Chubb Limited (CB) Q1 2012 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Chubb Corporation's First Quarter 2012 Earnings Conference Call. Today's call is being recorded. Before we begin, Chubb has asked me to make the following statements. In order to help you understand Chubb, its industry and its results, members of Chubb's management team will include in today's presentation forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. It is possible that actual results might differ from estimates and forecasts that Chubb's management team might make today. Additional information regarding factors that can cause such differences appears in Chubb's filings with the Securities and Exchange Commission. In the prepared remarks and responses to questions during today's presentation of Chubb's first quarter 2012 financial results, Chubb's management may refer to financial measures that are not derived from Generally Accepted Accounting Principles or GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP and related information is provided in the press release and the financial supplement for the first quarter 2012, which are available on the Investors section of Chubb's website at www.chubb.com. Please also note that no portion of this conference call may be reproduced or rebroadcast in any form without the prior written consent of Chubb. Replays of this webcast will be available through May 18, 2012. Those listening after April 19, 2012 should please note that the information and forecast provided in this recording will not necessarily be updated and it is possible that the information will no longer be current. Now, I will turn the call over to Mr. Finnegan.

Thank you, for joining us. We had a very good first quarter, highlighted by a strong underlying performance and relatively benign catastrophe losses. We're also very pleased that the positive rate momentum we have seen in recent quarters has continued. Operating income per share was $1.70 compared to $1.35 in last year's first quarter. This resulted in an annualized operating ROE of 13.8% for the first quarter this year. The combined ratio for the quarter was 90.2 compared to 93.7 last year. Excluding cash, the combined ratio for the first quarter was 89.4 in 2012 and 84.2 last year, with the difference almost entirely attributable to lower favorable development this quarter. During the first quarter, we had net realized investment gains of $56 million before tax or $0.13 per share after tax. This brought our first quarter net income per share to $1.83, resulting in an annualized ROE of 13.1%. Chubb's book value per share at March 31, 2012 was $57.37. As the 2% increase share in 2011 and a 10% increase this March 31, a year ago. Our capital position is excellent. During the first quarter, we increased our common stock dividend for the 30th consecutive year, and we also continued our share repurchase program as Ricky will discuss later. Net written premiums were up 3% driven by Chubb Commercial and Chubb Personal Insurance. Excluding the impact of currency translation, net written premiums were up 4%. In terms of the market environment, average renewal rates increased in our U.S. standard commercial lines by high single digits, and our specialty book by mid-single digits. A continuation of this rate environment should bode well for our future profitability. Paul and Dino will talk more about rates and reviews of their segments. And now we'll start with Paul, who will discuss the performance of Chubb's Commercial and Specialty Insurance operations.

Thanks, John. The Chubb Commercial Insurance, net written premiums for the first quarter were up 6% to $1.4 billion. The combined ratio was 93.3 versus 100.7 in the first quarter of 2011. Excluding the impact of catastrophes, CCI's first quarter combined ratio was 92.4% compared to 84.5% in the first quarter of 2011. This increase is favorable reserve development in the first quarter of this year. We are pleased with CCI's average U.S. renewal rate increase in the first quarter of 8%, continuing the rate momentum that we have been discussing on our recent earnings calls. This 8% compares with the 6% we obtained in the fourth quarter last year and 0 in the first quarter of 2011. As with the case in the fourth quarter of last year, CCI secured U.S. renewal rate increases in each line of business in the first quarter of 2012. Monoline property rates increased the most, climbing by double digits, followed by workers' compensation, general liability, package, excess umbrella, automobile, boiler and Marine. Further evidence of continued positive rate momentum can be found in the growing proportion of our accounts that are renewing with rate increases. In the first quarter, about 80% of our U.S. accounts that renewed received a rate increase, compared to 70% in the fourth quarter of last year. Turning now to markets outside of the United States, we are especially encouraged that CCI's renewal rates were up in the low single digits in Europe. Although modest, these were the best rate increases we've had in Europe since 2004. In addition, CCI continued to obtain rate increases in Canada and Australia, along with some of our smaller markets in Asia. With respect to CCI's exposure change metrics during the first quarter, we experienced healthy midterm endorsement activity, as well as strong…

Thanks, Paul. Chubb Personal Insurance net written premiums increased 5% in the first quarter to $940 million. CPI produced a combined ratio of 85.5 compared to 93.8 in the corresponding quarter last year. The impact of catastrophes on CPI's first quarter was only 1.2 points in 2012 where as last year, severe winter weather in the U.S., combined with flooding in Australia produced the first quarter catastrophe total of 7.8 points. On an x cat basis, CPI's combined ratio was 84.3 in the first quarter, compared to 86 in the first quarter of 2011. A relatively benign winter in the U.S. resulted in fewer non-cat weather-related losses than we had in the first quarter a year ago. Homeowners premiums grew 4% for the quarter, and the combined ratio was 80.1 compared to 94.8 in the corresponding quarter last year. Cat losses accounted for 1.9 points of the homeowners combined ratio in the first quarter of 2012, compared to 12.3 points in the first quarter of 2011. Excluding cats, the 2012 first quarter homeowners combined ratio improved to 78.2 from 82.5 in the same period a year ago. Personal auto premiums increased 1% and the combined ratio was 91.3 compared to 92.8 in the first quarter of 2011. The modest growth of personal auto for the quarter reflects the couple of points of negative impact from currency translation. In other personal, which includes our accident, yacht and personal excess liability line, premiums were up 11% and the combined ratio was 97.3 compared to 92.2 in the first quarter a year ago. About half the increase in the combined ratio was attributable to the accident business and the balance was due to a couple of large losses in personal excess liability. In the U.S., the first quarter of 2012 was the sixth…

Thanks, Dino. As usual, I will discuss our financial results for the quarter and I will also provide an update on the April 1 renewal of our major property reinsurance program. Looking first at our operating results, we had solid underwriting income of $303 million in the quarter. Property and casualty investment income after tax was down slightly to $308 million due primarily to lower reinvestment rates. Net income was higher than operating income in the quarter due to net realized investment gains before tax of $56 million or $0.13 per share after tax. For comparison, in the first quarter of 2011, we have net realized investment gains before tax of $160 million or $0.35 per share after tax driven largely by gains from our alternative investments. Unrealized appreciation before tax at March 31, 2012 was $2.8 billion compared to $2.7 billion at year-end 2011. The total carrying value of our consolidated investment portfolio was 42% as of March 31, 2012, and the composition of our portfolio remains largely unchanged from the prior quarter. The average duration of our fixed maturity portfolio is 3.6 years and the average credit rating is Aa2. We continue to have excellent liquidity at the holding company, at March 31, 2012, our holding company portfolio at $2.1 billion of investments, including approximately $800 million of short-term investments. Book value per share under GAAP at March 31, 2012 was $57.37 compared to $56.15 at year-end 2011. Adjusted book value per share, which we calculate was available for sale fixed maturities at amortized cost, was $51.58 compared to $50.37 at 2011 year end. As we have previously disclosed, during the first quarter of 2012, we adopted new guidance related to the accounting for cost associated with acquiring or renewing insurance contracts. We elected retrospective application of the…

Thanks, Ricky. Chubb performed extremely well in the first quarter. From a financial perspective, we operate income per share of $1.70 with an annualized operating ROE of 13.8%. Book value per share increased to $57.37 per share, up 2% from year-end 2011 and 10% from a year ago. We're especially pleased that our x cat accident year combined ratio improved to 92.1 from 95.8 in the fourth quarter of 2011, largely reflecting more benign loss activity this past quarter. With respect to rates, we saw improvements on all fronts. In the U.S., average renewal rate increases in standard commercial reached 8% in the first quarter of 2012. As a rate improvement, which began in the second quarter of 2011, continued to accelerate. In professional liability, rates have been lagging but average renewal rate increases rose sharply to 4% in the first quarter, up from 1% in the fourth quarter last year. In summary, we had a very good first quarter from a profitability perspective and continue to be encouraged by rate developments in the marketplace. And with that, I'll open the line to questions.

[Operator Instructions] And we'll take our first question from Mike Zaremski with Credit Suisse. Michael Zaremski - Crédit Suisse AG, Research Division: That was a broad question on, I believe $100 million of total reserve redundancy is the lowest we've seen in many years. Could you elaborate on changes you're seeing in regards to reserve trends?

I don't know that we have any trends. Let me say that we've been posting a remarkable amount of favorable development for the past number of years. And I think I have in many occasions, as we looked at the upcoming years, profitability outlook suggested that these are unsustainably high levels. Now, that tended to be premature and we still ran some pretty good levels. We had a quarter a few years back where we felt almost these kind of levels, but then it reverted back up again. So really not too much for the client till this past quarter. Looking forward, I think this reinforces the view that 7 points is a favorable development. It's not sustainable indefinitely. But at the same time, I don't believe that you should simply extrapolate our first quarter development level to the rest of the year in looking at development for the balance of 2012. Obviously, we'll assess our position as a result of the loss of experience we see over the remainder of the year, and there's no way to project that at this time. Michael Zaremski - Crédit Suisse AG, Research Division: The last quarter in specialty commercial, you had talked about some issues in professional liability in a couple lines there. Are any of those issues persisting in terms of higher loss cost trends?

I think loss cost trends for professional liability are higher than they would've been a couple of years ago and the first half of last year. I think first quarter, the loss trends we saw were maybe some of the lines like crime and fidelity probably a little bit better than the fourth quarter of last year. Michael Zaremski - Crédit Suisse AG, Research Division: Okay. Then lastly, so last quarter you had combined ratio guidance in 93 to 95 for the year, would any of the results over the last quarter change that guidance?

We don't have guidance till the end of the second quarter. We think the first quarter was a pretty good quarter overall, but we'll take a look at it at the end of the second quarter.

And we'll go next to Keith Walsh with Citi.

First question, just looking at your retention seems to be holding in very well considering the rate you're getting. Can you just talk about the trend you saw in the quarter by month of how rate came into the book. And I've got a follow up.

I think that the rate by 6 standard commercial incrementally improved over the quarter. But I mean -- but I don't know if you could read a lot of the improvement from 6 to 7 to 8. I mean, that they're rounding there in some cases. But the end of March, and March was a better month than January. And I think, in professional liability, certainly that was true too.

Okay. And then, Ricky, just thinking about the written surplus, you're writing well below 1:1. What's the optimal level that you think about with your franchise and you're assuming your current business mix?

We don't really have a target, Keith, that we're shooting for. We're comfortable where we are now. We think we have a very strong capital base. We think we have strong excess capital position. So we think we're ready to -- we can take advantage of a growing market. We have capital to return to shareholders, through our capital management program. But we don't really think about it as a targeted premium surplus ratio.

Well, maybe asking in a different way, how could you -- how high could you go with that ratio? Would you feel comfortable with the current mix of business?

Same way we don't -- I'm not going to tell you we have a target. I'm not going to give you a number how comfortable we can go.

And we'll go next to Amit Kumar with Macquarie.

Just going back, I guess, to the broader discussion on the margin expansion. We had touched upon that last quarter, and at that time you had suggested that net net, when you look at 2012 accident year, the margin improvement would be neutral based on the rate being offset by loss cost. I'm wondering just based on the momentum you have gotten this quarter, has your thought process on margins changed?

Well, I wouldn't say materially changed. Let's clarify a few things. In CCI, we're writing -- our renewal rate increases are 8%. Let me make it clear that we think that is significantly in excess of our loss cost trends. So we're definitely right here on a pro forma margin expansion basis. What you're referring to and properly so is that, I've pointed out that earned premium comes in at a lagged basis. So, for example, in the first quarter, CCI had great renewal rate increases of 8%. They had earned premium increases of 4% to give you an example. Now, if we had rate increases of 8% for the rest of the year, for example, you tend to get to the effect that you'd almost be at 8% in earned premium in the U.S., but in a worldwide, you'd probably be closer to 5% or 6%. But 8% by the fourth quarter, 6% for the year. So now you're starting to earn some premium. I would think that, that would be after margin expansion plus central [ph] in it. That, of course, though, is a function of loss trends. Now we use -- for this, we use longer-term historical loss trends that might be around 4%. For 5 years, up through the middle of 2011, we experienced much lower loss trends. In the second half of 2011, we have higher loss trends. In the first quarter, we reverted back to more benign loss trends. So in any given quarter, any given couple of quarters, take the side to the theoretical margin expansion, the accident year, moving accident year combined ratio does not only a function of longer-term trends but actual loss experience. So let me give you example on the good side in the first quarter. CPI, the CPI's extremely good results were not the result of longer-term trend lines. They were helped greatly by -- although it was awful good -- they were helped greatly by the fact that we had benign losses largely related to non-cat weather-related losses being significantly down. Certainly in commercial class is you're going to see similar things, where property losses are up or down in a given quarter, above or below the regression line. So a long-winded way of saying at CCI, what we're writing now is definitely that at these rates is margin expansion in the future, assuming historical loss trends, but probably until the third or fourth quarter you're not going to see the earned rate yet over those long-term loss trends. And in CPI, I think you got a similar consideration. Although again by 2013 in both of these businesses, we should, we should have margin expansion. Professional liability, a bit more complicated and more a function of -- systemic losses presence perhaps [indiscernible] in any given year.

Net net modest margin improvement versus prior thought process of neutral?

I would say that I think marginally, maybe -- marginally better maybe in CCI. But again, I think that's subsumed by what happens in any individual quarter based on what losses are in any given quarter, which aren't necessary related to the loss trend.

Got it. It's very helpful. And one quick follow up on the prior question on the CCI reserve release of $20 million. Maybe I missed this, there weren't any negative offsets, right, in terms of the reserve development, i.e., there wasn't any modest adverse development in any line offsetting the positive releases. Did I get that clear or--

Which class of business are we talking about?

CCI, the CCI, the $20 million reserve releases you had. That's a clean reserve release number. There's no offset. There are no pluses or minuses in that number.

Well, actually, there are some pluses and there are some minuses. So maybe I can walk you through and tell you some of the components. And I'd also like to point out that when you think about CCI, they experienced an unusually high amount of favorable development in the first quarter of last year, almost 8 points, really throughout 2011. But with that background, first, the short-term property classes, which are for us are property Marine classes and our CMP property combined, based long for making a slightly favorable prior period development contribution in the first quarter of 2011 to making an adverse contribution in 2012. And this was driven mainly by first quarter case reserve activity on the small number of large complex claims that occurred last year but were still being evaluated at year end. CCI also saw a reduced amount of favorable development in the long tail classes particularly in the casualty line, which continued to develop favorably this quarter but not to the same degree as in the first quarter of 2011. And here, too, we experienced more large case reserve activity in the first quarter of 2012, driven by the primary general liability portion of the book. I hope that gives you at least some color on what happened in the quarter.

Then we'll go next to Greg Locraft with MSSB.

Just again, I guess, most companies would kill for 90 combined in the 13 ROE. So the bottom-line results are great. The pricing is great. But the reserve release, as others have mentioned, is the lowest we've seen in a while. And that mixed with the action, your PIK being higher in the professional liability. What I'm trying to tie it to is I can't figure out what loss trend changed given you're also positioned in that line of business? Is if frequency, is it severity, which years have changed, what types of cases have changed? Just any help you can give on what in that line is causing the conservatism to come out last quarter and this quarter for professional liability would be helpful?

Greg, you can't compare it like -- it's the last year. I mean over the course of the year, last year we saw professional liability deteriorate in their results. But listen, in terms of, we could talk about accident year, I mean 25 years. Ricky, then you could talk about lines of business, I think. I mean professional liability have favorable developments this year as it's had in the past from accident year 2008 and prior. But of course, the amount of available favorable development from those years is getting less and less as the years goes on. Accident years 2009 and '11 were close to flat. Accident year 2010 was modestly adverse, and this is driven by the crime fidelity classes and employment practice liability losses that we talked about in our year-end conference call. Although these 2 lines also have some favorable development in all the years. And then Ricky wants to talk about business.

In terms of -- as I did with CCI in terms of what may have moved in the quarter, the reduction in CSI's favorable reserve development compared to last year's first quarter was in professional liability and was mainly in the D&O and EPL lines. Our D&O reserves results favorably again this quarter but to a lesser degree than a year-ago first quarter. And EPL actually experienced a swing from favorable development in the first quarter of 2011, to slightly adverse development in the first quarter of this year. However, despite these shifts, we still experienced almost 6 points of favorable development in professional liability in the quarter.

On the initial accident year, this initial accident year is about 72 on a loss ratio, which is up a few points from the first quarter of 2011, but similar to the initial professional liability loss ratio for the full accident year 2011. So at fourth quarter 2011, we had a loss ratio of 79 so versus a much better one. We raised our 2011 expectations in the fourth quarter in a few areas. We've talked about them: Crime and fidelity, employment practices liability, as well as public D&O and part related to merger objection suits. Our overall initial expected loss ratio for 2012 was higher than in the first quarter of last year, but leveled out the fourth quarter of last year, the same as we booked for the full accident year 2011 at year end. We also see the professional liability expense ratio tends to be higher in the first quarter of the year for seasonality, mostly related to level of premiums written. So for example, last year our expense ratio was 30.4 in the first quarter and dropped to 25.8 in the fourth quarter. So we definitely expect to see a decrease in our expense ratio as we go on into the year.

Okay. Excellent. And then just jump into the pricing side of the same line. I think you said plus 4 is what you're getting. Is that enough? And you were at plus 1 fourth quarter, plus 4 now, and it seems like based on some your answer, the more recent years aren't quite where they need to be. And you're picking things higher and I understand the expense ratio that was actually very helpful. But can plus 4 become a plus 7, become a plus 10 as the year progresses?

A plus 4 is not enough, no. I mean, that's our answer. Hopefully, that plus 4 will go higher. I mean it looks that little momentum. For a long time it's lagged. It was 0 until -- we only went positive last quarter for the first time in the fourth quarter of last year. So we like the jump in the first quarter. But no, it definitely has to be higher. Now again, so much -- in this business, so much depends on what's happening in terms of systemic events. So a couple of more recent years you were affected by the credit crisis, for example. You take out the credit crisis and all of a sudden those accident year combined ratios are looking pretty darn good. So there are big things that swing the combined ratio in this field. But in terms of loss trends, you definitely need more than 4%. And for a business that hasn't had any rate increases for a long time, we definitely need a sustained improvement in our rates.

And we'll go next to Jay Gelb with Barclays.

I just wanted to follow up on the professional liability. If I look at the accident year combined rate or the specialty commercial -- If I look at the accident year combined ratio in the second year, in the second quarter of 2011 is riding kind of 91.5 and now we're up to 100. So I'm just trying to get a better sense of what's to prevent that from keeping to rising into unprofitable accident year territory?

There are no guarantees where it goes in the future. What I will say is if you look at the accident year numbers, you're talking about 69 in the second quarter of last year versus 72 in this year's first quarter, so you're looking at about 3 points of loss ratio. An accident loss ratio, obviously, the rest of the shift was less favorable development. Now we still ran almost 6 points of favorable development in professional liability for the quarter.

And also, Jay, just to point out one thing. I think the numbers you quoted were for CSI in total. So bear in mind that, that would also include our Surety business in addition to professional liability.

The professional liability is close to 99 last year, for example.

Okay, yes. I mean it's a blended number. All right. And then in terms of the...

And Surety this year, the blend is affected this year because Surety is combined is up because of the lower premiums and its impact on the expense ratio. So it has a little bit of disproportionate impact this quarter.

Okay, that's a couple of point. All right, fair enough. And then on the excess capital position, I mean, I know it's -- to sort of follow on to a prior question, I know it's very simplistic to look at premium to surplus. But this on Chubb's business mix, it's kind of hard to see why the company couldn't be run at a one-to-one premium to statutory [ph] surplus, which would imply $2 billion to $3 billion of excess capital. And so where are we wrong on that? Why does Chubb seem to be constrained in terms of share buybacks relative to the current year's operating earnings?

Well I think last year we actually did buybacks in excess of our current year's operating earnings, we did. And it's a question of balance. You might see that premium surplus change. If the market improves, you might see that premium to surplus just go up of its own weight without any capital management. So I mean I don't know, it's the balancing. I do think that sometimes in analyst write-ups, I see that excess capital is equated with capital that's totally available for capital management. The truth is once you fall below the excess capital level, you got to raise capital. So no one runs. Even if you $2 billion of excess capital, no one goes out and uses the $2 billion of excess capital. You have to have a cushion. Last year in the fourth quarter, I think our capital position shifted $500 million to $700 million, just looking at our book position due to pensions and due to currency, and it could shift the other way, but it shifted negatively at the end of last year. You saw it in our book value. You could have huge swings. You can have them from catastrophes, but you can also have them from currency. You can have them from investment income, and the impact on pensions. So I just say that excess capital should really not be equated to that's the amount of capital, you should go out and expend. You obviously have to have a cushion, whether it needs to be $1 billion, $2 billion, $3 billion, each company makes its own judgment. And then you got to also have some reserve for the growth of the business. So it's a delicate balancing act.

And we'll go next with Vinay Misquith with Evercore Partners.

Just a question on what your targeted levels of ROEs are. And you've done well to get an 8% rate increase in the standard commercial this year, and yet you're seeing a little bit of lower retention. So the question is, are you satisfied right now with that 8% rate increase? Or are you seeking for the rate increases on double to 8% for next year?

We'd like to see further rate increases for sure. I mean I think in this business -- and I understand your question, but in this business, I think you recognize that as it relates to profitability, 1 point of rate has a lot more importance on profitability than 1 lost point in retention. So our retention is industry highs. If you look at our movement from the first quarter of last year, when sort of the period in which the industry started its push on rates, I think our decline in retention is about in line with our major competitors and probably the industry as a whole. I think relative industry retention is down in a period of rate increases. I think that when you look at your rate retention trade-off, you have to look at what the economics of the business you're currently writing. Obviously if you have businesses that have 5% ROEs, you can't make the trade off in favor of retention, you got to make it in favor of rates. If you have 18% ROEs, you can do something different. And now, of course, with interest rates continuing to be down, to get the kind of returns you see in last year's business, we're not going to be available on new business writings unless we get a lower combined ratio, which is achieved by some higher rate in the market.

Fair enough. My second question is on the competitive behavior for lines other than workers compensation and property. I mean are you seeing more competitors also drive for rate increases in those lines?

This is Paul, Vinay. I would say that in the current market, almost all carriers are seeking needed rate increases. And what that means is that more deals are being taken by agents to the market, to see what other quotes are available and to test the market. I think that going back to John's point, that inevitably results in more lost business for incumbent carriers than was the case when the market was soft and carriers were just reducing rates. The net result is that the overall industry retention is down from the levels experienced in 2011. It really -- as it relates to us, we're aggressively pushing renewal increases. That will have some impact on our retention. However, again, I think that CCI's retention coming in at 83%, it's only down 2 points from the fourth quarter and well within the historical range that they have run since 2005. Our professional liability retention was 85%, the same as in the fourth quarter. In both cases we continue to see some of highest retentions in those business segments in the industry.

If you go back to the early 2000s, you'll see that our retentions were at about this level. Our retentions picked up in the later part of the decade. Perhaps that was a mistake because our rates went down. I don't know if we could have influenced the market much, one way or the other. But the fact is we went to historically high retention levels in commercial and specialty. In specialty, we work at any rate, we got 88%, 89% retention level. That wasn't the way we used to normally run. We normally run closer to 83%, 84%.

And we'll go next to Michael Nannizzi with Goldman Sachs.

Just a couple of questions. One is the -- so the other Personal lines subsegment there, so you're running kind of in that 97 range. I think, Paul maybe might have mentioned up front. The A&H business there, kind of seeing a list of the quantities [ph] . So I guess first question is kind of what happened in the A&H business that caused the declined ratio to rise? And how do you think about where the profitability of this business is and where you think it should be? And kind of what are you doing to get there? And just one follow-up.

I'll start with the personal other. Let's start with the personal other line. As I mentioned, it was up for the quarter. If you look at the combined ratio for the full year, it was 95.7. So the 92.2 that I compared it to for the first quarter last year was clearly a particularly strong result. Nonetheless, about half of the increase as I indicated was due to the Accident business. If you look at the Accident business component, part of that was due to the higher losses but also it was the anticipated increase in the expense ratio. As we mentioned before, we're continuing to make investments to grow the Accident business. And given also that the Accident business is growing faster than the other lines within personal other like the yacht and personal excess, we're going to expect that to -- that expensing back to continue. But as we've indicated before, we view that expense dynamic as acceptable because the Accident business is more predictable than the traditional P&C lines and also -- and it requires less capital.

But I guess the question is, isn't that 97 regardless of the delta from last year, is that an acceptable level? Like is that kind of where you want to be for that line? And is it because it's growing, and you like the leverage you can employ, that you're okay with that? Is that how to think about that?

This is Paul. I think what you have to think about, within personal other, there are 3 distinct businesses. So what we look to run the yacht businesses is radically different than what we'd look to run the personal excess business. As respect to A&H, what I'd like to emphasize here is that we see this as a new opportunity for profitable growth. Over the last couple of years, we built a new A&H team. We tapped into some real experts from outside of Chubb's. And Dino talked about we're making infrastructure investments, and that is pushing up the expenses a little bit right now as we build out. Interestingly, the majority of our A&H business is situated internationally with Asia and Latin America being the principal drivers of that growth. We're seeing increased consumer demand for the products as well as here in the United States via direct marketing distribution, such as, like credit card issuers. But we think that the A&H business is going to become more profitable in the coming years, and we see it as a good diversification play for us and one that we're very excited about.

I would say that if you're asking, do we plan to run other personal at 97? The answer is no. And then for reasons, in accident health, while it does have less capital requirements and less cyclicality, that shouldn't be a 97 or 100 business either. That should be low 90s business. So that's where we're planning to get. But it has a lot of startup expenses at this point in time.

And then just on -- back to professional line for a second, I mean I guess bigger picture. So fourth quarter you printed a 96 combined, you're getting 1% rate. New to lost was 0.7% and retention was 85%. This quarter, you're at 98.5. Retention is still at 85% and new-to-lost business, higher. Just trying to understand, why shouldn't retention or should retention fall if -- more if you're raising rates? Or if the development is for that segment is on professional liability, you kind of running at over 100 here now for some time. How should we think about what you're doing there in profitability on an accident year basis?

Yes, this is Paul here. First of all, at any given quarter, I just want to point out that a retention figure can be a little bit lumpy just depending on do we retain a deal or not retain a deal that we write something new, et cetera. But clearly, as you point out, when we see the retention not move and rates go up by 3, 4 points, that gives us a lot of confidence to move forward, and we're seeing some of those indications in early April. So we're making some progress.

Wouldn't you take it to be that if rates move up, our retention isn't affected too much is that the market must be moving with you. Because if the market is also getting 5 points rate, I mean there should be no reason that retention is declining significantly.

But you're still writing over 100, I guess, is my point. I mean you're writing over 100, why not let that new-to-lost slip or retention fall?

Again, I think that we have to think about professional liability and its multiple segments that we have. So it's not just public D&O where we have some rate need. There's a lot of fiduciary. There's not-for-profit in there. There's errors and omissions. There's employment practices liability. Each one of those has different targets and different levels of profitability right now. And we're pushing those differently obviously.

It's a little long tail line of business with a lot of uncertainty. You could have argued for 7 years, I don't think we ever ran a place at less than 98 in an accident when we went in. And it ends up that those accident years have turned out to be 80s, 70s, 85s and 90s. So I don't know if that orders for the future. But the very opposite of the question was asked before, how come professional liability development is down so much suggests that it was very considerable in prior years, which means that those initial accident years as booked, ended up to be much higher combined ratios than it turned out for those years. So you only really know over the longer term. We did see some increase in losses last year and the impact of that and not getting rate, that obviously put pressure on our profitability. The expense ratio in the first quarter also puts a little bit of pressure on. Hopefully, as we get rate during the year, we improve the profitability in this business. But you can't -- I think you understand, this is a relationship business. You can't -- today you got over 98 to 101, you can't jettison 50%of your customers, and hope to fight another day, right?

And we'll go next to Adam Klauber with William Blair. Adam Klauber - William Blair & Company L.L.C., Research Division: The homeowners market, a number of carriers are getting more aggressive, trying to raise profitability, is that presenting growth opportunities for you?

Our target market, obviously, is a very niche-focused in the high net worth. As you can see, our growth was still good at 4%. Our retention is at all time highs. We're pushing for rate increases. But as I've mentioned before, what you see is there's wide-spread rate taking in the business because many personal lines carriers and homeowner carriers start at an inferior profitability position. So that clearly bodes well for us as we go after our business. Adam Klauber - William Blair & Company L.L.C., Research Division: And then when we look at the combined ratios in auto and home, obviously, there were less cats this quarter. Were they -- was the combined ratio also helped by just less weather in general?

Yes. Non-cat weather was down considerably in the first quarter of 2012 compared to the first quarter of 2011, almost a 7-point spread. Adam Klauber - William Blair & Company L.L.C., Research Division: Okay. And then, I guess, that same question on some of the commercial property lines, CMT, Property Marine. Were those helped a bit by non-cat weather also?

Probably. We don't know the exact type of analysis. And property can be so lumpy in losses. Unlike Homeowners, you don't quite get as lumpy in nonweather-related losses. Property is driven by fires and things like that. But I guess, one would think if the weather was more benign, so it's probably down.

And we'll go next to Matthew Heimermann with JPMorgan. Matthew G. Heimermann - JP Morgan Chase & Co, Research Division: One question I have, and this is just kind of a big picture question is not surprisingly, your retention is down. Large competitor of yours has reported a decline in retention year-on-year. But what I'm trying to figure out is where do you think the business you're letting go is actually ending up. Is it a case that it's ending up with other standard commercial carriers right now? Is it a case that we're actually now seeing kind of the natural flow from mid-markets into excess and surplus lines market? I just -- or maybe it's some combination of the both? Just curious of your thoughts there.

Well I think to start off, and I'm sure you know that. But to repeat what might be obvious, a decline is overall -- industry retention it's really from an individual carrier is more of a relative thing. What you're seeing is more people ask for rate increases. You're probably seeing more churning, more quotes going out of the market. But retention is not a zero-sum game. That doesn't mean that someone else is getting higher retention. I mean retention over all is lower from last year. Now that gives you -- on the other side of the -- it gives you new more business prospects. We see more submissions on new business. But frankly, we, and that other competitor you mentioned, seem to be have not really taken advantage over that for the last quarter or 2 because we are very focused on the underwriting discipline in new business. And new business tends to be less profitable than renewal business. But I don't think there's any odd markets that are picking up the new business. I would suspect that it's your regular commercial carriers that in many cases have to work harder for business than we do, don't have the renewal base we do. And are willing to cut rate to get new business, because it's still very, very competitive. Matthew G. Heimermann - JP Morgan Chase & Co, Research Division: Okay, that's fair. Are there any exceptions to that general rule because I think your point is well taken in the sense that the retentions moving as a surprise, it's more an issue of the new-to-lost isn't going up because of the new isn't picking up yet to offset. But are there any exceptions? And I guess I was kind of wondering around some of the Monoline property comments you made, note of -- or that Paul noted in his prepared comments.

I don't know by the way that new-to-lost is all going down. You've only had a report from 2 carriers probably today, if you have that. So we [indiscernible] when it comes out. But I mean [indiscernible] the rest of them.

I assume that unlike retention new-to-lost does tend up to be a zero-sum game. So someone is picking it up somewhere I mean in terms of the... Matthew G. Heimermann - JP Morgan Chase & Co, Research Division: Point taken. I was speaking -- I was just -- to your point that it's not leaving the excess and surplus line markets. It's going somewhere else, it's -- we very well might not cover those companies or they may not be public.

I don't think we've seen any pickup. Maybe a little bit, maybe, but not a terrible degree.

We don't see any one market at your question.

Property looks [indiscernible]

Yes, we're not seeing a single market be some aggressive player out there just scarfing up anything that we're losing, if that's what your question is. But we wouldn't name anybody on the call anyway. Matthew G. Heimermann - JP Morgan Chase & Co, Research Division: That's right. I just wanted to make -- I was more kind of is it staying in the standard market? Or is it going to E&S market? And if there was any -- so that's fine, I don't want to belabor it. But just following up on the Property Marine and the package business on property, are we -- is that a phenomenon? And is that kind of a one-year underwriting process we should think of where we're going to go through the book over the next 12 years and it just -- and unless more stuff starts hitting, the rest of market starts behaving a little better and more stuff hits your pricing threshold but that growth might be muted there for a period of time?

Let me see if I'm following your question here. I mean clearly the idea of -- we have kind of a two-prong attack on everything that we do in this organization when it comes to underwriting discipline. First thing is as we look at the macro, we look at how we're doing in a product then we look at how we're doing within an industry segment, within that product. Is there a geographical differences that need to be considered, are there size of accounts that need to be taken into consideration. And then we superimpose that, Matthew, with an account tiering process, where we look down and say, "Okay, now that we've thought about in the macro sense, what is happening with that individual customer? How is their loss experience? What are their net rates that we're charging versus the rest of the book? Who is the agent? How long have we underwritten them? Are they complying with loss control recommendations, et cetera." So it really comes down to individual case-by-case underwriting. And maybe just to pick up on some of the themes that I heard a little bit before, that stringent underwriting is also making an improvement, in hopefully in the combined ratio. It's not just taking rate. So that process never stops. But yes, as rates move up, we are very hopeful that there will be more new business in the marketplace that will be at attractive rates for us to write it.

Are you referring to the declines, to new business? [indiscernible] as well? Matthew G. Heimermann - JP Morgan Chase & Co, Research Division: All of that makes -- I was actually asking a more specific question, everything you said makes sense. And I'm not disagreeing with that. I was actually just trying to follow up specific to your comments on, you mentioned Monoline property was a notable decliner in the Property Marine section. To some extent, package impacting the CMP line and I was just curious if that -- those specific areas is something what we're likely to see weigh on the -- mute the growth for a period of time.

Okay. I see what you're saying. I hope not. I said that we were getting double-digit rate increases on Monoline property. Quite frankly, that book, and the industry needs it. Catastrophes are alive and well, and people are hurting in that. I think that when the markets soften, the first thing to go was cat pricing. And when we look at some of the major property writers out there, we're running much better numbers, so I'm hopeful that the market continues to move.

And we'll go next to Meyer Shields with Stifel, Nicolaus. Meyer Shields - Stifel, Nicolaus & Co., Inc., Research Division: Two brief questions. One, in your terminology when there are reductions to prior year's catastrophe losses, is that included in the catastrophe numbers that you're disclosing?

Yes. Meyer Shields - Stifel, Nicolaus & Co., Inc., Research Division: Okay. So that's net of that?

It's net of that. Meyer Shields - Stifel, Nicolaus & Co., Inc., Research Division: Okay. Can you quantify how much you still got as liabilities for last year's catastrophes?

I don't think we have that answer, off hand. No. We can raise it again on our future call -- well, we don't have that.

No we're going to.

And we'll go next to Josh Stirling with Sanford Bernstein. Josh Stirling - Sanford C. Bernstein & Co., LLC., Research Division: Two brief questions. One, talking about the professional liability line. I'm wondering just because we've talked a lot about it, but I couldn't, to be honest, totally follow the math. I wanted to know if you guys can give us just what the current accident year combined PIK [ph] was for the first quarter, for that line. And then presumably your actuaries are calculating at rate indication, like a rate need measure. And I sort of asked the question because yields are low, and obviously we're starting to look at things above 100. And this is -- you're one of the largest writers, and I think this is an interesting. It's just an interesting topic for us all to get our arms around. And so how much rates should we be sort of expecting against the acceleration were starting to see here in sort of D&O and then professional liability?

Are you talking about the accident year, loss ratio -- actually a combined ratio for the first quarter? Josh Stirling - Sanford C. Bernstein & Co., LLC., Research Division: Yes. And if you don't mind, what your rate indications are for it when you actually calculate what the rate need is?

Well, I mean you're talking about the loss ratio at 72. The expense it at 31. And so it's at 103, 104, is the accident year ratio. Again the expense ratio is a little bit, it's seasonally high. I mean compared to -- it's probably 2 or 3 points higher than the average for the year would run. Yes, we wouldn't go and rate it by line. They differ by line. But it's an odd business because it doesn't lend itself to trend analysis as much as some of the other business, let's say, homeowners. So it kind of depends whether the next 3 or 4 years, if you think we have another credit crisis or something like it or not. But having said that, there's a good rate need in this business. I mean we definitely have a good rate need in the business. Josh Stirling - Sanford C. Bernstein & Co., LLC., Research Division: And do you guys think you're ahead of the market on this one? I mean it felt like there was some more commentary on your call than others who are also in this business. I'd be interested in getting a sense of sort of, if that's the case, what sort of things you're doing and where you think others should start to be more aggressive?

I don't think we can say. There haven't been any really -- there's only been one other call, and that call wasn't from a person who's a carrier that's a big player in the market we're in. I don't know that we're ahead of the markets. Back to a question that was asked before, our retention hasn't dropped considerably. That we got -- we've only had one quarterly of really good rate increases. Retention hasn't dropped. So I suspect that the market is coming along. But then it's got to be proved out over the next couple of quarters. Josh Stirling - Sanford C. Bernstein & Co., LLC., Research Division: Right, okay. And just a final question, with all the changes in your cat reinsurance strategy, did you guys decide to buy more total aggregate limit?

I don't know if it adds up to total, more -- as I mentioned, we increased, for example, in the North American cat trade [ph] , we increased our retention in the first layer after our starting retention. But then we increased the coverage we got in the other 3. And I don't know the net of that. That will all be in our 10-Q.

And we'll go next to Jay Cohen with Bank of America Merrill Lynch.

I want to shift away from underwriting and talk about investment income. Especially in your numbers, it looks like your yield was fairly flat, actually up a tiny bit first quarter this year versus first quarter last year. And presumably, the new money yields are below maturing bonds. I'm assuming there's been some sort of shift in your bond portfolio to maintain those yields year-over-year. Is that a fair assessment?

The first part of your statement is a fair assessment. The reinvestment rates are lower, but there has not been a shift in our bond portfolio to maintain those yields. A couple of things that are going on there, Jay. If you look at and you break down all the pieces, our fixed income, investment income, did decline slightly. But that was offset by a couple of other positives. One being, we got more dividends on our nonfixed income securities. And we also had a couple of small but I'm still -- they are nonrecurring items that came out of some -- are outside the U.S. operation. So net-net, that led to just a small decline in the investment income in the P&C operation. Don't forget, that's only part of the portfolio. The holding company portfolio, the investment income piece, would be in the corporate and other line. And that also was down in the quarter by a couple of million dollars. So given where reinvestment rates are, we continue to believe that we expect investment income to be lower in the coming quarters as we talked about in our guidance. We just had a couple of odd things happening in the quarter.

Plus I think, Jay, you got to -- there's a compounding effect here. The immediate effect isn't as great as you might think. We've talked about $15 billion or so asset maturing over 3 years -- I'll call it $1 billion a year. If you assume that $1 billion of that happened in the first quarter, you invested for 100 to 150 basis points less. It's over a quarter on average. It ends up to be in $5 million, it doesn't end up to be in $50 million. But that amount is in compound as you get into the second quarter, third quarter and the fourth quarter, as you go to the future years. But the immediate impact is not that huge.

And we'll go next to Ian Gutterman with Adage Capital.

I'll just be quick. First, do you have the -- you said there were 45 mean [ph] of gross cats. Do you have the breakdown of that, the CPI versus CCI?

I'll get it to you in a moment.

Okay, so should I ask the next one while you look it up?

Yes, go ahead. Sure.

Okay. And then just to follow up on the professional lines. When you gave the list of where pricing was up most to least, and I think it was up most in private and nonprofit and at the least in public. And I guess that surprised me a bit, I would have thought the need would be most in public. And I know that private business has been a little bit under pressure. But I always thought of that being your best business. Is the reason the rate increase have worked that way is because that's where your need is? Or is it just at public D&O, you can't get the rate that you need and that's a disappointment?

It's a great question, and the reason is it goes back to that tiering that we go at. We have been pushing for rate in public D&O and a number of those accounts have been walking. So when we think about rate versus retention trade-offs, we think about that by individual product, and then we think about it by what we call our tiering system. So you could think of it as stars. So if it's a 1-star account, it's in our view, not very good, and we look for a very low retention rate there. We think that has as much of an impact if not more than just getting a large rate increase on a piece of less desirable business.

But of course, Ian, you're directionally correct in a sense that you could have rate needs by line of business, it doesn't mean you achieve rates in line with those needs by line of business. I mean it's like saying small cars are underpriced; and big trucks are overpriced. Not much you can do about it maybe, I mean. So we work at it, but it relates to the level of competition in the business, what our competitors do. We certainly need more rate, and we're getting a public D&O, though.

Absolutely.

Is that the -- so it sounds like that's the line maybe you're having the least success so far, is that a fair comment, relative to need?

Again, I gave them in the order that we're seeing it. And again, we're shifting around the portfolio as well. So from primary to excess and [indiscernible] of different accounts. So we think our underwriting actions, quite frankly, when we will work with our pricing actuary, they gave us as much, if not more credit for underwriting actions on the improving combined ratio than just pure rate increase. [indiscernible] I'm saying, there's just a lot of competition out there. So we can't sit back passively, we got to aggressively attack that.

Understood. And then, Ricky, I don't know, you've given a lot of extra details to some of other lines of business. Is there any extra detail you can give us on combined ratios even just roughly for different parts of professional liability? Is public D&O a lot worse than private? Or EPLI seems a lot worse than maybe some other lines? Is there a way to sort of give us a rank order of which ones has the better or worse combines right now?

We're not going to break that down.

I thought I'd try.

The other thing I just want to point out here is that public D&O, we've mentioned this many times before, it's a small portion of our portfolio. So again that's why the re-profiling of the book is as important as just taking rate there.

And do you have those numbers on the cats, Dino?

Yes, back to the account of $45 million, it's about 60% commercial and 40% personal.

And we'll take our final question from Joshua Shanker with Deutsche Bank.

I just -- last quarter, in your budgeting you sort of predicted that you might have some deterioration for 2012 of around 400 basis points between prior development and core margin. I'm just wondering as you got more information, are the results for this quarter in line with your budgeting? Or what came as a surprise over the last 3 months?

I don't know that we have enough information to change anything we assumed. I think that if you just mathematically prorated the income, made cat adjusted it to a 3.5 point rate, you'd say that the first quarter was favorable to the average earnings. You'd have to -- have on a quarter to run 5.50 a share, or something like that. So if you just do farmer's math, that's generally positive. And I think we were happy with the way that CPI performed in the first quarter and the benefits from non-cat-related weather. But at this point, we really not -- we need another quarter to assess where we are versus guidance.

Or I'm asking -- I'm more asking qualitative than quantitative. Is it the quarter serves as -- feel like what your expectations were? Are you surprised by the quarter's outcome or is this kind of in your budget?

I thought it was a pretty good quarter. Yes, I think it was a pretty good quarter.

That does conclude our question-and-answer session. At this time, I would like to turn the conference back over to Mr. Finnegan for any additional or closing remarks.

Thank you all for joining us tonight. Have a good night.

That does conclude our conference. You may now disconnect.