濱特爾 (RNR) 2005 Q3 法說會逐字稿

At this time, I would like to welcome everyone to the RenaissanceRe third-quarter 2005 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) It is now my pleasure to turn the floor over to your host, David Lilly. Sir, you may begin the conference.

Good morning. Thank you for joining our third-quarter 2005 conference call. Yesterday after the market closed, we issued our quarterly release. If you did not get a copy, please call me at 212-521-4800, and we will make sure to provide you with one. There will be an audio replay of the call available at 1:00 PM Eastern Time today, through November 16, 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 663-1206. 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 January 4.

Before we begin, I am obliged to caution that today's discussion may contain forward-looking statements, and actual results may differ materially from those discussed. Additional information regarding the factors shaping these outcomes can be found in RenaissanceRe's SEC filings, to which we direct you. With me today to discuss today's results are Neill Currie, John Lummis, Bill Riker, and Kevin O'Donnell. I would now like to turn the call over to Neill. Neill?

Thank you, David, and good morning, everyone. I am assuming the role of CEO at RenRe at an important time in our history. The Company has achieved a position of leadership in the industry, and we now have a great opportunity ahead of us. Our clients need the products we provide, the services we offer, and the expertise we have throughout the Company now more than ever.

By the same token, it is a challenging time, with the departure of Jim Stanard, my friend and colleague for more than 25 years. Jim established this Company and is responsible for hiring a great management team that helped build it into the leader it is today. And of course we're in the midst of regulatory reviews. We are cooperating fully.

While a subgroup of our people will be focused on these issues, the core engine of RenRe has been untouched by these matters. We're fully prepared to execute our strategy. RenRe will continue to be held to a very high standard. I am committed to seeing that we set the pace in terms of how we conduct business, how we serve our customers, and the value we deliver to shareholders.

As you look at this picture, I want to remind you that when Jim and I started the Company in 1993 we were the only employees. We had a small capital base; we had no business; we had no ratings; we were based in Bermuda, which at that time did not enjoy the recognition that it does today.

We are now in a quite different position. We have a very strong capital base. We have a wonderful franchise built on thought leadership, underwriting excellence, and industry-leading claims paying. We're recognized for our best-in-class risk modeling technology. We have a talent base of extremely skilled, highly trained and motivated employees. The depth and breadth of expertise spans our entire business.

Given what we have accomplished and the human and financial resources at our disposal, I am confident that we can lead this Company to even higher levels of success by leveraging the advantages that we have established over the years.

Since I rejoined the Company, I've been pleased and energized by the strong new additions to the great RenRe team. It has also been a pleasure to see how some of the fresh young talent we hired in the early years of our Company have developed into true leaders, ready to help guide the Company into its next level of growth. I feel extremely optimistic about the future.

In the near term, given the number and extent of catastrophic events for the past several months, we're projecting a loss for the year. We have adjusted our models to take into account increased severity and frequency of such events. But I want to note that both before and after these changes, we see our experience as consistent with the models. It is clear that the value we have created in the past 13 years more than offsets this one down year.

While the catastrophic events are certainly important to discuss, I would like to point out that there has been a healthy increase in top-line performance, which demonstrates the importance of the unique capabilities we provide our clients. Our goal moving forward will be to take advantage of the opportunities that typically follow a major catastrophic event or events, by continuing to focus on excellent execution and build on all that the Company has accomplished to date.

I am extremely pleased to say that Bill Riker, President of RenRe Holdings, is back, fit, and working full-time. As President of RenRe Holdings, Bill has oversight of all Group underwriting activities and risk modeling. I will remind you all that Bill was with the Company since early 1993, about the second month, as I recall, and was the principal architect of our REMS system. I can't overestimate Bill's importance to the Company. Welcome back, to Bill.

I am also extremely pleased to announce the promotion of Kevin O'Donnell to President of RenaissanceRe Reinsurance Ltd. Kevin will be responsible for all lines of reinsurance including specialty. I am proud to say that I had something to do with hiring both of them, and I think they turned out okay.

Rounding out our strong senior leadership team is Bill Ashley, President of Glencoe Group and heading up Individual Risk; and Jay Nichols, President of RenaissanceRe Ventures. John Lummis of course is our CFO; I will be turning this over to John momentarily. Under John we have Mark Wilcox, who has been our Controller since April of '05 and headed up our audit function prior to that for two years. Also reporting to John is Todd Fonner, who has been our Treasurer since 2001.

Before I turn it over to John, I would just like to remind you all that we now have close to 200 employees that are highly trained and highly motivated. And when I look around the Company, I see a huge talent pool that remains in place to execute our strategy. So with that, John, I will turn it over to you.

Thanks, Neill. Our results this quarter were obviously driven by the negative impact of 573 million from Hurricanes Katrina and Rita and, to a lesser extent, Dennis. Offsetting that in part, we had favorable development of $118 million arising from our review of the loss reserves in our specialty business. Excluding those notable items, you can view our quarter as essentially on track with a few minor exceptions.

To give you a little more color on our hurricane losses, Katrina was by far the largest, with a net impact of $457 million. That is in line with our September 9 press release, which indicated approximately 1% of the industry loss estimate; and we now are looking at the range for the industry in the range of 40 to $60 billion. Rita was a $94 million net event to us; and Dennis is $22 million, which is actually less than the $40 million that we previously indicated for Dennis in July.

I caution that it is still early days assessing these events. We have tried to bring our usual cautious reserving philosophy to bear in our loss estimates. But it is early to give definitive views.

Regarding the specialty reserve review, this review is a continuation of a process that we announced in May of '05 of all of our loss reserves. This exercise is a bottom-up assessment of key processes and assumptions that we use when setting loss reserves, including a thorough review of case and additional case reserves.

As noted in the press release, the principal driver behind this reserve takedown was a re-evaluation of loss reporting patterns, which in turn affected the speed with which we take down IBNR. We do our reserving on an underwriting year basis, and these reserve takedowns were spread essentially across all years and all of our major lines of business.

I would underscore that the comment that we have made in the past still holds true. We're not looking to change our philosophy of prudent reserving. Indeed, we want to maintain that same philosophy. Rather, what we have done here is to look at further systemizing our processes and putting ourselves through a process of periodically checking key assumptions into the reserves. We will look at doing a review of our Individual Risk loss reserves in the fourth quarter.

Next I would like to comment on the some of the customary measures for our business segments, excluding the hurricanes and excluding the specialty reserve review. To start with premium trends, I would focus you on the nine-month data. Here, in the reinsurance segment, you can see a breakout of cat and specialty, which you will find in the supplemental data in the press release. You will also see some commentary in the text.

If you are looking for good indications of the full year, look at the nine months. Essentially the story is normalized cat premium is coming in with about a 5% decline versus last year, comparing normalized nine months of '04 with normalized '05. That is actually better than the 15% or so decline that we had previously talked about earlier in the year. That is principally as a result of increased Florida premium. To derive normalized premium, I am backing out $46 million of premium from backup coverage in reinstatements in '04 and $48 million from these same items in '05.

Specialty is running $34 million ahead of last year for the nine months, which appears much better than our last projection of about flat premium. However, here I would note that we have $48 million of lost no claims bonus, prior year adjustments, and reinstatement premiums arising from losses and other items during the quarter. So backing that out, we end up slightly down looking at specialty top line for the nine months of '05 versus '04. Roughly in line with what our expectations were, as discussed earlier in the year.

For Individual Risk, our '05 premium is running 33% of '04 premium for the nine months. That is essentially in line with our 35% projection for the year.

Next I would like to comment on underwriting margins. Here I'm going to look at the quarter rather than looking at the nine months, just to isolate what has been going on this quarter. I am also excluding the hurricanes and specialty reserve review. On this basis, we see the reinsurance loss ratio coming in at around 46%, about in line with expectations, excluding the big events. The Individual Risk loss ratio is reported at 62%; that is higher than target, but I think that has to be seen in context. It is higher because of a higher than normal ceded earn premium, which results from this unit's cat reinsurance that was triggered by the hurricane events this quarter. So adjusting for that item, which also impact the expense ratio, the loss ratio in this quarter would have been about 56%; and the combined ratio would have been about 90%. That is right in line with what we would expect.

Operating expenses were also essentially line with expectations. However, I would note the comparison with last year's operating expense numbers are skewed, because we reversed in Q3 '04 an accrual for compensation expense. That was a onetime item, not repeated this year. Also I note that our corporate expenses were unusually heavy this quarter due to a $17 million accrual for legal expenses and other costs associated with the regulatory investigations.

Our investment portfolio generally performed well this quarter, with around a 1% return. We continue to maintain a short duration, right around two years; and that served us well this quarter and we (inaudible) maintaining that posture going forward. Our alternative investments also did well this quarter, generating $22 million of income.

Wilma is a fourth-quarter event, and so of course that is not included in the results we're talking about today, although we have in the text described our projection of the loss. You will see in the press release that we project a 250 to $300 million net impact from Wilma. Given that loss and the other ones, I am sure it is top of mind to consider the question of capital, so let me speak to that directly.

We are in the fortunate position of having a capital structure and corporate structure that is actually able to absorb losses like the ones we have experienced over the past two hurricanes seasons. In prior years, we raised $500 million in perpetual preferred, which allowed us to accumulate excess capital at the Holding Company. Even now, after the third-quarter experience, we have over $500 million of capital available at our Holding Company that we could drop into the operating units.

Assuming the 250 to $300 million loss number for Wilma, we estimate a total capital need in these entities of about that amount, meaning $250 million, including our share of DaVinci. So we see ourselves in a good position to handle this with existing capital resources. And that is before we even consider any drawing that we could make under our bank facility.

Since earlier this year, not long ago, I was continuing to get questions of what we might do with excess capital. I assume those questions have been resolved for the moment. I do think it is useful to remember where we have been historically on capital. At the end of 2003 we had $2.3 billion of permanent equity; that is common plus perpetual preferred. Now, for the end of 2005 I project about the same level. The mix is a little different, with an extra 250 million of perpetual preferred and less common, which is not a happy profile for me as a common shareholder; but in terms of the capital strength of our Company, I think we can fairly describe that as consistent with 2003. So this balance sheet was strong back then; it is strong now.

Looking at our current risk portfolio and our internal risk tests, we're very comfortable with our capital relative to risk. That is true even after some model adjustments that you will hear Bill Riker talk about later in this call.

In my opinion, the bigger question for us around capital will be determining what additional capital we need to grow the business. We are at this point sizing up our opportunities and working on making that evaluation. Looking at various forms of capital, we're considering both equity into DaVinci as well as the possibility of equity into the parent. Given the levels of leverage that we have in our Holding Company, I currently don't see adding much in terms of debt. My current thinking would be no more than 100 to $150 million given the current equity levels.

To comment on 2005 earnings, at this point I think you can essentially take your base case for Q4, whatever it is that you believe, and adjust for the $250 million to $300 million hit from Wilma. I think that gets you to a good understanding of the quarter. There will also be some modest pickup in the quarter from the accelerated earnings, the backup coverage that we wrote in the third quarter, that will have actually positive effect. It could be in the range of 20 to $30 million, assuming no further cat events in the Southeast.

Looking forward into 2006, there obviously is a lot of potential opportunity post the hurricane activity. I think it is just too early to make a call on the top-line assumptions. There are a lot of moving parts both in terms of the top line and different capital solutions that we might move towards. So at this point, I see us holding off with any specific commentary around top line or specifics of bottom-line results.

But all told, as we size up all the different scenarios, we do envision RenRe in a position to return to its track record of delivering attractive returns on equities looking forward. With that, I would like to turn the call over to Bill Riker for his comments. I am sorry; to Kevin O'Donnell.

As John mentioned, we covered significant losses in the quarter due to the active U.S. hurricane season. The largest driver of this result is Katrina. Assuming a $50 billion loss event, our lost estimate remains unchanged from our preannouncement. To a large extent we avoided several classes such as marine, energy and per-risk, that cause significant cat loss but it is not priced for that risk. The composition of our book allows us to have a thorough understanding of our loss in this event, due to our avoiding gratuitous exposure and not taking unpriced or underpriced cat risk.

Throughout the active wind season we continued to provide protection to our customers through the form of backup coverage and live cat. We refer to these as backups because they restore coverage that has been exhausted in previous events. Clients who had limits exhausted in Katrina were concerned that if Rita exhausted their reinstated program they would not have any coverage remaining to protect their capital. Needless to say, our customers responded positively to our continued support and ability to provide cover.

As to more recent events, it is still a bit early, but we believe Wilma is a larger industry event that any of the events that affected the U.S. last year. We believe that the loss will be contained within the Florida Hurricane Cat Fund for personal lines writers, and the commercial loss will continue to develop for sometime. Additionally, assuming a 12 to $15 billion industry loss, we believe that this loss is large enough to affect the retrocessional market.

After a bad year, we naturally look for areas of dislocation, similar to what we did after September 11. With some of the surprises experienced due to the gap between modeled and actual results, we are optimistic that we will find these new opportunities. We don't want to discuss specific opportunities in detail; but I will offer an example of the types of opportunities we expect to see.

We substantially reduced our retro writings at 1/1/2005 due to the pricing and terms that we saw in the market. The large difference between modeled losses and the actual Katrina losses highlighted for many players the difficulty in modeling this risk. The opportunity for us is that we have good access to the business, underwriters who understand the risk, and a proprietary underwriting tool that allows us to better understand this risk.

It's important to note that we do not believe all lines will increase enough in price to be attractive. The market will be about having the ability to find opportunities and then being able to execute within those markets to find the best deals. Looking forward, we're confident that our superior access to the business and the pricing momentum we expect to see in the market will provide us the opportunity to build the best portfolio we have had in many years. With that, I would like to turn the call over to Bill Riker to discuss Individual Risk and modeling.

Thanks, Kevin. My part of the discussion will be broken into two points. One, I will go through the results of our Individual Risk business for the last quarter and what we observed there. Then I'm going to get into an issue that seems to be hot in the market these days, is the performance of the models and I'll make some -- hopefully try to gauge and ground some people into our thoughts on that.

First of all, looking at the Individual Risk area, we sort of -- you could think of our Individual Risk portfolio as having sort of three sub-portfolios, the first one being commercial property. We found that our commercial property book actually performed quite well during the hurricanes of the third quarter, with very few negative surprises. The key to that is our strategy has been to keep our limits low, and also to focus on specific perils, as opposed to all-risk type business. That strategy definitely paid off. So in the and we had very few surprises out of our commercial property book, which I think puts us in a relatively small group.

As Kevin mentioned earlier, we very much try to avoid gratuitous exposure, and I think that paid off big in our commercial property book. To be fair, we do have some flood losses in the commercial area. But our major partner who produced those types of business did a very good job in keeping our exposure contained and limited.

The second area of our Individual Risk areas we refer to as our specialty programs area. This is where most of our casualty business resides. This book continues to perform in line with our expectations, consistent with what John Lummis mentioned earlier.

This market we firmly believe remains an execution market, where excellent market access coupled with disciplined underwriting provides the opportunity. It is a market that we have spent the last three years coming into, and we just could not be happier with the partners we have ended up with. We think that is a market that is -- it takes three years minimum to enter that market, and we really like our current position there.

The last subsegment of our Individual Risk book is what we refer to as our cat-exposed homeowners business. As most of you are aware, the book is mostly based in Florida and obviously has been affected by the three storms that have hit Florida this year, being Dennis, what we refer to as Katrina 1 -- which is the first landfall of Katrina in Florida -- and then finally Wilma.

Fortunately, each event's severity is contained by the FHCF coverage, which is provided to homeowners writers. But obviously we still hate to see the frequency, which knocks the profitability out of the book. With the losses in 2005 on the heels of 2004, we expect to continue to see strong price increases in this area, and we remain optimistic that this book will pay off well in the end. Obviously we're going to talk a little bit about some of the change frequency there, and we will have some comments about how that affects this particular portfolio.

So really, in the end, outside of the continued frequency of hurricanes in the Florida book, we're really quite pleased with the results of our Individual Risk area.

Now I'm going to move over to some modeling comments. The first area I'm going to talk about is, really, when it comes down to Katrina, this is obviously the largest insured loss in dollar terms in history. What we continue to see is all kinds of numbers about what the return times of Katrina thrown about the industry. What I'm going to try to do is help you calibrate how we think of Katrina, or for that matter, sort of a $50 billion loss. What are the associated return times of that?

One of the difficulties in talking about return times is confusion reigns, as return times need to be assessed relative to some certain universe, such as -- are you talking about the state of Louisiana? Are you talking about the United States? Are you talking about the world? The way we see it, the return time of a $50 billion wind and flood event is very different than the return time of a $50 billion total loss anywhere in the world.

So to gauge this, we see a $50 billion loss on a worldwide basis with an annual return time of about 10 to 15 years. This is the way we have looked at things over the last few years and it really -- we don't look at Katrina as the big one. On a worldwide basis you have to expect you're going to get losses of that magnitude on a fairly regular basis. When you look at our results in Katrina, we're quite happy on the effect on our capital base, etc. That is a type of loss we think you need to expect.

Overall, 2005 is actually interesting because if you look at the total aggregate sort of large event losses that are likely to occur in 2005, we see it at least 70, $80 billion. To put that in perspective, we look at the probability of having in excess of 70 to $80 billion on an aggregate worldwide basis is also in a 10 to 20-year return time. So 2005 is obviously a poor year for total losses; but it is still not what we consider to be a mega year. A mega year would be something where you would probably be in closer to $150 billion worth of total losses in the year. So again, 2005 is a bad year, but it is not anything we'd consider to be way out of the tail of the distribution.

Obviously we use our models to help approximate both the potential for these losses and also to stress test our portfolio and balance sheet, in the event these truly rare events occur. I can tell you, that is where we manage our balance sheet. So in the event of a $150 billion annual loss, that is something that we expect and we manage to every day.

As Kevin also mentioned, the unmodeled and often underpriced exposure continues to rear its ugly head in our business. Avoiding this type of exposure has been a mantra for RenRe since our beginning. The flood losses were a great example of where reinsurers and their clients were knowingly providing the coverage but were ignoring the exposures in their pricing and exposure management, at least in many reinsurers who would be utilizing the standardized models. The flood exposure just frankly was just ignored in pricing.

In our own processes, if we see that type of gratuitous exposure we generally decline to write the risk. I think that has always kept us out of trouble.

We remain committed to our balanced view of modeling, a balanced view of the value of modeling. It is a tool to be carefully used by knowledgeable underwriters. We have spoken in the past about sort of the swing in the pendulum of cat modeling, from nobody utilizing cat models 15 years ago to fairly recently people assuming the results were facts. The pendulum is, from what I read in the industry press, the pendulum is obviously swinging away from facts again and will hopefully end up in a responsible place, as a useful tool to be used by seasoned professionals.

Lastly, I am going to discuss some of the issues regarding some of the underlying model assumptions, especially when it comes into frequency and severity of hurricanes. For those of you who are probably where most of the commercial models are based on, the last 150 years of hurricane activity, and when you run those models it's assuming that your next year or your next time frame is going to be well represented by the past 150 years.

Last year, we undertook a very hard study of looking at both the U.S. hurricane and frankly European windstorm risk frequency, both to re-examine the potential frequency and also look at the potential clustering in those perils, which last year you remember was a hotter subject around clustering. With the additional data of 2005, we decided to increase both the frequency of U.S. hurricanes as well as the severity of major storms. For your information, the major storms are actually what produce the bulk of the expected loss. We're going to be utilizing those models moving forward.

Frankly, we have had a model in place since early 2005, where we have been running this higher frequency model against our clients to really understand the effect of this change. What kind of effect would this change would have on them? We used it to a certain degree in our pricing, but at that point we were not committed to going in and trying to completely change the market, because frankly we would have been a lone wolf in the areas.

So we will be using this revised information. These revised models are already in place at RenaissanceRe. This is something that we are doing as we speak today, something we have actually been doing for, as I mentioned, for a good part of 2005. And we will be using this revised information both in the analysis of transactions and, as John mentioned, in our portfolio management.

So sort of on a high-level thought, the results of these change is we tested the effect of these modifications on our portfolio and we're happy with the effective on our existing book. Interestingly, we already understand the pricing actions which will be required to offset this change in perceived risk. The change in expected loss obviously is significant, and we believe it's prudent to use for the foreseeable future, at least from what we know today about the potential hurricane frequency out there.

Our pricing mantra to our clients has always been to exposure price them; and when the perception or reality of risk changes, pricing must adjust. So we feel very consistent in our approach. The changes themselves will affect our clients in really three key ways. First of all, obviously, the expected loss to some of the products we sell will increase, and that will cause a need to increase pricing.

Secondly, the required capacity of our clients will change, because if they had targeted a certain return time in which to purchase their reinsurance at, say, the 1 in 100 level, this change in frequency severity will have a significant effect on what their 1 in 100 loss is going to be ongoing. So it will require them to potentially purchase more capacity.

Lastly, a little more subtly, the overall increase in the hurricane peril relative to the overall worldwide suite of perils will increase the required capital required to support, insure hurricane risk in the industry. So the required capital to support that will be higher than it has been in the past.

So what we see ongoing is a very good opportunity. A, we have done a lot of the analysis already. We are already in good detailed conversations with our clients. We see overall demand should increase out there. We believe the supply of that product will stay flat or actually decrease due to the increased capital requirements.

But the key thing to remember here, there is no broad-brush rules of thumb. Each client needs to be modeled analyzed, and priced accordingly. That has really been a key value-add we bring to the market. So I am sure there might be other questions about models as we go on -- and I can go on and on this -- but I think I will turn it back to Neill Currie for some closing comments.

That's right. I believe at this time it is time to open things up for questions.

(OPERATOR INSTRUCTIONS) Tom Cholnoky of Goldman Sachs.

Two questions if I can. John, on your comments about capital, recognizing that you do have the ability to downstream 500 million from the Holding Company, does that incorporate what will likely be a much higher capital load from the rating agencies?

I could tell you about our own risk models, which is our risk models are essentially staying the same, other than the input of the frequency assumption that Bill described. So that the framework that we use for analyzing risk we still feel comfortable with. That actually is the centerpiece of how we do risk management and how we do capital.

In fact the rating agencies respect that. Because we're not starting with a rating agency model and solving for what they think. We are devising an approach towards risk management that we think is appropriate and sensible. So with the frequency assumption change that Bill mentioned, the capital needs inside the business will dial up a bit, but to levels that I think we can comfortably support within our capital resources. So that is the answer for RenRe's view of risk management and the capital management.

As to where the rating agencies end up, that frankly is still a bit of a moving target and ongoing discussion. I think it is clear that they are examining the results of the past couple years to evaluate what they make of it. In our view, results that we have seen simply are not so surprising. As Bill mentioned, we think we as an industry have to be ready for large industry losses of this magnitude. We feel frankly pretty comfortable with our how our models have been performing.

But we will be in discussions with the rating agencies to try to get a clearer view on impact. I understand that they are going to be considering broader-based moves around the industry. I can't really give you a final comment on how that will affect us, other than to say we are in active dialogue.

Does the Wells Notice, the corporate Wells Notice, that I think is still in place, does that preclude you from going into the capital markets to raise more capital?

I guess what I would like to say on capital is to be more generalized in my response, which is we see ourselves with plenty of investors calling us, frankly -- more than I can count at this point -- looking at wanting to invest into RenRe or (indiscernible) entities like DaVinci. So as a practical matter, I think we have good access to capital.

Whether at a given point in time it is better or worse to be in the public equity markets or some other market is a call that we will make at the time. It is actually not just the Wells Notice, but there are other considerations that would play into that as well. So we never made a practice of predicting specific capital market transactions until we are ready to announce them; and I would say that is our profile at this point.

Sorry, one last follow up, just in terms of your growth outlook. Not that you have provided anything, but how much flexibility do you really have to grow, given that it appears in places like Florida you may have already started to approach a market share limit? Can you really grow market share at this point?

Let me take a stab at that, and I will see where the others see this. It is true that Florida is a peak area, so that is a -- we begin to run out of headroom in Florida capacity sooner, I think, than almost anyplace else I can think of. In fact, that is clear it is Florida. So the growth that we can support in Florida is going to be somewhat constrained.

But there is growth in other parts of the portfolio that are not correlated, where we have lots of room to grow. I think there will be opportunities there as well. So I think it is a little too simplistic to say, can we grow premium on this capital base? The question ought to be more, can we grow exposures in a given area? In Florida it is somewhat constrained; in other areas I think we're relatively unconstrained at this point.

Kevin, do you want to follow up?

I would say, if you look at Florida, that is where most cat companies manage their capital (indiscernible), because it is a peak territory. We are more than just a cat company. I think one thing to continue to focus on is the way we measure capital. As we find new opportunities in uncorrelated lines or in different regions around the world, we are continually creating capital that will allow us to even write more business within a peak territory such as Florida.

I think with the current market conditions, as I mentioned in my opening comments, I think we are coming into a market that, if you are careful and diligent about your underwriting and precise about your execution, you will find opportunities in new lines.

Okay, great. Thank you.

Brian Meredith of Banc of America Securities.

Couple questions for you. First, John, following on Tom's questions about rating agencies, would you all be at all bothered by writing or having an A rating by A.M. Best?

I think actually that is a question for Kevin O'Donnell on the markets. I would like to turn it to him.

I would say, looking at it, Renaissance enjoys tremendously strong ratings on an absolute basis but, even more importantly in some ways, on a relative basis to our peers. I would say that having any rating action is not something that anyone looks forward to. But I still think even if that were to occur we end up in an exceptionally strong position because of the relative position we have with our peers.

Okay, so I guess the answer is you would be willing to go down to an A. Let's say the rating agency said you need a couple hundred million dollars more capital; you are willing to kind of go with an A rating, rather than go and raise additional equity capital? Given your models tell you you don't need it.

I would not go at it that simply. There is going to be a dialogue with the rating agencies that's multifaceted, and I don't think we can just answer in terms of that kind of context. It will be a broader context.

Okay, second question, were you shocked or where there any issues with respect to your retrocessionaires or your reinsurers that are protecting you, as far as the size of the loss? Have you had to reevaluate who you are doing business with, or who you are ceding business to?

Kevin?

Specifically, you're talking about business that Renaissance is ceding to?

Exactly, ceding to third parties.

I would say Katrina, if anyone is surprised that that is a retro loss, I would be shocked. I would say I was in Monte Carlo and it's the first time that we have had conversations after losses where nobody asked whether you had a loss or not. So I wouldn't think that anyone is surprised at all by that.

I'm talking more about the magnitude of losses that some of your reinsurers or retrocessionaires had. Are you worried about the financial security of some of them now? Or are you less willing to send business to certain of them now?

Let me comment on that, Brian. We have a credit review process where we track our reinsurance recoverables and actually also look at unfunded, ceded reinsurance before it is hit. We are trying to keep track and look to have a diversified portfolio counterparty credit risk embedded in our reinsurance relationships.

I would say that post this event we are comfortable with where we stand with our counterparties. The largest one that we have is about $50 million, so not trivial; but it's not like this is all about one counterparty. It is spread across a number of them. We have put up a modest valuation allowance from what you see on the balance sheet, that I think is a good proxy for what could happen in terms of any credit issues going forward. So all told, I think we are comfortable with this. I don't see it as a big issue for RenRe.

Last question more from a personnel standpoint. Obviously a lot of new reinsurers popping up on the island, as well as new departments who want to write property cat reinsurance. There's a lot of demand for employees right now. The question I have, given that Jim has departed here, what are you doing to make sure that you retain your employees? Have you lost anybody recently in the underwriting area to any of these new ventures?

Brian, very good question. There are certainly people out there starting new ventures. Frankly it makes us feel pretty good to already have a great team. I would hate to be one of those guys out trying to get the team. Our people are highly motivated. They have been working together for years. They have a real fondness for the Company. They are well compensated. They are under contracts. And while the phone has been ringing, we haven't had any departures whatsoever. So, Kevin, your comments?

Looking at the underwriting team, I would put up the guys on the underwriting desk against any underwriting team in the business. With that, you have got to be crazy to start a company and not call them. So we have done a good job making sure that they feel rewarded; and we have done a good job protecting them so that they don't have the option to leave.

Great, thanks for your answers.

Brian, I wanted to comment (inaudible) too. The other thing that I think keeps our team very focused on RenRe as the place to work is that there is an institutionalized proprietary advantage in REMS. As an underwriter you don't really want to walk away from that tool. To have to rebuild that from scratch or play with a spreadsheet over a weekend to try to do underwriting against RenRe's REMS tool that has taken us $25 million and 10 years to build, you would be crazy to want to make that choice. (inaudible) I think you would be.

Got you, thank you.

Josh Shanker of Citigroup.

In terms of additional events, in the press release that came out, the first one about the change in management, it also mentioned, of course, John, that you will be retiring and that Marty is leaving. Is there any commentary on why?

I just actually looked at the press release. So I think that gives you all that we are able to say. I guess I can say for myself, I have gotten to the point in my career -- I have been at RenRe for eight years plus -- and I am ready for some new challenges. That was the context of my thinking.

Josh, if I might add, with Marty's departure we have a very strong Controller in Mark Wilcox. So that has been -- Mark has been in control of that function now for quite some time. Marty's departure is not going to affect the Company.

Very good.

One other comment I would reinforce that I see myself as fully committed, engaged in my role, and I would not want there to be any question about that. So, at least reflecting on my hours recently and what I expect going forward, I am very committed to RenRe; and I am going to work hard until the day I leave.

Okay, good, good. In terms of the capital ratios necessary to maintain your business right now, have you been in discussions about the rating agencies, about whether or not you have the ability to increase your leverage right now? Or whether, given the current amount of capital you have, should you choose to do so?

We evaluate our capital with them, in general, looking at the capital inside the operating entities. So looking at Renaissance Reinsurance, looking at the Glencoe Group, or looking at DaVinci. So capital is evaluated at that level more than it is at the consolidated level. That is where the extra resources that we have at the Holding Company come into play.

So we still have to push through the final review of Wilma and what that means; and also need to come to terms with the rating agencies in terms of where their capital models might be going. But at this point, my sense is that we have good flexibility to meet what their needs would be.

If you were to renew every contract that you wrote in the first quarter of last year at the new prevailing rates, would that change your capital adequacy in any way?

I'm sorry; say again.

If you were to renew every contract that you wrote last year in the first quarter, would the rating agencies view that as a change in your capital adequacy, or view that as pretty much the same?

I think that is actually an open question at this point as to where they are ultimately going to take their models. Bill?

Is that relative to our own measure, or is that relative to the rating agency measures?

Certainly the rating agency measures, since they hold the badge and the gun in some reason, some ways.

But I think, to John's point, I think the rating agencies themselves are still deciding what type of new capital measures they might require. From our own measures, we are very much an exposure rated company. We look at the exposures presented. If you are actually getting more premium for the same exposure, that is the good news. As I think Neill Currie, actually, we were originally quoted a comment we use around here, that premium is the good stuff, exposure is the bad stuff.

So I would feel from our own capital measures, as John mentioned, we have similar capital today than we had the beginning of this year and the beginning of 2003. Our capability to assume the exposures that we have and to continue the relationships we have had with our clients continues intact.

Very good, well thank you very much and good luck.

Alain Karaoglan of Deutsche Bank.

I have several questions. The first one, was there any changes to the financial restatements that you did earlier in the year? Or they are still the same?

They are still the same.

So I will just allow myself one comment, John, and then go to my question. So the impact of the restatement on shareholders equity was zero. The impact on retained earnings was zero. But yet you are losing the CEO and one of the founders of the Company, and you're looking to leave in June. I am not sure what the SEC is trying to do here.

But anyway let me go to my questions. The Wilma losses of 250 to $300 million seems to be large for a 12 to $15 billion event. Are you looking at these frequency of losses, or your exposure to Florida, Bill, in a different light than you would have looked a year ago? Or you're still comfortable getting that sort of loss, which is around over 10% of equity from a 12 to $15 billion event?

A couple of thoughts there is, as we have said in the past, we have -- our portfolio has been what, in our terminology, hot for sort of smaller Florida events. The key reason for that is we see that as a good potential return relative to the risk. The risk is, as you pointed out, is sort of an earnings type risk. In all of our analysis, as the size of a Florida loss, for instance, gets larger our market share goes down. If you look at a Wilma at a 12 to 15, our market share is somewheres around 2%, in that area, which if you look at the events from last year which were in the sort of $7 billion range, our market shares were closer up to 2 -- 2.5 to 3. So you can actually see our market share going down as Wilma goes to 12 to 15.

I think the other key take-away is we -- everything we see and everything we have modeled up, we think Wilma is a bigger event than everybody else seems to be concerned about. Obviously, a bigger event than Rita, but it is still early out there. So we're taking, I believe, as a conservative of a view on the potential market losses as anybody I have heard in the market.

But the (indiscernible) and frequency that you're doing in your model, obviously that has to affect what the losses that you're expecting just in Florida. Because what has really hurt you in the last year and half is not the Katrina, it is the several hurricanes hitting Florida last year, and again Wilma hitting Florida this year.

I think that's -- and that's true, is that frequency in Florida has obviously been painful. And increasing our models to reflect an increased Florida frequency is something that we have done. We have stress tested not only our portfolio, but we have actually looked at every transaction and how that increase would actually change our view on each one of the transactions.

As I mentioned, the nice thing about Florida in particular is because of the core experience of the last two years, the ability to get rate there is actually quite good. But until we actually see where the rest of the market votes on what the prices should be in those areas, we just really won't know how our portfolio is going to come out.

But as I tell people, one of the good news about the change in frequency, if the client has the money in their gross portfolio, that is good. I think you've got healthy markets in Florida where there is more rate coming in, so they can afford to pay more, and that is what you're looking for. The worst thing is when you have a client who needs to pay a lot more and they don't have any money to pay more, that is the bad situation.

In terms of the Gulf exposure other than Florida, obviously that market is going to face significant dislocation. You have not been as heavily in that market as maybe others. Does the energy market -- does the market that's going to be affected provide meaningful opportunities for you in 2006?

One thing we touched on, that is one of the areas that we specifically mentioned as being one that the actual results varied tremendously from the model results. And I think knowing our propensity to be diligent modelers and that business being somewhat understandable, I would say it is reasonable to think we would be looking at opportunities in the energy area.

John, one question that I have with respect to guidance or the outlook of '06, I think after the World Trade Center catastrophe you were quite quick to give guidance with respect to 2002, in terms of your earnings and your outlook. Why is it so much more difficult at this stage to do that now than it was then?

Well, I think when I did that, I was criticized for doing it and how could I possibly know. So I do feel like I am in a position where I can't win. Frankly, where we were as we are sizing up the situation is that there just are so many moving parts and where the top line can go, what new business opportunities look like and also what the different capital solutions might look like to support that premium, that it just was giving us such a wide range of outcomes that it did not feel helpful to put out guidance.

So I think it is clear at a macro level that we are going to be looking for prices to go up, unclear how much margins are going up. And there will be some dislocation in some areas that we're going to find opportunities in, but it's not going to be across the board. Still a fair amount of uncertainty about how good it's going to be and how we will be able to play in that. So given that uncertainty, we made a decision to not come forth with any guidance at this time.

This is Neill Currie. I might just mention to the people on the call, we will go over the one hour. We have got some other people that have some questions, so we will try to get to as many of you as we can.

Thank you, and I want to congratulate you on your opening comments and a very thorough discussion of the environment. You did a great job.

Thank you.

Terry Shu of JPMorgan.

Most of the questions have been asked, but I wanted to ask about Wilma; and I think the answer is that you think that it is a much larger industry event than some of the numbers that we have seen, because you talk about the share number. I recall at one point you said that your Florida market share was closer to 10%. John, I can't quite reconcile these numbers. What is your share? How do you measure when you talk about share of exposure or share of loss?

This is Bill Riker. I don't specifically remember that 10% number. But you might be -- what we are talking about in this 2% number or 3% number is share of the primary industry loss. You might be thinking of -- that 10% number is closer to either the premium or the exposure of the reinsurance (multiple speakers).

All right, all right. That is why I just wanted to kind of reconcile that.

Yes, I think I can reconcile that further. I think we have talked about having a cat market share that has ranged around 10%, sometimes a little lower. So that is probably what you are thinking about, is our share of the premium and the cat reinsurance market at about that level. That is different than what our share might be of the primary industry loss.

One other comment is that we actually have models around here where we look at both of our share of the primary industry loss and we look at our share of the reinsurance loss. Those are the things that we use to figure out whether we are overweighted or underweighted in regions. So we actually do both calculations.

So you're overweighted in Florida. But as we saw last year with the under $10 billion event, your share of losses, the primary industry's losses, were closer to 2.5 to 3. Then it scales down when the loss number goes up. But when you look at the aggregate for last year, as I recall, you talked about an industry number of close to 30 billion. In the end I believe -- am I right, John? -- that the total losses were something like 620, I forget the exact number, which is approximately 2%. Is that right?

Yes, you have got that right. Our number was a bit north of 600 net-net. That is about 2% (multiple speakers) of what industry (multiple speakers).

Right. If I could kind of go back to that capital question, if I understand you correctly, you have sufficient capital to support your current writings. And you talk about if the opportunities are very good and exceptional in different markets, you still have flexibility to access capital without necessarily issuing equity at the Holding Company level, especially since your stock is not -- is more depressed because of all the issues that we all know about. So you didn't really conclusively say one way or the other whether you would go into the public market. Is that right?

That is right, Terry. Frankly, I want to hold open the discussion of what form additional capital might take. That is something we will evaluate, and we are going to do the best thing we can for RenRe shareholders, and look at all possible sources and markets, and try to optimize that answer.

Right, but I guess we all note and acknowledge that the current stock price, Common Stock price, is not ideal given the events that have occurred.

I would have to agree with you.

There is unanimity on that fact.

I would like to repeat what Alain said, that we appreciate the leadership of Jim Stanard over the years, to have done a great job in assembling your team. From what you have described, you don't really have anyone defecting, even though these have been trying times. Is that a fair comment? Because everything is together, and you are writing business, and the team is intact.

That is a precisely correct statement. I don't know if Jim is on the call, so I have to be careful what I say, but Jim was a wonderful influence on us all. But the fact is that his concepts have been institutionalized here. So we have got a management team that thinks a lot like Jim, and we are all on the same page. Back to your original question, no defections and we don't anticipate any.

Thank you.

Jay Cohen of Merrill Lynch.

First of all, I think the really best news in the quarter is Bill Riker's return to the Company. Bill, very happy to hear your voice on this call. That is really great news.

Thank you, Jay.

However, you look at the 10-K, and there was a number of management mentioned in there regarding the finite transactions lacking due care; I forget the exact term. Everyone that was mentioned in that 10-K has either left the Company or is retiring in June, in the case of John, except for Bill Riker. Bill, can you make any comment on this? I don't want you to go, but I just --.

I would love to, Jay, but I won't. That is just a place we can't go here.

The other question I have is Jim's decision or Jim's departure. Was this dictated by the SEC? Was it the Board's decision? Or was it his own decision?

Jay, I will try to handle that. The Board has monitored this situation very closely, and concluded at this point that it was the best for all RenRe constituents to begin to put this behind us.

So not having Jim -- in other words, having Jim at the Company would have been a liability, according to the Board?

That is all I'm going to say, Jay.

Okay. Neill, good to hear your voice too. Thanks.

Thank you.

Bill Wilt of Morgan Stanley.

Just two quick numbers questions. Could you share the gross losses from Katrina and Rita, relative to the net? That is part one.

We have not historically shared growth. You can get a sense looking at the press release by how the balance sheet has bulked up. We have the benefit of some of the insurance recoveries. But we have not been sharing gross numbers.

Okay, very good. Part two, can you share how much of the current reserve balance, I think it is the Individual Risk segment that is being reviewed in the fourth quarter. Can you share the current reserve balance for the Individual Risk case in IBNR?

Yes, that is just over $550 million.

Is that as of 3Q or 2Q?

That is as of 9/30.

9/30, and I am sorry, the number was?

Just over 550 million.

Thank you very much.

Adam Klauber of Cochran, Caronia.

Could you talk about the opportunity in the Individual Risk market? If there is a shift in the coastal property market from the admitted to the nonadmit market, one, do you have an appetite for that business? Two, given your current MGA relationships, do you have the relationships to take advantage of that?

This is Bill Riker. Obviously, primary coastal risks, both commercial and for that matter residential, are probably the areas that are going to come under the most intense pressure over the next couple of years. As most of you may know, we had a fairly large portfolio of sort of commercial E&S business back in '02, '03. Which, as the pricing softened over the last couple of years, we cut that back significantly. Which fortunately that paid off when it came down to our losses out of Katrina per se.

The good news is we reduced that; we did not terminate those relationships. We have very good relationships with the people who produce that type of business, and they are ramping up as we speak. So our ability to ramp up and take advantage of those areas was fully in place, is being executed as we speak, and we are very optimistic about what is going to come out of there.

Obviously, the pricing indications of how those markets are moving, it is showing to be quite interesting. It is still early. But we are fully in place and marching, which I think showed, A, there would be respect that we had for our partners there, who totally respected our view over the last couple of years that we were not interested in doing that business and we wanted to shrink that down. And now the opportunity is going up.

Sorry, Bill. So will that be one of your bigger growth areas, do you think, in 2006?

I would be surprised if it weren't. I think, again, it is still early to see how capacity is allocated by other organizations out there. But it is now secret that a lot of the E&S carriers, especially ones that had a tendency to put down big limits, got knocked around pretty good.

Right, thank you. One follow-up, in the cat business. You talked about factoring a greater potential frequency. Will that translate into you increasing the lower limit on some of your aggregates within the cat programs?

If that is so, while that is probably better pricing -- you will probably get better pricing for exposure if those limits move up. But at the end of the day, if you give up that lower limit, will the cap premium potentially be equal or even lower next year than in 2005?

Talking about lower layers (multiple speakers).

Kevin O’Donnell: Okay, I think, again, a lot is going to change, I think, in how the cat market approaches the renewal season. Where not only where I think some reinsurers are surprised by the overall size of the loss from Katrina; I think some buyers were surprised that they had quite as large a loss or perhaps went out the top of their program. So I think it's -- I'm not sure exactly how the market is going to respond to that, with people buying more limits or shifting programs up.

But I think there's a lot of moving parts. For us to say that we're not going to be writing low layers and that that's going to affect premiums, it is probably a little too early. The thing I said, we are as close to this market as anyone, and as the changes are developing we're positioning what we want to write and our capital in a way that we should be able to leverage into the market pretty heavily.

Thank you.

Tom Kier (ph) of Goldman Sachs.

I just wanted to ask about the aggregate large event loss limits, (indiscernible) estimates, and the return time on those losses. You said that the total aggregate large event loss is about 70 to $80 billion. Does that include Wilma?

Just to be clear, that is at least 70 to $80 billion; and yes that is including Wilma.

That time horizon on that is, or the return time on that is 1 to 10, 1 in 10 and 15 years?

We have put that -- on a worldwide basis, to get 70 to $80 billion worth of losses you've got to assume that that happens between -- with a -- between a 10 and 20 year return time.

So your losses from those events were 37% of book value, basically. So you're basically saying in 1 in 10 and 15 years (technical difficulty) 15 years you should expect to lose 37% of your book value.

That is the wrong way to look at it. Because you need to look at the year. The calculation is, you have premium offsetting that. So I think you look at our total losses for the year are a relatively small percentage of our capital base. So we have said in the past that we always expect that RenRe will have a losing year once approximately every 10 to 15 years; and I think that is consistent.

What would happen in one of those mega years of 150? What is the return time on that, and what would happen?

If I hear the return time of 150 billion precisely, I would be in a different business. But in the end we see -- getting up to 150 billion is getting to the somewheres around a 1 in 100, 1 in 50 type range. That is what we manage our capital to, to make sure that that kind of stuff happens and we are there writing business the next day.

Thank you.

I think the other thing to notice, that in a given industry loss you may have more or less market share. So that we have seen some industry losses recently where we had higher market share; in the past we have seen plenty where we have had much lower. There are some areas were we have almost none. So you can't just look at industry losses and translate directly into RenRe losses. It is a more complex question, looking at what our portfolio is about.

It's a very nonlinear problem.

Thank you, Tom. This will have to be our last question. We are running short on time.

Susan Spivak of Wachovia.

Actually, all my questions have been answered, but thank you.

Let's do one more then. We are open for business here; one more question, then.

Rene Misbis (ph) of Credit Suisse First Boston.

Have you have any discussions with the rating agencies for the removal of the credit watch in light of management change?

We are in active dialogue with the rating agencies. So we certainly are working with them to be sure they understand the story here at RenRe.

Right. Could you provide some more clarity on Bill Riker's role in the Company? I am happy you are back.

Thank you.

You're not as happy as I am. I worked with Bill for a long time now. Bill will be doing several things, but two primary roles for Bill. He will be our Chief Operating Officer across all lines of business; so that includes Individual Risk business as well as the reinsurance business. Also, Bill is probably the world's foremost risk modeler, at least in my opinion, and he's going to be actively involved with the help of one of our key employees, Ian Branigan (ph), to work on risk modeling and spread that as widely, as deeply in the organization as we can over the next year or two.

(indiscernible) make one comment about what I see as a key part of the role is. Our culture of risk management is very deeply ingrained in our organization. I believe that that over time is one of our key competitive advantages and is a -- personally I am committed to it, and I know as a Corporation everyone is committed to making sure that that remains in place. Because that is really where we derive our competitive advantage over time.

We have a very deep team who understand that, but we're not going to take that for granted. We're going to continue on that process over time.

That's great. One last question. In light of the expectation of higher frequency for Atlantic hurricanes, could you provide us with an update of your risk appetite in the Florida market? Do you still believe that the risk-reward is adequate?

There's a couple different ones in there. We assume that risk through two different areas. One, through some of our Florida homeowners business; and obviously Kevin O'Donnell will touch on the reinsurance market. But as I say, we have already stress tested our Florida homeowners book. Obviously, it is slightly less attractive than it was before, due to the changes. But as I mentioned also, we are quite optimistic that we can get additional rate in that book to offset a lot of those changes.

So I know personally when we first did that analysis I was quite interested to see the results. But overall, we have been pleasantly surprised on how the resiliency of the portfolio can accept the higher frequency assumptions.

On the reinsurance side, one of the reasons we were over or we are overweight in -- or had a heavy market share in the lower layers in Florida is we think you receive excess returns of (ph) the risk you're taking there. By increasing the frequency some of that excess return obviously is reduced; but the portfolio still looks quite robust.

One thing I think it's important to mention too is early in the summer we actually were running a higher frequency model already, prior to Katrina hitting. So we had the benefit of knowing what our book looked like before Katrina hit. The change we have instituted since is a more precise and a more permanent change than what we put in before. But we have already had the benefit of looking at the book through higher frequency.

One final point I would add to all this is RenRe really is uniquely situated to be able to do this kind of analysis. We have turned the dials on the frequency assumptions. We have already seen the output. We're not waiting for a commercial vendor to produce it. We have done the work and we have a clear point of view with our risk modeling team to be able to test this issue, I think, ahead of really anybody in the industry.

That's fair. Thank you.

Thank you very much. Thank you, everyone, for joining in. Look forward to talking to you in the future.

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