Operator: Good day, ladies and gentlemen, and welcome to the Third Quarter 2010 Arch Capital Group Earnings Conference Call. My name is Jennifer and I’ll be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the conference over to your host for today, Mr. Dinos Iordanou and John Hele. Please proceed.
Constantine Iordanou - Chairman, President and CEO: Thank you, Jennifer. Good morning everyone and thank you for joining us today. Our performance for the third quarter was acceptable as we continue to operate in a challenging environment both for us but also for our customers. Our annualized return on average common equity was 12.3%, which in our view is reasonable for current market conditions. These returns were not negatively impacted by major cat activity and benefitted from favorable prior year reserve development. The New Zealand earthquake was a minor event for us and was contained well within our expected cat load for the quarter.
We continue to estimate that under current insurance market conditions and current investment environment, we are achieving on a normalized basis, a 9% to 10% ROE on business written for the 2010 underwriting year.
This return is realistic given operating and financial market conditions even though it does not meet our long-term targets.
In our most important measure for creating shareholder value which is our ability to increase book value per share, we had an excellent result. A very good total return on our investments, acceptable operating returns on our underwriting, activity and share repurchases to help increase our book value per share to $89.24 which is up 22.2% from year end '09, 8.7% from June 30, 2010 and 28% from a year ago.
From an underwriting point of view, we achieved a 90.4% calendar year combined ratio, which in our view is six to eight points better than a normalized accident year combined ratio which we estimate to be in the 97% to 99% range.
Cash flow from operations remained healthy at $267 million. Even though, our current book of business is declining and our prior year's book is maturing. In addition, our mix of business have moved more towards short-tailed lines than in the past, which have faster claim payment patterns that affect cash flows.
From a production point of view, our gross return was down 11% and our net return premiums were down about 12.5%. Our insurance operations were down 19% as they continue to pursue a strategy of reducing writings in long tailed lines while moving to more XOL contracts on property business and property cat business. 90% of the reduction in volume is attributable to casualty lines as a result of the difficult market conditions we're operating under.
Our ratio of pro-rata to XOL business is now 43% to 57% as compared to 52% to 48% as of the year ago. The actions we have taken in our insurance business we just referred to had an exaggerated effect on written premiums but a modest impact on overall profitability and a beneficial effect on returns.