And the return that generated from 11% ownership is a magnitude higher relative to now that freed up capital, right, because…?

That’s the right way to think about it, yes. A - Mark Lyons Investment return, long term investment return leverage over a traditional insurer being realized.

And so, then on that basis so in that construct how much business currently can you see to when you look at your book, if we look at this year I mean, what’s the potential obviously this changes in market pricing that can be seeded or is there a governor or a limit on in any given period how much business you can see to them?

Yes. There is limitation on the basis of their capital base. When we see business to them they collateralized it for us on the expectancy. So in essence there is limitations from their point of view as to how much they can write based on their capital base, independent if he is cessions from us for things they write directly into the market themselves. And of course how much capacity they have or neither LOCs nor other collateral they have to put up depending where the business is emanating. So, but we seems this is a new company then he has quite a bit of capital. They have in excess of cash [ph] in capital. They got a size 10 shoe and a size three foot right now. So there is plenty of room for the foot to grow into the shoe.

And outside of your return dynamics in the reinsurance book of mid single-digit ROE profile, is that really the only limiting factor for you in ceding business there or it just sort of this business is below our return threshold outside of that there’s no other, hey, we’re not going to do more than this or there’s what other factors might be?

There is three scenarios here, okay. And I’ll give you the scenarios. Let me start with a premise. We have an obligation. It’s a contractual obligation as a matter of fact I think I don’t know, a dozen or more of our employees are actually dual employees. They are employed by us and also they’re employed by Watford. Their portion of their salaries paid for them for activities that they do on their behalf. Now business comes to us. We underwrite it and we decide that it fits the Watford model, we put it there. Business originates from Watford. They fill in the market and then they use those employees and then say hey we sourced this, we got these phone calls directly, underwrite this piece of business for us. That can take two paths. One path is the client he might be European client will accept the Watford paper or it might be a U.S. client or and they say, we want Arch to issue and reinsure back to you. So those are three scenarios that happened. In the first one we determine the ROEs based on what we’ve seen. It doesn’t fit our book. It fits theirs, we will put it there. In the other two scenarios we got an obligation to what the deals on their behalf we work the deals. And in some cases when I say kind we have a little piece of this because – and depending on how much of that deal they want to give us we might even take it at all. Don’t forget Arch takes 15% of those deals through the backend for underwriting consistency, so when I generate some activity for Watford that it was originated and it was Watford paper not only I have 11% ownership in the company, but also I take a 15% quota share through the backend. So it’s not – it’s hard for you guys to look at all the components and even our reporting with the other sector sometimes it might be getting a big confusing to you, but at the end of the day I’m trying to explain to you all the scenarios and those are the three scenarios usually that happen on a day-to-day basis.

The only thing that I would add is a different cut of it by a line of business as oppose to the flow of business, Dinos has talked about that. And it’s been more decision of upfront, not fund return characteristics as much as preservation of capital to not put a lot of CAT business in there because you could get unlucky and have a cash call early and you want that compound interest on a fixed income strategy to have your building to work in compound. So if you have a big cash call early, you hurt the ability for that to happen

And the longer the tail the better the advantage they have. So the construct of that book is not to feed it with a lot of short tail business, that’s not really where they have the advantage. The advantage is no longer tail lines. Low volatility, more predictable combined ratios longer tail. Hard to find, hard to do but that’s the premise.

Thank you very much for the answers.

You’re welcome.

The next question from Meyer Shields – Meyer your line is now live. Meyer Shields of KBW.

Sorry about that. Hi, two quick questions if I can. First of all I guess the corporate or other expenses were down about 30% year-over-year. Is that sort of decrease sustainable?

What I can tell you on corporate expense we’re not – I don’t like overhead and I’m not adding to it so I would say they probably be steady. I haven’t really focused on the delta this quarter to see if it was significant or not but I can tell you we’re keeping a very lien holding company staff. Mark you have any more detail on that.

Yes, on corporate expense if we are characterizing it at the same way – it was down around 13% to 15% and it was mostly driven by reduction in stock option expense. So that depends on what people do and that effectively not allocate exercise and so forth. So, I would say we continue to look to push those down, but I wouldn’t go crazy expecting a compounded benefit every quarter.

Okay, that’s helpful. Does the opportunity exists none of their low premium volumes in the reinsurance segment to reduce the expenses there?

The expenses there in the MI bucket and that is a clean number. When internally we look at it, we have a different set of numbers but accounting requires you to report in a certain way so we report all the MI expenses under the MI sector and their other income comes clean of any expenses.

Perfect. Okay, thanks so much.

You’re welcome.

The next question comes from Jay Cohen, Bank of America Merrill Lynch.

Thank you. A couple of questions, I guess starting with the mortgage side. When the accounting -- if and when the accounting changes, for the staggered transactions, will the bottom-line impact be vastly different on a quarterly basis? If you're accounting as insurance versus derivative?

No, it should be just more a explosion of a single line into a lot of lines. Written premiums, earned premium expense, acquisition cost, loss reserves, aid [ph] losses, but bottom line it ain’t going to change anything.

Okay, that’s good to know. And I guess the other question, within the mortgage segment you do have these other operating expenses, kind of moving up as you build out that business, when did they start to level off?

We’re in a steady state now on dollar expenditure. Our marketing team is fully deployed, there is no significant positions for us to fill. So right now is just for them to go out and execute in the market place. But the build up after we have brought the assets from the CMG and the assets from PMI it was to create these marketing team that we have which is approximately give or take a few reps of about 60 people. And we have reached that level now; we have filled every single key position.

So I would just add to that. Spending on what you are looking at quarter over quarter you – at Jay. Quarter over quarter you got the distortion because the first quarter of 2014 was only two months, not three months which I think. But on the serial point of view the one of the tweak for what Dino says to all the sales people now on board is there is a split of the expenses of the U.S. MI staff that’s cat and net to us versus what goes back to PMI. And that changes as a function of the work that’s done. So the simplest to think of is and it varies by function, controller ship and IT and so forth, but is a claim function. As claim inventory liquidates on that finite set of claims the dollars associated with the claim function would shrink and therefore Arch as opposed to PMI would absorb those. So that mixture changes overtime and that’s the only other tweak I would make to Dino’s comment, right.

But with this based on activity we have the ability to manage that, right. But the activity from us managing the PMI run offs so to speak it will diminish over the next three, four, five years and now it’s a question, do we need all that personnel and if we do we’ll keep them because we are building our business versus allocating all that goes back to PMI.

Got it. Perfect. The last question was with Watford Arch earned some fees for running, helping run Watford where does it show up in your reported results?

There’s more than one place, but most of them at this points in an offset to acquisition.

Got it. Acquisition in your reinsurance segment?

Correct, yes.

[Indiscernible] M&A some of it was right.

It’s right.

And don’t forget Jay, profit culminations are not in that yet, right.

Right. Got it.

You got to see that quick in first.

Perfect. Thanks for the answers.

You are welcome.

The next question comes from Ian Gutterman of Balyasny.

Dinos, I think the souvlaki is going to all be gone; this call has gone so long here.

No, no today on the menu is [Indiscernible]

Okay. I hope we’ll have some others in June.

Yes you will.

See Ian, we all learnt something.

So, I guess my first question is, the other specialty reinsurance has been declining at a fairly noticeable pace the past few quarters. Could you give a little color on what specific lines in there are shrinking and maybe even what's left that remains, that's a big part of that line at this point?

Well Mark, you want to handle that?

Well let me just pull this something, okay.

The one obvious place is property cap which – and then we reduce significantly on the more or quarter shares overseas that’s another area. And then it will give you more granularity Mark.

Because as we – I think our reinsurance group is good at finding opportunistic opportunities. And you get them they hit a quarterly statement and they are really not renewable. So you may recall we had conversations of some relatively large premiums a year ago this quarter that were opportunistic in nature and those didn’t repeat. So and that’s where all those specialities are. There was also a bit of a fall off in some accident and health business. But I think predominantly you can – besides what Dino said you focus in on these opportunistic transactions that were unique to the market place at that time.

Perfect, I just want to make sure on that. With the decrease in the CAT exposure and the short-tail exposure, can you give us a sense of how much your CAT load has come down on a model basis?

Well pretty material as you might guess.

Ian, do the calculation I haven’t done it. But go to the old PMLs and do the division between the new PML and the old and that will give you and indication as to what the –

Okay. And I was wondering whether that would work or not.

I would say right now if I would take a guess it will be around 40 million a quarter of thereabout so it will be about, I would say instead of 200 plus it might be about 160.

Got it, okay thank you.

But then listen, this is back of the envelope. I’m pretty sure on the back of the envelope, but there is no precision in that number.

No that’s okay, I was just trying to get the ballpark, okay.

Might be 159.

Exactly, point two. The other thing I was wondering on PML is can you give us a sense of how different, how much your gross PMLs come down relative to your net PML meaning how much of the PML reduction is there are the increased retro buying versus actually cutting the gross?

Well the gross came down a little bit. It was maybe in the order of about 5%, 6% they are about and then most of the other reduction is reduced writings and also retro session of buying.

Okay, got it. And then my last thing before letting you get to meet bowles [ph] is…

Well [Indiscernible] there is no mid bowles in Greek language.

I know, I can’t pronounce that Dinos, I’m not as good; I don’t have that dialect down yet. Just as far as how to think about excess capital, right. I mean obviously with much of us cat you should be able to write it a different premium and the surplus than you used to, right. So how shall we – is there a good metric to think about rule of the thumb for how to evaluate excess capital?

There is no rule of thumb. We run the SMP model of course, if you riding those cat the allocation to the cat business from a capital point of view is less. We factor that in into our excess capital calculation and then we make decisions of that. I – listen I got a guy [Indiscernible] he’s got to do some work at some point of time. I got to ask him to do something. So he does a lot for us.

I mean if I were to just look at sort of the capital charge for your PML how much has come down and then say that’s one part and then the other part would obviously be the – between earnings and return of capital. Is that a fair way to look at it essentially?

Yes it is and also you got to look at the mortgage as we deploy more capital. Even though in the mortgage we are over capitalized already, it’s going to take us another, I don’t know six quarters maybe even longer to fill the shoe so.

Okay, I guess what I'm dancing around; maybe I'll ask a little bit more directly -- it seems like excess capital is getting to be maybe, I have to go back to some of the times when it was really high, but it may be getting in the upper quartile of where it has been historically.

It’s up there, yes. But from a rating agency perspective to your play. Pretty close to every dollar we have a reduction in – as a dollar to excess capital.

Well that’s kind of what I am getting at, okay. All great thank you guys.

Thank you. You have no further questions. I would now like to turn the call over to Dinos for closing remark.

Well thank you all for listening and we are looking forward to the next quarter. Have a wonderful day.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.