In the last two years, we have experienced the two extremes of the reinsurance industry. 2006 was as exceptional from a positive perspective as 2005 was from a negative perspective. Where we lost $51 million and dropped $6.42 per diluted share in book value in 2005, we earned $749 million and increased book value per diluted share by $11.50, or 26%, in 2006. In fact, one was partly the result of the other. The losses of 2005 led to significant price increases and dislocations in the U.S. wind market, leading to considerable profitability when no major storms occurred. And, in addition to a scarcity of hurricanes, there were no major insurance losses in 2006 from earthquakes, typhoons, floods or tsunamis.

The other remarkable thing about 2006, from our perspective, was that all of our business units and most lines of business produced record profitability in the same year. As a global diversified reinsurer with significant exposure to various markets, we normally expect that some part of our operation will face increased losses or softer market conditions at any given point in time. In 2006, not only did our catastrophe and property lines perform well, so did our casualty and specialty lines. In addition, our Life, ART and investment operations had solid returns during the year.

A lack of large losses and solid earnings across the book led to an operating ROE of 26%, easily our best result ever. We don't expect this type of experience every year. Indeed, I think of a 26% operating ROE as a 1-in-10 year event. But I do think that our 2006 results show that PartnerRe can withstand the turmoil of years like 2005, respond to opportunities that invariably follow, and earn back the lost money in a very short period of time. This is because we were prepared for an event like Katrina, and because we believe in our business model. Those beliefs allowed us to not only maintain our exposure to the lines affected by the 2005 hurricanes, but to increase it; and that increased exposure helped us achieve these excellent results.

Nevertheless, we don't believe that any single year, either good or bad, defines whether a reinsurer has a good strategy or whether it is able to execute its strategy effectively. Reinsurance is a long-term business and a reinsurer's performance can only be quantified over a multi-year period. In this business, good luck only lasts so long.

We are proud of our operating performance over the last five years. Despite extreme events in the industry – a collapse in the stock market in 2002, huge increases in the industry's casualty reserves in 2003 and record catastrophe losses in 2004 and 2005 – PartnerRe grew its book value per share at a 14% compound annual rate over that five-year period. Our operating ROE averaged 13.3% and our dividend increased every year, from $1.15 to $1.60 per share.

We did that without exposing our shareholders and clients to excessive amounts of risk and without degrading the strength of our capital or reserves.