Lancashire Holdings Limited

Alex Maloney - Group CEO Elaine Whelan - Group CFO Paul Gregory - Group CUO Peter Scales - CEO of Cathedral Darren Redhead - CEO of Kinesis Capital Denise O'Donoghue - CIO

Ben Cohen - Canaccord Nick Johnson - Numis Securities Kamran Hossain - RBC Paris Hadjiantonis - Keefe, Bruyette & Woods Marcus Rivaldi - Morgan Stanley Will Hardcastle - BofA Merrill Lynch Tom Fossard - HSBC Global Research Olivia Brindle - Deutsche Bank Research Jonny Urwin - UBS Frank Cawood - Frank Cawood Associates

Okay, thank you. We also have Peter Scales, CEO of Cathedral on the call today; Darren Redhead, CEO of Kinesis Capital’ and Denise O'Donoghue who is our Chief Investment Officer.

I am delighted to report we grew fully converted book value per share by 5.4% for the fourth quarter with an excellent combined ratio of 50.14, a full year combined ratio of 68.7 which again demonstrates the quality of the Lancashire underwriting license specialty insurance business and efficient reinsurance purchasing. So I am happy that we’ve achieved what we said we would do in 2014 and we’re on the right track as we enter 2015.

We are paid by our shareholders to take risk which is commensurate to the return which we can generate in the market so you’re seeing us take down risk levels in line with our view of the attractiveness of the opportunity. We have become more capital efficient without destroying our ROE and we feel that we have the best risk adjusted portfolio we’ve had in our history.

You don’t need to tell me that the market is competitive I don’t need to tell you that the market is competitive but that is the nature of the base. Our industry is purely about supply and demand and currently we have too much supply.

But saying that even in today’s market it’s not impossible for us to grow as we’ve demonstrated with the success we have achieved expanding Cathedral Syndicate 3010 and this has gone from £30 million to £100 million stamp capacity in a little under 12 months. As we have previously stated if we can find the right high quality of underwriter to employ, we will do that and we actually believe that the current amounts of M&A in our industry we only see the opportunities to bring new underwriters into the group as growing.

There’re still lots of things we can do with our business with the best talent we have across the group and so I am comfortable we still have the business which is relevant in the classes of business we underwrite and we’re still able to produce stated returns of 13% above risk free over the cycle. I’ll now hand over to Paul Gregory.

Thanks Alex. Despite the competitive market we faced in 2014, I am delighted with what our underwriting statement across the group is delivered.

It’s been a successful year on many fronts, positioning the group well for what looks to be a continued competitive environment in 2015. We’ve delivered the planned growth of Syndicate 3010 with the addition of new market leading underwriters and the expansion of the Lancashire core specialty lines.

In less than nine months, premium to the Syndicate has more than doubled and stamp capacity trebled year-on-year. Kinesis has delivered excellent returns to its investors, whilst demonstrating its claim sustainability to its clients.

But the board of group, the reinsurance protection we put in place with core reinsurance partners, optimizes our portfolio to match the market we will face. It allows us to defend the high quality underlying portfolio we’ve worked so hard to build since our inception, but manage our volatility when returns are naturally lower given the rating environment.

It's also the most capital efficient structure we’ve ever had as evidenced with our ability to pay another special dividend today. In what was a relatively benign last year the combined ratio of 68.7% has been a fantastic performance especially given our heavy ratings towards non-cash specialty insurance lines and in fact this license of specialty insurance lines that will help the group manage this competitive market environment.

Relevant to insurance clients there does not correlate with balance sheet size. Correlates with relative line size, leadership, servicing and claim sustainability and good old fashion client relationships.

This is something we’ve been preaching for a number of years and today this message is more at the network. Relevance and scale should not be confused.

The outlook for 2015 is one of continued competition and pricing pressure. 1/1 was broadly in line with our expectations both Lancashire and Cathedral were able to defend the vast majority of their portfolios while affecting some business that no longer made underwriting sense and maximizing whatever new opportunities existed.

For Kinesis, we deployed broadly the same limits as last year, whilst increasing both the investor and client base. Just like in other parts of the group, we did decline certain renewals where the return metrics did not make it thereby sticking to what I mentioned the underwriting comes first.

As a line to speak to, it’s worth remembering that we’ve been fortunate enough to talk a number of recent multiyear contracts which would likely impact top line in 2015 but will relate bottom line as we take benefit to more favorable rating. It is particularly important to Gulf of Mexico energy portfolio where it’s quite possible demand will be affected by the lower oil price.

So having a number of multiyear contracts does provide some level of protection from this and any other further pricing pressure we might see. Our underwriting strategy remains the same we’ll continue to do what we’ve always done and underwrite the market in front of us and adjust our portfolio with a combination of disciplined front end underwriting matched with an appropriate reinsurance plan strategy.

If market conditions change and so will we. I will now pass over to Elaine.

Thanks, Paul. Hi everyone.

Our results are on our website as usual. But before I get into the results for the quarter I just wanted highlighted that we have included return on tangible in equity in our press release and supplement this quarter.

We have been getting more questions on return on tangible recently, so we thought we would just include that for you, our headline metrics remain the same. So, on that basis we produced an ROE for the quarter of 5.4% bringing us to 13.9% for the year.

Cathedral contributed 1% to ROE for the quarter and improvement of 1.6% for the year after acquisition adjustments. Warrant exercises this year reduced our ROE by 0.8%.

Our ROE for 2014 is less than last year's 18.9% although our operating performance was actually stronger this year. As you recall last year included about 6.4% of ROE related to equity issuance and economic foreign exchange hedging in relation to acquisition of Cathedral.

We have had a few ups and downs across the quarters this year as is often the case in our business with no major reported losses this quarter and some favorable development in prior accident year losses we finished the year with a strong result. We had total prior year net releases in the quarter of $25 million with $11.5 million from Lancashire and $13.5 million from Cathedral.

The net releases for the full year were $34.4 million and contributed 2.2% to our ROE. That compares $15.9 million and 1.1% of ROE for 2013.

On a premium base Lancashire premiums were slightly behind the same quarter last year largely driven by timing and some multiyear contracts in line for us with a lot of that reduction being offset by growth of Cathedral and the energy and terrorist lines of business, soft contributions from the new aviation team. Always talked about the one month renewals.

As we said last quarter we don't provide premium guidance but bear in mind the multiyear deals we got in 2014 and we forecasted in 2015. There was an obvious impact on top-line we still get the benefit of the earnings coming through from those for a year or so.

Ignoring the lines of business potentially characterized by non-accrual contracts, we wrote about $120 million of multiyear deals across the property cat and energy lines. Our pricing pressure continues to drop but for the rest of group we do expect see some growth primarily in Syndicate 3010 in the new lines of business there.

Our net loss ratio was 12.2% reflecting lots of losses in the quarter and the releases I have already mentioned. Our accident year loss ratio was 25.2%.

As we've said previously, our business is lumpy and individual quarters are not representative of the book. Last quarter we had a high accident year loss ratio this quarter has been a low accident loss ratio.

The accident year loss ratio for the full year was [25.9%] which reflects a fairly average year nothing but a few bits and pieces here and there nothing exceptional. We have talked about the expectations for our attritional loss ratio over the last few quarters.

I think there's still some confusion around where we sit in the current market environment. Lancashire moved from a low 20s to high 20s attritional ratio, our Cathedral ratios are less volatile but lower attaching book of business [brings the group] to the [indiscernible].

If and when the market improves, I would expect attrition to nudge down a little, but not as low as it was prior to the Cathedral. For 2015 budgets are placing a [indiscernible] attritional ratio would be reasonable.

And in reference to [indiscernible] currency hedge portfolio [indiscernible] 0.2% for the quarter and [indiscernible] for the year. The fourth quarter saw return of the open market and by most of the [indiscernible] our [indiscernible] portfolios were impacted by the raising of higher credit swaps.

As I said last quarter our investment strategy is largely changed and we continue to focus on margin and interest rate there. Our hedge fund allocation is now a $153 million.

We may continue to add a little more on that portfolio, but we are broadly happy with most of our positioning for now, although we will amend that as we navigate through the fed interest rate hikes. On KCM, we earned $6.2 million in underwriting fees for the year with $1.9 million of that called in the first quarter.

Remember that the fees are in line with underlying exposure to [Kinesis Re’s] portfolio. The majority of that in Q3 and Q4.

We expect to receive profit commission of $5.8 million in first quarter of 2015 which covers most of the 2014 contract. KCM's expenses are reflected in the Lancashire's other operating expenses.

Net expense income is managing agency fees and profit commissions from Cathedral. KCM contributed 0.4% to the Group’s ROE.

In terms of actual returns from the additional draws. The remaining other income is managing agency fees and profit commissions for Cathedral.

These tend to be higher in the fourth quarter obviously depending on underlying performance. $6.2 million tend to be higher in the fourth quarter mostly reflecting a 2012 year account and a $10.1 million for the year.

Our G&A includes $10.9 million of Cathedral cost including $5.1 million of accrual, given strong performance in the quarter. There was no further amortization at in capital assets through acquisition this quarter that’s fully amortized expense.

$8.4 million of amortization was included in other operating expense this year. Turning to capital, we bought back a few more shares in the fourth quarter to cover stock comp awards, obviously depending on underlying performance 15.6 million total in the quarter, so just a small amount.

Otherwise, we’re topping up last quarter’s special dividend with a further $103 million. I think as I said market last quarter was entirely accurate, but we had a very profitable third quarter and we are able to take advantage of the declining rate environment by the reinsurance cover and further reduce our exposure levels, because of that we've cash [indiscernible] and we're giving that back.

I anticipate our cash flow driver for 2015 to be 1.4 billion to 1.45 billion range -- the market change. With that I will now handover to the operator for questions.

I had two questions, please. Firstly, on the increased risk protection that you've bought, I just wonder where we are going to see that in your numbers.

When I look at the PMLs it doesn't look like they have reduced in the most recent disclosure or they haven't moved materially. And should we expect any sort of improvement in the attritional, because of those better protections?

So that's one question. And the second was could you be a bit more specific about the impact of the increased Cathedral 3010 Syndicate capacity?

How much of that do you think you will use? Can you just remind us what you had in 2014 and how that's going to affect gross written and net earned premium for 2015?

Good question. I think on the reinsurance question and Paul made a comment on this one as well.

I think, yes we put more cover, you're in a great market when you're the buyer, so that's where we are. The welcoming packs on our PMLs but equally with all that moment out, energy account, terror account, energy governments go in.

So pretty much across the board our reinsurance purchasing on the Lancashire side is much more comprehensive than what are -- today, which makes perfect sense for us, because the JV can't buy reinsurance in 10 years. It won't necessarily effect the sort of attrition because our account is not built for attrition but what it will do is if you get the losses which we firmly believe you will at some point, we think that's been very benign, when you get the losses we can kind of fully demonstrate what our exposures are versus what they would have been before we got the reinsurance, we're not expecting to get any credit for that and to be improving on that side.

I just think we firmly believe it's absolutely right thing to do, it's everything we said we will do, we've always said we're taking maximum amount of risk when the returns are there and we're not afraid to cut back from the returns. So where uncertainty just the Lancashire strategy, the way it has always been, nothing different.

I think the both in high -- if you look at the percentage of capital, the PMLs are similar, but that’s because we’ve bought our capital down, but if you look at the dollar PMLs they have actually come down quite dramatically. And if you compare to 1/1/14 versus 1/1/15 in dollar terms it's been quite significant reduction in both the cap and the non-cap PML.

And that's primarily driven by the new reinsurance structures that we out in place throughout this year and the additional reinsurance protections we're able to purchase at 1/1.

So that's additional cover that we don't see in the latest disclosures, is that right? Remind me, because that's 31st basis.

The numbers that we have in our supplement are January 1 numbers. You should see that in there to [read].

And just on the attritional ratio, I think just mentioned in my narrative. I think reinsurance cover doesn't really -- you could use different than our expectations with attrition given the pricing environment they are in, the guidance you have in the past.

It's just actually a follow-up on the reinsurance question. You say you've bought more reinsurance.

I was just wondering if you can be a bit more specific about the dollar spend on reinsurance; is that likely to go up or down versus 2014 or are you just getting more cover for the same dollar spend.

At the 1st of January we [rendered] most of our cover, you kind of have the option, so you can just go to the brokers and say I want a competitive price and in this market you'll pretty much get reduction on most things. Or we can do what we've done and we've actually pretty much across the board and say what happens if we spend the same?

So all the reinsurers are struggling for revenue, so we think if you provide the same revenue, what do you get for that and our view is that by spending the same amount dollars in the property market, the value get far out cheapest the reduction you would get in cash, so for us it is much very a case of where the markets declining we would to spend the same expect that increases there better than with reinsurance partners in case our brokerage spent when the broker was signed and all these are useful to us in the current market we’re in. And as I said that more than anything it's the cheapest time of our reinsurance in 10 years, so why would if you buy.

Two quick questions, the first one just coming back to Paul's comments about relevance in the current marketplace, can you just give us an indication of the level of business or the percentage of business that you lead across the Group and how this might have moved year on year? And the second question, really helpful to have the guidance on the attritional loss ratio.

Just thinking about the admin expense ratio, is this year's level a good guide for 2015? Thanks.

Okay, on the relevance point I’ll start and then I think Paul's got some stuff to add. I think relevance is a word that comes a lot at the moment and we’ve been waiting for the question, I think what people need to understand is that we -- our customers when I think about whose relevant it’s not always just how big is your market cap and doesn’t make you relevant.

There is a number of other factors that we always talk about and you can be relevant in many different ways. And quite frankly from my point of view, if we weren’t better and everything we do shouldn’t be doing that because in this market it’d be a wasteful time, you couldn’t make in return.

So I think we're relevant in everything we do, as I said there is a number of factors I think even down too as you think about I am sure you’re going to get one of these questions, you think about the M&A and what’s happening now. If you think about it when you’re reinsurance customer and M&A means there is going to be less reinsurance customers.

So every time a deal gets done in my opinion, we become even more relevant for the brokers and our standard in their list of relevance goes off. So I think if anything somewhat going in the market actually really benefits us and as I said, our clients and brokers -- I haven’t had one underwriter come to me or come to Paul to say that we’ve lost the pieces of business we’re not relevant and that just hasn’t happened.

I think and I'll come back Kamran on the leadership that point, I think to that point as well, if you look at some our insurance portfolios, we've got $100 million of terror and political risk premiums; you don't have that unless you’re relevant, we have across the Group now including 3010, $370 million of energy premium that’s combined in a 60 [indiscernible]. You don’t have a portfolio alike that unless you’re relevant in that market.

And to the leadership point, we on the Lancashire portfolio 73% of our business we currently lead or have agreement party status on historical range if you look, it’s between 65 to75. Hopefully that gives you the guidance.

Yes, no, that's a great sign of your relevance. Thanks very much.

And I think your second question was only G&A and I missed the start of your question, it kind of cut out a little bit so it’s not great and let me talk with and in the number for this year that you’ll see our reporting we have included actually the amortization of the finite life in terms of velocity that was created in the acquisitions and that’s $8.4 million for the per so that goes away that’s about done there that’s for the amortize is also a little bit of extra cost in 2014 just in terms of and moving off the season businesses like that. So that should trend.

I know there has been a little bit you can adjust slightly for that too.

I have two today, one going back to your insurance program, I think that pretty much you are guiding to a lower CAT for the year. And if I take Alex's comments then I assume that that CAT budget should be down 10% to 15%.

Can you guide us whether this is the kind of adjustments we should be making? And then can I ask a bit more about terms and conditions on what you have seen at 1/1.

So have you been asked to relax terms and conditions, or have you seen, as a buyer of reinsurance and retro, anyone offering more favorable T&C? And if so, what was that?

Was it is dollar closet, was it reinstatement themes et cetera? Thank you.

I think I’ll leave the numbers to Elaine and then Paul can answer the question about 1st of January, we note.

Yes, I think in terms of expectations on CAT budget and we’ve been talking about the attritional ratio and I think you leave that where is the reinsurance side of things. And we hoped to get some benefits of that.

We have much more protection than we’ve ever had and it attaches lower day and I think it’s up to you actually you set your numbers on that if you want to nudge them down slightly and then feel free. But who knows if something’s going to happen.

And on the second point with regard to terms and conditions I think you’ve got to split it into two parts with what happened in reinsurance world than what’s happening in the insurance world on the reinsurance side it was definitely some push from both clients and brokers to get some expanded coverage that was mainly in the form of expanded hours clauses some kind of terror thrown into some treaties and pro rata reinstatements it wasn’t much beyond that there were some other things that were tried but failed we obviously say that through the front end but on the back end we get the benefit of that when we’re buying retro at the same time we also have big flyer of marine treaty whether it’d be energy marine so on and then with some broadening of coverages there and we obviously got the benefit of that. On the insurance lines to be honest there hasn’t yet been any push on terms and conditions its all thing about rating almost and that one coming time but at the moment on the insurance lines it’s just rating pressure as opposed to terms and conditions pressure.

A couple of questions from me please. First of all, given what you have been doing on retro and reinsurance buying, I'm just wondering why you wouldn't have thought you may need even less capital than you're guiding for to run the business than the $1.4 billion to $1.45 billion you're talking about?

Secondly, on the protections that you're buying, if you went to a second loss event on the [1/100, 1/250-year] type of basis would we see these net numbers move up very materially? Thank you.

Okay, so first question for Elaine in terms of market gain.

Yes, and I guess there is a balance between having too much and having too little capital and we want to make sure that we brought enough capital to be able to absorb reasonable client loss and be able to access the market after that and also but we don’t have any preview of opportunities at normal and something we’ve got come after the other type of hedges that are there so there is a buffer built into capital and you could always reduce it and boost your ROE but we think that we’d rather have a little more cushion there just so we can make sure that we can run our business properly.

So does that mean that -- obviously, I think the extra special today was a bit of a surprise do you think you genuinely have reset the capital base now to a level? Would that little bit buffer that you don't really want to go below?

No and probably a year, year and half ago we were seeing the 1.6 billion capital and so a year ago actually we did 1.5 in capital and now we’re saying the 1.4 billion to 1.45 billion capital so and we continuing that guidance and some of that as a reflection of outlook and some of that is a reflection of the insurance program that I think we’re pretty comfortable at the level that we are but as always we’ll both adjust our capital as we need to.

Marcus hi on the second question we changed the structure of our main retro program this year and the main way we changed that was we turned a lot more reinstateable limit last year we had an good product which is very good while we were able to position as Alex said for no more spend was both reduced retention of that and get a vast majority of that limit reinstateable to give us that protection for the second loss. It obviously helps from a capital point of view as well that does remain an element of aggregate coverage there but the vast majority is reinstateable.

And on the marine coverages we were able to secure additional sideway we already had sideway but we’re able to secure additional sideways in some of the lines and Pete do you want to talk about Cathedral?

In terms of as you know we’re more serial reinsurance buyers going back to Alex’s previous answer picking up the question we have effectively made savings on our two property program which are the larger 11s the savings are larger than any base degradation on the inward book to the extent basically any terms and conditions push which in our world is largely been small but on the hours clauses which again please bear in mind that our U.S. capital is entirely regional tends to play tornado and therefore the hours clauses don’t pick up too badly because it’s through pretty quickly.

We have in both cases both more cover but the more cover is lower and slots in underneath and both frequency cover down the bottom end of it. So again it’s just buttoning the thing up within the benefit of the savings we’ve been able to make.

And still leave some residual savings.

So just to sum that up, if I was looking at the Gulf of Mexico scenario, $235 million net first loss, where would that be on a second loss basis? It sounds like it would be very similar, is that what you're saying?

Sorry we lost you there….

Just looking on the disclosures, so the one in hundred year Gulf of Mexico scenario you're saying $235 million was the first loss. The second loss would it be very similar, is that what you're saying ultimately, something like that?

So it won't be entirely similar because some of that is on an aggregate basis but I would say the majority of that but so the majority of that is reinstate-able and that should be different during the year.

Okay. And sorry just one follow-up and again maybe this is the comments you've been saying about being able to buy more effective reinsurance.

Obviously there's been a lot of talking about offshore energy being very competitive and yet, your worldwide book anyway, you were able to grow that; well, certainly, it's more than we were thinking. Could you maybe give some color around that please?

Yes I think that's a brilliant example of relevance. We are delighted with the way we could grow that book and how we could grow that book in Lloyds.

We had massive support from clients and brokers and in a number of cases we had some against the tide. We had growth figure lines on the programs we won when others was no and I think what you are going to see in the energy world increasingly is the gap between that people that can add value and those who can't is going to get bigger and bigger.

So we still feel we can add value -- we still think we can get a better than deal some others in the market and we will leverage everything that we can including reinsurance spend to get what we want but that still doesn't exclude us from the energy space will be competitive this year and obviously you've got the oil cost effect as well. So I think [indiscernible] is a pretty example of us doing the stuff in a very, very difficult market and as I've said you can only do that if you are important, relevant, whatever you want to call it with broker's and clients and within and we've demonstrated that.

And just on following that, would you say, therefore, if we're looking at a book, the fact that you've been able to grow it hasn't resulted in, I guess, expectations of net profitability changing, you haven't been growing -- adding top line at the expense of bottom line.

No I mean no we're not a top-line underwriter, we never have been. There is no willingness here just to write business for sake that's just not what we do.

So if the opportunity weren't there we just wouldn't write the business, that's the way we think.

Just got two questions. The first one is on the Cathedral reserve release.

Can we just get an understanding, is that just a usual quarterly good news type of release; or is there any change within there that's fully aligned the Cathedral reserving process to the Lancashire process? And the second question relates to, I'll try not to use the word relevance, but given the recent state of consolidation -- the spate of consolidation, could you give me your thoughts on what you expect the next outcome to be for Lancashire, i.e., on certain lines of business?

Is there any lines of business that you actually expect to see intensified competition within, as a result; or like, Alex, you mentioned, in terms of the reinsurance opportunities, any good benefits to arise?

Sure I will take that one first and Elaine will take the line related next one. So I think on the M&A front yes we do see there is an opportunity.

If you think about the guys that we have brought into Cathedral from the Atrium syndicate, an element of that was they had a new owner and they were looking for a new owner. So I think M&A is an incredible opportunity for us there is going to be people available that maybe we couldn’t have got in the past and we're definitely having some of those conversations as we speak.

I think what's interesting if you look -- if you look at some of these big deals and if you look at Catlin is a great example this kind of looks long the business where they are quite big already. So let's just pick energy as an example in my view and I am not the clients it's unlikely the client is going to give XL and Catlin the combined amount of dollars they currently get.

So one plus one doesn't always make two, so I don't believe that the stakes have been raised massively in something like energy as an example because I just don’t think the clients are going to give long one counterparty that amount of aggregate dollars. So I don't think it changes a lot for us on our ability to drive every line of business we have at Lancashire -- we have capacity that puts us in the top five if you like and I can't really see that changing.

As I said from M&A we actually see opportunity and as we have said if we can get quality underwriters in, the sort of check [indiscernible] as long as this business so we can understand and we've demonstrated we can grow. So if we could do more of that we will and if we can't get it paid for we won't.

On the reserve release question there still no change in methodology, we still reserve to best estimate and there's always going to be a lot of judgment involved in that. And there is normally a bigger exercise that's carried out in the first quarter probably more or so at Cathedral and then at Lancashire, just in terms of years of account, closing out.

If you're comparing that against a prior year and thinking it looks a bit junky for this value just remember that we only picked up a couple of month’s-worth of Cathedral's performance from the prior year.

I've got three questions; two for Alex, one for Peter. The two questions for Alex will be more would say helicopter and strategical questions.

The first one: Alex, do you feel any pressure to adapt further the Lancashire business model to the environment? Obviously, you've been undertaking some changes over the past quarters, is there anything you would like to adapt further?

And connected to that, having in mind the evolution of the cycle, do you feel any pressure to restate, at some stage, the target of producing a certain percent on equity over risk free? And the question for Peter is: could you comment a bit more on the ongoing pressure on the Cathedral book, as RPI have provided in the press pack is mainly related to the Lancashire book?

Thank you.

On your first question I think you always have to adapt some of those, and I think that if you don't you will be left behind. So I think would demonstrated that, I think one of the funny things I said about M&A is that we've done M&A sometime ago and that was after that into the market.

I think as far more reinsurance is back into the market. So I think you were [indiscernible] at that, we say our services are purely a specialty underwriting company, we would like to revolve and have more specialty underwriting change.

So we'll definitely like to do that. And as I said again getting that Cathedral the lowered platform it opens you up to more opportunity and even opens you up a bigger talent pool and underwriters that maybe you can also track to structure outside of Lloyds.

So if you look at that, our capital pace we're pretty much covered across what we want to be track through talent and as I said you just have to adapt to the market and everything what we do every day is a [debt] into the market, we're changing really quickly. And again I think that's quite interesting, I personally don't believe there is anything new this time, I still believe in the cycle.

What is different is how quick things have changed. But that may not necessarily be a bad thing, but it may come through returns, we're comfortable with that spaces over the circle, which we think we can achieve that and we're still out stripping that, if that changes we'll obviously come and tell everyone, but where we're doing we're comfortable with that.

On other parts of the world there is lots of similarities across the Lancashire, pretty much every line of business there is writing pressure per se. So far as our renewals that are heavily [January #], there's a property treaty book, you'd grew over say 10 is a rough example, if you blend it international book and the U.S.

regional passbook in terms of the [TNC] some on the clauses, there is not much on the international. In terms of aggregates flat or down, in terms of savings on both sides of the book the reinsurance with outstrip, the fall on the RPI people coming in was outstripped to the outwards much as same as last year.

So from a net trading perspective manageable. The deal close, no issues on signings and that's because again we have very long standing relationships with clients and fundamentally we're under, we understand we have good years and so do they, we have fundamentally high margin business.

It’s not like watching [indiscernible] or something we're actually small -- RPI functional. And so therefore it is a run of claim returns into the market then your clients, we fully expect to give them some money [indiscernible].

And equally if they pay their clients losses we fully expect them to pay us over a period of time. So that's just close the market on a consistent basis and we think the biggest value of being a leader in somewhere the clients will come to you time and time again they retain your business, is because you have that consistency.

You're not playing around and run a metric of you write it you don't write it. On the direct property side again you summing up as going through 1/1 the prices on the binder delegated authority book are actually holding if not creeping up a little, so we've adjusted the portfolios to a little more of that, market is not much go through 1/1 and that will be very competitive.

Again we tend to bounce out away from the big Fortune 500 stuff which tends to be the more commoditized stuff where there will be bigger rate pressures flow through the air. Again we will lower; again the savings we made on the outwards fall outstrip anything on the inwards.

So again the story that's pretty sensible. If you want to go through the small classes we can participate on an annual presentation but we're on pressure all the time.

But that's likely to play with it, in terms of net trading position where we were, less than the same exposure, better cover for it. Again we're not top line underwrite to see that, the net looks in pretty good condition, because we have a good solid consistent client base.

I had two areas that I wanted to probe a bit further. I guess it's expanding on things you've already mentioned.

So the first one is on the ROE and the second is on the capital, so they're interrelated. On the ROE you said you're comfortable with the target across the cycle.

But, Alex, last quarter you also said that 15% is probably the top end of what you'd expect in this current market. And I was wondering whether you could sort of expand on how you're thinking about that now bearing in mind that you have reduced the capital base a little bit.

So actually if you're still thinking in the same ROE range, does that mean actually your absolute earnings probably should trend down from what you previously expected? I know 1 percentage point of ROE seems small, but it could be 10% of your earnings.

So it could be quite material. So it would be good to understand how you're thinking about that.

And then on the capital itself, I appreciate that you're buying more reinsurance, etc., but you did tell us at the third quarter that you think the requirement would be $1.5 billion. So what really has changed that much between November and now that would reduce that by as much as $100 million?

It seems like most of the market conditions are actually fairly similar to what they were then. And a final point related to the capital requirement.

Again, at the third quarter you said you probably can't go much below the $1.5 billion, even if you bought more protection, because there's an absolute size requirement. So I just wanted to understand how that makes sense with what you're saying now about as little as $1.4 billion, or even less possibly.

Fine okay, obviously all of that comments were a moment in time and everything has changed, I think we don’t give that guidance, but for us to achieve and sustain in this market is probably the absolute top end is probably 14. As I said that would mean we’ll have a very good year and I think that will be an exceptional in this market.

I think on the CAT side that’s a lot to believe that to the Elaine. But I think I can’t emphasize enough when you buy a lot more capital efficient reinsurance for that last year book and remember that all that need just effectively about how much risk how much net retained risk we have in our books, so if that changes dramatically as it has done at one month that’s why you’re seeing the capital needs change.

Yes, it does that relate and we were able to just buy more capital efficient reinsurance. But we're changing guidance of Q4 from 1.5 to 1.4 to 1.45, so it’s not a huge drop, but it’s nice to be able to buy something that worth of capital positions as I alluded just a moment, I done a little bit and reduced the exposure level.

And to your comments that you made previously that there is some kind of absolute size requirement you can't keep going down and down and down. Does that still hold?

Or do you conceivably get much below even $1.4 billion?

And you could possibly get lower than 1.4, I think we talk into 1 billion to 1.2 billion sizing then you saw running as we discussed rating agencies and again it depends very much on market.

On that ability, I think obviously you’ve got the rating agency requirement for that that’s on requirement that even if you didn’t have to worry about that. We live in a very gray world where losses can be strange and things can happen and running with too little capital would be a disaster.

So for us there is always going to be a buffer, there is always going to be a headroom obviously that does create a slight drag on your ROE, but when Elaine showed me the numbers on the kind of drag you get for some free suspension of one the capital, it’s not really massive, it’s not we could knock up $200 million and it really those our ROE. So it’s just wane up that how much capital do you want to keep, how much do you want have in the bank if something does happen and you’ve got opportunities a lot what we've always said, particularly in this current environment, if more opportunities come along you’ve got move really quickly because they probably won’t be here for long.

So there is no point say that we have not capital to play when you really need it and then it’s just a debate about how much additional capital you want to hold versus the drag on your ROE.

Two things, firstly could you just answer the question by posed to begin with in terms of the impact of the increased line size for Cathedral's 3010 on gross written and on premium in 2015? Sorry, if I missed that.

And secondly also on Cathedral, in terms of the profit commission that it earns, it looks like 2013 was a better combined ratio year than 2012. Would that mean that mechanically that number should go up when we get to the end of 2015?

Thank you

And in terms of the impact on premium, we also declare a lot in terms of energy and terror books this year, so you’ll see some incremental growth in those line of businesses it would be massive growth there. And the aviation team jointed us in a later part of the year so I think we will see a much more significant increase in there and got new team on about $7 million-$7.5 million worth of premium in our fourth quarter so - or since they started and so I’d say we can do this with that and in terms of the PC a lot of the PC coming through is also the [indiscernible] 2012 year but also have some recognition of 2013 in there.

And we’ll need to wait and see how the rest of that plays out and work out what kind of profit commissions you can recognize there. But 2012 was a pretty good year.

Just a very quick one on outward reinsurance spend, it’s been a feature of the last few renewal periods, where a lot of the inward pressure can be offset by further reinsurance buying at lower cost, or spending the same and getting more. I was just wondering, given current rating trajectory, how much longer can that go on for?

And I guess linked to that is how much deeper can the reinsurance got?

I think for maybe answer to that question I probably won’t be sitting here quite frankly I don’t know I mean people have a view that there is a flow in the market on the ratio like so we have that view so it will be interesting to see how much further reinsurance can go I think it depends on the types of business as well. You have to -- I mean maybe on the marine side, you have seen some funds in particular not right test so and kind of do the right thing we would think.

So I don’t really know the answer to that question. I think it very much depends on the carrier.

But as I said earlier if you think about the M&A that’s going on the M&A means probably less reinsurance spend for the reinsurance company so I don’t know I mean I think this is going to be competitive and usually in our market nothing changes until people have [indiscernible] losses.

I think the one thing I’ll just add to that Johnny is and I agree with that is you almost have long interfaces certainly that we don’t really know but while we sit here relatively comfortably as we book a business that’s come as a combined ratio of 68% so that does put us in a far nicer position than a lot of others. It does continue to go down for a period of time.

And I think if it does continues to go down it will be those markets with those good underlying book of business with good combined ratios obviously we’re going to be in better position throughout the year.

Congratulations, all, on another really excellent quarter. Having got some of the amortization and other expenses associated with the Cathedral acquisition, and some drag on some claims from the big Costa Concordia, it's good to see Lancashire back in the saddle there.

But I would like to ask a couple things. It seems like there's a lot of latent value that may not be obvious potentially.

If there is some major catastrophe loss, a big one, a super CAT of some sort, could you explain a little more about how Kinesis might be able to access alternative sources of capital, and perhaps write an enormously greater amount of that coverage compared to what's written now? And then the other question has to do with this dormant syndicate at Cathedral that has grown its stamp capacity quite substantially over the period after the acquisition.

It seems that that might not show up on the book value, but might, in fact, if it were to have a market value, be much more valuable than when it was acquired.

Okay, Frank thanks for the questions I think Darren will start with the Kinesis one, Pete do you want to talk about the Cathedral one or Elaine?

Good morning Frank thanks very much for questions just kind of linked to that yes that there was if you like a sizeable diversification within the market we have three platforms within the group obviously Kinesis, Cathedral and mother ship, it should grow and we’ll take advantage of but we feel we could with our existing partners to grow kinesis dramatically say $2 billion that would if you like travel the existing fees and more so Lancashire within investor now so the whole point of Kinesis is to build up a stable portfolio track record but then have the ability to grow as and when the market dictates so yes. But in no time soon that we see that happening but we’ll still continue the organic growth with Kinesis in the difficult market.

Hi Frank its Peter. On the 3010 part of the world is the only different between 3010 and 2010 is the Lancashire Group own 58% of the capacity in the business of 2010 and 100% in 3010 all of the underwriters and all the business lines are managed exactly the same way and all the treaties that makes the lines basically play what they see in front of them that’s always been the business model in terms of calling where we go in the market the Syndicate 2010 to the extent they have 42% out does have a trading price the people wishing to participate within the lowest market and 3010 doesn’t trade so possibly one day it did or third parties could access it, I am sure somebody would pay a premium on it.

Or even if one day you even look at putting the two together again it would have a some sort of market trading price, there is no doubt about that, but it is what it is. And fundamentally we as a group don't see whether you are for 2010 or 3010 any difference between it's another line of business managed in the same way and the exposures are all brought together in the same way.

So it's just a math's exercise between the fronts.

Well Frank, we are delighted with Cathedral -- the purchase of Cathedral is that it backs up our view that the price we paid for Cathedral was worth paying because when you got quality franchise on Lloyds you can go out and you can do what we have done. If we bought [indiscernible] did not have the track record that Cathedral has, it would be very hard to grow because Lloyds will put a lot of restrictions on you.

So I think it just reinforces the price we paid for Cathedral and the kind of things we can do with that business and obviously if we can grow it even more organically we will and that would just add to the value even more.

Well thank you very much I think that’s a very good explanation.

Okay. Thank you all for your questions and we will speak to you next quarter.