濱特爾 (RNR) 2005 Q2 法說會逐字稿

Good morning and welcome to the RenaissanceRe second-quarter 2005 financial results conference call. At this time all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. It is now my pleasure to turn the floor over to David Lilly.

Good morning, thank you for joining our second-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 1:00 p.m. Eastern time today through August 5 at 8 p.m. The replay can be accessed by dialing 877-519-4471 or 973-341-3080. The pass code you will need for both numbers is 672-242-9. Today's call is also available through the investor section of www.RenaissanceRe.com and will be archived on RenaissanceRe's website through midnight on September 2nd. We've scheduled an hour for today's call.

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

Thank you, David. In the second quarter we delivered higher-than-expected earnings driven by the cat reserve review that we mentioned on last quarter's call. That was offset in part by the adverse development on the 2004 hurricane losses for our cat business. The numbers behind this are $108 million of favorable development from the cat reserve review partially offset by $30 million of adverse development from the 2004 hurricane losses in the cat business.

So to further assess the quarter I'd back these two items out a total of $78 million, taking our EPS from $2.37 to $1.28 or so looking at EPS on an adjusted basis. I'd see that number as a bit light of our expectations for the quarter and that can be largely explained by three factors.

First, excluding the reserve review and the impact of the third-quarter hurricanes, we had modern adverse development in the reinsurance segment which netted to a total of about $15 million of unfavorable development. The background behind this is that there were adverse developments in the cat book; the largest item there was associated with a reinsurance recoverable triggered by an industry loss warranty where industry loss estimates have changed. That was offset in part by some favorable development on the specialty book.

Second, our investment income was about $5 million light of our expectations mostly because of weak hedge fund performance in the quarter. Thirdly, our specialty business is running a bit light in terms of earned premium. So if you adjust for those three items, which amount to say $0.30 to $0.35 per share, then you have an explanation of our actual performance compared with expectations. There are of course a number of other minor deviations (indiscernible) in the quarter, but I think this type of high-level summary is a good way to think about results.

Next let me turn to some specific comments on our various units. Regarding our reinsurance segment, our cat premium ended up coming in a bit better than expectations as a result of favorable market conditions in Florida. The specialty book ended a bit light of expectations as a few large deals that we've been planning on failed to materialize. Jim will comment a bit more on the market environment.

Looking at current (indiscernible) losses, meaning the current accident quarter, we did have some attritional losses that we would describe as normal course including some international cat losses and a couple of specialty losses. On top of all that you've got the impact of the large reserve items that I've previously discussed.

Regarding operating expenses for the reinsurance segment, we essentially see ourselves as on track with expectations. Operating expenses in this segment look a little heavy compared with last year and that's a function of some unusual items in 2004 which resulted in reduced compensation expense in '04.

Turning to the individual risk segment, this business is essentially on track with our expectations. Looking at premiums you see what looks like exceptional growth, almost doubling last year's premium volume; but I'd note that there was $57 million of premium from a seasonal program that is largely second quarter oriented. The combined ratio here is running about where we'd expect it, this quarter's loss ratio looks a little heavy because of various factors including some cautious reserving on a new program; it's also running a little light on expenses versus some of our expectations as the business has been scaling up on the top line while expenses have been flat.

Looking at another area of our business, our ventures unit is focused on JV's and strategic investments. These are basically on track, although we did not have any substantial items of new business coming through in the quarter.

Turning to investments -- we saw investment income a bit light. If you look at last quarter's income we had a total of $51 million compared with this quarter's 46 million. The difference is largely explained by weak performance in alternative assets. Looking forward we remain cautious on the investment environment and we expect to continue with a short duration. Currently the duration is two and a quarter years and we may go even shorter. We're also reviewing our allocation to high-risk asset classes including hedge funds and high yield and we also may reposition away from these asset classes.

Next I'd like to give you some comments on our earnings outlook for the year. We've decided not to adjust guidance even that we're in the middle of an active hurricane season. I do note that we indicated in our press release that we currently estimate a $40 million P&L impact from Hurricane Dennis; roughly half of that is from the cat business and can be seen as essentially fitting in our budget for the cat business assuming no further events.

The other half relates to our individual risk segment and can be seen effectively as outside of budget. So I view the impact so far of this hurricane season as putting us about $0.30 behind expectations for the quarter, but there could also be various sources of upside in the normal course offsetting that. So I think we still have the prospect of hitting our range for the year looking at our previous earnings guidance. The Dennis loss makes that largely harder to achieve and we're obviously still in the middle of an active hurricane season that we also have the distinct possibility of being light if we see additional hurricanes making landfall in areas where we've got significant exposures.

As a final comment, I think there has already been a lot of discussion regarding the press release that we previously issued disclosing the wealth (ph) notice that Jim Stanard received. So I don't think I've got anything to add to that except to say that our management team remains very focused on running our business and serving our customers. With that I'd like to turn the call over to Jim.

Thanks, John. First of all, as many of you know, Bill Riker normally would be with us on this call, but at the moment he's been (indiscernible) to medical treatment so he can't make this call. But we're happy to report that Bill's making good progress and we're looking forward to having him rejoin these calls in the future.

Market conditions -- broadly speaking the market is in a softening phase. In Florida, looking at the three segments, the Florida cat area was actually a pleasant surprise to us where there was really some tightening at the last-minute in the Florida market right before hurricane season as it appeared that there were capacity strains in the worldwide capacity for Florida risk. That was really the one bright spot and that, as I think John commented, allowed us to do better in our cat premiums than we had otherwise predicted.

The rest of the cat market I think is showing typical signs of softening but not falling off a cliff. I think it's a gradual move and, frankly, seeing the tightening in Florida, that could be a precursor to potentially other areas if there were substantial increases in demand in other areas. I'm not predicting that, but it is a potentially positive sign.

Specialty re -- modest softening, but our book is still basically intact. As John mentioned, the change in our projections on specialty re is not so much any -- is not because of the softening market as much as just not hitting on one or two large transactions that we had put in our -- had in our projections.

Finally, the bright spot on the top line is individual risk business this quarter. The commercial property part of that business is probably the softest area and we do see continuing declines in price levels there. But this quarter we got three new programs -- these are not commercial property programs, these are multiline programs -- online. These are programs that we've been working on over a nine-month period. So it was really a coincidence that they all hit at the same quarter. And these three are probably all that we expect to come online in 2005. We've got our additional pipeline because these things take -- can take a year to negotiate, anything that's in the pipeline now is unlikely to hit before 2006.

So to summarize the growth prospects for 2005 -- cat premiums likely to come in somewhat better than the 15% decline we previously projected, although it still will decline compared with normalized 2004. Specialty will be flat or modestly declining as compared with what we -- we had expected some growth prior to this. Individual risk is right on track with our premium projections and may exceed them.

Finally, to close I'd like to say we're pleased to have Neil Currie rejoin the Company a few weeks ago. Neil was actually the first employee at RenaissanceRe; he joined a week before I did in 1993. And he's really part of building our culture and I'm delighted to have him back. With that we'll open it up for questions.

(OPERATOR INSTRUCTIONS). Joshua Shanker, Smith Barney.

Compared with the last three quarters -- or the last three years I should say -- stripping out the 2004 hurricane season losses, it still seems to me that the Q2 '05 earnings are light despite the unfavorable development, the poor hedge fund performance and the non-cat premium numbers. Didn't you receive any benefits from the 2005 light capacity quarter?

The storyline there is that in the -- as I think I mentioned in my comments, we did have attritional losses in the current accident quarter. In the cat business those were largely associated with our international book and there were a couple specialty losses. So there certainly has been commentary I know on the street. This is a light quarter, and indeed it was in the U.S., but as a worldwide player we will sometimes experience losses in areas that others aren't seeing.

And the second question is somewhat related. Given the reserve release, has your reserving methodology changed going forward to what it has been for the last five, six, seven years?

Well, I'd answer that question in two ways. First of all, the philosophy is the same so the target that we're aiming at philosophically is the same as we've discussed in our 10-Q and exposed on these calls. We try to be prudent in the approach that we take towards reserving, recognizing that it's a difficult thing to get right. While we keep our philosophy in tact, we have enhanced some of our processes and we have changed some of the assumptions that we use for adjusting reserves over time. So I'd say those are process changes but not philosophical changes.

And finally, regarding commentary that at the last moment the Florida markets hardened for you; is that to say that the cat rates written during that period of time were better than they were one year ago, about the same as one year ago, maybe even if you could compare them over the last couple of years how they compare?

Well, they were better than they were a year ago and may actually started to move better than they were three months ago. I think there was more competitive pressure in the spring -- well, the programs were still being negotiated and then there was just a sense that markets -- some competitive markets started running out of capacity and so that allowed a blip of tightening at the end.

I see. And unrelated to that, obviously the rating agencies have made some noise over the last couple of days. Is there any potential given stock price or potential moves that you might become a repurchaser of your own shares?

Well, I would say that, again, philosophy (indiscernible) on capital management, stock buybacks remains the same. We see stock buybacks as our principal vehicle for managing capital. The tactics of when, where and how we do that is something that we don't disclose. We do report at the end of each quarter our activities.

Thank you very much.

Tom Cholnoky, Goldman Sachs.

A question on the reserves. Can you go into a little bit more detail, the 15 million of other strengthening? And then also, your comment that you're going to review the process and assumptions in establishing your specialty re and individual risk reserves and the fact that it may result in a change to these reserves. Does that change imply -- is that a one directional change or is that an either/or of strengthening or releasing?

Let me address the $15 million of unfavorable development that you referred to first. First of all, I want to clarify that there was a component of favorable development on the specialty book that was offset by an unfavorable development in the cat business. But I think it's important to recognize that there are various components of that cat development, the largest item or theme in that is a reversal of reinsurance recoverables that we previously recognized and which we felt we needed to reverse because of changes in industry loss estimates and the contracts involved were triggered by industry loss levels. There were some other miscellaneous items as well, but I would say nothing that's schematic.

The second question of what does the future hold as to the reserve reviews and the specialty business and individual risk. We're really going through a similar kind of process looking at the reserve -- reserving in those two areas as we have in cat. The outcome I can't tell you, we've got our work in front of us to get to a conclusion. We, in those books of business like our cat business, to try to bring a philosophy of prudent reserving. So that philosophy is our history and our future and what we're doing is to check up on processes and procedures and assumptions feeding into that.

I think we will have more to say when we get into -- towards the end of the year. So I really can't give you concrete guidance on an outcome other than to note that we do have the same philosophy of conservative reserving in those businesses that we have in cat.

If I read between the lines would that assume that you're going to be releasing reserves?

I don't want to make an assumption. I'm only expressing that that's our -- our track record has been trying to be prudent, but we're not in a position to give you any clear guidance on this because we don't have the data collected.

And then I guess just one other follow-up question then. On Dennis, the $40 million loss that you cited seems to be a lot higher than what other companies have been signaling so far. In your mind, and it appears given I guess ISO just released some number of around 900 million for Dennis -- I don't know where they came up with the number -- would imply about a 4% market share in that -- for that hurricane. Is that how we should think about your Florida exposure today given what happened with rates and the fact that you decided to go in a little bit more aggressively into that market?

No, I think, first of all, it's early on what the numbers are actually going to be. This is our estimate at this point. And because it's relatively a small industry event you can get more -- what the number is actually going to turn out to be is going to be much more dependent on some contract specific questions. And in this particular estimate -- I don't know if John mentioned it or not yet -- but the -- it's driven disproportionately by quota share exposure we have as opposed to our cat book. So I think if you think of our cat access book, about half of it was the cat book and half was individual risk roughly speaking.

And so -- sorry, one other follow-up on that. Have you written a lot more quota share business in Florida this year than you did last year?

Yes -- I wouldn't -- a lot more? We've written more, but it's been a meaningful growth but not -- it's not like we doubled or anything, we just wrote some more. But on a loss like Dennis it's going to depend on really where the contracts happen to be whether we have a heavy concentration.

I'd also mention that these contracts all have curved caps. I think that's important to keep in mind.

Okay, thank you.

Alain Karaoglan, Deutsche Bank.

Good morning. I have a few questions. The first one relates to the reserve releases and the adverse reserve development. Could you help me understand, how is it happening that you're getting 108 million of catastrophe reserve releases, then we're getting 29 million of adverse reserve development from Florida, and then 15 million in the reinsurance book? The question that I would have is what are the cat reserves from the four hurricanes in Florida that you had still on the books as at the end of the first quarter?

That sounded like a two-part question.

Yes, it is a two-part question.

So part one was?

You've been consistently conservative on reserves, but you're getting adverse on the conservative side, but we're getting adverse development on Florida. You can't seem to get the reserve right. Why is it so difficult to get the last year's hurricane right when in your history you've been so conservative? And that $108 million reserve release seems to be reserve releases on catastrophe losses that were not related to these Florida hurricanes. So what was the base reserve on that amount?

Let me just make a general comment that reserving is -- we have attempted to be prudent, we will continue to attempt to be prudent, but that doesn't mean we always get it right. I think that needs to be made clear that reserving is -- we're trying to predict the future, it's not easy to do. There's a lot of variables. And particularly in this Florida -- you asked what makes this Florida loss so hard. There are detailed things happening on the ground in terms of how big was the demand surge because of the huge number of claims, the claims being reopened where the repairs were not -- where they thought they were repaired but then homeowners are coming back and saying repairs were inadequate.

There's a lot still going on there that makes this loss particularly difficult. We have approached reserving these losses last year with the same philosophy we've approached overall, but in this case we found this one to be difficult.

I guess to expand on that a little bit, vis-a-vis the Florida hurricanes, there are several components to the reserve increase there. The first two are a couple large contracts where we had had assurance from our client that they were fully reported when we last set our reserves and that was our last information -- it seemed like good information. They have been surprised and reported that surprise through to us. So it's a micro-level phenomenon in those two contracts.

In addition, on top of those two contracts we've added some precautionary reserves recognizing the difficulty of getting this one right. This is probably the most difficult series of events to reserve for that I can think of because of the interplay of the four events and claims being reopened and damage increasing -- being compounded by one event following the other and so forth. So it has proven to be a very difficult event. There's also the phenomenon of Caribbean losses associated with these where the reporting tends to be poor and the modeling is much less robust than Florida.

So it's a congruence of all those factors and I agree it's unsettling. I'm certainly not happy to be talking about further adverse developments in Florida but it is what it is. We're trying to get it right. As to how this relates to the rest of the reserve review, we're trying to be transparent on the components of the reserve takedowns and adjustments. The reserve review was something that was done with a very well-defined process. The procedure around it and the adjustments that came out of that were isolated in the 108 million that we referred to.

The hurricanes we saw as somewhat separate and so we've isolated those for transparency. And then there were some other developments that I think had to be characterized as normal course away from the reserve review. So we've tried to be as transparent as we can in communicating around this.

So John, what is the base of the cash reserves from which you released $108 million? It seems to be significant if it excludes Florida hurricanes.

The cat book at the end of the first quarter say, would have been 400 million of reserves -- a bit over 400 million.

And so we've released in excess of 25% of these?

That's right.

So that's how conservative the reserving process has been in the past. In terms of Dennis, are you making any assumption as to what industry losses are growing to be? Tom mentioned that the ISO came with 900 million. Is your estimate for industry losses higher than that?

Our estimate is somewhat higher than that, yes.

Okay. The last question relates to -- actually two more questions. S&P came up with a new cat model in June. Is that going to effect the way -- your capital requirements going forward? Is that going to help you or require a little bit more capital given that they're going to 1 and 250 events?

We view that as essentially neutral to us and indeed we've been working with S&P over a number of years and collaborating with them and thinking about cat modeling and so forth. So they've moved to a structure that I think is an improvement and, from our standpoint, has us basically neutral. So arguably a little positive. I'd say there are other companies that might be differently positioned.

And last question for Jim is now we've had a couple of events where you had losses that seem to be higher than the industry. I know we've asked you that question on the first-quarter conference call. You said you're still comfortable with the way you're analyzing risk and pricing for it. Now with Dennis it seems you may have losses that are higher. Is that changing given the difficulties of assessing the reserve for Florida and the Dennis potential loss?

No, I still would feel the same way. I am comfortable that our ability to measure risk versus reward is in a good place. I just think that you have to look at this over a longer period. We're dealing with the models are estimates. There's a lot of noise in them. When we talk about one or two data points -- it's important to discuss these things, but I personally would not draw trend conclusions out of a couple of data points.

Thank you.

And particularly Dennis is preliminary, relatively small -- to me that's not even on my radar screen in terms of assessing our modeling ability.

And I think the time to assess that will be to see a successfully developed loss. I think we've tried to, again, be prudent in our reserving for that and we've been more cautious. And I think that some others in looking at industry losses that are pushing 1.5 million is a number compared to what you're heard from other reports.

Thank you.

Jay Cohen, Merrill Lynch.

Two questions. The first is with the change in, maybe not philosophy but methodology related to the cat reserves, shouldn't that going forward have somewhat of a positive impact on your earnings? In other words, you just released 25% of the reserves; one would think going forward you would let some of that come into earnings a little bit quicker.

There is that implication at the margins, but I wouldn't read too much into that. Frankly, the variability of cat is such that that will dwarf any impact from reserving methodology.

Okay, fair enough. And then secondly, on the Wells Notice, has the Board met yet regarding Jim's Wells Notice?

Yes, they have. The Board has been actively involved in monitoring the situation and are fully engaged.

Okay, thanks.

Adam Klauber, Cochran Coronia.

The accident year ratio in the individual risk business was up significantly from 2004. Is that a result of just tougher pricing?

No, I'd say that's really more oriented around business mix shift. There have been a couple new programs coming online that were booking to higher loss ratios. So I'd say it's really in that direction a little bit of noise going for specific events in the quarter. My sense would be that over time we'd look for this loss ratio to move down and I think we'll have a clearer view and a clearer sense as we get to the end of our reserve study with the individual risk business. We have, again, maintained that philosophy of seeking to be prudent in our reserving there as in other parts of the business.

Okay. A follow-up question. With a stronger than expected order renewal in the catastrophe book, what would you say the overall average profitability of the catastrophe book looks like now compared to say 2004?

I'd say it's roughly consistent, a little bit down because the earned premiums -- that earned premium is going to be down a bit.

Okay. And finally, could you give us an idea of the rate decreases in the specialty reinsurance book?

Before I go on or at least that prior question -- the other comment is that that's looking at the world on an expected basis. 2004 obviously had the huge losses that it did, so the actual historical profitability of the cat business last year is no gauge for expected profitability this year. That was what happened last year. So my comment was on an expected basis, not on an actual basis.

Right, that's what I was asking.

And I'm sorry, your other question?

As far as rate declines, could you give us an idea of the average rate declines in the specialty reinsurance book?

I don't think it's possible to generalize business cuts across so many different -- or several different lines each with their own story and it tends to be oriented around large transactions. I don't think there's a way to generalize to a rate (multiple speakers).

No, I think in the areas that we're in -- I mean I think the softening market, one thing that's affecting us is we're not finding new areas that are interesting. So some of the areas that we would have liked to have expanded into have moved away from us and so there's no new opportunity. In those specialty areas where we're already strong there is some downward pressure but it's not -- it's not really that bad at this point. So our problem is just not finding new areas and also a couple of large transactions that we were thinking we'd be able to find have not turned up.

Thank you very much.

Brian Meredith, Bank of America.

Good morning. Just a couple quick questions here. First, on the three programs that you put on, when you say multiline, what's encompassing that multiline? And this is a follow-on to that -- can you talk a little about staffing in that business and are you still hiring people basically that have the expertise to monitor that business?

Well, when we talk about multiline, I know in our investor presentations I remember we show a pie chart that shows the breakdown of our individual risk book by category, by line of business. They are commensurate with that. I don't have the figures in front of me, but they are property, commercial, auto -- the portion of occurrence liability would be the smallest portion of the premium on those programs. So they're general -- they're what you would consider to be -- they're property and to the extent they're casualty they're what would be referred to as shorter tail casualty exposure. Although there still would be a current liability exposure in them.

So it's not that much different, though, than the business you've already been doing?

That's correct.

Terrific. And then the second question is some of the rating agencies have put you on review recently. The question I had -- if indeed there was a downgrade what impact if any would that have on any of your business be it the specialty or cat business?

If I could make an initial comment. We're not actually thinking about downgrades, so I'd like to be clear that we've been put on credit watch and it's a situation that we expect to resolve. I think that's the leading comment. And we have been put on credit watch by two of the rating agencies and not by two others. So I think we need to keep that in perspective. We'll obviously be working with the rating agencies to resolve the watch status. That is the real story line. We obviously haven't spent a lot of time talking about the impact of downgrade because it is not something that we are anticipating.

But is the specialty business rating sensitive?

Yes, it is rating sensitive. However, we are among the highest-rated companies in the world right now when you look across in the reinsurance markets that we are in, when you look across the rating. So ratings are very important to us. We expect to -- I would echo John's comment in terms of our expectations about maintaining the ratings. But in addition to that, our reputation in the market, our quick response to quotes, our great security; aside from ratings, I mean, clients know what our balance sheet is, know how we have behaved paying claims. So I mean we can -- I'm not concerned about our being marginalized in the market.

The (indiscernible) to downgrade at A+, we would still be in the top (indiscernible).

It could be very, very competitive, but as John said, that is not what we are expecting to happen.

Indeed, I can tell you we just haven't spent time talking about it.

That is terrific. Lastly, that also, I guess, would imply that some of the situation that we have seen, the restatement and some of the negative press that we have seen around recently, hasn't had an impact on your business.

That is correct.

Great, thank you.

We answer questions to clients, so I don't want to say there is no questions, but I would say overall, things are on track and no major issues from a client perspective.

Thank you.

Bill Wilt of Morgan Stanley.

My questions have been answered. Thank you.

(OPERATOR INSTRUCTIONS). Richard Fiori (ph), Delphi Management.

I know somebody asked a question about rates earlier. I'm wondering if you might give us some idea of what rate renewals look like at July 1st.

I think the comments that I made about the cat market really were including the July 1st renewals. We saw an uptick in Florida pricing so an improvement in Florida cat pricing, although most of those renewals were June 1st. Otherwise I'd say for the non U.S. stuff mild softening, but not much -- I'm not in a position to quantify it for you, but the July 1st theme was the theme that I articulated before.

Alright. Also -- I mean, some of this I think has been touched on peripherally, but you guys are pretty famous for your systems and processes and good result and you did have a good quarter here. But I'm wondering if there any sort of fundamental change going on in how you write business? Or are you sticking to your methods?

We're sticking to our methods and our philosophy, but at the same time we believe in continuous improvement. We talk a lot here about looking at the game films and so we certainly have learned things from the Florida hurricanes last year. We continuously improve; we are continuously improving our reserving processes. But that is not representing a change in approach or a change in philosophy.

Very good, thank you.

Gary Ransom, Fox-Pitt, Kelton.

I just had one question on the reserve release, whether you could give us some idea of the character of the changes in assumptions, not so much quantitatively but qualitatively. Were they global assumptions, were they specific contract assumptions, did they have to do with assumptions about how clients might be reporting to you, that kind of nature of the change?

The view involved looking at losses associated with what we call small caps which are basically the smaller events that frankly don't hit your radar screen. And we set up some systems to try to calibrate the initial posting of those losses and then also to -- the system decides how they get taken down over time relative to the paid loss information that comes in. That's evolved from where we started out as the Company where we would go roundup event by event even for very small events and just go off of specific judgments one event by the next. Now as we've gotten to the scale that we have we have tried to make or develop a system around that that removes the need for all those one-off judgments on what are individually very small loss reserves.

So we've made changes in the assumptions about how quickly those small cat loss reserves might be expected to pay down and that's a part of the story. We've also looked at so-called additional case reserves where we're posting loss reserves in addition to what our clients reported to us but which we think is appropriate given our understanding of the business. And that's I'd say mostly a process change, although some new tools that we're using to assess the base DR's (ph). And then finally on our IBNR we've had a good hard rub (ph) on a large event in particular to be sure that we felt comfortable with where we were booked. So it was a combination of each of those three components and I wouldn't say that any one of them drove the story, they each contributed to it.

That's very helpful, thank you.

Steve Berman, Stein Roe Investment Counsel.

I guess I would like a little elaboration if possible. I guess listening to this call it sounds as if the sales volume in your various lines are maybe about as expected -- I mean, property/cas is better; specialty is lower, no large deals; and individual (indiscernible) targets. And it doesn't sound like sales are a huge over surprise as far as excess growth. You have the uncertainties of the currencies and plus the reserve reviews ongoing in the other lines of business. And you've reiterated how good ratings remain important to you, but you're obviously well regarded in the market.

The question I have is really is there any flavor or tone or sense that you can offer about the prospect or potential for buybacks given the downfall in the stock? Is there anything you can add in that area at all? Do you have the capacity to do that down the road at some point?

Unfortunately there's really not much that I can add. We historically have not provided specifics on our price special for buybacks and our tactics around that. There are a variety of factors I can point to that feed into that which include assessing our capital position, our actual capital base relative to our required capital as (indiscernible) judges by our models. We also look at the valuations obviously and where we are as a multiple of the book. We also look at a variety of qualitative factors in looking at the billboard (ph) prospect in each business. And then there's also obviously a legal dimension to be sure that when we're doing buybacks it's appropriate from a legal point of view and securities law compliance.

So all those actors feed into the tactical conclusion about when, where and how we buyback. And I obviously don't think we're alone in having those factors on the table looking at buybacks because other people look at the same thing. So I really can't do anything more but say those factors are in our mind as we make judgments about what to do, but we just don't expose the specifics. I can tell you that we have a -- as we had last announced, a $150 million authorization from our Board and we certainly have the capacity to execute against that from a capital adequacy standpoint.

Okay, thanks a lot.

Jonathan Adams, Brown Brothers.

You said that you intended to address the concerns raised by the rating agencies. Can you elaborate at all on how you intend to address those concerns and what timetable that might come within?

We in the normal course have a dialogue with the rating agencies after being put on credit watch and when there are developments that we think are important to their thinking, hopefully on the upside, but whatever it is, we go to review that with them. I don't have any way at this point to project a schedule around that, but when there are reserve developments we will go talk to them.

So at this point you really haven't spoken to them at all about that particular development?

I wouldn't say that. We've spent time on the phone with each of the rating agencies regarding the press release announcing the Wells Notice. So we've spent a good amount of time with each of them and that was the backdrop for each of their respective decisions. But as to what the future may hold and what the schedule is, I think it's hard for me to predict. We will keep them apprised of developments and look to work with them as appropriate to go back on to -- or to get the credit watch removed where it's been put on.

Okay, thank you.

Sam Hoffman (ph), Omega.

A couple of quick questions about the risks that you're taking in Florida this year. I guess the first question is in your view what's the probability in a given year of a hurricane similar to hurricane Andrew? And then what's the probability of a hurricane similar to any of the four that occurred last year?

That's an awfully difficult question to answer because I'd have to define it more clearly. In terms of if you're talking about the probability of a hurricane that has the physical characteristics of Andrew or the probability of a hurricane that has losses above Andrew. And then I might have to understand whether you were talking about the probability of hurricanes that have losses to us of that size or losses to the industry. I'm not trying to be difficult; those are all different answers -- there would be different answers to the question depending on how that was framed.

Well, maybe you could answer it the way you think it should best be asked.

I'll give you an answer that I -- I think the answer that you may expect. The trouble is I don't really -- Andrew, people could talk about Andrew of being a one in 25-year event in a general sense. But I hesitate to put a number out like that because it really depends on how you're framing the question. I'll give the answer but not in the course of the answer. It's just too hard to generalize to that type of question without looking at very specific events.

What we look at to manage our risk is the probability that we will have losses excess of a certain size. We focus very much on our probability distribution of profit basically. How the specific events make that up is a little bit of less importance to us. Last year's -- I mean, I think one other comment I'll make about last year's hurricanes, we look at them from several angles in terms of the losses we had on our individual risk book, the losses we had on our cat look and so forth. And they had -- in retrospect they were all in different return periods, but they were return period that were not unreasonable.

For example, if we'd had losses that our models said were one in 500-year losses out of storms like that, we would've gone back and said there's something wrong with our models. On the other hand, if we have losses in ranges that feel about right to the type of storms those were -- and that's what happened -- one last comment to try to frame this. To me the most important number is how it all comes together.

We had a positive profit last year of certainly below what we would want to have on an average year, and we thought last year from a model point of view was about a one in eight year or something roughly in that range. So -- in terms of the bad end of the distribution. Once again, if it had been a one in 150-year we would have gone back and said, boy, I think I'm concerned about the models. But one in eight didn't cause me to go back and say -- and it's the worst year we've ever had in our 12-year history.

Okay. Next question is given the weather forecast for this year -- which I understand forecasts have had three times the number of hurricane that there would be in the typical year -- is the probability for a Hurricane Andrew, if it were one in 25 would it the one in eight this year? And if last year were one in eight, would it be one in two or one in three for this year? Or is that a good way to think of it if this year were being viewed on a stand-alone basis?

No, I wouldn't draw that conclusion. First of all I wouldn't necessarily agree with the three time probability. This year appears to be a higher than average year due to atmospheric conditions and water temperature and we stress test our portfolio and our models, we turn some knobs to look at different frequencies and how does that impact our portfolio. But it's definitely not a linear kind of impact.

Okay. My last question is looking at your book of business in Florida as a whole for 2005, would you say that that book of business is a good book of business for this year on a stand-alone basis or are you renewing some cat business in Florida mainly to preserve your relationships with brokers and seeding companies in the hope that better weather happens over time and then you could capitalize by earning more in the subsequent years rather than giving up on those accounts?

It's the former. We value continuity so we take that into account. But the book of business we believe is a very good book of business and when you stress test it to potentially higher severities it still is at least an adequate book of business.

Okay, thank you.

Stephen Gaviose (ph), Genesis.

The question I wanted to ask is in response to the last question. Earlier you had discussed the reserve base of the cat book that was being reviewed that ended up in the reserve release. Can you give us some similar figure, John, for the specialty re and individual risk? What is the reserve base that's being evaluated between now and hopefully year end?

Looking at the end of the second quarter the specialty reserve base would be a bit north of $600 million and the individual risk reserve base north of $300 million.

Okay, great. But it's fair to say that the -- those businesses are newer businesses for you than the cat business was, right? So should we think about these as being greener years than the cat book that you evaluated?

Yes, I think that's fair that the cat review went back to older accident years that we had on the books that -- where we hadn't even really started the specialty business.

Great. Thanks very much.

Dan Johnson, Citadel Investments.

Thank you for taking the call. Most have been answered, but could you clarify one item? The $400 million cat reserve at the end of the first quarter, was that excluding Florida or including Florida? I wasn't sure.

That would have included Florida and I should mention that's on a net basis -- those are the numbers I've been giving.

Great. And then second question is how important were retrocession covers to the net losses that you -- or releases that you talked about today?

Are you talking about ceded reinsurance out of Renaissance?

Yes, in terms of did you benefit from any protection on the reserve adjustments upward and were the downward reserve adjustments even larger on a gross basis?

Actually I would say that the ceded reinsurance adjustments basically were negative impacts on a P&L basis. And the biggest factor was the one I pointed to before, the contracts with industry loss warranty triggers where industry loss estimates have changed since we changed our recognition of the recoverable. But there have also been some other adjustments around the edges as well.

Great. And finally, can you update us as to who's filling in for Mike Cash's responsibilities? I think I saw that Neil Currie who just joined the firm is doing so, but maybe there are other folks who've come onto the Company or changed responsibilities to fill the gap that he left?

Neil has replaced Mike as the head of the specialty reinsurance business unit. The rest of the specialty re unit remains completely intact. We've got a very good but small team there and the transition is working smoothly. I think Neil has got a deep background in the reinsurance business and we've got -- the technical team and the expert underwriters that we have each understand their areas of business, understand their contracts. And so we're feeling good about the way that that transition is occurring.

And finally, do you have any sense as to the timing for the -- and I know you can't predict anything from the external community, but the Board's review of the recent regulatory issues? Is there some sort of work process that's being done that comes to a conclusion anytime in the near future?

I think the fair way to summarize it is that the Board is very mindful of all the industry developments and they've been active in monitoring those and I suspect they will continue to do that.

Thank you very much.

Sajit Cook (ph), Mananshaw (ph) Capital.

I was hoping maybe you could just fill in some of these net investment income numbers, maybe you can give me the first-half numbers that are the same as 2.7 million of net unrealized that you showed for the other investments hedge fund. That's my first question.

I'm not sure I follow that question.

In your net investment income you state that you had 2.7 million of net unrealized losses in the second quarter from the Company's other investments be it hedge funds, private equities, etc. I just wanted to see what that number was for the first-half of '05.

For the first-half of '05 it would be a bit over 9 million.

A 9 million gain?

Correct. And you'll remember that the first quarter was a strong one for our hedge fund portfolio so that's the story behind that. I'd also mention that this line item includes some other noise aside from just the hedge fund portfolio so it's not a complete surrogate for that.

Second question is I think your equity and earnings of other ventures, it looks like it is something like 15 or 16 million for the first half. Can you tell me how much of that is coming from channel re?

Channel is running for the six months about 8 million or so.

Do you think annualizing something like that makes sense, all else being equal?

Yes, I think that is running about in line with expectations.

The next question is just on the specialty reinsurance, the 600 million which you already kind of agreed was the greener years; what would you say as far as the tail on that business? Because I seem to remember there is some med-mal and other things in there, so that in addition to being greener, it sounds like this could be much longer tail than the cat business. Do you have any comment on that?

It is longer tail for sure. You really have to go book by book or line by line within that business. I don't have a good way or I'm not sure it's even meaningful to average across those lines, but it is certainly somewhat longer than cat.

The last question is for the second quarter in a row, obviously you had some more extralegal expenses or professional fees. And I am just wondering what you think about that as far as as we move out through the year, maybe even into 2006; how much of these things kind of here for the duration?

We are going to do what we have to do. We are seeking to be cooperative and compliant with the industry investigations, and so those expenses will be what they have to be to serve that purpose.

So just in terms of trying to get some type of run rate, is it unfair to use the second quarter as the way it is just during this time period?

I think it is frankly quite hard to predict. I think that calls for prediction of how the industry investigations unfolds. I suppose you could see this quarter as representative for a while, but I don't know how long a while is.

Okay. Thanks very much.

Tom Cholnoky, Goldman Sachs.

John, I realize the Wells Notice is a sensitive subject, but does the Board have any specific policies or guidelines with respect to an executive that may end up in a civil suit? If so, what are they?

There are no specific policies. Some of us were learning what a Wells Notice was last Friday. So there is not a policy that we can point to.

And not in the event of a civil suit?

There simply isn't a policy. I guess I can say that the Board is monitoring the situation and will be mindful of doing what is in the best interest of shareholders, but beyond, that I don't think we can simplify to a policy.

Okay, great. Thank you.

I would like to turn the floor back over to management for closing comments.

This is Jim Stanard, and I think we have covered what we needed to cover. So I don't have anything to add, so thank you.

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