Lancashire Holdings Limited

Alex Maloney - Group CEO Elaine Whelan - Group CFO Paul Gregory - Group Chief Underwriting Officer Peter Scales - CEO, Cathedral

Kamran Hossain - RBC Ben Cohen - Canaccord Genuity Edward Morris - J. P.

Morgan Andy Broadfield - Barclays Nick Johnson - Numis Securities Olivia Brindle - Bank of America Paris Hadjiantonis - KBW Xinmei Wang - Morgan Stanley Fahad Changazi - Nomura

Thank you. Good morning, everyone.

Good afternoon, everyone. Today on the call we have Elaine Whelan, our Group CFO; Denise O’Donoghue, our Group CIO; Paul Gregory, Group Chief Underwriting Officer; and Peter Scales, the CEO of Cathedral.

I am pleased to report we grew fully converted book value per share by 2.3% for the second quarter with an excellent combined ratio of 78.2%. This brings our year-to-date growth in fully converted book value per share to 6.6% excluding any impact of warrant exercises.

I am delighted that we continue to show, we can still increase value for Lancashire shareholders in this challenging market. Again, even with the losses we sustained in the quarter and our weighting to the energy cost which is by far the most challenging market since the late 90s, we continue to demonstrate that the Lancashire model can remain relevant in all we do.

Little change from the last time we reported, the market continues to be oversupplied with capital in all classes in which we underwrite. In fact the market is oversupplied with capital in all classes, so it doesn’t matter type of business you are in, the trend is same.

As we have said before, you have to add value to survive in this market. As the market is going through a period of change, its members must adapt their strategies accordingly.

Our strategy is a simple one which means we provide our shareholders with access to insurance risk which they pay us to adjust versus the opportunity we see. This is why we currently have the lowest amount of net risk on our balance sheet in our history and are purely driven by profit not by growth.

We will enjoy the day we believe the market is right for us to grow the Lancashire businesses as this will mean we are in a fairer waters. Until that day comes, we remain patient.

We will watch the outcome of the hurricane with interest. I believe that any single loss that would change the market would need to be significant.

I still believe in the insurance cycle and believe that the market will change when capital is impaired or returned elsewhere to become more interesting. Probably a combination of the both will be the catalyst.

Small companies will see this as an opportunity to make more money for their shareholders than to try to overreach today. So you have to do all you can, so preserve your capital to when the opportunity comes.

We will continue to focus on underwriting and managing our capital whether that be Lancashire, Cathedral or Kinesis, it doesn’t matter if the strategy is the same. So, we will continue working hard to enhance our broker and client relationships whilst all the time doing the best job we can for our shareholders.

I’ll now hand over to Paul Gregory.

Thanks Alex. Last quarter we spoke about how the insurance lines were witnessing the same competitive pressures as the reinsurance lines being experiencing to some time.

It’s fair to say that this trend continued through the second quarter. Our response to such conditions has been to maintain underwriting discipline and focus on bottom line rather than top.

This may not be particularly fashionable at the moment, but we remain convinced that our strategy remains correct and will ultimately provide the required returns for our shareholders through the cycle. Our top line premium reduction may seem dramatic but once the impacted amount of multi-years is stripped out, the year-on-year reduction is closer to 11%.

Market conditions have certainly been in line with expectation for those we prepared for with this year’s reinsurance strategy. As has been well publicized, the energy sector has undoubtedly witnessed the most severe competitive pressures this year.

In the first quarter, we commented on the perfect storm created by the stark imbalance in demand and supply and also the dangers of the lower oil price and the uptick in losses that historically tend to follow such periods. This perfect storm intensified during the second quarter, and the prediction on loss activities currently playing out as anticipated.

Conservatively, the losses in the upstream energy market year-to-date are now in excess of what we anticipate the market premium to be at year-end. As a significant participant in this market, we are obviously not immune from these pressures or in did some of the losses.

However, we have successfully avoided a number of these losses and defended our core portfolio. Fortunately, we have a degree of insulation from pricing pressure, given the number of multiyear contracts put in place in 2014, which is impacting top line but aided the bottom line.

Our other lines also come under pressure from the general view we’ve been in overpopulated market. There was strong further compression by insurance and reinsurance lines, albeit terms and conditions were not pushed too hard.

The first time in a while, there were some reinsurance accounts and they did re-pricing given the original pricing was being too aggressive. However, these were very much in the minority and it’s far too early to describe this as a trend.

Our reinsurance strategy is starting to bear fruit. We’ve been utilizing a hungry [indiscernible] reinsurance market in a number of insurance lines which have helped them in some of the midsized losses we experienced in the quarter.

We remain convinced that now is the time we should buy more reinsurance and not less. Despite a relatively noisy quarter with risk losses, the underwriting teams across the group still be able to produce a respectable combined ratio of 75.1% year-to-date.

It is our belief, if we continue to focus on underwriting, then the Group will continue to deliver leading underwriting results and appropriate returns to the market we’re in. I’ll now pass over to Elaine.

Thanks, Paul. Hi, everyone.

Our results are on our website as usual. With a few risk losses in the quarter, but also some favorable development in prior accident year reserves, underwriting performance is reasonable overall with a net loss ratio of 34.9%.

As Alex said, after adjusting for the impact of warrant exercises we produced an ROE of 2.3% for the quarter, bringing us a healthy 6.6% for the six months to June 30. There are now less than 600,000 warrants remained to be exercised before they expire in December, any further impact on ROE will be negligible.

Our ROE of 2.2% breaks down as a 0.6% contribution from Cathedral, 0.2% from Kinesis and 1.5% from Lancashire. For the year-to-date, Cathedral has contributed 1.2% to ROE, Kinesis 0.4% and the balance of 5% coming from the original Lancashire platforms.

Looking at our top-line premiums written, as for last quarter, there was a significant reduction compared to last year that’s very much driven by the multi-year deals that we wrote in 2014. If you recall, we have been talking for several quarters now about multi-year policies we wrote in our property cat and energy books last year.

In the first half last year, we wrote $96.2 million of non-annual term contracts in the property cat, and energy offshore books. Those contracts are not due to renew yet, so that the significant drop-off in premiums written.

We do still have the benefit of the earnings of those deals coming through in the current year with a bunch of stronger pricing on those prior year contracts and therefore some protections in the current pricing conditions. We have included an analysis of gross written premium by segment in our press release this quarter.

So, continued reductions in earned are much less than written. So all in, we said last year that ignoring the lines of business tend to be characterize by non-annual contracts.

We grew up $120 million of multi-year deals across our property cat and energy offshore lines. About 30% to 35% of that earned 2014 and about 45% of that we will earn this year with the majority of the rest earn in 2016.

We also saw reductions in our terrorism and political risk books. Both of those typically have longer-term contracts, and business could be lumpy.

The reduction isn’t indicative of any particular trend there. However, if we continue to see pricing pressure across the lines of business over the rest of the year, I’d expect Q3 and Q4 premiums to come off a bit from last year’s level, with about 60% to 65% of a business written in the first-half of the year of the smaller impact.

Our net premiums earned are down 14% in half year and as stated earned the same level reduction for the full year. On the Ceded side, spend this quarter is broadly in line with Q2 last year, but as we reached out to the program of one month, this spend this quarter mostly related new cover that we bought including some new political risk cover.

For the year-to-date for the same expenses last year we have significantly improved our cover. Our acquisition cost ratio was also high again this quarter.

Some of that is due to changes in business mix with the rest due to changes in our reinsurance program. Also for the year-to-date ratio and with the Q1 2014 acquisition costs were impacted significantly by the accordion vehicle as we see $6.7 million of profit commission on the computation of our quota share.

Profit commissions from Kinesis are included another income and do not impact our acquisition cost ratio. If we included our third part to capital fee to profit commissions, our acquisition cost ratio would be 24.1%.

However, with changes in business mix I would now expect now expect to see that ratio in the 25% to 26% range for the year. On losses as I mentioned, we saw a lot of activity and risk losses this quarter, but nothing unexpected.

There are no cat events to speak but we had one midsized energy loss and a couple of satellite losses. The accident year ratio is somewhat elevated due to that at 59.4% for the quarter.

Otherwise we have some more favorable development in prior accident years with the vast majority of that coming from the 2013 and 2014 accident years as you might expect. There are no specific drivers of the releases this quarter, just generalizing our releases which are always nice to have.

Our investment portfolio including our currency hedging, was flat for the quarter. There was a significant amount of volatility in the quarter, so we were pleased not to have a negative return and driving on our strong performance in the first quarter.

While our main fixed income portfolio is impacted by rising treasury yields in the quarter, our bank loan portfolio performed very well and offset the losses elsewhere in our portfolio. We are happy with our positioning and are hedging against industry hikes.

As I mentioned last quarter, we have more risk assets in our portfolio now than we’ve had in recent years. No real change in our investment strategy and we don’t intend to add much more.

The risk assets we’ve added are generally lower volatility and are there to address our interest rate risk. We’ll stay pretty short duration this year and start increasing to the expected Fed rate hikes.

Our reserve duration is register year mark, we wouldn’t increase our asset duration much beyond that. On KCM, the 2015 underwriting fees are earned in line with underwriting risk profile.

As you see most of that came in over the third quarter. As there are no losses in the 1115 [ph] underwriting cycle, profit commissions could be just under $7 million with the LICs received that with the Q1 2016.

Our G&A includes KCM expenses. The G&A ratio was a little high again this quarter and that’s in part due to reduced earnings.

As you see the actual dollar spends done in last year. In Q2 2014, we had Richard retirement package impact plus the amortization of the finite life intangible asset created in the acquisition of Cathedral.

The Foundation also received a donation of $2 million in Q2 2014 which wasn’t acquired this year as we had sufficient funds to meet our goals. Lastly, in general with a bit movement in our G&A portion in the quarter than it used as Cathedral’s bonus accruals are linked to the profit, so that will move around over the year.

But over the rest of the year, our G&A ratio should trend in the same levels last year, possibly slightly lower. Finishing off on capital, with the business we expect to write, we are still comfortable at the $1.4 billion to $1.45 billion level.

If nothing happens to change the market this year, we will likely return to earnings at the end of the year. With that, I will now hand over to the operator for questions.

I have three questions if I may. First question, I guess it comes back to the point that Elaine just made on capitals, you said 1.4 billion to 1.5 billion is kind of the level of capital that you need to run the business.

Is that a minimum level of capital; is that something that depends on kind of -- to do any credit ratings run on the minimum level of capital? So that’s question one.

Second question just on multi-year deals, are there any that we should think about for the remaining two quarters in this year that were kind of bricks and mortar that we’re going to be seeing in the rest of this year? And the third question is comments on proximate of the property cat reinsurance market, do you think any model changes from AIR, do you think will they have any impact on ILS pricing?

Obviously the first two for Elaine, but I will take the third one. I think at the moment, trying to apply logic to the current market is difficult.

So I am not sure any kind of model change will really affect pricing. What we have seen for some of the cat and some of the ILS deals that there has been a bit of peak in demand which flattened that market out and I think the reason now it appears you are reasonably close to the bottom of the market if there is a bottom to any market and we have seen some deals re-priced in the last kind of six weeks which we haven’t seen for a long time.

So that’s where that comment comes from. I think that’s consistent with what other carriers have said.

But as I said at the moment if you want to look at any kind of model change been linked to pricing is probably hard to say in today’s market.

On the capital side there you can see that we’re at a minimum level, I think we are at a level where we are comfortable with what we’re carrying. It’s a business that we’ve got and we have de-risked quite a bit and [indiscernible] are our biggest capital driver.

So as we de-risk the more and I am sure we could have capital then bit more but what happens with the business mix is that we’ve got more in return to that producing. On the multi-years that really mostly the property cat and the energy businesses are impacted by that and they tend to be Q1and Q2 books of business.

So there will be much less impact in Q3 and Q4. And we do get some multi-year contracts across vertical risk areas and some of the main lines of business, so the bigger impact is definitely in the first half of the year.

Can I just ask too on the impact of kind of price declines on profitability looking forward? Firstly, you mentioned that the underlying top-line decline was about 11%.

Can we sort of read that into the impact on the sort of the profitability of the business that you are writing on an underlying basis? And similar area, I think previously you said sort of attritional loss ratio should be in the kind of mid to high 30s.

I might have missed this in your comments Elaine but could you may be talk about how you see that progressing over the next 12 months?

So just on the profitability one before I hand over to Elaine. I think let’s be very straight away.

Any reduction in pricing is going to affect your probability. We have seen, in individual accounts we have seen opportunities to buy some [indiscernible] reinsurance or look at things a different way and there’s different ways to scheme accounts if you like but it will always affect your profitability.

But as we think about the market and business here it’s all about profit, and we’re not interested in growth for growth stake, we’re trying to maintain the best business we can but we’re under no illusions. Yes, of course if pricing goes down, it affects your ability to make money but as I said there are and we have seen opportunities to take the original deals, transform them with some type of reinsurance and then actually you end up with a better position or in some cases, just the same position that you would have had last year at some rate reduction.

On the loss ratio side, data that is given in the past I think it’s also valid. Obviously as we move into towards the end of this year and our outlook for next year, if there is further pricing impact and that might change.

But at the moment mid to high 30s I think is still pretty reasonable. We have had a slight uptick in the losses this quarter, but we see that as mostly kind of timing type thing.

The satellite losses, as I said really are attritional. And if I back out and the energy we’ve had for the year-to-date, we get into something that was kind of mid to high 30s for attrition, so also remain with expectations.

I have really two questions, if I may. The first is on sort of pricing and demand that was really within the energy book.

I’m sort of interested in how quickly you think demand sort of adjusts to what’s going on with the oil price. Do you think if the oil price sort of stays where it is today, you will see a further reduction in demand and in pricing, assuming there’s kind of no losses of course?

And then the second question again is on multi-year deals. I think I caught your comments there that around about 20% of what was written in 2014 will earn through in 2016.

You mentioned in the statement some of the contracts had been renegotiated, so I just wanted to know can all of them be renegotiated and what determines whether they will be?

I think first one is clearly Paul and then number two is probably a combination of Elaine and Paul.

Good question on energy. I think what we’ve seen this year, the impact in the market has been dramatic quite frankly.

And I think when you get to the end of this year, the premium basis in the market given the combination of rate reductions and demand shortfall will be about a 40% reduction in premium to the upstream market, so it’s pretty significant. So I think the oil price remains where it is, then you’ve seen buyers adjust their demand within one year.

And absent any further losses, I am still convinced you will see further pricing pressure, not to the same degree you’ve seen this year, in 2016. So I think the demand part of it assuming the oil price remains where it is, has been dealt with but I do think that you could see some further pricing pressure albeit not at the same levels we’ve seen this year going into 2016.

On the multiyear deals, yes we negotiated pretty much a commercial discussion and while they maybe be renegotiated for a price reduction, we still got the benefit of the earnings stream coming off of that. So we still got that business locked which we’re pretty happy with.

The multiyear deals we entered into with energy clients, energy clients we’ve had since our inception pretty much and it’s a handful of clients and as happens, we will always have commercial discussions with these clients and if we can come to a mutually agreeable renegotiation and that’s what we do but it is mutually agreeable.

But just on that just to be clear, if we run multi-year policy, we won’t renegotiate for the period that we wholly agree to. So, if we’re one year into a three year deal, we won’t come back to the title to negotiate the next two years just because the markets go softer and clearly the market the harder we wouldn’t renegotiate that.

So, it’s fair deal on both sides but some time we renegotiate -- sometimes we will add another year to the policy or the client will sign a new three year deal and that’s why you see the changes as well.

One more thing on the multiyear if you look at our net premiums earned to net premiums written last year, the ratio there is a little bit under 100%. I would expect the ratio for this year to be quite a bit above 100% given the multiyear earnings coming through.

Three questions for me please. Could you just give the aggregate number for the two satellites and any loss together?

I’d just be interested to try and back out the line attrition, although we understand it’s lumpy and I just kind of want to understand what those lumps are in size. The second question is the multiyear deals, although they’re protected, they immunize you this year, and in some sense build in next year.

Of course the immunization goes away when you have to renegotiate or redo them. I was just wondering what you think the likelihood is of that step down.

That’s got to flow through the earnings as well over the course of the next couple years assuming nothing traumatically changes in the market. Are you able to give us a sense of how much that might impact profitability?

And then the third question is really a little more strategic given what we’re seeing going around the market. And I’m sure you’ve had lots of thinking time about this.

But what value do you think Lancashire has as standalone versus as part of another organization in some shape or form and what are you doing about those potential opportunities?

So, we’ll do it in reverse order, the last one and then a brief comment on the multi-year deals and then we’ll go from there. I think your last question is a good question, this is kind of obvious question, what do you do in a market like this everything is getting difficult, margins going down, don’t really see.

Absent a big event or change in the investment world, what’s going to change for Lancashire, I think what people got to understand is it’s all about the shareholders we have. So we have some fantastic shareholders have been long-term holders of Lanc’s.

They also bank [ph] with you. Obviously the senior management team and obviously joining their huge amount of work with the shareholders and explaining what their strategy is and they are very comfortable with what we’re doing.

They understand the market cycle, they obviously want us to preserve that capital when things are difficult and have returns as everyone else is will always be judged on what return you can get elsewhere in the world. So albeit the whole insurance community will sit around moan about the market how terrible it is and it is the worse market we’ve seen 10 years, but we’re still very confident that we can work our way through and particularly come up with an accessible dividend yield for our shareholders absent a big event.

So if you could question as to what question to ask, we’re still completely relevant in everything we do. Relevance is very different to size.

If you talk about are we better than a bigger company? I’ll be honest with you, I don’t really buy the bigger is better thing.

I would say that I personally think no evidence of any of the companies that have together to be so super companies, and gain a bigger market-share on the back of it, if anything I think make a smaller market-share of actually I don’t think one plus one equals two. So, I think that a lot of particularly big deals have been done seem to be just a cost cutting exercise.

No one is going to buy Lancashire to cut the cost because we’ve always been on our costs. So I really don’t think if we were part of a bigger company it was a better opportunity.

I don’t believe it would give us a bigger market share. It wouldn’t enable us to cut cost because costs are about as long as you can get.

So, I still think we’re much better the way we are. On the multi-year thing, it’s very hard to predict what clients will do, some clients like a multi-year policy, some clients prefer to have chances every year in the market.

I think so -- I don’t think we can give you any guidance on how many multi-year deals will be running in two years time. what I would say there is general message is that when we’re selling multi-year we’re actually very careful what clients we sell multi-year to and there are core clients.

And then equally dependent on where you are in the cycle, obviously you won’t want to get two years down the line in the difficult market until the majority of your book on a multi-year basis and then next year there is a big event and you miss the opportunity. So there will always be a limit to the amount of multi-year deals we will sell and we’ll always be very aware of where we are in a pricing cycle when we sell those deals.

So, it’s very difficult. And I personally don’t believe we should give you any guidance in that because we don’t know ourselves.

On the satellite and energy claims, we don’t really give a specific numbers on individual claims, but overall the net impact of the satellite and energy claims we had or the individual ones we’ve talked about this quarter is around about $25 million mark and that’s net of [indiscernible] that we bought on some our satellite cover.

And actually, Elaine, if I could just extend Alex’s comments around the one plus one doesn’t equal two. I’m just thinking as much as anything for your book of business on the capital side, it may actually exceed to just because when I look at your -- particularly to reducing the risk exposure as you talked about a lot that your capital base you’re not reducing quite so fast.

But as part of a larger diversified business, that would be more possible I would have thought to you. So is that not part of your thinking?

Do you not think that -- agree with that or is it just not a consideration now?

Not for this quarter and we get to wind season, we’ll do what always do, mark how much we need to carry and we will always carry little bit hedging, so there is any opportunities do come up, we can take advantage of that and so there always be a little bit of buffer still in there.

It’s clearly a very difficult underwriting environment with no obvious end in sight. Could you just comment on how that’s impacting staff morale and how you’re managing the motivation, incentivization and retention of key staff and what you’re seeing in that area?

I think what we have whether it’s Lancashire, Cathedral, Kinesis, I still think we have far incredible working environment for our staff, we just had a Board meetings in Bermuda and we had a very good conversation with the [indiscernible] about paying people in a difficult market and our business is about people and we have to keep our best people that’s obviously not to say that everyone is kind of get the same bonus as they got when our results are much better but we’re fully aware that we to keep our best people. And without that we run out of the business.

So the board [indiscernible] they are very pragmatic about the difficult market we’re in and it’s all about being patient and waiting for the next opportunity. But you can’t take advantage of the opportunity if -- when that time comes, you are going to start.

So I am probably relaxed about that, we will communicate to all our staff; there is no real issues about staff retention. Of course we are always going to look at some people, and some people will seek other opportunities and we have some good people and they always get approached which again is a good thing.

But I am pretty relaxed about it. And if you look around the market, Nick as you know, it’s pretty miserable out there and I think smart people are aware that just by changing shops in this market doesn’t really make a difference to your life, if it’s a different underwriter.

I think we still get proposition for people to come and work a Lancashire and we are talking to a number of individuals that are at the houses that have merged or acquired. And there’s some pretty unhappy people out there, so I still think we have to plug it.

And I think Nick on the underwriting side if you think about good underwriters actually preferred being in a house where they can make the right underwriting decisions, it can actually be quite self destroying trying to grow your book in this market when rates are coming off and we are not a management team that telling our underwriters to grow. So they have been out to sit there and do the job that they want to do which actually is improving the rail on the underwriting side, I think sometimes that gets missed.

Three questions from my side please. The first one, I was wondering if you could just talk a bit about what’s happening in Cathedral because premiums were down 17% and you mentioned pricing pressure.

But I mean it shouldn’t be that much on that part of business to be honest. And you mentioned there are new lines which that part of Lancashire has started writing.

So just wondering where exactly quantum of decline is coming on that portfolio, we get to understand that. And second question around your ROE.

I was wondering if you had an updated sense as where you might end up for the year. Also thinking about your cross cycle target of risk free plus 13%, I know that’s cross cycle target but is there -- well I guess there is a growing possibility you may be sort of slightly below that this year, next year and I am wondering whether that would concern you at all, would you consider taking any additional actions to revert that or are you sort of happy to take that in one given year and just focus on the fact that it’s cross cycle?

I think that’s combination of Pete and Elaine, so let’s bring Pete and Elaine can answer rest of the questions.

Hi, as the guys have said already, the market is quite tricky which is overspill from the reinsurance lines into most of things. As Paul made a very good point earlier, the management breathe if you will for the underwriters just the trend in market you see in front of it, [indiscernible] for the last two to three years that we look after our core books, the books that we have written are pretty much right on point in terms of how we sell in terms of Lloyd’s business planning.

We have both more reinsurance, we have lower retentions and the start of the oddly and bizarrely is one of the best we have in the property sector. So, I’d say this the ‘13, ‘14 account are following the usual good years getting better, [indiscernible] doing quite well.

So in terms of what you see, the actual amount and again I am never a fan of dissecting things until the quarterly or the half yearly paces because the way different things are in a different times and how the business mix has changed slightly. But broadly speaking it’s pretty much where we thought it was going forward, again reflects to Alex’s points, if we could get more teams, add another line or two of business, so people actually generally do control their marketplace that’s what we would like to do.

We’re actually not in the business of sitting the underwriters down and telling them this is your budget, we will need to increase your budget or hold your budget, we start to reflect another shops. So I am slightly surprised here, it’s a number we are comfortable with and don’t think [indiscernible] what particular line of business were you surprised as a drop off Olivia?

Well just I mean generally, you sort of said it’s pricing pressure, albeit you’ve grown some new lines of business. So, I mean 17% is just quite a big quantum and it is now roughly a third of the overall group premium.

So for a book of business which I guess I’d expect to be a bit more stable across time, and bit more sticky and it just surprised me that that was quite the number. I’d expect it to be maybe down but not quite that much.

Yes, I think if you look at the year-to-date numbers Olivia, the decrease is about 12% which is a bit more in line with what we have been seeing and what we have talking about. There’s a little bit of lumpiness in the premiums in Q1 and Q2 and in Cathedral this year.

So to Pete’s point I wouldn’t focus just specifically on one individual quarter I’d look at across the half year and where we end up for the full year.

Okay. So just for the full year, do you have a number in mind for where it should end up, more or less in percent, is it roughly 10, is that…?

Yes, I think Q2 and Q4 as well and I think that’s the reasonable expectation to start with.

Okay.

Yeah, I would consider that. It’s a tough market.

You have your exposures down. If you’re looking after your net premiums thing and you keep your core clients, people tend to forget about what the exposure piece is doing, both on a net and gross basis.

And so that’s what seem to just generally trading through. We have traders who have been around a long time and they’ve never go to markets before.

My view has always been, let them go do it, and this is how they’re choosing to do it.

Just a couple of questions from my side as well, the first one on the reserve releases. You are saying that you are seeing reserve releases from pretty much every single underwriting class and we cannot just read that in your disclosure.

But I was wondering if you can talk about the reserve adequacy and whether that has changed at all? And then if you could also talk about how much you have in your Thai flat reserves?

I understand that there was a small release this quarter relating to that.

Just on the reserve releases, there hasn’t been any change in our methodology, it’s just the case of the fact it’s mostly 2013 and 2014 accident years coming through. And given the nature of our business reserve petition [ph] is nothing that reported and we have release over there.

So there is no real change there. And on our Thai flat loss, we have seen some releases on that, both this quarter and last quarter and the remaining reserve on that is up 40 million.

Two questions, please, so the first one is on Kinesis. Can you comment on your outlook for Kinesis sort of going to end of 2015 and into 2016 as well, whether you’re seeing a standard competition there, and how should we think about profit commissions and underwriting fees going forward?

That’s my first question. And my second one is on the finance costs.

So, I think they increased a lot quarter on quarter, and I understand there’s going to be a degree of volatility there each quarter, but is there sort of a run rate we could be expecting on that going forward?

Kinesis continues to be a product which we don’t have a huge amount of competition for. But equally, because it’s quite unique, it suits certain clients.

So we’re pretty much flat year-on-year, which in this market is an achievement. We are looking at some other products which hopefully we can launch in the future.

But as I said, being flat in this market is a good result by any measure, and that continues to do a very good job for us.

On the financing cost, the volatility that you see there is driven by the interest rate swaps. So, as rates move around that mark to market and that’s the move you see, the underlying run rate is about $4 million for the interest expense on our debt and for other LOT costs that kind of thing.

But you’ve all seen some things there as this swap mark to market.

I just wanted to follow-up. I think it was a comment earlier in the call that you were talking to a number of different people in the market.

I was just interested in terms of which of the areas where you would be looking to take new people on, are these new classes; is it kind of building out capacity in your existing lines?

So obviously we can’t say what classes of business but in general we’re always open to conversations whatever the market is, but I suppose with all the M&A we did, we hopefully see it as a big opportunity. But obviously there’s not many really good people in each class of business and surprisingly enough, we’re not the only company in the world thinking about taking advantage of the opportunity.

What I would say to you, Ben, is that it’s only going to be in businesses that we know and understand. It’s highly unlikely any of those things, we’re not talking about a major play into casualty or something that it’s just not our bag.

So we’re not looking to changing shape of the company. We see ourselves as a specialty player.

It will be in specialty classes. Obviously if you could find a team of people in products that we don’t currently do, that’s obviously much more attractive than things we currently do, do, because we have enough people to do what we currently do.

And obviously it would make you more capital efficient. So there’s various conversations going on, but equally you always find good people around and if they’re ready to go, they’re probably having three or four conversations at the same time, so it’s not that easy to get new people.

But as I said, more than anything, we’re not trying to change the shape of the company and we’re sticking to things that quite frankly we think we’re good at and we can outperform. We wouldn’t actually give guidance on the lines that we’re talking to.

And the underlying key is all about the people. If we can get the right people that add value, then we’ll do what we can to bring them to the business.

Because ultimately it’s -- the results from Lancashire historically and Cathedral have been driven by having good people, and that will be our number one focus.

Sorry if it was covered early in the call. I joined a bit a late.

But could I follow-up on the Kinesis question and the ILS markets in general? We did have a lower issuance in Q2.

Could you perhaps give us some flavor where you think ILS issuance could be heading in the next few quarters? And if there has been any change in terms of where the limits are for ILS?

Is it people are moving down or what’s happening with deals or coupons et cetera?

I think I’ll answer that as best as I can. I think it’s a very difficult predicting what capacity will remain in that market.

Again, for me what’s quite interesting is that, if you look at some of the ILS markets, they’re professional investors and I think to a lot of those people it doesn’t matter if they’re investing in insurance or use [ph] trade in, they’re just looking for a return. And you could see an example where as the market gets weaker, the ILS guys are actually more disciplined than the rated paper where we’re a lot more emotional about this market than some of those guys.

So I think as returns go down, it’s unlikely you’ll get any more capacity in that market, but we will know that there’s a sort of a wall of capital that would love to be in insurance land, if the yields were down. So, I think it’s very difficult to predict, I think like all capital where it’s traditional or ILS capital, there is some very smart capital, there is some more naïve capital, but I think it’s just quite an interesting trend that some of the funds are actually pulling back and some of the right guys don’t appear to be pulling back at all.

So we’ll wait and see. I think in fairness to the funds and the ILS guys, I think the rest of us -- or the rest of the traditional guys would like to be in the whole market on the arrival of the fair capital, but that’s just completely ridiculous quite frankly.

Thank you very much. And we’ll talk to you next quarter.