Executives: Beth Farrell - VP, IR Dom Addesso - President and CEO Craig Howie - CFO John Doucette - President and CEO, Reinsurance Jon Zaffino - President, North America

Insurance
Analysts: Michael Nannizzi - Goldman Sachs Jay Gelb - Barclays Quentin McMillan - KBW Amit Kumar - Macquarie Elyse Greenspan - Wells Fargo Sarah DeWitt - JP Morgan Kai Pan - Morgan Stanley Josh Shanker - Deutsche

Bank
Operator: Good day everyone, and welcome to the Second Quarter 2016 Earnings Call of Everest Re Group, Ltd. Today’s conference is being recorded. At this time, for opening remarks and introductions, I’d like to turn the conference over to Ms. Beth Farrell, Vice President of Investor Relations. Please go ahead.

Beth Farrell: Thank you. Good morning and welcome to Everest Re Group’s second quarter earnings conference call. On the call with me today are Dom Addesso, the Company’s President and Chief Executive Officer; Craig Howie, our Chief Financial Officer; John Doucette, the President and CEO of our Reinsurance Operations; and Jon Zaffino, President of our North American Insurance Operations. Before we begin, I will preface our comments by noting that our SEC filings include extensive disclosures with respect to forward-looking statements. In that regard, I note that statements made during today’s call which are forward-looking in nature, such as statements about projections, estimates, expectations and the like, are subject to various risks.

As you know, actual results could differ materially from current projections or expectations. Our SEC filings have a full listing of the risks that investors should consider in connection with such statements. Now, let me turn the call over to Dom.

Dom Addesso: Thanks, Beth. Good morning.

We are pleased to report this morning another favorable quarter, particularly during a period where there have been a number of global cat events for the industry. Despite these events, we posted $3.67 of net income per share for quarter. On an operating income basis, earnings were $3.17 per share, compared to $5.03 for last year’s second quarter. This difference is primarily due to cat losses with the net impact of $105 million after reinstatement premium and taxes. Also impacting the quarter were foreign exchange losses of $27 million or $0.44 per share after tax.

Excluding cats, the underlying attritional combined ratio is virtually the same at 86% in this year’s second quarter versus last. Furthermore, the attritional loss ratio has actually improved year-over-year. This highlights the changes to businesses and product mix that have been achieved. You will hear later when the business leaders describing some of those changes, but it is worth emphasizing as we have in the past that the flexibility and nimbleness of our business model continues to yield good outcomes. Of course offsetting the decreased loss ratio is an increased expense ratio as we invest in our insurance build out.

As I mentioned in the first quarter, this will moderate through time thereby allowing the improved loss ratio to work its way through the overall combined ratio. This moderation is already occurring, as you note the decrease in the expense ratio from the first quarter to the second. Notable however is that the total expense ratio for the insurance segment coming in at 28.3% for the quarter remains several points lower than our competitors and we intend to maintain this advantage as we expand the operation. That expansion is well-underway. Growth in the insurance book is beginning to take hold as gross premiums increased by 32% in the quarter.

On the other hand, somewhat offsetting this is the decline in the reinsurance segment. Rate levels and foreign exchange continue to affect this sector. Nevertheless, as John Doucette will later detail, we continue to move our capacity to the better risk-adjusted business and new product areas, particularly credibility. I am always encouraged by our ability to remain bottom line focused. Another item of interest in the quarter was the recovery of investment income in the lower than expected first quarter due to improvements in our limited partnership investments.

On a year-to-date basis we’re still slightly off of last year, but given the continued interest rate levels, this is completely within our expectations. The impact of lower rates will diminish over time as all the maturities come in. While overall returns on capital continue to face pressure, we remain as one of the top performing companies in the industry. In an environment with a so called risk-free rate as low single-digit, our returns are quite strong with a 9.4% ROE and growth in book value per share of 7% in the first six months. Our book value per share growth also benefitted slightly from our continued share repurchases during the quarter.

However, this was less than anticipated due to a pause in buying when cat events began to emerge during the quarter. So, it’s not a concern over the amount but just the fact that we had knowledge of events affecting the quarter. Finally, I’d like to address our other announcement regarding our crop insurance business. As you may have seen, we have received a letter of intent for the purchase of Heartland, our crop MGA from CGB Diversified Services. This transaction creates an opportunity for us to more quickly expand and diversify our exposure to this business on a more efficient basis.

In the short-term, there will be no appreciable premium impact. However, it will now be recorded as reinsurance rather than insurance. In addition, we will see an expected improvement in margin due to the benefit of a lower expense structure. Buyer scale creates a more efficient deal for us and given their presence in the market, we should continue to benefit as a result of our strategic alliance. In summary, we believe there are many great initiatives underway at Everest.

Yes, there are many challenges but we continue to work through many of them successfully. My colleagues will next offer some further details on the progress we are making. I look forward to your questions after that. Thank you. And now to Craig for the financial detail.

Craig Howie: Thank you, Dom. And good morning, everyone. Everest had a solid quarter of earnings with net income of $156 million, this compares to net income of $209 million for the second quarter of 2015. Net income includes realized capital gains and losses. On a year-to-date basis, net income was $327 million compared to $532 million for the first half of 2015.

The primary differences were catastrophe losses and foreign exchange. After-tax operating income for the second quarter was $134 million compared to $225 million in 2015. Operating income year-to-date was $357 million compared to $554 million for the first six months of 2015. The overall underwriting gain for the Group was $234 million for the first half compared to an underwriting gain of $370 million in the same period last year. In the second quarter of 2016, the Group saw $149 million of current year catastrophic losses net of reinsurance.

Of that total, $90 million related to losses from the Canadian wildfires, $36 million related to Texas hailstorms, and $23 million relate to the earthquake in Ecuador. The 2016 cat losses were partially offset by $25 million of favorable development on prior year cat losses, primarily from the 2011 Japan earthquake. The net impact of these losses after reinstatement premiums and taxes was $105 million. This compares with $23 million of catastrophes during the same period in 2015. The overall current year attritional combined ratio for the first six months was 85.7%, up from 84.5% for the first half of 2015.

This is primarily due to the one point increase in the expense ratio. Our year-to-date expense ratio rose to 5.7% as we anticipated with the build out of the insurance platform and our Lloyd syndicate, but it was below our first quarter 2016 expense ratio of 5.9%. Foreign exchange is reported in other income. For the first half of 2016, foreign exchange losses were $31 million compared to $44 million of foreign exchange gains in the first six months 2015. Both of these results are unusual and represent a $75 million pretax swing year-over-year.

The 2016 foreign exchange losses primarily reflect the weakening of the British pound during 2016 related to the Brexit vote. The foreign exchange impact is effectively an accounting mismatch since its offsetting shareholders’ equity for translation adjustments and unrealized gains due to the positive impact of holding foreign investments that are available for sale. Overall, we maintain an economic neutral position with respect to foreign exchange, matching assets with liabilities in most major world currencies. Other income also included $3 million of earnings and fees for Mt. Logan Re in the first six months of 2016, compared to $7 million of income in the first half of last year.

The decline essentially represents the impact of catastrophe losses during the first half of 2016. On income taxes, the 11.9% year-to-date effective tax rate on operating income was lower than the 13.9% tax rate at this time last year. This was primarily due to the foreign exchange losses and the higher level of catastrophe losses in 2016. Stable cash flow continues with operating cash flows of $674 million for the first half of 2016 compared to $532 million in 2015, which in part is reflective of our strong reserve position compared to actual paid losses. As for loss reserves, last week we released our sixth annual global loss development triangles for 2015.

There were no major changes since the 2014 release. Our overall quarterly internal reserving metrics continue to be favorable. Shareholders’ equity for the Group was $8 billion at the end of the second quarter, up $377 million or 5% over year-end 2015. This is the effort taking into account capital returns for $186 million of share buybacks and the $97 million of dividends paid in the first half of 2016, which combined represent a return of 87% of net income. Our strong capital position leads us with capacity to maximize our business opportunities as well as continue share repurchases.

Thank you. And now John Doucette will provide a review of the reinsurance operations.

John Doucette: Thank you, Craig. Good morning. Despite a very active quarter for the industry with property catastrophe losses around the world, our reinsurance book performed well with $97 million of underwriting profit.

This outcome highlights both, strong underwriting by our experienced underwriting teams and the benefit of a mature well-diversified book of business. We maintain a highly diversified portfolio by line and geography around the globe, which allows underwriting profits in one part of our book to offset losses that might arise in another part of the book. Our sub 90% combined ratio for reinsurance for the quarter demonstrates the value and robustness of this strategy, despite all the cat events. For our total reinsurance segment, net premiums were $771 million, down 8%. On a constant currency basis, they’re down approximately 6% as we carefully manage our net reinsurance book with hedges, higher attachment points and reduced exposures on deals with less attractive risk adjusted returns.

Our reinsurance underwriting profit was $80 million lower than the underwriting profit in Q2 2015. The difference is driven predominantly by the $85 million in cat losses this quarter in the reinsurance segment compared to $27 million of cat losses in Q2 last year. As Craig indicated, cat losses this quarter emanated from Canadian wildfires, Texas hailstorm and flooding, and the Ecuador earthquake. Underwriting profits were also impacted by lower net earned premium and exchange rate fluctuations. Drivers of lower net premiums this quarter were non-renewals and reductions on some property pro rata treaties, which did not meet our risk adjusted return requirements.

The attritional loss ratio this quarter is 53%, 2 points below Q2 last year and in line with Q1, as well as the full year 2015. Business mix and deployment of capacity in profitable areas such as mortgage and credit helped us maintain strong loss ratios despite tough reinsurance market conditions. The Q2 attritional combined ratio of 82.1% is up slightly from the 2015 full year 81.1%, but down 1 point when compared to Q2 2015. The improvement was largely driven by a 4-point year-over-year improvement in U.S. reinsurance which has been impacted by a higher level of attritional losses for weather and large risk events last year.

The international segment also improved with lower commissions in the quarter. The Bermuda segment though experienced a higher attritional combined ratio, primarily due to commission and changes in business mix. Now, some color on our June and July 1 reinsurance renewals, which reflect approximately 10% and 15% respectively of our full year reinsurance premium. June 1st renewals are mainly Florida. Changes in programs vary, but the renewal process was orderly.

Some of the largest programs shrank as we expected, and we reallocated capacity to larger and new layers for preferred clients. Rates were up by low single digits. The Florida renewal market fell like it has found the floor with more treaties not fully placed and more shortfall covers coming to help us. We are pleased with the overall results of our June 1 renewal; and with the re-underwriting of some underperforming treaties, we head into the wind season with somewhat reduced net PML for southeast wind compared to last wind season. At June 1, the U.S.

property market also fell as low as it has bottomed out and the rates were closer to flat. This provides a good start to the upcoming 1/1 [ph] renewal discussion. Outside the U.S., the July 1st market conditions for short-tail were less rosy and still very competitive in Europe and Latin America. However, Asia and Australia renewals were better as we found more attractive places to deploy our capacity. In Canada, the Fort McMurray wildfire loss is the largest insured loss in Canadian history and reinsurance rates were up substantially.

We seized the opportunity to deploy more capacity at higher pricing, particularly with the demand for backup covers in this region. The other loss affected areas around the globe also had increased rates at July 1. The market for 7/1 casualty business also fell as though it was finding the floor with several programs renewing as expiring, more resistance by reinsurers to broaden terms and conditions, and some high profile treaties with low take up with either pulled from the market or re-priced with more favorable terms. Anecdotally, we have heard some broker conversation is now shifting to managing client expectations on renewal pricing, terms and conditions. We continue to find pockets of attractive long-tail reinsurance including auto liability business and we also continue to provide meaningful capacity in the mortgage space, where there remains a robust pipeline of attractive business.

In recent months, we continued to add strong talent to our reinsurance underwriting branch in Europe, U.S., Latin America, Singapore, Canada and Bermuda as well as further expanding our footprint into one-off structured risk solution. These deals are complex, difficult to source and require a broad set of underwriting, accounting, actuarial, legal, tax, contract wording, and structure and capabilities to execute them successfully. These opportunities are diversifying and much more shielded from the broader market pressures and therefore provide meaningful margin and strong risk-adjusted returns, adding to Everest bottom line. We are also seeing several reinsurance opportunities, driven by macro issues including capital and solvency requirements created by the market turmoil including Brexit; Solvency II, Dodd-Frank and related regulatory changes around the globe; profit and expense pressures at large clients who are now motivated to buy more reinsurance; Florida and other clients looking to expand geographically and the additional reinsurance capacity to support their growth; and some global clients are buying down retentions for individual risks or territories. Even in the mix of a tough market, these and other demand drivers provide accretive opportunities for Everest to capture as the leading global reinsurance.

In Mt. Logan, we increased the number of investors, opened new fund and raised additional capital from existing investors. Overall AUM is about flat compared to last quarter given some redemption. We expect long-term growth and interest by investors to continue, given the unique, Logan Everest value proposition, which has resulted in best-in-class returns every year since Logan’s launch. As we have reached Logan’s third anniversary, new types of investors which we have been engaging with for some time, open up to potentially invest in the platform.

Through Logan and additionally Kilimanjaro cat bonds, traditional reinsurance and IOWs we continue to optimize our network which remains well within our long standing group risk appetite. We are pleased with the outcome of both our quarter’s underwriting results in the face of several cat losses and large risk losses and the outcome of our June and July renewals, despite the current market conditions. And we are well-poised for a solid finish in the back half of 2016. Thank you. And now, I’ll turn it over to Jon Zaffino to review our insurance operations.

Jon Zaffino: Thanks Jon and good morning. Everest insurance continued its expansion in the second quarter as we made steady progress on our core strategic initiatives. We experienced another quarter of solid growth across our global operation, marking the sixth consecutive quarter of underlying growth with contributions from each insurance business unit. Echoing earlier commentary, North American division’s results, our largest insurance division were impacted by cat activity within the quarter. Despite this, our underlying attritional performance was solid and in line with our expectations.

As announced yesterday and discussed on this call, given the sale of Heartland, I will share 2016 numbers with you excluding this operation. The full results including Heartland are outlined in the financial supplement released yesterday. Our global insurance operations inclusive of the North America division and Lloyd’s, gross written premium increased 23% quarter-over-quarter to $405 million while net written premiums grew to $343 million, an increase of 19% over the prior year quarter. Looking at the first half, again excluding Heartland, we produced gross written premium of 764 million, an increase of 17% and net written premium of 652 million, an increase of 12%. As mentioned on previous calls, net written premium growth slightly lags gross written premium growth, primarily due to a marginally more conservative reinsurance strategy in our U.S.

operations as we add new businesses. The insurance segment GAAP combined ratio for the quarter ex-Heartland was 109 impacted by 13 points of cat activity or 38 million. This was attributable to exposure with our U.S. and Canadian property portfolios from the Texas hail events in April and the Fort McMurray wildfire. On an attritional basis, the calendar year combined for the quarter improved to 95.7% while the attritional loss and loss expense ratio for the quarter improved 130 basis points over the comparable prior year period to 66.9%.

I’ll now turn to the performance of our major insurance segments, provide an update on market conditions and also briefly comment on the strategic expansion of the Everest insurance platform. Although the quarter was impacted by cat activity in the U.S. and Canada, we remain encouraged regarding our progress and the build out of our global insurance operation, the results of the underlying portfolio, and the opportunities ahead. Within our PNC operations, both our U.S. and Canadian units, demonstrated solid growth in the quarter.

Gross written premium was up nearly 18% in the U.S. and up 22% in Canada. Further, our Lloyd’s insurance operation contributed nearly 11 million in gross written premium in the quarter to this segment, which we expect to accelerate in the months ahead. Nearly every underwriting unit contributed to these results, although similar to the first quarter, the growth varied across units and lines of business. Of note in the second quarter, we were pleased to see a meaningful contribution of 5% of premiums from our various new North American underwriting units launched principally over the past six months.

Again, it’s early in the growth phase for these businesses and we remain optimistic about their trajectory. Our A&H group experienced another strong quarter of growth of registering nearly 42% increase quarter-over-quarter. Our effort to enhance our platform via expanded product and distribution capabilities are proving successful, and opportunities in certain medical stop loss markets headlined this quarter’s growth. Turning to the rate picture, the second quarter evidenced many of the same dynamics and challenges as those in the first quarter. While we did experience marginally more rate pressure in the second quarter, actual results were mixed by line of business.

As noted earlier, our attritional loss ratio continues to improve despite this pressure and due to changes in our mix of business, various underwriting actions taken on selective portfolios and the achievement of positive rate in various areas, namely commercial auto. Further, we continue to believe that for the majority of lines, we are operating within a relatively tight range but the magnitude of rate volatility is limited. In the U.S. the property market overall continues to see low double-digit rate decreases on average. However, there are signs of moderation as the market seeks a bottom.

Clearly, pressure from recent cat activity in the quarter is having an impact but it’s too soon to quantify this. Additionally, we are also noticing some select tightening in terms, particularly in states prone to convective storm activity. Third-party casualty lines are mixed with slight pressure or even flattening for both general liability and excess casually lines, once again, offset by positive rate movement in commercial auto. As in the prior quarter, management professional lines continued to experience mid-single digit decreases overall. There remains more intense pressure on excess layers with the rate reductions moderating on the primary.

The work comp market also experienced moderately more pressure in the second quarter with low-to-mid single digit decreases being common. There remain pockets of opportunity across classes, segments and geographies although we continue to note new and expanded competition in this market and we’ll watch this closely in the months ahead. And within the A&H market, the medical stop loss segment remains competitive other than for accounts with challenging loss experience. Turning to Canada, the liability market mimics that of the U.S., slightly rate adjustments are noted yet remain essentially flat year-over-year. The property market likewise remains relatively flat.

Post the Fort McMurray loss, there have been some pockets of increased rate adjustments within various territories and classes of business. Although early, we’re not seeing any wholesale firming across lines. We will keep a close eye on the market to see if the tone changes as we near the 1/1 [ph] reinsurance renewals So, again, a mix market landscape depending on the many factors influencing various lines of business. That’s stated, due to our increased product depth across geographies, we are able to seize profitable growth opportunities, despite challenging market conditions. Final thought regarding the strategic expansion of our global insurance operations.

We continue to capitalize on the dislocation within the commercial market to build out our global specialty insurance capabilities with the new and enhanced products, additional leadership and underwriting depth, and expanded geographic reach. Each of our operations are making excellent progress on their 2016 goals and we anticipate increased momentum from actions executed over the past year. With that, let me turn it back over to Beth for a Q&A.

Beth Farrell: Operator, we’re ready to take questions now.

Operator: Thank you.

[Operator Instructions] Our first question is from the line of Michael Nannizzi with Goldman Sachs. Please go ahead.

Michael Nannizzi: Maybe, start a bit on the insurance book and the growth there, clearly a very nice growth. Are the dynamics in the markets that you’re growing in, is there a shortage of capital that is allowing for you to pursue growth and continue to see a profitability improve or what other dynamics are at play just because I haven’t seen a lot of growth in insurance from some of our other companies so far? So, I just want to get an understanding of how the dynamics there? Thanks.

Dom Addesso: Michael, I don’t think it’s a case of capital.

We all know that this industry is awash in capital. I think it’s really taking the opportunity to -- there are certain markets and particularly that in disarray. Companies are changing and the marketplaces always influx. And I think brokers are in particularly always looking for highly rated carriers coming to the space to either replaced markets that are reshaping their own portfolios or the distribution for one reason or another or changes in their in their own teams, in addition perhaps upgrading some of the credit quality of markets that they offered to their customers. So, it’s more -- it’s not about capital, it’s ore about taking advantage of opportunities from what I’d describe as dislocation and the offering that we could make to brokers of top quality.

Michael Nannizzi: So, these are opportunities that you are not winning on price specifically, you are able to come into the market to help fill a gap based on the profile of reinsurance counter-parties, either the brokers or the insurers want, is that?

Dom Addesso: I thought -- what I was answering was an insurance question; I thought that’s what you are referencing, correct?

Michael Nannizzi: Yes, your insurance, so either brokers that you’re placing. You said that brokers like you’re rating and profile. And so, I would think that either the brokers want you there and that’s part of the reason why you can write the business at attractive profitability or the insurers themselves want you there, is that…?

Dom Addesso: What I was specifically addressing though was the insurance segment, not the reinsurance segment, although some of the same qualities are there as well. And also, remember that on the insurance side, we have hired some notable talent in the industry, and with that comes relationships and business flows that way as well.

Michael Nannizzi: Okay.

I think I was saying insurance not insurers, but okay; that’s right. And then, I guess is it possible to give us a little bit more color on the impact of the sale of the crop business, how much premium should come out of the insurance segment; how much should we expect to come into one of the reinsurance segments, I guess in U.S. reinsurance, just any context on -- and was there a dollar amount for the sale or was it all kind of bit part and parcel of then exchange of the franchise for a reinsurance premium on the back of that?

Dom Addesso: We are not at this point, since it’s just really a letter of intent, we are not disclosing detail [ph] of the transaction. But, I can say that there will be no material impact, gain or loss from the sale of company. As I mentioned in my comments that the premium impact of these from the short-term to the Group will be minimal, will be about the same in another words.

So, right now, we have approximately $200 million of premium in the insurance base that we will transition forward to and be reflected in the reinsurance segment. So, it will be about the same, at least in the short-term. And then of course going forward, our participation with the buyer on reinsurance arrangements could -- and their expansion could make that -- the reinsurance premium go up over time. But no [ph] significant premium change to the Group; it’s just basically shifting it from one segment to the other of what we think as improved profitability.

Michael Nannizzi: And then, just on the prior year development of attritional cats, I just wanted to understand, was there a reason that number, the 2011 development didn’t go into a prior year category and why it ended up in -- I mean that was just accounting but why that ended up in the current accident quarter attritional cat load?

Craig Howie: Mike, this is Craig, We show cats on one line, that’s the only reason that we don’t breakout prior year cats and current year cats, that’s the only significance.

That’s the reason we book it out in our discussion topic for the call.

Dom Addesso: That’s where [multiple speakers] originally, so, it flows through the same line item, if you will, in the second quarter.

Michael Nannizzi: So, in the past, when you had reinsurance prior development that’s been casualty development or underlying loss ratio development but not catastrophe development, is that the difference?

Craig Howie: That is correct.

Operator: Our next question is from the line of Jay Gelb with Barclays. Please go ahead.

Jay Gelb: I think there was a fair amount of concern going into the second quarter around the catastrophe loss exposure, especially in Canada. When you think about the end result of roughly 10 points of earned premium and still generating around 9% return on equity on an operating basis in the first half, how does that shake out relative to what you would have thought of catastrophe of these magnitudes in the quarter?

Dom Addesso: How does that translate into earnings?

Jay Gelb: No, I mean, is it -- would you expect it to be this size or when you go through your risk management, would you expect it to be a bigger impact or maybe that’s just kind of jumping off point where you can talk about the risk management framework?

Dom Addesso: Well, I think this loss and how it impacted our results was kind of what we would have expected. We speak to kind of writing business with the best risk adjusted returns. So, as an example, in Canada, we tended not to write reinsurance deals that are heavy personal exposure. So, that obviously had some benefit to us.

In addition, at least for last renewal season, we tended to be in the higher attaching layers. So, the lower layers did not meet our risk-adjusted return characteristics. So, yes, it kind of translated into what we would have expected. Given our presence in Canada, we did not experience any kind of an outsized loss, generally because we are directing our underwriting to those areas that we feel give us the best returns. I don’t know if that’s frankly what you’re asking.

Jay Gelb: It is, yes. That’s helpful. Thank you. My next question is on the international reinsurance segment, the 14% gross written premium growth in the second quarter. Can you give us some insight in terms of what was driving that and whether we should anticipate growth at that level going forward?

Dom Addesso: I think that was adjustments due to some large transactions that happened in 2015.

Craig Howie: That happened in 2015. So, this is -- 2016 year is more consistent with what you would expect to see going forward. There were accounting adjustments made in 2015, which is causing that comparison.

Jay Gelb: So, just to clarify that 14% growth is normalized for international?

John Doucette: I think the way to think about it is look at the entire six months of last year and compare it to the entire six months of this year and that is a more appropriate comparison, because it was basically a kind of -- and we talked about it on last quarter. And it kind of washes over the first six months of the year.

Jay Gelb: Okay. So, normalized down high single digits, gross?

Craig Howie: Right.

John Doucette: And that’s partially given by the FX.

Operator: Thank you. Our next question is from the line of Quentin McMillan with KBW.

Please go ahead.

Quentin McMillan: Just a quick numbers related question, Dom, I think you had mentioned 27 million in FX losses. I just wanted to ask about Mt. Logan. Is the remainder of the other income expense bucket, the 28.4 million, is that all just a small loss from Mt.

Logan basically?

Craig Howie: Mt. Logan actually had 3 million of income year-to-date for…

Dom Addesso: The number 27 million by the way was after-tax [Multiple Speakers]

Quentin McMillan: So, the 28.4 million is a 3 million gain from Mt. Logan and then like a 31 million pretax loss in FX, is that about right?

Craig Howie: 3 million of gain was for the year, Quentin.

Quentin McMillan: Oh, for the year, my apologies. Okay, but for the quarter -- okay, I think the rest of the numbers are actually in 1Q, so I can break it out that way.

Secondly, just John, thanks very much for sort of just talking about the cat related losses in the quarter. I just wanted sort of understand a little bit more, it sounds like you are saying they came from Canada and then from the Texas hailstorms, but the 38 million is a lot higher than we’ve ever seen out of that portfolio. Can you just talk us about sort of why there might have been elevated property losses in the cat line this quarter, should we expect sort of a higher cat load in the insurance segment going forward?

John Doucette: Quentin, I don’t think it’s really out of line from our perspective. You remember, we’ve been steadily growing our E&S property book over the last several years, it’s been incredibly profitable for us. We do manage all of our accumulations at the Group level.

So, in relation to a number of different benchmarks we look at, first and foremost group accumulation, our cat model, but secondly also our representative market share and any given market, the nature of the underlying events, both obviously two extreme events here with Fort McMurray and the Texas hail. So, the number might seem bigger than you’ve seen in the past, but in relation to depth of these books of business, we think it’s very much in line.

Quentin McMillan: So, if I could just say that slightly different way is sometimes the wind doesn’t blow your way, this might have just been a little of an outsized quarter, correct?

John Doucette: I think that’s correct.

Quentin McMillan: Okay. And then, just last question, Dom, you had mentioned in the first quarter the 11% growth rate in the insurance segment was a little bit below what we should expect for the full-year but the 20% you had previously mentioned maybe not quite in that level.

Given the strong growth in the second quarter, is it safe to assume that you guys are targeting more of a 20% plus type growth rate or still sort of no real change?

Dom Addesso: Yes, our growth rate in the insurance sector will certainly be in the high teens. I don’t know if we readily admit over 20%. But, again that’s going to be based on what the market opportunity presents to us. If pricing continues deteriorating to any great degree then perhaps we pull back in certain areas. But we have got a number of new initiatives that we are just getting off the ground.

So, I think the growth rate should be solid teens.

Operator: Next question is from the line of Amit Kumar with Macquarie. Please go ahead.

Amit Kumar: Thanks and good morning and congrats on the beat. Just a few follow-ups.

The first question is on the Canadian wildfire. Can you tell us what industry loss you had used to compute that number?

Dom Addesso: Amit, we did not -- we really don’t go at it really that way. That certainly can be one methodology but we obviously had people on the ground assessing what’s going on there, as well as report from our clients. And it’s a little difficult with this of events because models aren’t unnecessarily built for this -- for wildfires. So, basing an estimate off of an industry loss is, in our view, very difficult and frankly not really appropriate.

You can use that as a benchmark but at the end of the day, it really is about being on -- within the site as well as talking frequently to our clients and getting reports from our clients.

Amit Kumar: Got it. That’s a fair comment. And was Mt. Logan impacted by these cats?

Dom Addesso: A little bit, yes, sure.

Amit Kumar: And did the reception -- I know that you are talking about the reception from investors, did that change? Because as you mentioned, this is not a modeled peril?

Dom Addesso: Not to my knowledge; we have not heard any negative feedback from investors about these kind of events.

John Doucette: This is John. I think we communicate a lot with them on a regular basis, the Logan does and talks about the types of losses and exposures that they had and the Logan investors get access to a global portfolio and frankly expect to get losses all over the world, not just from hurricane, not just from earthquake. But again, given the returns that Logan has seen, Logan investors have seen which really are best in class, I think it just highlights the strength of diversification and the value of the mousetrap, the value competition of the mousetrap that we’ve built between Logan and Everest. I think if the investors -- it was nothing out of line for the investors side to the Canadian wildfires.

Amit Kumar: That’s very helpful. And just moving onto capital management, I know you talked about I think buybacks were blacked out for maybe a period, how many days were you blacked out? Because I am looking at the buyback number, it’s higher than Q1 and just trying to reconcile that and asking myself is valuation still attractive to ramp the buyback during the wind season or should we think differently about that?

Dom Addesso: First of all, it’s not technically a blackout period. What I was -- have mentioned is that the -- because we possessed material amount of public information about cat events, the fact that those reports of what those losses might be were streaming in, it became frankly little difficult for us to be in the market, not because of the size of the events but more because we were in the possession of material non-public information. But that’s -- I don’t know that that will technically be called a blackout period. As Craig pointed out earlier, we returned almost 90% between dividends and share repurchases, 90% of income.

So, frankly, that’s not out of line with what we said we would do in the past, so.

Amit Kumar: And then, just finally wrapping up, I know there was this question on Heartland, and I appreciate, it’s difficult to share all the mechanics. I’m curious what led to the decision. Was it a function of scale or was it A&O payments, what prompted it and was it sort of shopped around? Some background on that would be very helpful, because we’ve seen other companies also do these kinds of things, I’m just curious as to the background.

Dom Addesso: As we’ve said in responses to questions about our crop operation for a long time that we’re always looking at strategic options.

So, strategic options, in the earlier days, many months ago were more ago how we could build scale and how we could diversify because those were the two things that we needed to do to be successful kind of the primary MPCI [ph] writer. And folks at Heartland put certainly the great effort. But given the market dynamics it was very, very difficult to we found out to grow it organically and to diversify. And when we were presented this opportunity or this option from CGB, it was something that as we looked it, we said well, this would be a way given their scale, they’re already there in the space and we can immediately get the diversification of the scale that we need. And that’s what led to the decision to move in this direction.

But, it was always with an eye towards wanting to grow it and diversify it, and recognizing that needed to be a scale business.

Operator: Next question is from the line of Elyse Greenspan with Wells Fargo. Please go ahead.

Elyse Greenspan: I was just hoping to talk little bit more about the insurance book that pointed to about 96% attritional combined ratio ex the crop business. Is that the right margin to assume on that book on a go forward basis? And then just tying into that in terms of your expense ratio, you did mention that it came down a bit sequentially.

Is that something we should expect to continue to see as we go forward through the rest of this year?

Dom Addesso: So, the 96, I would expect overall to frankly improve a little bit more from there, as we grow the Lloyd’s operation. The Lloyd’s premium has been slow to book because of the accounting that takes place in our Lloyd’s operation. And frankly if you look at attritional without Lloyd’s, it’s more like a 95%. So, as Lloyd begins to prove its economics, which it will do through the balance of the year, that attritional combined ratio we would expect to move even lower. The improving expense ratio, as I said in the last quarter, I would expect that to continue to moderate over time, but compared to historical levels it will probably still be above those for certainly probably the next 12 months at least, but trending downwards towards the more normalized level.

Elyse Greenspan: Okay. And then, in the reinsurance commentary, you guys mentioned some one-off structured risk solutions, is there kind of a way to quantify kind of the impact of that on top line, was that a Q2 comment or was that a more about when you guys were looking forward towards the rest of this year?

Dom Addesso: Those kinds of transactions generally are pretty lumpy. And so, there really isn’t any way to quantify that frankly on the top line basis. And I think the value we’re mentioning that was more of a strategic choice and direction that we’re taking relative to our bottom line focus. These are transactions that require a lot of time.

And so, there really isn’t any smoothness to the premium that we can outline for.

Elyse Greenspan: Okay, thank you. And then, last on just the capital management, you guys -- last year, at the Q3 was actually when you were most the active in terms of capital return. Is there any thought process behind slowing down repurchases surrounding hurricane season or is it kind of a similar philosophy the last year where just depending upon opportunity?

Dom Addesso: Probably depends upon opportunity; we do tend to see more cautious going in the wind season, but that obviously is relative to the opportunity as well.

Operator: Next question is from the line of Sarah DeWitt with JP Morgan.

Please go ahead.

Sarah DeWitt: On the insurance business, given your new initiative there, how big you think the segment could be over time?

Dom Addesso: What’s time?

Sarah DeWitt: 3 to 5 years.

Dom Addesso: Certainly, it could easily double.

Sarah DeWitt: Okay, great. And what’s driving, is that mostly from new hires or can you just elaborate a bit more on that?

Dom Addesso: Well, I think certainly new hires.

You need to have the staff in place in order to garner the business, but it’s really more about distribution relationships and opportunities in the marketplace to fill in void created by disruption, the disruption in the market that I mentioned earlier.

Sarah DeWitt: And then, on reinsurance prices, do you think prices are bottoming, and what’s your outlook there going forward?

Dom Addesso: Well, I do think, it does appear in certain sectors that we’re kind of hitting a bottom. I am not though here predicting that next quarter or the quarter after that we’ll see some uptick. Perhaps we’ll be at this bottom point for a while. But I do think that at these levels, there really isn’t any room to go lower, if you want to maintain any semblance of adequate returns in your capital.

And I think that’s -- those are the pressures that we all face. And we are seeing some discipline in the marketplace for now. But, I am certainly not predicting any major uptick at this point. So, there is still opportunity. You’re seeing some areas that are showing rate increase in the loss affected regions.

So, those will be the opportunities to think about going forward.

Operator: The next question is from the line of Kai Pan with Morgan Stanley. Please go ahead.

Kai Pan: The first question is just a follow-up on Heartland deal. I just wonder from your experience for the last three years buying a business, eventually it’s like sorted, [ph] does that change your appetite how do you think about acquisitions?

Dom Addesso: Kai, as you know, we have not been that acquisitive.

So, I am not -- it doesn’t necessarily change my appetite. You always have to be very mindful of any kind of acquisition, what it’s going to do to the business, is it strategic, what are the integration concerns et cetera. In this particular case, the acquisition is done because of round of skill sets that it did have, the marketplace was changing, but then a change began on us and we were really unable to really get the scale and diversification we needed. But no, it doesn’t necessarily change your appetite for looking at transactions that are -- that can be strategically important to us. But having said that, we are not a very acquisitive company.

Kai Pan: That’s fair. I was just curious because this is a real deal you have done in past few years. It didn’t turn out as well as you had hoped for. Then if the business, $200 million is transferred from the insurance to reinsurance, you mentioned better combined ratio. The insurance segment I think in the past you had targeted 95; if you look at reinsurance running at the low 80s.

Is that magnitude of difference in terms of profitability?

Dom Addesso: I mean crop business doesn’t run to the low 80s on an expected basis; it’s probably more high 80s, low 90s kind of business.

Kai Pan: And then, on the foreign exchange losses, I just want to make sure this is like mark-to-market especially if exchange rates stay the same, you will not see big movement in the third quarter?

Craig Howie: That’s correct; it’s quarter-to-quarter.

Kai Pan: And lastly, just a very philosophically, if you look at insurance segment, you are growing pretty fast. Is there any risk you worry about growing that business that fast; what could be the downside there? Because if you look the history of insurance operation, the profitability of it has been like near breakeven. And what gives you confidence by growing it at like high teens and at the same time, you can have -- actually you can improve on the combined ratio really having right now?

Dom Addesso: The insurance model today is much different than it was back 10 years ago, which was mostly a program-oriented model.

So that’s number one. Number two, I think we have offered or added awful lot of great talent to the organization that’s focused on the underwriting of business. So, it’s risk by risk, which we think gives us potential for a better outcome, as well as kind reengineering, if you will, of our program business. So, those two things we think will help dramatically. In addition, keep in mind that we are not growing at these kinds of percentages in one line of business in one territory, it’s a very diversified play across a wide distribution network.

And so that I think we’ll also ensure that we have good outcome.

Operator: Thank you. Next question is from the line of Josh Shanker with Deutsche Bank. Please go ahead.

Josh Shanker: The first question, during the prepared statements, Jon Zaffino said that the Heartland -- the ex Heartland combined ratio for insurance was 109.

Is it reasonable for me to think that historically Heartland has been a maybe 150 basis points, 200 basis points drag on your results?

Dom Addesso: 150 basis points of what, combined ratio?

Josh Shanker: The combined ratio, yes.

Dom Addesso: I hope that’s the right math or not, Josh, but...

Josh Shanker: That’s why I’m asking.

Dom Addesso: You bet. I mean generally that business over time has been running at just the Heartland operation itself?

Jon Zaffino: I don’t think over time, it’s been over Z100; we have shown losses.

I don’t think it would be quite that high. The current quarter, it’s running at about 120, 119 for the current quarter.

Josh Shanker: And the premium on that is?

Jon Zaffino: For the current quarter, the earned premium is about 31 million.

Josh Shanker: And this is going to sound incredibly nitpicky, I apologize. But, I’ve gotten a few questions about it.

It’s a question about when did you know what -- you guys were sort of -- due to material non-public information, you guys were locked out of repurchasing shares. But, you could have put out a press release and sort of brought yourself back to the market. When did you know what sort of the cats were -- why didn’t you put out a press release? And when did you know you had a favorable development which offset your need to put out a press release?

Dom Addesso: Yes, Josh that is incredibly nitpicky.

Josh Shanker: I’m sorry.

Dom Addesso: The challenge with Canada was that the number was moving around quite a bit.

And we did have a number early on. And in fact as we got more and more information, that number frankly got a little better, but it kept changing. We did not have -- because of the question I was asked earlier, we didn’t think it was appropriate, we weren’t getting a right answer by using kind of an industry loss estimate, market share given how we participated in that particular event and with those particular clients. It wasn’t a simple matter of taking an industry loss estimate and a market share number. We had reports from clients as well as on the ground investigation.

We didn’t know that frankly until relatively late in the game, probably two weeks ago, that we were comfortable with the number. In the meantime, as we have said in the past, we generally look at -- in an event or series of events going to be within our expected cat load. And thought that this was probably going to come in at the expected cat load and therefore a release on the event was not required. That’s kind of what we said in the past. Had we thought that this was going to be materially above our expected cat load, then we probably would have had reconsidered weather to put something out.

Operator: Ladies and gentlemen, that’s all the time we have for questions. I’d like to turn the call over for closing remarks.

Dom Addesso: Thanks everybody for participating in the call. As I mentioned, we’re quite satisfied with our results given the frequency of events, some of which didn’t even reach the level of cat for us. So that’s a testament to our numbers.

Our insurance initiative as we’ve mentioned is going well. And with crop moving to the reinsurance segment, improved underlying performance of this book should become more apparent on a go forward. On the reinsurance side, we continue to manage through the cycle. And as noted in some areas, our PMLs are down, pricing does appear to be bottoming, and we’re well-positioned to shift when warranted. So, again, thank you all and talk to many of you in the weeks ahead.

Thanks again.

Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you again for your participation. And you may now disconnect.