濱特爾 (RNR) 2005 Q1 法說會逐字稿

Welcome to the RenaissanceRe first-quarter 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 the presentation. It is now my pleasure to turn the floor over to David Lilly. Sir, you may begin.

Good morning. Thank you for joining our first-quarter 2005 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. There will be an audio replay of the call available at 1 PM Eastern time today through May 11th at 8 PM. The replay can be accessed by dialing 877-519-4471 or 973-341-3080. The pass code you will need for both numbers is 598-8966. 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 June 17th.

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 to discuss today's results are Jim Stanard, Bill Riker and John Lummis. I'd now like to turn the call over to John to begin with an overview of the financial results.

Thanks, David. For the quarter we obviously fell well short of our earnings targets because of the impact of European storm Erwin as well as losses from a range of smaller events and some unusual expense items. Essentially I think you can break the earnings miss into several categories. First, I view about $25 million of the net impact of Erwin as being over our cat budget. Second, there's about $10 million of excess losses in specialty. And third, there was a combination of smaller items.

There was $7 million -- over 7 million of cost associated with our internal review in connection with our restatement. There was another 7 to 8 million or so related to miscellaneous other items including the mark on Platinum warrants and on our CDS positions. There was another $4 to $5 million of individual risk results running a little bit higher than our normal combined ratio there. So this left us with a 10% annualized operating return on equity for the quarter. We're obviously still aiming for close to 20% for the year and that's more our historical range.

On the top line we also had a slow start for the year and that arose in the context of a softening market environment. We still see an ability to deliver on our previously announced top-line growth targets.

To comment on our two segments, first of all regarding reinsurance; in total our reinsurance premiums were a bit light of expectations. But I think you have to break that out into two pieces. Looking at Q1 '05 compared to Q1 '04, the 15% decline in managed cat premiums to 375 (ph) million was right in line with what we expected. The specialty book by contrast declined slightly to $250 million which was light of the 10% growth that we had previously indicated. That said we still achieved this growth for the year. Essentially what we're seeing is a softening market environment where we're maintaining our discipline. At the same time there is a flow of some new opportunities into the specialty segment.

Looking at losses in the quarter, the big item was the European storm, Erwin, which resulted in a $43 million net negative impact to us. We also picked up smaller attritional cat losses and a couple incremental losses in specialty including the Suncorp plant explosion and some minor losses in are surety book. There are no seams to connect these different events other than bad luck (technical difficulty) in a quarter.

We recorded net $18 of favorable loss development form prior accident years in the reinsurance segment which is consistent with what we saw in Q1 of last year. Looking at the expense line, operating expenses were up by about $1 million compared to Q4, but look heavy when compared to Q1 because that quarter included some onetime reversals of compensation accruals.

Turning to the individual risk segment; as we previously indicated, the top line was light in Q1 compared with '04. This was primarily driven by pricing declines in our commercial property business where we've been letting some of that business go. That said, we had new programs incepting (ph) in Q2, so we still see ourselves on track for our growth expectations for the year.

Regarding the segment's losses in the quarter, there were no unusual items in current accident year. For the prior accident year we essentially had no net reserve development, but I would comment that we saw the loss ratio running a little heavier than our prior quarter's and expectations in light of some modest amount of developments from the hurricanes. The expense ratio for the quarter is a bit lower driven by acquisition costs associated with business mix shifts.

Looking at our investments, the results here essentially reflect the investment environment for the quarter. The backup in interest rates generated realized and unrealized losses in our fixed income portfolio, but balancing that out, we had the favorable impact of our alternative investment portfolio which runs through the investment income line. On a total return basis for the quarter we returned about 20 basis points which compares favorably with the various benchmarks. In terms of our strategy going forward, we continue to maintain our overall short duration profile.

One another item is indicated in the press release. In the second quarter we expect to launch a review of our cat reserves as a first step in a companywide review of our reserving processes and assumptions. This isn't the result of any problem with the past but rather an effort aimed at assuring that we have the best processes and assumptions in place as we go forward in light of our increasingly growing loss reserve base. We expect to review our processes for the other lines of business later in the year.

As the financial implications of this, given our historical approach to reserving, I think there is potential for reserve takedowns coming out of this review. The impact could be material, but I really can't put any numbers around that at this stage. So overall I think you have to look at this as a tune up to our loss reserving process; and I would want to underscore that I see us continuing with our general philosophy of prudent loss reserves across our whole business.

Moving to another item, I also note that our corporate expenses included a $7 million item that relates to the cost of professional fees in connection with our restatement and the review of our business practices which we previously disclosed.

To close I'd like to comment on our earnings expectations for the year. Given the disappointing first quarter we see greater challenges ahead of us reaching the 630 to 670 range that we'd previously indicated. That said, we don't see adjusting the range at this time given several positive factors that could come into play. For one, we shouldn't forget that our cat business can also go through very light loss periods and we've had the experience in a number of other quarters where we've had the buck (ph) of luck running our way -- I'd say this quarter all told the buck of luck ran against us.

In addition, another element that I'd comment on is the loss review or the cat loss review that I indicated where we could see some upside potential although I can't put a number around that -- it could be smaller, it could be larger. And finally, I mentioned that we expect solid underwriting results at our other businesses that could also produce some upside.

So, there is more downside risk, all told, given the weak first quarter and also given the softening in the market, but I think it would be premature to adjust the range other than to point you do the lower end. At this point I'd like to turn the call over to Jim Stanard for his comments and then the call will go over to Bill Riker.

Thanks, John. Well, as the results for the quarter obviously are disappointing, I see them as basically random variations plus some onetime expenses. As John said, we're still roughly on track for the premium projections that we had given in previous quarters. I'd like to point out that the disappointment this quarter is mostly coming from the cat business. Our non cat business in specialty re, individual risk and ventures continues to perform well. I'm not going to declare victory in these newer businesses until we successfully manage them through the soft market, but so far I'm very pleased with our results and our execution in the non cat businesses.

The reinsurance markets clearly are softening and our primary company clients are prepared to retain more risk and not buy as much reinsurance. In that environment our reinsurance top line should be expected to go down. If it didn't go down you should be skeptical. There are some pockets of opportunity such as the Florida cat market where we are extremely well positioned as a leader in that market.

I'd also like to give some comments on our previously announced restatement of earnings and the results of our internal review of business practices. Management started an internal review of our business practices in the fourth quarter of 2004 which was conducted by independent counsel, Boies, Schiller & Flexner. As reported in our 10-K, that review is now complete. We believe the review was thorough. In something like this no one can promise perfection, but we certainly tried to make our review as complete as possible.

The conclusion of the review is essentially that we found only one set of transactions that needs to be disclosed; these are the transactions that we previously disclosed in connection with the restatement that we announced in February. That restatement goes to the timing of income recognition, it doesn't affect our year-end balance sheet or didn't affect our year-end balance sheet. We believe that our control environment today is now substantially improved so that I would not expect a repetition of a problem like this.

As previously announced, like many major companies in the insurance industry, we've received several subpoenas from the SEC and the New York Attorney General and we're cooperating with them. As you know, there are active investigations under way across the industry. In light of those, we're going to follow the practice of not discussing any specifics around these investigations or related transactions either as they involve others or as they involve RenRe. We believe we've disclosed with material in our SEC filings; we need to respect the process of the various regulators and are not in a position to offer further details.

Finally, I'd like to point out that our S&P and A.M. Best -- that S&P and A.M. Best have now both affirmed our financial strength ratings of RenaissanceRe Insurance which is rated AA- by S&P and A+ by Best with stable outlooks. These rating agencies have removed us from the negative watch status we had after we announced the restatement. We remain among the handful of the most highly rated reinsurance companies in the world. At this point I'd like to turn it over to Bill Riker to talk about the individual risk.

Thanks, Jim. I'm going to go through basically three different areas, make some comments about what we're doing in individual risk and what the markets -- how the markets are reacting. First, we talked about a little bit of Florida home owners which is, for those people who know this, is really Florida homeowners season with June 1 being a huge renewal period. I'll talk a little bit about commercial property and then finally talk a little bit about our program business.

First of all, in the Florida area, obviously the Florida Legislature continues to work on a variety of changes to the cat fund and other terms and conditions down there. And from what we can tell the range of outcomes look quite workable from our point of view, and really we just are keeping very busy designing products which respond to the challenges to these changes once they're passed. But overall we think it's a very difficult situation down there and we believe that the Legislature and the other constituents are actually acting quite responsibly.

For us an important element is our key client relationships remain extremely strong down there and we believe that accessing the best business and the best opportunities over the next 12 to 24 months is really going to be a huge advantage for us. It's interesting, there's a lot of new takeout activity. For those people who don't know what a takeout is, these came about back in the mid-90s where companies went in and depopulated the Florida JUA at the time; now there's a lot of proposals to depopulate the citizens’ insurance company.

It's interesting that there are a lot of proposals out there and we spend a lot of time trying to figure out which are the good ones and which are the bad ones. Like what happened in the last takeout period there, there were definite winners and there were definite losers and this is not shooting fish in a barrel. And again, we have very good access into what we believe the potential best new startups down there -- but there is a lot of activity.

And then basically in the end it comes down to balancing capacity. We have access to Florida business through both proportional and obviously through the cat business and our underwriters are working very closely to make sure that on a corporate basis we get the right balance of risk versus the potential returns down there.

Moving to the commercial property business, probably the most interesting I see is something I refer to as the mathematically unjustifiable large account discount; it is alive and well in the market. The larger the account the softer the market and people are really trying to make budgets, etc., which has caused us to continue to pull back from that market quite significantly over the last year or so. As John mentioned, that shows up significantly in our first-quarter numbers, but we think that's the right thing to do. You see rates down significantly and the larger the account the more the rate decrease.

There is one interesting thing, we are seeing some reduction in people's ability to provide win capacity. It seems like (indiscernible) in this business -- it seems like some people's boots are full. People have entered this market, written business and actually are full which just seems to be providing a certain amount of opportunity. It's not a huge opportunity but for us it's a -- I think it's always interesting to see when a certain segment of a market in effect becomes capacity constrained and that does provide opportunity going forward.

And to add just a little bit on the earthquake market. The earthquake market continues to remain very competitive. As far as we're concerned it's irrational in many different areas. And our earthquake exposure in the commercial property market continues to decrease due to this.

Finally moving to the program business, the program business we believe remains a very good area, but the most important thing is excellent execution is the most important fact. The good program managers are doing quite well in this market and, even though they are seeing more competition, but because they have established very good franchises in their specialty they continue to get the first look at business and really can execute better.

An important part of entering and executing in the program business is making sure that the cat issuing carrier being ourselves has the right infrastructure to support the quality program managers. And this infrastructure is a different infrastructure than a normal carrier would have and we've found that our focus on designing an infrastructure explicitly to support the program managers is really helping us in our existing relationships with good program managers and also attracting some of the other attractive opportunities out there.

The program business generally, at least the ones we focus on, focus on some of the smaller commercial accounts. This is an area where we actually still see some good rate movement which seems to be tracking pretty close to the expected loss cost increase. This smaller account business is harder to access and that's why we actually think this is a better market in the long run. When you look at our own ability to adjust new program business we remain pretty much at full bore.

We had two new programs that came up at 4-1 (ph) which you will see in the second-quarter numbers which is again, as we pointed out, executing these types of transactions you have to do them right and it takes a long time and we're very happy with the outcome of those two new deals. But really the key thing we're probably doing is we're sticking with our core strategy. We defined a strategy about two and a half years ago in the program business.

At the time it was considered to be a very radical strategy to only focus on a few numbers of large transactions. Today we're finding that strategy has served us extremely well -- we're actually seeing other competitors starting to emulate that strategy. So we see no reason to change and it's nice when you put together our strategy a few years ago and you're sticking to it really with very few variations today.

And then just talking a little on results, John mentioned that we have a couple extra points of loss ratio in the business, primarily due to some more leakage in the Florida home owners business, but again fairly small numbers. And beyond that, the program manager business themselves continues to come in at our expectations and we remain very, very happy with the results they're producing and what we think is as result the potential is ongoing. That's my comments. We can open up for questions.

(OPERATOR INSTRUCTIONS). Michael Lewis, UBS Securities.

I didn't expect to be first, but I guess to start the ball rolling I'd like to have a little better explanation of the cat reserve reviews and the other reviews you're going to do. You used some terminology, you are now going to use best assumptions. What does best assumptions have to do with prior assumptions and what would that do to the volatility of your earnings based on future cat losses? Thank you.

Let me start by setting some context. The review that we're undertaking is really in the context of seeing our overall loss reserve base grow significantly over time. I would view this as just a part of a process that exists around RenRe in various parts of our business to enhance systems and processes everywhere over time so the cat loss reserving process is up next.

There will be a review of both the system of setting reserves as well as some of the assumptions that we've used in establishing and/or taking down reserves over time. I think it's premature actually to gauge a specific dollar impact. I don't think that this would produce more volatility in results. That's not what this is going to. And it's not going to change in our reserving philosophy. It is just a check up on our reserves as they stand now and the introduction of a more systematic process for evaluating reserves.

Would this be wrong speak based on some articles I've read that were written about RenRe about trying to basically move forward earnings due to a situation where you had that tremendous bit of luck plus good underwriting where you were trying to basically utilize a methodology of having more firepower to produce down the road when conditions weren't the same? Is this a rethink on how you're basically going to book and reserve for operations on a go-forward basis?

No, I wouldn't think of it that way. We have obviously looked hard at our reserves over time and we see ourselves as consistent in how we approach reserving and I think it's incorrect to see this as having any dimension to or any focus or magic in the timing of when we're doing this.

So warehousing earnings is not the right terminology?

No, I don't think so. I think it's correct to view RenRe as prudent in how we approach reserving, recognizing that there's always a spirit of optimism and loss reserving in the industry and I think we've always had the bias of wanting to be on the prudent side and I think there are many, many others in the industry that take a more aggressive philosophy and we've just never been comfortable with that. I don't see us changing our basic philosophy.

Thanks very much, Jim.

Terri Shoe (ph), JP Morgan.

I have a couple of questions. First, both Jim and John, you talked about the bad luck with the cat losses for the quarter. I'm just a little curious because over the very long period where you always seemed to have had good luck when there have industry events -- for instance, the European storms -- it doesn't seem like too many of the other company's cat riders were impacted. There has been very little mentioned other then I think PartnerRe. How is it that I understand the Florida situation, but here sort of a bad cat quarter? Can you elaborate a bit more, Jim?

Sure. Really as I said, I see it as a basically random variation. It's a very small number of contracts. So it just happens to be a very small number of deals where there was exposure to these losses.

Right. You understand the essence of my question, right?

Yes, I do.

It bothers me a little, why is it -- because it's a very long period of good luck. In the end when you look at a very long period it's not just luck, it's pricing, underwriting skills, etc. And lately it hasn't been so and I worry a little bit. And on this European storm, is it a big industry event? How come you had a bigger exposure there? Is it just that particular contract?

I agree, I think, with your point that the only way to evaluate a cat rider is over a long period of time. To evaluate cat business quarter by quarter has very little credibility. I think we have -- we certainly had a large exposure in Florida in the third quarter. We did not have exposure to any of the other events last year or any -- the tsunami, the typhoon and so forth. Our underperformance was focused on one specific area where we were heavy and we felt we were getting paid for being there.

This is a second miss, but it's -- I view it, as I say, it's just a very small number of contracts where we happen to have exposure. Europe is one of our other relatively heavy areas. I think we've said that in the past -- we have said that in the past. I think it would not be correct to see this as a -- as part of a trend any more than a batter is going to the plate and striking out two times out of three. Does that mean you don't want him in your lineup?

Fair enough. Secondly --.

Terri, the one other thing I would add -- I'm just looking at the results of half a dozen other competitors in the -- active in the cat business and I see losses ranging from $20 to $63 million. I guess I just want to be sure you appreciate that (multiple speakers) been others out there with losses (multiple speakers).

Fair enough. If you could also elaborate on the book value or book value for quarter end, lack of book value growth, the interest rate impact. You have a relatively short duration, can you just again review the duration? And also in terms of the -- it's the platinum -- right? -- warrants of valuation to hit there? And also, what was due to the impact of interest rates, etc. If you could elaborate a bit on that. I thought your duration was very short and therefore less of an impact from rising rates?

Right, the duration is still around two years, but there are -- that's an average, obviously. In a rising rate environment we're still going to get some adverse mark to market impact. I would say there's nothing unusual in that but we're not all in cash either.

The accumulated other comprehensive income, maybe you could just quantify the mark to market interest rates and the platinum. Could you do that, break it down a little bit?

Sure. I'm going to have to think for a moment, -- I think it's correct to say the lion's share of that is -- the lion's share is fixed income, 36 is the mark on the fixed income portfolio.

And the size of the fixed --?

And about five of Platinum.

Okay. What's the size of your fixed income portfolio again?

It is around $4 billion.

Okay. It seems like a fairly large percentage -- I guess not. Okay. Last question on capital management, can you discuss that a bit, both Jim and John, on share buyback or whatever opportunities to do so or when you would do so, etc.?

On that, Terri, I basically reinforce that we are continuing with our long-term philosophy of capital management. We see share buybacks as the principal vehicle for opportunistically managing capital. We are sensitive to pricing -- as the price goes down the probability of buying back goes up. We are currently running our business with some capacity for releasing excess capital but we will be mindful of the stock price.

You can't quantify the capacity and excess capital whether you -- how you quantify it or how much, etc., can you?

I guess I'm reluctant to get into that other than to say I think we can be active if there are opportunities and market liquidity is more likely to be a constraint than our capital base.

Okay, fair enough. Thank you.

Alain Karaoglan, Deutsche Bank.

Several questions, and I don't mean to beat a dead horse, but continuing on Terri's line of questioning in terms of now two out of the last three quarters you've had disproportionate losses relative to competitors and a lower return on equity than competitors after 11 years of consistently beating them. Are we saying that just -- Jim, that is purely a random event? Are you concerned about your exposure that maybe the success has led to some complacency? And I'm not sure I understood -- you mentioned a small number of deals. Couldn't a small deal have disproportionate losses? So why would a small number of deals give you more comfort?

The small number of deals gives me more comfort just because there's a higher variability. If one large deal gets hit then that's -- I think you have potentially more variance than if you had small losses on 50 contracts it's the law of large numbers in terms of variance. A think you're more likely to just have random bad luck on one large deal than a lot of small ones.

This is obviously judgment, but I have no concern about whether this calls into question our underwriting ability, our strategy. We looked at that question -- as I described in our annual report, looked at that question carefully for Florida because that's a very important question to ask ourselves. And looking back would we have written the same contracts, did we get paid appropriately for the risk we were taking or did we make mistakes?

Sure, there were a few mistakes around the edges, there always are, but the fundamental conclusion was that we were getting paid for the risk and essentially one way we've described it on Florida was we had outperformed the previous two years, there were no loss years and if you look on a three-year block we still had the best performance in the business. So we simply gave back two years of out performance and one year of underperformance. That's all consistent with the fact that we were choosing to be exposed there.

This quarter is -- I appreciate that it's -- I'm not trying to under emphasize that it's a disappointing quarter, it is a disappointing quarter. But from a strategic point of view I don't see this as a big deal. We got hit on a few contracts, other cat writers got hit also, we may have gotten hit on a percentage basis a little disproportionately, but it's not something that I'm spending internal time focusing on.

There's nothing that makes me believe that we have a -- that this is a sign of an underlying problem in our cat business. I think we are extremely well positioned in the market from what I see in terms of being asked to lead programs. Our credit ratings are among the highest. Our claims payment is still among the fastest in the business and those are the kinds of things that I look at as being important.

This brings into question the guidance that you provided. When does it contemplate in terms of the rest of the year? So we had this quarter which was a disappointment, we had unusual cat, but for the rest of the year, are you assuming basically for the full year normalized cat, whatever it means for the full year or more luck in the next three quarters? How should we think about the catastrophes for the rest of the year?

I think it's fair to say that we're looking for luck from some source in order to make our numbers. And I think there are potential sources of upside (technical difficulty) to my comments that could be the cat business, could be the other lines of business whether specialty or individual risk and we see reason for optimism in those businesses' underwriting results. And it could be from the reserve review that we've talked about.

I can't put specific numbers around those because it's a generalized sense for potential for upside. And we'll be looking for some favorable luck to hit the range and there's enough between those three different areas that I think there's still a prospect of being in the range. But obviously, as our press release indicated, we've got to recognize that there's more downside risk than upside potential within the first quarter.

We just don't -- our practice is not to fine-tune guidance every quarter. If there is some significant reason to change it, then we would change it, but we didn't feel that we wanted to fine-tune it.

We have actually had prior quarters where we substantially outperformed with luck on the upside and didn't recalibrate guidance following that, recognizing that luck could go the other way.

So if I put aside the reserve study, would it be fair to say that we could achieve -- the guidance could be achieved with normalized catastrophes for the full year, or do you need something else?

I think we need something else, and if you just were to take our normalized loss ratio projections for each line of business for the year and not have any other upside, and assume that there is no favorable development on the cat reserve study or any of the other reserve analyses we do, we would be light earnings. So there has to be an assumption of some upside through one of the three businesses beyond the normal course.

You mentioned that the individual business suffered from hurricanes development. Could you quantify that for us?

I'm actually not going to get into the specifics of tracing back prior accident year development. I sort of want to resist that because it becomes a time suck without much insight. But there was some quantum of adverse development on the '04 accident year, principally relating to the hurricane losses and individual risks. There was some favorable development running the other way from some other accident years, and the net result of that is that we came in about four or five points heavy from what I would consider a normalized combined ratio.

Okay, thank you very much.

Bill Wilt with Morgan Stanley.

Two questions. One is just revisiting the cat reserving study. Do the auditors -- are they going to play a role in that process or review your work before it's completed or before it flows into the results? I guess since you have prejudged or suggested, it is more likely than not to result in releases. How involved will they be in that process?

We will consult with them in the normal course. We consulted with them about the disclosure. It's the Company's decision, obviously, to do what we think we need to do, but we certainly consult with them and have the benefit of their views. We will -- before this gets locked down, we'll certainly be sharing with them our approach.

Have they historically been of the view that the reserving methodology is biased toward being conservative?

I would say they have been comfortable with our approach towards reserving. I think we've certainly seen our approach as a consistent one over time, and I believe they've agreed with that.

A second one if I may. On Cyclone Irwin, do you anticipate that that is of sufficient magnitude that that will either, A) have a meaningful impact on property catastrophe rates in Europe? Then B) as a corollary to that, is it fair to assume that whatever impact it will have will be lagged given the time during the timing of the event?

I don't think it's going to have a meaningful impact other than the -- on specific treaties that get hit with losses, you're more likely to have price increases than on treaties that don't get hit. That's just the general principle in the reinsurance business. But in terms of any market effect -- I mean, the Florida losses last year had some effect but not an overwhelming effect on the cat market and this is a small fraction of the Florida losses. So I wouldn't expect it's going to have any broad based impact.

Sure. Thanks very much.

Adam Klauber, Cochran Caronia.

It looks like your accident year loss ratio jumped from -- in the reinsurance segment from 36% to 80%. If I'm calculating correctly it looks like the European storms accounted for roughly 20% of the jump. What accounted for the remainder of that jump up in the accident year loss ratio?

There would have been a combination of factors. From the specialty book the principle elements were a loss on the Suncorp plant explosion and losses in our surety book which together were 10 million or so. There were some smaller cat losses in the quarter, some otherwise attritional losses that you have to add on to the tally as you include Erwin. There were some smaller events in Texas and the Southern United States in the quarter.

Okay. Is the accident -- excluding those events would the accident year loss ratio been hired this year than last year? In other words, is the book somewhat less profitable this year than last year?

I don't think you can really say that. We do that evaluation on a modeled basis rather than looking at the random outcome of any given quarter and on a modeled basis it's still a very profitable book of business.

I think that's worth emphasizing. The overall portfolio quality is still intact. What we're doing is losing -- we're willing to lose top line, but keeping the portfolio quality where we want it as opposed to maintaining the top line and letting the portfolio quality fall. Those are the two choices you have in a softening market.

A follow-up question on the reserves. And I know obviously you can't speak to specifics right now, but is a potential outcome that there will be less favorable development on a quarterly basis going forward?

I wouldn't necessarily predict that. To the extent there's a -- if there were to be a reserve take down in the second quarter that's obviously something that won't -- to the extent you'd do that, that's not going to happen in subsequent quarters. But aside from that I don't think there should be any strong flavor (ph) in that direction. I think once we're through with this review we'll have a crisper sense on that question, but I don't see a major change.

And finally -- and I realize this is a touchy subject, but there have been a lot of subpoenas in Florida and I'm just wondering -- that (indiscernible), but generally could you give us an idea what the nature of these subpoenas are looking at -- just on an industry not specifically on a run basis?

As Jim indicated in his comments, we really feel that we should decline comments about anyone's subpoenas, ours or anybody else's. I just don't think it's our place to comment on that. We have not received a Florida-based subpoena, but otherwise I don't think we should be offering comments on other people's situations.

That's very fair. Thank you.

Brian Meredith, Bank of America Securities.

A couple quick questions. First, John, hedge fund gains that you talk about now in your press release, what are your expectations going forward? Are you factoring that into your guidance? And then also, can you add onto that what asset classes does that relate to on your balance sheet?

On the balance sheet it's encompassed within other investments.

At fair value?

Right. And strategies within that portfolio are various ones. It's a diversified portfolio, so this is spread across a number of different hedge funds, a number of different strategies. So it's not a single bet on any one manager by any means. It's a -- I'd say a well diversified portfolio.

The number is generally encompassed in our assumptions for guidance in terms of an overall investment assumption for the year in terms of investment yield. But quite honestly, I don't put a whole lot of stock in my prediction on the interest rates any more than anybody else's. So I think that's -- predicting the alternative investment portfolio returns has us no better or worse -- we're no better or worse at that than we are at interest rates and our overall approach has been to just give it guidance around an investment yield assumption.

Next question -- this is more, I guess, for Jim. Can you talk a little bit about the retrocessional market and what's happening there as far as pricing terms and conditions and capacity? And then adding on to that, could some of the loss activity here have been -- obviously not prevented but historically the structure a retrocessional program, could that have potentially absorbed some of these losses and given that the program may have changed we're seeing a little more volatility?

I'll answer the second question first. Probably not because these losses are more attritional type losses and while Erwin was something that did impact a number of catastrophe companies, it wasn't such a big loss that it was likely to attach retro programs. Even if we had had a much more robust retro program in place, it wouldn't -- it's unlikely it would have picked up these losses.

I don't really have much of an update on the retro market versus what we talked about last quarter on the call because last quarter I discussed the tone of the January 1st renewals and not much has happened since then in the retro business. A lot of the retros are 1-1 (ph). We see it as turning into a pretty unattractive market. We lost a lot of the business. It's one of the easiest markets to get into. It's the lowest barriers to entry really, so when new competition comes in it can quickly turn in the wrong direction for us. That's what happened.

Does that give you an opportunity to buy more, though?

As we said in the first quarter, yes, but we're very cautious about willingness and ability to pay claims. So that gives us some pause in terms of how aggressively we're going to be out buying into the market.

And then last question. Can you give us a review on TRIA and what do you think the potential impact on the marketplace here is both in the primary and the reinsurance side if TRIA doesn't go through?

This is Bill Riker. I'll make a couple comments. If I compare the legislative maneuvering around TRIA versus Florida, Florida is a lot more certain. I think that TRIA is -- from what we hear there's some good motivation to extend it with probably some sort of modifications. But I'm not personally very optimistic it's going to get resolved anywhere earlier than the last-minute like these things normally do. Again, we'll be watching that closely.

I think when you look at individual -- our clients, what their approach is to TRIA, I find it's still surprising how varied people's approaches are ranging from some people still just offer the coverage and give it away and other people are very, very hawkish about charging for it. In the end we see TRIA, as the potential extension comes up, that provides us with good opportunity to custom tailor solutions for clients because each client really has a different profile.

So net net we see it as an opportunity to help our clients solve their problems and we think it will probably end up going down to the wire like a lot of these things normally do which will just provide an opportunity for those people who can service and provide the products the quickest.

Great. Thank you.

Susan Spivak, Wachovia Securities.

My questions were on capital management and the retro purchase so they've been answered. Thank you.

Joshua Shanker, Smith Barney.

Just wanted to touch base about the January 1 renewals season. In terms of understanding the hurricanes from last year, have the rating agencies changed their views on risk-based capital at all? Will you be able to write more aggressively in the 2005 season if rates seem to make it worthwhile? Is there some pulling back? What should that look like coming up?

I don't see any real impact from a rating agency perspective on capital post those hurricanes. I think they're mindful of the performance in the companies and how their risk management systems performed and whether they were surprised or on track with expectations given those losses. But I don't see a basic shift in rating agency approaches that would move the Florida market.

Potentially can you renew every contract you wrote last year and still be comfortable from a rating's perspective?

Absolutely. We have plenty of capacity. We have the capacity to grow to the extent that we like the business.

Do you have any early rate indications on the Florida market right now?

It's the one bright spot and certainly contracts that got hit, there's no question prices are growing up. We're one of the leading markets in Florida on the reinsurance side and -- so I think prices are on average going up there and it depends deal by deal whether it's -- how dramatic the increase is depending on how low priced it was the prior year, loss experience and so forth.

My only comment is -- I think I discussed in the first-quarter conference call -- is there is an understanding really amongst all parties that the Florida market has to have some more money come in the system. It's a highly risky area, hurricane risk is -- if you look at our annual report -- in Florida is a significant part of the worldwide hurricane risk. The legislators and people of Florida understand to attract capacity there has to be a little more money in the system. So the way I would look at it, if there's more gross profit in the system that usually provides -- that's a healthy market.

Very good, thank you.

Ron Baumben (ph), Capital Returns.

I had a few questions. One is -- it's theoretical or maybe it's inevitable, but I'll ask it. If the auditing community came to the conclusion that reinsurance contracts in the wake of all the reviews and what have you about reinsurance and disclosure and finite (ph), what have you -- that all reinsurance contracts, or most of them, had to be disclosed by the public buyers of the reinsurance, and so we had a whole lot of reinsurance contracts as part of people's 10-K's and Q attachments and what have you, what would your view on that be? And maybe it's in a form where the particular pricing rate on line isn't disclosed but the general terms and coverages and conditions are disclosed. What would your view on that be? Would that be good, bad for your business and for the industry?

This is Jim Stanard. I guess you're asking a hypothetical question and I'm not -- I wouldn't put a high probability on the hypothetical assumption. But if -- the harder -- the more hassle it is to buy a product the less likely people are to buy a product. So obviously an additional hassle or -- maybe hassle isn't a good word. I think it's -- I didn't mean it negatively. Disclosure is important and good, so I didn't mean to imply that it wasn't, but I'm just saying if you have to go through more steps it adds to expense and so forth. It's not a positive for the whole industry.

I would say, though, that our -- for the most part the reinsurance that Renaissance is focused on selling starting with property cat is the -- is reinsurance that companies -- it's not in most cases a luxury buy for companies. It's more of a necessity in that they really need to shift the risk of their cat exposure. I think that even if there was a change in the industry that makes reinsurance less desirable -- once again, this is a hypothetical -- I think the cat markets would hold up better than some of the other types of contracts that are more luxury buys I'll call them.

Okay. I've got two other questions. Thanks for your comments on that. On your program business, I'm wondering if -- you mentioned two additions effective 4-1. Any terminations or reductions in program business whether it be a program in its entirety or a significant reduction in volume or (technical difficulty) capacity allocated to end (ph)?

We had no terminations, but, as I mentioned in the beginning, we are finding -- or as in my comments -- especially the earthquake market to be extremely competitive. We have a program relationship in the earthquake market that continues to shrink down, but that's really because our pricing hurdles cannot be met. The program ender (ph) cannot hit our pricing hurdles so by definition the program shrinks.

We actually think that's a good thing, A) because our partner understands that and, though they'd love to have us write it all cheaper, they totally understand the way we go about our business and they want to maintain a relationship over time for the next time the wind blows or the earth shakes and people change their view on pricing that type of business. So our two program managers that focus on commercial property continue to shrink -- one in the earthquake, one in the wind -- but that's by design and driven by our pricing hurdles which the market just isn't delivering.

And they're not rattling the deal looking for lower return capacity to be alongside you or to step into a segment of the business that the market is calling for lower returns?

They're absolutely doing that and successful and we support that. If the market -- if we don't like the pricing and somebody else does that's their business to go and get the capacity.

Okay. And my last question -- your internal review headed or handled by the Boies' law firm, I'm wondering if that review included the book of business that made up the ChannelRe deal. And basically did the review include a look at what that book of business was that was initially ceded to ChannelRe or was that beyond the step up review that was done?

As we indicated in the introductory comments, I really don't think it's helpful or appropriate for us to get into the details of this. We've said what we think we need to say. It was a thorough review, but I don't want to get into scoping the exercise.

Good luck, gentlemen. Thanks a lot.

Mike Howlett (ph), Endeavor Capital.

I'd like to follow-up on the finite restatement issue as well and at least try to address the portion that's been publicly disclosed in your 10-K. First of all, I'd like to say that I've been a long-term supporter of your Company and your management team and that's why I was quite surprised by the additional disclosures that I saw in the K. And I've spent a long time thinking about analyzing the transactions. And based on the disclosures the transactions appear to me -- hello, are you still there?

Yes.

The transactions appear to me to provide very limited economic value to your shareholder's equity and in my opinion subjected your management team to future regulatory and legal risk. Given that promise that I have, my basic question to you all is what in fact was the motivation behind those transactions with Inter-Ocean?

Mike, I have to refer again to the introductory comments that Jim gave. We really are going to decline further comments on the industry investigations generally and any specific transactions.

Okay. Maybe I can ask you as well then -- I do believe that these are very important issues and will there be a time when you all will be able to address these issues and what time will that be?

We'd disclose them if we think it's material in the 10-K and if there's more to disclose we will do so in our SEC filings.

Okay. And one last question. Have you bought or sold reinsurance to any other affiliated entities that you had ownership interest in other than Inter-Ocean, DV Re, Top Layer Re or Platinum?

We're pausing to think. I don't think so other than we have an equity interest in a company called Tower Hill with whom we've had business relations. But I'd say those are arms length and there's no story around that.

Okay, great. That's all my questions. Thank you.

Sam Hoffman (ph), Omega.

A couple questions. How committed are you to your revenue guidance for each of your business segments? And are the targets for grow that you have now, do they also have more downside than upside?

I'd say we're not at all committed to them in that we're making predictions about what we think is going to happen, but if the business is not there we're not going to write it. I'd say we have zero level of commitment and that's in the sense of any sense of feeling like we need to hit them. And I think what we've said so far is -- I'm trying to give the best feel that we can about how we see things.

The cat we're down but we do see the Florida cat market as a bright spot, especially I think as the one area that there's probably a little more downside than -- but you never know. It's a small number of transactions and all we have to do is hit a couple of them and then all of a sudden we're over the guidance. Individual risk, I think we're comfortable based on programs that are already in place and just that are going to come online.

Second question is can you talk about what different scenarios are for the Florida hurricane zones? How that's developing and how it would affect your strategy for Florida on July 1st?

I could go on for hours on the different variables out there, but some of the keys for us are how they change the funds retention. They seem to be vectoring into a solution which reduces the retention slightly for the first and second events and then reduces it down relatively significantly for the third or fourth events. I think we actually mentioned in last quarter's call that outcome for us is really a non issue. There's still other competing proposals out there and we're just, like everybody else, reading the tea leaves to see where life lands.

But the nice thing is because of our multi product strategy in that area, even if it was out of left field, a significant change we believe that we're as well-positioned as anyone to basically take advantage of or position ourselves with products to help us take advantage of the opportunities really no matter what comes out of it. So to say that -- what actually comes out of it at this point, we're generally indifferent from what we've seen out there and -- but there's a lot of wrangling going on down in Florida and we expect that to continue.

Do you expect to increase, maintain or reduce your exposure to Florida this year?

On a corporate basis I would find it hard to imagine we're going to have less Florida because of the more attractiveness of the rate environment down there. And as a lot of you are aware, we manage our portfolio looking at a variety of different systems and models and we generally will go where the risk return is better. And if the risk return characteristics of Florida business improves, almost by definition our portfolio will increase our share in that business.

That's consistent with our past track record of growing in areas where the pricing is -- where the pricing improves after a loss. At the same time we're balancing our portfolio and, as any one area becomes peaky or the capital cost, the incremental capital cost goes up and up and up, so at some point our portfolio methodology makes us unprice competitive.

Okay, thanks.

Lee Coopermen, Omega advisers.

I've listened to the call and I hear -- and I've read your release. And you talk about reserve releases, softening market. We've had a prior history of stock repurchase and you're somewhat vague on this and I was wondering, in an open mic in this world of FD whether you could talk more specifically about your capital adequacy as you see it and the capital deployment possibilities. I'm not asking you what price you're going to pay for your stock. What I'm asking you is if Mr. Market (ph) gave you the opportunity to buy back stock at attractive prices, what is in order of magnitude -- available capital for that purpose as you see it presently?

And secondly, if you could just help me out. You have had a history in the past of buying back stock, what type of price to book relationships led you to be active? In other words, you bought back in 2000, 1999, 1998, 1997 -- what, if you recall, was the typical price to book that led you to action? Any help you could bring would be appreciated.

First off, the judgment about excess capital is art as much as science. We have a variety of risk measures that we use across our Company and in general like to have some level of theoretically excess capital above what our models would tell us is required to give us flexibility for new business opportunities and the like. There are different tests that we look at, some saying we need to book relatively more capital, some saying mostly less. And with all those inputs we make a judgment about how much capital on an actual basis we seek to have.

With lower stock prices we're prepared to run a little closer to the line and so I'd say in a way capacity goes up as stock prices go down. We're prepared to deploy more of our excess capital above the theoretically required capital. But I'm really not going to get specific -- I know that will probably frustrate you -- but I would say that we have enough capacity to be active in the market if there are opportunities at the right price.

Speaking to our history, we have averaged I would estimate a little over 1.3 -- in the range of 1.3 to 1.4 as an average, it's been as low as 1.2, that obviously makes the decision easy and I think we've occasionally purchased over 1.4 to 1.5. That's been the history, but I'm speaking from a rough memory.

I don't know what the secrecy or the reservations are, but just order of magnitude. You have an equity capitalization of 3.2 billion basically and what I'm trying to figure out is when you focus on a stock repurchase whether it could be meaningful or we shouldn't even bother thinking about it in a sense. Do you have excess capital of 500 million or a billion or 100 million?

Let me give you one data point that's explicitly out in our public disclosure currently which is we have $150 million stock repurchase authorization. I think we have capacity to deliver against that.

That's helpful and thank you. Very good. Thank you.

Jonathan Adams, Brown Brothers.

To follow up on a couple of the questions with regard to some of the reinsurance finite treaties. The Company had indicated that the Board would be meeting with senior management individually on a few of those policies. Have those meetings taken place and is there any change in policy or other types of changes as a result of those meetings?

Jonathan, I would fold that question in with the others we've had around the restatement and the industry investigations and so forth. I just unfortunately have to decline comment and don't see getting into that discussion.

Could you indicate if the meetings hadn't taken place -- what's the goal in terms of the Board meeting with management? Was that to occur over the next six months or is it undefined?

I won't define it. We aren't talking about some internal management processes when you ask these questions. I just don't see being able to answer these questions.

Okay, thank you.

Sackett Cook (ph), Menemsha (ph).

Could you update me on the hurricane losses? If we could get an update on the net reserves, how much has been paid out and how much IBNR is on those losses?

Sure. The aggregate impact to us is essentially in line with -- in fact it's about on with where we last were talking about this last quarter which was about $570 million. Paid losses are about 70% as I recall it and I actually don't have the breakout of cage (ph) versus IBNR off the top of my head for the balance.

So you're comfortable with taking 30% of the 570 as the outstanding reserves?

Correct.

Okay. And just on the Florida, I have to admit after listening to the call and knowing what you guys have done in the past and knowing that you made a lot of money there and then you obviously suffered some losses. I'm still finding it hard to hear you as to whether this is a really huge opportunity and then separately separate whether Renaissance is really going to benefit or not. So let me ask a couple questions.

Number one is, is there any way you can give us any perspective on what pricing could look like there -- first of all, like a rate on exposure for homeowners versus other territories or versus other time periods? Number one. Number two is maybe some comment about how rate on line could look in Florida versus other territories or versus other time periods post other Florida losses?

And secondly, you mentioned JUAs and then when the question -- it sounded like an opportunity and then some other question sounded like you were saying it could come through your primary platform or it could come through your reinsurance platform. And I was just hoping maybe you could spend a second talking about whether you think most of this opportunity is actually going to come from year non reinsurance platform. And I think that's important because, you're right, that is a platform that other reinsurers don't have. Could you talk a little bit more about that?

Sure. This is Jim Stanard and then I'm going to turn it over to Bill Riker. I don't think you should look at this as a huge opportunity in the same sense that we think about the cat market after hurricane Andrew in the early '90s, we think about the market in 2001. Most companies made money last year, increased their capital. There's a lot of capacity out there. The market in general is on a softening trend. So this is one blip of reasonable firmness in a context of a softening market.

So we can -- the odds are that our exposure -- we're more likely to grow than not I think in Florida, but this is not a -- we're not going to increase our exposure by multiples. This is not one of those big opportunity events. It's more just a natural reaction to contracts that have losses. Bill, do you want to --?

I agree with Jim. You actually picked up on a couple of interesting points. First of all, our structure and our historic relationships in Florida I do believe give us the best potential to execute in any opportunity that comes about. There's no doubt there's more money coming into the system, there's more money being charged on the primary policy and how that ends up through the whole system has really gone about -- it's our job to figure out how to maximize our value through that and our different tools make us about as flexible as any entity out there. That's one of the things we like about the way we've set ourselves up.

But also to Jim's point, this isn't shooting fish in a barrel. Back in 1994 writing cat business to a certain degree was shooting fish in a barrel. This is an execution where we are very happy that we'll be able to execute we believe as well as anyone in the market to maximize the opportunity. As far as specifics around main on line increases and all that, I'm going to not answer that primarily because we are right now in the throes of negotiations.

I don't really think it makes much sense to try to get specific about that both from our relationship with our clients as well as trying to tip off competitors on what's going on in this market. As Jim mentioned, we are probably the largest lead in the Florida market and that information is proprietary to us and gives us an advantage. But we do believe that the market in general will be healthier, will provide us more opportunity, will provide us increased expected profit.

And how does the individual risk top line expectation factor in Florida?

Not significantly. We assume there's some additional business coming out of there, but that's not the key driver of the individual risk. The key driver of the individual risk volume is our program initiatives.

And just for the cat reserve, I just want to be clear the review that you're doing. Does that relate to how you disclose it in the 10-K? So it will be the reserves that you said are cat reserves or is this -- are there going to be reserves that are in the specialty RE or the individual risks that are short tail type that you'll also consider? How does that work?

Our intention is to begin with the cat business and look at the systems around reserving there and then go on to the other businesses with similar types of review. The trick is to maintain a consistent prudent philosophy across each book of business and that's certainly what we'll be aiming for. And to some extent what you do in one book could influence your thinking in another but there are also a lot of important differences between them.

As to the 10-Q or 10-K disclosure, I don't see this particularly changing the presentation of that. I think what this will go to is to potentially enhancing our own internal processes, but the answers in terms of external presentation would look analogous.

I was more asking just in terms of isolating the bucket of reserves because you do give some information on IBNR by line of business. I just wanted to make sure I was looking at the right bucket as you disclosed it in the 10-K.

Right, I'd say IBNR is where many of the (indiscernible) are focused obviously and the techniques for determining IBNR, but we will also look at some of our processes as well around updating case and additional case reserves.

One last question. Can you quantify -- or what was the impact of your relationship with DaVinci as far as -- I know that there was some type of payback situation as far as a commission? I'm wondering inside your underwriting margin what the influence of that was?

Are you asking about the profit commission with DaVinci?

Yes.

In a normal quarter pre the hurricanes that would have been in a range of a few million bucks this quarter. We're not picking up anything there with the profit commission.

So should I expect for the full year that you're kind of sacrificing 1 to 2 million per quarter? Is that what you're saying?

I don't want to get specific on numbers, but we're clearly light because of the profit commission not being there. That will be a phenomenon through all of '05 would be my estimation.

Thank you.

We have exceeded the allotted time for today's call. Our final question is coming from Alain Karaoglan with Deutsche Bank.

I have one question and one common. In terms of the Florida market, if the business is attractive would you expect that, Jim -- you've answered that a little bit through -- to come through the catastrophe reinsurance market, but would you expect any of it to also benefit the individual and specialty reinsurance market or just as a pure catastrophe reinsurance opportunity?

You're referring to Florida?

Yes, Florida.

No, I mean it's not just a pure catastrophe opportunity. I think that's actually one of the strengths of the platform that we've got, as Bill said. As I've said before, this is a micro game in the sense that the way that we make decisions is a deal by deal basis. So the broad idea that prices are going up in one area, that's interesting but we're not taking just an across the board position. And so in some circumstances the cat excess contract can provide better economics, and some circumstances being on the primary side can provide -- is the place you want to be. We have the platform to find those pockets in both cases.

And the only other comment is because we can go either way makes us a little less concerned about where the Florida hurricane cat line lands because, depending on how that gets resolved will change the profit characteristics of one methodology versus another. And that's where I mentioned we're actually very optimistic because we can achieve what we want to do through a variety of different outcomes depending on what the heck (ph) cat line does.

Next, Jim and John, I have a comment, a request or favor. I was really struck by the number of times that you weren't willing to answer questions on the conference call that were asked. And I can perfectly understand that to the extent that there's an investigation you may not want to comment on that specifically, but to the extent that something was disclosed in your 10-K and it's questions about accounting or how things work, you ought to be able to discuss them.

So I would ask if you could review with your lawyers, can you be more open on some of these certain issues because, frankly, it adds a level of mystery that I really don't think is necessary here for the -- and it's not helpful for the stock. So I would just make the request if you could review that and see if there's more that you can say on some of the questions that were asked, understanding perfectly that you can't comment on specifically the investigation.

We'll take your thoughts into consideration on that. I do have to say we've spent a fair amount of time considering this with our advisors, some not optimistic, there's more we can do, but we'll certainly have a look at that question. We obviously have a strong inclination to be as shareholder friendly as possible and our approach has historically been one of transparency which we would prefer, but we have to be mindful of broader industry contents that way don't have control over that.

I appreciate it. Thank you.

Let me just give a short summary then. I think one the important themes of the questions are given our underperformance this quarter is that a change in trend. The way I see it we have successfully managed through a soft cycle before. As the cycle started to soften in 1996 our cat top line started to fall and so we've done this before and it's many of the same executives that are here are now were here during that period. So there's management continuity in terms of being able to -- having to live through managing a soft cycle. Not all the people are the same, but in general we have a lot of management continuity. I think the team is in tack that has managed successfully through the soft cycle in the cat business.

I am not concerned about our ability to do it again. However, we are in the cat business and we will have volatility. We will have volatility in individual quarters and at some point, as I said in the annual report, we'll have a year where we lose money because of cat losses. So that's something that's inherent in the business that we're in. But in terms of the current status of our cat business, our portfolio quality, our client/broker relationships and leadership position in the cat business is fully in tact in my opinion versus where we've been in the last few years. So I'm not concerned about a slippage in that position in the cat business.

I'm frankly more focused on the risk of managing our non cat and newer businesses through the soft market because that's not something we've proven we can do yet. I believe we can, I have high confidence in our management team. I think we're very aware of the risk there. But that is the area that I think is strategically the most important to us and where I'm spending most of my mind space.

I would end by saying the same thing that I've said on several calls in the past and I wouldn't change my opinion on. The platform that we have at Renaissance in terms of the management team, the client relationships, the existing portfolio, I would not trade with anybody else in the market right now in terms of a platform to approach a market where there's a lot of moving parts, a lot of turmoil and a lot of mines hidden in the ground for people in the insurance and reinsurance business. So thank you.

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