濱特爾 (RNR) 2003 Q4 法說會逐字稿

Good morning and welcome to the RenaissanceRe fourth quarter and full year 2003 investment community conference call. Today's conference is being recorded. At this time for opening remarks and introductions I'd like to turn the conference over to your host, Ms. Laura Eschelon (ph). Please go ahead.

Thank you. Good morning. Thank you everyone for joining our fourth quarter and full year 2003 conference call. Yesterday after the market closed we issued our quarterly release. If you didn't get a copy please call me at 212-521-4859 and we will make sure to get you one. We have reserved an hour for today's call. There will be an audio replay of the call available at 1 pm Eastern Time today through February 15, at 8 pm. The replay can be accessed by dialing 888-203-1112 or 719-457-0820. The pass code you will need for both numbers is 587552. Today's call is also available through the investor section of the www.renre.com, and will be archived on RenaissanceRe's website through midnight on March 21.

Before we begin I am 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, John Lummis CFO in Bermuda. Bill Riker, President and COO joins us from Texas this morning.

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

Thank you, Laura. RenaissanceRe had record operating income of $524m in 2003. That represents an operating ROE of 29% for the year. Our book value per share grew by 38% in 2003, and operating EPS grew by 42% comparing '03 with '02. So this was a year of truly great performance by any financial measure.

I'd like to look at the 2003 performance of our company by separating our two business segments, starting with Reinsurance. The Reinsurance segment generated premium for '03 essentially in line with the expectations we set at the end of second quarter of '03. As shown in the supplemental disclosure table of our press release, Managed CAT Premium was flat comparing '03 with '02. But I'd ask you to remember that Managed CAT Premium grew by 67% comparing '02 with '01. Managed Specialty Premium grew by over 18% for '03 relative to '02. Net written and net earned premiums have grown more than the gross written premium numbers would suggest as we seeded only $151m our of Renaissance Reinsurance '03, compared with $193m in '02.

Our fourth quarter is always light in terms of premium in the Reinsurance business, so the quarterly premium results you see are essentially on track with our expectations.

To look at our underwriting results, I would ask you to look at the new presentation of the supplemental disclosures of our press release, which show the combined ratios of the Reinsurance segment and Individual Risk segment. There for Reinsurance [technical difficulty] accident year loss ratio of 34.5 for the year, somewhat lower than normal as a function of the [technical difficulty] CAT activity for the year. We estimate the [technical difficulty] CATS for the year [technical difficulty]. For the quarter we did see some meaningful CAT loss activity, primarily from the California fires, and that put us close [technical difficulty] range for CAT, although that was somewhat offset by other specialty [technical difficulty] on an accident year basis.

Turning to our [technical difficulty] ratios, the other big factor in our [technical difficulty]performance is obviously prior year loss take down. As previewed in our in our press release [technical difficulty]. In the fourth quarter we had [technical difficulty] of preferred takedowns [technical difficulty] and that was largely [technical difficulty] that business. You can also see that we had a huge year in terms of fee income with our pro forma [technical difficulty] [$77m] for the year.

Turning to our individual segments. [technical difficulty] business is clearly continuing to grow. For the year Premium was up 58%, or [technical difficulty] driven by the addition [technical difficulty] programs. This is well ahead of [technical difficulty] expectation stated at the end of '03, and well higher than [technical difficulty] that we had going [technical difficulty].

For the fourth quarter of 2003 Individual Risk Premium was $111m, which is down from Q3 on a sequential basis, but I wouldn't draw any conclusions from that as there will be some [technical difficulty] premium numbers as new programs originate and [technical difficulty] business is terminated. So I would really point to the annual [technical difficulty] numbers which were strong in '03 and expected to continue in '04.

Looking at Underwriting results [technical difficulty] accident loss ratio data, essentially in line with our expectations. The fourth quarter fell compared to the third quarter, and the Individual Risk rate [technical difficulty] combined ratio rose by four points. I would again see that as short term [technical difficulty] and I'd point you also to the annual results as more representative of our 2004 expectations.

Looking at Investment results, we are pleased with the performance here. On a total return basis the [technical difficulty] which was ahead of our benchmark. You will notice that the year end balance sheets reflects [technical difficulty] investments, compared with [225] at the end of the third quarter. That essentially represents [technical difficulty] increase allocation to hedge funds, and a $65m increase to investment vehicles in which the underlying investments are high yield.

To comment on our expectations for 2004, we're generally pleased with our performance in the January [technical difficulty] with the [technical difficulty] season behind us I'd like to spend a moment discussing the trends we saw [technical difficulty] in the year ahead. As Jim will discuss in greater detail, we saw increasing price competition in the CAT business, consistent with our commitment to maintain hurdle rates, we see prospects of decline in our [technical difficulty]. For the first quarter that declined [technical difficulty] 5% and there could be additional [technical difficulty]in Q2, so that we are now thinking that Managed CAT premiums would be at least [technical difficulty] 2004.

By contrast [technical difficulty] we'd indicated expectations of flat to modest decline. That bit of negative [technical difficulty] is offset [technical difficulty] in part by Specialty Reinsurance results that are coming in better than we had originally expected. In December we projected 15% growth in Specialty, now we estimate the growth to be 20%.

Finally we see [technical difficulty] with our already high expectation of over 30% [technical difficulty] premiums relative to '03. We are also assuming investment yields of 3.5%. When you put all that together, and considering out pipeline of opportunities, we continue to be comfortable with our previous guidance of $6.10 to $6.50 for 2004.

With that I would like to turn the call over to Jim for his commentary.

Thanks, John. Overall I'd say that I was delighted with the results that we achieved in 2003 and feel good about our prospects for 2004, where I believe we have good growth opportunities in two out of the three markets that we operate in. Starting with the weakest market, the Property CAT Reinsurance market, we were somewhat disappointed by the CAT market at January 1. The total premium in the market we believe has shrunk by single digits. That was partially driven by clients retaining first layer programs and taking higher retentions to offset the cost of purchasing more coverage on the top of the programs.

Portfolio quality did deteriorate to levels that we saw roughly around the year 2000. So we're down to levels lower than we were prior to 9/11. [technical difficulty] I want to make the comment, all CAT portfolios are not the same. We believe we have the best portfolio in the business. Our historical track record in the CAT business [technical difficulty] the first to grow in hardening markets, and this has been the first to cut back in [softening] markets [technical difficulty] and we find ourselves in a position where we need to be cutting back in line with the directions that John gave.

In Specialty Reinsurance we are pleased with the January 1 [technical difficulty] period. We are now the largest US broker market writer of the handful of specialty classes. One class that we were disappointed with was aviation. That softened to an extent we have cut way back in that. But that cutback was offset by strong growth in several other areas that we were pleasantly surprised by. Our Renaissance Underwriting manager's joint venture activities, as John said, performed excellently in 2003. The ChannelRe (ph) transaction that I've discussed in the past, we expect will close pretty soon.

I'm now going to turn it over to Bill Riker to talk about Individual Risk, and then I will [technical difficulty].

Hello, Jim, thanks a lot. The feeling from the Individual Risk segment for the first quarter, there's really no big news at Q4. Basically Individual Risk area, the business is not really concentrated around one/one like the rest of the Reinsurance business. As you know from our numbers our Q4 gross written premium was on track with our previous communications at $446m, and again we are very happy with that outcome. We continue to project 2004 at over 30% growth from 2003, very similar to our previous presentations.

The full year combined ratio of just less than 90% is representative of our expectations for this business. The quarters 95% combined continues to reflect our conservative position under current action here, coupled with the small release of 2002 accident year reserves as this book continues to come in better than our result picks.

As far as business mix is concerned, our CAT exposed property book continues to shrink as price competition in this area continues. This is parallel to the competition we've seen in the traditional CAT business in the Reinsurance side. We are seeing more inadequately priced business in the CAT area as some traditional non-CAT writers are looking for this business, and that is a change from the past. We expect our mix to continue to move to more liability as 2004 progresses, similar to what we have communicated in the past.

From an operational perspective, the fourth quarter saw us filling out some of the last remaining open positions on our team, and we are now fully staffed for our current operations. We will continue to add selected positions as the needs arise.

Overall the Program area continues to be an interesting areas as many of the better books of business continue to have carrier concerns, and these folks are still uneasy about the stability of their relationships. This is a competitive advantage for our value proposition.

So moving into 2004 we continue to focus on our key themes in this area. First of all to partner with the best people in the respective market segments. Second, to operate in the more inefficient areas of the market to gain a strong foothold and make sure that we can operate in that business for a reasonable period of time. Then lastly, to develop competitive advantage in these areas using our relationships and our data management skills. So for 2004 we continue to be very optimistic about the prospects in the Individual Risk area, and we see bringing out a couple more Programs and everything is on track.

I'm going to put it back to Jim, thanks.

Thanks, Bill. So overall the markets that we operate in, in general are more competitive than they've been in several years. I'd say the fear in green cycle of the insurance business, the fear has been abating, so Renaissance is not in a position that we are going to equal our 29% ROE that we've had in the last two years in the near future. But, having said that, there's still fundamental change in the insurance markets, as many organizations deal with balance sheet issues and there are still very significant issues which allow for very significant opportunities for companies who can execute and who are disciplined.

I know on this call we're really... we're focused obviously on the quarterly results, but I do want to step back, given that we've finished ten full years in business, and just look at where we are positioned in the market.

As we finished our tenth full year in business by several measures we've got the best track record in the worldwide P&C insurance markets during that period. The management team that produced that track record is still in tact here at Renaissance. We have a tremendous client base. Our track record of quick claim payment, very strong balance sheet, tight risk management, make us recognized as being among the best security in the business. And that let's us benefit from the flight to quality. In the market in 2004 with the turmoil that still exists, I can't think of a platform I'd rather operate from, with our management team, our client base and our balance sheet.

With that I will turn it open to questions.

Thank you very much, Mr. Stanard. (Caller Instructions). We will take our first question from Tom Cholnoky, Goldman Sachs.

Good morning. Just a couple of questions. Number one, what are your plans now with DaVinci given that your Managed CAT Premiums seem to be declining, or at least the growth prospects aren't as strong? Secondly, can you give us an update on what's going on with ChannelRe? And then finally, can you give us a little bit more color how much program business represents your total book and where that might be in 2004?

Okay, this is Jim Stanard. Our plans on DaVinci are nothing... no major changes. We intend to manage the capital in DaVinci, but we see roughly consistent top line in DaVinci reflective of the market. So we are not planning to do anything major with that one way or the other. Consistency to our clients is very important, so we want to keep DaVinci as a consistent platform for our clients similar to the consistency that we've shown in Renaissance.

Channel, I really don't want to comment on other than to reaffirm comments that some of the other investors have made. We expect it's going to close and we think it's highly likely that it's going to close; it's just taking a little longer. But because it hasn't closed I really don't feel I should make any other statement. And John, do you want to take the third question about the proportion of Program business?

Bill, why don't you comment on the Program business.

Okay, as you know our Individual Risk segment is made up of three types of business. One would be ENS business we write directly with our own underwriters. Proportional Reinsurance, and then Program business, where it's written on our paper. For 2004 the Program business will be approximately 50% of the gross written.

And how would that compare to '03?

In '03 it was probably -- I don't have that number on the top of my head, but it would be somewhat less than that, probably in the 35% to 40% range.

Okay, great. Thank you.

We will take our next question from Richard Dymon (ph) in Wood Capital.

RenRe has done a terrific job of allocating capital to the right businesses. When would you expect Casualty pricing to feel the impact of the same trends impacting Property CAT?

Well it's hard for me to make a future prediction of the course of the casualty market. Obviously as the market in general gets more competitive there are competitive pressures there are. But with the balance sheet issues the companies are dealing with, I mean that would indicate that the Casualty market could stay firm for a longer period of time than one would expect looking back at the traditional cycles. So I think there's some sympathy out there in general that the Casualty market can stay firm for a long period of time. I would not argue against that position.

Thank you very much.

We will take our next question from Ken Zipperberg (ph), Stadia (ph) Capital.

Good morning. Jim could you clarify what rates online are looking for, for US CAT this year versus a year ago?

Well I mean just pure rate online I think is not a meaningful number, in that if you are moving up at higher layers you could be getting a more adequate price with your rate online going down if your retentions are shifting. And there has been, as I said, there has been to some extent some rentention shifting in the market, but retention is moving up. I would say on an apples to apples exposure basis, pricing is down in the 5% to 10% range. Is that responsive to your question?

Yes, well I guess my thought process would be, with New Bermuda it's academic that a lot of competition would be in the market two years after a number of the new carriers were formed. So just trying to think about the underlying returns and profit characteristics of CAT now. I guess the issue is, how profitable or how less profitable is the business the market is writing today versus a year ago? And then as we look out we certainly see your diversification in to casualty which tells us that's the area of higher returns, but still wanted to try to figure out how profitable the existing RenRe book would be.

Well we wouldn't write business that we didn't think would produce an adequate return. So we believe that our book is still a good book of business. It's not as good as it was a year ago, but it's better than it was at the bottom of the soft market. So we're below... we're to levels that are roughly at the year 2000 in terms of portfolio quality. I also would emphasize that we are... that I believe very strongly that we have by far the best quality portfolio in the business.

Thanks very much, Jim.

We will go next to Ron Frank, Smith Barney.

Good morning, I have a few things. One is a question for Bill regarding the Individual Risk combined ratios, looking at them on a full-year basis. Is there a significant difference among the combined you are currently booking on the various three pieces of that, so that the growth in Program drives the combined up? Or are there other factors at work? If you could give us a little granularity there.

Second, Jim, you may have been made aware by now that you've had a sound problem on the call, at least on this end. And I was wondering if you could repeat that comment you made regarding something in the CAT business relative to pre 9/11 levels. I believe it was pricing, but I didn't catch it.

And finally, also for Jim, you commented that aviation was disappointing, and as you know a couple of your neighbors on the island expressed actually pleasant surprise that aviation didn't fall apart to the extent they expected. Maybe it's just a matter of expectations differing, but I was wondering if you could elaborate on that?

Could somebody tell me what you didn't hear, because I know we have sound problems, but I'm not sure what...?

Well, Jim, for a good part of the prepared remarks, at least on this end, you were fading in and out.

Oh, Hmm.

I'm sorry, maybe it was just a problem on my end, but at any rate I will settle just for a repeat of that 9/11 comment if you don't mind.

Okay, well we... yeah, I knew we were having problems, I wasn't sure what those problems were. [indiscernible]. The Property CAT market, which I talked about that two of our three markets that we operate in having good growth opportunities. The weakest of the three is Property CAT. I said that we were somewhat disappointed by the CAT market of January 1. The total premium in the market has declined we believe by single digits as clients have retained more risk on the lower layers in order to purchase more coverage on the higher layers. So there's less total premium in the market than there was three months ago. Our portfolio quality deteriorated to levels that we saw around the year 2000, so we still have a portfolio that we are happy with, we think it's good business, but it's not as it was in the market peak, post 9/11.

Okay, that's what I missed. Okay. And then on that aviation comment?

Well differences of opinion are what makes a market.

Okay, and then finally for Bill, could you give some color on the combined ration trend, is it a mix issue mainly as the book matures?

Well I would say, it is the business that is coming on the books has a higher component of liability in it. And what we continue to do and what we've always done is reserve the existing accident year at very conservative levels, and then wait until the book mature a little bit to really start determining what the eventual outcomes will be. As I also mentioned the component of sort of CAT driven property in our portfolio is going down. And as it goes down that business obviously has a lower expected combined, but you also have to remember that particular business also requires us to purchase catastrophe reinsurance. So on a net basis it is somewhat lower on a combined ratio basis, but I don't think it's going to be that significant going forward. So there's no doubt we are going to be booking the current accident year a little bit more conservative, but I don't see it as a major change from what you've seen I the existing numbers, from the numbers from 2003.

Okay great, thanks a lot.

We will take our next question from Terri Hugh (ph), JP Morgan.

Hi, a couple of question. First, back to the quality of the book of business that you talked about. I guess during the soft cycle last time you had said, Jim, over the course of many quarters and a few years that overall there wasn't much deterioration after you look at your net of reinsurance book. So is it more or less you still feel that you can generate strong profitability, but down some from the peak, but you've maintained overall quality? Is that sort of the same thing?

Yes. Your comment...

Because I remember that for a long period of time you would say, even though pricing is down, because you have shaped your book to reinsurance, that overall the risk adjusted returns did not deteriorate much. Is that the same thing?

Well I would say that, yes. First of all I agree with your memory of that statement, it's right on. We are still within a band, a historical band, and if I look at sort of a sign wave in terms of net quality of our portfolio, it is still within the historical band it has been over the last 10 years. It's not at the bottom but it's not at the top.

How wide is that band?

As you have referred to my earlier quotes, the band on a net basis has been narrower than the band is on a gross basis. So in the past we were able to keep that down reasonably narrow. I would say that at this point John referenced that our seeded premium was down in '03 versus '02, so that we are... we are not seeding as high a percentage of our business right now as we were in the late 90s, for example.

Okay. The other question is on your different lines of business, with growth now coming in Special Risk and Individual Risk. In terms of return on capital you commented on you probably can't reach the same kind of 30% ROE of the last two years for each class of business. Can you give broad bands of what the return of property CAT is at [indiscernible] the liability line?

Excuse me, you said property CAT as...

Yes did you ever give a number, like on new business for instance, current accident year return on capital.

We have not given a number, but our philosophy has been to use similar hurdle rates across different businesses. And so...

So one should assume that they're similar?

Yes, our targets are similar to what they have been in the past in terms of hurdle rates that we are using for business.

And then, you had talked about being a bit disappointed with aviation, but pleasantly surprised in a number of other lines and other areas. What are those areas?

I would prefer not to talk specifically about the areas that we were pleasantly surprised in because we will have -- that will generate competition just by that comment. So I'd rather be a little circumspect about that.

Okay. And back to the comments made at the [Angle] by a number of the players, whatever happened to that positive phenomena where the change in formula increased demand? You said that the overall CAT premium has shrunk in January [indiscernible], so that phenomena was more than offset by lower rates?

Right. And that phenomenon which did occur was offset by -- first of all by some lower pricing, and secondly by clients choosing not to purchase the first layer. So to buy the top layer they decided to not purchase the first layer.

Okay, so it was more than offset then?

Correct, it was more than offset because clients decided to retain more risk at the bottom of programs, in addition the fact that there was some softening. Those two affects were more than the fact that more was bought on the top.

Okay. And then I think, Bill, you mentioned that the CAT part of your business, there's increased competition with more non-traditional players or players that are not usually in the CAT area entering in. Did I hear that correctly, again, with the bad connection, that there are just more players maybe pricing down at the property CAT business?

I would say for the last three or four year most of the CAT driven primary business is being written by specialists who really focus on that element. What we are seeing is more of the traditional players coming in and writing business that we perceive to be very CAT driven. And we believe that that's adding to the competition and often the pricing is inadequate as far as we can tell.

Because they perceive it as [indiscernible] their profitability, I gather, because CAT has been a profitable area?

I can't comment on what their motivations are. But we do believe that pricing and writing CAT driven business is a different skill than pricing and writing traditional fire business.

Okay. Thank you.

We will take our next question from Brian Meredith, Bank of America.

Good morning, I've got a couple of questions. One, I just want to add onto what Terri was talking about, a little bit about reinsurance. Has your view on how much reinsurance you are expecting to buy in '04 changed at all on the Property Reinsurance side, given the comments about the market being a little more competitive? And do you anticipate buying more herein 2004?

I wouldn't say we anticipate buying more in 2004. It is going to -- I think this is a good example of the dynamics going on in the market, that on one hand if you are just thinking about a traditional softening market you'd say you can buy more reinsurance. But at the same time, the security issues is a huge one and the number of companies out there offering [retrocessional] coverage that have security that we're comfortable with has shrunk quite a bit. So on hand you've got a fairish situation in the market, but on the other hand there's a situation that is bullish for the hardness of the market. So we're not in the depths of the soft market where you've got naïve capacity operating. That is not where we are, and I don't want to imply that. I just wanted to make the point that we're off the peak.

If I just add to that, in the Reinsurance business, looking at, at least our model for ;04, we're assuming roughly flat seeded premium but with a wide range of possible outcomes given market opportunity.

Sure. In talking about off the peak numbers, Jim, can you talk a little bit about where we stand on rates relative to 1994 rates were all time peak?

Well even the peak of 2002 or January 1, '03, did not hit the peak of '94. So we are way under the peak of '94. But I don't expect to see the peak of '94 again in my career.

But where do we think we are relative to the 1990s? I'm just trying to get a sense of how competitive the market is looking back at your historical results?

Well I tried to indicate by saying that at least our portfolio - and I'm not talking about the market I'm talking about ours - is around the 2000 level, which is -- you know, it's not at the bottom of 2000 when we were growing, but it's before the real crunch of the market. So it's kind of in the middle.

Great. And last question, could you talk a little bit about capitalization. You guys have historically been terrific stewards of our capital to shareholders. And as we look forward as the market does get a little more competitive and you are generating fairly substantial returns on capital, what are the plans for any excess capital created?

Well Brian, the focus in managing excess capital historically has been share repurchase, as you know. And I'd say that will remain our primary focus. Our philosophy is going to continue as it has, which is we will look at share buybacks by considering two factors. One, the quantum of excess capital that we see in our business, measuring actual capital to our risk based capital. And then secondly, we also consider the market price and look at what the opportunity is and where we would expect to buy back out of the capital markets. And so we use both those factors to evaluate how we proceed with share repurchases. And so it would be a little bit I guess qualitative in that it's not a formula I could [fudge]. I think that we will see some growing excess capital potentially and that will increase our incentive to do buybacks over time, but I'm not going to pick a point or a formula for saying when that would begin.

The other comment I would make is that with respect to our dividend we will, in our March Board Meeting have a discussion about increase on the dividend. And our Board is looking at several choices there [indiscernible] increase. And I really don't want to predict their decision in March at all, it's their call.

Thank you.

Our next question comes from Michael Lewis, UBS.

Good morning. You did have some real problems with the communication, so we may have to circle back later. But maybe you can bring me up to date. I think in the third quarter you broke down your Individual Risk as follows, 83% was property, 12% was commercial auto, 1% was claims made liability, and 4% was claims occurrence. You also said you were going to move more aggressively in commercial auto and claims made liability. Can you move me up to where you stand at the end of the year, and also roughly what you think that will look like in 2004?

Also, the second question has to do with reserve development and redundancies. You kind of gave us guidance you have about $30m to $40m in the fourth quarter; it came out $45m. What does that do to your $30m guidance for 2004? And why do we have reserve redundancies, should we try to shoot for reserve adequacy and not have redundancies? And how does that all work? Thanks.

Bill, do you want to take the lead with commenting on the individual risk premium break up?

Okay. I don't have the specific numbers accessible right now. I think John can comment later, we could potentially get you those numbers if it makes sense. But the trend in how that breakout is as we described earlier, the commercial auto component will increase, the other liability areas are increasing as well. I believe we've given some guidance in the past on how the breakout it going to be for 2004, but I don't believe we've actually given the specific numbers. But there's no doubt the property portion of that, which will continue to decrease as a function of the market conditions, and what I commented on earlier about the CAT driven part of the property being more and more competitive. And then we expect the liability portion still to be -- the largest part to be in the commercial auto areas, with the claims made liability and the occurrence liability sort of coming out of that equal parts.

If that helps you out, I'm not sure if in the past we've given a precise estimate of what 2004 is going to come out as opposed to just giving you the trends.

That's okay, that's helpful.

On the subject of reserve take downs, you asked about first of all why don't we get it right in the beginning. And I don't think that there's anybody that gets it exactly right when they first put up their loss reserves. The only think you do know is that you're going to get it wrong to some degree. The way we've historically approach loss reserves is that we try to be conservative in our initial reserve [picked] whether it's in the CAT book or any other book of business. And I really do believe that you either start with a bias of being conservative or a bias of being aggressive, and trying to get it right down the middle is very, very hard. We start with a bias to be cautious in how we put up reserves and then we have methodologies for how they get taken down. What we've instituted in the course of the fourth quarter was a more systematic approach to taking down CAT loss reserves, looking at paid losses, and basically we're using a formula looking at paid losses. That in turn generated the somewhat higher than we initially expected outcome in Q4. For '03 I don't want to get in the business of trying to predict what that formula will produce because it's really very contingent on what the paid losses end up being. We gave some ballpark guidance last year just to give a sense of what this could look like, because we felt the shareholders should know that there was this reserve question that we are constantly looking at. But I don't think I can get you any precise answer than that. It will be what it is based on how the data [indiscernible].

Yes, but the only follow up on that, quickly, is the fact that again you gave guidance for 2004, and I'm just wondering since 2003 developed favorably does that change the guidance at all in your own mindset? Or basically this one should be viewed independently of the other?

I would view them as essentially independent.

Thank you very much.

We will take our next question from Jay Cohen, Merrill Lynch.

Yes, Jim I just wanted to circle back and talk about the deterioration in your portfolio back to 2000 levels. It seemed that you had a nice increase in '02, '03; at least the January renewal season was fairly stable. And now we are talking about some modest declines. And it seems you slipped back four years despite what seems to be a pretty rational market. I'm wondering what else is going on, or maybe things weren't as good as I thought they were in '03, or as stable as I thought they were

Well, yeah, it was a fairly rational market. I think things did not peak as much as maybe -- just speaking compared to the hard market of '94, the peak in this most recent hard market was nowhere near as strong as it was back then. And so it doesn't take as much in the way of declines to undo the increases. We were very -- during the peaking of the hard market, post 9/11, we were considered to be very price competitive. We did not increase our prices as much as -- we just didn't do an across the board price increase in reaction to market conditions. We tried to continue our policy of pricing based on exposures, and providing our clients with consistency of pricing. And so yes, our pricing -- now I'm referring to our portfolio not the market. Our portfolio did not peak anywhere near as much as it did in '94, post 9/11, and that was planned by us. And so I guess it's not -- as I commented, I was somewhat disappointed, where my head was at the angle I thought that things would be a little firmer at January 1 than they turned out to be. But at the same time this is not -- this is a good portfolio of CAT business. I am happy that we have it, I'm happy that we wrote it. We have a lot of business -- we have the best portfolio in the business. It's made up of a lot of long-term clients and it's not -- it's much better than the worst portfolio we've ever had.

And then lastly, any part of the world that were more disappointing or less disappointing as you went into January from a CAT standpoint?

Well as the market begins to get more competitive it's usually the non-peak territories that get competitive very quickly, because they don't require all of the capacity in the world. So I'd say the peak exposure stayed more firm, and clearly where the model changes were more conservative those actually got firmer, such as NE US for example pricing went up because of model changes. Once again our pricing didn't change but the market pricing changed and therefore there was more business that we could find acceptably priced.

Great. Thanks for the answers.

We will take our next question from Adam Klauber, Cochran Coronia.

Good morning. Just a follow up or two on the reserves. Where did most of the releases come from in the CAT business? What accident years?

I'm not going to get specific with event by event or accident year by accident year reserve release to special, I think that's getting an aura around it. I don't want to get into it. So you will have to look at that as a lump sum for prior years.

Okay. Could you give us the paid losses for the reinsurance business and the individual risk business? And also could you give us [IBNR] as at the end of this year compared to the end of 2002?

For the quarter the consolidated paid loss was $84 million. For the full year it was $142m. I do not have right in front of me the paid number by segment. To answer the IBNR, the IBNR consolidated was $565m at the end of '03, and I don't have handy the '02 number.

One more question. Expense ratio on the Individual Risk business, will that remain in the high 30 level?

At this point we're expecting that that will come down to more like the mid 30s. So I think that we will see the business -- and with premium ramping up on this existing infrastructure, seeing expense rates just come down. Bill, do you want to add anything to that?

The other factor that will modify the expense ratio, as I inferred in an earlier question is, as the amount of CAT driven property business we write goes down, the amount of catastrophe reinsurance of the individual risk segment we will purchase will also go down. And that has an affect on your expense ratio as well.

Thank you very much.

and our next question comes from Alain Karaoglan, Deutsche Bank.

Good morning. We also had the same problem that Ron and a couple of people have mentioned. In fact John all your prepared remarks were cutting out, so apologize if you made the remark already. But on the catastrophe business, how much was luck for the full year? You mentioned something in the fourth quarter what we should expect, but I didn't catch that.

Okay. Well first of all I apologize for the sound quality, and obviously we will be investigating what happened to avoid a repeat. What I said about the luck factor was that for the year it was over $40m. I said that in the fourth quarter the amount was -- the CAT loss ratio was close to normal because we did have some CAT loss activity, notably the California fires. And we continue on the approach of booking current accident year events conservatively.

Okay. Jim, with respect to -- I think the disconnect a little bit with respect to the comment on the CAT and your portfolio is back to 2000 is that you mentioned that rates this January 2003 were down in the 5% to 10% range. And from a market point of view, after 2001, it seems that price increases were well in excess and in some areas it was in excess of 100%. Could you reconcile the 5% to 10% comment with the fact that your portfolio is back to 2000 sort of quality?

The business that in a market sense went up in price 100%, we didn't write that business. We never wrote that business. So I think comments about market pricing, that's really the thing that resolves the -- the difference is that of course we always had a quality portfolio even in the soft market. And so we didn't need to take the huge price increases that were needed on segments of the market that had fallen to be very unattractive and that we weren't writing.

And if I recall correctly, even after 11, you mentioned on your portfolios you only got 5% to 10% maybe price increases when others were leveling their rates.

Yes, because that's -- we got 5% to 10% price increase on our expiring business. On new pieces of business that we were writing we may have got 100% versus the expiring price, but they were an expiring price from somebody else.

Okay.

Can I ask you a question? Is the sound now clear on the question and answers?

Yes, when you started speaking Jim it became clear, except for that September 11 comment.

Okay Thank you.

Just two more questions. Do have the overall reserve for each of the segments, Catastrophe, Specialty Reinsurance and Individual Risk as of 2003?

No we don't. We're sort of in the process as you can tell of migrating to a new disclosure regime, so I think we will be able to talk further with you on that in the next call.

Okay. And with respect to reserve releases, you booked Individual Risk combined ratio on an accident year basis in the fourth quarter at 101%. Clearly you are not pricing the business with that expectation that that's the profitability of the business going forward. As the Individual Risk is continuing to grow, if the business developed as your expected pricing, shouldn't the reserve releases increase, just arithmetically - that's not a projection - based on that assumption?

Yes and no. I would say that in the fourth quarter that there was just some noise as I mentioned in my prepared comments. I appreciate you may not have heard that comment. So I would say that the fourth quarter is not a quarter form which to draw longer-term trend. It is true that we are seeking to reserve conservatively up front. As the book grows everything else held equal, 0.2 growing reserve release. But I don't think you can get too precise about this, I don't want to make it sound like there's a very precise formula about how reserves get released in the future that we know today. It's going to be what it is. We are booking conservatively today and the reserve release will be whatever makes sense down the road, based on the facts that they unfold.

Okay. And last question relates to capital. In the past you have said that you realize you have unused capital on your balance sheet based on the business you are writing in 2003, and maybe expect to write in 2004. But also what you've said is you had also meaningful opportunities in joint ventures that were percolating. Could you comment on that, or are these opportunities gone, or you still believe you may use more of that unused capital?

The opportunities are still there. I believe I said at the Angle that I would maintain the position that I believe that over the next 18 months, it's reasonable that we will do one to two more meaningful joint ventures. That would be my goal, and we have enough discussions underway that I think that that's still a realistic goal.

Okay. So the softening market doesn't change that outlook?

No. And as a matter of fact the market turmoil -- once again this isn't a monolithic softening market. There still is a substantial amount of turmoil, and the fact it's being reshuffled and re-dealt in a lot of ways. And that presents very good opportunities in the joint venture area, along the lines that the Platinum transaction and the ChannelRe transaction both had the features that they were an existing block of business where it made sense to put them on a joint venture clean offshore balance sheet. And that structure is still a very attractive structure. So I mean I'm bullish about our market for JVs.

Thank you very much.

Our next question comes from Vinay Saqi, Morgan Stanley.

Good morning, most of my questions have been asked. Just one question on competition if this has not been hit on. If you could just give us a sense, Jim, of where the competition was coming from? If you see the European companies getting more aggressive in any of the lines given that they have repaired somewhat of their balance sheets at this point in time? Or is it the new startups that are really being more competitive? Thank you.

I guess I would say, first of all as I'm sure you expect, want to avoid any comments about specific competitors. The one thing I would say is there is not the really naïve capacity that we saw in the depths of the soft market in the late 90s. I think that in general people are using models a lot more than they used to in the past. And there is a reasonable sense of discipline, although we can certainly disagree with decisions in certain areas of some of our competitors. But we're not into the crazy time.

Would you have expected the European to be more disciplined than they have, given what we've seen over the last couple of years?

I don't really want to comment about that, because I can't just give a -- even if I was inclined to comment about that, I can't just say, oh it's all one direction or another. I mean I think it varies very much by individual organization.

Thank you.

We will go next to Mike Hallett, Fox-Pitt, Kelton.

Good morning. A couple of questions. Firstly, I was hoping, Bill, that you could update us on the status of your [MGA] partnerships. How many are in place currently? Were there any new deals in the quarter, arrangement in the quarter? And what does the pipeline look on that end for 2004?

Okay. In the fourth quarter we had no new programs incept, you know. Ongoing in 2004 we expect to have a couple of new relationships come online. And I think that [indiscernible] what you need to know.

How many total programs do you have now?

In the US Liability area we have two in force with a third likely to come on very soon. And in the offshore areas we still have two major ones.

Okay. Can you just update us again on what the criteria in terms of premium size is for any new relationship?

We actually look at it, not necessarily from premium, you can actually derive premium. But we really believe that to do a partnership properly you have to have a partnership that produces somewhere around -- the way we look at is $5m worth of minimum expected profit. So you have to really look on what's the margin been -- you have to look at the being thrown off to assess what the size is. But if you take that number we're looking at things between $50m and $100m in premium.

Just one other question for you. You mentioned that the component of your CAT exposure in individual risk is going down. Can you give us an update on the 2003 premium, how much of that was CAT and how much of that was Casualty?

I don't have that numbering front of me.

Hey, Bill, I could give that to you. I believe about 70% is property, which would be catastrophe exposed.

And in that property number there's obviously some fire risk as well. We actually as you people probably know is, we actually withdrew from writing California earthquake back in the second quarter through directly into our Glencoe subsidiary in Bermuda. And that's where we first started seeing the CAT driven market softening. So probably the largest decrease we've had over the year, and we continue to expect that continue, is in the California earthquake market. The wind markets are a little bit more stable, but again we've seen more competition there as well, as I commented. We're seeing people who traditionally had not been CAT driven writers, or CAT specialists, starting to wade into these markets. And that's causing what we believe is a certain amount of price inadequacy.

Okay. Thanks. Now I just have one final question. I think in the past you have mentioned or maybe you haven't, but you're at least pricing this business to kind of a mid 90s combined ratio if not better. In light of your comments on the Reinsurance side, has there been any change in the expected combined ratio for Reinsurance in 2004? And can you provide us with what the assumption is in your current 610 to 650 estimate for that?

Essentially our assumptions are the same that we've talked about in the past. If you look at the results on an accident year loss ratio basis, Cat we would be basically in the 55 to 60 range, Specialty Reinsurance - and this is in terms of combined ratio - Specialty in the mid 80s. As Bill pointed out, and I think I mentioned, Individual Risk around 90.

Thank you

And those are accident year assumptions, ignoring the issue of fire period picked up.

Right, great. Thanks.

We will go back to Terri Hugh, JP Morgan.

Going back to the issue of reserve releases, let me understand it better. For '03 the entire amount over $90m that was all CAT related as well as the fourth quarter? And the guidance you gave in '04 also CAT related were formula driven looking at pay trends? And if you look at the liability line time will tell whether or not your loss -- well actually your picks are conservative or not, that it will take a number of years to [dissolve]? Did I understand it correctly?

Right, let me maybe just clarify a couple of points there Terri. First of all I would suggest that you look at the press release, the supplemental financial data, and there we have a new set of tables that hopefully will help some of the discussion. On page 7 of the hard copy that I am looking at right now. And at the bottom half of that table you will see the...

Yes, I see here, the claims and claim expenses incurred prior years, it does have -- I see, $25m, I didn't read it carefully - from Individual Risk.

That's correct. Then of the $70m in Reinsurance that is -- the majority of that is CAT related.

Right. And you will be giving that update quarter by quarter. And the guidance is all CAT related, correct?

Yes. We said over $30m for '04 was a ballpark estimate when we put out our December press release. And that was all CAT related, so we wouldn't be including anything else different.

And is my perception right that the Individual Risk will take longer to develop - right? Less formula driven based on your [MPs].

Well yes and no. I think it is -- we have a property component [stat] book and liability component. The property component is short tail so we know where we stand with that fairly quickly. The methodologies where there's property or liability are to put up our initial picks based on a conservative estimation of the loss reserves. And then they get taken down basically formulaically, and we look at these judgmentally to be sure they make sense. But essentially there's a formula process where there's property or liability.

And also on your earnings mix, with now it shifting more to the individual risk and specialty risk, with a slight decline in Managed CAT. Can you update the pie chart? It's hard to figure where all the earning sources are because you have to include investment income etc. You know your pie chart, fees, CAT -- if you gave a pie chart for '04 in very rough terms what would it look like?

These are very rough indicators, and I'm also making some assumptions about allocating investment income. That's allocation on which reasonable minds can differ. So these should not be engraved in stone. But if you look at say our CAT business as a proportion of our total - and this is just the CAT that's on RenRe - that would be a touch under 50% of what we are looking at for earnings. The specialty book would be a little bit under 20% [indiscernible]. The DaVinci and structured products component would be 25% or so. And the Individual Risk business would be 15% to 20% remainder.

That doesn't add up. Where are 100%?

What I've neglected to do on that Terri, there are some holding company expenses -- that takes you to 100%.

Okay. And the Fee part is the DaVinci and structured product part?

That's correct, although [indiscernible] that is both fees as well as the equity pick up that we have by virtue of our investment in DaVinci or ChannelRe.

And if I could squeeze in more question on potential joint ventures and such, Jim. I assume that it could be in all different areas. Have you ever talked about giving guidance on what kinds of additional joint ventures financial guarantee now that you've got into the Reinsurance bag with MBIA? Have you looked at it further in terms of growth opportunities, particularly internationally?

Well we haven't commented -- It's not that we target specific classes of business that we want to get into, it's really the other way around. We look for situations and partners who bring a lot to the table. So we did not have a goal to get into the financial guarantee business. But when we initiated discussions with MBIA, who I believe is the top layer in that business, and realized that we had a win/win deal opportunity, that's what drives our decision making. So it's more going to be who are our partners, what franchise do they have in the market, what skills do they bring to the table, and what value can we add in the transaction. So it could be any type of business.

Alright. When you say that you are hopeful there may be more, is it because you have initial feelers or you're talking to people, or it's just you think that there are opportunities out there?

Oh we definitely have feelers. We have initial discussions, but the hit ration on these is one in ten or something. So we definitely have a pipeline of real solid discussion, but they've got to really end up being a win/win transaction. So the hit ratio is very low.

Okay. Thank you.

We will take our next question from J.F. Tremblay, Credit Suisse First Boston.

Good morning. I have a question for Bill regarding the Program business. I was just wondering is there [indiscernible] and what capacity becomes available considering the strict [criteria] you are placing on your relationships with Program Managers. To what extent do you think some of them with time might get more reluctant to do business with you? And then I was wondering what kind of guarantees do we have that you won't be lowering your standard? Also if you could remind us the length of those contracts or arrangements you have with the program managers?

Okay. A couple of elements to that. One is I commented earlier in the call, the Program area continues to be one where the top quality managers are still concerned about their existing relationships. In that area you really have almost, as far as I can tell best we know, no new entrant. And you still have more people exiting in that arena than entering. So most of the top quality guys are really concerned about protecting the franchises that they've developed over the years, and they are very, very interested in doing business with us and other people who really bring a higher standard into that business. Over time it is our assumption and our value proposition to these guys, that we will continue to be the most attractive company for the top quality players to do business with. If the market were to soften and they would decide to move to lower rated carriers or potentially less stable carriers, that's part of the business, but we actually believe that by only doing business with the top quality guys and having a relatively small number of relationships, that that risk is mitigated.

Can you help with -- you asked about three different questions in there, what were some of the other embedded questions?

You answered most of my question, and the last part was in terms of the length of the contracts. What arrangements do you have with them, or is it one-year contracts being renewed?

No the contracts are generally continuous in nature where we have the ability to terminate the contact under certain criteria. Generally most of our contracts are around certain metrics, etc. So they don't actually -- they're not like a lot of the traditional reinsurance contracts where each year you come back and renegotiate. The terms of the contracts are in effect fixed and ongoing, and then there are triggers to which we or for that matter our partner can terminate with a certain amount of time notification. And those time notifications are generally less than a year.

Thank you.

This is Jim, I would like to follow up answering that question and they say we will take one more questions after that. But your comment -- well your question about how do investors know that we're not going to succumb to the temptation to cut standards as the markets soften. We've had that question a lot of times, and so I want to pick up on that and give you one example. The answer I believe as to why should investors believe that we're not going to get stupid in the soft market is first of all our 10-year track record of how we have approached markets in the past. We've demonstrated that we will cut back. Secondly, the track records of our management team in prior organization in behaving that way. But thirdly, in each of our business segments there are tangible examples of where we have already cut back, in especially Reinsurance area, although we are growing rapidly in that, we have almost exited the aviation segment. In the Specialty Reinsurance area Bill already referred to the fact that we exited the California quake market last year. So I mean even in these areas where we are growing we have demonstrated that for segments that we feel are inadequately prices we will exit.

Thank you.

We will take one more question.

That question comes from Steve Burman, Stein Roe Investment Council.

Thank you. Could you pull it all together and provide just a range of expectation on net premium written in 2004 versus the increase in the premium written in '04 versus '03 for the company combined?

We are looking at a ballpark mid teens increase in that written premium '04 against '03.

Okay. And I would just like to hear in your own words maybe a little more elaboration when you say the quality of your property CAT business, and you have this sort of quality band. What does the word quality mean to you? I think I know what it means but I'd like to hear you elaborate on that if you can.

Well it is the amount of expected profit for a unit of risk as we measure risk. And it's very complicated to explain how we measure risk, but we track this very carefully. The units of expected profit divided by units of risk.

And the decline in quality or the lower quality that you perceive at the moment at least, what is your hurdle rate? I mean at what point does the decline in quality become worrisome to you relative to your hurdle rates?

Well as I commented earlier, this is not the worst portfolio we've ever had - comment number one. Secondly, we demonstrated in the past, we'll lose business rather than go blow our hurdle rate. So I think that demonstrates we are above our hurdle rates with this portfolio. And we are happy with this portfolio. If I could take the same portfolio and get another $100m of it I'd take it. This is a portfolio that we like.

And the hurdle rate is what again?

We don't disclose hurdle rates.

Oh, okay, thanks.

Mr. Stanard I'd like to turn the conference back over to you for any additional or closing remarks.

Okay. Just briefly, because of the sound problems, I'm going to repeat a very short part of my introductory comments, which is the end part. That I can't think of a competitor who is better positioned than we are in this market. The stability of our management team, the stability of the culture we've had at Renaissance, the client base and the loyalty we've engendered with those clients by being moderate in our price increases in the hard market, and our market position as a leader in several specialties. If you take that and put that together with the Bermuda advantage and the balance sheet that is second to none I think in strength, I think we are uniquely well positioned to continue to prosper in this market.

And there is a lot -- although the market is softening in some areas, as I said, this is not a monolithic softening market. There are still a lot of issues out there, there's a lot of opportunities, there are some good arguments why some segments will stay well prices for a long period of time. So this is a market that I think we can do very well in.

So we will sign off. I apologize again for the sound problems. We will have to find out who to execute. Thank you.

That does conclude today's conference call. We thank you for your participation. You many disconnect at this time.