Good morning. My name is Chasity, and I will be your conference operator today. At this time, I would like to welcome everyone to the HCC First Quarter 2008 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session [Operator Instructions]. This telephone conference call relates to HCC Insurance Holdings Inc. Before we begin, the company has requested that I read the following statement, which will govern the telephone conference today. Statements made in this telephone conference that are not historical facts, including statements of our expectations of future events or our future financial performance are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties, and we caution investors that a number of factors could cause our actual results to differ materially from those contained in any such forward-looking statements. These factors and other risks and uncertainties are described in detail from time-to-time in our filings with the Securities and Exchange Commission. This conference call and the contents thereof, and any recording, broadcast or publication of HCC Insurance Holdings Inc., are the sole property of HCC Insurance Holdings Inc. and may not be recorded, rebroadcast or published, in whole or in part, without the express written consent of HCC Insurance Holdings Inc. Thank you, please standby and the conference will begin momentarily. Frank Bramanti, CEO of HCC Insurance Holding. You may begin. Sir.

Thank you. Good morning ladies and gentlemen thank you for participating in HCC's first quarter 2008 earnings conference call. With me in Houston today is John Molbeck, our President and Chief Operating Officer; Ed Ellis, our CFO; Mike Schell, EVP in-charge of our Property and Casualty Operations; Craig Kelbel, EVP in charge of Life, Accident and Health Operations; and Randy Rinicella our General Counsel. Our format today, well I'll be making a few opening comments and then I'll turn the call over to John Molbeck who will review our operations for the first quarter and John will then open the call up to questions. We're very pleased with our first quarter results, our underwriting combined ratio was in line with our full year target of 85%, our investment portfolio has held up quite well considering the volatile environment we have faced. The unrealized gain in our investment portfolio was $26.2 million as of March 31, 2008 up from $25 million at year end 2007. We went into sufficient detail I think in our press release so we're not going to reiterate many of those numbers and with that I am going to turn the call over to John Molbeck, President and Chief Operating Officer of HCC to review the first quarter results.

Thanks, Frank and good morning everyone and thank you for joining us on the call. Anyone who follows our industry knows that market conditions remain soft and there is nothing obvious on the horizon that will change the environment. I'd like to spend the next few minutes addressing the market in general, some metrics we believe that are important, our subprime exposure, some new opportunities that have presented themselves and then we'll open the call for questions. HCC continues to out perform its peers as an underwriter in a down market and the first quarter was not exception. Few metrics make this point. HCC's contribution from insurance operations was ahead of budget for the first quarter and virtually flat when compared to the same period last year. Our combined ratio of 83.7%, 84.4% without reserve releases is an excellent result and right on plan for the quarter. Our expense ratio was 24.3% for the quarter and did not show the deterioration that other's experienced. Our gross written premium was down 2.7% our net written premium was down only 0.7% for the quarter. This is a reflection of our diversified portfolio of business which continues to allow us to produce excellent underwriting results and to fair better with respect to pricing. Obviously, the longer the downturn the more difficult the task, regardless we believe HCC will continue to produce underwriting results that will outperform our peers. We closely monitor our D&O and E&O exposure, the subprime issues and the financial markets. We have updated our subprime exposure in our press release and will continue to do so as along as it becomes an issue. The environment remains challenging but based upon our current knowledge. We continue to believe that we have provided the ultimate losses that will eventually be incurred on this business. More importantly we believe in the talent of Andy Stone, Matt Fairfield and Brian Hickey and their underwriting teams, and then our D&O and E&O business will remain profitable. Finally the current environment is not without opportunities. The down market often stresses infrastructures and staffs. We believe we've proactively addressed the complications of this current environment. Not all of our competitors have responded to their key underwriters in the same fashion. We've recently added the DIC team and are negotiating with several other teams to add new specialties as well as to augment our existing lines of business. With that as an introduction we'd now like to open the call to questions. Question and Answer

Thank you. [Operator Instructions]. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Doug Mewhirter with Ferris, Baker Watts.

Just a few questions here and there; first with regards to what looks like a little bit of favorable development. Was it concentrated in any particular segment or accident year?

There was... for the quarter there was about $5 million of development compared to $200,000 in the prior quarter. It wasn't concentrated in any particular year and is a combination of a number of factors. On some of the older years there was case based reserve adjustments, which effectively changed the number and we didn't change any loss picks [ph] in the first quarter in any material fashion whatsoever.

Okay, the London market seemed to take a pretty steep plunge or rather you may have walked away. Was there a particular niche or segment within the London market that just totally became unattractive or did you lose a few large contracts or how did that work out in the quarter?

The main impact was we made a decision in 2007 to no longer write Marine XL [ph] business and that's the main driver of the reduction in premium income. In addition to that, the market has become soft and we have been very selective on the accounts that we've renewed. But last year we wrote about $15 million in Marine XL and this year we will write practically zero.

Okay, and as one last operational question. Have you taken... have you reserved any or taken any actions regarding the Bear Stearns... I have heard from some journalistic sources that you have a policy on Bear Stearns as D&O and it is a broad based policy, I didn't know if you would reserve that or, whether you had any update on what's happening with the status of that company?

As a policy, HCC never comments on clients. So, can't answer that question.

Okay, and just one last question. Do you have any update, Frank, on what your thoughts are on getting a stock buyback authorization during this Board meeting or this annual meeting?

Well, that issue is discussed; A) among management and B) among the Board, on a regular recurring basis. I don't believe the Board is going to take any action at this meeting, but should the price of our stock trade below book-value I think you'll find our Board act relatively quickly to step in. We maintain that the best course of action for the company is to continue to invest our capital in expanding our businesses and we think there are going to be plenty of opportunities out there in the marketplace. I think expectations on the M&A side are getting a lot more realistic and so we would much rather have the capacity to act as the opportunities present themselves rather than limit our flexibility by buying back stock prematurely.

Okay. Thanks. That's all my questions.

Thank you.

Thank you. Your next question comes from Josh Shanker with Citi.

Good morning everybody.

Good morning.

Looking at the group placement at health, accident it started to get growth there. I assume that weeded out the business that you don't find attractive and I wonder if you could refine the prospects of what you see going forward there?

This is Craig Kelbel. I think we weeded out from the Allianz transaction, so literally now it's our book of business we have underwritten it. We've had a little bit of modest growth but pretty much on budget acting as we had planned when formulating our budget for 2008.

Is that pricing growth or is that unit growth?

I think it's a combination of both, we've had a bit of growth in premium as a result of rates and also some to do with customers as well as we've had the recent transaction of MMU, which... their book of business is now been written on our paper. So you're going to see some growth as result of that. More as we go along in the year but you've seen a little bit of that in the first quarter, but you'll see more in the rest of the quarters throughout the year.

And in terms of your handicap and whether you like the HML access business that you picked up with Allianz, that proved to be a line that you would want to stick with?

Currently it's performing as we expected it to perform.

Okay, and then regarding that the D&O disclosure, I know that obviously you increased the number of claims you have received, but somewhat significantly increased the attachment point average on which you attach. I wonder if you can talk about... I guess the latest round of claims and how is there... whether we can still do some rough math and determine that these later claims are much, much lower and your ultimate exposure outlook then the one's that you initially report in the fourth quarter?

Josh, I think it's very early in the game to do any predictions, I don't know that anybody knows enough about anything other than a fact that there are some claims on the policies. The fact that the average attachment point was higher in this report than the previous is just a reflection of a particular account that's been reporting claims. Is really nothing new in development, all we have is suits of various types and they are, and you can appreciate in these kind of things they allege everything and it takes you two or three or four years to get's some process. And I think we're good 24 months before anybody in this industry really completely knowing with the ultimate outcome of it.

And when you think about these policies being written on a claims made basis. What does that mean for some one on the outside traceable? [ph] When do we think HCC or I think one else would really have a good handle on the frequency of loss?

Well, if we're talking about the 2007 year for example we could write, a policy could attach anywhere from December all the way up until December 31, 2007 and that would mean that the policy would be in effect for the entire calendar year of 2008 and then there would be a reasonable reporting period depending on the policy thereafter to report claims. Having said that, the environment is so sensitive right now and insurers are very concerned about this. As soon as they have any issue or circumstances under the terms of the policy which might give a rise to claims, they typically report them immediately and effectively they may well over report them, because they want to make sure that they have gone a record letting the insurance carrier know that there is a potential out there. So for the 2007 year they will have probably through the first quarter of 2009 to report a claim, but however if they have one and they think it's going to give rise to a claim they usually report it within 30 days of they're determination of that.

And I don't mean to misstate, use the word, a reasonable reporting period thereafter. In typical policy language what is the time lag of a reasonable reporting period thereafter after the book of an annual year policy is closed?

Generally we're talking about 90 days after the close of the, but these can be managed because policies are not all the same, but I would say the majority are for 90 days after the expiration of the policy.

Okay thank you very much.

You are welcome.

Thank you, your next question comes from Justin Maurer with Lord Abbett.

Good morning guys. Also appreciate that the continued detail on the D&O, a couple of additional questions. How do you guys define subprime if you will? I know you guys have mentioned in the past that your exposure to the financials is not too far from the S&P percentage, but just trying to understand how you would then further characterize kind of subprime within that?

It is a broad definition and usually in the actual complaint there is a reference to an alternative investment or a subprime event or a mortgage or something fitting into any of those categories and when it fits into those categories or the description in that fashion we put it in the subprime bucket. We tend to, I would think we tend to include more in that category rather than less just to be safe.

Okay, but would, you know, this is a sub segment of financials right. This wouldn't be obviously your entire financials exposure in terms of claims made so far. All right.

That's correct.

Okay. And any sense or willingness to give us, kind of an average market cap. Again I appreciate a discussion about limits and attachment points but just thinking of it in the context of say $5 billion versus $50 billion company is kind of a different thought process, I guess?

I understand your question and would love to give you some additional color on that. The only thing that I can say is, some of the larger financial institutions only by side cover [ph] only.

Right, right.

Other than that, we don't really keep a record, I am not saying that the underwriters haven't don't not have in their park [ph], but I am sure, but as far as the information that we have here, we don't keep a record of this.

I've got it, okay. And then in terms of loss picks and comfort there. Does that contemplate kind of, I am sure it's different on a case-by-case basis, but it going to jury trial and all legal fees assumed and those type of things or how do you guys kind of think about that?

We look at the totality of the potential per claim. Not very many of them go to jury trials, but lot of them go through the process are going to a jury trial. So we include that as we do our estimate of the ultimate losses.

Okay. And legal fees attached to that?

Legal fees are generally contained within the limits. So, yes but we do look at the legal fee then.

Okay, fair enough. All right so on a better note, on the stop loss business with all the HML blowups this past quarter, some of which had to do with losses. Have you guys, has that been more of an opportunity for you guys, because I know some of them are competitors of yours, so have they backed away from that and obviously your loss experience so far has not mirrored with some of the folks you're seeing. So is it more of an opportunity than a risk, do you feel at this point?

I think if you look at the fully insured carriers they've reported some disappointing results. Generally that has led to rate increases which release our market for being under pricing stress. So I would say that it's too early to tell but it would appear that it should improve the market conditions a bit as we go forward. But again we've seen no indication as of yet, but I would expect that we would, we could see some as we go through the year.

Yeah. So is that, you mentioned earlier kind of on what you guys budget from a growth stand point. I mean are you anticipating that maybe that gets a little bit better because of this past quarter's events potentially or…

I think potentially but again we've had no sign that it's going to or has

Okay.

So we're hopeful or believe it could, but there is no signs yet. So I think it's too early, that will be a good thing to look at either at the end of the next quarter or going into the third quarter, but we've seen no reaction yet, but it would seem to indicate that they are going to have pricing increases greater than they've had the last few years.

Are those January 1 renewals typically or how does that roll?

I am not sure I understand your question.

In terms of... in terms of the times of the year that these pieces of this [ph] price.

I would say, that's a big opportunity for them to make a rate adjustment would probably be in July effective dates, which is a fairly large effective month of coverage.

Okay.

It would see, if we're going to see any signs I think it would revolve around the July effective dates or later.

Got it, and then last on this is. Did you see any of those folks kind of in the business see kind of hypothetically any meaningful loss in the stop loss piece or was it more kind of under the normal course of business I guess.

I mean they don't report their financials and break it out. Most of the competitors that you are speaking off I think are generally fully insured carriers predominately and they do stop loss maybe on the side. But I don't think any of their numbers you could really break it out and see they had a high loss ratio in one segment versus the other.

Right, okay. All right, thanks a lot.

Sure.

Thank you, your next question comes from Kenneth Billingsley with Signal Hill.

Ken, are you there? Let's go on to the next one operator.

Hello.

Ken?

Yes, hello.

You're on.

Okay, I double checked the mute. I guess, I still had it on, didn't realize that. Just coming back to the question, when your comments on Marine Excess business you stopped writing that. Could you just talk about may be why you decided to stop writing that completely?

We looked at it as an adjunct to the other business, we wrote in the London market but the results continued to be marginal and we didn't feel it was a good use of our capital. We had better use of our capital than to devote it to that line of business. We still write the odd account on an opportunistic basis but we are no longer a market for a broad book of business. We wrote in the first quarter last year roughly $15 million of that business and we had $452,000 in premiums in the first quarter of this year, just for comparison sake.

Okay.

And I am sorry but it's most written.

All right. And on the Aviation business itself, I at least believe last, at the end of last year there were some comments that the potential for aviation pricing maybe on larger accounts would likely have to start improving, which would eventually possibly or could possibly benefit you guys and what you are writing. Are you not seeing that trend? Is that not happening?

I think what we said or certainly what we meant to say was we do see that as a possibility but we don't see it till the second half of 2008. We still see all the dynamics and the losses are just continuing to mount, but we don't anticipate any change in the market before the second half of this year. What I think has transpired though is that we've begun to renew accounts as expiring, which is probably the first time in what three years that we've been able to see that on the international aviation side. So that's a positive start to it, but as John said rate increases aren't anticipated until towards the end of the year.

And just wanted to verify, you said you're starting to see an increase in renewal?

No, I said renewal as expiring. (inaudible) a rate reduction.

Okay right, and on the M&A side, when your looking at deploying capital, I know the question came up on stock buybacks, I think most people are just kind of looking to see what you guys may do in the future. Are you looking... if you're not into stock buybacks the M&A opportunities are they more fee based or underwriting based and do you have a preference right now?

I wouldn't say we necessarily have a preference. It depends on what line of business, what area that it's specifically in? We've looked at both, we're looking at both. I think most of the acquisitions that we're going to show any interest in is going to be business that we're willing and desirous of retaining. So to the extent that we would acquire an MGA, so would theoretically be fee based business. We would have an eye to trying to retain that business sooner rather than later assuming that their underwriting results has been good which would attract us to the acquisition to start with. So giving that as a backdrop even fee based business will end up underwriting business for us sooner rather than later, whereas historically we have gone into it with the idea of retaining outside capacity. I think the focus of our approach these days is we are trying to go after business that we really like, that we would retain from the get-go. So our focus really is on the underwriting side although it might be in an acquisition that appears to be fee based business from the start. And it will be for a while, you can't immediately turn this business over and put it on your books. So, there will... if we acquire an MGA operation there will be an increase in fee based business originally, but I think that will wean off fairly quickly into strictly an underwriting approach.

It may be a little premature to call it a sellers market, but are you seeing increased competition that's making it harder for you to, find attractive deals or to get a deal completed?

No, I think what has caused our lack of activity through 2007 wasn't so much of a competition as seller's expectations or demands were at a level that we couldn't get a return for our shareholders. And so, you could say that it's competition, I think really, sellers and their representatives did a pretty good job of legging over the buyers and got prices that were just unrealistic from a return standpoint. I think with valuations on the P&C side coming down with expectations of continuing declining rates in the marketplace. I think the certainly the prices that buyers are willing to pay and therefore sellers expectations are getting more in line with something that we and other buyers are going to able to deliver a return to the shareholders. I think that was a function… I am not sure that there is more of buyers out in the marketplace, there were always plenty of buyers there. It wasn't so much of a competition for a particular company, because there is always the base consideration is fit. Is there a cultural fit and do these people fit within your organization, does the business fit within your plan. And if there is a match there you could stand a little pricing competition. So we're… we continue to be selective but I think there is going to be a lot more opportunities for us to complete going forward.

With the perceived excess capital in the P&C marketplace, I guess you would expect that the sellers are going to become more desperate before the buyers do at least in the near-term?

Yeah. I think so, but if you read with a lot of our peers in the P&C side. So, lots of them say they are choosing not to go the acquisition route, that they rather look for teams of people or just grow their business organically. So this whole capital issue is it going to fuel increased prices for the acquisitions that are out there. I am not sure it's going to go that way mainly, because results are going to deteriorating, even the companies that are ultimately going to be sold they're not going to have good stories going forward until the cycle changes. So I think it's... I think we're going to get quickly to a position where it's going to be a buyers beware kind of thing, because the acquisitions you take on are going to have deteriorating balance sheets. They are going to have deteriorating results where as yesterday they had the best balance sheet, they're going to have in cycle and tomorrow it's going to change and it's heading towards the bottom. So I think there will be more activity. I think there will be more realistic pricing in that activity. I think we will be able to tick-off the ones that make sense for HCC going forward and they will be picked-off at a price where we could generate an acceptable return to our shareholders.

Okay. Just last question here on the investment side. It looks like the yield has fluctuated pretty dramatically just even through 2007, and then in first quarter of '08 it was down pretty low. Is this a run rate or what we should expect to see for the rest of this year? Was there something that you guys had managed that maybe artificially loaded? And I didn't see that there was excess cash on the book. So, anything that if you could give us some guidance for '08?

What yield are you pointing to that, you think is down.

Just essentially not directly what you guys calculate but also if taking just invested assets in general and the investment income generated off of that?

I think if you use it in total you're going to have the impact of the alternative investment decline in income that ran through there. So that and the earnings after that in '07 and the lack of earnings in the first quarter of '08 is probably what's driving the changes. But short-term rates are down and so that will increase the yield of our short-term and fixed income portfolio, if you combine that as a whole and talk of it as whole. That will... that yield is down so that's going to drive that yield down a little bit and what we're doing to try to combat that is to put those funds out of that short-term portfolio and into the longer term fixed income portfolio to try to readjust that yield.

Great. Thank you.

Thanks

Thank you. Your next question comes from David Lewis with Raymond James. Mr. Lewis your line is open

Can you hear me?

Yeah. I can now David.

Can, clear?

Yes.

All right, Frank talking about the M&A prospects out there. I mean, given kind of the activity that you're seeing do you anticipate that you might see something over the next six- twelve months?

Oh, I think so. You know at any given time we're looking at four or five deals have been presented. We tend to put numbers out on maybe half of what we see and we tend to try to get a little further down road with probably one out of four, one out of five, something like that. We have some good prospects. We always have some good prospects. You don't know how they're going to ever turn out but we're pretty confident that we will be able to continue to build HCC for the future.

Okay. And as far as given kind of the pricing environment, where do you think your excess capital will stand at the end of the year and then I guess if you look at your debt-to-capital position you could probably boost another what $250 billion, $300 billion [ph] from that if you need it?

Yeah, I mean, it's impossible to know where you're going to end up the year out. I think we would say based upon our budget and where we expect to end up for the year 2008 that all of the earnings that we are going to generate this year will be excess earnings. And yes, we could $200 million, $300 million, $400 million worth of debt off, on our balance sheet if we try squeezing that out. So that's call that $700 million. Do we think we are going to be able to put that to work during the course of the year? We would hope so, it's a lot of money, we would hope so. Again we have all, and we said this all along. We are going to always have a little bit of, keep a little powder dry for the opportunities that might exist. To the extent that we can grow some of lines of business or incubate new lines of business that will use up a little bit of capital. But we are going to always be a little bit capital heavy to take advantage of what might present itself. To the extent that we can't, and we are going to have to look at this on act of the fact basis, but to the extent that we can put this capital to work, we certainly are going to reconsider the issues with respect to stocks... stock buyback. But what we don't want to do is to dilute our book value, and the ability to buyback our stock is limited to a certain extent by our size and by the debt-to-cap ratios that we are limited to based upon our current ratings. And we are very comfortable with our ratings, so we are not talking about reconsidering that issue. So where we might be able to buyback $200 million to $250 million worth of stock at this point, we are not sure that that makes a lot of sense because it takes away our flexibility. So we are ultimately show if we are unsuccessful in putting this capital to work is a return on equity and we are watching that number very carefully.

Understand. And just a last question. Percentage of your holdings in ASI and (inaudible) can you share that with us?

Well. They are in our statutory filings; I don't have the share number now. The values are in total about $45 million something like that.

On a combined basis?

Yes.

Okay. It's helpful. Thank you.

Your next question comes from Beth Malone with KeyBanc.

Hey, thank you. Good morning. Excuse me. When you talk about acquisitions is there an issue of size. I mean historically HCC is known to make several acquisitions every year, which didn't happen in '07. But those acquisitions are often relatively small. So is that an impediment to you making new acquisitions, is that the size. Given the size of HCC it needs to be larger in order for it to justify the effort?

That's a question that we've been kicking around since I came back in. We certainly are comfortable looking at bigger deals and you would like to think that if you can do $200 million, $300 million, $400 million deal that you might be able to move the needle. But we've had a long success of doing deals between $30 million and $70 million and they've worked out quite well for us, they've turned into much bigger operations within the umbrella of HCC. So we wouldn't necessarily shy away from those. The deal we announced in January was $40ish million deal. We're looking at other acquisitions kind of in the same ballpark and we're looking at much bigger ones. So we're not shying away from it, its part of its resources, but part of its opportunistic. We're looking at the deals in the marketplace. We went a long way on one that would've been a $400 million, $500 million deal and ultimately walked away, because we had some concerns about the business environment for that particular acquisition. But we are committed to continuing to grow HCC via acquisition. We like the experience that we are able to acquire in some of these acquisitions. And that's why we've gone that route. But I think we feel and have always felt that $50 million acquisition could be a major deal for us two or three years down the road. So we wouldn't shy away from it just because of the size.

Okay. And also are you limited, are you looking internationally or is it more domestically focused?

We have for the past two or three years, looked at the world as the acquisition landscape. I think a lot of people focus there, their comments and thoughts domestically, but we're looking within the European community. We are looking in Central and South America. We're looking for opportunities to continue to expand the specialties that we write. I think from a practical standpoint there are much greater opportunities for growth internationally than domestically. We could take more of our lines of business and look to expand them internationally and get more growth rather than try to expand the scope domestically. So we are looking at both, obviously there is a different set of risks if you start to go into countries that don't share a common language with US. But we have international operations already, we've got... within our own corporation we've got people that speak lots of languages already employed by HCC in various places. So we have some of those hurdles are already crossed. And I think there is a likelihood that the expansion will be both domestically and internationally overtime.

Okay and then one last question on pricing. It appears that your pricing experience is probably not as severe as what we're hearing about in the more general standard market. And your retentions seem to be a lot better than maybe we would have anticipated at this point. Can you just talk about why your experience may be different from the industry average?

Sure, I think as we mentioned on previous calls that our book is largely specialty and not surplus one. To the extent that we write surplus one, that's where we're seeing the biggest reduction in pricing. Net range is anywhere from 5% to 15% off on the surplus line side, while in the rest of our book we're from flat to 5% off, but our book is 80% specialty or more and the remainder being a surplus lines business, so we fare better. In addition to that we have a portfolio of business that we designed, which includes things like Life, Accident, Health and Surety that don't go through the same pricing cycles as the rest of the business. And also the silver side, a silver lining to the cloud is with all the disruptions on the financial markets with respect to D&O, the pricing of the financial institutions has been a lot better than what we anticipated at the timely we prepared our budget. Now we're only through the quarter, but we still feel, we still are very confident about 2008. It's easier for people to get down in a soft market. When I can assure you, our people are anything other than down. They are confident and they are confident and they are decisive. They have a flat management structure, which allows us to take advantage of those opportunities. And that's I think why we outperform the peers.

Okay. Thank you.

Welcome.

[Operator Instructions] Your next question comes from Josh Shanker with Citi.

Well, I'll ask a few more questions if no one else wants to, because I got a lot of them. In terms of the aviation business, I wonder if you can talk about the relationship nature of what's going on there and how much that will keep you in a policy, given the pricing environment of that business.

All right. Michael Donovan, who runs our Aviation division, is a fixture in the international aviation market. And there is virtually no other account in the international market that we want to write that we don't see. And Michael has an excellent relationship with the producers in that business. We have always treated them fairly, and we always kind of look at a structure that makes sense for both the insured and for HCC. On the domestic business, we are in the lines of business we write. We don't write aircraft products. We don't write airlines. We are a leader in that business, and we have excellent relationships with all the producers in that business. And one of the things that allows us to do is keep the high renewal rate and that's because we tend to get last look on because of our relationships. And that's not just an aviation business. That goes over into all lines of business that HCC does. That's the culture of the company and that's the strategy, get into a specialty business. Even though you compete with the major companies like AIG, you still have enough impact on that business where you are treated as an equal and continue to build those relationships and take advantage of your relationships, mutual advantage in good times and in bad.

So when we are seeing the gross premiums decline by 13%, how much of that is rate and how much of that is policy count?

All of the reduction in policies that we walk away from in rates, we're not given… I mean that can be an exception, but as a general rule, we're not giving double-digit rate reductions on accounts. We may have an account that had something where they had to pay up for a loss, and it turns out the loss went away, and therefore the accounts deserves a greater reduction than we would've ordinarily seen to be the case. But most of the reduction in premium is strictly walking away from accounts.

And the gross premium line on the other specialty was pretty good and specialists [ph] rose. What's happening there? You've flattened net written premiums and some good growth in gross written. What line is driving that?

We've made a decision… first part of it is on the gross written is the Kenrick acquisition, which is our municipal business and the Midwestern state, and that business continues to grow. That's up 40% for the same period of last year. In addition to that, we have a number of other small businesses, which have a fairly significant… but the largest part of that is we began to write our contingency pay for our business on reducing casualty or one of the ATC company's paper really starting in the first quarter of '08. And that business has been really profitable and that business will continue to grow. And that strategy was part of our overall [inaudible] insurance last year. And it's included in our predictions for 2008.

And what part of that growth are you ceding versus what part of the growth are you retaining?

Are you talking about strictly contingency now?

I… for my… I don't have as much dept as you guys obviously have. I just see 17% topline growth or gross written premium growth for the other specialty lines, but net written premium was virtually flat. So, I assume it's just writing more volume and getting some decent reinsurance on there?

Well, we've got… well, we didn't write any of it before. We're now retaining at least 20% on all lines of businesses, and it depends on what part of contingency you're talking about. And that's because we've put out some reasonable size limit on that business. So, we would tend to keep at least 20% contingency where a year ago, we would have kept none or written any. And as that book of business continues to grow, then we'll readjust their appetite for retention.

Okay. That's really good.

Thank you.

Thank you. There are no further questions at this time.

Ladies and gentlemen, we're quiet optimistic about 2008, and we believe the company is well positioned to successfully write out the down part of the cycle. We look forward to future calls and your participation. Thank you very much.

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