. Good morning, and welcome to the AXIS Capital Second Quarter 2011 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Linda Ventresca. Please go ahead.

Thank you, Denise, and good morning, ladies and gentlemen. I'm happy to welcome you to our conference call to discuss the financial results for AXIS Capital for the second quarter ended June 30, 2011. Our earnings press release, our financial supplement and a new supplementary disclosure entitled Overview of AXIS Natural Perils Catastrophe Risk Measurement and Management were issued yesterday evening after the market closed. If you would like copies, please visit the Investor Information section of our website, www.axiscapital.com. We set aside one hour for today's call, which is also available as an audio webcast through the Investor Information section of our website. A replay of the teleconference will be available by dialing (877) 344-7529 in the U.S. The international number is (412) 317-0088. The conference code for both replay dial-in numbers is 10001569. With me on today's call are John Charman, our CEO and President; and Albert Benchimol, our CFO Before I turn the call over to John, I will remind everyone that statements made during this call, including the question-and-answer session, which are not historical facts may be forward-looking statements within the meaning of U.S. federal securities laws. Forward-looking statements contained in this presentation include, but are not necessarily limited to, information regarding our estimate of losses related to catastrophes, policies and other loss events, general economic capital and credit market conditions; future growth prospects, financial results and capital management initiatives; evaluation of losses and loss reserves; investment strategies, investment portfolio and market performance; impact to the marketplace with respect to changes in pricing models; and our expectations regarding pricing and other market condition. These statements involve risks, uncertainties and assumptions, which could cause actual results to differ materially from our expectations. For a discussion of these matters, please refer to the Risk Factors section in our most recent Form 10-K on file with the Securities and Exchange Commission. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, this presentation contains information regarding operating income, which is a non-GAAP financial measure within the meaning of the U.S. federal securities laws. For a reconciliation of this item to the most directly comparable GAAP financial measure, please refer to our press release, which can be found on the website. With that, I'll now turn the call over to John.

Thank you, Linda, and a very good morning to you, all. So far this year, catastrophe losses have cost the industry over $70 billion. And the industry is experiencing the worst first half year on record. We estimate AXIS' share of the cat activity for the year-to-date to be approximately $706 million, about 1% of our estimate of current industry losses for the year-to-date. Our model suggests that for our portfolio, AXIS should expect to experience this level of aggregate cat losses by the end of the second quarter every 50 years or so. Nevertheless, as we enter the peak U.S. wind season, we believe that we have the capital strength to handle further potential catastrophe-related losses, fully support our underwriting plans and drive optimal shareholder returns on a risk-adjusted basis. We would discuss this in more detail during the call. Turning to the quarter's results. It is global cat activity which has impacted AXIS results most significantly during this second quarter and for the year-to-date. During the quarter, severe weather events in the U.S., coupled with the New Zealand aftershock, as well as increased first quarter net catastrophe losses, resulted in a $126 million in catastrophe net losses to AXIS, primarily from our Reinsurance segment. Despite the impact of these catastrophes on underwriting profit, AXIS had a solid second quarter. Overall in the quarter, we reported operating income of $83 million and operating income per share of $0.65 per diluted share. Diluted book value per share at the end of the quarter was $36.78, up 3% in the quarter and up 1% compared to 1 year ago. Albert will review the results of the second quarter in more detail. Our gross premiums written in the quarter increased by 11% reflecting meaningful contributions from our new Accident and Health initiative…

Thank you, John, and good morning to everyone. Before I comment on the results of the quarter, I'd like to expand on our press release comments about operating income. We amended our definition of operating income this quarter to exclude after-tax foreign exchange gains and losses in our income statement. These amounts primarily relate to the impact of FX rate movements on our net insurance related liabilities. However, this is only one component of the overall impact of currency fluctuations on our financial position. FX rates also affect the unrealized gain losses on our investment portfolio, which impact is recognized in other comprehensive income, and also our net realized investment gains and losses. These investment-related movements generally offset a large portion of the foreign exchange gains and losses reported separately in our P&L, thereby minimizing the impact of currency movements on book value. As such, excluding the P&L FX line item from operating income more fairly represent the performance of our business. Accordingly, we've restated the results of our prior periods on a consistent basis. Now to the results of the quarter. As John noted, most of our lines of business are performing as well as could be expected given current market conditions. But the unusually high level of natural catastrophe activity continued to negatively impact our results this quarter. Indeed, on an x-cat basis, excluding the impact of cats in both quarters, earnings per share would've been higher than last year's second quarter. Our operating income of $83 million, or $0.65 per diluted share, includes net catastrophe losses after reinstatement from taxes of $180 million or $0.91 per share. In contrast, second quarter 2010 operating income of $153 million, or $1.13 per share, included $25 million, or $0.18 per share, of net impact from named catastrophes. The April and…

Thank you, Albert. And to conclude, we believe that we have the capital, ratings, global footprint and diversity to succeed in whatever market develops as we enter 2012. As we review our underwriting portfolio, we are focused on remaining well capitalized, while diversified and globally nimble. All with the exception that, with our global market reach and deep underwriting expertise, we will significantly accelerate growth following any material hardening that may occur within the insurance or reinsurance markets. We are confident that we have appropriately positioned our underwriting portfolio to drive optimal shareholder returns on a risk-adjusted basis going forward. Operator, I would now like to open the lines for questions.

[Operator Instructions] And our first question will come from Vinae Mesquita [ph] of Evercore Partners.

Just wanted to get some more -- kind of beyond the capacity for you to write more business given RMS 11. Did you pull back from the June, July renewals in the U.S. because of RMS 11? And do you think you'll have some opportunities to write more business on Jan 1?

Yes, nice and simply. We still felt, as we said in our script, that the risk-reward characteristics were not sufficient for us to fully deploy our capacity. We believe that as the market continues to debate and encompass RMS 11, that prices will move much more strongly at the year end, and we want to be able to take full advantage of it, and we will do.

Okay, fair enough. Second question is on New Zealand. Do you have any more exposure to New Zealand?

Yes, of course, we have a number of programs in New Zealand. They were not all exhausted. I will say that -- let me give you a general answer because I'm sure they'd be different people have questions on that. The way to look at New Zealand is really threefold. We've got some per risk exposures, we've got some international cat programs and we've got some local cat programs. The incidental per risk exposures of course are going to move in line with just how severe this event is. And as you know, we still don't have all the transparency that we would like to have, a lot of zones are closed and so on and so forth. So we've taken a probabilistic approach to those things. But as we go in, we'll find out what whether were right, wrong or where we are. With regards to the -- what I would call the international cat programs, in most of these cases, our clients don't have huge exposures locally, those are really to cover incidental exposures that they have. None of these programs have substantial limits exposed to that area, there've been some small losses here or there. And again, just to give you a sense of scale, the totality of our international programs, we have approximately $25 million worth of estimates for claims to that. So even if that were to double, we're talking about an insignificant area. I think the relevant issue is the local programs. And there, we have exhausted substantially all of our limits. We literally have only 3 contracts now with any limit to speak of, the aggregate $85 million. But the bulk of that $85 million is really $67 million in a single program. And for us, to blow that $67 million, our client would have to take their ground-up losses from $2 billion to $5.5 billion. So there's a lot of room for growth there. Again, I want to caution you all, this is a fluid situation. We got a lot of information. We've got some exposures here. We got limited exposures there. What you have today is our best estimate given the data that we know today.

And our next question will come from Beth Malone of Wunderlich Securities.

A couple of questions. On the pricing, you mentioned that it's still not adequate in some markets and as a consequence, you're not participating as much as you would like, I guess. My question -- with all the dynamics that have developed in the marketplace, what is the main reason that we're not seeing the kind of pricing, I mean, as you described, these cats, they're significant enough to represent some of the worst cats we've ever had, yet pricing still hasn't reacted the way you would have normally thought.

Beth, you're absolutely right. And I'm very disappointed about the reaction of the global reinsurance community to pricing and conditions, as well as the structure of a lot of the contracts in these nonpeak cat-zone international zones. And, as I said earlier, we -- after the losses that we experienced in the first half of 2010. We started turning up the trains on that entire portfolio. And as we went into this year end, we fundamentally changed our view and the requirements that we had with the knowledge that we have gained from the cat losses of 2010. And that is why we actually missed a very substantial program, a $4 billion reinsurance program that was fully written in the marketplace, Australian program going into 2011. I really believe that the underwriters have fooled themselves into thinking that rate increases alone of between 30% and 50% or 30% and 60%, call it what you like, solves the problem. From my personal experience, it does not address issue at all. There's some structural issues within the programs, especially in Australia and New Zealand relating to retentions of the individual cedents, relating to free reinstatements, which have not been properly priced into the original contracts and there's a whole slew of things that I think the market should have given better thought to instead of just raising prices. But I believe that, that will be the second wave that happens because -- and that's why we aggressively took down our activity in that region because I believe that quite frankly, there was still quite some way to go to put the risk-reward factors back into a more appropriate position, but I'm very surprised by the rest of the -- a large part of the reinsurance market. So I hope that the management of some of those reinsurance companies will begin to dig deeper into some of those regions and ask more searching questions of their underwriters.

Okay. Two more quick questions. One, on -- what's your position on share repurchases given that you're withdrawing some of this -- do you have excess capital? And would you use that to buy back stock at this point?

Well, as we've mentioned to you, Beth, and we're looking forward and we've stressed test where we are. We think at this point in time, it's appropriate not to repurchase any shares until we see where the third quarter goes, and frankly what we expect in terms of conditions for January 1. I think that, at this point in time, we don't know what the loss expense [ph] will be. We've got some expectations and some hope that the market will accelerate in its pace of improvement. And if that's the case, we would expect that with our international book and diversification, we ought to find some pockets where we can use that -- utilize that capital. And certainly, that continues to be our most likely scenario. So at this point in time, we would rather hold our capital to take advantage of opportunities, but we won't do anything until we have a better view of the third quarter events and what the run up to January 1 looks like.

Okay. And then the last question on the reserve development, the favorable reserve development. In general in the marketplace, we've seen a lot of companies reduce or not have as much reserve development as time has gone on because of the pricing environment that the industry's experienced over the last several years. Are you anticipating or can you anticipate that you should -- why you still have favorable reserve development going forward? Is there any way to like quantify that? Or give us an idea, is that something we should anticipate?

Well, by fiat, our position at all times is that our current reserves are at the appropriate level, and we cannot project at any point in time that there will be future reserve releases. What I can tell you is that the bulk of our reserve release relate to 2007 and prior. And as we pointed out in our remarks, over half of that relates to short-tail lines where we know whether or not the losses have come in. We continue to monitor progress. In our professional lines, as you know, even if we see generally positive indications, we wait until we're approximately 70% developed in the line of business before we even consider whether or not we want to take any actions. And with regard to the long-tail lines, as we've discussed, at this point in time, we still have not made any meaningful changes to those estimates because, again, we are concerned that given the lengthy nature of that tail that we wouldn't want to react too quickly with regard to that. So the only comment that I would make to you is that we remain extremely comfortable with the quality of our reserves, that when we do make reserve releases, we believe we have a fair amount of substantial facts and time in our favor, so that we feel comfortable that it is appropriate to release the reserves as we do so.

And our next question will come from Matthew Heimermann of JP Morgan. Matthew Heimermann - JP Morgan Chase & Co: A couple of questions. I guess, with respect to the PMLs that you put out, I was a little surprised that Mid-Atlantic was actually bigger than the Southeast PML. So I was hoping you could give a little color there, I don't know if that's related to commercial exposure in the Northeast driving that, but just some insights there.

Yes, the real issue is Mid-Atlantic in some cases includes New York and others doesn't, for us it includes New York, which is a huge amount. If we were to move New York from the Mid-Atlantic to the Northeast, the Northeast would end up having that. And as you know, the issue with New York is there are substantial amounts of both personal and commercial properties, and that's the major factor. The issue with the Northeast in New York is it's not so much a low-frequency -- it's not so much a high-frequency event at low return periods, it's really for that, god for bid, Category 4, 5 crosses Long Island and so on and so forth. It's an improbable event, but if it does happen, it could be meaningful and that's captured in the PMLs. Matthew Heimermann - JP Morgan Chase & Co: With the North PML [indiscernible] in the Mid-Atlantic, is that in dollar, in kind of level of dollars as well?

Would you be so kind, Matt, as to repeat that. You were breaking up. I did not hear your question. Matthew Heimermann - JP Morgan Chase & Co: I'm sorry. Is that -- would it be fair to assume that if you shifted New York to Northeast, would be around that $1 billion number?

I don't have the numbers in front of me. It would be a big number. But I'm loathe to guess. I don't have the numbers in front of me. But I feel comfortable that, if that were to happen, the Mid-Atlantic would be an immaterial zone, and the Northeast would take on that kind of importance. Matthew Heimermann - JP Morgan Chase & Co: Okay. That's fair. I appreciate that. The other -- I guess, related that to then -- is when we think about how the potential PMLs are likely to change based on RMS 11. Just curious how the commercial exposure is going to drive that across these zones? And so, in other words, which of these zones should we expect to be on the higher or lower end? And is commercial going to be the dividing factor there?

Look, at this point in time, I believe we've already reached a little bit and given you a range. I would like the benefit of finalizing our reports we're giving you -- we want to make sure that as we go forward here, we've got solid data that is reasonably comparable to that of others. And I would just beg of you one more quarter until we finalize those numbers, and then we'll give it to you exactly where it is and where it comes from. But for the moment, I'd like to stand by that 10% to 20% depending on the zone. Matthew Heimermann - JP Morgan Chase & Co: Okay. And based on the way you presented this data, would you be willing to give us a sense what the ratio of the annual aggregate is to the largest single event in PML? Because my sense is if the way you're describing your zones as being more conservative is that should be a relatively low ratio?

Well, I will tell you our 1-in-250 is less than double our largest exposure. Our aggregate 1-in-250 is less than double our largest single zone.

And our next question will come from Brian Meredith of UBS.

Two questions for you. First, I'm curious, looking at the cat exposed primary property business in the U.S. versus the property cat reinsurance business, would you see you've got a preference for either or right now based upon the rate activity? What are your expectations on those business lines as we look forward?

I think the primary cat exposed property business has moved much more quickly -- reacted much more quickly, I think, to RMS 11 than the reinsurance marketplace. And so -- but the reinsurance market, we really haven't really seen where it's going to end up with, but I can tell you that the insurance market is reacting more quickly and naturally, we're seeing much better margin improvement there. We've said that we've been disappointed on the Reinsurance side so far, and that's why we've held back our capacity. But I hope that the Reinsurance side will have the same momentum as the primary side by the year end.

Great. And then a second question, John, I wonder if you could comment on what do you think the potential impact of the RMS 11 changes are going to be for European wind on the marketplace? And then maybe, Albert, a little bit on your thoughts on maybe what the impact on your business will be and your capital?

Right. Again, I think that we have to recognize that we don't have all of the details. We've got some headlines this year. I think, the thing that is likely to affect the European model is the clustering and the higher frequency at the lower layers. And so what happens here is that we expect that it'll affect a lot of the primaries. It may affect some of the lower layers. At the higher layers, its doesn't seem to be as impactful. What I am giving you again is kind of the headlines, as we understand them. And of course, once again the model and we vet it and so on, we'll give you some more insights. But at this point in time, we think it's going to effect the lower layers mostly.

And have your clients over there had any fully [ph] impacted them yet or is this still too early to tell?

The only comment I would make you is everybody in the U.S. has RMS 11, and they still haven't fully accepted it. I think you'll find that there tends to be a desire to make sure that [indiscernible] want to be the first so on and so forth. One of the things that gives me some comfort, if you would, is that over time, Solvency II is going to require substantially more transparency with regards to risk management modeling and so on and so forth. And I'm hopeful that, that will compel organizations to more quickly reflect new science in their risk management.

And to be more transparent about it, Bryan.

And our next question will come from Greg Locraft of Morgan Stanley.

I wanted to just -- and most of my questions have been answered. I actually just wanted to get your take on the expense line. Do you manage the business differently on the expense line given the year we've had so far? And how should we think about leverage coming through the expense ratio going forward?

I'll start with that. One of the things that impressed me when I joined this company is actually the fact that it takes a long-term view as to where the opportunities are and is willing to invest in new businesses. And when you look at our expense ratio and expense dollars, just to give you a sense of it, this company currently has approximately 1,000-plus employees. 7% of those employees are in A&H, which is only today starting to deliver a premium. And we've been spending money developing the A&H operation, recruiting individuals, opening up new offices, applying for new licenses and so on and so forth. And are clearly, are expenses that are not covered by the premium volume. We have exactly the same situation in Canada and Australia as it relates to AXIS Pro, which are smaller -- smaller and international professional lines. So a good chunk of our G&A really relates to the investment that this company is making in the future, both in terms of platform, in terms of volume. The other issue that you are starting to see, is that this company is also in the midst of a significant IT systems upgrade modernization. We are looking to put modern -- the most modern tools at our disposal to both analyze, access and report on our risks. And that of course, is going to be a multimillion, multiyear project. And you're starting to see that in the G&A. Again, these are investments that over time should deliver both higher volume, but more importantly, better quality volume of business.

Okay. So no leverage then into next year on the expense line? I mean, you got top line growth coming through, so there's dollars coming in, but we should not be taking our expense ratios down given the top line?

Well, I think that this year's actually a good example. We've had a significant year-over-year increase in G&A, and yet, our operating expense ratio is about flat. And so I think that's where we are right now. I would expect lesser growth in staff next year. But as of now, again, we don't know. We haven't finished our planning process, so I can't tell you how it relates to the top line. I will make one more statement though, and that is with regards to the overall expenses recall that when we reduced our reinsurance purchases and we reduced our cedes for property and professional lines, our acquisition expense ratio went up because we got less ceding commission. That, of course, is going to be offset not so much of the expense line, but hopefully, by retaining better quality premiums. John?

Greg, And I think that to elaborate from what Albert said that the way I would see the next couple of years is the fact that as we begin to see those substantial investments, financial investments we've made in new businesses bear fruition, I would expect to see a flattening of our expense ratio. And we want to get it back to being industry competitive, and that's what both the investment in new businesses and new products is all about, as well as the substantial investment that Albert talked about in terms of new systems. And I want us to return to a very competitive expense line. That's what the investment is all about.

Okay, great. Thanks. And then actually just shifting gears, we almost got a full call without, anything on political risk. John, just any update there in terms of that line?

It's chugging along nice and steadily, and nice and slowly. The amount of competition for emerging market business is fierce. So what we're actually seeing is a slowdown in the amount of activity in the marketplace. Investment banks are really, I think, struggling to compete on a global basis and win market shares. But we're just chugging along, we're being very cautious as we always have been. There are no surprises. The guys are working very hard. It's still emerging market focused. And it's -- we won't be achieving our business plan target in that area I can assure you in terms of premium volume.

And our next question will come from Cliff Gallant of KBW. Cliff Gallant - Keefe, Bruyette, & Woods, Inc.: Just curious [indiscernible], deciding how to deploy capacity? So for example, this quarter, when you did grow in areas like A&H or marine, did you just say that, that business is just on itself more profitable than the opportunities you might have passed up in the catastrophe and property areas? Or is there a capacity component to it, where you say, look A&H because it has less impact on our PMLs, even if the expected return to business might be lower, it actually might be more attractive to you in the context of your full portfolio? I'm sorry, it took a bit of a confused way of asking the question. I'm not sure if you got it.

It's a broad question. But let me just point out what I've always pointed out in the 10 years that AXIS has been operating. Because of the controls that we have within the company, we're a single coordinated business, albeit, but we're structured across insurance and reinsurance. And that allows us as the senior management of the company to essentially portfolio manage the businesses on a daily basis, and deploy activity where in consultation with our underwriters, we see best fit. And that's what we do day-in and day-out. And that is why I have constantly said to you, that there is no other company in our industry where the senior management of the company is as deeply embedded in the day to day underwriting activity of the company as we are. So that does allow us to search for margin. And there are strategic positionings that we have undertaken like A&H where we saw, 3 or 4 years ago, that there was a unique opportunity in a very mature market place occupied by a limited number of major mature companies for us to come in with new capital, new systems, better efficiency, great people, great market spread, to take a strategic position -- long-term position in that industry. There other areas of our activity where were being extremely opportunistic. And then there are other areas where we're actually watching the market move and trying to find our best spot within those market movements. So it's a combination of a number of different activities, I'm afraid. There's not one clear tactic because we don't, because the world's a big place, and it's got lots of products, and they're all changing and moving at different speeds.

And our next question will come from Jay Cohen of Bank of America Merrill Lynch.

Just a couple of quick questions, most of them had been answered. In the investment income, it looks like the income that came from equities jumped up above [indiscernible] -- not a huge number, but I'm wondering if there's anything unusual in that line item?

No, just normal equity dividend. These are publicly traded securities. We basically have 2 types of exposures in the equities, some are ETFs and the others are managed funds, but there's nothing unusual there.

Great. And then, I'd just get an update on underlying claims trends, excluding the weather, obviously, if you're seeing any change or what you have been seeing for the past several years?

I'll ask Hurricane Albert to deal with that one.

Actually, we're looking at -- some of the things that we monitor, our paid to incurred, our paid loss ratios and so on and so forth. But there really isn't -- there's not anything of any substance other than, if you would the frequency of large events going through. As you know, we haven't paid anything yet for anything through 2011, and we haven't even paid much yet on 2010. As you've heard from us earlier, as you've heard from John earlier, either one of the reasons that we're seeing pricing declines on the professional lines is that here again, we don't see a lot of activity. We've all been, I think, communally concerned in the industry with regard to the credit crisis years. And there's been a lot of noise back and forth. But as you know as well as I do, a lot of these cases get thrown out, judge keep giving the plaintiffs roadmaps on how to do it right, but nothing ultimately gets done. So were watching, we continue to have -- where we believe our prudent reserves for that need to stay in place for the credit crisis and so on, but we really haven't seen anything of any substance.

And we have a follow-up question from Beth Malone of Wunderlich Securities.

On the renewable energy market that you all have recently entered, was that decision driven by the potential growth in that market, or was it just the attractiveness of the lack of competition? What were the factors, and do you anticipate that that's going to have an accelerated development because of demand?

I think you're right to pick out renewable energy. We started about 2.5 years thinking about this particular product. But we had to wait for the right people to become available because we will not enter -- even product lines, which appear to be attractive unless we can get the right people. And it was a marketplace where there are very limited -- there's a very limited amount of skilled resource available. And then secondly, there are limited number of carriers that are trading in the marketplace, and it's a marketplace that's very tight. The clients actually want what I would consider to be good expertise, with good capital, with good consistency of approach. And so that we over the last 18 months, have been able to make a pretty substantial inroad into this rapidly growing product line. But we see it as a very complementary fit to our global energy portfolios, both onshore and both offshore. So it's a great product in itself, but it's extremely complementary to the very strong product lines that we -- and expertise we already have around it.

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. John Charman, CEO, for any closing remarks.

Ladies and gentlemen, farewell, thank you very much for taking the time to participate on this morning's call. And we very much look forward to getting together again at the end of the third quarter. Thank you.

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