濱特爾 (RNR) 2007 Q3 法說會逐字稿

Good morning. My name is Ray and I will be your conference operator today. At this time I would like to welcome everyone to the RenaissanceRe third-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 David Lilly. Sir, you may begin your conference.

Good morning. Thank you for joining our third-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 November 14th 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 932-8195.

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 9, 2008.

Before we begin I'm obliged to caution that today's discussion may contain forward-looking statements and actual results may differ materially from those discussed. Additional information regarding the factors shaping these outcomes can be found in RenaissanceRe's SEC filings to which we direct you.

With me to discuss today's results are Neill Currie, Chief Executive Officer; Fred Donner, Chief Financial Officer; Kevin O'Donnell, President of RenaissanceRe Insurance Ltd.; and Bill Ashley, President and Chief Executive Officer of Glencoe Group Holdings Ltd. I'd now like to turn the call over to Neill.

Thank you, David. Good morning and thank you for joining us today. Yesterday after the market closed we realized our third-quarter and year-to-date results characterized by strong underwriting and investment returns. As you know, growth in tangible book value per share is a key metric for us. I'm pleased to say it grew by over 4% for the quarter and by 18% for the year-to-date.

Our financial results were affected by the lack of hurricanes impacting the U.S. as well as an unrealized mark to market lost in ChannelRe. Our CFO, Fred Donner, will run through the financial results in more detail later in the call, but before that I'd like to share a few high-level thoughts on the business.

While it was a light quarter for the property catastrophe loss standpoint, from an event standpoint it was quite an active quarter with two category five hurricanes striking Central America. These events remind us of the importance of maintaining our underwriting discipline even in seemingly benign periods of low claims.

There is always a tendency to focus on losses that have occurred, but it's the potential for losses that will drive our future results. Understanding that our approach to the market remains a constant, irrespective of market conditions we will be disciplined. If pricing is acceptable we will write the business, if it drops to levels that do not compensate us for the risk we're taking on we will not write the business. And we will continually refine and build our tools and resources that enable us to make the best underwriting decisions.

We are often the first market to shrink, as we did in the late '90s, and conversely we're often distinguished by how much we grow in hard markets, such as in 2002 and more recently in 2006 with our U.S. cat book. This focus on underwriting discipline is a core strategy across all of our businesses, not just property cat.

For example, we are writing lower premiums in our Individual Risk segment. Our willingness to shrink the top line reflects the tough choices we are prepared to make if prices are not adequate. Fortunately in many of our markets pricing conditions remain fairly good and we are optimistic there will be a sizable pool of attractively priced business at January 1st. It will be our goal to write as much of that business as we can.

Our position as a market leader with experienced underwriters who have forged strong relationships with clients and brokers provides us with a competitive advantage in a market where supply is generally greater than demand. Our underwriters are able to deliver quick and innovative solutions utilizing our advanced tools. Clients and brokers know our track record of bringing substantial capacity to the market when needed and our proven reputation for quickly paying claims. As a result of this we see more deals and obtain larger allocations on programs.

With our ventures, Individual Risk and reinsurance operations working together in an integrated manner we are well positioned to take advantage of opportunities in the market and we continue to build out our capabilities. We have brought on several new talented and experienced people to augment our existing team over the past few months and have given several of our long-standing members of management important new responsibilities. I'm very pleased with the energy and drive that our people are bringing to all aspects of our business.

Jay Nichols and his ventures team are forging ahead in an increasingly dynamic capital environment, continuing to find new joint venture opportunities and leveraging our core property catastrophe expertise. This ventures business is integral to our strategy and a key source of diversifying profits for the group.

Todd Fonner and his investments team continues to do a terrific job during a turbulent time in the financial markets by managing our investment portfolio prudently while achieving strong returns. I'm pleased to say Bill Ashley, who runs Individual Risk, and Kevin O'Donnell, who is in charge of our reinsurance operations are joining Fred and me on the call today and will give you an update on their businesses. With that I'd like to turn the call over to Kevin.

Good morning. The third quarter is generally a light one for the reinsurance business as far as new and renewal business, but I'd like to share a few comments with you. Starting with our cat book, we're pleased with the performance of the portfolio so far this year. Our underwriters have developed and managed the portfolio to offer superior economics on an expected basis. I think understanding the difference between a good result and a good portfolio is a key to evaluating the quality of the overall business. And we like the construction of the in force portfolio that we currently have more than any portfolio that we've constructed over the last several years.

While we have seen more claims activity that we saw a year ago we need to bear in mind that these are very different events than we saw in 2004 and 2005. We had a large windstorm in Europe, floods in the UK and Australia, earthquakes in Asia, fires in California and I saw last night even a small earthquake in California. But we haven't seen a major hurricane hit the U.S. to date; and without a U.S. hurricane people's concern about the risk from catastrophe drops pretty dramatically.

It is important to remind ourselves that two cat fives made landfall in the (inaudible) season this year. This is the first time in reported history and it is just fortunate that they hit in remote areas causing little economic loss.

Moving over to specialty, we had a few large losses this quarter. This book is one that we categorized as event driven and as such is subject to sudden movements relating to losses and not the gradual reduction that most casualty books suffer. The events this quarter do not give us cause for concern, they are simply a product of several unrelated losses that affected our book of business. We expect to pay these types of events and we have not changed our view of the profitability of this business over the long-term.

As far as the overall market, let me offer a few thoughts on that as well. As we mentioned previously for international cat, the search for diversifying business from U.S. hurricanes has pushed this business to become very competitive. Similarly in specialty we're seeing heavy competition affecting many of the lines of business that we are writing. In retro we'll continue to trade both as a buyer and seller and believe our tools will position us to use both assumed and ceded retro to best enhance the construction of our portfolio.

With respect to U.S. cat, we saw good increases in the size of the cat market over the last 18 months to two years. The increase in demand is particularly interesting in light of the significant increase in government provided reinsurance within certain geographic areas. Every year one expects the cat business to grow just with inflation of the protected assets, but the increase over the last two years results from substantial new entrants to the business and reassessment of hurricane risk and also the associated new purchases to protect that risk.

Over the same period we saw a substantial increase in supply capacity as well stemming from both traditional markets and the escalation of nontraditional vehicles and joint ventures to take on this risk. The overall equilibrium point of these supply and demand dynamics resulted in increased margins for the cat risk in the U.S., so I'm not convinced that we'll see the same demand and supply dynamics in 2008.

In summary, we will remain disciplined in our estimation and pricing of risk and feel that we are the best positioned reinsurance company to compete in any market. Thanks and I'll turn the call over to Bill Ashley to discuss Individual Risk.

Thanks, Kevin. This quarter we continue to be pleased with the performance of the Individual Risk business. Our combined ratio for the third quarter finished better than expected. We're also noting in the third quarter well below expected losses on catastrophe exposed property business.

We have purposely chosen program partners over the last several years that are capable and willing to exercise discipline in the competitive market, and we could not be more pleased with their performance. We've also chosen lines of business that would hold up better than most in softening market conditions. We believe the strong partnerships we have a place and our ability to analyze and react to data and information quickly to be a competitive advantage.

As Fred will discuss later in this call, our written premium for 2007 will be less than that of 2006; however we are pleased with the discipline that is in place. The majority of the premium loss is a factor of conscious decisions made earlier in the year and is not entirely a symptom of generally softening market conditions.

As mentioned in prior quarters, in 2007 we continued to reduce our exposure to personalize quota shares in Florida. This deliberately reduced our volatility to Florida personal lines catastrophes and improved our overall corporate return on capital. In the second quarter of 2007 we also nonrenewed a large commercial quota share due to unprofitable performance. Thus far this has improved our loss ratios by reducing the impact of volatile performance of this treaty. We are now seeing the impact of the loss of written premiums from both of these decisions.

The intense monitoring we have in place allows us to make these decisions quickly and deploy capital where the returns are best for us corporately. In spite of current market conditions we are pleased this year to add two new program opportunities which are a mix of both property and casualty business. Both of these programs result from months of diligence and relationship building. It will not be until the fourth quarter this year and into 2008 that the premium for these programs will begin to impact our results.

Other than the two large transactions that have been reduced or terminated on average our casualty business produced by our program managers has retention ratios that are acceptable. Rates for exposure are still at an acceptable and profitable level. Some of the multivariate or predictive modeling we have been working on over the last few years on our casualty book appear to be giving us an advantage in the softening market conditions that we are seeing in our business segment.

The output from this modeling has allowed us to segment the business into appropriate pricing structures without adversely affecting retention ratios. We are also assisting our program partners in some instances by using the modeling output to target risk from a marketing perspective that we'd like to have as part of our portfolio.

There are a couple of notables areas in the market that are softening more rapidly than others -- pricing for difference and conditions earthquake only for California has declined rapidly over the last two quarters. We have reduced our writings for primary commercial property earthquake coverage significantly as a result of inadequate rates. We will continue to remain in this market but only choosing those risks that meet our return hurdles.

Large all risk commercial property coverage has also become very competitive. A typical consequence of this is terms and conditions weaken and broaden and staggering line sizes are now available. Our partner who was writing this type of coverage is maintaining great discipline, but has decreased their overall written premium as a result. We have seen growth in the Individual Risk business segment throughout 2007 in risk classes that are diversifying to the overall Renaissance portfolio.

Although this market is challenging we remain positive and believe over the last five to six years we have built a franchise capable of making required returns for the long haul as well as providing for new opportunities in the future. With our reputation as a good partner, especially where creative solutions are needed, we continue to be presented with several new deals to review. Thanks and I'd like to turn the call over now to our CFO, Fred Donner.

Thanks, Bill, and good morning, everyone. As you just heard Neill mention, we had a solid quarter -- operating earnings were $168 million or $2.33 per share. We generated an annualized ROE of over 23% growing our book value per share in the quarter by over 4%. On a year-to-date basis operating earnings were $549 million generating an ROE of 27% and our book value per share grew by 18%. We are pleased with our results in both the quarter and the year-to-date.

Let me take you through some of the details beginning with the cat unit. Our strong quarter reflected, among other things, a lack of hurricane losses. In terms of top line, as Kevin mentioned earlier, the third quarter is traditionally a relatively quiet quarter for us. On a managed basis our catastrophe unit generated $68 million of gross premiums written which is consistent with last year.

Underwriting income during the quarter amounted to $133 million, down from $175 million for the same period last year. I'd like to remind you however that last year's quarter was a bit unusual with a loss ratio of negative 7.8% where we benefited from one-off commutations and a lack of cat events. The main driver this year is a number of small cat losses in the current quarter, primarily from the July UK floods and Hurricane Dean. Overall an 11.7% loss ratio for the quarter and 28.5% year-to-date.

Our specialty unit experienced some losses this quarter. Top-line gross premiums written grew to $39 million from $29 million last year which was negatively affected by $28 million in return premium relating to the termination of certain assumed reinsurance. Excluding the impact of those commutations we're down for the quarter. Year-to-date however we're about 29% ahead of last year.

Our underwriting loss in specialty this quarter was $6 million. Current accident year losses amounted to $47 million, higher than we expected, but, as Kevin mentioned, driven by a number of small losses. Prior year favorable development was $1 million this quarter versus $49 million for the same period last year, which included $32 million of reserve releases from commutations.

Performance in our specialty book can jump around a bit from quarter to quarter, but from an historical perspective actual claim emergence has been lower than expected. While this quarter we had higher than expected claim emergence, on a year-to-date basis we are running a 38.2% loss ratio which we are pleased with.

In Individual Risk we posted gross premiums written of $101 million for the quarter versus $166 million in the same period last year reflecting our determination to remain disciplined amid signs of a softening market. Declines were experienced in all lines of business. On a year-to-date basis we're down around 15% with the biggest percentage decline coming from our commercial property and personal lines property business and, as Bill mentioned, reflecting decisions we made earlier this year.

Underwriting income for the period was $18 million versus $3 million last year. We generated a combined ratio of 85.8%, somewhat better than our expectations, reflecting a lower level of attritional losses and $4 million of favorable loss reserve development. On a year-to-date basis the combined ratio is running just under 90%.

I'd like to now turn my attention to the $36 million charge we took this quarter related to our share of ChannelRe's anticipated unrealized mark to market adjustment and its financial guarantee products for the third quarter. The contracts that gave rise to the adjustment are principal financial guarantees that because of their terms are considered under GAAP to be derivatives of financial reporting and therefore are carried at fair value.

The charge we are taking stems directly from a mark that Channel is taking in the third quarter and is a reflection of the current environment in the structured credit markets, an environment that is evolving. You may have noticed that we excluded the Channel mark from operating earnings. We present operating earnings to provide you with a measure to evaluate the underlying fundamentals of our operations.

Our goal is to represent operating earnings, excluding variability, that is not considered to be relevant indicators of our business operations. Prior to this quarter we have not had any sort of measurable mark on ChannelRe's book and we believe that to mark the market adjustment is not a relevant indicator of our business.

Moving on to our investment portfolio, our investment portfolio continues to perform well with over $95 million of net investment income for the period. Our total return for the quarter was 6.8% driven in part by higher invested assets and strong returns in our [alternative] portfolio. This portfolio has been conservatively positioned with respect to exposure to credit and securitized products, so it is well positioned for what transpired in the fixed income markets this quarter. With widening spreads we saw an opportunity to take on slightly more risk including an increase in securitized products. But we are staying away from anything with subprime exposure and continuing to avoid CLOs and CDOs. All our securitized exposure remains in AAA rated tranches.

In terms of capital management, we continue to purchase our shares in the open market under our share repurchase plan. During the quarter we purchased approximately $77 million of our stock bringing our year-to-date total to just over $88 million. As we previously disclosed, our Board increased the share buyback authorization to 500 million, giving us the opportunity to increase the amount of our share buybacks. I think you can expect us to continue our disciplined opportunistic approach to buybacks and the return of capital generally.

Moving on to top-line forecast for 2007. As of September 30th we have substantially written the majority of our managed cat premium for the year, very little comes in during the fourth quarter and we are slightly down from last year where we expect to be for the full year.

In specialty we expect our year-to-date trend to continue and we expect to be up around 30% for the full year over last year. Given the downward pressure that we experienced in the quarter in Individual Risk we now expect to be down at least 15% over last year.

Looking forward to 2008 we still believe there are a number of good opportunities to write good business across all of our lines of business and based on some early assumptions I would like to lay out our forecast. In managed cat our expectation is that we will be down around 10%. In specialty the market continues to soften and, as you may recall, we did have one large transaction last quarter which we do not expect to renew during 2008, so we expect to be down 25%.

In Individual Risk, again, we are seeing opportunities but we are being selective and disciplined and currently we would estimate that we might be down around 5%. I will caution you that these estimates are based on very early indications of the market; there are a lot of moving parts that can impact these estimates and most important for us is that we will continue to be opportunistic while maintaining our traditional discipline. Thanks. With that I will now turn the call back over to Neill.

Thanks, Fred. I might just echo what Fred was saying about projections for next year. Giving guidance on top line frankly is not my favorite thing to do because it's difficult for us to give you a clear-cut answer there. So please take these as broad indications. We're trying to be helpful to give you an eye to the future, but we don't have a tight budget -- we try to write as much good profitable business as we can. So with that I'd like to turn it back to you for questions.

(OPERATOR INSTRUCTIONS). Tom Cholnoky, Goldman Sachs.

Good morning. A couple of questions. First, on ChannelRe -- are there any obligations to put more capital into the Company if it comes under significant financial pressure? And then the second part of that question is -- can you tell us what your cost basis or current carrying value of your investment is?

Sure, Tom, this is Fred. We have no obligation to Channel over and above our current investment. We are capped today at our investment which is approximately $127 million.

Okay, all right. And then to the extent that these write-downs are reversed, I assume you're going to run those through unrealized and realized gains -- or realized gains in that case, or unrealized gains?

This mark will move. This is a volatile market, it could go up, it could go down. Whichever way it goes we're going to continue to account for it and report it the same way we did this quarter. If it's unrealized, whether it's a gain or a loss, we will continue to exclude it from operating earnings.

Okay. And then two other quick questions if I can. The large losses in specialty, can you give us a little bit more color what they were just to give us an idea of the types of losses?

Sure, the three large losses that we mentioned approximated about $15 million or added 26 points to the loss ratio. As Kevin mentioned, these aren't any trends of any particular types, they're two property losses, they're a casualty claim, all very different and, again, not giving us any concern for anything within the specialty book at this point in time.

Okay. And then just a final question. Other income seemed to swing to a bigger loss than I would have thought. Can you give us a little bit more color what's going through there?

Yes, there are a lot of moving parts there, Tom. I guess there are two big components of that. The first thing is there's income going through there and there are expenses. In terms of the income items there's a $5.8 million income item relating to the platinum fees that we get on the management agreement we have with them. That's a little higher than normal, this is the last quarter that we're going to be involved in that agreement, so there's a little true up there. However there are some things going the other way.

The biggest component of that is an item, it's about $12 million which is expenses relating to some reinsurance, both ceded and assumed reinsurance that are accounted for as deposits or derivatives. And essentially what that represents is the net premiums coming through on that line. And a little higher than what we've seen in the past, but you could probably expect to see that for the next couple quarters. And there are some other onetime items, there's a $3 million expense relating to an investment that our weather consulting group has made for some additional loss mitigation efforts that we're involved in.

But just to understand the $10 million could be viewed as a quarterly run rate for a little while?

I would advise you to look at the components because, like I said, that $5 million fee (multiple speakers)

Oh, that's right, that goes away.

Yes. But again, the biggest component is the premiums coming through on the derivatives which is pretty good run rate for the next couple quarters. It will move though.

All right, thank you.

I might just add to what Fred said. Even though it's not a big number we are investing in the future and loss mitigation and there will be some expenses going forward, they'll be small but we're focusing in that area.

Gary Ransom, Fox-Pitt Kelton.

I wondered if you could discuss capital for a minute. I know you've got a buyback authorization and that will be opportunistic going forward. But in light of what you're seeing as the opportunities for growth on the one hand or shrinking on the other hand, and what excess capital might be created over the next year or two, can you just talk about what activities or what your thought process is in dealing with capital management?

Sure, Gary, this is Fred. Our philosophy around [cat] capital, if you go back over time, hasn't changed. The way we evaluate whether we have excess capital is by carefully monitoring our ROE. We have a lot of internal tests as well as rating agency tests and right now all those indicate that we have a very comfortable capital position. But we're continuing to generate some good ROEs.

It's pretty clear that over time we continue to add to our capital, we're continuing to generate profits. We will continue to manage our capital through share buybacks which is our preferred method, we'll continue to be opportunistic buying the stock back at prices that we believe make sense for us. But right now, again I think the key take away is we're comfortable with our capital position and we feel we have the ability to continue to manage it the same way we've been managing it in the past.

Okay, thank you. And just one other question on the pricing outlook. You said you think you will have opportunities next year to write adequately priced business. Will you still envision prices declining generally? Are there a lot of businesses where you had since excess pricing in '07 where even if it goes down it will still be adequate in '08?

That's a great question. One of the things that's happened over the last -- I mentioned in my comments, is the market has grown pretty dramatically. And the way we kind of divide up the market is into what we call the acceptable bucket, the low return bucket, and the negative return bucket. And the area which we like to play obviously is the acceptable return bucket and that bucket is a lot bigger.

But the other thing to kind of highlight is we're coming off what we've constructed to be the best portfolio we've had over the last several years. So I'm pretty optimistic that there's going to be business that we are seeing that's attractive for two reasons. One is we have a very good portfolio now and a lot of what will be coming up will be renewals of a well priced portfolio. And secondly, we're dealing with a larger pool of accounts that fit within the acceptable bucket.

Okay, thank you very much.

Josh Shanker, Citigroup.

Thank you. Good morning. Two questions, the first one -- I don't mean to dwell on ChannelRe, but you may have noticed that PartnerRe took a $25 million mark to market charge; you've taken a 36. Their proportion of ownership is 20%, you guys 33. I'm wondering guys -- I could ask them the very same question, why do your methodologies differ on the size of your charge and what method did you go through putting up the $36 million?

And the second question regards the character of reinsurance business that renews in the third quarter for you. Can we -- is it just general or can we say anything about your book of business by the particular rate decline in this quarter?

Josh, this is Fred; I'll take the first part of that question. The Partner -- I don't know what Partner does so I can't comment on that. But I will say this, that the mark that Channel took is largely based on the portfolio that ceded to them from MBIA. I believe that Partner released its earnings before MBIA and they were working with estimates.

As time progressed I think that Channel had a better opportunity to fine-tune those estimates, the number was moving from the time period that Partner released. And I think it's pretty safe to say that basically what we've done is we've taken the number that was provided to us by Channel and just applied that percentage.

As far as what we thought for the third quarter, the 7-1 business I think we talked about a little bit last time was the pricing was down in the 7-1 business from year-to-year but it was still very robust. We were coming off what we thought was somewhat of an anomaly in 2006 with respect to pricing. So that is kind of what happened for the -- and that's largely a Florida renewal. Since then there's not a lot of that comes up.

We did see a couple of 10-1 actually; we did see a couple of international programs. And it was interesting because it was a bit of a mixed bag, to be honest, where we actually were able to increase on one of the programs and the other one, I'd say the pricing was competitive but it wasn't unreasonable.

Okay, that's perfect. Thank you.

Vinay Misquith, Credit Suisse.

Good morning. Could you update us on the proposed Florida legislation? There was talk that the CFO, Alex I think, wanted to reduce the (inaudible) layer of the FHCF by about $6 billion. So if you have any update on that that would be great.

We're keeping an eye on all the legislative issues that are arising regarding the cat business in the U.S. I think that there is a lot of pressure from different size as to whether there are going to be changes at a national level or changes within the Florida level. I think from our standpoint the most we can do is try to monitor and keep abreast of the changes. But as far as knowing at this point what is the likely outcome I think is probably a good premature from the information that we have. The comfort I can offer is that we are doing our best to keep abreast of it and we'll make sure that when changes are imminent or occur we can quickly maneuver portfolio to determine the effect on our business.

That's fair. Your 10% forecast for a decline in managed cat premium, does it assume any reduction in the capacity at the FHCF right now?

I think there are a lot of things that are -- if you break it down, the way we think about looking at the budget for 2008 is trying not to focus on sort of individual things, but kind of the macro trends. So will there be more supply from existing players? Is there uncertainty around the sidecar capacity? One of the things we're looking at is where are we going to participate? If we move up in programs we'll have less premium. We may have the same amount of risk and better returns but we'll have less premium.

I think there are rating agency constraints that you want to think about, whether there are some changes in regulatory, but those are much harder to build in. Then on the demand-side you're also looking at whether there's increased retention, whether there's going to be more limit purchased if they're not buying bottom limit. So I think there are a lot of things that we're trying to look at to come up with what we think the overview of the market will be. To say specifically we're looking at changes to the FHCF, I think it would be premature to put a stake in the ground on that.

Fair enough. And in '07 you had about $60 million of [StarboundRe] II worth of premiums and your forecast is for a 10% decline for the entire -- based on the entire managed cat premiums, correct? So even if you don't renew the StarboundRe II you could take that on your own books?

Yes, technically Starbound II is on RenRe paper at this point now. So whether we keep the facility behind us or not we will have -- from the buyer's perspective it is RenRe paper.

Sure, fair enough. And one last question if I may. You've increased the proportion of your business more to the U.S. versus international, and that's understandable because pricing in the U.S. is more favorable. Do you foresee that changing next year?

My gut is we'll probably have a similar portfolio construction, but it's for a small movement -- there definitely will be small movements in our U.S. and non-U.S. allocation. But it's really going to be dynamically managed as we see deals come up and the pricing associated with those deals.

And Vinay, just remember, a lot of this is driven by loss activity around the world. So in a steady-state what Kevin says is correct, but things happen. So over the next five or 10 years you will see pretty big shifts in our book in where the premium comes from.

Sure. Thank you.

[Kristin Coney], Morgan Stanley.

Good morning. I have a quick ChannelRe follow up for you. Will the operating income also be excluded from RenRe's operating income or will you exclude only unusual mark to market adjustments?

We will only be excluding the mark to market adjustments on the credit derivative portfolio. We continue to account for our equity pickup in ChannelRe the same way we always have.

All right, thank you.

Jay Cohen, Merrill Lynch.

Thank you. Good morning. Two questions. First, you mentioned in the Individual Risk business you signed on I guess two new programs and I'm wondering if you can give us a bit more detail on those programs, what kind of business it is. And then secondly, on the reinsurance side, we've been hearing about this trend towards higher retentions among primary companies and I'm wondering if you guys can look in your crystal ball and get a sense of what that looks like going forward. Some have suggested that that higher retention should slow down and stop, others have suggested it could continue and I'm wondering what your view is on that?

On your question on Individual Risk, if you look at (inaudible) and discuss individual deals in or around customer confidentiality, but beyond that what I can tell you is one of them is strictly a property only deal that has found itself very uniqueness that we're very comfortable has the right returns for us. The second one is a commercial package book, casualty and property involved, again in a very uniqueness that has a several year track record to it. And both of these are holding up well in these markets and actually showing slight rate increases even in these market conditions.

Can you give us the amount of premiums that are associated with those programs?

I would prefer not to because I understand what you need, what you're trying to do there, but we just have not disclosed individual deals, individual transaction amounts in the past.

Okay. But obviously we see what your overall expectation is for growth in that unit in '08 and that would be factored in, so --?

Certainly. I think the thing to keep in mind about our business is that, as you see the premium can be lumpy from quarter to quarter based on the size of these transactions, so the best way to look at it is with an annual view as opposed to trying to sort it out on each quarter.

Right. And then that retention question?

Can you repeat the question?

We've seen this trend towards higher retentions among ceding companies, and I'm wondering what you think going forward. Is that trend going to continue? Do you expect -- maybe these guys have enough risk, they might reverse themselves, what do you expect to see?

I think we've seen companies increase retention at other points in the market. I think it currently is a trend where companies are -- we've seen companies looking at their reinsurance purchases on a consolidated basis for the Group and less on the individual profit center basis. My intuition tells me that will probably continue for a while, but that doesn't necessarily mean people will be spending less on reinsurance. Back to what I was alluding to earlier is they may be buying more top layers which we've seen previously. So whether the money is actually leaving the system is a different question than whether we're seeing increased retention.

Great. Thanks, Kevin.

Alain Karaoglan, Banc of America Securities.

Good morning. A couple of questions. The first one relates to ChannelRe in terms of the capital losses -- unrealized losses. What are your expectations? Do you expect to be made whole on that or do you expect these losses to occur? And related to your $127 million, is that your investment originally or is that your current carrying value after taking these mark to markets?

Alain, this is Fred. The charge that you see coming through is based on today's information related to Channel. As of today these are non-cash charges. There is a possibility that these could be cash losses, but based on today's information we don't expect that. That could change, there's going to be more volatility. Certainly the mark will move and to the extent there are losses on them we're going to recognize them. But today the facts don't indicate there's a loss.

These contracts on average have about a four-year term and the expectation is that they will run their full term. So if they do run their full term and there are no insured losses they should come back. But again, there's a lot of volatility going on.

The second question, in terms of our investment in Channel, our carrying value today stands at $127 million, that's what we're carrying it for. That's a little higher than our original investment. Our original investment was about $120 million and there's obviously been a lot of movement in there between income and some dividends. But I think the key point is we look at our exposure being up to $127 million.

Okay. And on your specialty lines, your expense ratios seem to have picked up this quarter in the third quarter, and it did so again also last year. Is there anything happening, any seasonality on that? And with respect to the specialty, you mentioned that you expect the top line to be down 25%. You mentioned the large account that was added this year you don't expect to renew. Could you remind us the size of the large account and which quarter did it affect your 2007, whether it was in the first or second quarter?

Let me first start with the expense ratio. The expense ratio is higher this quarter in relationship to the previous quarters this year, mainly driven by the acquisition expenses as a result of that one-time -- that transaction that we added. We added some quota share contracts into the specialty group on June 1. Those traditionally carry a higher commission rate, that's driving up the expense ratio.

In terms of that onetime transaction -- that did occur in the second quarter. There was a portfolio transfer in the second quarter of approximately $75 million. So should that reverse or not renew we would expect a portfolio transfer out upon nonrenewal in '08.

And is that $75 million of gross and net written premium?

Yes, yes.

Thank you very much.

(OPERATOR INSTRUCTIONS). Terry Shu, JPMorgan.

I would say most of my questions have been answered -- I would say all of them. I'm not sure whether I heard that question asked, but let me ask it again. On the Bermuda tax issue, did you address that? I may not have paid full attention. Could I ask that? What would be your views, Neill, and how would it impact RenRe?

Sure, good question. And no, Terry, you're the first to ask that question today. We're not overly concerned about the tax question. For starters there's no bill that we're aware of that's in Congress that's addressing that. We know there is a lot of discussion. Most of the discussion seems to be oriented towards situations where there might be a large U.S. operation and then a smaller headquarters back in Bermuda. That's not the situation that we have here.

So we don't see anything also with quite substantial quota shares. So if there is a change in active there we don't feel like it's going to have a lot of impact on us. Secondly, historically this has been addressed many times over the years and people realize that if you increase taxes it's going to increase prices which is not a good thing in today's environment. So we'll stay tuned. We don't see anything with a lot of traction right now and we don't think it's going to have, if something is enacted, dramatic impact on us.

Thank you. And I gather even if something were to get enacted with regard to limiting the transfer, the reinsuring the U.S. look back to the Bermuda [Kennedy] you have very little of that. So it would be immaterial direct financial impact, am I correct there?

Yes, that's true, it's very small. It would be a very small impact.

Thanks.

Brian Meredith, UBS.

Good morning. Two quick questions for you. First, Kevin, can you talk about split rating and are you seeing any more split rating? It's been talked about a little bit more maybe happening in the U.S., I know it already happened in Australia. And maybe at one renewals do you think it's possible that we see that happening more often? Are you getting different priced for -- certain reinsurers give a different price on a reinsurance contract than others do.

We like to do those kind of deals. If you break it down it's less prevalent in the traditional U.S. market, a little bit more likely to happen in the international market and then most likely to happen in the retro market. I think that trend will continue. I think we are uniquely positioned with some of the relationships that we have that we have more ability to do -- we call them private layers -- private layers than many of our other competitors.

There's been also a lot of discussion that it's going to become the mainstream this year for cat business; I don't believe that will happen. I'm hopeful we'll have a few more opportunities this year, but I wouldn't consider it to be much different than what we've had in other years to be perfectly honest.

Great. And then my second question is -- what are your expectations for the increased issuance of cat bonds? And then as a follow-up to that, when you look at your forecast for next year, you gave us premium growth, but obviously there is nothing there factored in with respect to actually increasing your investment in cat bonds. And what kind of capital charge would you assign to a cat bond versus writing a traditional property cat reinsurance treaty?

Cat bonds have grown at a pretty nice rate over the last few years. There is a lot of expectation that there are several in the works right now. We look at cat bonds. We participate on cat bonds. The way we evaluate them is we kind of split it into two pieces. One is just a LIBOR component. The other piece is we strip out the amount of risk premium, model the risk premium as if it was a normal reinsurance contract, and then there is a liquidity charge for the funding element. So we kind of split it into three pricing components.

So the capital allocation for taking the risk on it from the cat bond is associated with the risk premium for the covered reinsurance type risk in the bond. Does that answer your question?

Yes, that answered my question. So I guess the follow-up, looking out to 2008, looking at your premium projections, it is definitely possible that also we see a pickup in the amount of cat bonds that you are investing in.

Yes, that is definitely a possibility.

Which would help your income, obviously, more on the investment income side. Okay.

To be clear, the risk that is associated for the cat risk to those cap bonds is managed in the same way that we would manage any other related or correlated reinsurance risk we take on.

Great, thank you.

Jonathan Adams, Oppenheimer.

Good morning. I had two questions. I hope I can fit them both in. The first is to get a clarification on a couple of comments you made with regard to the current book of business being the best that you have seen in terms of expected return. Is there any reason that wouldn't translate into return on equity for shareholders being the best in terms of the business that you have on a risk adjusted basis?

When we talk about it, we measure our portfolio with a capital model, not specifically tied to the actual capital that the Company is based on. It's a theoretical capital model. So obviously if there's more capital in the system the actual returns produced in the portfolio will be different, but we want to measure the portfolio consistently on a theoretical capital basis. So even though we have the best portfolio that we've ever seen, it can translate to different return on actual equity because of the way we're measuring the risk portfolio compared to the amount of cash -- equity in the entity.

Or to say that slightly differently, you may have excess capital and that would not be included in that estimation as an expected return on the business?

Jonathan, I think it may be semantics in terms of excess capital. Obviously the more capital you have it's going to drive that ratio down, but when we're generating returns in the 20s we wouldn't define it as being excess capital.

Okay. Fair enough. The second question had to do with another comment that was made earlier in terms of new entities seeking reinsurance. And I'm wondering, have you established new relationships over the past year and taken advantage of that somewhat higher demand?

Yes, actually what I was referring to is just there are sidecars in the business generally. Obviously we have some joint ventures in sidecars, but I was kind of commenting that that's more prevalent over the last 18 months than what we've seen any time previous to that. As far as us having new relationships, I think it's fair to say we're always working on things, but I wouldn't comment specifically as to whether we have different relationships at any point in time compared to what we had in the previous point.

Okay, thank you.

Thank you. I would now like to turn the floor back to Mr. Currie for any closing comments.

Well, thank you all for joining us today. Hopefully our discussion helps you to understand why we believe we are well positioned to continue to grow our tangible book value at an attractive rate over the coming years. We hope you enjoy your Halloween; don't eat too much candy and we'll see you next quarter. Thank you.

This concludes today's RenaissanceRe conference call. You may now disconnect and have a great day.