WRB
#Thanks, Rob.
Appreciate it.
We have reported net income of $109 million or $0.85 per share, which is unchanged from the prior year's quarter.
Our total return investment strategy continues to pay off with pretax realized investment gains of $40 million for the quarter and $93 million year to date.
Net investment income also increased 4.8% quarter-over-quarter while year-to-date investment income rose 9.6%.
In light of the increasingly competitive market conditions, as Rob was alluding to, we're pleased with our pretax underwriting results of $76 million for the second quarter.
This represents a small decline of $3 million from the prior year, largely due to a more active combined catastrophe and non-cat weather-related loss environment in the quarter.
Certain areas in the market are too competitive to meet our risk-adjusted returns.
And as a result, we've repositioned certain of our underwriting portfolio and managed our risk selection and exposures, giving rise to a decline in our net premiums written of 4.8% to $1.56 billion.
Much of this decline is attributed to the North American property and casualty treaty reinsurance business, as Rob referenced, where sources of capital are plentiful, putting significant downward pressure on rate.
Our reinsurance segment declined almost $53 million to $126 million in the quarter.
The insurance segment experienced a small decline in net premiums written of 1.7%, which was largely attributable to the exit of a few lines of business at certain operating units due to the inadequate opportunities to achieve targeted risk-adjusted returns.
The accident year loss ratio before cat was 60.7% compared with 60.2% a year ago.
About half of the difference relates to non-cat weather-related losses, which equated to 70 basis points in the current quarter.
Cat losses declined $7.5 million from a year ago to $33 million.
This translates into 2.1 loss points for 2017 compared with 2.6 loss points for 2016.
Loss reserves developed favorably by $21 million or 1.3 loss points compared with $16 million or 1 loss point for the same period last year.
Accordingly, our reported loss ratio improved from 61.8% a year ago to 61.5% for the current quarter.
The expense ratio increased 50 basis points in total from the year-ago quarter to 33.6%.
The increase was primarily attributable to the addition of new operations in the insurance segment, in particular Cyber Risk, <UNK> Transactional Insurance and our recently announced surety and specialty commercial insurance businesses in Mexico.
This brings our combined ratio to 95.1% for the current quarter compared with 94.9% for the second quarter of 2016.
We're pleased with the performance of our investment portfolio.
The core portfolio increased $14 million compared to a year ago, led by fixed income securities with an annualized yield of 3.4%.
Investment funds declined $9 million due to mark-to-market adjustments for energy funds.
We've pointed out the potential variability that may arise in the fund performance on a quarterly basis, as evidenced in the current quarter.
However, the year-to-date results show that the funds are slightly higher in 2017 than 2016 and future variability will remain on a quarterly basis.
Our non-insurance business earnings declined year-over-year due to the sale of Aero Precision Industries in August 2016.
The remaining investments are performing as expected and should generate favorable total returns for our shareholders.
Foreign currency movements, especially sterling, contributed to a foreign exchange loss in the quarter of $7 million.
That compares to a gain in the prior year of $13 million following the Brexit vote.
Our results quarter-over-quarter were most impacted by this $20 million shift in FX.
We manage our foreign currency exposure on a long-term economic basis, taking into consideration numerous risk factors.
Corporate expenses increased in the quarter, reflecting our investment in new business opportunities, including our high net worth business.
We expect the high net worth operation to begin underwriting business in the fourth quarter.
When we move the business to the insurance segment, these expenses will be reflected in the underwriting expense ratio.
At June 30, 2017, after-tax unrealized investment gains were $462 million, up about $35 million from the beginning of the year.
This amount does not include the preannounced $120 million pretax realized investment gains to be recognized in the third quarter from the sale of a real estate investment.
The after-tax gain should contribute an additional $0.64 to book value per share in the third quarter.
The average rating, as Rob referenced, was unchanged at AA-, and the average duration for the fixed income maturity securities, including cash and cash equivalents, remained at 3 years.
The effective tax rate was 31.9%, approximately 1 point higher than our historic run rate due to the disproportionate contribution of gains in the quarter at 35%.
Our return on equity for the quarter on an annualized basis was 8.6% on a net income basis and 12.7% on a pretax earnings basis.
Book value per share increased $0.86 to $43.59 in the quarter, representing an annualized increase of 8.1% after our special dividend of $0.50 per share declared in the second quarter.
Can you ---+ the $21 million of favorable development, can you break that out between insurance and reinsurance.
Okay.
And last call, you had mentioned potentially seeing signs of increasing loss inflation.
I just wanted to know if you could provide some updated thoughts around that, please.
My last question.
I know it's a smaller piece, but can you just provide a reminder of what runs through the arbitrage trading account.
So we have a merger arbitrage trading account effectively and we are only investing in announced transactions.
And those transactions generally are very short term in nature in terms of less than a 4-month period of time.
A couple ones here for you, Rob.
First of all, the worker's compensation insurance growth that you guys are seeing at 8%, is that new accounts.
Or is that wage inflation that you're seeing in comp given the competitive price environment.
Excellent.
And then, Rob, I wanted to talk a little bit more, flesh out a little bit more of your comment about the national accounts kind of getting into the ---+ standard carriers getting into more of the specialty.
Are you referring to basically them relaxing some of their underwriting standards here and taking a nonstandard risk and making it standard.
Or are they actually getting into specialty areas.
