William Berkley – Chairman and Chief Executive Officer Rob Berkley – President and Chief Operating Officer Gene Ballard – Senior Vice President and Chief Financial Officer.

Vinay Misquith – Evercore Amit Kumar – Macquarie Michael Nannizzi – Goldman Sachs Larry Greenberg – Janney Capital Vincent DeAugustino – KBW Kai Pan – Morgan Stanley Brian Meredith – UBS Ken Billingsley – Compass Point Jay Cohen – Bank of America Ian Gutterman – Balyasny.

Good day, and welcome to the W.R. Berkley Corporation’s Fourth Quarter 2014 Earnings Conference Call. Today's conference is being recorded. The speakers' remarks may contain forward-looking statements.

Some of the forward-looking statements can be identified by the use of forward-looking words, including without limitation, believes, expects, or estimates. We caution you that such forward-looking statements should not be regarded as representation by us that the future plans, estimates or expectations contemplated by us will, in fact, be achieved.

Please refer to our Annual Report on Form 10-K for the year ended December 31, 2013, and our other filings made with the SEC for a description of the business environment in which we operate and the important factors that may materially affect our results. W.R.

Berkley Corporation is not under any obligation and expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. I would like to turn the call over to Mr. William R. Berkley. Please go ahead, sir..

Thank you very much. We are pleased to report that for the year we hit our 15% target. On return, in general, we think the environment is pretty good; not as good as we'd like but certainly overall we’re pleased with where things are going.

I am going to turn the call over to Rob for our operating results and then we’ll follow up with Gene and then I’ll try to finish off and answer questions.

So, Rob?.

Thank you. Good afternoon. During the quarter trends in the commercial lines insurance and reinsurance market were by and large consistent with what we have seen over the past several quarters. The reinsurance market remains exceptionally competitive and is yet to find the floor; however the pace of erosion, at least for the moment seems to be slowing.

The drivers behind this competitive market continue to be the same as they've stayed in over the past several quarters.

The alternative capital coming into the market is putting a great deal of pressure on the marketplace overall and traditional players are trying to rationalize how they are able to compete going forward and be able to also generate a sensible return. At the same time, we continue to see changes in the behavior amongst ceding companies.

Cedings are looking for ways to buy more efficiently; they are looking to combine programs and reduce the number of treaties they buy, while simultaneously looking for ways to increase their net retentions.

As it relates to the insurance market, certainly a very different picture; much brighter than that in the reinsurance space, though the tailwind seems to be gradually slowing.

Select parts of the workers compensation, GL and professional market remained very attractive to name a few, while on the other hand long-haul trucking, aviation, and parts of the marine business continue to be a concerning puzzle.

With regards to the company’s performance, net written premium was approximately $1.46 billion, up slightly more than 7% when compared with the corresponding period last year.

The growth was primarily driven by our domestic insurance operations as well as select parts of our international business, though it was partially offset by our reinsurance segment which is trying to navigate its way through obviously the very competitive environment that I mentioned earlier.

Rate increases for the domestic insurance business were approximately 3.1%, and at this level we believe our margins continue to expand. It’s worth mentioning as well that this rate increase was complemented by a renewal retention ratio of approximately 80%. The loss ratio for the quarter came in at a 60.8%.

This is an improvement from last year in spite of the challenges that our international segments faced. You may have noticed this in the press release that the international segment did have a difficult quarter, and it certainly wasn’t a great year. As it relates to the quarter, there were really two meaningful issues that led to the outcome.

One had to do with CAT losses, and Gene is going to be touching on this shortly, but it really stemmed from two events, one in Australia and one in Mexico. The other issue was some loss development that we had coming through in our UK and European professional liability operations.

We believe that we have our arms around the issue and are well on our way to addressing it. The expense ratio improved during the quarter by 1 point to 32.5%. Our domestic insurance business led this improvement, coming in at almost 2 points of improvement.

This was partially offset by the reinsurance segment, which saw some deterioration in their expense ratio, and this deterioration was really driven by higher commissions. We believe that there is opportunity to improve on our group expense ratio from here, but takes time and the hard work of many.

I would remind you that this type of activity on occasion requires one to take one step back before you can take two steps forward. When one point puts all the pieces together, the organization achieved a combined of a 93.3%, which is just shy of a 2 point improvement from the corresponding period in 2013.

Gene is going to be touching on the highlights from the balance sheet, but I would offer one comment and that is we had net positive developments of approximately $23 million in the quarter and this represents the 32nd quarter in a row of positive development.

When one takes a step back and looks at the quarter, clearly the international segment had its challenges, but as I suggested a moment ago, I believe that we are well on our way to remedying the situation and it just takes a little bit of time for that to come through in the numbers.

The reinsurance segment certainly faced its challenges as far as the marketplace that it operates in. Having said that, we believe that the discipline and knowledge and experience of our colleagues in that space, we’ll be able to continued to manage the capital effectively.

And finally, the domestic insurance business which had a particularly strong quarter we think is well positioned to be able to carry on into 2015 with similar or improving results..

Thanks Rob. Gene, do you want to pick up the numbers please..

Okay. Good. Thanks Bill. Well, for the fourth quarter of 2014 we recorded net income of $111 million or $0.83 per share and a return on equity of 10.2%. Although the fourth quarter underwriting results improved significantly from a year ago, those gains were offset by lower earnings from investment funds and from our service businesses.

I'll briefly summarize each of those activities starting with underwriting. Rob covered the premiums. I'll skip to the underwriting profits. Our overall underwriting profits increased 46% to $100 million with significant improvement in both the loss and expense ratio.

The accident year loss ratio before cat loss is improved 1 point to 61%, as year-to-date rate increases, up nearly 5% on an earned basis, continued to well outpace our loss cost trends. Catastrophe losses were $18 million in Q4 compared with $13 million a year ago.

As Rob said, the 2014 cat losses included international cat losses of approximately $11 million, which were due primarily to two events; one was a $7 million loss from a large storm in Brisbane, Australia in November, and the second was a $4 million loss from a late claim received by our Lloyd's business for Hurricane Odile, which was a category four hurricane that made landfall in Mexico in mid-September.

Our prior year reserve releases continued to develop favorably with $23 million of positive development in both the fourth quarter of 2013 as well as the fourth quarter of 2014.

In 2014 the domestic and reinsurance segments reported favorable development that was partially offset by prior year reserve strengthening for the international segment, primarily for professional liability business in the U.K. and Europe.

Our overall expense ratio declined by 1.2 percentage points in the fourth quarter and almost 2 percentage points for the full year. The overall expense ratio for the fourth quarter was 32.5%, which is our lowest quarterly expense ratio since early 2009. The domestic segment expense ratio improved by 2 points and the international ratio by one point.

That was partially offset by a higher expense ratio for the reinsurance segment, which was up 3 points primarily due to additional contingent commission payments on profitable reinsurance business. That gives us a combined ratio of 93.3% for the quarter, compared to 95.1% a year ago.

The domestic combined ratio improved by 2 points to 90.6% and the reinsurance combined ratio improved by 8 points to 92.5%. The international combined ratio was up 6 points due to the cat activity and loss development that I mentioned earlier.

Turning to investments, our core investment income that’s for four investment funds was $118 million in the fourth quarter, nearly unchanged from a year ago as the slight decline in bond yields was offset by an increase in invested assets. The average annualized yield on the core portfolio was 3.2% in the fourth quarter compared to 3.3% a year ago.

Investment funds on the other hand reported an aggregate loss of $3 million, compared with a profit of $22 million a year ago. The 2014 loss was primarily due to losses from energy funds and from another fund that invests in stocks. For the full year, the average return on investments for all investment funds was 12.7% in 2014, up from 8% in 2013.

Realized gains from the sale of investments were $21 million in the quarter; that’s the 23rd consecutive quarter that we’ve reported a realized gain on investments. And at December 31, 2014, the average rating and duration of the fixed income portfolio were AA- in 3.2 years and the aggregate unrealized gains before taxes was $471 million.

I mentioned energy from our services business which includes both our insurance services company and our wholly-owned aviation company; they were $4 million in the fourth quarter of 2014. That’s down $12.5 million from the fourth quarter of last year, which was our strongest quarter to-date for those businesses.

The decline in profits in 2014 compared to 2013 for those services businesses was due primarily to the timing of aircraft sales and service contracts. Interest expense increased $4 million in the fourth quarter compared with a year ago due to the advanced issuance of $350 million of subordinated debentures in August of '12.

A portion of those proceeds from that offering have been set aside to repay $200 million of senior notes that are maturing in May of 2015. We also reported a modest foreign exchange loss of $1 million in the fourth quarter of this year, which compares to a more significant FX gain of $4 million in the fourth quarter of 2013.

In taxes, the effective tax rate was 31.8% in the fourth quarter which is consistent with the effective tax rate throughout 2014. However, compared to a year ago, it's significantly higher, the tax rate; in the fourth quarter of 2013 was 25.5%, and that was due to the utilization of foreign tax credits.

For the full year that gives us net income, up 30% to $649 million, a return on equity of 15.0% and an increase in our book value per share inclusive of the special dividend that we paid in December of 13.5% to $36.21..

Thank you, Gene. So I'm going to try and go over what I think are the important points of how our year was; I'll talk about the disappointments as well as the high points. The biggest disappointment were the income from funds. The worst part of it was our oil-related investments as well as one particular common stock fund.

Unfortunately, those are bumpy and one of the oil-related funds that we invested in will likely in the first quarter have an adverse impact compared to its similar quarter in the first quarter of 2014. We think at that point it will be behind us.

Oil prices don’t have to go sky high to have dramatic improvements, but when you choose to mark-to-market which is the nature of how we mark the funds in order to give more transparency, that’s just how it is. We are offsetting declining investment income with the growth in investable assets.

You can see, investable assets are up roughly $1 billion last year, and they will be up somewhere between $650 million and $1 billion in 2015 which again will help offset the decline in yield. We are putting more and more money into short term assets. We believe inflation is around the corner; we just aren't sure how far the corner is away.

But in addition to the $700-odd million of cash we show, we have roughly $1 billion in other maturities which are less than a year but we can get a 1% yield on those maturities, so we think we are willing to go out that slightly longer distance to get up to a 1% yield. But overall, we’re still being very cautious. We don’t expect to change that.

Our reinvestment rate's probably 2.5%, maybe a little better, but we are mainly searching for things we can invest in that we may give up a little bit of liquidity, but we get 4% and 5% returns, but no market liquidity. High quality securities, however, is the only thing we are looking at.

The core business, the basic insurance underwriting business continues to do well. The performance is excellent. There are a bump here and there that comes up. It’s the nature of our business. We fix them, we don’t hide them; we address the issues.

We think we’ll be able to continue to generate outstanding returns, especially given the interest rate environment. And whether we get 13%, 14%, 15% or 17%, I can’t tell you at this moment in time, but we are going to still target that 15% return and we hope we’ll be able to continue to achieve that.

As far as capital management goes, we think there is lots of things happening in the industry, where opportunities to use capital, to obtain capital are available and we’re assessing those constantly. We are, and have always been careful managers of capital, whether it’s through special dividends or buying back stock. We are owners of the company.

We are not theoretical owners; therefore, we act as owners, maximizing the return for our shareholders. We will continue to do that. Nothing has changed from that point of view. When we think the best use is paying a dividend, we are going to pay a dividend; when the best opportunity is buying back stock that’s what we will do.

We’ve looked at acquisitions; we continue to do so. Most of them don’t enhance the value to our shareholders. We’re swapping our stock and the values we see in it for someone else’s piece of paper that we don’t think adds a similar value. We’re just not anxious to buy someone else’s business at a premium price.

We’ve been able to add business; we’ve added $700 million of business in the past 24 months net to us, and we’ve done it internally. We think we’ll be able to continue to grow at a substantial rate. So, we’re pleased with how things are and we’d like it to be more opportunities.

Many of these acquisitions of similar companies will create opportunities for us because there are people that lose their jobs and create opportunities; there are people that don’t want to have the same exposure, so they don’t want to double up on that exposure.

We continue to believe our model is good and we will continue to build on what we have, of course never closing our eyes to where we are. So with that I am happy to answer any questions in the call. We’ll be glad to answer any questions..

Thank you. [Operator Instructions] Our first question comes from the line of Vinay Misquith of Evercore. Your line is now open..

Hi, good evening. The first question is on the expense ratio that improved quite significantly this quarter. For the company as a whole, you are running at about a 33 expense ratio.

Where do you see it going in 2015? Do you expect the continued sort of decline and how much do you expect it to decline?.

All right. Rob will take that. Go ahead please..

Yeah, I think Gene, what we showed for the first quarter, I think we’re at a 32.5..

Right. 33 for the full year, yeah..

33 for the full year. Our view is that there is opportunity for us to try and improve across the board. Certainly we think that there is opportunity for us to try and improve where we are on the domestic front. We think that the expense ratio, assuming there is not a dramatic shift in the environment, can improve a bit from there, from the 30.

We are hoping that we can drive it down to something that starts with a two, but the greater opportunity for us is on the international front. And again, while it’s a smaller piece of the business, it’s not going to have the same impact, but clearly we need to be able to do something that is notably better than something that starts with a four..

I think that one thing to keep in mind though as it relates to the international expense ratio, the reality is, there are higher distribution costs oftentimes found on the international front.

So, maybe to answer your question more specifically, assuming that market conditions remain as they are and we are able to maintain a level of earned premium where we are or better, I think you will see us be able to drive that expense ratio down over some period of time by certainly more than a 100 basis points..

So we hope we are going to be under 32 this year..

That’s for the company as a whole?.

Yeah..

Okay. That’s helpful. Now you’ve grown quite significantly in 2014.

So given the increase in competition, do we expect the growth to slow down meaningfully in 2015 versus 2014?.

Well, first of all the 7.2% growth, 3% roughly was rate, 4% was growth..

Right..

I think that it clearly is going to be more difficult, but I don’t think 4% real growth is something that we would think would be impossible to attain..

Okay, and just a numbers question maybe for Gene. Gene, the tax rate was about 31% in 2014.

What’s the normalized tax rate for 2015 and 2016?.

It should be in that neighborhood. I mean the only thing that varies for us is - the only taxable item that we have is not a 35% of tax-exempt income for the most part, so what varies for us is when we have a differentiation between other sources of income and tax-exempt income. So that should be a pretty good run rate.

As I said, variation from a year ago was foreign tax credits which can move around a bit as well. But I would say that’s a good benchmark..

The other thing is common stock dividends which - we sure have moved out of common stocks and there’s an opportunity to move back and that might change it also. So, one of the issues you have is what our companies as a whole are going to do with their dividend rate, so forth..

Okay, great. And then one last thing; on the alternatives - because of energy we’ve seen that vague.

Should the first quarter of this year, should the number for the alternative investments be even lower than the $3.6 minus million we had in the fourth quarter?.

The only piece that we know for sure is energy; the energy partnerships will be - result in - they would not make us any money. I would think the partnerships as a whole will be certainly not as good as the corresponding first quarter. We don’t have the numbers at this point in time; everything is not in.

As soon as we know, we’re going to do our best to give people a heads up. We were surprised about a couple of pieces of that, so we’ll do our best to keep people informed. We think that the 12.7% return for the year was an okay return, but it was lumpier than we expected.

But we would expect that we will have a fine return for the year, but it could be a little lumpy..

Sure.

Sure, but the first quarter you expect some sort of positive number on the alternative funds?.

I don’t know the answer to that. I’ll know within the next three weeks, but I don’t know now. I’ll know a lot better - one of the things you have to understand also is, a couple of those are things that are in foreign currencies and so there’s a lot of moving pieces to that. We will let you know as soon as we know..

Okay, thank you..

Thank you. Our next question comes from the line of Amit Kumar of Macquarie. Your line is now open..

Thanks, and good evening..

Who is this?.

It’s Amit Kumar from Macquarie..

All right go ahead, Amit..

Hey, just very quickly maybe a follow-up on Vinay’s question.

Is the correlation between the energy funds and oil prices is that like sort of a 1:1 correlation? I guess what I’m trying to ask is, if I look at the Q4 energy price, crude price change and then sort of apply it, is that a good enough estimate or there are too many moving parts to make that assumption?.

Now, there are a lot of moving parts. I think directionally, it’s a good indication, but it’s not a one-to-one kind of thing. Directionally, it’s the right sense though..

Okay, that’s helpful.

The other question I had was, there was some comment in the opening remarks on the international professional side, and well, is that more of a methodology change or was there some sort of a one-time item on, I guess on the loss ratio side?.

The short answer in the interest of time, and I’m happy to get it to more detail if you like is that we had some negative development coming out of a few of the professional liability lines, and in our effort to get our arm around the situation we did what I would define as a reasonably deep dive and looked to try and make sure that we fully had our arms around it..

Got it, okay. And then just finally on capital management. I think you said that lots of things were happening, but most of them don't enhance I guess your older value, but that is….

I didn’t say that; I didn’t say they are going to enhance shareholder value….

I think you had looked at and passed..

Pardon me? No. we said we will continue to use capital management in order to enhance shareholder value, whether that’s buying back stock, paying a special dividend or whatever, and there’s a lots of things going on to give us opportunities to figure ways to optimize the use of our capital..

So net-net, no change in the capital management stance versus what we have seen in the past?.

No, I don’t think. I think that there are more people doing transactions which will give us more opportunities as our competitors try to do this, and we think that’s going to be an enabler for us to do better..

Okay, fair enough. That’s all I have. Thanks for the answers..

Thank you. Our next question comes from the line of Michael Nannizzi of Goldman Sachs. Your line is now open..

Thank you..

Hello, Michael..

Hi, how are you, sir? How are you doing? So I had a question about the expense ratio decline in domestic.

What specifically was driving - our ceding commission's a factor potentially in that decline?.

I am sorry Michael. Could you - the last piece of the question, you broke up a little bit.

Could you do that once more please?.

Sure. Yeah.

Are ceding commissions playing a role in the expense ratio improvement year-over-year?.

Ceding commissions are a component of it. I would also suggest to you that we are looking for ways to be more efficient and save dollars in how we operate the business, which is a meaningful component as well. And finally, obviously, we benefit from earned premium..

Right. Okay. Okay. Yeah, because it looks the dollar amount - the dollar expenses are up like, I don’t know like 5% against - certainly a lot more than that on the revenue side. So I was just curious. So, some cost savings.

And other actions that you continue to take?.

I think that you should be operating with the understanding at least in my opinion that we feel as though that there is opportunity for further improvement, but again as I at least tried to suggest earlier, it’s not a smooth curve.

Sometimes we need to take a step back in order to take two steps forward, but I think that there is still opportunity for us to improve in many places. Again, the international segment is one of the more obvious places from our perspective..

Got it. And then, I think you said $24 million in net development Rob. Sorry, it looks like….

$23 million..

$23 million. So, we get about 50 basis points of year-over-year margin expansion on the loss ratio purely as we think about these factors separately, and then about 90 basis points for the full year.

How should we think about from here? I mean, what’s the right sort of starting point to think about what you expect from or what should we expect from margins on an underlying basis from here?.

Barring the unforeseen event, we think that it's possible that it could improve from here..

Got it. And then just last if I could, just a couple of numbers questions. The insurance fees - insurance expenses in the fourth quarter, when I look year-over-year kind of blipped up pretty noteworthy on a year-over-year basis. I was just curious what was going on there, if there is something specific in the fourth quarter.

And then, other expenses, seemed like they have been running a little bit higher than the year-over-year for the last three quarters or so. And just trying to understand if there is - maybe there is some comp that's running through there, like equity comp or something relative to the stock price, so I can think about the forward. Thank you so much..

Yes, well, the service fee are, a large part of that is, we do a lot of business with a signed risk plan, and so as we start new business with different states you will see that number go up and that is what has been happening.

The increase in the other expense is, part of that's due to the increase in the service fees, but also, as a parent company we have some expenses that we don’t allocate back to parent company cost, including the cost of running operation, and that goes to the Other Expense line - some of that is incentive comp as well..

And there is a lot of leverage in some of that when we hit a 15% return, where incentive compensation, it’s in, and is all at the parent company..

Got it, okay. So we should be thinking about sort of that relative to the other costs and expenses - the service expenses, maybe thinking about that more relative to the insurance service fees.

Is that fair?.

That is true..

Okay, great. Thank you so much..

Thank you..

Thank you. Our next question comes from Larry Greenberg at Janney Capital. Your line is now open..

Hi, and thank you. Just wondering how the decline in energy prices might be affecting your underwriting operations that concentrate in that sector, Berkeley oil and gas, and I think Berkeley offshore..

I'm going to let Rob take that..

I think that at this stage it’s a little bit premature for us to be able to quantify that in a definitive manner. Having said that, it’s hard to imagine that we are not going to see that coming through as the health of the part of the economy that we service struggles a little bit more than it has in the past.

We are seeing early signs of the challenges. Just you’re not seeing the same amount of investment from the operators that we have seen in the past. We certainly are seeing a slowdown as we look at some of their receipts. In this early stage we certainly are seeing a bit of a slowdown as it relates to their payrolls.

So the long-term effect, what the impact will be on our business from an underwriting perspective, we don’t get the same visibility that we do on the investment side, or certainly not nearly as timely a manner. We do expect that there will be an impact.

Having said that we think the businesses are very well positioned and in spite of the headwind they'll do just fine..

So beyond maybe the top-line impact, is there anything we should be thinking about from an underwriting margin standpoint?.

I don’t think so. I think that we believe the underwriting decisions are very sound depending on how difficult that part of the economy gets for what period of time.

That may, for some period, have a negative impact at some point on our expense ratio, which we are more than prepared to deal with if the businesses begin to shrink, and that’s fine as we’ve demonstrated in the past through other challenging times.

But overall, the underwriting appetite and the underwriting discipline does not ebb and flow, it is constant and we’re not particularly concerned about it. But again, it may be a top-line phenomenon which will impact the expense ratio, but that's about it..

Okay, thanks. And then, Bill, I'm just curious, on your case for the reemergence of inflation at some point.

And would you - so maybe, what’s the basis for that case, and then would you extrapolate that to impact industry loss trends?.

I think ultimately there are issues that are old and common sense which says the government keeps printing money; more money will eventually convert it to inflation. The complexity that we are adding is we now have a global economy with people bringing money into the dollar with interest rates overseas basically going to negative.

Even 20 basis points is more attractive here than it is when you are paying 20 basis points to deposit your money. So, I just think it’s eventually going to come about where we are starting to see pressure on wages here. If I was more certain about it, we'd have a lot more cash because it's still only 10% of our portfolio is short.

I think that it’s a judgment that that’s the direction we’re going and the duration of our portfolio is somewhat shorter than the duration of our liabilities, but modestly shorter; it's 3.2 years compared to say 3.5 years, 3.6 years. Again, 10% or 12% shorter. This is not a business where we make big bets because we think we’re brilliant; we hedge.

Would we go a little shorter? Maybe. But right now we are cautious. We are looking for things to do that those less liquid assets would give us inflation protection. We’re just being cautious because we see inflation as a major uncertainty that’s sitting out there..

And would you think that loss trends kind of follow the traditional inflation path?.

Right now lost trends are totally benign and they are - our assumption of certain loss trends at 2% give or take, maybe 3%, if anything we are probably overestimating for the moment, but I don’t see anything that’s going to dramatically change that.

And clearly, the question is how things heat up, when do they heat up, what causes it to heat up, how's that going to interact with the Affordable Care Act and certainly medical costs are being part with. I think that people who have to build models and have to make estimates have to make some assumptions.

Our assumption is, we take a step in one direction and try to hedge a little bit. Our hedges, we think there is a possibility of inflation. We are assuming there is more inflation than it appears at the moment. But we'll have to change our view if inflation starts to pick up. We will have to go with the other things.

But we do own real estate, we do own other really hard assets that will protect us in the event of inflation, and it will protect us more than in fact the levels of inflation..

Thank you. I appreciate your thoughts..

Thank you. Our next question comes from the line of Vincent DeAugustino of KBW. Your line is now open..

Hi, it's is Vincent DeAugustino of KBW. Thank you. Bill, just your last point kind of segues into my question here, and it's on the strong dollar.

And so, aside from any currency translation moves, I'm just wondering if we should think about any exposure to whether it'd be trade credit or any other lines where a strong dollar may actually raise claim incidence?.

We have negligible exposure to trading credit. Let me - the answer is, we don’t like trade credit in any consequence of way; we probably have some peripheral trade exposure in some - we end up having exposure in everything, someway, someplace, somehow, even though we are not supposed to. So we probably have a bit here or someplace.

But we don’t like trade credit. I think the real - the interesting thing is, the dollar strength causes us to mark our assets to market and while we mark our ability to market, we don’t get a full credit for all those liabilities.

So we've got some benefits at the moment where we've hedged our credit exposures as far as currency goes and we don’t get the benefits on our balance sheet of those hedges. So, if anything, the strong dollar on our balance sheet is probably a positive at the moment.

I think from an economic point of view, clearly a strong balance sheet is we’ll have a more negative - on our balance sheet, not directly but indirectly on the economy, so it's something we need to be concerned about..

Okay, good color. And then, on the workers comp front you guys have talked about, the term was building up the iceberg with returns being a little bit more acceptable.

And we’ve kind of heard similar comments from some of the competitors in the space and I’m just curious if kind of the pace of building up that iceberg has been impaired by any incremental competition in that workers comp arena of if it's still business as usual there..

This is Rob. I think the answer is that clearly workers compensation is a bit more competitive than it was 12 months ago. Having said that the business that we’re writing, we’re still very confident that it is achieving or exceeding the targeted return that was referenced earlier.

So, yes, the market is more competitive, but we don’t think that it's gotten to the point that it's not still attractive.

I think it's important to note that one should not paint with too broad of a brush; there are parts of the market within the comp universe that are exceedingly attractive, and there are other parts of the market which one should tread very carefully.

So, I think we as an industry tend to talk about the comp market as one, but quite frankly it's really a bunch of micro markets all under the banner of comp, both depending on exposure as well as territory..

Okay, good to hear, and then just one last one from me. So, Bill, it’s a big picture question for you.

On the reinsurance side, it seems like the premise here has, become bigger is better and so I'm curious is from your standpoint if you think any of this consolidation benefits the industry or if it's really just repackaging some of the same issues that we’re dealing with today. And thank you..

I think that the people who benefit will be the executives of the industry who do that. I think that for the most part bigger is not necessarily better.

I think there are some companies that are too small to be competitive, I think can't get along with $1 billion or $2 billion of capital but I think $4 billion or $5 billion of capital was probably okay. My best judgment is, it's just fewer people for the government to look at who don’t pay taxes. It just makes it easier..

Okay, thanks for the color..

Thank you. Our next question comes from the line of Kai Pan of Morgan Stanley. Your line is now open..

Good evening. Thank you for taking my call. First question is on the pricing side. You said that rate increase currently stand around 3%. That’s roughly the same last quarter.

So can you talk a bit more about the competitive dynamics in marketplace? Do you see the pricing deceleration will be orderly in 2015 and next year, or there is potentially going down quicker than what we’re seeing right now?.

Well, I don’t think there is anything orderly about what we’re seeing today to tell you the truth. I think it’s a pretty mixed bag.

Again, we end up talking about rate increases, but we are covering a pretty broad spectrum of different types of insurance here and there are some that are getting tremendous increases still at this stage and there are others that are - quite frankly, we’re willing accept rate reductions because we believe in the margin in the business.

I think ultimately what should we expect going forward; it in part is as a result of some factors that are out of our control, part of it being how aggressive will the reinsurance market get from here and are they going to empower irresponsible behavior in the insurance space.

So, I don’t really know to tell you the truth how orderly it will be, but we certainly at this stage don’t see anything in the marketplace that would lead us to believe that anything is going to fall off the table..

Great. Then, secondly, on your - the profession line in your international book, you mentioned there was some issue there.

Could you detail a little bit on that? And also, have we seen the worst already sort of taken care of, or there could be some continue some issue to be addressed for a period of time?.

Yeah, well, the issue was stemming from our professional liability that we wrote out of the UK and a bit out of Europe. And to make a long story short, the issue was that the business performed less well than we had anticipated. In fact, it performed poorly.

As it relates to going forward, as I suggested I think that we have done a reasonably rigorous examination of the portfolio, and while I can’t guarantee everything, I am very much inclined to believe that we have our arms around it and that we have taken the action that is required.

So, is it possible that there could be some additional modest noise coming out over the next quarter or two? Yeah, of course it’s possible. But do I think that it would be anything to the extent that we saw in the fourth quarter? I would be both very disappointed and surprised..

That’s great. Lastly, on your own reinsurance book, like you see significant decline because probably your pricing discipline is account for like about 10% in your overall business.

I just wonder like what are you seeing about the size of the book? And in the current marketplace does that put you at a disadvantage in terms of getting business or getting favorable terms and conditions..

No, I don’t think that the size of the book at this stage in anyway marginalizes our ability to be effective in the marketplace..

I think the fact is that we have strong relationships with all the brokers. We have strong relationships with the ceding companies. And quite frankly, I think the quality of ceding companies that we have long-term relationships with, they both appreciate and respect our underwriting discipline and our relationships are alive and well.

So from our perspective, we think the people that manage the reinsurance business are very capable, they know what they’re doing, and they’re doing just what we would want them to do..

That’s great. Thanks so much for all the answers..

Thank you..

Thank you. And our next question comes from the line of Brian Meredith of UBS. Your line is now open..

Two extra questions; one of them, back on the reinsurance book, Rob, I’m just curious, clearly the cyclical pressure is going on right now in the reinsurance market from excess capital etc, etc.

But do you believe this is a market that's got secular pressures as well because of the alternative capital and maybe the way that reinsurance buyers think about purchasing decisions now?.

I don’t - the world is changing. Okay? The world is changing from every aspect and there is lots of capital searching for predictable returns. And the returns will not be as predictable as those people think. We’ve had a wonderful run of low cat activity and we’ve had some people who are quite - they are brilliant.

And I think that as long as that continues, there’ll be lots of cat capacity.

In the meantime, I think that it will continue with there being low cat activity and low interest rate because the marginal return you can get, if you have a portfolio of fixed income securities, the margin return from taking a flyer in the reinsurance business is pretty significant.

So if you have a $10 billion pension fund, it’s probably something that we think that makes sense to take a flyer and you'd have $10 billion pension fund. You expose $300 million, you can get a marginal return of a consequential amount when you're used to getting only a 1% return..

Got you.

And I'm just curious, where you able to take advantage of the increase in competitor reinsurance market at the one more [ph] endorsees and with your own programs and kind of what are your thoughts there, are we at a point where the arbitrage is available in areas?.

Brian, it's Rob. As it relates to our own ceded activities, of course we are cognizant of what’s going on in the reinsurance market and we try and make sure that we take that into account in our buying habits and ensure that we are managing the capital appropriately for the share holders. So yes, we have benefited from the current reinsurance market.

At the same time, we have not - we’ve been conscious or not overreaching and turning our back on our long-term partners because we think that one needs to strike the balance between being opportunistic but also recognizing ones partnership with those that has gone back for many years and will hopefully continue on for many years..

Great. And then just last question to Rob.

Are you seeing any increased appetite from the standard commercial markets maybe dipping down in the E&S market at this point?.

It really quite frankly hasn’t become a huge issue so far based on what we have seen, and you should know what we will see in the next call at 90 days or throughout 2015.

But the competition that we’re seeing from some of the standard markets to the extent that it's there and it's invisible, it’s really more our regional companies that has seen it and certainly our monoline comp companies have seen the national carriers sort of reawaken in the comp space having stepped away over the past several years..

Great, thanks. Appreciate the answers..

Thank you..

Thank you. Our next question comes from the line of Ken Billingsley of Compass Point. Your line is now open..

Good afternoon, I just would like to follow-up on the reinsurance purchases for yourself. It looks that the net - the gross appears relatively flat.

So you said you're not going to obviously to take advantage of your reinsurance partners, but are you getting more coverage than maybe better terms and conditions for the same price? How…?.

I think the best way I could answer that because we generally speaking don’t make it a practice to get into the nooks and crannies of the coverage that we buy. I think that from our perspective, we believe that the average rate that we pay for reinsurance today is less than it was in the past.

So, in other words, the premium that we are ceding may look similar to you, but as I think you were alluding to a moment ago, I don’t think you should assume that the coverage is one and the same..

And then the last question I have is, at the end of the year you guys pulled back on the stock buyback and I know you did pay a special dividend.

Was that one of the reasons, was because you were paying the special dividend that you pulled back on the stock buybacks? And then, the second part of that is, how much more room do you have for existing repurchase authorizations this year?.

We have lots of authorization and I never comment on why we buyback or don’t buyback or whatever. But we have lots of room on new authorization and it’s a constant judgment we make based on the price of the stock, use of capital. I mean one of the problems we face is we think we’re way over-capitalized but the rating agencies don't.

So if you look at the history of our companies, we are more than generously capitalized because we don’t have the volatility of many of our competitors. But rating agencies look at average capital employed, and as everyone becomes more and more over-capitalized, the standard goes up.

So we continue to search for opportunities and ways to return capital to our shareholders in an effective way that still meets all the guidelines the rating agencies require. And we’ll continue to do that, but to do the best job for our shareholders would not be to tell people how we do it or what we’re going to do..

And last question I have is regarding your service fee income, I know you had mentioned that a large part of the increase was assigned risk plans and new business starts in new states.

So should we assume that service fee income will remain at these elevated levels going forward?.

Mr. Ballard..

Yes, in the near future, yes..

I mean, all these contracts typically have a life of a few years, give or take around three years while there are some exceptions, and those are constantly being put out to bid and rolling on or rolling off..

Okay, very good, thank you very much..

Thank you. Our next question comes from the line of Jay Cohen of Bank of America. Your line is now open..

My questions are answered, thank you..

Thank you, Jay..

Thank you. And our last question comes from the line of Ian Gutterman of Balyasny. Your line is now open..

Hi, thank you.

Gene, first, do you have the - can you tell us how much in dollars the average of that one was in international for the quarter?.

We haven’t disclosed that yet. We’ll have that in our 10-K..

Okay. Can you just take a ballpark around loss ratio points? Just trying to get a rough senses of how stanching it was….

You got to wait..

Okay, no problem. And then Bill, on the energy side, I was looking through some of the disclosures. I think your 10-K shows about $115 million in the energy funds. As I go through your Schedule D there is one private equity firm where you have multiple investments that add up to pretty close to that $150 million….

It is all one investment fund….

Okay and it looks….

With three tranches..

Okay, and looks like that investment firm from what I see is based in Canada and a lot of their investments from what I understand are in Canadian oil sands. Is that accurate, and if so, how comfortable are you with that, given they seem to be sort of marginal capacity in the [indiscernible] you’re talking about trying to put them out of business..

First of all, you made a lot of different statements in that comment..

I did..

And I haven’t yet talked to the - well, the King of Saudi Arabia hasn't told me his plans. Number two, they’re not really in oil sands per se. Their first fund where we met them was oil sands and that fund is almost fully paid out..

Got it..

And their subsequent funds was in the Gulf of Africa, all over, several of them being very low-cost oil. But the fact is the oil prices is down 50%. They are the most brilliant people in the world; the value of what they got has gone down a lot..

Okay, got it. And just from a - you mentioned obviously some pressure on Q1. I assume these are reported with the 1Q lag and - some of your investments are public, but for the privates how does - do you have a sense of how they mark those? I know a lot of time private equity markets tend to sort of lag….

I can’t give you an answer to that..

Okay..

The answer is, I don’t know. We do our best to be sure it reflects the fair market value of the securities or that they….

Okay fair enough, I was just curious. Thanks for the color..

Thank you. I’m showing no further questions at this time..

All right, thank you all very much. Have a great day..

Ladies and gentlemen, thank you for participating in today’s conference. That does conclude today’s program. You may all disconnect. Have a great day everyone..