SiriusPoint Ltd. (SPNT) Q2 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Third Point Reinsurance Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Chris Coleman, Chief Financial Officer at Third Point. Thank you. You may now begin.

Thank you, operator. Welcome to the Third Point Reinsurance Limited earnings call for the second quarter of 2016. Last night, we issued an earnings press release and financial supplement which is available on our website, www.thirdpointre.bm. A replay of today’s conference call will be available through August 12, 2016 by dialing the phone numbers provided in the earnings press release and through our website 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 action in the company's future financial condition and results to differ materially from expectations. Those uncertainties and risks include those disclosed in the company's filings with the US 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 book 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 second quarter 2016 earnings call. In addition to Chris Coleman, Chief Financial Officer of Third Point Re, with me today are Daniel Loeb, CEO of Third Point LLC, our Investment Manager, and Rob Bredahl, President and Chief Operating Officer of Third Point Re. On today's call, I will provide an overview of our financial results and an update on market conditions. Daniel will discuss the performance of our investment portfolio, and Chris will discuss our financial results in more detail. We will then open the call up for your questions. For the second quarter, we reported net income of $53.4 million or $0.51 per diluted share, compared to net income of $15.7 million or $0.15 per diluted share in the prior year’s period. Our diluted book value per share increased by 4.1% in the quarter to $12.88. In the second quarter our investment portfolio performed strongly with a return of 4% which compares to 1.7% in last years second quarter. The strong performance continued following the end of the quarter with a 2.6% return during the month of July. After a challenging first quarter, our investment portfolio is now up 4.6% for the year through July. Daniel Loeb will discuss our investment returns in greater detail in just a few moment. The performance of our Property and Casualty Reinsurance segment in the second quarter was disappointing. We produced a combined ratio of 119.2% due to $12.9 million of adverse reserve development on several contracts. We suffered from both industry wide loss trends and account specific issues. Here is a summary. We increased reserves by $4.4 million on a large global commercial auto physical damage and extended warranty treaty that we have written since 2014. We have identified the underlying problem programs and are working closely with the cedent to remediate the issues that are causing the adverse performance. We took an additional $4.3 million increase on our work – California workers compensation treaty that we have written since 2012. This increase relates to the 2012 to 2014 treaty years where additional claim information received in the second quarter led us to take this additional increase. We suffered a total of $2.7 million of adverse development on two Florida home owners’ treaties. The adverse development relates to the assignment of benefit claims, problems that exist in Florida and to losses from a hail storm in March 2016. We did not think the AOB issue was fully addressed during renewal of these treaties and therefore we no longer – we are no longer participant. There was $1.9 million of net negative development on our non-standard auto contracts primarily due to increase in frequency and severity trends. Several of our cedents are struggling to stay ahead of these trends with price increases and measures to come back to negative selection they are suffering from the large national carriers. We have decreased our exposure to this segment and may reduce it further based on market development. We reserve to our best estimate by contract and adjust reserves each quarter based on the most up to date information available. Our initial loss estimates have proven to be overly optimistic due mostly to our under estimation of worsening market conditions and our clients inability to properly react to worsening market conditions. We remain focused on improvements to our pricing and underwriting processes, remediating problems as they emerge and separating from problem clients and market segments. I will now turn the call over to Daniel to discuss our investment performance.

Thanks, John. And good morning. The Third Point Reinsurance investment portfolio managed by Third Point LLC was up 4% in the second quarter of 2016 net of fees and expenses versus returns for the S&P and CS event-driven indices of 2.5% and 2.1% respectively for the quarter. The count was up 1.9% year-to-date through June net of fees and expenses. The Third Point Reinsurance account represents approximately 14% of assets managed by Third Point LLC. Significant market volatility in the first half of 2016 was due primarily to continuing global macro economic uncertainty. During the second quarter we continue to position our portfolio opportunistically to mitigate downside and remain nimble buyers in challenging markets. We benefited from our decision to reverse positioning mid way through Q1 by increasing long exposure to several high yield energy credits and to equity investments in cyclicals, commodities, industrials and emerging markets. These shifts along with successful navigation of the period following Brexit contributed to strong performance in Q2. The Third Point equity portfolio returned 2.6% on average exposure during the second quarter. We posted positive results in almost every sector with healthcare and industrials and commodities leading the portfolio. We generated returns in both our long and short portfolios in several sectors. Our corporate credit portfolio returned 15.1% on average exposure in Q2, significantly outpacing the Iboxx high-yield index return of 4.8% during the same period. Performance was largely driven by positive returns from performing credit investments in the energy sector. We maintain minimal distressed credit exposure at present. Structured credit was up 2.6% on average exposure, rebounding after a period of limited liquidity at the onset of the year. Our sovereign credit portfolio continued to add value and our Argentine government bonds and returned a 11.7% for the quarter and 20.4% for the year. During the second half of 2016 we expect continued periodic market dislocations. We believe we are well positioned to proactively take advantage of such dislocations and invest in compelling risk adjusted situations across the capital structure. Now, I’d like to turn the call over to Chris to discuss our financial results.

Thank you, Daniel. As John mentioned, we reported a net income of $53.4 million or $0.51 per diluted share in the second quarter of 2016, compared to net income of $15.7 million or $0.15 per diluted share in the second quarter of 2015. For the six months ended June 30, 2016, Third Point Re reported net income of $2.2 million or $0.02 per diluted common share, compared with net income of $66.1 million or $0.62 per diluted common share for the six months ended June 30, 2015. For the three months ended June 30, 2016, diluted book value per share increased by $0.51 per share or 4.1%, to $12.88 per share from $12.37 per share as of March 31, 2016. For the six months ended June 30, 2016, diluted book value per share increased by $0.03 per share or 0.2%, to $12.88 per share from $12.85 per share as of December 31, 2015. Gross premiums written increased by $12.7 million or 7%, to $196.9 million for the three months ended June 30, 2016 from $184.2 million for the three months ended June 30, 2015. Gross premiums written decreased by $3.6 million to $394 million for the six months ended June 30, 2016 from $397.6 million for the six months ended June 30, 2015. In the quarter we wrote $18.1 million of new business and non-renewed $38.7 million of premiums of which $23.6 million was non-renewed due to unacceptable pricing and or terms. The balance was not subject to renewal. Other movements in gross premiums were due to changes in premium estimates, contract extensions and other timing differences. Since we focused on a limited number of large contracts, we are prone to having significant changes in premium written from one quarter to the next. Rather than looking at quarterly results, annual results are a much better indication of our premium volume trends. Given the size of our average deal and normal completion, timing uncertainties, it is always difficult to project our future writings. But we will likely generate a similar or possibly lower amount of premium for the full year of 2016 versus 2015 as we work to improve our composite ratio in a difficult market environment. Net premiums earned for the three months ended June 30, 2016 increased by $12.7 million or 11%, to $133.1 million. Net premiums earned for the six months ended June 30, 2016 increased by $10.4 million or 4% to $269.9 million. The increases new premiums earned for both periods were primarily due to a larger in-force underwriting portfolio. We generated a $25.6 million underwriting loss in the three months ended June 30, 2016 versus an underwriting loss of $9.4 million in the prior year period and our combined ratio was 119.2% versus 107.8%. For the six months ended June 30, 2016 the underwriting loss was $32.2 million and the combined ratio was 111.9%. For the first six months of 2015 we produced an underwriting loss of $13.2 million and a combined ratio of 105.1%. The increase in the underwriting loss in the most recent three and six month period is primarily due to the $12.9 million of adverse loss development in the second quarter that John just detailed. For the three months ended June 30, 2016, Third Point Re reported net investment income of $86.3 million, compared to net investment income of $38.6 million for the three months ended June 30, 2015. For the six months ended June 30, 2016, investment income was $46.2 million, compared to $103.5 million in the six months ended June 30, 2015. The return on investments managed by the company's investment manager, Third Point LLC, was 4% for the three months ended June 30, 2016 and 1.9% for the six months ended June 30, 2016. This compares to 1.7% and 4.8% for the three month and six months period ended June 30, 2015 respectively. As Daniel just covered in greater detail, the strong performance in the second quarter outweighed moderate losses in the first quarter and we generated positive returns for the first six months of 2016. Corporate expenses or general and administrative expenses not allocated to underwriting activities were $4.2 million for the second quarter of 2016, compared to $7.8 million for the second quarter of 2015 and $8.4 million for the first two quarters of 2016, compared to $12.7 million for the first two quarters of 2015. The decreases were primarily due to separation cost in the prior year periods and lower stock compensation expense in the current year period. Other expense for the second quarter of 2016 was $3.2 million and for the second quarter of 2015 was $2.3 million. For the six month periods ended June 30, 2016 and June 30, 2015 other expense was $5.9 and $5.0 million respectively. Other expense represents interest credits paid on deposit and certain reinsurance contracts. In February 2015, Third Point Re USA issued $115 million of senior notes bearing an interest rate of 7%. As a result, we had $2 million of interest expense for the second quarter of 2016 and $4.1 million for the first two quarter of 2016. In 2015 interest expense was $2.1 million in the second quarter and $3.1 million for the six months ended June 30. Income tax expense or benefit is primarily driven by the taxable income or loss generated by our US-based subsidiaries, as well as withholding taxes and uncertain tax provisions on our investment portfolio. We recorded an income tax expense of $5.3 million for the three months ended June 30, 2016 and $3.4 million for the six months ended June 30, 2016. This compares to 700,000 of income tax expense in the three months ended June 30, 2015 and $2 million for the six months ended June 30, 2015. Lastly, we repurchased 644,768 commons shares in the second quarter at an average cost of $11.46 per share and have $92.6 million available under our existing $100 million authorization. We will continue to be active in the open market when our shares trade persistently below book value as they did in the second quarter. I'll now hand the call over to John.

Thank you, Chris. Our investment portfolio managed by Third Point LLC produced strong results in the second quarter after difficult a start to the year. In the second quarter our investment portfolio was up 4% and year-to-date through July we were up 4.6%. Unfortunately the other leg of our total return model did not perform as well this quarter. We had a disappointing reinsurance underwriting result due to $12.9 million of adverse reserve movements. As I previously stated, we remain focused on improvements to our pricing and underwriting processes, remediating problems as they emerge and separating from problem clients and market segments. We thank you for your time and we will now open the call for questions. Operator?

Thank you. [Operator Instructions] Thank you. Our first question is from the line of Kai Pan with Morgan Stanley. Please proceed with your question.

Good morning and thank you. First few questions for Dan. Dan, you mentioned you reported later about Brexit. And just wonder your view on potential market impact from the US election and could the market be caught of like a flat-footed by that events as well?

Sorry, so the question is, I don’t understand the question…

The question is really about the….

What's the outcome of…

Potential market impact, would that be a surprise to the market, basically like what you have observed from Brexit.

Yes, I think people are understably drawing comparisons between Brexit and the US Presidential election and obviously US Presidential election is consequential. But Brexit was a – was a referendum on participation in the EU. This is very different, we're talking about the leaders of United States. So I think there is – people want to draw comparisons between the sort of populous backlash that promoted Brexit and which I think you could go through and analyze and discuss what the – and asses what the merits were or not for Brexit. I mean, this is very different. We have some very unusual personalities involved in this election. I think they are giving people some concern. I am not going to predict the outcome. But you know, we're obviously watching the polling very closely. And I think that the election is important, but I think the polling would suggest that we will be in reasonable shape in this election. I just want to leave at that, I don’t want to get too much into the election discussion.

Sure. Second question on your investment in China, Didi. I just think its kind of a like a different than before because I think this is the first investment for you in China and also is a private investment. So I just wonder how big is the investment relative to your portfolio, and how do you think about country risk as well as the liquidity?

So its not a – we've been investing in private companies since 2000 or even before. So it’s not our first. I would just differentiate, I mean, Didi is a relatively late stage private company. This wasn’t like a start up or series A, it was fairly late stage. We look at this as sort of a bridge equity investment to an IPO which we expect to take place next year. Didi's already announced its merger with Uber which will take a enormous amount of risk out of the investment. You know, irrespective of the country risk in China, this is a tremendous opportunity as we outlined in the letter to be at the forefront of a technology in transportation, in the biggest market in the world. So we're very excited about it. I don’t know what we – I'll refer that to the TP Re folks, I don’t know that we disclosed the size of the position. But it’s appropriate given that it’s private for us.

Yes, Dan, we do not disclose the amount of positions, but we are taking only a small portion of the privates, that Third Point investment right now.

Okay, that's great. And then next one is on, Dan, you mentioned that you hired new teams and moving away from generalists to a sector specialist. I just wonder, would that sort of like impact your operating process as well as culture? For example, would that create silos and create frictions among the teams?

Yes, that’s – this isn’t a new development. We have been creating specialist in asset classes, geographies and industry groups for – over the last six or seven years. This is nothing new. The new thing is that we've been adding to the team and have a lot of new talent in particularly in financials, technology, consumer, risk arbitrage, so – and healthcare. So we're just beefing up the team that we already have. But this doesn’t represent any kind of a new development. And as far as the culture goes, everything is consistent with the way we've done things. We're very team oriented, collaborative, transparent culture. We work together very well and there is no – we don’t - may work for other firms, we're not a silo based firm.

Okay, that's great. And then we saw news of like pension funds and the insurance company pulling out of their asset allocation in hedge funds. I jus wonder, is there any impact on the Third Point fund?

No, I mean, unfortunately due to the poor performance of a couple hedge funds out there, it’s caused some institutions to rethink their hedge fund strategy and some of them are just completely gone out of the market. We had some exposure to those firms, but the ones that we did have exposure to we've have already – that’s already behind us.

Okay. That’s great.

And hasn’t been – and it’s not been meaningful - it wasn’t meaningful amount of redemptions.

Okay. That’s great. Now moving to the underwriting side, John Rob and Chris. On the reserve charge its 10 points. What's the potential further down side from this for contracts? And also if you are looking like in hindsight, what you could have done differently in terms of reserving process and how do you change that? How would you change that going forward?

Kai, on the – just segment by segment, if you look at the auto physical damage and extended warranty, it’s a program that we started writing in 2014. Our total written premium on that for the three years is about $370 million. So we're seeing – when we wrote the deal we knew that were a couple of problems areas, that needed addressing and we thought we would – we and the ceding company we were taking appropriate actions at inception, it turns out the actions were not sufficient to head off the problems. So the reserve development on that well, its $4 million, it’s on a pretty big base. This is a global deal we were participating with a really world class partner on this. So we're optimistic that the – the fixes are in place, the problem have been addressed. A couple of the areas have turned around and so we think with this reserve increase we're in pretty good shape, but we're watching it intently. On the workers comp, that one is you know, this is the second time around, we've had a reasonably large reserve increase on it, put down in perspective that deal we've written since 2012. All in, inception to date we have about a $180 million in premium and the current combined ratio on that is 105. So higher than we originally thought by about 7% and I think there we just - when we wrote the business we knew California was top, that it was coming out of a very tough time, but the rate increases were substantial and we thought our partner was better than most, they are better than most, but not as good as we thought. In our model workers comp at 105 this still - is still attractive. You know, it generates reasonably long duration claims, and again, we think we're on top of that. Now, I shared that before and I've been wrong, so yes, I hope I am right this time. On the non-standard auto, that’s tough business, just by its nature its mostly MGA driven, from our inception we've written about $400 million of that business, we currently have it reserved at a 100% composite ratio, which – there is not a lot cash flow on that business, so that’s tough. It’s still very competitive when we try to take competitive - when we try to take corrective action through treaty terms and conditions, we find that the market will step up and either improve the deal or renew its expiring. So that’s shirking. That one is a little bit easier to get our arms around because it’s short tail. So again, we think with this increase we're in a good shape. That’s a segment that is, as we're unable to get the appropriate reinsurance terms and conditions, it’s shrinking somewhat dramatically. And on the Florida business, that’s probably the area where we're most confident in and that we have - and we have it right this time, given it is relatively short tail. The home markets it’s been caught out on the assignment of benefits. It’s a instance to where when we started to see that pop up on our accounts we tried to take again corrective action through the terms and conditions and again the market pretty much went on as expiring and we retired from many accounts. And that business is written –is running at about 100% composite, which again for our model is not ideal because there is not a lot of float on that. But to put that in perspective, when we wrote the business we thought it was going to run like a 96 or 97. So we're just never going to be a home run, its not cat exposed business, it’s for the attritional losses. So while this increase is disappointing, when you look at overall the economics of the business and then other segments for that matter too, economically it’s not that bad.

Are you changing any of your processes going forward?

We think we have very robust processes and I think a part of the issue is we've – in retrospect everything is clear. Across the board here, we were overly optimistic when we wrote the business. Our initial loss picks proved to be too small, too small, too light, not high enough. And so on business I think we're taking much pragmatic view. When we started the company, I stated very strongly that our goal is get below a 100% combined ratio. We believe we could, at the time we thought there was significant margin in the segments that we're writing, you know, as it turns out. Yes, I was wrong, that the competitive nature of the market is just really gotten more and more intense over the 5 years, 4.5 years we've been business and this business just doesn’t carry the margin that we originally though it did.

Okay. Great. Thank you so much for the detail. My last question is if you strip out these reserve charges from both prior quarter and this quarter, is it running around about a 104 composite ratio relative to 100 a year ago? I just wonder, the increase, is that coming from business mix or market condition or are you being more conservative picking your initial loss pick?

Yeah, is pretty much all the above there Kai. When you see our track record of missing on the loss reserves, you just say, wow, we should be reserving any business at a higher loss ratio. So we are in – we have increased our loss picks.

So is that like - I mean, sort of a like reasonable run rate, like 104, 105 composite ratio going forward?

Yes, it’s probably a little high Kai. If you adjust six month composite ratio for the $12.5 million adverse development that equates to a 102 composite and that’s probably a little high given we made some loss reserve adjustments in Q4 that had business that was still to earn into this year. So certainly looking forward we would hope that that 102 would drift down a little bit. So it’s probably not quite as high as the 104 that you noted.

Okay. That’s great. Well, thank you so much for all the answers.

Thank you.

Our next question is coming from the line of Jay Cohen with Bank of America. Please proceed with your question.

Yes, thank you. Looking at the reserve additions, I guess, the one bucket that would probably leave you with the most uncertainty still would be the workers' comp, just given the tail on that business. Two questions. One is, you said you guys were running this business - booking this business at a 105. Do you know where the industry is for the same time period? So that's question number one. Secondly, given that you were taking charges in several different areas, was there any extra effort this quarter to sort of get this behind you, given that it was going to be an ugly quarter anyway?

The first question, when we first looked at the California workers comp we really thought there were three main segments. One you looked at the state fund, the residual market and their loss ratio is 30 points higher than the specialist. So you had the state number. Then you had the nation wide writers who performed better than the state fund, but still not great. And then you had specialty writers, the California only [indiscernible] the republic indemnities that outperformed the state fund by 30 plus points. And so, the deal we wrote was a California only and we weighted it more towards the specialty on our original pick and as it turns out it’s performing more like the nation wide. So it’s substantially significantly worse. There is still a good amount of IBNR on it where we are somewhat frustrated by our inability to get it right. We think we have loaded it up this time. But again, as you said Jay, long-tail casualty business, historically and reinsurance is tough to reserve. And your second question about have been even more conservative this time, like hey, it’s a bad quarter, let's add some extra in there, without sounding too defensive, we - yes, now we delivered adverse development several times and we're saying let's just be more conservative in our picks on existing business and any business we write.

Got it. Thanks.

Thank you. [Operator Instructions] Our next question comes from the line of Christopher Campbell with Keefe, Bruyette & Woods. Please proceed with your question.

Yes, good morning.

Good morning.

Okay. You know, another question on the reserves, but it looks like you were taking charges on specific contracts. Are there similar contracts in the underwriting portfolio that might need a similar true-up?

We reserved contract by contract. So at this point we don’t think so. The one workers comp contract is one of a small number, but by far the largest. The auto physical damage extended warranty is the only contract of that type we have. The non-standard auto, we think we're on top of each of the contracts. So we think the ones we've addressed are the appropriate ones. And on the Florida home owners business, we do claim audits, we believe we're on top of all those and we think the two contracts that we've addressed are the appropriate ones. So…

We didn’t renew any.

And several – we didn’t renew any of the deals. So it’s not like we have new exposure, that we're still watching.

Okay. So these are really just - these are specific to these contracts and not indicative of like an underlying trend that you're seeing across multiple contracts?

Correct.

Okay. And then switching to the premium growth, I know it can be lumpy, but you did grow in specialty and then shrunk in property. Is there anything that we can read into that going forward about your underwriting appetite?

Well, the property is shrinking, that’s really the Florida home owners, where you know again, we recognized the AOB problem, when most people did say, well, this is an issue and we were surprised that companies were able to renew their reinsurance programs without any improvement in terms and conditions. So we retired from many account, so that explains the property drop. The other areas, we've had some existing contracts extended for six months. We have written some new business. One area that we like our loss reserve deals. We've yet to write one this year. We have some in the pipeline and that we're hopeful that we hit on them, but we have not written any of those this year.

Okay. And just one more question on the buybacks. I think when you guys originally did your IPO, I think the repurchase price it's decided by the Board, but it couldn't be any larger than 100% of book. And given you guys are about 98% of book value per share just using last night's number, how should we think about this going forward? And what are the criteria then that you use internally to decide on the buyback?

Yes, I mean, its I think pretty consistent with what we said last quarter, I mean to the extent that we're trading below book value, it’s a very compelling opportunity to repurchase our shares for the obvious accretion to the book value per share and earnings per share. So we'll continue that strategy. We were repurchasing shares in the second quarter when our share price is drifting down closer 90% of book and we expect that to be our strategy going into the third quarter as well. Obviously we're managing the amount of share buyback relative to our capital considering, rating agency consideration and other opportunities in the pipeline as well.

Okay. Great. Thanks for all the answers. Best of luck in the third quarter.

Thank you.

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

Good morning. I wanted to ask, I believe you guys have been growing your MI reinsurance business, is that correct?

That is correct. We started writing this business, really our first year. I think we got in before the current stampede and it’s increased steadily. And so that the total amount of business we've written and we're currently very close to two more deals, and we think we have one that will come in next year. So all in, we've written about $200 million, $225 million of that business.

So my question is, it seems that more and more and I'll say re-insurers tend to think this is like a holy grail line of business to write in the current competitive market. Can you give me a talk since you've been writing this from year one, really where can this go wrong? What changes in the product structure, pricing is in the product now given the increased attention it's getting from newer competitors?

I think its - where it goes wrong, it’s really a economic cat cover. You look at what happened in 2008, I think you really need some real financial stress in the market place. Why we like this business four years ago, is that the standards to get a mortgage have really been tightened up. So you don’t have the fraud, the loose credit guidelines you had in the past. So we think the loss scenarios have really improved. But I think where it really tips is a real economic crisis.

I'm assuming that the margins on that business have shrunk in the last four years, though, as more and more people have identified that as an attractive line...

What's interested Ken is, they haven’t, and I think, the reason being the demand is big. I think the numbers we see that so far about $7 billion of limit has been put into reinsurance market and that’s expected to grow over the next reasonable number of years to something like $45 billion. And so that you know, it makes you realize how small reinsurance capital is compared to the financial market. So we've actually seen on renewal of the MI reinsurance treaties, not a lot of movement on terms and conditions. So its one of the few areas that’s holding up and I think it’s really because the demand for it is outstripping the supply.

So obviously I'm thinking of the TMIs themselves. You don't expect them in two years as they start building up their capital, that they are going to look to recover some of those costs? You believe that there is going to continue to be a growth in the reinsurance marketplace for the next few years?

Two years from now I don’t know. Clearly we're dealing with the present and next year. The GSCs are really, you know, that’s really the big area of growth and that - a lot of companies that you can write that business as a re-insurer and those are the numbers that really are increasing the demand.

Ken, there is a surge in demand because the GSCs turned their product into a reinsurance accounted product, previously it was derivative accounted product, so re-insurers became more interested in that. And then on the MIs the regulators have been clear on the capital treatment of reinsurance. So with those changes which happened as about the same time there is been this big surge in demand. Yes, I think over the next few years terms and conditions will head the wrong way, but I think we have a good runway right now.

Yes, to date they've held up.

Great. Thanks for taking my question.

Thank you, Ken.

Thank you. At this time, I will turn the floor back to Mr. John Berger for closing comments.

All right. Thank you very much for listening and we look forward to talk to you – talking to you next quarter. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.