Good day, and welcome to the ACE Limited Fourth Quarter Year End 2014 Earnings Conference Call. [Operator Instructions] As a reminder, today’s call is being recorded. For opening remarks and introductions, I would like to turn the call over to Helen Wilson, Investor Relations. Please go ahead, ma’am.

Thank you, and welcome to the ACE Limited December 31, 2014 year end earnings conference call. Our report today will contain forward-looking statements, including statements relating to company and investment portfolio performance, pricing, economic and insurance market conditions and acquisitions including one that has not yet closed, all of which are subject to risks and uncertainties. Actual results may differ materially. Please refer to our most recent SEC filings as well as our earnings press release and financial supplements which are available on our website, for more information on factors that could affect these matters. This call is being webcast live and the webcast replay will be available for one month. All remarks made during the call are current at the time of the call and will not be updated to reflect subsequent material developments. Now, I would like to introduce our speakers. First, we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Phil Bancroft, our Chief Financial Officer. Then we will take your questions. Also with us to assist with your questions are several members of our management team. Now, it’s my pleasure to turn the call over to Evan.

Good morning. ACE had excellent operating results for the quarter. All divisions of the company made a positive contribution to both quarterly and annual operating results, which were driven by growth in both underwriting and investment income. For the year, we produced record operating income, world-class combined ratios, strong premium revenue growth and reasonable book value growth considering foreign exchange. And lastly, we produced an excellent ROE. We also made many investments in our company that will contribute to our results in the future. After-tax operating income for the quarter was $827 million or $2.47 per share. For year, net operating income was over $3.3 billion or $9.79 per share, up 4.7% from 2013 and again a record for our company. Our P&C combined ratio was excellent, 88.5% for the quarter and 87.7% for the year with underwriting income increasing over 7% for the quarter and year. These calendar year underwriting results benefited from very strong current accident year performance. Current accident year underwriting income, excluding cats, was up 23% for the quarter and 13% for the year. The current accident year results were a reflection of our premium revenue growth globally and margin improvement around the world in many of our businesses as a result of pricing action, portfolio management efforts, product mix and expense control. To breakdown our current accident year underwriting results further, the combined ratio for global P&C, which as you know excludes agriculture, was 89.4% for the year and for agriculture was 87.8% for the year. The quarter’s results for agriculture – the fourth quarter’s results for agriculture, included a loss ratio true-up for our crop business for the year, which improved over our third quarter projections due to improved crop prices and yields. Net investment income was a record $577 million in the quarter.…

Thank you, Evan. A record operating earnings for the year contributed to growth in our tangible book value per share of 5.3%. Book value was negatively impacted by foreign exchange valuation losses of $600 million for the quarter and $750 million for the year. These losses relate to our net asset exposure to foreign currencies. They represent a point in time mark-to-market valuation adjustment and do not affect the capital position of our foreign operating units. We match our assets and liabilities in each jurisdictions and we keep our required capital in local currencies. Excluding unfavorable foreign currency movements, tangible book value per share increased 8.6% for the year. Goodwill and intangibles relating to the two acquisitions we made in the year had an additional negative impact on tangible book value per share of 2.7 percentage points. Excluding the impact of both foreign exchange and the acquisitions, tangible book value per share increased 11.3% for the year. Our tax rate on net income for the quarter was 29.5%. This is higher than our normal run-rate and was impacted by deferred tax charge included in the $600 million foreign exchange loss. This item added 14.6 points to the tax rate. We had very strong cash flow of $1.3 billion for the quarter and $4.5 billion for the year that benefited our investment income and contributed to growth in our cash and invested assets of $63.6 billion, which were up $2.1 billion for the year. Record investment income for the quarter of $577 million was better than anticipated principally due to higher private equity distributions and higher call activity in our corporate bond portfolio. Our strong cash flow will continue to benefit our estimated quarterly investment run-rate – investment income run-rate of approximately $555 million even with current new money rates of…

Thank you. At this point, we will be happy to take your questions.

[Operator Instructions] And we will take our first from Michael Nannizzi with Goldman Sachs.

Thank you. Yes. So, I guess one question in overseas, what drove the margin improvement there in the fourth quarter, it sounded like pricing was down year-over-year, but you saw the best margin improvement of the year in the fourth quarter. I was trying to get an understanding of what happened there? Thanks.

Sure. Most of that is really due to large loss activity outside of a loss-paving fourth quarter last year versus this year, so a more benign quarter for us this year.

Got it, okay. And then as far as the crop business, I was trying to understand I guess there was a hedge in the third quarter, if I remember right, which provided some benefit given the decline in crop prices. And so can you comment on kind of what happened to that hedge this quarter?

We closed out the hedge in the third quarter.

Okay. And was there a gain or loss associated with that closeout?

We disclosed the gain during the third quarter both in writing and on the call.

Okay. So, you closed it out at that gain level?

Yes, we did.

Okay, got it. Great. And then on the…

And the current accident year crop result without the hedge was 91.1% combined ratio.

Current accident year at 91.1% without the hedge. Okay, great. Thank you for that. And then any impact from the volatility of the Swiss franc in January that we should be thinking about?

No, we have very little net asset in Swiss francs.

Okay, great. Thank you.

You are welcome.

We will go next to Kai Pan with Morgan Stanley.

Good morning. Thank you for taking my call. First question for Evan, you mentioned about the volatility in global economies, especially in Europe as well as on the emerging markets, so given your global footprint, I just wonder what you see as challenges as well as opportunity for ACE?

Yes. As you well know, we are pretty rigorous planners. We have a plan for 2015 and our growth in the fourth quarter and our growth in the first quarter as far as we can see in local currencies continue as we expected to be. There is always some places that get a little worst because of economic activity some places that get better. And overall we are looking pretty good. And the pattern overseas has been that Europe and the UK have been relatively flat for sometime. Asia and Latin America have been going – growing overall at double-digit. And that pattern excluding some re-underwriting in Latin America in the fourth quarter continued and we see a continuing from what we can see.

It’s great. Then if the currency stay the same, what’s the impact your premium growth as well as profitability in 2015 and do you have any sort of foreign currency hedges?

First of all, we don’t give guidance. So you won’t get that. But you saw – you yourself see what the fourth quarter impact currencies had on revenue growth. So I think you see a theme that a stronger dollar obviously impacts revenue though far more modest and its quite modest impact to earnings.

And currency hedges?

We don’t hedge on revenue. The only thing we hedge from time to time is cash movements, remittances.

Great. Well, thank you so much for the answer.

I am answering all of Phil Bancroft’s questions.

Thank you.

We will take our next question from Jay Gelb with Barclays.

Thank you and good morning. Evan on the reinsurance business clearly there has been a flurry of consolidation activity over the past two months and it will be helpful to get your updated perspective on those trends?

Yes. I think there were given – we have talked about this for a while. And I was asked this I think in the call that we had my view of given the softness in the reinsurance environment and the wholesale market particularly London and Bermuda, which to me are quite akin to the reinsurance market. The pressure that that places on smaller players and to me I imagined there would be more consolidation and we are seeing that. I think there is a drive to a bigger balance sheet that gives some more flexibility and it’s more attractive to counterparty. And that creates more efficiency in terms of expense takeout. On the other hand it is doubling down on a bet, more concentration to reinsurance and London and Bermuda wholesale. Though it is a player then who swings a bigger stick and so maybe commands more attention and respect in the marketplace and I understand that. And the balance sheet flexibility does give them a chance to write out conditions more easily. On the other side of the coin, it means fewer players competing. And maybe it means some capital comes out of the business. And that hopefully that creates some stability and hopefully bigger player will equal more rational behavior. And that’s what I end from a counterparty perspective. I like a bigger balance sheet for those that we are reinsuring to or doing business with.

That makes sense. For ACE’s owned reinsurance operation, can you talk a bit about given the, I think 5% contribution to ACE’s overall premiums, how you feel ACE’s reinsurance business fits this into the scheme of things these days?

Yes. ACE Global Re or Tempest is a very important of our company. It’s a – it will wane and wax to some degree with market conditions as we maintain discipline, but a very good contributor to book value growth in the company. It’s a reinsurance market. It is deep and big and dynamic and over time presents opportunity. There is a very big balance sheet behind ACE Global Re. It’s the ACE balance sheet that is AA rated. There aren’t a lot of AA rated re-insurers. And there aren’t a lot with the balance sheet of our size participating in the business. And those continue to present advantages to Global Re. And then on the other side of the coin in the short-term, mergers and acquisitions of size relative to your own size can be distracting and you got to look a little more inward and that can present some tactical opportunity for Global Re and fewer players should mean maybe a little rationale competitive environment over time and that can only benefit us.

Thank you for that. And then my final question probably for Phil, on the Fireman’s Fund deal, I believe ACE assumed the legacy reserves attached to that, can you describe why that was the case and what that is made of and how big is it?

You are saying we are assuming the existing liabilities of the business that we are acquiring.

We are assuming the unearned premium….

Unearned premium and the liabilities. There are still liabilities associated with the owner.

Right. I just, it was…

If you like it on a written basis going forward, why wouldn’t you like the unearned?

I understand the unearned premium, but does it include the legacy loss reserves as well?

In the existing portfolio, we are transferring to our books, but its personal lines to short tail.

Just personal lines.

Yes, high net worth.

Yes, yes, pull over.

Alright, thanks for clarifying.

We will go next to [indiscernible] with JPMorgan.

Remember, it was a renewal rights deal really for the personal behind net worth personal lines business of the Fireman’s Fund and in addition to the renewal rights we took the unearned portfolio of that business only.

Hi, good morning. This is Sarah [indiscernible] from JPMorgan. On acquisitions, what’s your pipeline for opportunities looking like and what lines or geographies are you most interested in growing through acquisitions?

Yes. We are not going to talk much about that. The pipeline – we always have a pipeline as we talk about fairly frequently. We always have a pipeline of opportunities. We pulled the trigger on a small minority of what we see. We look at things all over the world. And they are in areas where we are already endeavoring to grow organically and so acquisitions to complement our organic growth strategy.

Okay. And can you remind us how many points on the ROE, the drag from excess capital is and if you look out over the next 5 years, do you think you will have opportunities to fully deploy that?

As I just said 10 minutes ago, it’s between 1.7 and 2 points on the ROE. And yes, I think as I look out over the next X number of years, we will have opportunity to deploy that.

Okay, thanks. And then finally on the agriculture business, can you talk about your outlook for that business headed into 2015 given where commodity prices are currently? And there seems to be more sellers in that business, are you interested in growing there through acquisitions?

I won’t comment on acquisitions looking forward that way or speculate about that, but we are very happy with our concentration and our market share and amount of exposure we therefore have in that business. If you looked at commodity prices today, they are below where they were last year in February and it’s a February average that determines the pricing for contracts at that time. What it will be in February of this year who knows and particularly the volatility factor that’s applied to average pricing in the month and what our exact spread will be by commodity product based on the forms we write. You don’t know with certainty. But the theme would be that revenue would be down, what percentage, I don’t know.

Great. Thanks for the effort.

You’re welcome.

We will go next to Vinay Misquith with Evercore ISI.

Hi, good morning. The first question is on the core growth in overseas general segment that was about 8.4% this quarter. And I believe there was an acquisition, so what’s the core growth ex to acquisition this quarter?

That’s Itaú about 6.5%.

Okay. And that seems to have slowed down a bit from the past few quarters, when you already give an outlook about the future, do you see things especially I mean in Brazil slowing down now versus the last few quarters?

No.

During the quarter, we also had – we did some re-underwriting of some business that we didn’t like the looks at it. And that was in Latin America and that, and there was a one-time it’s behind us. So that added about 2 point roughly impact as well. And I don’t see a slowdown in our business in Brazil. And I will let John Keogh just comment a little bit about the fourth quarter pattern of growth and what we see as we go into the first quarter.

Sure, and I will touch on it a bit earlier Vinay, which is, when you look at our fourth quarter, and when you look at our year, our growth pattern has been pretty much story of flat Europe and double-digit growth in Latin America and Asia. And that’s I say double-digit growth that’s with the exclusion of the contributions from the acquisitions we made in Asia and Latin America. As we think about our plans for the year ahead and look at the environment, we are looking more the same. One month into the year and right now things are really going according to plan.

Okay, that’s helpful. The second question is on foreign exchange. So, this quarter probably about 5 point in the overseas general segment, given where the interest of fair exchange rates right now, so would that be sort of nearly double in 2015?

What we would say is from the end of the year ’14 to now we have seen a deterioration that would impact our book value by about $170 million.

That’s on the revenues, sorry.

He is talking revenue growth. What you saw as the FX impact in the fourth quarter, I am no genius at this, but I can imagine that same pattern year-on-year as you look at first quarter or second quarter if exchange rate stay the same we’re going to see roughly the same impact.

Okay. Fair enough. And the last one if I may on the reinsurance…

That’s on revenue. That’s on revenue, net income.

Fair enough. Right and when you said that the revenues and expenses are fairly matched, correct?

Correct.

Okay. And…

Assets and liabilities.

Okay, great. And then on the reinsurance side, any update on your re-insurance purchases and the cost savings on that?

Well, I won’t get specific by contractor, by area as you know, but you have been seeing general market commentary that both rates and terms and conditions for buyers if reinsurance have improved. And we are a major buyer in the market. We think we are pretty heads up buyers. And we have benefited from reinsurance market conditions both in terms and conditions, and in pricing. And that will flow through both to benefit our competitive profile in the marketplace and any savings will flow through to the bottom line. But I am not going to give you an exact number.

Okay. Thank you.

You are welcome.

We will go next to Charles Sebaski with BMO Capital Markets.

Good morning.

Good morning, Charles.

I was hoping to get some thoughts Evan on plans for the personal lines business with the Fireman’s Fund acquisition, what’s this – what’s the growth potential for your guys in the U.S. in the high net worth business line?

Yeah, Charles, it is – when you add together ACE and the fund, we are – we were both very active players in the high net worth. We become clearly one of the top three players in that business. It expands our presence within distribution significantly. It enhances our underwriting insights with more data and it brings a lot of talent, a lot of very good people to the organization. So, it takes what we have been doing organically, which we built a good business and it takes two brands, and puts them together that way. There is a lot of growth potential in the business. And let me be clear ACE is a high net worth personal lines player. We have no desire and no illusions about trying to enter the traditional personal lines business in the U.S. that’s not our play. The general market personal lines business, we bring nothing to the table for that. But the high net worth market is a different marketplace. The kinds of coverages they require is much broader than the general market. The kinds of limits they require is broader, the geographic area in which you service an individual customer is far broader. They are much more service oriented is the profit as the product proposition offering to a customer is it’s a much more service intensive, it’s less about price. They are much less price sensitive. The growth available is significant over time. And it’s not simply by one high net worth writer taking the business from another, it’s that a lot of high net worth potential clients reside on the books of traditional personal lines writers, who do a fabulous job serving their customers overall. But they don’t really serve the proposition and needs of the high net worth customer. And the opportunity for us is in that cohort of business that exists with others.

Where do you – where is the dividing line in terms of actual net worth a policy size, for what constitutes a high net worth customer?

Are you wondering whether you qualify.

I don’t qualify, but I am looking for something inspire to…

Charles, that varies by customer – by biogeography really, but it has to do with both buying behavior as well as value – total values of – to begin with your home. And well, I can give you a little more on that. I will tell you, I am going to ask one enjoyed to tell you a – a little about that and when you might be surprised maybe we well send you am app.

I think Evan is right, it really does vary combination, for us it’s really a combination of the sum insured at the home. The lines of business that you purchased; are you also purchasing an excess liability and umbrella policy; do you have multiple homes with you; do you have fine art collections, etcetera. And ultimately, we would also look at the premium that that account really drives, but for us, really it’s a combination of all those things.

Okay. I guess one other question on the personal lines and that should be more on the international in regard to some of the recent acquisitions in Latin America. How much opportunity is there for you guys in cross-selling life, A&H, personal lines on the international book, are those distribution points the same and do you see synergies there for that cross-sell?

Great question, love it. So, I am going to divide it into two pieces. So, I make it really simple and clear, agency derived business versus direct response marketed business. So, where we direct response market, the cross-selling opportunity where we do so much A&H direct response marketing to cross-sell specialty personal lines, a variety of products like householder’s insurance, home contents and other simple products of personal lines. And simple life products like term life with what we are already doing in A&H direct response that opportunity is significant and we are doing that. On the agency front, where we write a lot of personal lines that might be automobile-related, the opportunity to cross-sell small group A&H to cross-sell SME, that is small business insurance through those same agents to the customers, the opportunity is significant. And so it varies by country and by distribution channel that we are pursuing, but that is a real focus of the organization has been and continues to be.

Thank you for the answers.

Thank you for that question.

We will take our next question from Paul Newsome with Sandler O’Neill.

Good morning and congratulations on the call. One quick question, did you contribute capital into the Brandywine operations or is that a reinsurance or accounting charge that we saw?

It’s just an accounting charge. We have strengthened reserves by the $130 million that I mentioned, but there is no transfer of capital necessary for that.

Okay. And then my more broader question, you have got in some of these foreign areas, interest rates that are getting to zero if not negative numbers in some rare cases, what does that do to your investment strategy in places where you basically get nil returns on your investments? What do you do in that situation?

Well, we haven’t done anything in terms of taking additional risk. Our portfolios, primarily corporate bonds and government securities in those jurisdictions and we haven’t made any plans as I say to change the structure or to take additional risk. We talk about our overall book yield continuing to drop as our portfolio rotates into those lower yields, but we have been doing a pretty good job of keeping the portfolio turn over to a minimum and keeping our book yields fairly constant.

Let me add to that, first of all, if you are saying zero rates, you are thinking of Europe. And if you think of the rest of our portfolio and other places, interest rates have actually gone up in most jurisdictions or a lot of them. So, it bounces around between the two. Secondly, as Phil was saying in Europe and in the zero rate we are more heavily corporate than government-related securities and their high-grade corporates and rates, spreads have widened.

So, I guess the question I am trying to get to is there anything danger that you end up in situation where you can’t match the assets and liabilities of them in the local currencies to keep yourself?

No, because we don’t discount. So, when you talk about matching that would be a duration liquidity question would hardly be that, oh, so in Europe you must be discounting have to earn a certain rate on the discount and can you earn that, we don’t discount our property casualty loss reserves.

And in most jurisdictions, we have to keep our assets and liabilities in currency and that will require capital. So, there is really, if you are thinking we might invest euro liabilities somewhere in some other currency that wouldn’t happen.

We would never do that.

Terrific. Thank you very much.

We will go next to Brian Meredith of UBS.

Yes, thanks. Just a couple of questions here on Itaú, one is there any seasonality on a quarterly basis to the premium as it comes in? And then the second part of that is Itaú sees away a lot of its premium, I am wondering if any of those reinsurance contracts have been restructured yet or if so would you anticipate those being restructured or at least declined in amount of sessions kind of come in the first quarter of ‘15?

The – I am sorry, I got to tell you, it’s Itaú.

Itaú, sorry.

But it’s Itaú. There is some seasonality to the flow of the business, not tremendous, though the net – and that would be on the gross premiums, the net premiums vary by class. And so there may have been a little more seasonality to how they retained business. You are correct, substantial premium sessions they gross line I mean awful lot. That will continue, but there is obviously opportunities – real opportunities raised to recapture business that has been ceded and retained at net and so you will see – that, that will occur over a period of time.

Okay, great. And then just a second question, I am just curious for John Keogh, terms and conditions on the primary insurance, I know reinsurance has been loosening up, are we seeing any trends in terms and conditions loosening up and it’s often a way that companies try to get more competitive is through terms and conditions?

I mean, certainly Brian in the reinsurance – as a buyer of reinsurance, we have seen that from our reinsurers, which has been to our benefit in terms of reinsurance buys over the past 12 months. On the primary side you have looking and talking to our line executives around our January renewal business. Nothing, there is some anecdotal here and there on terms and conditions. You are seeing in Europe some of the classic soft market behavior in D&O where you are getting excess carriers willing to drop down and be primary if the primary carrier doesn’t cover the claim. You are seeing free reinstatements on D&O, but that’s really in Europe. Otherwise, everyone has a got story here and there, but in general I think terms and conditions in the primary insurance space right now used internationally are pretty stable.

Yes, Brian, it’s John Lupica. I would concur for the North American environment it’s virtually identical to it, John has just described. Terms are basically holding what I would add to that on the property side, we are seeing requests for smaller CAT deductibles occasionally. We are seeing requests for bigger limits. Nothing unusual based on the market that we are going into we have seen it before.

Great. Thank you.

We will take our next question from Meyer Shields with KBW.

Thank you. Good morning. I hate to nitpick, I am just curious about the core loss ratio increase in the North American P&C segment, that’s only sort of soft spot that we saw in the quarter?

Sure, John Lupica?

Yes. Thanks. So really the loss ratio Meyer was two things going on. We had a one-time benefit last year from a reserve release. And we also had another one-time adjustment that was made. When you account for those…

Due to benefit last year also.

Benefit, thank you. When you account for those two, our current accident year loss ratio was essentially flat. We did have a bit of large loss activity, a bit more this year than last year, but I wouldn’t consider that significant.

Okay. That’s helpful. And Evan you started – you said that Asia is the most competitive geographic region in P&C, is there a difference in pricing trends between the established and the emerging insurance markets?

Yes, there is. John Keogh is mouthing something at me. I mean I don’t know if he is saying, so I am going to let him talk first.

No, I think the thing I do there is on – is retail versus wholesale. I think if you get out into Asia and certainly in London the wholesale markets where brokers are bringing business around the region whether it’s into London or into Singapore that market is much, much more competitive in our observations than the mark you see on the ground as a retail underwriter in the local market. So I would contrast the wholesale and retail.

The other – and maybe to take it a step further Australia, New Zealand has a different competitive complexion than Southeast Asia and North Asia and it does vary by country. The wholesale business John is referring to is typically the large commercial risk in Asia that finds its way in. The middle market, upper middle market, small commercial within each country in emerging Asia is much more stable than the balance of that.

Okay.

And when I referred to competitive price conditions, I was referring really to the larger corporate business.

Okay, that’s very helpful. Thank you.

We will go next to Jay Cohen with Bank of America Merrill Lynch.

Yes, thank you. A couple of questions. First is maybe for Phil, can you talk about the alternative investment return in the quarter and maybe how much it was above what you would expect to be normal? And then secondly if maybe Evan or someone else could talk about the claims environment and what you are seeing from a claims inflation standpoint does not seem to be terribly onerous or a big change, but I want to get a sense of what you are seeing out there?

I think with respect to the alternatives, they were probably about $10 million more than we expected. And then I would add to that the fund, the call activity on our bond portfolio that added another $10 million. So, in addition to that, our portfolio yield was a little bit higher than we expected. So, all of that together, I gave you last quarter a run-rate of $550 million and you can see we came in at $577 million, but that’s what comprised the difference.

Got it.

The claims activity, Jay, it’s reasonably well behaved. It overall from inflation perspective, I see it as reasonably tame either within or below trend as we would imagine it to be. On the other side of the coin, depending on the market, there is certain competitive market behavior that drives down premium rate below what loss cost is and those are the areas that you got to pay attention to and take action. And there is of course – there is more of that today than there was a year ago and there is more of that a year ago than there was 2 years ago. I mean, that’s just natural.

Got it, thank you.

You got to be so vigilant and on top of portfolio management, line by line, territory by territory and just don’t take your eye off of it.

Got it. Thanks.

We will go next to Mark Dwelle with RBC Capital Markets.

Yes, good morning. Thank you. One question, you had mentioned the impact from FX was primarily dollar strengthening, which makes perfect sense, which – from a capital standpoint, which currency payers are you the most sensitive to?

The largest impacts came from the real in Brazil, the peso, British pound, Australian dollar, the yen and the euro, they were really the top…

And he just gave it you backwards. The biggest really is euro, so we had biggest balance sheet.

Biggest balance sheet, but not as big an impact on the quarter, I was reading it impact order whichever way, but anyway those are the currencies that you would focus on to see where we stand.

Okay, that was my main question. Thank you.

We will go next to Scott Frost with Bank of America Merrill Lynch.

Thanks. In terms of capital management, we have seen some activity to retire or tender higher coupon debt and preferred issues. Is that a consideration for you or where does that fit in your capital management plan?

No, we don’t have plans to do that. We find with the public debt structures that we have the prepayment penalties are so severe that it doesn’t make sense for us. What we have been doing though is pre-funding debt that is maturing. So, we pre-fund the two issues so far that will mature in later this year actually and we will consider that going forward.

Okay, great. Thanks.

We will take our final question from Ian Gutterman with Balyasny Investments.

Hi, good morning Evan. I guess, my first question is on accident year margins, with pricing continued to moderate slightly, it seems in most of your – at least in most of your commercial lines, pricing is probably below where you pick loss cost trend, is there enough opportunities still in underwriting and mix and so forth to offset that or is it reasonable to think margins are more likely to receive then stay stable or expand from here?

Yes. Ian, the loss environment has been pretty benign.

Right.

Start with that. Number two, trend continues. So, when I think of the benign loss environment, I think of more short tail lines, but when I think of the casualty business, trend continues whether it’s running better than you imagine, it doesn’t mean its zero, there is – remains a healthy trend. So – and on the other side of the coin, there is always portfolio management opportunities and changing mix of lines of business that we accelerate, where we see good margins. So, you get all of that. But when I roll it altogether, I have said it before, you expect – it’s natural to expect, look at the combined ratios that we are running. They are such world class. They are low. So, I imagine the accident year margin, the accident year combined ratios to rise over time.

Good. Got it. And is it fair to say that the lower loss trend we have seen that’s emerging as reserve releases as opposed to that you are lowering your pick or have you been changing your loss trend pick as a result of the evidence you have seen over the last two years?

No, we really haven’t changed our loss trend pick. I realized you could do that, but I think it’s a prudent way to run a company. We write a lot of a longer tail business and even your medium, shorter tail businesses 3 to 7 years. Good news always comes early, bad news comes late, number one. Number two, people like to describe the business of underwriting with some kind of precision like it is – like you have such perfect information that you can price and you can select risk with precision and that’s just not the case. And I think the guys who do better are the ones who recognize that. And so your best to remain with a more conservative, what somebody might deem a more conservative trend factor. I think it just safeguards the balance sheet. And what’s the price of that? A little opportunity cost of some business in the marketplace, I am not going to worry about that.

Got it. I just want to make sure nothing changed. And then just my final question is on the energy, I guess, there could be a number of things on energy, but maybe I just focus on one, which is the investment side. It looks like you have about $2 billion in energy investments and maybe 800 is BBB and 900 is below investment grade. Can you just give a little color on what we should know about that, I guess when you hear all these stories about high-yield energy bonds that people concerned about? How much of a worry is that for you?

So, our investment portfolio is bonds, that’s where the – that’s where our exposure is. And it’s about 5% of the portfolio, it’s 3% and you see the two pieces that you are looking at, we have a third piece in the non-dollar portfolio that just isn’t split by sector. So, it’s about $3 billion in total. The average credit rating is BBB. It’s well-diversified, there is 250 issuers, and the top holdings are in the largest integrated companies that are all investment grade. So, we have studied it. We are very comfortable with the concentration and the entire portfolio is trading over par right now. So, we are comfortable with the valuation.

Got it, got it. So, no big overweight on Canadian oilsands or anything like that?

No.

Okay, good, just making sure. Alright, thank you guys. Good luck.

Alright. Thank you everyone for your time and attention this morning. We look forward to speaking with you again at the end of next quarter. Thank you and good day.

This concludes today’s conference. Thank you for your participation.