SiriusPoint Ltd. (SPNT) Q3 2015 Earnings Report, Transcript and Summary

Greetings, and welcome to the Third Point Reinsurance Third Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Coleman, Chief Financial Officer for Third Point Reinsurance. Thank you, Mr. Coleman. You may begin.

Thank you, operator. Welcome to the Third Point Reinsurance Limited earnings call for the third quarter of 2015. Last night we issued an earnings press release, which is available on our Web site www.thirdpointre.bm. A replay of today's conference call will be available until November 11, 2015, by dialing the phone numbers provided in the earnings press release and through our Web site following this call. Leading today's call will be John Berger, Chairman and CEO of Third Point Re. But before we begin, please note that management believes certain statements in this teleconference might constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about expectations, estimates and assumptions concerning future events and financial performance of the company and are subject to significant uncertainties and risks that could cause current plans, anticipated actions and the company's future financial condition and result to differ materially from expectations. Those uncertainties and risks include those disclosed in the company's filings with the U.S. Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made and the company assumes no obligation to update or revise them in light of new information, future events or otherwise. In addition, management will refer to certain non-GAAP measures, such as diluted booked value per share which management believes allow for a more complete understanding of the company's financial results. A reconciliation of these measures to the most comparable GAAP measure is presented in the company's earnings press release. At this time, I will turn the call over to John Berger. John?

Thanks, Chris. Good morning and thank you for taking the time to join our third quarter 2015 earnings call. In addition to Chris Coleman, Chief Financial Officer of Third Point Re with me today are Rob Bredahl, President and Chief Operating Officer of Third Point Re; and Daniel Loeb, CEO of Third Point LLC, our investment manager. On today's call, I will provide an overview of our financial results, Daniel will discuss the performance of our investment portfolio, and then Chris will discuss our financial results in more detail. We will then open the call up for your questions. For the third quarter, we reported a net loss of $195.7 million or a $1.88 loss per diluted share, compared to a net loss of $6 million or a $0.06 loss per diluted share in the prior year quarter. Our diluted book value per share decreased by 11.8% in the quarter to $12.45. The loss was due to difficult financial market conditions that resulted in a net investment loss of $193.2 million representing a negative 8.7% return on our investment portfolio. Our Investment Manager Third Point LLC has a fantastic track record over a more than 20 year history, but even they are not immune to broader market movements. The S&P 500 Index suffered its worst quarter since our formation almost four years ago. As we posted on our Web site on Friday however, our investment portfolio recovered a large portion of these losses during the month of October with a net investment return of 4.6%, and our year-to-date investment return is now slightly positive at 0.1%. Daniel Loeb will discuss on our investment returns in greater details in just a few moments. In our Property & Casualty Reinsurance segment, we generated premiums of 206 million, an increase of 65% over the prior year's third quarter. Year-to-date we've produced 603 million in premiums driver which is 2 million more than we wrote for all of last year in this segment. We completed a $92 million reserve cover in the quarter, which was the main driver of premium growth and the largest contributor to float generation. Float grew by 69 million in the third quarter and now totals 602 million, which positions us well to take advantage of improvements in investment performance in future periods. From the beginning, we advised that we'd have more volatile results than traditional reinsurance companies due to our investment strategy. We've also emphasized that our reinsurance business is lumpy. We write a small number of larger deals, some of which will not renew or in some cases renew in other quarters during the year. Quarter-over-quarter premium comparisons therefore are not as useful as they might be for traditional companies. In fact the fourth quarter of 2015 may well be a great example of this, since premium written is likely to decrease relative to the previous year's fourth quarter. Last year we produced $254 million of written premium in the fourth quarter of which less than half is up for renewal in this year's fourth quarter, still we’ll show strong year-over-year premium growth. We produced an underwriting loss of $5.8 million in this quarter compared to an underwriting loss of 1.8 million in the third quarter of 2014, and our combined ratio increased slightly to 102.8% from $101.7%. The combined ratio was in line with our expectations and reflects a shift in business mix towards higher composite ratio in lines of business and a slight deterioration in market conditions. The line of business in the reinsurance market under the greatest pricing pressure is property cat, although we do not participate in the property cat excess of loss market, we’re seeing some traditional reinsurers who are being displaced by capital market players in the cat space, increase their focus on our current lines of business, still we continue to find deals that meet our economic hurdles and have a strong new deal pipeline. I will now turn the call over to Daniel to discuss our investment performance in more detail.

Thanks, John and good morning everyone. Third Point Reinsurance investment portfolio managed by Third Point LLC was down 8.7% in the third quarter of 2015, net of fees and expenses versus returns for the S&P and CS event driven industries of minus 6.4% and 6% respectively for the quarter. The Third Point Reinsurance account represents approximately 13% of assets managed by Third Point LLC. Positive performance in July was offset by a difficult investment environment in August and September. The market decline was driven primarily by increased concerns about the slowdown in China, hedge fund deleveraging, U.S. presidential election and weaker U.S. economic data. The Third Point Equity portfolio returned minus 14.1% on average exposure during the third quarter, roughly a third of our losses for the quarter were due to several concentrated positions in the healthcare sector. We decreased our net equity exposure before the sell-off in August and continue to reduce some exposure given the increased volatility. We remain bullish on our core high conviction ideas. Singe name shorts have proved important to our strategy and we generated alpha from shorts in every sector during the quarter. We now have more single name equity short positions in long in that portfolio. Our net equity exposure is currently about 50% long and we believe this level is appropriate for the current market environment. Sovereign credit was up 3.1% on average exposure during the quarter, due to strength in Argentinean government debt the largest position in our credit portfolio. We’re looking forward to the run off Argentinean presidential election next month and we’ll be pleased with the victory from either candidate. In Q3, our corporate credit book lost 10.8% on average exposure, not including interest rate hedges, losses were attributed to performance from several performing credit positions particularly in the energy sector. Our corporate credit exposure remains anemic as we wait for a shift in the credit market. The Third Point structured credit portfolio has continued to act as our best performing strategy, returning 1.7% on average exposure in Q3. The year-to-date return on assets for the strategy is 16.4% compared to the HFN, Hedge Fund Mortgage Index returns of 2.9% for the same period. We're continuing to focus on further diversifying our portfolio and are looking for improved buying opportunities across the market. Now, I'd like to turn the call over to Chris to discuss our financial results.

Thank you, Daniel. As John mentioned, we generated a net loss of $195.7 million in the third quarter, which translates into a loss per diluted share of $1.88. This compares to a net loss of $6 million and a loss per share of $0.06 for the prior year quarter. Diluted book value per share as of September 30, 2015, was $12.45, a decrease of 11.8% from $14.12 as of June 30, 2015. In our Property & Casualty Reinsurance segment, gross premiums written increased by 81 million or 65% to 206 million for the three months ended September 30, 2015, from 125 million for the three months ended September 30, 2014. The increase in premiums for the quarter was due to $192 million adverse development cover written by our Bermuda office, 50 million of new business written by our U.S. office where we have seen additional opportunities as a result of our U.S. presence and 60 million from contracts that renewed in 2015 that did not have comparable premiums in the 2014 period. The increase in premiums was partially offset by contracts written or amended in 2014 that did not have comparable premiums in the current year period and contracts for which we made a decision not to renew due to changes in pricing and/or terms and conditions. Since Third Point Re focuses on large transactions which in some cases may not renew, period-over-period comparisons of gross premiums written may not be meaningful. Net premiums earned for the third quarter increased by $108 million or 106% to 209 million. The significant increase in premiums earned is due primarily to the large reserve cover written in the third quarter and to a lesser extent, net premiums earned on a larger in-force underwriting portfolio including new business written compared to the third quarter of 2014. As we have previously discussed, premiums written on the reserve covers and other retroactive contracts are fully earned in the period in which they're written. The net underwriting loss for the three months ended September 30, was $5.8 million producing a combined ratio of 102.8%. The combined ratio increased from 101.7% in the prior year's third quarter due to an increase in the composite ratio. This is the combined ratio before G&A expenses, partially offset by a decrease in the G&A expense ratio. The composite ratio increased due to a change in the mix of business towards reserve covers, which is a higher composite ratio line of business, a slight deterioration in the margin available on traditional quota share contracts and 1.4 million of net underwriting loss as a result of development of reserves on prior year’s contracts. General and administrative expenses increased slightly to 5.9 million from 5.6 million in the third quarter of 2014. However, the G&A expense ratio dropped to 2.8% from 5.5% due to the significant growth in earned premium. As we announced last December, our cat fund is not accepting new business and is in runoff. There was an insignificant impact on our overall results for the quarter from this segment. And we expect that the remaining 700,000 of capital that remains in the cat fund will be redeemed by year-end. Other expenses dropped to 670,000 in the third quarter of 2015 from 3 million in the third quarter of 2014, due to a decrease in the fair value of embedded derivatives related to our deposit liability contracts. This decrease was due to lower investment returns in the quarter. Our income tax expense or benefit is primarily driven by the taxable income or loss generated by our U.S. based subsidiaries, as well as withholding taxes and uncertain tax provisions on our investment portfolio. And to a lesser extent taxes paid in relation to our UK-based subsidiaries. The income tax benefit for the quarter was 7.8 million due primarily to losses incurred by our U.S. operation. As Daniel mentioned, the return on investments managed by Third Point LLC was a negative 8.7% during the third quarter of 2015 compared to a negative 0.04% return for the same period in 2014. I'll now hand the call back to John Berger. John?

Thank you, Chris. To conclude, it was a disappointing quarter due to investment market conditions. We've complete confidence in our Investment Manager's ability to generate strong results overtime. We continue to make progress in expanding our reinsurance platform as demonstrated by the strong premium growth and float generation in the quarter and are well positioned to benefit from future improved investment returns. At this point we’ll take questions, operator?

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Kai Pan with Morgan Stanley. Please proceed with your question.

First question is for Dan on the Shore side. On the first quarter call you mentioned that Shore is becoming increasing difficulty to you but now you're finding it's more attractive, and in fact you have more single short names than your long position, so what has changed?

So I think what's changed since the first quarter is a few things, just increased volatility, a sense with the economic outlook being a little bit more tougher and the market levels where they are that the overall market is somewhat fairly valued, probably trading within a range. So, in a sort of range bound market I think we've -- it is a lot easier for us to find shorts and to not get overcome by a rising market tide that could lift all stocks. Secondly, I think we've seen some real themes that favor the type of short selling that we do. I'm not going to get into too much detail about them, but there are certain industries that we see that are deteriorating where we have made some bets, there are more broadly I think that there has been some real sloppiness in accounting and this move towards using adjusted EBITDA and adjusted earnings has produced some companies that I think are trading on valuations that are not supported by the real numbers. I would refer you to an article that Gretchen Morgenson wrote in Sunday’s New York Times that I think is pretty illustrative of what’s going on. And I think over the -- now since we have refocused on shorts the evidence is borne out we've generated good alpha in the area and it has indeed dampened the volatility in the portfolio.

And if you look at your Asia exposure, looks like you increased the short position there quite a bit. And in the past you were in your letters a lot of sort of like very positive especially in Japan. I just wonder is that position have changed or is it other part of Asia that you're more inactive now?

I'll have to look at the data that you're looking at. I mean we have some currency positions in Asia, I don't know if it’s conflating that, we don't really have significant single name Asian company shorts, but we do have some macro positions that will probably show up geographically in the short bucket.

Because in the fact sheet that show like a six point inactive like a 5% long, 11% short so…

Yes I think that’s conflating macro positions it is a little bit apples and oranges so I believe that’s the case so we can get back to you after the call to drill down on that.

And then on your given the market volatility there is probably like the biggest single drop and quarterly drop in S&P in quite a while, and could you talk a little bit more about your lease imagine process in this volatile market like these are there any particular metrics you're working like -- and to just want to make sure that you're not taking undue risk in this marketplace?

Yes that’s a great question, because I think we've seen real a divergence in hedge fund performance throughout the volatile period down and up. Look there is no better risk management tool than making really good investments in companies that provide a margin of safety in doing deep research in that area. We felt very confident about our healthcare portfolio. So throughout this process we did reduce our exposures overall, but we had very strong positions in Baxter, Amgen and Allergan and I think just making the right security selection is important. And I think not to name names but there is one particular healthcare company that caught a number of hedge fund managers off size with large concentrated positions. So we manage to avoid that pitfall. So we’re not as -- we take concentrated positions but I think there is limits to the levels of concentration. And then we had confidence in what we were doing. And then asides from that I think having proper diversification there is a fine line in concentration because to get this sort of returns that we’ve had over the years we do concentrate but within limits. And then also having the sorts of hedges that we have our single name shorts, our quantitative short basket and our macro hedge is all -- look it was a tough period but there is two things to observe. One, given our historical returns the sort of draw down that we had is not unexpected to happen from time-to-time. And secondly, if you look at the comeback that we’ve had off the lows they are -- it’s indicative of having been able to stay the course and stayed-in in fact we added to some of the names that we mentioned during the market turmoil and trust me it wasn’t easy but when one company in the healthcare industry was being singled out for questionable practices that were alleged it took down the whole space. We really doubled or I’d say tripled down on our research on our names but we didn’t see any evidence of that kind of behavior. So it gave us the confidence that we could actually increase our exposure and these names that we really oversold.

My last question for Dan is on compensation. Looks like the return this year is not as high as your historical average is, and I just wonder in this environment what’s your sort of philosophy after paying people a retained cadence?

Sorry the compensation within Third Point?

Yes.

It’s the same as that -- it really isn’t any different. We all take a long-term view here. When the firm does well people get paid well when it does less well I think the expectations are for less compensation. Having said that, there are very strong areas within the firm and some of them are not so strong. So we definitely reward people who make those contributions accordingly. But it definitely -- I don’t think it comes down to an issue of -- you mentioned retention, I don’t think we have never had an issue with retention around people who contributed will get paid what they deserve and people who didn’t have a good year will get paid less. But I don’t think that comes down to, I don’t -- I can’t imagine that that will lead to any retention issue which was I think the point to your question.

And now turning to John, Rob and Chris, I just want to keep it short because I don’t want to take time on this call. First question is that given that your G&A expense ratio went down below 3% in the past you have indicted if we get into certain level of a premium which you are right now should be able to see a breakeven results. I just wonder if that is still achievable target in this market environment.

Kai this is John Berger. Last quarter we gave guidance of a combined ratio of between 100 and 105 given the state of the market, the competition we’re seeing and then our emphasis on time to source and we’ve been successful on the reserve deals that we book at 100% composite ratios. In this market getting below 100 is going to be tough.

And it is absolutely not just for this year but also for foreseeable future?

Yes, and a point I’d like to make is we have a very conservative underwriting approach we’re not writing the property catastrophe excess a loss business which really generates the majority of profit in the industry especially in years when there aren’t any catastrophes. So you can write that business if there’re no losses you get a big underwriting gain on them and you’re taking a risk with that, but when there aren’t any losses we don’t have any of that business. We don’t have any business that you can have a good surprise on by not having the future these losses. And I think that’s a really important differentiator for us when you compare us to other companies. So given the business that we’re looking at and the state of the market, there is some margin compression going on. And as I said, we’re looking at the reserve deals that have no underwriting profit on it, they come in at 100% composite. So yes this is borrowing any changes in the industry this is what we see for the future.

And Kai let me -- just a little bit more detail on the guidance of the combined ratio. We expect to generate composite ratio between 97 and 100 and we expect the G&A expense ratio to come in at between 3% and 5% just based on the volume of our premium. And so that brings to the 100 to 105 that John mentioned.

My last question your investment leverage. Now I believe it is about 1.5 times. In the past you talked about rating agency might have upper limits of 1.4 time, so I just wonder if you have any discussion with the rating agency with that leverage ratio, and what is that potential that you need to raise capital to satisfy that or slowing down growth?

I guess a couple of points. We talk to A.M. Best all the time and the 1.4 is really an estimated guideline where we are backing into a BCAR score. So we did go above that. We've factored in, the recent recovery in the investment portfolio, the investment leverage has already come down and also we've a couple of trades where cash is going out the door in the next month. And so we think the asset leverage is within the expectations of A.M. Best and in a reasonable range.

And you intend to keep that level?

Yes, we want to keep the investment leverage at around that 1.4 at all times to maximize the future expected profits.

Thank you. Our next question comes from the line of Jay Cohen with Bank of America. Please proceed with your question.

I guess first just a modeling point. Fourth quarter you mentioned a level of premiums that would not renew that was more than I had some in the model but if you can go over those numbers again and have that level?

Yes I think John mentioned that there is about half of the or a little less than half of the premiums that we wrote in the fourth quarter of last year that’s up for renewal. Some of those deals that were bound in the fourth quarter of last year were already renewed into earlier quarters this year so obviously it won't come up for renewal this fourth quarter.

And then with the U.S. office now are you seeing the same types of business, you mentioned you'd seen more risk over the writes amount of the U.S. is it the same type of business or it is somewhat different?

It's pretty much the same business Jay with some exceptions we did write a professional liabilities in our D&O/E&O contract that is new to the company we didn't really have that exposure in the company and that was a direct result of relationships with the people at the company but also having people on the ground but I don't see us varying that much from the current gate plan. We’re happy with the effort being put in, we still are a best rated A minus so there is many lines of business in the U.S. many casualty lines where an A minus is not acceptable security. So I don't see a big change in that mix coming.

And then lastly could you talk about your views on the state of the reinsurance market. I guess the question is, are you seeing any emerging stability in pricing or terms and conditions at this point?

Not really Jay there is a lot of capacity out there and we’re seeing things there what ACE did with AB Reid where they're retaining -- effectively retained more business the consolidation of the reinsurance with the ACE acquisition of Chubb will probably pull more business out of the market so you have a basically decreasing demand and increasing supply and I think there is just going to be a relentless pressure now almost everywhere on margins.

Thank you. Our next question comes from the line of Ken Billingsley with Compass Point. Please proceed with your question.

This is kind of adding on to some of the rating question. So last quarter’s investment performance like a covenant for reinsurance with your business model, so how many quarters and I mean more of the annual book value impact can you absorb while maintaining the ratings and regulatory support given that there isn’t a long track record of your business model out there?

And Ken it is a good question I cannot give you a precise answer, because I'm not sure the regulators at A. M. Best have a precise way that they deal with companies with our business model. One tool we have to improve our BCAR score which is the acronym for the invest model is that we can pull money out of our separate accounts and money that’s managed by Third Point and keep it in treasuries, and by doing so we greatly increase our risk capital and so we are we are nowhere near the corner where we need to do that but the fact that we have that lever that traditional companies do not have because A.M. Best and the BMAs are a lot comfort.

And I guess, and some of that's helpful. And one of the things I am looking at is how in your past experience versus the discussions you have with them now that was obviously one thing where you can turn the lever, are there any other questions or things that they ask you as Third Point and maybe they didn't ask when you were at the previous companies just because they're getting used to the model in how to understand the different risks and…? [Multiple Speakers]

They were long the best people overtime have done just a terrific job, monitoring the business and understanding the both the different aspects of it and with Greenlight forming many years ago and us and other models so they really understand our model and the potential volatility, in the way we're looked at we get a very hefty charge for the investments strategy. So that's a built in buffer for that much in the way that a cat company has to have capital support to cap writing so, we're not seeing any changes in their approach or their questions to us, they were up to speed and on model when we started and they continue to improve.

What else can it be through October, please keep in mind that we're flat the investment portfolio was flat and so we ran all sorts of very severe downside scenarios from A.M. Best and this isn’t one of them.

But you -- I am sorry to what level this is or is not one of them?

This is not, being down 8.7 per quarter and flat now through October for the year, it's not a model -- the more severe scenarios that we run and that we make sure we have enough capital to support.

And given the -- I know it was a small amount but a little adverse development in some of the windstorm losses that you announced, what was your target combined ratio given that your commentary that the current results were in line with expectations?

Yes, I think just a couple of points on that, so the windstorm losses just to clarify those who were incurred in the second quarter.

Okay.

So there was no windstorm activity in the third quarter and I think as we stated earlier that we continue to reiterate the combined ratio guidance that we provided last quarter which is that we expected a combined ratio for the really the forcible future in the changing market conditions of somewhere between 100 and 105, so the 102.8 for the current quarter was really right in the midpoint of that range which is within expectations.

And I remember, you gave some number earlier with the 100 to 105 then you're talking about 97 to 100 plus the G&A. So just the 100 to 105, does that include the 3% to 5% G&A?

Yes, just to reiterate that. So our combined, our composite ratio guidance which is the combined before G&A we expect to be within a range of 97 to 100 and that our G&A ratio will be between 3 and 5 and then some of those get you to that 100 to 105.

Okay. And…

And really that is just a function of mix of business and in a quarter like this where you had a lot of reserve cover the G&A ratio does dropdown closer to that 3% G&A ratio.

And that's because it gets earned right away?

Correct.

Right, yes.

But the composite is higher because we booked the reserve cover at 100 and we're ending up at the targeted combined ratio or the expected combined ratio with that trade off.

And then the G&A expense as a dollar amount not a ratio, there seems to be some variability in that line item, is there anything in particular that we can look to from a modeling standpoint so that we anticipate some of the variability…?

Yes, I mean we are really at a pretty steady state in terms of G&A, it did dropdown this quarter just a little bit and some of that was just dialing back, some of the incentive comp accruals to reflect the loss in the period but if you adjust for that the sort of nine month run rate is about what to expect which is roughly 11 or so million per quarter of G&A.

11 million per quarter, okay. Last question, I have is I know you have a large -- you always visit large book of personal lines business, I would imagine that doesn't contribute much to float, so is that a book that you see shrinking going forward as you replace it or is this a core business that you just have a good relationship and they just generate these results can you talk about the thought process given that it doesn’t throw off I would imagine a lot of float?

I guess there are two segments there, one is homeowner quota shares that either limited or exclude the wind the catastrophe exposure and there we -- that book shrunk and will probably shrink again that's becoming more and more competitive. As we talked earlier about some traditional cat covers being displaced we are seeing them pop up in this quota shares based. Our other area is non-standard auto and it is tough to generalize there because that really varies region-by-region and it's not a significant but not a huge part of our business, and we think we can maintain most of that business. We think there are some more opportunities for us out there but there too, there is competition relationships are important, but you are still -- you still have to operate in the marketplace.

And just on the float those lines of business generate float equal to about 25% of the gross premium written and that assumes if we renew the portfolio and keep it at a steady state. And so it is not the biggest float generator but there is some float.

Thank you. Our next question comes from the line of Meyer Shields with KBW. Please proceed with your questions.

A couple of brief I guess accounting questions, for like Rob. If there is no adverse development at all on the reserve cover, are there any income statement impact in future quarters?

If there is no adverse development or any change in the reserves on the reserve coverage, no, we wouldn’t see anything other than in some cases we have interest credits associated with these deals where we’d be accruing the interest credit associated with the reserve cover and that’s recognized through the other expense line. So you wouldn’t see any impact on underwriting income in the future.

Can we get the loss ratio versus expense ratio breakdown of that 100% impact, or 100% book combined ratio?

Sorry what is it, can you repeat that question?

I am sorry yes I am just trying to breakout the reserve coverage ratio that I am modeling future quarters appropriately and I was wondering if we could give the breakdown between the losses and expenses associated or within that 100% book combined ratio?

Sure, so there is the roughly 92 million of reserve cover which was written and earned in the quarter and virtually all of that is booked to loss expense. So effectively an equal 92 million of loss expense in the quarter. So we’ll skew here if you’re looking at just the split of the composite ratio within the period we will skew the mix of your composite ratio since that particular contract is booked at basically 100% loss ratio.

And then John bigger picture, as you focus more on reserve covers do you have any interest in assessments?

We’re not opposed to assessments we don’t have any that's a tough one just because there is still a lot of uncertainty around that. We have seen some reserve deals that have an assessments component and we were not as successful in underwriting them. And I think just one point I want to make on these reserve deals. Each one has been tailor made for each client and a lot of them are capital reasons we’re starting to see some activity because of Solvency II we’ve waited for that impact for years it looks like it’s finally having an impact. So people are into capital management and our product would explore that. But two things are important when we take on a loss reserve deal first we take a certain amount of reserves and then there is usually a company retention above the amount that we take in. So if there is some adverse development the company pays that before we do. So we don’t pay dollar one on most of our reserve deals. And then very importantly we have a finite limit that we provide on these, they’re not open ended. So, if we did write a deal that went upside down it can’t go upside and down to 200% loss ratio, it might be 120 or 125, which is not good. But the point I really want to make is that it’s a finite limit. We can’t have a runaway bad news deal.

Thank you. Our next question comes from the line of Michael Zaremski with BAM Financials. Please proceed with your question.

A follow up on the reserve covers, so I was going to ask for color on the insurance liabilities underlying the reserve covers. I am not sure if you answered that one with Jay’s question about D&O and E&O I missed that part?

Yes so the D&O and E&O that was just a regular deal that was not in reference to a reserve deal. The common trade of a reserve deals is that they’re longer duration claims. So it might be in the workers’ comp, it might be automobile, European motor, is a relatively short tail line of business but there is a component that is longer tail. And so it is -- all the deals are liability driven and so if a company for example has $100 million of liability reserves and we take the top-25, that’s the slowest to pay. Right so it could be U.S. general liability, excess liability, there could be a professional liability component in it. Although, to-date we don’t have any workers’ comp is a good line of business for this as is as I mentioned auto liability. But any liability line of business where there is a delay before claims are paid and then if we’re at the upper-end of the reserve stack it is even longer than that.

And just curious how large of a market is the adverse reserve cover market is Berkshire the one that dominates this market or are there a lot of players?

It's actually a terrific question because there are hundreds and hundreds of billions of losses that are out there so we look at them wow it is a huge market now most companies or many companies are happy with their reserves they are not looking off of a particular to lay them off, Berkshire Hathaway is in a class by themselves. I mean the deal they did with Liberty Mutual where I think they gave Liberty Mutual a $5 billion limit and $3 billion in cash. The few companies that have the risk appetite and the size to do that, and that really becomes a discounting exercise because in all likelihood the losses are going to be greater than 3 billion but Berkshire Hathaway takes that 3 billion and they buy cash at companies and railroads I mean they are extraordinary what they can do with that money. We are at the other end of the spectrum where we’re looking at companies that are well reserved and are really looking for the reserve deals as a capital management tool, so we’re knowingly writing deals with the full expectation that our limit will go there is a chance that it will go and that’s why it's reinsurance accounting versus deposit accounting but there is a whole spectrum of types of reserve deals that get done and I think Berkshire Hathaway is at one end we’re at the other we are starting to hear of other companies looking at these deals but to-date we've not seen a lot of companies entering this area.

And lastly was there any prior year reserve development this quarter?

Yes, there was a net impact of about 1.4 million in the current quarter, so very insignificant impact on our combined ratio this period.

A 1.4 plus or addition or?

A negative, 1.4 million additional underwriting loss.

There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

We thank everybody for dialing in. And we look forward to talking to you next quarter. Thank you very much.