濱特爾 (RNR) 2004 Q3 法說會逐字稿

Good morning, Ladies and Gentlemen, and welcome to RenaissanceRe’s third quarter of 2004 financial results conference call. At this time all participants have been placed on a listen-only mode and the floor will be open for questions following today’s presentation. It is now my pleasure to turn the call over to your host, David Lilly. Sir, the floor is yours.

Good morning. Thank you for joining our third quarter of 2004 conference call. Yesterday, after the market closed, we issued our quarterly release. If you didn’t get a copy please call me at 212-521-4800 and we’ll make sure to provide you with one.

We’ve reserved 1 hour for today’s call. There will be an audio replay of the call available at 1:00 PM ET today through November 8 at 8:00 PM. The replay can be accessed by dialing 877-519-4471 or 973-341-3080. The passcode you will need for both numbers is 5210464. Today’s call is also available through the Investor section of www.renre.com and will be archived on RenaissanceRe’s website through midnight on December 11.

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 Jim Stanard, Bill Riker, and John Lummis. I would now like to turn the call over to John to begin with an overview of the financial results. John?

Thank you, David. The dominant story of RenRe’s third quarter was obviously the impact of the four hurricanes that hit the southeast United States. As a result of these storms we’re recording a net operating loss of $372 million, our first quarterly loss. The net negative impact of those 4 storms was recorded at $522 million for the quarter, so you can view the quarter’s operating profit without the impact of the storms at a positive $148 million.

With that said, we’re not making the case that you should view these storms as operations. We expect that from time to time we will have large loss quarters and this was obviously one of those quarters. We’ve noted in the past that the probability of RenRe having a losing year fluctuates between 1 and 10 and 1 and 15, according to our (indiscernible) results.

So, after 10 years of very high returns on equity at Renaissance, we’re not surprised to see ourselves in a year like 2004 that will likely only get better than breakeven. It happens that we are relatively heavy in our Florida market share compared to some of our competitors. That was a knowing judgment that we made because we were viewing the Florida marketplace as complimenting us perfectly for the risk and we also had great success in our marketing into Florida.

Speaking to the geography of how the $520 million loss was being recorded, the impact of the loss closed to various line items through claims incurred, obviously, but also through premium from reinstatements and through a reversal of profit commissions that closed for acquisition costs, as well as through minority interests recognizing the interest of the other DaVinci investors in the loss. The details regarding (indiscernible) in the press release with a net impact of the $520 million that we referred to.

Looking at the impact of the 4 hurricanes on our 2 business segments, the net impact from these hurricanes in the 2 segments is as follows.

For Reinsurance, net of DaVinci minority interests, the impact was $387 million, while at the Individual Risk segment the net impact was over $130 million.

You’ll note that our preliminary assessment of the 4 hurricanes was a net impact of $425 million. We increased our view of the net impact to $520 million noted in last night’s release in light of increasing reports of losses that went beyond our original expectations and a corresponding increase in our assumption of the total industry loss, over $30 billion.

The increase will offset -- arose across all 4 hurricanes, although we still have only limited information about the last event, which was Jeanne. Our estimates went up in both Reinsurance and Individual Risk.

I’d also like to give you an assessment of the quarter, excluding the impact of the hurricanes, looking at some of the more customary items.

I’ll start with premium volumes. For the 9 months CAT was about flat, which was slightly above our expectations. If you exclude the impact of $27 million in backup covers and $20 million in reinstatement premiums, that’s the picture that we see.

For the year we still expect a modest decline in CAT premium, again assuming away the extra premiums associated with the 4 hurricanes, and that basically puts us in line with our previous expectations.

Specialty premium was essentially right on track with premium in the 9 months of 2004 showing growth on a netted basis was slightly more than 30 percent compared with ’03, and we expect similar growth levels when we go to look at the full year’s results.

Individual Risk premium has grown at 11 percent for the 9 months and we’re expecting 10–15 percent for the full year. While that sounds good, it is below our expectations of 30 percent. Essentially what’s happened is that we’ve taken a bit longer than we projected to get new Program managers online. And while that can be read negatively in the short term, in the long run I think that speaks to our standards in bringing business on only when we think it’s ready to fit into our operations.

The long-term story does not change here. We still project substantial growth of this business looking into ’05 and Bill Riker will comment further in his commentary.

Turning to margins, again excluding the 4 hurricanes, we’ve indicated combined loss expense ratio data in the press release and the high level summary is that each of the businesses is essentially operating in line with or better than our expectations, again assuming those 4 hurricane losses out of the equation.

Our operating expenses went down in comparing the third quarter of ’04 with the third quarter of ’03, principally as a result of reversing compensation accruals.

We performed well on the investment side as we had over $39 million of investment income in the third quarter compared with $30 million in the second quarter. This was driven by our alternative investment portfolio, which improved by $4 million in the quarter. Also we included here a couple of million dollars from the reclassification of our Energy Trading Venture to run through the investment income line where it was previously booked to the ‘Other Income’ line. The analysis of the pickup in performance is spread across various factors in the investment portfolio. We continue to be in a short duration posture in our investment portfolio with a consolidated duration of about 2.3 years.

There are a few other items from the P&L that I’d like to mention.

First, under ‘Other Income’ you’ll see in ‘Other Items’ a $6 million loss. That arose from a credit derivative position that we hold actually, a portfolio position, which we hold as a hedge against other parts of our portfolio and we’re essentially a short credit risk hedging various credit-related positions elsewhere in our business. Given that this was a quarter of shrinking credit spreads, this generated a mark-to-market loss for the quarter.

The second item is that we wrote down our remaining deferred tax asset of $4 million and you can see that on the tax line.

Turning to our expectations for 2004, we’re now projecting a modest profit for the year. That’s based on the fourth quarter with normal CAT loss activity and also assumes that we’ll recognize the gain of approximately $20 million from the Warrant (ph) that we hold in Platinum.

Previously we could not record the mark on this Warranty’s (ph) income because of a lock-up that we were subject to. Now that that lock-up has expired in accordance with FAS-133, we’re required to book the value through our income statement.

In future periods we’ll report any gains and market value through the P&L and the (indiscernible) that both gains and losses will be reflected in operating income going forward since we see Platinum as a strategic investment. It’s essentially part of our operating activity. We’ll continue to reflect the changes in the market value of our Platinum stock only in our balance sheet in accordance with GAAP and not run that through the P&L.

Next, I’d like to turn to our expectations for 2005. Our earnings guidance, which we announced last night, is for $6.30–$6.70 for ’05 operating EPS. That’s based on several key assumptions.

We assume that CAT and Specialty Reinsurance premium will be roughly flat. At this stage we see some signs of pricing improvements in the CAT market, but we don’t yet see enough evidence to take us to any greater growth assumptions.

We’re looking for growth in Individual Risk premium -- Individual Risk premium, and there are already a couple of programs that we expect just after the first quarter, as Bill Riker will discuss in his comments.

We’re assuming investment yields in the 3.5–4 percent range.

And, as a final point, we’re not expecting any profit commission from our CAT joint venture and that will have a negative impact versus normalized results of approximately $25 million. That’s arising as a result of loss carryforward features in these contracts.

As a final set of comments I’d like to talk to our capital position at 9/30. Essentially, we see ourselves in a very solid capital position. I’d remind you that for the year we’re still looking at our earnings being positive, so year-on-year our capital position will actually be modestly improved. We have recapitalized each of our operating subsidiaries to bring them back up to their pre-loss capital levels and we’ve done that through liquidity and capital resources that we held at our holding company.

We continue to have flexibility at the holding company, having additional liquidity up there even after those capital contributions, so we see ourselves in good shape from a capital standpoint.

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

Thanks, John. A few comments about the hurricane losses. As some of you saw, I’m sure, in my letter to shareholders in this year’s Annual Report I commented, looking forward what might happen over the next 10 years. I said, “We may experience a big hurricane or earthquake, which could result in our first annual loss in history. Such a loss might occur in a peak exposure area for us where pricing is especially favorable and so produce relatively worse losses than our competitors.” When I wrote that I didn’t know it was going to happen 6 months later.

Almost half of our loss estimates at this point are based on model numbers, not client reports. Models are subject to wide variation and we believe that models call for a lot of judgment in their use, so it’s still very early to assess this -- assess what this loss is actually going to turn out to be. So, I want to start with that caveat that based on what we know now, and there is a lot we don’t know, this is not a surprising result for us.

For the most part, the losses are coming from contracts where we expected them to come from. There are always a couple of surprises that -- we always expect to see a couple of surprises, but in general, we’re not getting any surprises.

Especially Reinsurance business unit and the Program portion of the Individual Risk unit are performing well. We didn’t get unexpected losses through those segments. The losses came from our CAT Reinsurance business, our Homeowners’ quota share in Individual Risk, and losing our profit commissions on our -- in our joint venture area.

We knew we had a relatively high market share in Florida, just as we’ve had low market shares in several past losses and low market share to the windstorms that happened in Japan in this quarter. But a loss like this is consistent with our business model. We expect this type of volatility.

Our main focus during the period of the storms was providing excellent service to our clients, trying to have a standard of immediate claim payments, quick (indiscernible) on backup covers. Now that the storms have past, we’re focused on learning as much as we can from these events to improve our models and improve our products.

The next topic I’d like to spend a few moments commenting on, a recent (indiscernible) development in the insurance industry as they pertain to RenRe.

First, at this point, we’ve not received any inquiry on this subject from the New York Attorney General or any other state authority. Should we be contacted in the future we’ll cooperate fully. Like most insurance companies when the news of the Attorney General Spitzer’s civil action against Marsh became public, we commenced a review of our contingent commission arrangements.

In addition to these transactions, we’re assessing whether any other issues being raised in the public investigations or the press might pertain to us. This review is ongoing -- is ongoing.

We’ve also noted that the investigators have stated their reviews will be continuing and we cannot predict what additional (indiscernible) may be examined. If other issues arise, which relate to our business, we’ll address them at the appropriate time and in the appropriate manner.

I want to emphasize that RenaissanceRe has always been committed to the highest ethical and professional standards. We have a robust Code of Ethics and support our employees in maintaining these standards.

The last topic that I’d like to comment on is a role change among our senior management. John Lummis has assumed the role of Chief Operating Officer in addition to his role as Chief Financial Officer. He assumed that role from Bill Riker. This accomplishes a couple of things for us.

First, it gives Bill a bit more time to focus on the Individual Risk Business, which is growing significantly and involves a lot of time in the U.S.

Second, it rationalizes our management structure since all staff functions now report up to John. In addition to the CFO role, he has responsibility -- now has the responsibility for Human Resources, IT, Underwriting support, and Marketing.

Bill remains President of the holding company and is actively involved in all of our key strategic positions in that role.

At this point I’ll open it up to questions. Oh, I’m sorry, Bill will report on Individual Risk.

OK, thanks, Jim. Obviously, we’re disappointed by the impact of the hurricanes and how it affected the Individual Risk segment. But to be clear, as Jim mentioned, it was a risk we knew we were taking and we believed then and we believe now that we were getting compensated for that risk.

Just also to clarify, in the Individual Risk segment the Florida quota share business was our largest (indiscernible) concentration significantly, so it’s -- so, we’re not surprised by the fact that the impact on the segment from the Florida events.

The bulk of the losses Jim mentioned came from our Florida Homeowners’ business, which we assume on a proportional reinsurance basis. And what we’ve actually spent a lot of time, as Jim mentioned, since the loss is trying to analyze what can we learn from this? And one thing we have concluded is that our partners in this area performed in line with the industry average. There is still a lot of information to be gathered around this, but one of the things that’s very important to us is the nature of whoever we’re doing business with is doing as well or better than anything else out there. So, what we have discovered so far is we have the right partners.

Ongoing we expect the situation in Florida to provide an interesting and challenging environment as many people sort through the performance in these events. The series of 4 events was unprecedented in Florida and that we believe that it will provide a fair amount of turmoil down there as people try to sort through their risk appetite.

As many of you know, we also write a portfolio of Commercial business, much of which is wind-exposed to some extent. Our performance in these events versus what we would have expected is very much in line and that makes us -- it makes us happy of our analysis in that area. Obviously, there is variability account by account, but we’re confident that our process has enabled us to fully capture and analyze the exposures presented in the Commercial area.

Ongoing, the Commercial wind market will also be very interesting to watch as the risks associated with core data capture procedures has arisen in some folks’ minds. Capturing information about Commercial risks, especially multi-location Commercial risks, is more difficult than Homeowners and people are realizing that out there in the market.

Going over to our non-CAT Property and Liability results, they continue to be on track with performance remaining in line with our existence -- I mean, with our expectations, so there is really no news here -- no new news here.

We’ve been working very hard in the second half of 2004 to firm up 2 new deals in the Program area. These deals should begin providing a very good flow of business in the first quarter of 2005 as opposed to late 2004, which we had previously predicted. As John mentioned, we are very much committed to doing thing right as opposed to quickly. Thorough execution in this area is much more important than speed.

Our flow of new deals remains actually quite good, with our docket basically full of new opportunities. It will be interesting to see how the hurricanes affect the flow of property deals over the next few months and to see if there is any change in that area.

Our 2005 estimated written premium that John alluded to is projected to be in excess of 40 percent over 2004. And most of this is a result of deals already mentioned, so these are things that are already in the pipeline and as a result of work performed in 2004 to prepare for this business. As mentioned in the past, bringing up new Program deals is a -- is generally a 6-9 month process and it’s something you have to do correctly.

Returning to our results and hurricanes, the makeup of these events created sort of in effect 4 nets (ph), and that’s -- I’m sure that a lot of people will be looking at the way they purchase reinsurance in the future because a lot of people really had focused more on an occurrence basis than sort of an aggregate net basis in looking at their reinsurances.

And actually we see this as potentially providing some good opportunities in the Proportional Reinsurance business because Proportional Reinsurance actually responds much better to this type of series of events than does single larger -- single larger (indiscernible). So, we are going to be following this and we hope to get some good opportunities out of that in the next year.

So, in conclusion, though we were disappointed with the effect of the hurricanes -- with the effect the hurricanes had on our portfolio, we continue to make sure that we assess the risks associated with assuming this risk and make sure that we get paid for assuming that risk. Outside of the CATs, our business remains on course.

So, I’ll turn it back over to Jim for --

Now we’ll start the questions.

Thank you. (OPERATOR INSTRUCTIONS)

Vinay Saqi, Morgan Stanley.

Just a couple of quick questions. 1) John, you mentioned that your capital position is the same or better than it was at yearend. I was just wondering if you could comment on what the rating agencies are saying, if you’ve had conversations with them, not in terms of the capital position but how they view the actual loss as a percentage of your total earnings or your capital position to begin with.

Second, could you also give us your gross loss? I know you mentioned it was $650 million in terms of net losses, but if you could give us your gross loss as well.

And then the last one is, what was your loss assumption for industry-wide losses prior to the most recent adjustment?

First of all, the question of the reaction from the rating agencies, first of all, I would say that they’ve obviously been living with the $425 million economic loss that we put out several weeks ago. I’ve had a couple of discussions with them and I haven’t heard any negative feedback out of that. Committed to re-upping the capital, which was done inside our operating subsidiaries, so that’s been a commitment that they like to see and that we’ve delivered on. And we continue to have lots of CAT flexibility as I mentioned in my comments at the holding company.

So, the capital position is really very solid in my estimation. I’ve not heard any comments to the contrary from anyone. So, I think the capital is fine. The other areas of question is Risk Management and whether this loss does anything about our Risk Management business, which could be called into question.

As to that, I think the answer is ‘no’. We have previewed (ph) with rating agencies in the past the notion of so-called hot spots where we’ve (indiscernible). As Jim pointed out in the letter, we know we’ve been heavy and overweight in some areas, so that’s not new news and sooner or later we were going to get a loss that hit one of those areas.

So, I don’t think anyone is going to call into question the underwriting judgments or Risk Management model that we (indiscernible). We’re not.

We have not had our final conversations with the rating agencies. We just arrived at our loss estimate earlier this week, so we haven’t had a final communication around the discussions with them, so I don’t want to pre-judge what their conclusions are. But, from all that I can see there is every reason to believe that this is (indiscernible) result (indiscernible) rating (indiscernible).

On the subject of our gross losses, I actually (indiscernible) position get into that. I would also say the recoveries are not that significant so that in looking at our incurred loss it’s going to be a pretty good indication of where we are. There’s geography. It’s between the various legal entities, the business units, and so on, so I think it’s better to think in terms of the net losses. We’ll look at them that way.

As to the question of industry losses, I might ask Jim or Bill to comment on their views how that’s called (ph).

Do you want to take that?

Yes. When it comes to estimating these losses we have initial industry assumptions, which we came up with a month or so ago when we first put out the numbers. And I’d say that we believe, and as Jim mentioned, that the real information you have to estimate the last 2 events and especially the last event is pretty sparse.

And so, what we did is we took our industry, sort of assumed industry losses up from somewhere around the $25 billion range to somewhere over $30 billion. I don’t want to put precision around those numbers because that’s not really the way we do it, but you can sort of go back and infer that that’s what -- that’s what is embedded in our numbers.

Again, as Jim mentioned, we especially believe the last 2 events, Jeanne and Ivan, are hugely uncertain because of the stress the 4 events put on companies claims departments and their ability to adjust claims. From what we’ve seen there is still a huge number of unadjusted claims out there from that -- from these events.

Just one follow-up on the gross loss question, if I could ask it a different way. If this had been 1 hurricane with a $30-billion loss, do you think you would have had similar types of losses?

Our Reinsurance structure would respond differently for sure.

And then, do you think it would have been significantly less?

It would have been less. We would have started seeing more recoveries.

Alain Karaoglan, Deutsche Bank.

A few numbers questions and a general market question. Could you tell us whether there is any reserve release assumption in your guidance?

The second question relates to Individual Risk net premiums growth rate for 2004. I know you gave us 24 percent for 2005.

And the other question relates to the Florida market. Bill, you mentioned it was -- it was maybe going to be interesting. I wonder if you could expand on that. You have State Farm, Allstate, Nationwide, all of which have dedicated subsidiaries where their capital probably completely wipe out their needing to recapitalized and people being surprised by such an event hitting all in the same year. Could you comment on potential demand for reinsurance increase and on the pricing environment?

First of all, on your comment about reserve takedowns, we do not have an exclusive reserve takedown number baked into those estimates. (Indiscernible) juncture for me to comment on our assumptions about margins as a better way to communicate.

We’re looking at a CAT combined ratio in the mid to high 40’s; Specialty in the mid, potentially high 70s; Individual Risk of under 90. Those are calendar year assumptions and implicitly capture some view for potential reserve takedown. We’re really not at this point getting in the business of projecting reserve takedowns, but that is too hard to do. I think there are a variety of moving parts and this business model includes possible (indiscernible) premium, expansion of margins, or just lucky CAT loss periods, possible reserve takedowns, et cetera.

So, those are baseline assumptions that I think you can operate from, but I’m not going to go out there with a specific reserve takedown assumption.

Your second question was on the Individual Risk growth rate in 2004 and what we’re looking for is in the low to mid-teens at this point.

Alain, you mentioned -- you also asked a question about the growth from ’04 to ’05. Are you happy with the information you have on that right now?

Yes, it’s 24 percent.

OK. I think we said -- over 40.

Moving to the Florida Homeowners’ market, you brought up the excellent points, which I’d love to say we have a wonderful crystal ball and how will companies react to the issues you’ve mentioned. I think it’s a -- I don’t know the answer to that. We do know enough that the people will have to think hard about how they participate in the Florida market. And when you have the subsidiaries that have difficulties when you have 4 storms come through or 4 nets -- in our Individual Risk area we had 4 nets, if you were a Florida-specific company, those 4 nets were even more painful.

So, that’s really why I think it’s going to be interesting. A couple of things we do see is, say last spring there was some sort of undertone as people were thinking about getting more competitive in Florida. One of the reasons why we’ve liked Florida is really there has been fairly -- it’s been a very orderly market for the last 8 or 9 years since Andrew and we were starting to see last spring actually people thinking, well, maybe losses will never happen again and maybe we should cut prices.

From what we’ve seen now in that Homeowners’ arena, again, there is great discipline in pricing. People realized that you do have to put away significant margins in the good years because you’re going to have some bad years out there.

But how the products may change, obviously there’s a lot of talk about aggregate deductibles versus occurrence deductibles. I think it’s too early to tell, but we do believe that monitoring that closely, understanding who the top performers are in that market and sort of staying ahead of the pack should provide good benefits over the next -- the next few years.

And one other impact I’d like to add, the fact of the question of the model is that I think this is going to highlight that the models are estimates; they’re not precise. They require a lot of judgment to use effectively and so just taking an answer off the shelf and believe that it’s a fact is a dangerous thing to do. And I think -- and the impact of some storms like this I think are going have the industry in general re-look at that question.

Yes, I think one other comment around that, which is, we hear a little bit -- we’ve always told people the model’s ability to predict the losses out of a recently-occurring event is probably what they’re worst at. It’s very, very difficult to do that. And I think this particular event, or this particular series of events has just confirmed that in peoples’ minds. So, it’s -- we’ve been sort of having the table for a couple of years that people are starting to get a little complacent around -- in thinking that the models will tell them everything and these particular events shows that there is still a lot of noise between what a model will predict and what actually will happen, especially when you look at a specific event.

Tom Cholnoky, Goldman Sachs.

Let me just follow-up on the model question, Bill. The models are very good, I guess, at -- or they’re reasonably okay at predicting how you might get hit in events, but what if we are entering a period whereby these types of storms are not going to be -- are going to be more numerous, just given on what’s going on with global climatology, not that I’m making any predictions. How do the models do in that case of actually predicting events as opposed to quantifying the impact of the events?

A couple of thoughts on that is the -- there is a lot of discussion and it’s been going on for years on are there sort of decadal (ph) frequencies going on in hurricane events. And you had the period of the ‘60s and ‘70s and ‘80s, which were quite slow and then you see write-ups that it’s starting actually in 1995 where people are calling it where all of a sudden the frequency of hurricanes has sort of returned back to more of its long-term average and actually might be over it’s long-term average.

And that is built into -- that’s one of the reasons why we like the models because that stuff is built into that. So, we could turn it around the other way. We’ve been writing business in Florida for 10 years and the models are always predicting much greater frequency than that was occurring. And then -- and then you come in 2004 and then the losses come through.

So, (indiscernible) trying to measure expected losses over very long periods is really, I think, one of the most interesting things about CAT business because we’ve seen the beans (ph). We tend to remember the last 2 years and react accordingly, but when you’re dealing with CAT risks you have to look over much longer timeframes and the models actually help you understand that.

But there’s a lot of work going on right now on the question of clustering of events and I hear that certain years have higher propensity for loss based on climate conditions. I think clearly, that is the case. There are signs behind that. That science is embedded into the modeling -- in the modeling to some extent, but that’s where -- that’s a larger area where judgment comes in. It depends on the different models that take that into account different ways. There are different dials you can adjust on them and frankly, I think that’s --.

We think a lot about that, are following that, those questions and that’s an area, for example, where this storm, I think, is going to give us some more -- one more set of data points.

Two other quick questions. As you look at your losses in Florida that you incurred and you assume -- if you assume “normal CAT activity” after this discussion, how long of a payback period do you think you need to recapture these losses?

Well, I haven’t -- I haven’t done that calculation. I could go back and do it, but I guess we’ll just take our -- we have an expected loss ratio that we talk about and expect a result. We’ve been talking about a buckaluck (ph) in various years in the past and I guess I haven’t gone back to add those up to see whether we’re ahead or behind, if we’re behind how far behind we are.

Well, I guess the question is, you made a bet in Florida and in retrospect does that look like a profitable bet given your buckalucks and maybe that’s what I’m getting after?

Well, I believe we have -- I mean, we have made money in Florida over the history of our Company. There’s no question about that.

OK. Let me ask just one last question. On your guidance, John, I’m not sure I fully understood your treatment of Platinum. Is that going to be -- are you going to reflecting that in operating income, so is that part of your guidance as well?

Yes, so that for --

And what was -- what kind of -- and what component of the guidance would platinum account for?

Well, in Q4 of ’04, it’s coming into the P&L for the first time, so basically all the value of that Warrant would be recognized in the fourth quarter, so that’s the number that we projected at $20 million. It’ll be whatever it is obviously in the fourth quarter (indiscernible).

But how do you think about that in ’05?

Yes, and then in ’05, I think you can make some assumptions that maybe about a steady state, multiple (indiscernible) and what their ROE is and sort of back into a likely markup on that warrant over the course of ’05. We’re not counting on that as a big number that’s going to be, less than the guideline would guess.

Oh, OK. So the impact is not that significant.

No, no, it’s not. It’s not altogether trivial, but it’s just $2 million in all likelihood would be my guess.

Ken Zuckerberg, Stadia Capital.

I just wanted to ask about the $25 million in profit commission of joint ventures. Just to clarify 13.5 (ph), does that include both DaVinci and Top Layer Re?

Alright, look, Top Layer Re had no losses to this event, so it doesn’t include Top Layer Re.

OK, so it’s just DaVinci. And is there anything else in there, any other JVs?

There are -- there are some retrocessional arrangements.

The number that we refer to is essentially that of DaVinci.

OK. So just for purpose of clarity, if that is actual after-tax numbers and that accounts for about 36 cents of -- at least 36 cents of pressure on ’05?

Yes, and I think that’s a fair point. If you want to look at sort of normalized ’05 and if you could wipe out the loss carryforward you would include that in normalized ’05. I’m not saying that you necessarily should but that’s a way to look at it.

A way to look at it. OK, so, if we just take the midpoint of the range and say 6.50, add the 36 tax, one could argue that 6.86 is, at least for discussion purposes, kind of the middle of the range there.

You could look at it that way.

Brian Meredith, Bank of America.

A couple of questions. First, John maybe, could you give me a sense of how much of your loss was from the Caribbean exposures? Is that a big part of it?

It’s predominantly Florida, but we clearly did have some Caribbean losses, particularly in Ivan was the one that the largest Caribbean exposure.

OK. Just trying to relate it to what ISO (ph) has come out or PCF (ph) with their loss.

Right. And there’s another -- we’re estimating something like $2–$3 million in the Caribbean events that you won’t see in the PCF numbers.

Great! That’s helpful.

That was included in our -- when we said $30 billion we were including that.

Second question, are you thinking about any changes in your own retrocessional program as a result of these storms?

No, not as a result of these storms. I think we’re in the same mode that we have been in the past on that, which is, if we can find retrocessional protection with the security that we want at terms that improve our portfolio, we will purchase that. But, we’re not going to react to -- because, once again, we would only do that if we felt from a Risk Management point of view that we wanted to dampen volatility to an event like this and our conclusion is that we’re getting paid to take that volatility, but we’re going to continue to do that.

And two other quick questions. 1) Japan, can you talk a little bit about what your kind of views are on Japan right now given all the activity they’ve had and what your kind of market share is there? I understand it was actually pretty low, wasn’t it?

Well, yes. We’ve always had a difference of opinion with a large part of the rest of the market about the exposure to typhoons in Japan. And this year there was quite a bit of frequency, but frankly, there were a lot of, I think, near misses in terms of potentially very large losses that didn’t happen because the storms petered out.

So, we’re quite low in Japanese wind exposure. We do have some Japanese earthquake exposure. However, from what I read at this point, these losses don’t appear that they’re going to have a major impact on the insured market because the insurance penetration is just low.

The last question, back on Florida, my understanding is that the Florida CAT market, at least renews in June and July, is that the case with most of the Parady (ph) treaty? So, is it going to be a while here before we really know the impact of these storms on the actual Florida reinsurance market?

Yes.

OK, so we’re going to have a lot -- and then, have you heard anything as of late any updates with respect to potential legislative initiatives down there on the hurricane relief fund or reinsurance facility? And what are the potential implications that would have on the Florida reinsurance market as we look forward here?

A couple of thoughts. We -- obviously, there is news that comes up all the time about how they might modify the FHCF going forward. We just keep track of it. We -- and we try to best understand how the changes might change the opportunities, be it either on Proportional or Casualty or whatever.

I think, in the end we actually believe that the FHCF did a good job for the companies down there. It was not designed to take care of this kind of frequency, but there were companies that had severity too. It’s not -- it made some significant recoveries from the FHCF, so I think in retrospect they’re going to determine that it did a nice job. Whether they do some tweaking around it is to be determined and I’m sure there is a lot of movement there. There will be a lot of discussion for any who have changed.

Jay Cohen, Merrill Lynch.

Yes, if you could just explain the aspect of the DaVinci relationship that covers the loss carryforward? I wasn’t aware of that. So, what’s the accounting there? How does that work?

And then related to that, was this carryforward into 2006 as well, or should it just be 1 year?

Well, just overall -- I’ll let John correct me on the account impact -- but -- I mean, typical in many reinsurance relationships, if you’ve got a profit sharing arrangement there’s a concept of if there is a big loss one year that you shouldn’t’ earn profit sharing next year until the capital provider has had a chance to earn their loss back, so -- and that’s a -- so, we have that.

Our relationship with our shareholders and DaVinci (indiscernible) was a long-term relationship. We want them to have the opportunity to make good returns on our investment, and so we’re not collecting a profit sharing until they have earned to a certain level of profit. And so in terms of accounting, John?

In terms of the projections for ’05, Jay, our expectation is that the loss carryforward will essentially burn off by the end of the year essentially (indiscernible) for ’06. Assuming normal loss activities in ’05, for ’06 we would be back into the normal structure of the relationship.

Adam Klauber, Cochran, Coronia.

The estimates on total losses from the hurricanes seem to be rising month by month. You obviously increased your estimate. Do you think you’re on the early end of the scales as far as companies coming out increasing their estimates on the losses?

I really don’t want to speculate on that because it is early and we were relatively early on our first estimate coming out. And what other companies have -- how much conservatism they built into their first round of estimates, I don’t know.

Second question, as you mentioned a lot of the Florida market renews in the middle part of the year. If there are increased opportunities because of changing dynamics in the reinsurance market, given that you already have a large exposure in Florida, do you have a risk appetite, whether on the reinsurance or on the Individual Risk side to increase your exposure down there?

Yes, yes, we do. We have -- we have plenty of capital flexibility at the holding company still and if we got to a point that we -- and I mean there obviously is a point where we would say no more Florida even regardless of price, we’re not at that point yet. But if we got to that point we have -- I believe there are other capital sources we could -- we could draw on to support that, joint venture capital sources and so forth.

Sort of also to clarify, the renewals in the June timeframe is primarily for the Homeowners’ market and that’s really because companies have to structure their reinsurance around the FHCF coverage and generally it’s around June is when people sort of -- can really zero in on what their FHCF coverage is going to be.

Outside of the Homeowners’ market, the Commercial market, that’s a little bit more of a 1/1 business, so I think you’ve got really kind of 2 timeframes. We’ll be itching to see what happens in the Commercial market, be coming up over the next couple of months.

Gary Ransom, Fox-Pitt, Kelton.

Most of my questions have been answered, but a couple. 1) I was wondering if you could quantify how much money you downstreamed into the operating sub and how much is left at the holding company?

And then, secondly, I just wondered if you could comment where your second or third greatest exposures might be. Obviously, Florida was a big exposure for you. Are there other areas of the world that are second or third exposures?

Yes. The UK is -- let me -- and let me explain this. When we talk about large exposures there are 2 different ways we think about it. I mean, the first of all is total aggregate exposure, how much total dollars do we stand to lose? And the second is relative market share, so we could actually have a high market share in an area that has -- that isn’t that big on an absolute basis.

Now, it turns out that -- and that’s actually internally what we refer to as a ‘hot spot’. A hot spot is not something where we have a large dollar amount necessarily. It’s where we have a high market share. Our hot spots, in terms of relative high market share, Florida was the number 1 and the UK specifically, and frankly the hot spots also were for moderate sized events, so we understand our market share to losses of actually the ones that happened was relatively high. Our percentage market share of larger losses, for example, would have been smaller. Our dollar loss was looking bigger but our percentage market share would have been smaller.

And so, for example, we also -- now we have a -- I’ll give you one more example here as we’re talking about it, although, I mean, we’re not normally going to be disclosing all of this but I think it’s worth the example.

There are areas such as -- I think it’s fair to say California earthquake is a large potential event for us, but it is not a hot spot and we don’t have a particularly large share of the -- a disproportionally large share of the market as we did in Florida.

On the question of capital being downstreamed, we dropped over $250 million downstreamed into -- the operating companies still have well over $50 (ph) million left in very liquid resources at the holding company and actually several hundred million dollars less liquid investment assets still there. We’ve also got $0.5 million credit facility, so I’m really not sweating that capital.

Joshua Shanker (ph), Smith Barney.

I’m wondering if you could make some comments about -- for all these pieces in the retrocessional marketplace and whether you think our potentials are going up or down or whether you think pricing might soften or harden.

Secondly, Jim, do you have an update on Channel Re?

And thirdly, I’m more or less wondering about ’05. CAT rates are roughly flat globally but are potentially interesting in Florida. That kind of implies that rates be down globally, ex Florida, and what does that mean about your anticipated business mix come ’05? Could you be more Florida focused than you are already?

Retrocessional market, I wouldn’t be surprised to see some tightening there. I think there may be some surprises coming through to that market in general and security is such a huge issue there. I mean, that’s also an area where it’s possible to be overconfident about (indiscernible) models to predict events. And then, when the losses come in different than the model results, that can cause some segments of the market to tighten. So, (indiscernible) the retro market.

The -- could we -- could we become disproportionally “hotter” as I’ve previously explained it in Florida? Yes, but our -- the way we look at -- as we -- as we become more unbalanced in our portfolio each additional dollar of exposure requires a higher margin to induce us to do that as we become peakier. So, I don’t think the market price levels are going to support us being too much more peaky than the portfolio return we have because of that.

The Channel -- on the Channel investment we’ve picked up over $4 million in the quarter from Channel. I think all the reports are that it is performing nicely. It’s still in a startup mode. It was just up and running beginning this year, so I think the pieces are still coming into place as you would expect for a startup, but it’s so far on track.

Van Johnson, Citadel.

Could you talk a little bit about the overall size of the premium makeup and how much of it, very broadly, would you say comes from Florida businesses?

It’s very difficult to -- indirect (ph) business to this is indigenous to Florida (indiscernible) that number, but what’s much more difficult is when you write a nationwide cover determining how much premium is actually contributed to Florida risks versus the California risks versus the northeast risks in the U.S. And if you’re talking worldwide cover, it becomes even more complex.

So, we don’t look at it that way. We occasionally will try to come up with some rough estimates, but that’s -- I wouldn’t want to go there right now.

For competitive reasons I don’t think we want to get too precise about this. I’m sure you can understand that.

I guess some of it was just going back to your comment that you were pretty certain you’ve made money in Florida over time. I guess to know that you’d have to know the premium.

Yes, that was a -- I believe I have -- I did not do the calculations for Florida. It’s a belief.

We do some sub-calculations, which are interesting, which will lead to that belief, but we don’t do this grand allocation of the premium to a specific area and figure out what the profitability is.

Do have a sense then as to -- are you a significant player in the -- in the deductible buydown market for the fund, or for people who have large deductibles related to the fund, typically smaller companies looking to buy that on down? Is that something you participate in?

I guess we don’t want to get into the -- in detail, specific competitive information about what products we’re offering.

I mean, I guess I asked it because it’s clear -- I mean, it seems clear that the deductibles will be coming down, well, if anything to clear -- not clear, but close enough, that at least on multiple event storms, if not even the first one, deductibles were coming down it seems like it would provide less of a private market opportunity for the whole industry and I just didn’t know if you participate there and had an opinion on how that impacts the business.

What you’re talking about is really what I referred to earlier is that there are going to be a lot of moving parts and it’s up to us to figure out how to best execute once the haze clears around these things. And what you’re talking about is something we think about a lot.

Two quick ones, will you be able to receive any upstream dividends in 2005 from the subs?

Well, yes, is the short answer, assuming that we’re in a normal profitable mode and assuming the risk portfolios are stable. We’ve essentially managed our (indiscernible) Insurance Company to a steady state capital position, which is the $1.3 billion over the past year or so and I would expect that that would continue into ’05. If the Risk portfolio (indiscernible) up there and/or if there are other considerations to speak to increasing the capital position, we would, but at this point we’re not really expecting that and so any excess earnings we get that’s above that $1.3 billion target would be available for upstreaming.

And somewhere commentary (ph) around the Individual Risk business, although I guess the caveat there is that that business is growing substantially, but I think we’re in the posture more of building capital there, most likely to see upstreaming dividends.

But the way we think about capital is match it up against our Risk portfolio and in the first sense be sure that the capital is sufficient for that purpose.

And the last question, on your outlook for ’05 you’ve included your expectation of the Platinum profits, and you had it based on a consensus estimate or otherwise, but that is included in the numbers?

Yes, and plus as I mentioned in the response to an earlier question, it’s a relatively small number, a $2 million, because we’re taking that -- we’re going from having no recognition of Platinum in Q3, anticipating taking it all in in Q4 and we’re estimating that $20 million (indiscernible) into Q4 as we take that Warrant into income for the first time. And then, going forward, the fluctuation of Platinum stock will essentially drive the value of that Warrant as you run it through the Black Shoals model. And it’ll be whatever it is. I can’t honestly predict where the stock is going to be going. We’re assuming that the $2 million in our model is the (indiscernible) factor.

Vinay Saqi, Morgan Stanley.

Yes, just a quick follow-up. In terms of the industry loss estimate going from $25 to $30 billion, I was just wondering was there any allocation given to the Florida Hurricane Catastrophe Fund in that assumption, or are the losses still too small to have the Fund kick in in a big way?

We -- as part of understanding these losses we -- part of what we do is build up a model of the industry and where all the losses are going. I’m not going to say what our numbers are, but you see -- yesterday I saw a press release that the CAT fund thought it was going to be $3 billion recovery, now they’re saying $2. We don’t hugely disagree with them, but that’s -- to do a thorough analysis of the market you’ve got to -- you try to figure out where all the dollars of loss go.

Steve Thurman, (Indiscernible) Investments.

At the beginning of this year you concluded that the pricing and the renewal season was disappointing relative to your expectations. Yet in this call you talk about some interesting possibilities and so on. I wonder, in your own guidance for 2005, have you factored in any of these market -- possible market opportunities? And I’m also curious about what is assumed level of so-called normal CATs in 2005 that you’ve factored into your guidance?

Well, to answer the first question, yes, we try to balance the potential upsides and downsides in the guidance. There -- in the absence of these losses, if this had been another lucky year, I think we would be more pessimistic about market conditions in ’05, so this is -- clearly these losses have an impact, but at the same time you were dealing with the trends of a softening market, so where the current turmoil --

I mean, on a micro basis the current turmoil is going to -- is going to -- clearly there will be some opportunities coming out of it. We’re not quite sure where they will be, but there’s some displacement going on.

So, I mean, I think we factor it in to that extent, that it would be more pessimistic in the absence of these.

And the second piece of the question.

The second piece is around assumptions for loss levels and I guess there are two ways to go at that. One is what we’re thinking about for the Company and the second one how you might think about it for the industry.

For the Company, we’ve talked about a normalized loss level in the low 30s, sort of loss ratio. If you look worldwide, what is an average industry loss, that’s actually -- we don’t necessarily perform average across all industry average losses. In fact, we don’t by design. And industry levels in the $25–$30 billion -- Bill, you can probably correct me if I’ve got this wrong -- that’s not far off the average annual aggregate for the year. I believe that’s right.

So, we’re ballparking a little bit here, but $25–$30 billion is what you’d expect worldwide for the insurance industry CAT losses, so we’re at levels that are just not that unusual. RenRe’s share of those losses this year is unusually high because of our Florida overweight, so we wouldn’t, in the normal cause, wouldn’t expect that high of market share of worldwide CAT losses. But you shouldn’t -- nobody should view these industry loss levels as surprising.

OK, well, thank you. And just in closing, a lot has happened in this quarter for us to cover on the call, but I think I -- one thing that I’ve said in past calls that I still firmly believe, that I think RenaissanceRe has the best platform in the business to execute the strategy that we want to execute. When I look at our management team, our balance sheet strength, the portfolio business that we have, the client relationships that we have, in terms of going forward in the market in the current market conditions, I wouldn’t want to trade our platform for anybody else’s.

Thank you.

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day.