濱特爾 (RNR) 2007 Q1 法說會逐字稿

Good morning, my name is Rich and I will be your conference operator today. At this time I would like to welcome everyone to the RenaissanceRe first-quarter 2007 investment community 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) Thank you.

It is now my pleasure to turn the floor over to David Lilly. Sir, you may begin your conference.

Good morning. Thank you for joining our first-quarter 2007 financial results conference call. Yesterday after the market closed we issued our quarterly release. If you didn't get a copy, please call me 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 May 16 at 8:00 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 8701513. 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 July 13.

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 our results are Neill Currie, Chief Executive Officer; Fred Donner, Chief Financial Officer; Kevin O'Donnell, President of Renaissance Reinsurance Ltd.; and Bill Riker, President of RenaissanceRe.

I'd now like to turn the call over to Neill. Neill?

Thank you, David. Good morning and thank you for joining us this morning. Yesterday after the market closed we released the results for another strong quarter of financial performance for RenaissanceRe. We reported $187 million of operating income and grew our tangible book value per share by 6.8%. We really focus on growing tangible book value per share over the long term and I'm pleased we have kicked the year off to a good start.

Our strong earnings were driven by a combination of good underwriting results for our Individual Risk and Reinsurance segments, favorable loss reserve development in both our segments, and strong returns in our investment portfolio. Fred will go into more detail about our results for the quarter in a minute but I'd like to turn to how 2007 is shaping up.

Our views on the dynamics of the various markets in which we write have not materially changed since our last call. As many of you know, our Reinsurance segment we write roughly half of our premiums at January 1. Very little business renews during the first quarter aside from that and we have historically not been a large writer of the business that renews at April 1. So there is not much in the way of incremental, hard data regarding the top line.

Our next significant renewal date is June 1 when much of our hurricane exposed book renews. We are in the process of underwriting and negotiating these deals now and have been pleased to find that the U.S. wind exposed cat market is holding up quite nicely. Demand remains strong and we are anticipating attractive pricing although pricing will be off from the peak at June 1 of last year. This was expected as the market dislocation of June 1 last year was severe and did not represent a sustainable equilibrium.

We are well-positioned for this market. We feel that our role as a leader in the cat market and the strength of our client and broker relationships which were reinforced by our willingness to step up in a year when capacity was hard to find elsewhere, will enable us to maintain an attractive portfolio of U.S. cat business.

In fact, our leadership role has attracted enough opportunities to write adequately priced Atlantic hurricane exposed cat business that Jay Nichols and his team in Ventures are in the process of structuring another joint venture similar to Starbound. Such a transaction if successfully completed would enable us to be responsive to our clients while maintaining a balanced portfolio.

We continued to see signs of softening in our specialty reinsurance book. Because of the competitive dynamics of this market, this part of our business continues to be the most challenging in terms of the deal flow of attractive opportunities. As in all our underwriting activities, we will stay disciplined but we will also avoid the mistake of letting business go just because it has deteriorated on a relative basis as long as it remains attractive on an absolute basis. All in all we hope to keep this book flat but note there is some downward pressure on the top line of this part of our book.

In Individual Risk, we continued to see new opportunities particularly in the wind exposed lines of business. Our program business is holding up nicely. Just as we have continually improved our ability to underwrite property cat risk over the years, we are utilizing our technical skills to continually improve our risk selection capabilities and our program business.

You will note that the top line is down the first quarter of this year compared to the first quarter of '06. This is being distorted by a few moving parts such as some deals coming in and out of the book, some short-term covers from early '06 that pushed renewal dates back in the year. When we step back from all of this, we still expect to keep the top line roughly flat for the year so we hope to see some stronger comparisons versus '06 in the coming quarters.

We continually to actively follow our strategy of superior marketing, risk management and capital management. Our position as a market leader and focus on marketing and client service over the years continues to pay dividends. We have been able to maintain an attractive book of business in a somewhat softening environment and are seeing new opportunities in some of our core lines of business as a result.

We couldn't be a market leader without superior risk management. We were fortunate to have our REM system, which enables us to analyze our portfolio daily during a busy period like we are in right now. This capability combined with our multiple distribution channels truly first-rate underwriting teams, and the active consideration we give to a wide array of risk management tools enable us to construct an attractive portfolio of business.

Our CFO, Fred Donner, will give you an update on our capital management in just a few minutes. Kevin O'Donnell is here with us today and available to answer questions and Bill Riker is with us by telephone. As happens frequently, we've got Bill out making money for us. Bill will share his thoughts with you about the upcoming hurricane season and will also be available for questions.

At this time I would like to turn the call over to Fred. Fred?

Thanks, Neill, and good morning everyone. As you just heard Neill mention, last night we reported strong operating results for the quarter. Operating income was $186.7 million or $2.57 per share, slightly lower than the same period last year due to the effect of Windstorm Kyrill which impacted our net results by $45.3 million and added approximately 21 points to our overall loss ratio. This was offset by strong investment income of $108 million this quarter versus $80 million for the same period last year.

We generated an annualized ROE of over 29% to our book value per share by 6.8% in the quarter and finished with a strong balance sheet that is over $2.6 billion of common equity.

Let me take you through some of the details beginning with the catastrophe unit of her reinsurance segment. Our catastrophe unit is performing as expected with a good outlook for the remainder of the year. Managed cat premiums written declined approximately 6.7% during the quarter to $429 million from $460 million during the same period last year consistent with our expectations based upon what we saw during the January 1 renewals.

Our cat business generated approximately $74 million of underwriting income before taking effect for minority interest. This compares to $86 million for the same period last year. However, including this year's result were losses from Windstorm Kyrill which amounted to approximately $71 million net of reinstatement premiums but before minority interest.

Let me now discuss our top-line outlook for our cat unit, specifically the impact of the changes in the Florida cat fund on the June 1 renewals. While it is still early, initial indications are that demand may prove to be better than we originally anticipated and we believe that we will be well-positioned for the renewal season.

For example, we are currently in the market with a second generation of Starbound. It's still in the early stages, there is still a lot of work to do, so I don't want to call it a done deal yet, but it can potentially have a favorable impact on our top line. So, exclusive of any incremental premium generated by our new joint venture, we are currently expecting our total managed cat premiums to be down consistent with our original guidance.

Let me step back and take a minute to talk about our top-line guidance. We like to think about our premiums on a managed basis. That number is reconciled to you in a schedule appearing on page 5 of our financial reporting supplement. On our last call we expressed our guidance based upon managed cat premiums net of amounts ceded to our joint ventures, Starbound and Tim Re because we use tend to view Starbound and Tim Re as fee generating business rather than premiums we are holding for our own account.

Our guidance for the full year remains unchanged. Total managed cat premiums are expected to be down around 15% and when you exclude Starbound and Tim Re gross written premiums from the 2006 numbers, our managed cat premiums are expected to be down 5% for the full year.

Moving onto specialty, our specialty business continues to operate in a challenging market. This is putting further pressure on our top line in this business but we are still generating good returns. Gross written premiums were approximately $117 million versus $143 million during the same period last year. For the quarter, specialty generated $42 million of underwriting income which includes approximately $32 million of favorable loss reserve development from prior accident years.

The decline in premium results from our maintaining our disciplined underwriting approach at a time when the market is softening underscoring our focus on long-term profitability. It's also important to remember that our top-line specialty is somewhat lumpy because of the small amount of large deals and therefore we are maintaining our top-line guidance of flat for the full year.

In the area of Individual Risk, we are still seeing some good opportunities and are pleased with our results for the quarter. Gross written premiums were $123 million versus $171 million for the same period last year. The largest component of the change is from certain quota share contracts that were terminated during the second quarter of '06. These contracts were terminated when we decided to redeploy the capacity to our access of loss business which we felt was more profitable. The remainder of the change largely related to timing issues some of which Neill mentioned and we are expected to make this up in the near term.

Overall, despite some softening in the market, we are comfortable with our prospects for the year and are maintaining our guidance of a flat top line although we recognize there is some downward pressure.

Our investment portfolio performed extremely well this quarter with over $108 million of net investment income. Our total return for the quarter was over 7%. These results were driven by higher invested assets combined with higher earnings from our private equity and hedge fund portfolios. The duration of our portfolio remains short at about 1.3 years which we continue to feel comfortable with from a risk reward perspective.

Shifting to capital, our philosophy hasn't changed. Our goal is to deliver superior returns to our shareholders over the long term and grow book value per share as we actively manage our capital. During the quarter, we redeemed $250 million of preferred securities as originally planned. Also during the quarter, we repurchased a little over 196,000 shares of our stock at an average price of $49.90 under our existing Board authorization leaving about $140 million under that authorization.

We continue to feel comfortable with the level of capital we have today. If we continue to generate profits at our current pace, excess capital will become an issue. But looking at the returns we hope to generate this year, I don't see this as a major issue today. We therefore continue to believe that our capital levels are appropriate particularly as we head into the wind season. Our current stance is opportunistic; if we see attractive opportunities to buy back our stock, we will do so as we did in the first quarter.

With that I would like to turn the call over to Bill.

Thanks, Fred. In my section I'm going to discuss a couple of items of relevance to our business as we approach the 2007 hurricane season. First of all commenting on some of the forecasts you see in the press, 2007 like 2006 is predicted to be an active hurricane season. Only time will tell if these forecasts actually translate into high loss activity for our book. One thing you should remember is that we've been in a period of high activity since 1995, so we should expect an average forecast for this current period to be considered high in relation to any longer-term measures.

We have discussed some of our thoughts on hurricane forecasts in our newly released annual report and we encourage you to read this piece at your leisure. Some of the highlights of that report is that we've been involved with hurricane prediction since basically the start of RenRe back in the early '90s.

We have significant dedicated internal resources focusing on the areas of hurricane and other natural phenomenon forecasts and we've focused not on the short -- we focus on many different timeframes being short-term, medium-term and long-term. This is truly an emerging science and we are pleased to be one of the leaders not just in the Reinsurance industry but in all industries at looking at potential of changing forecasts in the atmospheric area.

In relation to some of these seasonal forecasts, hurricane risk in general continues to be a hot topic in the news with lots of conflicting discussion angles. Obviously the cost of the original product for a consumer business buying hurricane protection is increasing as the perception of the risk increases thus causing issues with consumers. With upset consumers, we can expect the political environment to follow suit resulting in the different state and federal discussions that our well-publicized and discussed.

Add in the stories and concerns about the effects of global warming and you have a very conflicted environment. We believe that aligning economic incentives which recognize the public policy concerns with consumer unhappiness will provide lots of content and opportunity in the future and the arguments are just starting.

So, in our core business of managing cat risk and in the subset of managing hurricane risk, we continue to raise our game in relation to managing this risk as we see this as a core competitive advantage going forward.

On another related note, it was recently announced that collaboration between RMS and a company called WeatherFlow to build a network of hardened weather stations to record hurricane force winds in order to conduct simpler financial transaction. This network is called is the WindX network.

For your own information, we initially contracted with WeatherFlow, a provider of professional weather monitoring networks to install the network of hardened wind stations. We ended up with a collaboration with RMS to bring the products to market. We see this as an emerging market for both our own capital management and potential new products. And we are currently working with a variety of different types of institutions on product development.

In conclusion, hurricane risk I believe is probably not going to go away in the new future and demand continues to grow for both protection and solutions to manage this risk. We are working on the best ways to manage this risk while being circumspect in the effectiveness of the existing and emerging tools.

Thanks and I'm going to put it back to Neill for the Q&A.

Thank you, Bill. Operator, I would now like to open the call up for questions.

(OPERATOR INSTRUCTIONS) Josh Shanker, Citigroup.

Good morning, thank you. Just a couple questions mostly related to Florida I'm sure I won't be the only one. But the first question involves the discussion about market conditions there right now compared to want one year ago. Where are we seeing the most kind of changes in price and attachment points and access of loss versus pro rata treaties in changing terms? What does the market look like there is the first question?

And the second question is it seems that -- are you saying that the changes in Florida will not be a big deal for their top-line overall? Could you give a hypothetical example of a kind of company that would be dramatically affected by what is going on in Florida? Because I'm just trying to figure out how $20 billion comes out of the market in terms of coverage -- or I should say $20 billion worth of potential coverage and nobody seems to be taking it on the chin.

Josh, good morning, it's Neill. My mother said never say anything bad about anybody else so I don't know how much detail we're going to go into on number two. But we've got Kevin here to give you a little feedback on number one.

Sure. As Neill mentioned, the market conditions in Florida last year are probably not the best benchmark to compare against because it wasn't really a sustainable market as far as the supply and demand macroeconomic trends there. But what I say we are still early in this year's renewal cycle for Florida and you asked a bunch of questions as to the attachment points and the -- I'll kind of address them one by one.

The attachment points obviously are going to be different this year where you have the [TICL] layer coming in. I think the [TECO] layer which is the layer below the FHCF will have less of an impact on the private market. And that will still -- so that portion of below the old FHCF will still be he largely unchanged. I don't think people will be purchasing significantly lower this year than they purchased last year as a percent of the FHCF.

As far as -- you are absolutely right, there is a large chunk leaving the market which is the TICL layer which is the layer sitting directly above the old FHCF. That is a portion that will -- leaving and the premium associated with that will be leaving the market. Remember though that that is a single event coverage. Most of what was sold last year was two events. So I think there will be some opportunity to sell coverages around that.

You also have a few more buyers entering the market this year than you had last year and you also have people purchasing more coverage this year than they purchased last year just with the inflated pricing that they were paying on what they were able to purchase, they perhaps didn't complete the program to the level that they ultimately wanted to.

The other thing I'd like to expand in the conversation, it's not just Florida. We looked at the Atlantic hurricane peril as what we're trying to manage not a Florida risk, so when you look at it with those variables, I think our risk for Atlantic hurricane is actually going to fit into our portfolio quite well this year. The mix may be slightly different to what we had last year but overall it's going to be an adequately returning portfolio and a well-balanced portfolio to Atlantic hurricane.

Thank you, very helpful and thorough answer to the question. Thank you.

Terry Shu, JPMorgan.

I also wanted to ask about Florida and you addressed did well. As far as the rate levels, I assume that has been impacted as well or not? Both the core reinsurance rates as well as the primary rates that are supporting that reinsurance business? And then if you can comment on other cat market international markets, what is happening there?

The rates in Florida I think on the reinsurance side I will speak about first, will come down. But that is not a surprise to us. That is something we expected actually shortly after writing the business last year. There is tons of fear in the market. There was a contraction of supply and then there was also some artificial demand introduced to the market. Without those dynamics, I think it is natural for prices to fall.

But the thing to look at in the market is whether it is still adequately priced business or not adequately price. And even with the price reductions we're expecting to see, we still see the price of the risk being ceded to be adequately priced so we are enthusiastic about the conditions in the market.

The insurance side I think one thing that we do is we are very tightly aligned -- where I'm speaking to Bill Ashley, our CEO over U.S. operations -- all the time and we're trying to balance whether we are taking the risk in on a primary basis either through quota shares or through individual risk relationships or through reinsurance. So from that side, it's a delicate balance as to where we're going to get the best return on the business but I'd expect to see price returns on price reductions on that business as well.

Are you able to quantify for us, maybe not precisely but just in a magnitude in terms of rate impact? And also on the primary side, is the commercial market also impacted beyond just the homeowners market?

I wouldn't want to get into any precision around the rate reduction just because there is so many moving pieces to that as far as the quantum. The commercial business is a little different where a lot of what renews at 6-1 is really the residential portfolio. Commercial business is a little bit more of a moving target because it comes in through a lot of different ways. It's wrapped into also some nationwide programs. And it makes it a little more difficult to quantify the reduction in that as opposed to the 6-1 business to the 6-1 business.

Okay. Thank you.

Terry, this is Neill. Let me add in, Kevin was addressing mainly reinsurance there. Commercial insurance is turning out the second quarter as a big quarter. So a lot of the story you will see for the top line stay tuned for next quarter. We are seeing a lot of activity --

Okay, okay, and there are rate pressures there as well I gather because the --?

It is a pretty nice market.

Okay. And if you can comment on other international markets, cat market?

The international cat market -- the big renewal as Neill had mentioned for 4-1 is Japan. We tend not to be a large player in the Japanese market except for some specific covers. The reason for that is referencing back to what we look at as being adequately priced through our inadequately priced business. And most of what we see in Japan doesn't meet our return threshold. So whether the prices are up or down slightly it doesn't really change our view of the risk that is being ceded out of there.

So Japan I would say is probably down a little bit but from our standpoint it doesn't affect us because it never got to the point where we were interested in it. Outside of that, there is a little bit of UK business that comes up but there is not that much feedback in the market as to the international pricing. The one thing I would say is in general, there is more hunger for diversifying business and by diversifying I mean business that is diversifying to North Atlantic hurricanes.

But in this first-quarter international business with the would small component you said?

Yes.

Thank you.

Vinay Misquith, Credit Suisse.

Good morning. Could you help us understand the impact of Citizens in the marketplace both on the commercial non-residential which I believe you will be starting to write June 1. So you might not have fully seen that impact. And also on the residential property.

It has an affect both ways. They are having -- it has taken them a little bit of time to get their act together on the commercial side, if you will. There's definite impact on the personal lines but in the commercial, it's not having much impact right now. And we feel that going forward there will be -- there will still be plenty of opportunities in the commercial E&S marketplace.

In terms of the Florida take out companies, do you get the sense that they are getting more business because the big boys want to leave because of the new regulatory issues?

I think Florida is an interesting case study in that I wouldn't make a statement that one group is growing more than the next. Citizens is certainly getting its share. But there is -- the business tends to be I think a little bit sticky in Florida right now where people are nervous about moving around just because of the uncertainty of the rates they might see if they do leave one carrier to the other. So I wouldn't want to make a statement that there is one group that is going to be increasing dramatically and one that is reducing dramatically.

I think we've all seen the press that different people are making efforts to reduce policies and I think time will tell as to how effective that really is.

All right. In terms of Da Vinci, your premiums were flat this year versus last year. But in the Renaissance book it was down 15%. I'm just curious as to why you didn't use to reduce your Da Vinci premiums especially because you just own 20% of that JV.

That is a great question. It's an obligation we feel that we have to our long-term joint venture partners is to look at each portfolio individually. So when we look at a piece of business coming in, we determine the return on required capital against the balance sheet that is being written. So if we're looking at a piece of new business, we look at it in Da Vinci and we look at it in RenaissanceRe.

If the deal looks better in Da Vinci, we may allocate more of the reinsurance to Da Vinci because it's going to improve that portfolio more than it will improve the RenRe portfolio. So it is much more about building and constructing the portfolio rather than managing the top line of each entity.

Okay, that is fair. And one last question if I may. Your -- operating expense ratio went up in both the segments. Is there anything special happening there? Should I watch out for that in the future?

This is Fred. Let me talk a little bit about the operating expense ratios and it is probably best if I talk about them on a segment basis. When you look at the -- let's start with the individual risk one because I think that is the one that we are seeing the largest change in. There's a couple of things going on there.

There is a profit commission that is coming through in that quarter which has driven up the acquisition cost and therefore also driving up the expense ratios. There's also slightly higher expenses in the quarter and that is just a function of us growing as a [comp] company and there is some allocations of expenses down to our segments as well. And when you apply that against a lower earned premium base, that drives up the expense ratio.

In terms of our reinsurance segment, if you look at the expense ratio in the cat unit, that is pretty much flat. We haven't seen much change there. Pretty comfortable with that quarter on quarter. But when you look at the specialty unit, that is down a little bit and the reason that is down is because of the change in the mix in business. Last year there was more quota share business which has a slightly higher commission rate.

So when you put it all together, you have all the parts to our expense ratio and it is basically flat year on year but there is a lot moving parts there particularly coming out of the individual risk which drives it slightly for this quarter.

Sure. In the reinsurance segment I believe your operating expense ratio went up versus last year quite substantially. Was there something special happening in that?

The operating expenses are up slightly because of basically the growth in the company. We have a significantly higher compensation base today. We have more employees today and that is probably the biggest driver in the expenses. One other thing, last year there was about $3 million of benefit going through our operating expenses relating to the adoption of FAS 123(R). So that is creating somewhat of a difficult comparison too.

So I think if you look at last year quarter, last year's was a little low, this year's is a little high. There is -- but I think year on year we're going to be up a little bit basically because of the growth in the company and costs associated with higher levels of compensation.

Sure, thank you very much.

Gary Ransom, Fox-Pitt, Kelton.

Good morning. I actually had a question on the impetus behind the sidecar, the creation of that. What was it that you saw in the market that would generate the desire to have a new sidecar?

As I said earlier, Gary, we've just seen a flow of business opportunities and we have to be careful. Part of the way we can bring these handsome returns in over time is having an efficient portfolio so we constantly have to battle or balance rather helping out our clients and bringing capacity to [fore] with imbalancing our portfolio. So we saw demand; we wanted to help out. This was a way that we could do it without imbalancing the portfolio. And at the same time we also earned some fee income.

Can I go back to what you used to call as hotspots? I know you used to call Florida a hotspot and maybe there is a little bit less business in Florida and maybe it is more balanced. Is Florida still what you would describe a hotspot at this point in terms of risk spread, spread of risk and diversification?

I will start off. The short answer, Gary, is yes. We would call it a hotspot. Kevin, do you what to elaborate?

Yes, when we talked about hotspots, there's two things we talk about. One is a region that may be hot and two, is different points on the distribution of risk where we may be hot. And what we used to talk about as far as a hotspot is smaller events. I mean you saw that in 2004 where we would have an increased market share. I think as you move up to larger North Atlantic hurricane events, we still look at that as a well priced risk and we're going to be reasonably heavy in that but the hotness of the portfolio will reduce as the size of a loss becomes larger.

And just to make sure I understand on the desire of the sidecar. This demand increased opportunities that is coming around from customers that are either wanting to buy more coverage or fill out there -- I mean what you were talking about before, is that the nature of the demand that you saw out there?

Sure. We have seen in the last quarter or two there has been some pent-up demand and we've seen some new programs in the marketplace.

Okay, thank you.

These are not -- they are not just all Florida related as well. Remember we have to look at the whole southeast wind exposure how that correlates to the Caribbean. It's a pretty complex way we look at our portfolio.

All right, thank you very much.

Alain Karaoglan, Duetsche Bank.

Good morning, I have several questions. The first one with respect to the top line both in individual risk and specialty and specialty historically has been lumpy. But individual risk usually what comes through is either programs that you put in place, so could you elaborate maybe a little bit on why you think you will be able to make up if you want a decrease in that first quarter to end up the year flat? Are you seeing some programs there? Are you seeing some potentially opportunities in the specialty business?

Alain, this is Fred. Let me talk about the top line using the three lines of business that we disclosed in the supplement. And I will help you get from where we are today being $47 million down to being flat for the full year.

The first line is the what we call the commercial multiline which is basically our program business. That is down about $7 million and there is a lot moving parts to that but a good part of that also relates to softening in the market. And the moving parts relate to some programs coming in, programs going out. There is one new program which we wrote that incepts in the second quarter so that is going to help increase the top line in the commercial multiline.

The second line is the commercial property. That is down about $12 million. You know, we see that mostly as timing. Bill made mention to it early in his remarks that due to the turmoil that existed in the first quarter, many contracts were written on a short-term basis. We also are seeing a lot of positive news in the second-quarter in this line as Neill also mentioned. So we think that the decline in first quarter is timing and that line should come back nicely.

And the third line is our personal lines property business. I made mention to a quota share business that was terminated last year during the second quarter. That was approximately $26 million -- about $28 million, rather, in the first quarter last year that was included in last year's results that aren't in this year's. In addition to that, about $34 million of negative premium in that line that comes through when we canceled that quota share or those quota shares -- there were a couple.

So when you average it out on a full-year basis, that line looks like it is going to be flat as well. It is still early. There are still a lot of moving parts. We're watching it closely. But I think when we look at all the numbers, we feel pretty good that it's going to be flat for the full year.

Thank you. The second question relates to the other investments. You've had very good returns on the other investment. If I calculated correctly, you've had around a 24% return on $620 million in assets. How should we think about that going forward? What would you say is an appropriate return that you tried to shoot for on a yearly basis? Clearly this quarter has been outstanding?

Yes, this was a great quarter for our alternative investments. The 24% annualized yield is actually pretty good. I would say that if you are looking on it on a full-year basis, we like to target somewhere between 10% and 15%, that is probably -- that is what we look to and I would think that is a pretty good range of yield you should look to as well.

Okay. And the other question on the expense ratio, Fred, you addressed -- you answered the question a little bit as to why it is going up. But on the individual risk, it was around 42.4%. You obviously expect that to go down otherwise that is a significant portion of your underwriting profits. Also related to the individual risk, if I look at the accident year loss ratio, it was 107.8%, if I calculated that correctly. Could you comment on what is happening there?

Yes. Let me start with the expense ratio. A couple of things going on there. There is the onetimer, there's a profit commission coming up that is driving the expense ratio up a little bit. So we will see that going away. It's also being applied on a lower earned premium base. And I think as we get further into the year and we write more premiums and get back to where we think we should be on a full-year basis, that should help as well. I think where we came in last year about the mid 30s is probably a pretty good number for the full year.

And I'm sorry, Alain, I forgot your second question.

The combined ratio on an accident year basis was around 107 if I did my math correctly.

Yes, that is also -- that is a result of pretty much a result of the change in business mix. Last year we had a pretty big book of quota share property business and lower layers and that generally carries a much lower loss ratio in the absence of cats obviously. So on an average basis, that would tend to drive it down.

But 107 would be even a lot higher than you would want on the nonproperty book.

Yes. And again, the earned premium is a little low right now. One of the things -- the ceded numbers, the ceded earned is pretty high this quarter and it's high because there's a couple things going on there maybe this will help you understand why the earned is down as well.

There is some higher costs associated with the ceded business from '06 as compared to '05 which is coming in in the current quarter. So that is driving the ceded down a little bit. And also there is some ceded premium related to a program that we terminated in '06 that is coming down because when we terminated it, we entered into a somewhat of a fronting arrangement. So you have some ceded earned coming through which isn't being offset dollar per dollar based upon the written that's still coming through for that contract. But all in for the full year, I still expect the margins to be pretty much flat with prior years.

Thank you very much and thanks for the additional disclosure on the supplement and congratulations on a great quarter.

Thanks Alain.

Jay Cohen, Merrill Lynch.

I have three I think relatively short questions. Can you quantify the reinstatement premiums? I didn't notice that in the release.

The reinstatement premiums related to Kyrill?

Yes.

That is about $7 million.

$7 million. And the year ago did not have reinstatement premiums, correct?

You know, I'm not sure. Let me double check. Let me get back to you on that because I don't recall exactly what was in last year. You can move onto your next question while I will have somebody pull that out for us.

Yes, sure. The favorable development you saw in the specialty reinsurance business, what lines of business did that come from?

Yes, let me walk you through that. We had approximately $31 million of favorable development in our specialty book this quarter and it's actually down from last year. Last year was about $50 million. The $30 million is made up of three things, okay. The first thing is about $15 million coming from a downward adjustment and the loss development factors that we applied to certain lines of business. We continue to review our reserves, our philosophy has not changed. We attempt to incorporate prudent assumptions and estimates into our reserving practice.

But we found a couple of lines that are event driven type lines where we felt that we could reduce our current loss development practice there. So that makes up about half of it. The other two parts is there was about $6 million of favorable development resulting from the '05 storms and there's about the remainder about 10, $11 million or so is favorable development that comes out when we apply our method of reserving when the claims are coming in less than originally expected.

Okay, great. And then the last question, how would you describe I guess the weather in the quarter or the loss activity? Obviously Kyrill was a big one. Outside of that it seemed like there was virtually nothing. So all in, is this still a better than expected type of result?

Yes, I think it was a generally a light quarter with -- obviously with the exception of Kyrill. With the cat book we tend -- because it's going to be lumpy as to whether something happens or not so we're going to have large swings from quarter to quarter. So I wouldn't necessarily want to come out with a statement as to whether the first quarter -- the first quarter we don't expect to have a Kyrill every year so that is a higher loss ratio for the first quarter. But we'd obviously expect a lower loss ratio in the second quarter because you are out of the European wind season and not yet into the North Atlantic hurricane season.

So it -- to think of it on a quarterly basis isn't the way we necessarily think about it. We try to thank of it on an annual basis and look at it so from this point -- we had a loss in the first quarter but it doesn't make me materially think our book is going to behave differently than expected over the course of the year.

Okay, thanks.

Jay, if I could get back to you on your reinstatement premium questions, what I'm being told unfortunately we don't have the exact number here in the room with us but it is probably about the same as this year and so I hope that helps.

Yes, that is no problem. Thank you.

Bill Wilt, Morgan Stanley.

Good morning. I wonder it maybe perhaps best for Fred, could you revisit the catastrophe premium guidance, just walking through that again would be helpful.

Sure. Is there anything specific that --?

Well, I guess I -- it's pretty clear the managed cat net of fully collateralized JVs are guiding to the full year, down roughly 5% I think. Is that accurate?

That is correct.

And I thought maybe in the prepared remarks you had given some comments -- a related question as why top layer Re grew so much but I thought maybe in your prepared remarks you had commented on catastrophe premiums which I guess would be the sum of Renaissance and Da Vinci catastrophe premiums. Any separate guidance for that cat line?

Yes, let me take you through it. Let the first start with top layer now that you mention that because I don't think I covered it on the call but there is a fairly significant increase and I think it is worth noting. And that is where the premiums went from about 26 to about $36 million year on year. That is another lumpy business. The target minimum line size for top layer Re is about $100 million and the increase really just relates to one specific deal that we did.

So, looking at the guidance again. When we spoke about guidance, what we thought would be helpful originally is if we gave it to you net of the fully collateralized joint ventures because those are the premiums that basically we hold for our own account. We still see that as being down year on year about 5%. We thought it would be helpful if I did the math and backed up to the total managed premium lines, the gross premiums which includes top layer Re and we believe that number will be down year on year approximately 15%. So I hope that helps.

It is helpful. So the last bit there, the gross premiums -- gross cat premiums down 15% would be the sum of RenRe cat, Da Vinci cat and top layer?

Correct.

The sum of those (multiple speakers)

What to we refer to as total managed at cat premiums. And you can see that on page 5 of the supplement.

Total managed cat premiums. Okay, that is helpful. Down 15%?

Right, which is no change from our previously issued guidance.

Thanks very much.

Thank you.

Adam Klauber, CCW.

Good morning, thanks. From what I understand, the E&S carriers are trying to buy a lot more Reinsurance this year compared to last year. Do you see that market as attractive?

Yes, we have pretty good access to the business. I wouldn't want to -- without having written the business yet, I wouldn't want to highlight which areas are most attractive of the business. But we are -- the way we set up our systems, we can compare an E&S carrier to a residential book with using the same metrics and with a high degree of clarity so we can optimize how we deploy capital.

But, yes, we are very close to the E&S market so I would say that new covers that are being brought out into there we are getting a look at and have pretty good access to writing it.

Okay. And also another segment, I understand that several wind pools are coming to the market for the first time where it kind of [buy at] materially for the first time. Does the dynamics of that business look different than a traditional -- reinsuring whether a homeowners company or commercial company?

Yes, you have to be careful. The models do a good job looking at exposures and modeling exposures but there are other factors that you need to qualitatively lay over your analysis such as how they are going to be handling claims, the claims expense associated, whether that is covered, whether they are a long-term purchaser or not, whether the book is growing or not. So you do need to be very careful to look at each company or wind pool and determine what their buying motivations are.

So it is not as simple as just running the models and saying company A is the same as company B or wind pool A is the same as wind pool B.

So would you shy away from maybe some of the wind pool given those different characteristics or do you find that business potentially interesting also?

It is potentially interesting, it's a question of price. With the way we build our systems and the tools that we have, I think we can put the qualitative assumptions into our models and be indifferent between the best run company in the world and the worst run company in the world and just look at price and our assumptions to determine which we'd rather support and where we'd rather put our capacity.

Greet, thank you very much.

Tom Cholnoky, Goldman Sachs.

Good morning. Just a couple of quick questions. Number one, you didn't make any comments about the retro market. I'm wondering what kind of opportunities you see there?

Sure. The retro market actually is we're one of the -- we remain one of the bigger players in that area. But the market itself has shrunk. I think people -- there's a couple of big buyers that basically exited the market last year where they went from having pretty sizable programs to not really buying anything this year. There has been -- I'd say in the first quarter there has been some [OOW] activity which we'd get a pretty good look at.

But there is not -- I wouldn't say there is an overriding theme that I would point to. The one thing I would say, the retro market is not that big so I think there's always a lot of focus on it because it is an easy market to enter. It's an easy market to lose money in too. So you need to be kind of careful in it. But it is not one that is going to be kind of the mainstay of a business. It's one that you can opportunistically look to either write business or not write business or buy business or not buy business in.

Okay. And then two other questions if I can. Just on the quota share that you terminated that was in the second quarter. So was it in the beginning of the quarter or the end of the quarter? In other words, will we have any sort of comparison issues in the second quarter related to those terminations?

Tom, this is Fred. That was during the second quarter toward the end of the second quarter -- during the second quarter, there will be a comparison issue because in last year's numbers were $34 million of negative or returned premium on a written basis.

Okay. So holding all else constant, obviously the premium comparisons will be more difficult again in the second quarter, right?

Correct.

Okay. And then the final question, just back on investment income for a second, if I do normalize kind of your investment gains and let's just say they were the hedge fund gains were similar year-over-year and you didn't have an upside, you still would have reported somewhere on the order of about $100 million of investment income which seems significantly higher than what you reported in all four quarters of '06. I'm just wondering what else may be going on there? Is it just that cash flow was so strong?

I would say two things, I mean really one thing, cash flow is pretty strong. You look at our invested asset base and it just continues to grow, Tom.

So nothing else in there?

No. There is nothing unusual in there that is driving it. The only unusual thing which everybody has picked up on is the great results in the alternative portfolio.

Right, right, right. Okay. All right, great, thank you.

Operator, I believe we have time for one more question.

Brian Meredith, UBS.

Thank you. First, Kevin I was hoping you could talk a little bit about the supply/demand situation right now in the catastrophe business particularly with all of the new capital vehicles out there how are buyers responding to them and are they being relatively disciplined?

Yes. Obviously just looking at Florida, there is -- the demand is probably stronger than what people were expecting when the legislative changes were first announced. So that is kind of the good news there. As far as the capital that's willing to provide capacity, there is less fear in the market so I think there is more capacity generally available.

From the experience and from the meetings that we are having so far, I think those on the programs are going to have first call for the business that is being renewed. I think we are in a great position as far as the relationships to the fact that we stuck with our clients last year, provided more capacity not only with RenaissanceRe but through the joint ventures that we had. So I'm particularly -- I'm optimistic about our ability to deploy into the market.

I can't really comment as to how the new guys are being accepted from their standpoint. I think they are probably a little hungrier for the business but I don't have any comment as to whether they are going to be accepted or not.

Great. And then the [IOW] market, can you talk about what has been going on in that marketplace?

Sure. The IOW market, there has been a lot of stuff bandied around in the first quarter. I'm not sure how much of it is moving. Some of it is what we call in the gray area where we are neither a seller nor a buyer of it. We have a very good showing of what is being put forth by others. We do put some IOS quotes out probably a bigger buyer than seller -- or we certainly have been historically.

We are -- I would say we have seen some opportunities to buy some IOWs, but it is not -- again, it's a market that there is a lot of activity. People are always putting terms out but a lot of the terms really just fall in the area that you are not going to act on.

Great. And then the last question which hopefully you can answer this. If we take a look at where pricing is today, obviously you think pricing is pretty adequate because you haven't obviously decreased your expectations for managed cat premium here going forward. I guess the question I have is going into June and July 1 renewal seasons, what kind of a price decrease do you think it would take in the marketplace for you all of a sudden to get uncomfortable with where pricing is in the marketplace? And specifically Florida and then also look at the rest of the U.S.?

That's a difficult question to answer because what I would say is I don't expect the business to move to the point where it is not attractive to this year. A lot of it depends on -- it's not a binary point either. As certain -- let's say one program becomes nonprice attractive and we take it out of our portfolio, the next deal we write requires less capital so we can actually write it at a slightly higher loss ratio. So it is not one binary point unless you are going from below 100 loss ratio or above, you can never make money on a losing deal.

But as long as there is profit in the deal, it's really a function of how much capital it is using. So it is more of a gentle slide to price inadequacy than a binary point of price inadequacy.

Okay, thank you.

Thank you. I would now like to turn the floor back to Neill for any closing remarks.

Thank you all for joining us today. We are pleased that we had a good first quarter. It kick starts us off for the year. Our focus remains on increasing tangible book value per share over the long term; 6.8 increase for the first quarter is certainly heading in the right direction there. I believe even though we are in a somewhat softening environment, we have a terrific portfolio of business and that will enable us to meet our objectives over the coming year.

So thanks a lot and we will speak to you next quarter.

This concludes today's RenaissanceRe conference call. You may now disconnect.