濱特爾 (RNR) 2007 Q2 法說會逐字稿

Good morning, my name is Larry and I will be your conference operator today. At this time I would like to welcome everyone to the RenaissanceRe second-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). It is now my pleasure to turn the floor over to Mr. David Lilly. Sir, you may begin your conference.

Good morning. Thank you for joining our second-quarter 2007 financial results conference call. Yesterday after the market close we issued our quarterly release. If you didn't get a copy please call me at 212-521-4800 and we'll make sure to provide you with one.

There will be an audio replay of the call available at 1:00 PM Eastern Time today through August 15th 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 902-0948. 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 October 12th.

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 Limited; and Bill Ashley, President and Chief Executive Officer of Glencoe Group Holdings Limited. I'd now like to turn the call over to Neill. Neill?

Thank you, David. Good morning and thank you all for joining us. I'm pleased to report another quarter of strong financial performance for RenRe. We enjoyed a combination of good underwriting and investment results. Importantly, book value per share grew by 5.9% for the quarter. As you know, this is the metric we care about the most.

The business is performing well across the board. We reported excellent combined ratios for both our Reinsurance and Individual Risk segments. In our ventures business we closed Starbound II, a follow-on deal to our successful Starbound joint venture deal last year, and our investment portfolio again delivered strong results.

While market conditions are mixed and there is softening in some areas, the deal flow was good during the quarter for our U.S. catastrophe business and Individual Risk program business. We saw opportunities in both segments to write well priced business. At this point in the year we have written most of our property cat book for 2007 and the top line so far has exceeded our expectations. This has largely been driven by increased demand for U.S. catastrophe excess of loss of business.

I point this out as this outcome is different from the consensus view for this market earlier in the year. We've been well positioned to write the incremental business; the steps we have taken to solidify relationships and serve our clients at the various renewals since 2005 have positioned us as a goto partner and a leader in the markets we serve. Our position as a market leader, reputation for fast claims payments, and ability to quote complex alternatives quickly utilizing our continually improving Ren system is a real advantage for us.

In Individual Risk Bill Ashley and his team have done an excellent job laying the groundwork necessary to put new programs in place. While there's more competition in this market it takes time to produce these programs. We are benefiting from the time and effort spent developing these relationships over the past several years. The combination of our experienced team and analytical tools we provide to support the underwriting activities of our partners improve results and help us hold onto business in a competitive market. Satisfied existing partners serve as a strong reference for us when trying to attract new business.

Importantly in a softening market throughout this period we have remained disciplined. Our portfolio as we model it remains very attractive from a risk/reward perspective. We enter the 2007 hurricane season again with a book of business for which we believe we are being paid appropriately for risks we are prepared to take. I'm very pleased with the risk portfolio our team has put together. And we apply this discipline of evaluating risk versus reward to our investment portfolio as well.

Given our view on the incremental yield for extending duration we have been maintaining a short duration position in the portfolio. That view was rewarded this quarter when our fixed income portfolio delivered an attractive return despite the backup in rates. Fred Donner will discuss our investment portfolio in more detail, but I'm pleased we have a portfolio that is well positioned in today's credit environment. Bill Ashley, who runs our Individual Risk operations, and Kevin O'Donnell, who runs our reinsurance operation, are joining Fred and me today. At this point I'd like to turn the call over to Kevin. Kevin?

Things, Neill, and good morning, everyone. The biggest renewal we had over the quarter was the Florida book and that was better than we expected when we outlined our thoughts on the last call. Even with the legislative changes that occurred we found many opportunities due to significant new limit being purchased. Overall we saw price reductions with the Florida residential book, but we expected that since the pricing levels achieved last year just were not sustainable.

Overall our observations are that the Florida renewal was pretty orderly and supply and demand were well balanced. In addition, we found several good opportunities to deploy risk outside the Florida and we successfully built a very good book of Atlantic hurricane.

Our distribution of risk this year compared to last year is different; this is partly due to a broader geographic distribution of our Atlantic hurricane portfolio, but is also driven by the greater ventilation in our Florida residential book because of the increased Florida hurricane cat fund. All in all we like to construction of this year's book better than last year's book.

Another topic worth commenting on is our decision to form Starbound II. In April we were seeing signs that there would be greater than expected increases in demand for hurricane protection and we determined that this demand shift, together with our understanding of available capacity and pricing, provided the right market dynamics to form a new sidecar. Once we recognized the opportunity we reacted quickly and, in conjunction with our ventures group, we were able to form the new sidecar.

Pulling together a sidecar, and actually and more importantly fully deploying it, is not an easy feat and it requires careful collaboration between both our reinsurance team and our ventures team as well as ongoing discussions in coordination with buyers, brokers and investors. I have to say, being on the inside of all this and knowing what is involved is a very specialized skill and one that is not easily replicated by other markets.

Moving over to Specialty now, you will recall from previous discussions that the premium in this book is lumpy and we've seen large reductions over the last few years and now we're seeing a large increase. This increase is not a sign of an improving market and we still believe that the overall conditions in the Specialty market have not changed. We are continuing to see softening in both pricing and terms and our growth is the result of us signing one good opportunity in the quarter. To add a little color around this, the new deal is a property quota share contract which includes cat premium but is predominantly driven by non-cat premium.

With regard to losses in the quarter, the largest for us is associated with the June UK Flood. However I'd like to mention that the losses resulting from this event, and actually from the Australia Floods as well, are lower than the losses would have been in prior years because of our decision back in 2005 to substantially reduce this book due to weak pricing in the international primary cat market. These same dynamics also changed the profile of our risk to be less weighted to the bottom layers than in previous years which helped in the loss as well.

As you know, there's been more flooding in the UK in July. Recently RMS has released industry loss estimates of GBP1.25 billion to GBP1.75 billion for the June event and GBP1 billion to GBP1.5 billion for the July event, both of those numbers are in pounds. With regard to the July event, it's still too early to assess losses to the reinsurance market as floods are still in the process of receding; but we feel that a greater percentage of this loss will be retained by the primary market. The reasoning behind this is that the July event is expected to be more of a residential event which will leave more being retained by the primary companies than the more commercial industrial Sheffield oriented June event.

In short, although flood losses can be difficult to estimate, particularly in a commercial business, we've looked very carefully at the composition of our book, and with the assumptions we have made we are comfortable with the June estimates. Thank you and at this point I'd like to turn the call over to Bill Ashley.

Thinks, Kevin, and good morning, everyone. Individual Risk continues to remain disciplined in the softening market. In spite of the current market conditions we're still seeing opportunity for new partnerships and profitable growth. Both our property and casualty business continues to perform at an expected level. We were able to two new programs in the first quarters of 2007 that will be coming on line for the rest of this year and into the third quarter of 2008.

For reference, the due diligence on both of these new programs have had a lifecycle of nine to 18 months prior to finalizing our decision to proceed. This is representative of how careful we are before taking on a new partnership. As you'll hear later from Fred Donner this morning, even though we are showing premium growth for the quarter we do expect to have premium decline by year end. This is due partially to the generally softening market conditions across both the property and the casualty segments of the market while we maintain our price and discipline.

It is also however due to a further reduction of our participation in a personal lines quota share in Florida which is consistent with the decisions we made in 2006 where we moved our capital deployment to where expected returns were higher corporately. In addition, we have nonrenewed one large commercial property quota share which in previous quarters we had reported to you was negatively impacting our result.

The market conditions for excess and surplus lines property in Florida and other Atlantic hurricane exposed states continues to remain healthy. The heaviest competition is actually for very large national property accounts, a segment of the market we're not targeting. Therefore we continue to see some opportunity in this market but are obviously monitoring market conditions and pricing carefully.

The earthquake excess and surplus lines commercial property market has seen some softening over the last two quarters. There's still some opportunity we see for additional growth in this area, however it will be slower than the growth that we experienced at year end 2006. We continue to work on several new program opportunities. We believe due to the value add that we bring to our partners we will continue to be successful adding only a few but attractive new programs. However we will remain very diligent and cautious and are not topline motivated, as Neill mentioned in his comments. Next I would like to turn the call over to our CFO, Fred Donner.

Thanks, Bill, and good morning, everyone. As you just heard from Neill, last night we reported strong operating results for the quarter. Operating income was $195 million or $2.69 per share versus $155 million or $2.15 for the same period last year driven by strong net investment income together with an increase in underwriting profit. We generated an annualized ROE of over 28% and we grew our book value per share by 5.9% in the quarter finishing with a strong balance sheet with over $2.8 billion of common equity.

On a consolidated basis gross premium written increased 13.9% to over $846 million for the quarter reflecting growth in both our reinsurance and Individual Risk segments over the same period last year. So let's go through some of the drivers behind the results beginning with our cat unit.

Our catastrophe unit had a solid quarter. As you heard Kevin explain, demand in the Atlantic hurricane exposed areas was better than we expected. On a managed basis our cat premiums written increased 2.5% this quarter to $540 million from $528 million last year. Included in this figure is $66 million of additional premium which we were able to write through the formation of Starbound II, another demonstration of our ability to meet the specific needs of our clients. And just as a reminder, managed cat premiums includes gross premiums written by RenRe Limited, 100% of gross premiums written by DaVinci as well as premiums written on behalf of Top Layer Re and it excludes intercompany sessions between our reinsurance and Individual Risk segments.

As you heard Neill mention, the majority of our premium in our cat unit is generated during the first half of the year. Having exceeded our expectations for the first six months we have now revised our top line forecast and expect managed cat premiums to be down approximately 5% versus our original expectation of being down 15% for the full year.

Our cat business generated approximately $95 million of underwriting income compared with $100 million for the same period last year. Bear in mind that these results include net losses from the UK floods of $48 million before minority interest in DaVinci. The UK unfortunately experienced another round of flooding in mid-July and, as Kevin mentioned, flood losses take time to assess. It follows that any estimate of losses for the July floods at this time would be premature.

Moving on to Specialty, this business unit also experienced top line growth this quarter. Gross written premiums were $93 million compared to $30 million for the same period last year. This significant increase stems from a portfolio transfer of a personal lines property quota share contract which resulted in $75 million of gross written premiums this quarter. So our Specialty top line is up due to this deal, but otherwise the market continues to soften. We are revising our top line forecast for the full year to be up around 35% over last year versus our original estimate of flat, reflecting the impact of this one transaction.

Our Specialty segment generated $26 million of underwriting income this quarter compared to $29 million last year. There are a couple of things going on here worth noting. First, a decline in premiums written over the trailing 12 months has resulted in lower earned premiums. Second, this segment incurred a couple of large losses this quarter totaling $20 million in the current accident year. And lastly, these items were offset by $31 million of favorable loss development on prior accident year reserves driven by lower than expected claim emergence.

Moving on to our Individual Risk segment. Although we're seeing a softening market in a number of areas, we continue to see some good opportunities in our program business. Gross premiums written were $238 million versus $211 million for the same period last year for an increase of 13% reflecting increases in the commercial multi line programs. We are pleased with the business we are writing and are in fact seeing a good flow of new opportunities. However, as Bill indicated, the softening market has led to a decline in premium volume over the past six months and as such we've changed our top line forecast from flat to down at least 10% for the full year, but this market moves rapidly and that could change.

Our investment portfolio performed well this quarter with over $118 million of net investment income versus $74 million for the same period last year. Our total return for the quarter was about 5.9%. These results were driven by higher earnings from our hedge fund and private equity portfolio combined with a higher level of invested assets.

A few words on the sub prime market. We've been analyzing our potential exposures in light of the news in the market. In terms of our investment portfolio, we believe our exposure to sub prime issues is insignificant. Our mortgage-backed portfolio consists entirely of AAA rated securities. Our sub prime exposure is pretty small, it's about $9 million and they're all in AAA rated securities. We have not invested in CDOs or CLOs.

In terms of our investment portfolio, we've remained fairly conservative. Given where spreads are we have positioned the portfolio conservatively so it's less exposed to these sorts of credit issues and we're less nervous if there are more credit problems to come. But this is based on today's facts. The thing to keep in your the back of your mind is that at some point we may choose to increase our exposure to credit if spreads were to widen to a level that we determine to be attractive.

Also, as we have reported, we have a 32.7% equity interest in ChannelRe, a financial guarantee reinsurer. There is some modest exposure to sub prime in ChannelRe's reinsurance book, but it is of a highly rated seasoned vintage. ChannelRe has also wrapped CDOs that includes sub prime collateral. However they are of a very high attachment point and are very well structured. ChannelRe management does not view this exposure as having any measurable effect on ChannelRe. In summary, a relatively strong quarter which we are pleased with. And with that let me turn the call back over to Neill.

Thank you, Fred. Hopefully we've put a little color on the quarter for you, but I'm sure you've got additional questions and we're happy to take those now.

(OPERATOR INSTRUCTIONS). Josh Shanker, Citigroup.

Listening to some of your competitors' conference calls talking about the UK floods, they've said maybe it's just some hot air, that UK flood pricing generally was notoriously under priced going into the season and not really the kind of cat that would have been acceptable for them to write. And knowing your history, you've been much better at figuring out what was under priced. Is that intuition a mistake to consider?

Josh, it's Neill; I'm going to turn it over to Kevin. But just to reiterate, we never underwrite any single piece of business that we feel is under priced. Sometimes I think people try to diversify and might get pretty close to the line, so any UK business we wrote we would have estimated to be profitable on a standalone basis and helped the portfolio. Kevin?

Thanks, Neill. A couple comments I'd make about it. The flood exposure within the UK programs is really part of the overall programs. I'm not aware of any flood specifics that are purchased. So it is a component of the win program, the more broad cat programs that are purchased. One thing I'd like to say is if you looked at the commercial model I think you'd have a view which is very different than ours with flood. We develop our own models and our flood model is substantially more conservative. So it's not a peril that we've missed by any means, it's one that we've priced on using our internally developed models.

So as far as being under priced, I think in general the UK market, one of the reasons we've scaled back there since 2005 is it has become more competitive. But the layers that we're on, the layers that are impacted by this event are layers that we looked at marginally against our existing portfolio at the time we wrote them and they were deals that added profit to the overall portfolio.

Okay, thank you. And the other question I have regards reserve releases and the pattern of how they're released. In the Q2 '07 reserve release, was this for passing cats that never really occurred in 2Q '07? Or how do you come to the decision that it's time to disgorge yourself of those reserves?

Josh, this is Fred. We had reserve releases in three business segments this quarter and we continuously review our reserves and make adjustments as necessary. Let me just quickly take you through the three, maybe you could get a sense for how we look at the reserve releases. The first I'll start with is our cat book and what we did this quarter is we reviewed all our open claims and there were a number of smaller losses, smaller claims that occurred in 2006 and we revised those down. Again, just a normal process of reviewing our outstanding claims reserves.

In our Specialty line where we had about $30 million or so of favorable development, consistent with what we've done in the past, this is a book of business that is relatively young for us. We continue to use industry information to establish reserves. We apply a [BF] method and our claims are emerging better than we would initially have expected. So there have been no changes in our reserve assumptions, it's just a matter of how the formula works there.

And lastly, in our Individual Risk segment, again that's an area where we're continuously reviewing the open claims and the favorable development is coming from certain programs for the '05 and '06 accident years. So I guess in summary it's just a combination of an ongoing review of open claims and Specialty continuing to apply a consistent set of assumptions and a formula.

Very good. Congratulations on the quarter.

Susan Spivak, Wachovia.

Good morning. Neill, I was wondering if you could comment more on the Florida environment where I recently read comments that the insurers were skirting the reform and whether you see the government stepping in again and stopping insurers from being able to purchase as much in the private market.

Susan, I'll turn that one over to Kevin.

There's been a lot of -- I assume you're talking about some of the [declinations] for the rate reductions and smaller rate reductions than were ultimately anticipated.

Yes, the comments were just that the savings have not been passed along to the consumers and it's been six months.

Yes, and I think from our standpoint, from the reinsurance side, we're one step removed from that where we're pricing the risk based on the exposure that's presented to us. We're not involved in the negotiations they're having with the Florida legislature. The comments coming out of Florida I think are somewhat concerning that there might be more changes down the pike. But I wouldn't say that we, not being involved in those discussions on any specific client, it's difficult for us to comment as to whether it's going to have a material impact on the legislature going forward.

Right, but do you think then there's more additional legislation coming down the pike or will that depend on the level of storms this season or it's just hard to say?

I wish I knew the answer to that. To go back two years, I'm not sure we would have seen that we were in the current position with the state of the [FACS]. I think -- I've read all the stuff that's been discussed as far as some of the more aggressive comments even about coming out there and wanting to have hearings with some of the executives at the insurance companies. I think that will probably be the most telling as to what the next step is, but I think your question is do I have any insight at this point and the answer is really, no.

Thank you for your answer.

Kevin O'Donoghue, Banc of America Securities.

Thanks and good morning. You said that catastrophe premium was a little bit better than you had expected some months ago. But I'm wondering how you could -- if you could characterize the demand for cat premium versus say 2006 and where the additional demand beyond your expectations came from?

Sure, I'd be happy to. Actually 2006 was kind of an anomaly in that there was a bunch of legislative things that came in requiring people to purchase. So there was significant -- actually the demand was more in balance probably from a contraction in supply. This year there was significantly more demand, supply actually met the demand, but it resulted from a couple different things.

One is there was what I'll call new players coming to the market, may have been existing players but with massive increases in the amount that they purchased. That was one big piece. The other was some pent-up demand from last year where not all -- people perhaps with the pricing that was offered didn't protect their balance sheets to the same degree that they were able to protect their balance sheets this year. So we had some additional demand coming out of just normal operations of the local Florida companies.

And then kind of broadening the picture a bit as well, if you look at Atlantic hurricane, which is really how we think about the risk, there was more demand coming out for covers that were not in Florida. So our overall Atlantic hurricane book is more diversified because of the increased demand coming out of the Northeast and mid-Atlantic Gulf, covers that weren't in the market last year as well as the increase from some of the big buyers coming into the Florida market.

Okay, thank you very much.

Brian Meredith, UBS.

Good morning. A couple quick questions here for you. The first one, on the Individual Risk business, if I take a look at the accident year combined ratio over the last couple quarters it's actually trending more towards the kind of high 90s, 100% level and maybe there's an issue with some sliding scale commissions here. But I guess the question I have, I thought that was supposed to be a 90 combined ratio business. Are there some lines of business or some unusual loss activity we've had this quarter (inaudible) increased the quarter?

No, I think a couple comments there. One, if you try to look at Individual Risk on any quarter-by-quarter basis rather than an annualized basis it's a little difficult to really understand that. We do have some lines of business that are book to an expected value and then at year end obviously settle out at what we believe the actual value of those to be. So we don't really see a trend in rising combined ratio ourselves. In fact, we're very happy with performance of the business.

Okay. And the second question is on the European flood losses, I'm wondering if you could give a sense of how much of that loss is IBNR in additional case?

Sure. We actually don't have any formal notifications from our customers, so what we've done is we've talked to those accounts which we anticipate are most exposed and we've put up losses based on our estimate of what it is. And that estimate comes from our models, our understanding of the event and our discussions with the clients. So it's not necessarily reported losses as much as it is our view of what we anticipate to be the reported losses.

Okay, great. And then last question. Sub prime exposure, I didn't hear you mention at all, do you have any exposure within the hedge fund of your alternative investment portfolio?

We really don't know what's behind many of those, but right now from what we see we feel pretty good with our results from our hedge funds and private equity portfolio. So we're not too concerned that there's any significant sub prime exposure in either of those two areas.

Great, thank you.

(OPERATOR INSTRUCTIONS). Terry Shu, JPMorgan.

Most of my questions have been answered and I really wanted to ask about the Florida situation and you explained it. And on the better book of business that you feel that is a better book of Atlantic win business I gather you mean the diversification, is that right, Neill?

Well, it's a number of things, Terry, in terms of how you define diversification. It takes into account geographic spread but also vertical integration in various covers. So it's a pretty complex mosaic, if you will, but it's a combination of territory and layers chosen and putting together a book of business that has good returns at various points on the distribution.

When you look at the pricing and the returns of your current book, this year's book on an accident year basis compared to last year, can you give some general quantification in terms of expected return?

I would say that the dynamics -- the expected returns are similar to last year. I like this book a little bit better than last year. Kevin, do you want to amplify on that?

Yes. I think you've hit on the basic topics here as our book does look different this year than last year, so it's hard to draw an apples-to-apples comparison. And the biggest difference is the FACS takes out a much bigger chunk of the loss this year, so we have participation, our distribution of risk in Florida looks different and then the added diversification from writing some non Florida deals. So overall that balance actually makes the portfolio much more robust. Additionally, we've had some ceded opportunities this year as well which is adding to the overall performance.

So if we hypothetically said that we had KRW again, the losses will likely be lower, is that a fair comment? Or not necessarily?

I wouldn't say necessarily because those three losses are very different where I think we talked last year that normally after an event is where you may see us grow. So something like Katrina based on the greater diversification outside of Florida you may see a larger loss. But then in looking at accounts that are affecting specifically Florida, you'd see depending on the size of the loss our loss could be very, very different. So not focusing on any one particular event, but on return periods. There's a much bigger stretch in Florida that goes to the Florida hurricane cat fund and not to the reinsurance market but citizens is growing.

Right, so a Florida event, probably smaller hit when one compares it to your experience in 2005. However, KRW because three separate events, hard to tell, but overall better risk balance and comparable returns?

Instead of answering that specifically I'd look at our aggregate risk distribution for the entire cat book is more robust this year than last year. So there are individual events that will cause us larger losses than what they would have caused last year. But the overall aggregate performance of the book on an expected basis is better.

Okay, and with comparable returns?

Yes.

Thank you very much.

Thanks, Terry.

Gary Ransom, Fox-Pitt Kelton.

Good morning. I have a question on the mortgage-backed security portfolio. You mentioned that you might invest more there if credit is more attractive. But in looking at your portfolio going from March to June, it looks like you have already increased your mortgage-backed exposure fairly sizably. Can you -- going from 6.5% of the portfolio to 10% of the portfolio, can you talk about that a little bit?

Sure, Gary; this is Fred. While we did increase the mortgage-backed portfolio, it's basically a selective decision to increase our investment in that aspect of the market. I will say that the securities that we have invested in are of high-quality and short duration. So we haven't really taken on more credit by increasing our mortgage-backed security portfolio. It's consistent with our philosophy of staying short at this point in time.

So the duration of that particular piece of the portfolio has remained just as short as it was before if not shorter, is that true?

It's still pretty short and these are what you -- it's pretty bullet proof. If you looked back and looked at what we've been saying about the duration of our portfolio, it's been about 1.3 years at least since the beginning of the year and that hasn't changed even with the increase in the mortgage-backed portfolio.

Okay, thank you. And just one other broader market question. You've talked about -- for your UK and Atlantic hurricane exposure. Can you talk about -- a little bit about what you're seeing in either Pacific exposures -- Asia, Japan, Australia -- what's the direction of the quality of pricing and the returns in those parts of the world?

Gary, I'll start off. You might tune into the weather channel over the next few days -- a super typhoon headed towards Japan. And a lot of this is an effect of losses. As you know, we haven't written that much Japanese business over the years because our view of the wind has been under priced. But things change. Kevin, would you like to elaborate?

Yes, I think in general anything that diversifies Atlantic hurricane is becoming more competitive. So if you're looking at some of the more remote territories like Australia or Japan or South Korea, it's our view that they are for open market transactions very, very competitive. I don't want to say that there's no profit to be made in some of those territories, not every deal is exactly the same, but it's in general a less attractive place to do business than in the U.S.

I wouldn't necessarily point out one area as being of the group better or worse; you need to look at each deal within each territory. But the overall climate is pretty competitive for international primary business. That's really the recently we started shrinking the book back in 2005.

All right, thank you very much.

Tom Cholnoky, Goldman Sachs.

Good morning. Just two small questions. You folks -- did you have any meaningful losses out of the Australian floods?

No, actually I think that's another area that has become very competitive. I think if you looked at our book, even last year and the year before we probably would have had some participation, but at this point I wouldn't expect that we'll be involved in that loss at all.

Okay. And then the second question is I guess, Kevin, as you think about the business going forward to the 1-1 given [Kiero] and the UK floods, do you sense that this may have some sort of positive impact on pricing in Europe, or is this just going to be basically a nonevent at 1-1?

Um --.

I know it's a bit of a forward-looking, but I mean if you could just give us some sense. Is this big enough to really push the market into a little bit more of a rebound perhaps?

I don't have a specific feeling. I can give you some general thoughts on the losses. These losses are in the -- the June UK loss, the higher estimates are about $3 billion or so; the Australian loss is about 1 billion, Australian reasonable market estimates. My gut is that people are willing -- actually the other names are largely held by the primary companies. So my expectation is that there's going to be a strong growth that the risk wasn't actually shared as much with the reinsurance market as it was kept by the primary market which may damper some of the desire for the primary companies to pay more.

Tom, seriously I think we have to be careful as a market leader. We don't want to make comments that seem to be driving market pricing.

I just want to give you an opportunity -- wanted to give you an opportunity to perhaps push prices up a little bit.

Reason would dictate prices would go up.

Okay. All right, great. Thank you.

Adam Klauber, CCW.

Thank you, good morning. Given the changes in the Florida fund this year would you say your exposure below the fund, both on a gross and net basis, is greater or less than what it's been the last two years?

It's interesting, when you look back at the legislative changes, one of the layers that was put in was the $3 billion ex $3 billion. Most of that actually stayed with the reinsurance market. The thing that -- and there have been significant changes between how much the companies are retaining and how much is being ceded to the reinsurance market.

So if you go back several years to where we are now, more of the loss below the FHCF is being retained by the local companies than is being ceded to the reinsurer. Our share of that is -- and a loss below the cat fund is probably a little bit less. But I don't want to mislead you. I would still consider us to be hot below the cat fund but not as hot as we have been in prior years.

Issuer gross to net below the fund similar to what it's been? Or given some of your strategy is there more of a difference between your gross and net below the fund than has been in past years?

The growth in that relationship is pretty close to what it's been in prior years. To be frank, there's not that much retrocessional opportunity below the cat fund except for quota share.

Okay, thank you very much.

(OPERATOR INSTRUCTIONS). Brian Meredith, UBS.

Actually my question was answered, thank you though.

Well operator, unless there are any further questions I think there's another earnings call that maybe people are shifting over to with one of our friendly competitors. So thank you all for joining us today. While we're real pleased with our results for the first half of the year, I'd like to remind you all that the bulk of the Atlantic hurricane season is still ahead of us. In fact, my anniversary is September 10th and I think that's about the peak of hurricane season in the North Atlantic. So I remember that and my marriage has been quite calm, not stormy, but it's a way for me to remember.

So we've got a long way to go before we see how the cat year turns out in North America. Also our focus is on increasing tangible book value per share over the long-term and we have a portfolio of business that should enable us to achieve our objectives, but our shareholders should be mindful that results over the short-term can be volatile. So we look forward to talking to you next quarter. Thank you.

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