濱特爾 (RNR) 2003 Q1 法說會逐字稿

Good morning, and welcome to the RenaissanceRe First Quarter Conference Call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to your host, Mr. David Lilly. Mr. Lilly, please go ahead, sir.

Good morning. Thank you for joining our First Quarter 2003 Conference Call. Yesterday after the market closed, we issued our quarterly release. If you didn't get a copy, please call me at 212-521-4878, and we'll make sure you get one. We've reserved an hour, as customary, for today's call. There will be an audio replay of the call available today at 12:30 PM Eastern through May 2 at 8:00 PM. The replay can be accessed by dialing 888-203-1112 or 719-457-0820. The passcode you will need for both numbers is 743394. Today's call is also available through the Investor's Section of www.renre.com and will be archived on RenaissanceRe's website through midnight on July 9.

Before we begin, I'm obliged to caution that today's discussion may contain forward-looking statements, and actual results may differ materially from those discussed. Additional information regarding the factors shaping these outcomes can be found in RenaissanceRe's SEC filings, to which we direct you.

With me today to discuss today's results are RenaissanceRe's Chairman and Chief Executive Officer, Jim Stanard, and the Company's Chief Financial Officer, John Lummis.

I'd now like to turn the call over to John to begin with an overview of the financial results. John?

Thank you, David.

We've had another great quarter, both in terms of top-line and bottom-line performance. Our operating earnings of $127m is a clear record for us, and our operating ROE was over 32 percent, obviously terrific performance.

To comment in more detail, let me look first at the premium, and I'll start with Total Managed Cap Premiums, which grew by 25 percent. As mentioned in our press release, this was driven by our success in a number of large programs. And as a reflection of this, looking at gross managed cap premium at RenaissanceRe itself in the first quarter of '03, we had six programs in that quarter with premium over $10m, compared with just two programs of that magnitude in the first quarter of '02.

Net written cap premium on RenRe's own balance sheet rose by 58 percent to $241m. Here, I would remind you that our sessions of premium can be somewhat irregular, so I would not draw pen lines from that, although we clearly are looking for double-digit growth in net written cap premium for the full year at Renaissance.

Specialty reinsurance continued its success as well, growing by over 80 percent to $186m in the quarter. Premium in this category was spread among various lines we've talked about in the past, including cat exposed worker's compensation as the largest line. I would also note that in the quarter we booked just under $20m of specialty premium into DaVinci, which is not captured at the managed cap premium number but which does go into our overall base of deep-producing premiums.

Individual risk premium was $64m, more than double the first quarter of 2002. I would point out that if you look at the Q4 premium levels for individual risk, you will see a premium of $75m, so there's a sequential decline. That decline is a function of one book of business and some associated timing issues around that, and notwithstanding that, we do expect for individual risk to return to the full-year levels that we've been pointing to.

Looking at our supplemental data, which you'll see at the end of the press release, the key item to pull out there is strong pro forma fee income growth to $20m in 2003, compared with $12m in 2002. You'll remember this presentation captures DaVinci as thought it were accounted for under the equity method. I would also note that this $20m includes approximately $8m of pick-up from the low cat loss quarter, but also by comparison the first quarter of 2002 also captured a [luck][ph] component, so we still see strong underlying trends in growth and fee income.

Looking at our claims for the quarter, we clearly benefited from the light cat loss activity. Our cat book ran in the mid-teens loss ratio. Together with the improved income from our joint ventures, we estimate that we derived over $25m of earnings as a function of the lower-than-normal cat activity. That translates to about $0.35 of [luck][ph] from the low level of cats for the quarter.

Regarding investment income, we saw increases in investment income as a function of our growing balance sheet. In terms of our investment strategy, our approach remains consistent: we should stay focused on short duration fixed income. Duration was about 2.5 years at quarter end, and we continue to have a large short-term allocation as we continue to remain defensive against the scenario of rising interest rates.

You can see that we had over $24m of realized gains, which flowed into net income. Given our total return focus and our investment activities, this is a result that we don't manage to or spend much time with, and in other quarters, that result can obviously swing the other way.

Due to the strong top line and bottom line this quarter, we clearly have a question of looking at quarterly earnings expectations. At this point, we don't see giving new guidance for the year, but to clarify that, I'd like to make a few observations. For the year, we continue to look at managed cap premium growing in the mid- to high-single-digit range. If you take Q1 into account, that means you have to assume the potential for future quarters to reflect some premium declines looking at the prior year. We told you that that was somewhat to be expected when we issued our fourth quarter earnings and still see that as a potential outcome looking forward. We're obviously working to do better than that, but we have to have some spirit of caution as we look at the powerful growth of '02 against '01 and also recognize the variability of premium given our comments about premium from large programs.

Looking at Specialty Reinsurance Premium, we're still anticipating gross premium growth rates for the year of over 20 percent. For individual risk, we're also looking at growth of over 20 percent. We're maintaining our assumptions about margins in the business going forward, so the obvious benefit from the large underwriting profit in Q1.

In last quarter's call, I noted that if you took all of our top-line and margin assumptions, you might be a bit challenged to get to a result inside our EPS range of $5.30 to $5.70, and we were essentially making the judgment at that point that we would find additional earnings source from somewhere in our business to put us inside the range. We essentially delivered on that prediction a little more quickly given the $0.35 of [luck][ph] from low cat losses this quarter.

We think there continue to be very interesting opportunities in our business, either up side to our existing businesses or new ventures, and that may well suggest further up side to our earnings story, but we have not yet gotten to the point of recalibrating our expectations. And while we remain optimistic about these new businesses, we're not yet prepared to put them in a box for purposes of laying out a new view of earnings. I think in a quarter's time, we'll clearly have some more to add.

At this point, I'd like to turn the call over to Jim for his comments.

Thank you, John.

First of all, concerning market conditions, I really feel generally like a broken record here because I feel very much that things are the same way as I looked at it last quarter, and I'm going to spend 60 seconds just repeating a few comments from last quarter for the benefit of anybody that wasn't on the call last time.

You know, first of all, the current market is not as hard in terms of price levels as the past hard markets, the property market in '93, the casualty market in the mid-'80s. But I think there's more fundamental turmoil than I've seen in my 30 years in the business. I think there's still tens of billions of dollars of losses, either reserve issues or reinsurance recoverable issues, floating around the industry that haven't been recognized yet, and, you know, I don't see how the market will stabilize until those losses are realized, and some - or at least a good portion of those losses come out of the woodwork. I think this, in combination with the hit that the balance sheets have taken, both on the assets side and the liabilities side, is really changing the mindset and the culture of management of companies and keeping people focused on underwriting discipline and return on equity. You know, so I think that makes me optimistic about the sustainability of the current good market conditions.

So why hasn't the market gone up to these peak price levels that I referred to before? I think it's the market's smarter and more efficient. You know, there's more technical discipline, both in the primary companies and the reinsurance companies than in the previous two decades, and I don't think the market's going to support excessive pricing of the type where rising [indiscernible]. I think this is now very much a game of having real competitive advantages and using those competitive advantages in specialty areas to outperform the market. And for those companies that have those competitive advantages, this is a wonderful market to operate in because there's so much business that's up for grabs. So, you know, it's a healthy market in that there's a good balance between buyers and sellers in negotiating process.

Okay, so for Renaissance, once again, I think we are excellently positioned in this situation. All of our businesses are growing. I was pleased by the growth in our cat business in the first quarter. We got great signings, which is based on the strength of our relationship with our clients. You know, why is our relationship so strong? We're great at claims paying. As a matter of fact, we were rated by a major reinsurance broker as the number-one fastest claim payer in the world on the World Trade Center claims. We have a culture of a very solid client focus in terms of custom product design, in terms of getting cat management advice to our clients. Our clients feel that we're bringing more to the table than just capacity. And, finally, we're benefiting from the flight to quality. We've got a rock-solid balance sheet, high ratings that are stable, which is quite important, and a reputation for tight control on risk that makes our clients comfortable that we're going to be able to pay losses.

The growth in our Cat Premium drives the growth in our fee income, which is growing nicely and continuing to grow as a meaningful contributor to our income, and that also - I mean the nice thing about fee income is although it can vary, it can't go negative. And so it doesn't really require any risk-based capital to support it. The fee income component is one reason that we can run higher ROEs than the market on average without bearing a higher risk level because we have this additional fee income component that isn't really adding to the downside risk.

Moving on to the Individual Risk side, we just have great growth opportunities there. Our pipeline is bulging with deals, both on the property and the casualty side. So I don't see a ceiling on growth there.

Moving on to Specialty Re, our position in the Cat market with both our clients and our brokers gives us tremendous access to that business. Our brokers that we deal with, the clients that we deal with, want to do more business with us, so the constraint there is our appetite for risk and the size of our staff and our ability to do deals. But the business is there, and, you know, we have almost unlimited growth potential there.

And, finally, our pipeline is as full as we want it to be with attractive joint venture opportunities. You know, we can't do many of those. Each one requires a lot of work, but we're quite happy with what the prospects are there.

So all of our business segments are doing great, and once again, I don't - you know at some point, the market will soften. At some point we'll be dialing our top line back, but I don't see that on the horizon at this point.

With that, I'll turn it open to questions.

Thank you, sir. [Caller instructions.]

And for our first question, we go to Vinay Kum Saqi with Morgan Stanley.

Good morning. Just a couple quick questions.

First is on Specialty Premiums and the amount that was written through DaVinci. This seems to be somewhat of a change in strategy, and I was just wondering if you could expand on why this business was written through DaVinci. Are you running out of capacity on your own balance sheet? Or is there a different strategy going on here?

Secondly, in terms of your individual business, you mentioned that there are opportunities on the casualty side as well. If you could just expand on what those opportunities are and how you see that progressing over the course of the year?

Okay, with regards to DaVinci, it's not that we're running out of capacity at Renaissance. There's certain low frequency components of Specialty Re that fit well on the DaVinci portfolio, and it was actually part of the initial DaVinci business plan to have a small portion of non-Cat business in there. And so we're just meeting the business plan that fits with the DaVinci portfolio, but it's not an indication that we have a capacity constraint at Renaissance.

In terms of the individual risk opportunities, I guess I'd prefer not to go into specifics until we are in a position to have deals that are on the books where we're talking about actual business rather than what's in the pipeline. However, the things that we're looking at, we feel, are specialty situations where we're dealing with really top producers, top underwriters, and their segments of business, not looking at just playing a cross-section of the casualty business.

Okay. And do you need to have significant infrastructure build-up for that at this point? Or do you already have the infrastructure in place?

We don't need additional infrastructure build-up. We have, over the past 12 months, really, hired the people that we need to manage that business. And I mean you can see that we have a meaningful amount of business already on the books, and we've got the infrastructure in place to be able to grow that business without a huge hiring binge. I mean we'll continue to put people on, but it's not - you know, this is primarily a program business where we're dealing with MGAs, and, therefore, they come with underwriting, either they come with claims, or else there's an outside claims arrangement. So we're not building that infrastructure ourselves.

Okay. So just the final point on this -- in terms of the future growth, it seems as though the business that you're talking about is similar to what you've already been writing. You're not talking about an even much further diversification beyond that, are you?

We're using a similar mindset, but we are moving into different classes of business. I mean right now, what's on the books now is all - essentially all shirttail, all property.

Yeah.

We are looking at some selective casualty programs, and so we are moving into, you know - and that's in response to the tightening that we see in the casualty market. I mean the property market tightened much more quickly than the casualty market did, and so it was - it's only recently that we've actually liked some of the things we've seen in the casualty market. We've been evaluating these for quite a while, but we just didn't want to pull the trigger until the prices got to a level that we were comfortable.

Okay. And you think the profitability will be roughly the same as what you're writing right now on the property side? Or will that take a while to build in?

Well, it's roughly the same because with such low interest rates, I mean you can't - you know, the deals aren't returning a high return in the future on the cash that you're accumulating, so you have to write this - even casualty business, you better be writing it at a solid underwriting profit or it's not going to produce an attractive return. You know, the days of being happy with a 99-percent combined ratio on casualty business at current interest rates, that does not model out to an attractive return on equity.

Great. Thank you very much.

For our next question, we go to Brian Meredith with Bank of America.

Yes, good morning, everybody. A couple quick questions here. One, could you talk a little bit about the Platinum relationship? Did you do any business with Platinum during the quarter? Anything on the table here from the Casualty Reinsurance side?

We have no specific deals with Platinum. The relationship is on track. It's going fine. You know, we're doing our part on the cat consulting that we have agreed to do with them, and I'm optimistic that we'll find opportunities, but at this point, there hasn't been anything specific --

Okay.

-- anything specific, material. I mean there were a handful of deals, but they're not that big.

Okay, great. And then the fiscal elements, I guess, that you mentioned in the quarter, could you go into that a little bit more, the options that I guess you've had some losses on?

Right. Well, you will recall this is a line that just picked up income in the past. What is running through here is our risk-bearing contracts that are tied to physical variables, the largest piece, you know, of which are natural catastrophe components, and we have made money writing this business over time, as you'd expect, but you do get losses here and there, and this past quarter was one where we had a loss. If I were king for a day of GAAP, I would include risk-taking activities all in one line item and have this put together with premium, but that's not my call.

Okay. And then, John, any reserve releases in the quarter?

Yes, we released approximately $11m from prior years.

Okay. And then last question, Jim, any comments on [four one][ph] renewals, particularly internationally?

Stable pricing and nothing unusually - you know, we're on track, we're happy with our position in the market, but no big news. Other than the fact that we're seeing things as stable in the Cat market, we're happy. I mean we're quite happy to continue operating in a market where the prices are stable and we can get good signings.

Great.

But it is a market that you have to be careful on risk selection. A cross-section of this market is not that desirable a book of business. You really have to be able to select a superior portfolio of risk.

Right. I know you guys have provided in the past the amount of business that actually falls within your return thresholds. Do you have those percentages or figures?

We have not updated those for the quarter, but -

Okay.

-- we'll probably do them at the angle that I mentioned.

Okay, great. Thank you.

For our next question, we go to Alain Karaogian with Deutsche Bank.

Yes, good morning. A couple of questions. Would it be fair to assume that the premiums written this quarter would be [indiscernible] ratably over the next four quarters?

Yes.

Okay. And in terms of capital deployment, you raised a couple of hundred million dollars earlier this quarter. Do you feel you've utilized that capital yet, or it's still available for these new opportunities?

I would see it as available for new opportunities, so I think we're just where we want to be. We've got flexibility to pursue some of the new business. Whether it's organic growth of the existing business lines or a new venture, I think we're in just the place that I would like to be, which is not capital constrained, although clearly not sitting on a lot of excess capital if you look at our ROEs.

Okay. In terms of the growth this quarter in premiums, was that in line with your expectations when you gave us the guidance of $5.30 to $5.70? Or was it a little bit better than that?

The Cat premium was a little bit better. I think we'd been coining to 20-percent growth in Q1, and we actually delivered 25-percent growth in terms of Managed Cat premium. Specialty, I think, was - so we outperformed on Cat against what we last talked about.

On Specialty Reinsurance, we came in arguably at a touch light, although there's one finite transaction that, you know, if we were thinking about on a premium basis where we're not reflecting that in the Specialty Premium line.

We also have Individual Risk, which was light for the quarter on a sequential basis, as I mentioned in my comments, and I would say that was sort of within the band of expectations for the quarter. We knew about potential timing issues there. So I wouldn't draw any real conclusions from the sequential decline in Individual Risk.

If you put all those together, I think we're on track with our expectations. I mean there's nothing in the quarter that changes our future expectations.

Okay. And so in terms of the new opportunities, we still expect that, so the $5.30 to $5.70 contemplates that, but it doesn't contemplate $0.35 of better Cats in the first quarter?

Well, I'd say the way you described it was correct for how I would've described things a quarter ago. For today, what I would say is that with no new ventures, I think we can see ourselves inside that range. So, effectively, the light Cat quarter, you know, brought us to the range, where previously we thought we'd get brought to the range by new business ventures. So I think at this point whatever we get out of our new ventures -- and I would include both organic growth from existing business as well as actual new ventures -- either of those could be the source of upside, and I think our challenge today is we don't have enough precision to put a box around the earnings impact, but I think there's clearly an upward bias.

And then, sorry, just last question. Jim, when would you expect some of these opportunities to - I mean, clearly, you have - you mentioned a bulging pipeline. Would it be fair that if they don't materialize in the next couple of quarters, then they're unlikely to materialize?

Well, I wouldn't say that. I think they take a long time to negotiate. They always take longer to negotiate than you think they should when you go into the deal, so - and we want to - we definitely are feeling we have no gun to our head to do anything. I mean you want to be in a position to stick to your positions in structuring these, and if everything isn't right at the end, you take a pass and go on to the next one. So we have no gun at our head, and I don't want to put any two-quarter timeframe on it. You know, I certainly would communicate if the pipeline starts to dry out, but, frankly, I mean there are so many interesting things that we are not - there's a number of deals that in a normal market situation we would love to look at and think would be very interesting deals. We're not even looking at them because they're not even making the first cut because of our limited resources and the intense effort that we put in on the ones we're serious about.

One other point that I would add to that is, just to clarify a thought, when we referred to new opportunities on the last call and I think as we talk about it here, we're making a judgment about several different opportunities that we're working on currently or a range of things. And you could see those reflected as an announced venture, but you could also see them shown just as growth into one of our existing business lines. So I want to be sure that if we achieve growth outside the expectations we've talked to here, that you could understand that that constitutes victory vis-à-vis our new business.

Thank you very much.

For our next question, we go to Mike Hallet with Fox-Pitt, Kelton.

Good morning. A couple questions for you. First, I was hoping you could provide us your first quarter combined ratios by business segment, and then just update us again on what your target 2003 margins are by those business segments?

Okay. For one thing, Mike, I'll mention that I'm going to speak in ranges, and that's partly because we have an evolving process of fine-tuning expense allocation around here, so there's a little bit of spread even with some people in this room on that one. So I'm going to give you some ranges to be directional around this.

For the Cat business at RenRe, we were in the mid-30s for the quarter, whereas in a - you know, I would've been looking for something more in the 50s, and we're beginning to get, I might mention, some benefit from fixed costs spread over a larger premium base.

For Specialty, we were in the 70-or-so range. I think we've pointed previously to mid-70s, 80.

For Individual Risk, we were right around 80, which is what we've been pointing to.

So I would say that's the story, and just comment a little bit more on how we got to those outcomes.

Cat, obviously, is driven by the low Cat experience we previously discussed.

Specialty ended up coming in a little better than we might have been planning for because of the prior-year reserve takedown that I mentioned earlier in the call, which is largely a specialty phenomena, and effectively what's going on there is that we have been cautious in setting up reserves in this new line of business. And we're seeing some favorable development in those reserves given the cautious start that we had with them. So that, I'd say, is the story on margins and [inaudible] -

Okay.

-- in those three lines.

John, did I get you right that you said the Cat business is now operating somewhere in the mid-50s combined?

I think that that's a range to think of now on a normalized basis as we look at reallocating some expenses and so forth.

So I guess that there is - I mean if you back out the roughly 9 points of favorable weather, you're something closer to a low 60s. Normalized combined, the numbers you gave me imply that that's a sustainable combined ratio on a normalized basis going forward. Is that an accurate statement?

On a consolidated - your question's on a consolidated?

On a consolidated basis, that's right.

I would say it's maybe mid-[60s].

Okay, great. Thanks. The second question I have is on your investment income and your invested assets -- was obviously a big jump in your short-term assets. Have you put that money to work into some more traditional longer-term securities? And can you just give us a sense of what's going on there?

Right. Well, effectively, what's happened, and this is consistent with conversations you've had over the past couple quarters, we've remained cautious in our view of the potential risk for a rising interest rate environment. With that, we've been a little light in our duration and have had a bigger allocation to short-term. And effectively, you know, when we have a big capital raise for big operating cash flows, we didn't want to make a market timing decision, and a bad one at that, to put in all the work at one time up against our target allocations, particularly, you know, given what we see of the interest rate. So we really made a decision to be slower in how we move towards our targets. I wouldn't view that as any kind of long-term strategic shift. That's a tactical judgment.

Right. Assuming a stable interest rate environment, should we assume that you're going to continue to maintain that overweight position in the shorter term?

Short term, I agree with that. You know, I guess over time we'll have to revisit whether our view of interest rates is an appropriate one to maintain. But at this stage, I don't see this moving.

Okay. My last question -- your reinsurance recoverable balance declined despite pretty good growth in year-end premiums. Jim, you talked about claims paying and there's been obviously some talk about claims paying in the industry and reinsurance recoverable security. Can you talk to us about what you're seeing in the market, have you seen a slowdown in claims paying, and kind of what your outlook is on the reinsurance recoverable issue going forward?

Well, for Renaissance, specifically, we're doing fine on collections. You know, there can be some noise around the edges, but there aren't material issues on collections for us. But I think from an industry point of view, I think it's a huge issue that hasn't been resolved yet, that there's an ability-to-pay issue and a willingness-to-pay issue. There certainly are more disputes on collections, more and more arbitrations, and to the extent the balance sheets are - have those as assets and are part of capital basis, you could have a chain reaction of insolvencies or slowdowns started by a big event where the reinsurance isn't being paid out. So I think it's a huge issue in the industry. You know, so far, we've managed to dodge that bullet.

And is your increased premium retention over the past several quarters, years, is that directly related to your views on reinsurance, and do you see that trend continuing moving forward?

No, it's more of a tactical issue in terms of what contracts are there that we want to buy with the security we'd want to buy them. So our philosophy hasn't changed. There's just more lumpiness in what's there. I think I commented last quarter that there was one reinsurer that was fairly large for us who withdrew from a segment of the business, and so we lost a number of reinsurance contracts, lost some retrocessional capacity that way. On the other hand, we've been increasing the amount that we place on a quota-share basis, so we have not changed philosophy.

Okay. And do you expect the trend of increasing net retentions to continue going forward?

Not necessarily, no. I think we - it will depend on if the capacity is there with the security we want. We would buy more retrocessional protection. A lot of the growth that we have on our managed cap premium is being channeled into our joint venture into DaVinci and into the other - into the quota share reinsurance arrangements. You know, I think that point of view is basically one that I think we'll keep.

Great. Thank you very much.

For our next question, we go to Michael Smith with Bear Stearns.

Good morning. On the MGA program business you have, John, what controls do you have in place to assure that the MGAs are adhering to your risk selection and pricing and claims standards? And if things do go wrong, what remedies do you have?

Right. That's an important question, Mike. First of all, just sizing up the overall lay of the land, we have staffed up in the U.S. now with probably a dozen people all told who are basically around the MGA business to oversee what's going on with that. And so this is a team of people available to audit MGAs on a regular basis. We built up procedures and protocol for that, and I think the most important thing you can do is to stay on top of your partners in these relationships as much as anything else. So I think in the normal course, we're having a quarterly look at what we're doing with our partners, and I think most importantly for us, this business is largely Cat oriented at this stage, and so we're getting monthly fees for data to look at the Cat risk that's coming into us and really chosen to do business with just a small handful of people whom we have a lot of confidence in and have [indiscernible] pretty hard. So that's the approach, you know, that we've taken.

Mike, I'm sorry, you had a second part of your question?

Yes, what remedies do you have if things do go wrong? I mean can you cut the guy off immediately? Or do you have to give him time to find a replacement market?

Right. No, effectively, we can cut him off immediately, and that is the principal remedy. And being realistic, you don't typically have a big balance sheet to go against in these situations, so the real remedy is to just shut them down. And I think the real control around this is to stay on top of the relationship on a -

Time back, the real remedy's been to kill them.

And let me just add a couple points to John's points, which I agree with, because it's a critically important question. It's one that we all spend a lot of time talking about and thinking about because it's an awful short list of companies that have been successful and made money doing business in this arena, and we recognize that. You know, we're dealing with -- the number of MGAs we intend to deal with is single digit, so I think control of each program is vitally important. We're looking for real high quality, real high -- very good systems, and we have this and expect to be on top of each relationship on a continuous basis. In a number of cases, we have or anticipate having a full-time employee of ours in their office, for example. So I mean this is something that we're - you know, it's probably the number-one issue of top management discussion and focus in the individual risk business.

Okay. That's a full-time Renaissance employee in the MGA's office on a full-time basis?

Yes, although it would be a Stonington employee or one of our U.S. subs.

Right. Okay. That's what I meant. But one of your people is in the office full-time?

Yes.

In the MGA's office looking over a shoulder?

Yes.

Okay, very good. Thank you very much.

We go next to Adam Klauber with Cochran, Coronia and Company.

Good morning. Could you talk about combined ratios in the Specialty Reinsurance and in Individual Risk premium business?

And upon what basis? I don't know if you heard my comments from before around those - perhaps you could tell me exactly what you're looking for.

Sorry, John, if I missed it. What type of underwriting levels are they - have they been averaging, and what are you looking for in the future?

Right, okay.

Again, sorry if I missed the question.

Sure. In the quarter, for Cat, we were in the mid-30s on a combined basis. We talked about being more in the 50s on a combined basis in a normalized setting. On the Specialty side, we were around 70 in the quarter, and we've pointed more towards mid-70s. In Individual Risk, we were right around 80, which is what we've been pointing to.

Okay, thank you. A question about the Cat business. Are you moving more into the working layers this year compared to last year?

Not necessarily. It varies - I mean there's no overall trend. In some cases, you know, we can do a couple of large transactions that may be low-layer transactions in one particular territory, and in another territory, we may not like the renewal pricing on low layers and go to higher layers. So there's no - it's just a, you know, deal-by-deal analysis, and so there's no overall trend to that effect.

Right. Thank you very much.

For our next question, we go to Charles Gates with Credit Suisse First Boston.

Hi, good morning. I only had one question, and my one question was, could you opine on what you see is the impact on your business, sir, of the roughly 13 new property casualty reinsurance and insurance companies created post-9/11 in Bermuda?

Okay. I think there's a combination of positive and negative influences on Renaissance's business, but overall, I would say that the effect - if I lump that in with the effect that the declining balance sheets have had on some of the traditional markets, I think the overall effect is positive. And first point is the amount of new capital is a fraction of the amount of capital that's been taken out of balance sheets by the fall of the stock markets and the recent losses.

The second is that, you know, obviously they are adding some capacity and therefore some competition, but it is basically responsible competition. They have experienced management teams. And so we don't see anything particularly disturbing going on there.

And, thirdly, a subtle point that I guess I wouldn't have predicted but is hitting us now is they're making Bermuda more of a center of gravity and for not so much for Cat business but for some of the non-Cat business that we're seeing, sometimes it's coming to the Island for some of these new companies, and it will come to us and we wouldn't have seen it if it hadn't been for the brokers on the primary side, for example, bringing down business to one of the new companies. So, actually, there's a positive in the way it sets up the market.

And the last positive is there are a number of potential new business relationships. There are clients and sources of capacity, and we have transactions both ingoing and outgoing with a number of these companies.

And, finally, you know, DaVinci was one of the new companies, and that certainly is a positive for us.

Your point that now brokers are more likely to come to Bermuda than they were before?

This is - yes, for a wide range of business. I'm not talking about the Cat business, but for certain Specialty Reinsurance classes, for some primary business, you know, a number of brokers are coming for large risk casualty business on the primary side. You know, a number of these new companies are very large markets for that, and I think it's attracting more business for the Island.

The only other question I have, I realize for statutory accounting in the States you carry your bonds at amortized cost. I guess in contrast to what you had some, well, 17 years ago in the bottoming-out phase of the underwriting cycle, they are clearly -- if you'd marked the bonds to market, basically I would've lost a lot of my surplus. Today, the inverse is true. I would've arguably added a lot to my surplus. Do you think that basically change in the value of fixed income securities is having significant impact on marketplace?

I don't think it's having a significant impact on the marketplace, although - and this is not an original theory, but I read somewhere recently something that makes sense to me, that balance sheets have had big losses from fall in the stock market, and a lot of companies have moved to bonds. With a low interest rate environment, we could see a situation where balance sheets get ripped apart by fall of the bond prices if interest rates shoot up. So that could be the next chapter of this story.

The other thing I would add is that whatever pick-up there is in terms of the mark on the fixed income portfolio, I think if you look at what's really going on in those balance sheets in terms of reinsurance recoverable issues and loss reserves, the mark on the fixed income portfolio is not particularly important. It's the other factors that are really, I think, driving [indiscernible] balance sheets.

Thank you.

[Caller instructions.]

We go next to next to [Steven Gabbios][ph] with [Dreyfus][ph].

Good morning, gentlemen. With regard to your outlook, how do you find your opportunity set, both for new business and joint ventures as you look at it today versus how you might've looked at it, you know, on your last conference call three months ago?

I look at the opportunity set as the same, if not better because we're further down the road in specific transactions, valuation and negotiation, and also the turmoil in the market certainly hasn't lessened in the last three months. I think it's increased in the last three months, and that's where these deals come from.

Okay. So the fact that you've kind of taken out the, what is it, 20 to 30 cents' worth of new business in JV, potential upside from your guidance, should I not view that as a change in your mindset but just rather a change in your being more conservative from a posture standpoint?

I think, Steve, what we're working with, and I agree with what you said basically, what we're working with is a set of new opportunities where putting clarity and precision around them from a financial point of view is [indiscernible] a bit of a trick, and there are several different things that we're looking at. And so I don't think our spirit of optimism has changed that we will have pick-up from some source. But I don't think at this point we want to take it to the next level of putting a box around the income pick-up. And as I said in the conclusion of my remarks, I think there's clearly an upward bias to where we are in looking at earnings and, you know, I think if you capture some of the joint venture upside, it's not hard to see us out the top.

But the other point I'd make is we really don't want to get into the business of fine-tuning guidance very single quarter. I just don't think we know that much more at this point, and I just don't think it's that constructive. I think at the end of the second quarter, we'll have some more insights.

Okay, but I guess the main point is you're not trying to signal us that your business conditions are any worse than what you thought they were before?

No, but that's absolutely correct. We just - I think the key point is we just don't want to be updating guidance every quarter.

That's totally fine with me. You know, companies that issue precise guidance, they're probably crazy. And in that regard, it's certainly too early for you to want to put any kind of numbers on '04, but maybe you can give us some thoughts on your color in terms of how you think your Cat and non-Cat businesses will play out in terms of your business development going forward?

Well, as I said, I don't see a ceiling on our opportunities. You know, at some point, the Cat business is going to stop growing, but that hasn't happened yet, and, you know, although the prices have flattened out, we're continuing to increase market share because of the reasons I outlined, and so, I mean, I wouldn't expect huge growth in '04 on the Cat side, but I'm not ready to say that it's flat either because we haven't seen it flatten out in terms of top line.

And on the other two areas, I mean the Individual Risk, given what's in the pipeline and what's just being written now and therefore will be earned, I mean we're hardwired for very meaningful growth in that just from where we're sitting now. And Specialty Re is - there's an awfully big pond out there that so far we've been only fishing a very small portion of, so we've got a lot of room to keep growing there, which I'm optimistic about, also. And, you know, the flight to quality and our relationships are helping us a lot there. And we've already talked quite a bit about the JV opportunities, so I see all of that intact unless we see some dramatic changes in the market. You know, with all the fundamental turmoil, I guess it's possible if we have two good years in a row that the market gets stupid again, but I just - that's not what I would bet is going to happen. I think there are enough problems that the market's going to stay pretty hard for a period of time.

Great. That's very helpful color. Thanks, gentlemen.

We go next to Steve Labbe with Langen McAlenney.

Good morning. First, just a point of clarification. When you were referring to the businesses written from MGAs, you were talking about the Individual business?

That's correct.

Okay, okay. And then just a numbers question. Do you have what paid losses were in the quarter and what they were in last year's first quarter?

Yes. This quarter, we actually had net recoveries, so we had paids running our way to the tune of just over $7m, like a function of timing that we had with recoverables cashing out. You see that on the balance sheet.

So the net effect is sort of a negative paid loss?

Exactly, right.

Okay. And then last year?

Last year, it was $2m.

Okay, thanks.

And, ladies and gentlemen, we have no further questions on our roster at this time. Therefore, Mr. Stanard, I'll turn the conference back over to you for any closing remarks.

Okay, well, thank you, and I think we've covered the points that we wanted to cover, so we'll sign off.

Ladies and gentlemen, this does conclude today's conference call. We do appreciate your participation, and you may disconnect at this time.