WRB
#Okay.
Let me take those one at a time.
Basically, to make a long story short, presumably, as you'd expect, the change between the first quarter and the fourth quarter is the loss activity quieted down dramatically.
And as we had suggested when we had the fourth-quarter call, while there are no guarantees, we thought we had certainly looked under most stones and felt as though we were well on our way to getting our arms around it.
Now, obviously, we continue to make sure that we have gotten our arms around it fully.
And it's possible that there could be a bit more noise coming through during the second quarter when we have the discussion about that.
But again, it was just reduced loss activity.
And sorry, what was the second question.
You were breaking up a bit.
I think the answer is, as we suggested, we feel as though we've identified the cornerstone issues and that we are getting our arms around it.
And we think we are well on our way to where we need to be.
We think there may be some investment losses still.
But it's not anything like the magnitude of the $22 million.
Probably, at this point, our best guess is $5 million from the energy funds losses.
But we're not 100% certain at the moment.
Arbitrage number for the quarter was $9 million.
Just to be clear, in the release, we just give the core portfolio; so that is not just fixed income.
We're not that clever.
We couldn't be that clever because you are not recommending our stock, <UNK>.
If we were really that clever, you would be.
So the answer is, you make swaps to pick up dividends.
You do all kinds of things.
And there's no question in that quarter, we were able to pick up some return by doing a couple of things.
So that was a particularly good return.
But I think that if you look at our base level of return, it continues.
And arbitrage does go up and down a little more than other parts.
Well, we just did some.
And we're going to, next month, pay off $200 million at that point.
As we always do, we look at our balance sheet, and look at what our opportunities are and what we can do, and try to figure out what opportunities may present themselves.
So it's something we look at all the time.
Thank you.
We don't do that on the conference call.
You are welcome to give <UNK> a call and chat with him.
Again, if you want to talk about the specifics of reserve of leases, you really need to talk to <UNK>.
We'll be cautious and see how the year folds out.
We tend to look at the first quarter cautiously.
And if we see it developing more favorably than we expect, we'll recognize it as time passes.
I think, as I said in my comments, I also was a little more pessimistic about rising inflation that seems to have turned out.
So if that ends up being the case, we may find that we were more cautious than we needed to be.
<UNK>, do you want to ---+
Yes, just following on that, as we've discussed in the past, our view is that when we come up with our initial picks, we are probably more likely than not going to err on the side of caution.
And certainly a component of that would be the assumption around inflation over the duration of that potential liability.
So the initial loss pick, again, there are no guarantees.
But our historic experience and our expectation will prove to be more on the side of caution than optimism.
I think generally, we were originally anticipating more inflation and increasing rates by the end of the year.
I think we're less certain of that view at the moment.
And we're more cautious, I think, that where we look today is more like flat to very slightly increasing rates, and very, very little increase in inflation.
So we are looking further out.
I think that the balance, which to us was inflation and slightly higher rates more likely by the end of the year is now probably even to slightly ---+ I would guess even would be the best thing.
And we don't see that happening.
We think that China is, in fact, slowing down.
We do think that they're really not gunning Europe.
Europe is not getting going at any accelerated pace, and the US can't carry the world.
I'm pausing ---+ not that I don't understand your question.
I understand it very well.
I'm trying to decide whether it's in the best interest of our shareholders for us to be talking about something of that nature.
Here's the best way I can answer it without answering it.
I think that we feel as though the California market provides, again, not across the board ---+ I'm painting with a broad brush ---+ but generally speaking, a reasonable opportunity to make a reasonable return.
What the rating bureau does out there, I'm not familiar with their data sets or their formulas or intimately familiar with their actuarial analysis.
But certainly our view is that the California market today is much healthier than it was a few years ago.
Having said that, our view is that there is certainly opportunity for it to become a bit healthier.
The reality is, it would be common sense for us not to want to tell people our perception of an area that we compete in actively.
So we're trying to do the best we can without probably helping our competitors.
Anything of that nature, you'll have to talk to <UNK> off the phone.
<UNK>, I have a picture of that same volcano.
And I was there, 1971, with my first independent director.
Yes, it was erupting when I was there.
It was changed.
Yes.
That's a part of it.
It's probably close to the magnitude of the cats themselves.
<UNK>, this is <UNK>.
I would think that a reasonable estimate to use would be, if you look at the cat number, multiply it by 2, and that's going to give you a weather-related number-ish.
I don't know.
<UNK>, is that right.
Correct.
No.
Modest ---+ it's favorable, but very modest.
(laughter) I'm sorry.
I had a comment in my quote about it.
And they all argued that nobody cared.
So thank you, Michael.
I appreciate it.
The answer is, I think that it will have no impact at all.
If anything, if you've actually looked at the end of the quarter to now, it's gone the other way.
Yes, but this time, I'm laughing with you not at you.
(laughter)
<UNK>, this is <UNK>.
I think there are a couple of drivers there.
But to get to the root of your question, our expectation would be that the growth rate is going to float between plus 5% and maybe low double-digit, if you will, sort of 10% or 11%.
And that can ebb and flow, depending on the quarter.
There was no one-off, if you will, that reduced the growth rate.
Certainly, a component of it is that the rate increases have slowed a bit compared to what they were over the past few years.
So that's 200 basis points of growth right there.
In addition to that, there are certainly some sectors that have been driving the growth over the past many quarters that are not enjoying the same opportunity, energy being an example of that.
But overall, I think to expect the business ---+ as far as the Domestic insurance business ---+ to grow at a rate somewhere between 5% and 10% wouldn't be a bad assumption at this stage, knowing what we know today.
We manage this Company in a way that we think is in the best interest of the shareholders always.
Always have; always will.
For us, that means if the right opportunity comes along, we will seize it.
We think there are several things that are different now.
Number one, we think a number of people deceive themselves that thinking scale of capital is an important competitive advantage.
We think quite to the contrary.
We think the world is full of capital; and if you have skilled underwriting talent, you'll be able to get all of the capital you want.
Therefore, getting more capital, as some people think is the object of putting two pieces together, is a bad decision.
We think it doesn't help your shareholders.
In fact, it ultimately dilutes their return.
So we should start by saying just acquiring something to get bigger, to add to your capital count, is certainly nothing that we would consider.
We always have the interest of finding ways to add expertise, finding people, finding something that gives us a competitive advantage.
And we are always in the market for that.
And if people want to talk to us, we are always willing to talk to them.
But it really has to do something that we think is terrific for our shareholders.
I think consolidation will continue because there are a lot of people who found getting in the reinsurance business was an easy way to make money.
And it's going to be a lot tougher way of making money as people who have pools of capital that is not theirs get together with expertise.
So I think consolidations will continue.
Smaller and intermediate size players will get acquired, and there will probably be opportunities.
And many things that have been done, we've looked at, we've talked about and, for some reason or another, haven't participated.
There are always opportunities.
We are a known quantity.
We understand how to organize and set up new ventures built around teams of people.
And a week doesn't go by that some team of people or another doesn't knock on our door, and we talk to them.
But we have a view that they have to provide something that is worthwhile, and the opportunity to generate the kinds of returns we think our shareholders need to achieve.
In some cases, it is; in some cases, it isn't.
I think that at the moment ---+ and this changes all the time ---+ the hindrance for capital going out of the business is the fact that managements and boards don't want to let go of their positions.
Capital can't move without their consent.
I think that some of these things will, in fact, take place.
And you will find some of these people effectively going out of the business.
So I think that's going to evolve, and that will happen at some point in time in the next 12 or 18 months.
Okay.
Thank you all very much.
I know this is a time with lots of calls.
We appreciate you being on the call, and thank you all very much.
Have a great day.
