濱特爾 (RNR) 2007 Q4 法說會逐字稿

Good morning. My name is Judith and I will be your conference operator today. At this time, I would like to welcome everyone to the RenaissanceRe fourth-quarter and full-year 2007 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). It is now my pleasure to turn the floor over to your host, Mr. David Lilly. Sir, you may begin your conference.

Good morning. Thank you for joining our fourth-quarter and full-year 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 will make sure to provide you with one. There will be an audio replay of the call available at 2:00 p.m. Eastern time today through February 20 at 8 p.m. The replay can be accessed by dialing 800-642-1687 or 706-645-9291. The pass code you will need for both numbers is 30910928. 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 April 21, 2008.

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

With me to discuss today's 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 would now like to turn the call over to Neill. Neill?

Thank you, David. Good morning. I'm pleased to report a profitable fourth quarter and strong financial results for 2007. Our key financial metric, growth in tangible book value per share, was just over 19% for the year. We enjoyed quite good results in both Reinsurance and Individual Risk with a 45% full-year combined ratio for our Reinsurance segment and an 89% combined ratio in Individual Risk.

While market conditions were challenging in 2007 as many competitors reduced prices, through our strong relationships and reputation for meeting our clients' needs, we maintained an attractive book of business during the year. Gross premiums were roughly flat in our Reinsurance segment and down approximately 19% in our Individual Risk segment. These strong broker and client relationships served us well again at the January 1 renewals and the resulting portfolio continues to be quite attractive.

In our Individual Risk segment, the strength of our franchise is reflected in a terrific set of quota share and program partners and a pipeline that is providing a good flow of attractive opportunities to choose from. We are seeing a similar flow of attractive opportunities in our Ventures unit.

I am pleased to say we had a strong year in investments, reporting record net investment income of $402 million. While we are a company known for our focus on underwriting profit, as we continue to grow and diversify over the years, we expect investment income will become an increasingly significant contributor to our overall profitability.

As we have previously announced, our fourth-quarter results were negatively impacted as a result of our investment in ChannelRe and losses in our casualty clash book of business. While ChannelRe is an investment and casualty clash is a line of reinsurance business we underwrite, the manageable impact they had on our results underscores our disciplined approach to containing and managing the risks we accept. Our financial guarantee exposure is limited to the value of our equity investment in ChannelRe.

With respect to our casualty clash book, we have worked proactively with our clients in an effort to contain any subprime losses to the 2007 underwriting year. We believe these outcomes demonstrate that how you assume risk is often as important as the type of risk that you assume.

But for many of you like us, your focus is on the path ahead. Certainly there are challenges presented by softening market conditions in many lines of business, a slowing economy and lower interest rates. But these are issues we are well-equipped to address.

During December of 2007, Standard & Poor's raised the rating of Renaissance Reinsurance from A+ to AA- and A.M. Best raised our rating from A to A+. While the ratings were strong before the upgrade, the new ratings were helpful during the recent renewal season when our allocated lines were being discussed with clients. And of course, strong ratings are helpful in maintaining or attracting business in any market cycle.

Above all else, we will remain disciplined and will only assume risk for which we are being paid appropriately. Through our strong relationships and leadership role in the markets we serve, we expect to maintain an attractive portfolio of business and a steady flow of new opportunities. This is the benefit of the franchise we have built over the last 13 years by providing consistent exposure-based pricing and meeting the needs of our clients, especially when others in the markets may have backed away.

So I am quite pleased with where we are and our prospects for continuing to deliver strong results for our shareholders going forward. I am also pleased to say that Kevin O'Donnell who runs our reinsurance operations and Bill Ashley who runs our Individual Risk operations are with Fred and me today. So with that, I would like to turn the call over to Kevin.

Thanks, Neill and good morning. Leading up to year-end, there was a growing feeling that we were going to see a softening market and from a reinsurance perspective, we are never quite clear if the chatter predicts the fall or if it causes the fall, but either way, we did see softening at year-end.

Another point worth noting about the renewal is that, over the last few years, we have seen a growing market, especially for US wind business. The growing demand was able to keep up with the increased appetite to deploy capital in the space, but unfortunately at 1/1 this year, this trend stopped and the reinsurance market did not grow for the first time since 2005. The lack of growth in the market and once again increased appetite for cat risk caused market clearing prices to reduce.

In prior years, we have discussed the cat world in terms of three categories of risk -- negative returning business, low returning business and acceptable returning business. As you would expect, we focus our attention on the acceptable return universe and at 1/1/08, we saw this bucket of business shrink by between 5% and 10% in terms of worldwide market premium.

In spite of the shrinking of the acceptable bucket though, we are very pleased with the overall spread of risk and return profile that we achieved in our 1/1 renewals and remain very comfortable with the overall return of the portfolio.

The attractiveness of our portfolio is largely attributable to our preferred position in the market, strong ratings and underwriting leadership. Our book movements were less pronounced and by our measurements, we increased our spread to the overall market.

More specific to the US cat book, we saw rate reductions that were pretty widely dispersed depending on the individual account attributes. But in general, accounts with growing exposure were in some instances seeing exposure-based reductions approaching 20% and programs with flat or reducing exposures were seeing exposure-adjusted reductions of between 7.5% and 12.5%.

Our underwriters did a great job maintaining discipline when managing our quotes and lines to best optimize our position. We achieved large lines on most deals that we targeted and were disciplined in reducing or canceling business that was either too cheap or too far from our [quotes].

Both our international cat and retro books held up very well with no premium reduction to speak of. This is due to our achieving above-market nonconcurrent terms on several large placements. Overall, the open market business saw rate reductions that were pretty widely dispersed depending on region, but the two regions we care most about are UK and Continental Europe and those were down about 5% and 7.5% respectively.

Overall business for the cat side was very sticky this renewal and incumbents seemed to have a very strong position in retaining desired or targeted business.

Moving over to specialty, we found very few new opportunities in our specialty line of business, saw extreme price competition on certain deals, but were able to manage other deals with only moderate reduction in the expiring economics.

The main topic I would like to discuss with this book is the impact of subprime though. Firstly, we have done a comprehensive review of our underwriting in this book. From a model perspective, we have assessed our current subprime-related losses against the market loss curves we developed for pricing and we are comfortable with the results that we found. We anticipate completing an update of our casualty clash pricing models in 2008, incorporating lessons learned from the specific event. This is the same process we would do for any loss and it is no different for specialty.

Secondly, we have refined our approach to the renewal of the casualty clash book by adding the exclusion to the 2008 renewals, as well as documentation to the in force 2007 deals in the hopes that we provided a roadmap as to how covered losses will be handled for these contracts.

You have already heard about the 60 million event-specific IBNR, which is in addition to the normal IBNR that we posted. This relates to our potential exposure into the casualty clash book of business. Historically, we have always been prudent around these reserves and our reserving philosophy remains unchanged.

We continue to look for new opportunities in the professional and casualty lines of business. We believe that these markets are in an elevated period or risk due to the stresses of subprime and the general predictions of the increased likelihood of economic sluggishness, which could cause some dislocations and we believe these dislocations will create opportunities for us. Thank you and at this point, I would like to turn the call over to Bill.

Thanks, Kevin and good morning. Thank you for the opportunity to speak with you this morning. Our property and casualty programs, as Neill mentioned, and our quota shares continued to produce profits at or better than expected levels. For the fourth quarter and for the year, Individual Risk business unit finished at just under an 89% combined ratio. 2007 had lighter-than-expected losses from catastrophes, which had a resulting positive impact on our overall property results.

As discussed on prior earning calls, our 2007 gross written premium was down from prior year. The majority of this decline was the result of two proactive decisions we made during the year. We terminated a large commercial property quota share. We also decreased our participation in a Florida homeowners quota share, reducing our business units' overall volatility.

The remaining reduction in written premium can be attributed to holding the line on pricing. We continue to be pleased with our program and quota share partners' execution of pricing discipline in what is becoming very difficult market conditions.

We are also pleased in 2007 that we added two new programs and expanded a few of the existing programs. We have not yet realized a full year's premium from these two new programs, but will realize the annualized effect in 2008. We continue to work on and see new opportunities and yet continue to be cautious due to the current pricing disciplines that we are seeing in the primary market.

Commercial property that is hurricane exposed continues to present opportunity for us in 2008. However, it is possible that, during the year, pricing for this segment of the market could decrease to levels below our required returns.

The market prices for California commercial property earthquake coverage have decreased dramatically in 2007. In 2007, our written premium from California earthquake coverage declined more than we had anticipated at the beginning of the year. We do not see a growth opportunity in this segment under current market conditions in 2008.

We are fortunate to have both onshore and offshore multiple insurance company balance sheets. We have been busy building out our infrastructure in the US, which not only manages our programs, but adds a lot of value to our partners. During 2008, expect us to continue to commit resources to enable our capabilities even further. We are not about competing on price, but by adding value to our partners. As examples, we have built data mining technology and modeling to assist not only in risk selection, but targeting marketing to attract the risk we would like to write. We are profit-motivated and not top-line motivated. We will continue in 2008 not to sacrifice the bottom line by holding onto underpriced business. And now I would like to turn the call over to our CFO, Fred Donner.

Thanks, Bill and good morning, everyone. Now that you have heard from our business unit leaders about the marketplace, I will take you through the financial results. After the market close last evening, we reported net income for the quarter of $62 million or $0.08 per share and operating income of $186 million or $2.64 per share. Operating income excludes the impact of net realized gains and losses and the mark-to-market unrealized losses on Channel.

On a full-year basis, we generated net income of $570 million, $7.93 per share and $735 million of operating income or $10.24 per share. For 2007, we achieved a 27% operating return on common equity and as you heard Neill mention, grew our book value per share by over 19%. Our share buybacks negatively impacted our growth in book value per share by approximately two percentage points. So excluding the buybacks, our book value per share grew by 21%. I will give you more details on our share buybacks later on in the call.

Consistent with our forecast, our top line declined by about 7% for the full year, driven primarily by our disciplined approach in the softening market. However, our underwriting profits remain strong and as you heard, we are pleased with the combined ratios in both of our segments. On a consolidated basis, we generated a 59.3% combined ratio for the full year.

Let me take you through some of the details for the quarter starting with ChannelRe. As previously reported, our share of ChannelRe's unrealized mark-to-market losses related to its credit default products exceeded our carrying value and therefore, we reduced our investment in Channel to zero. Our total charge related to Channel this quarter amounted to $131 million. We have a 32.7% interest in ChannelRe, which we account for under the equity method. We have no reinsurance or other support arrangement, so our losses are limited to our investment. Therefore, we have no further exposure to losses from ChannelRe.

Let me move on to the operating results starting with the catastrophe unit of our Reinsurance segment. On a managed basis, our cat unit had negative gross written premium of $5 million as compared to $25 million of positive gross premiums written for the same period last year. The negative premium results from approximately $20 million of returned premium adjustment estimates that we recorded this quarter. On a full-year basis, managed cat premiums were $1.33 billion, down about 5% from last year and as you heard Kevin mention, we were pleased with the full-year results and also pleased with the portfolio we built at January 1.

Underwriting income during the quarter for our cat unit amounted to $169 million, up from $110 million for the same period last year. This period's results were favorably impacted by a low level of current year losses and $61 million in favorable development from prior accident years. On a full-year basis, underwriting income was $471 million, which is relatively flat with last year and we generated a combined ratio of 35%, also consistent with last year.

In our specialty unit, gross premiums written grew to $38 million from $28 million last year. This increase is the result of one particular contract, which we have previously discussed. For the quarter, we suffered an underwriting loss of $4 million, a result of the $55 million reserve increase in our casualty clash book in the quarter. For the full year, our underwriting income was $57 million compared to $164 million last year, driven by higher current year losses and lower favorable loss reserve development.

Moving onto our Individual Risk business, gross premiums written for the quarter was $93 million compared to $142 million last year. The declines were primarily in the commercial property and personal lines property lines of business. As Bill previously mentioned, these declines reflected decisions we made in '06 and '07 to reduce participations on certain treaties and redeploy the capital to our cat unit where we were able to achieve higher returns in the current market.

Underwriting income for the quarter was $12 million compared to $37 million for the same period last year. The business produced a combined ratio of 88% for the quarter compared to 73% last year. Last year's combined ratio was lower than our typical run rate because the recognition of underwriting gains on our crop program were weighted more towards the fourth quarter in 2006 than they were in 2007. For the full calendar year, the combined ratio for Individual Risk was flat with last year at about 89%.

Our investment portfolio continues to perform well, generating more than $80 million of net investment income for the period. Our total return for the quarter, which includes realized and unrealized gains and losses, was just over 6% driven in part by strong returns, principally from our fixed income portfolio. And for the full year, our total return was just under 7%. Our portfolio was well-positioned for what played out in the second half of 2007 with only modest exposure to credit and securitized products. You will notice though that we took the opportunity in the fourth quarter to increase our credit exposure by adding to our securitized asset portfolios to take place of meaningfully wider spreads. These are high-quality investment-grade securities with no subprime exposure. We have no material subprime exposure in our fixed income portfolio. We have no CDOs and no CLOs in our portfolio and also we have not directly invested in any securities that are wrapped or enhanced through financial guarantees.

Also during the quarter, we recorded a one-time $19.3 million tax benefit resulting from a reversal of a tax valuation allowance. The reduction in allowance is driven by the fact that our US operations now have three years of modest taxable income and we expect that to continue for 2008 and beyond and therefore expect to be able to use these deferred tax assets.

As you have heard, while we hope to continue to grow our US operations, all of our reinsurance operations and much of our other operations are conducted exclusively from Bermuda. We do expect this to continue and therefore, as of today, we do not expect our tax expense to be significant on a go-forward basis.

Turning to capital management. During the quarter, we purchased approximately $112 million of our stock bringing the year-to-date total to just over $200 million. We continue to be active this year and since January 1, we have purchased an additional $186 million of our stock. So since we began our program in the first quarter of '07, we have repurchased approximately 6.8 million shares for $386 million, representing approximately 9.5% of our total outstanding shares.

Our philosophy around capital management has not changed and we will continue to buy back our stock when we believe the prices are attractive. Currently, we have $191 million remaining under our existing Board authorization.

With our January 1 renewals behind us, we continue to feel comfortable with the forecast that we provided to you on our last earnings call. Managed cat premiums are expected to be down around 10%, specialty down around 25% and Individual Risk down around 5% and consistent with our focus of maintaining our underwriting standards in this softening market and as always, I would just like to remind you though that there are a significant amount of uncertainty around these estimates. Thanks and with that, I will turn the call back over to Neill.

Thank you, Fred. With that, let's open up to some pre-lunch questions.

(OPERATOR INSTRUCTIONS). Dan Johnson, Citadel Investment Group.

Thank you very much. A couple of follow-ups. Could you highlight again what you had said about the tax rate? I wasn't sure -- are you saying there are no taxes going forward? I am not sure if you were referring to a particular segment?

Number two, can you highlight the size of your California earthquake book in '07 and were you really saying that there is not much interest in that book at all in 2008? And finally, I thought I caught a 5% to 10% down on January 1. Were you specifically referring to the property cat renewal at January 1 or total renewals? Thanks a lot.

Okay, Dan, this is Fred. Why don't I start with the tax question and I guess the point I want to leave you with is even though we have taken down the valuation allowance because we are generating taxable income in the United States, when you look at our consolidated group, the income being generated in the United States is very modest. So while we will have taxes, we don't expect it to be material. So you can see some modest -- you should expect to see some modest tax expense coming through for us in the future, but again nothing material.

Bill will address the earthquake question and then Kevin will address the premium question.

Your question on California earthquake, I appreciate that. If we look at it, just think about it on a premium basis is the best way to describe it, the in force premium for our California earthquake book in 2007 declined by approximately 75%. That doesn't mean that we won't do any California earthquake going forward, but certainly less of it just based on picking the ones that we want at the right prices.

That 75%, does that mean on a written basis, it declined 75% or on an earned?

On a written basis.

Okay. So it'll still flow through a little bit this year. Okay and then on the renewal and that would be it.

What I was trying to discuss on the 5% to 10% was not specifically what rate changes looked like, but we think of the world as being acceptable business, negative returning business and low returning business and what I was trying to highlight was, as we measure business, about 5 -- the acceptable bucket reduced by between 5% and 10%, so the business that we will ultimately target.

That is not saying the same thing as the business you wrote within that bucket declined 5% to 10%, just the target area declined.

That's right. Just from the movements in the market, that bucket, not our book.

And how did your participation change within that? Or is that a pretty good estimate?

By our measurements, we did better than that reduction for that book of business.

Thank you very much.

Tom Cholnoky, Goldman Sachs.

Good morning. I have two unrelated questions. I was wondering if you could talk about this announcement that came out today about CPX Re, how you intend to employ that, how we should think about that in terms of your finances and then -- well, let's start with that and then I just want to go over the clash issue.

Tom, this is Neill. I am not sure we are at liberty to discuss CPX because that is in process at the moment.

Oh really? Because there is -- it is already in the marketplace that you are out with it. Through JPMorgan, it's -- I can read you what -- well, that's all right. If you'd feel like talking about it, we can wait then.

Tom, because it is in the preliminary offering stage, it is a private deal.

Oh, I'm sorry. Okay. I'm sorry. So it is in the offering -- it is like an offering. Okay, that's fine. We can talk about it later then.

Then let's turn to the clash cover if we can. I am just curious -- was this -- was the IBNR that you put up -- I assume this relates to the potential -- or do you actually get notice of loss on this or is it pure IBNR? Then how many different clients are there that could be exposed to -- that you could have in this area that could be exposed to this whole subprime issue and how big is the book? Sorry, that's a lot of questions.

I think that's all my questions rolled up in one.

Right.

What we tried to do -- let me break down what we actually did. We tried to -- we went back and we looked at, for a lot of the accounts we have, detailed underlying risk information. So we are writing reinsurance in retro, but we have, on a large percent of our book, the ability to look through to see what the primary insurers look like. We ranked those as to what we thought their exposure was and then we rolled that up and matched it against the terms for the coverages that we are providing, so that is the first thing.

The second thing we did is we went through the January 1 renewals and we had discussions, talked about our approach to the renewal and tried to ferret out what the management thought their exposures were. So with that, we were able to come up with the approach that we did, which was to exclude subprime from 2008 and then try to add an endorsement to 2007, which defined how covered losses would be treated. So that is kind of what we did.

Your next question was I think did we get notices. With that, we did receive notices because we are excluding it from 2008, so a lot of the notices we have though are very vague and that they expect to have losses, so I am not sure that that is the precision that we would normally expect with someone putting a dollar amount on it. It is really such in early stages of the event that it is difficult to be that precise. But with that information, I think we did a good job lasering in on what we think our exposure is. As far as -- this is not a tremendously big book for us. It is about $50 million in premium. And we have got, as I say, less than two dozen accounts.

And then what is kind of the average limit you put out on this?

That is not something -- I think what I would focus back on is the $60 million in recognition of the two things that I told you. I think it is fair to say that this is a significant portion of our limit. The one thing actually also worth saying is that all this is written with limits and one reinstatement at 100%, so it is a limited exposure for us.

Okay, okay. Sorry, one last question and once again unrelated. Just in your Individual segment in terms of the premium outlook of down 5%, that assumes the inclusion of these two new programs, which I think you had talked about before.

Yes, your question was the premium down 5% for '08, was that the question?

Yes, relative to the two new programs that you mentioned you had written that hadn't shown up yet.

Yes, a good question. Thank you. That contemplates the two new programs coming online further in '08 in that 5% down.

Great. Thank you.

William Wilt, Morgan Stanley.

Good morning. Thanks. A couple of questions. I guess on the casualty clash, just to understand the dynamics, you had said in the renewal of -- well, I guess the first question is if you had written $50 million in premium for the year 2007, a sense for what the written premiums in the year 2008 would look like.

I don't have -- a lot of the book hasn't renewed yet, so I don't have an answer to that. One thing I can tell you is we did lose some business because of our approach. In general, I think our approach was deemed as being pretty proactive. It was accepted by most clients because it provided some degree of certainty as to how covered losses would be treated and from our perspective, it allowed us to ring fence our exposure the best we could into one limit in 2007. But we still have more renewals to come, so I don't have a definitive answer as to how much the premium will be this year. The thing that I would say for the renewals that we have in 2008, the ones that have already renewed have an exclusion for subprime.

That's helpful. And if I could tease that out a bit better, the exclusion for subprime in the year 2008, so if you renewed a contract, but renewed it with an exclusion for the year 2008 I guess forward, was there any provision or covering of say an extended reporting period for the cedent on the 2007 policy years? i.e. is there any lag effect at all or are you able to kind of do this on a cut-off basis?

No, I think -- well, one -- there is -- in a normal claims made policy, which this book is a claims made book, you will have an extended reporting period that people can purchase if they do not renew. If renewing with an exclusion for 2008, most people are going to put the claim end in some form in 2007, otherwise they are not going to have cover. So with or without the extended reporting period, I think the question is have we cut the potential for the risk to grow from 2007? The answer is no. That wasn't the intention of what we tried to do.

Okay, that's helpful. Thanks. And I will hit the [accelerator] here. The review -- the IBNR increase is a review of -- follows a review of all -- you said about 24 accounts, about two dozen. It is a review of the exposure of all the accounts where casualty clash was sold?

Yes, we looked at the whole book for casualty clash, which I gave -- I think I said it was about just under 24 accounts, but, yes, we didn't look at just the 1/1 renewals; we looked at the whole book.

Okay, thanks. Two other real quick ones. Kevin, in your opening remarks, I guess just following the comment about the universe of acceptable business shrinking by 5% to 10%, I believe just following that, you commented on rate changes where the underlying insured were seeing exposures increase versus decrease and I missed the number where the underlying insurers who are seeing their exposures increase.

And some is -- I don't want to portray this as universal. What I was trying to say is there were extreme situations where in accounts with growing exposures, we saw exposure-adjusted reductions approaching 20%. I wouldn't want you to take that as a categorization that that is how the whole book changed though.

Okay. It strikes me initially as counterintuitive, that the exposures are increasing that they would get a reinsurance rate decrease I guess just because --

I didn't say rate decrease, I said exposure-adjusted reductions. So rate may have increased, but the overall economics degraded by up to 20%.

Oh, I see. Okay. Got it. The last one for me is -- thank you for this -- is anything out of the Florida hurricane cat fund. I know back in the fall, there was I believe the CFO submitted a proposal of some kind to make the -- bring the reinsurance purchasing decisions or put into a smaller group of hands. I believe the governor and a couple of other top officials, the decision for, on an annual basis, to either expand or shrink the size of the Florida hurricane cat fund as it currently is. If I have characterized that correctly, maybe you can comment on that. Can you give an update on that?

Yes, I think Florida is a pretty dynamic environment, so I don't have any particular insight as to how it is going to change. I am aware of a lot of the conversations about potentially changing the amount of coverage offered under either the [tickle] layer or the FHCF, but I think it is premature to say that we have any certainty as to how it will affect the market.

The thing I would say is we are as close to this as I think we can be and will be ready to act either way that the FHCF changes. So if I -- it's a difficult question to answer definitively that this is how it is going to change and this is what we are going to do. We are monitoring it closely and I think we will be among the first to understand what the changes mean to the market and how we can react to capitalize on them.

Thanks very much.

Brian Meredith, UBS.

Yes, just a couple quick questions here. The first one, can you just remind us what goes in that other income expense line item or other loss line item? It was minus $20 million in the quarter. I know that Platinum went away and that was part of the sequential I guess change, but it looks like there is another $5 million loss. Is that a run rate number we should expect going forward?

Brian, it's Fred. I would say that -- let me start by saying that is not a run rate you should expect going forward. There are a couple of things going through there. The Platinum fees did go away as we discussed last quarter, but going the other way this quarter as we have, I guess a couple of large things. We still have a fair amount of Platinum warrants. With the decline in the stock price in Platinum, there is a $3 million movement coming through in that line. In addition, we have a service arrangement with ChannelRe where we provide services and we get fees based on profits because -- and we accrue that during the course of the year. Well, this quarter, based on what happened, we had a reversal of about $3 million coming through there as well.

The biggest component of that line item continues to be expenses coming through for ceded reinsurance that we count for either as a deposit or a derivative and that is running about $6 million a quarter, which we expect to remain pretty much flat. So I think there are a couple of large items coming through that we wouldn't expect to see going forward and I would not suggest you use the number we have this quarter as a run rate.

Thanks. Very helpful. And then the next question, I noticed in your other investment portfolio a big increase in hedge fund, as well as senior secured blank loan funds. I guess any further description about what you're doing there and what type of hedge funds you are investing in.

Yes, I would say the increase in the hedge fund is primarily existing commitments of some hedge funds that we have, so there is not much new there. Our strategy is basically to earn attractive risk adjusted returns on our investment portfolio. I think we saw some good opportunities this quarter like the bank loan fund, which is clearly a dislocated market to take on some additional -- to make some additional investments. So I think we continue to add some higher returning classes, including the private equity, the hedge funds and some other higher yielding investments when we believe we are being paid for it and that is what you see coming through this quarter. That is -- we also -- that's pretty much it for that.

Okay. And then last question, if I look at your cat fund I guess exposure in that other investment line item, it is down sequentially, down year-over-year and then as Tom mentioned, you have got this filing out there and I understand you don't want to talk about that, but just philosophically, can you talk a little bit about -- do you find the cat fund market all of a sudden returns there probably becoming less attractive and maybe more of a buyers market -- or more of a sellers market than a buyers market?

Let me explain to you what caused the movement this quarter from last quarter. The decline in the investment balance is a result of us entering into a total return swap for the cat fund. So while we still find it an attractive investment, we still essentially maintain the investment. For liquidity purposes, we entered into a swap and if you take a look at our balance sheet, you will see that the balance sheet has been grossed up to reflect the assets and the liability under the swap. So while we moved it out of the investment category, we still enjoy the economics of the cat fund. We still like it and you will see that reflected on our balance sheet as other secured assets and other secured liabilities. So that is what caused the move this quarter to last quarter. In terms of the marketplace in cat, I'm going to let Kevin talk a little bit about that.

Brian, hi, this is Neill. I just wanted to mention that we are pretty much agnostic when we are accepting or ceding risk, whether it is in the cat bond space or whether on the underwriting space, so you will see us move around over the years based upon the opportunities. Kevin, anything you would like to add?

No, that's exactly right. I think whether we are buying or selling risk, what we are looking at is how it marginally impacts our portfolio and whether it comes in reinsurance, inwards or outward swaps, cat bonds, whatever. If it is beneficial on a marginal basis to our portfolio, we will have some appetite to pursue it.

But isn't it true that that market is becoming more attractive from I guess a seller's perspective given the market's receptivity towards restructuring these things.

I wouldn't make a comment as to whether the market is becoming more or less attractive because so much of how we look at it is dependent on what our portfolio looks like at the time. So we may think one deal against a pro forma portfolio that we have created looks great, redo our portfolio with more precision and a different pro forma and think it not look so good. So I think it is so much dependent on our own risk.

Great. Thank you.

Jay Cohen, Merrill Lynch.

Two questions. First is when you were talking about the reserve you established on the clash side for the subprime exposure, I seemed to hear you say that you kind of started with an industry view of what the industry losses might be. I guess one was, did I hear it correctly; and two, do you have a view of what the industry losses would be?

What I said was that I was comfortable with how the loss -- the $60 million that we are putting up stacks up against the market loss curve that we use for pricing. Whether we have the exact number for subprime, I think it is too early to tell. There is a lot of moving parts as to how this is going to flow through the markets.

So I don't -- I wouldn't say that we have a precision around that. But I do have a sense that looking at where this sits on the curve for our return periods against the $60 million which you can calibrate to industry losses, I'm comfortable.

Would you want to share what your even early preliminary expectation is for the industry loss?

No, because again, I don't think -- no, I think the industry loss that you would be interested in is the insurance industry loss. We are looking at reinsurance and retro, so the losses that we are calibrating against are retro losses coming through to the casualty clash book and then reinsurance losses coming through. I think anyone's guess as to how much of this will ultimately be sitting with companies and primary insurance companies is a little bit too far a stretch for how it is going to affect the casualty clash book.

And Jay, for us we don't write quota share -- unlimited quota shares on lines of business like that, so it is less important to us. It is a curiosity, but it is not important to us.

I hear you. That's right. And then I had to step out of the call for a second when you talked about investment income. Actually, I probably missed this and I apologize. Was there any discussion of sort of the consecutive quarter drop in NII fourth quarter versus the past two quarters?

Jay, this is Fred. No, you didn't miss anything there, so let me discuss that. I think the way I'd like everybody to look at it is look at it on a year-to-date basis. I think when you look at some of the earlier quarters, we had exceptional results coming through our private equity and hedge funds, which you know I have always cautioned folks that those results were really -- exceeded our expectations as well.

You know, if you look at the quarter, total return of somewhere in excess of 6%, our hedge funds, our private equity funds generating about 10%. It might have been a little lower than we expected, but overall we feel pretty good about it. On a year-to-date basis, total returns for the portfolio about 7%. Hedge funds, private equity funds did extremely well; hedge funds generating about 20% and private equity funds generating 30% for the year.

That is not what we expect. Those are much higher than we expect, so while we might be a little off this quarter, there is nothing in the portfolio that is causing us any concern. And I think when you look at it on a full-year basis, we feel pretty good.

Great. Thanks for that answer.

Alain Karaoglan, Banc of America Securities.

Good morning. Two questions. Fred, I didn't catch the share buybacks in January 1. What was the dollar amount?

The share buyback since January 1 was approximately $186 million, about 3.2 million shares.

Okay. And then the other question is on the individual risk business. If we look at the accident year combined ratio on that business for the full year, it is at around 97.4%. That seems quite higher than your goals, and given that it was a low catastrophe loss year, what is happening there or could you give us some information on that?

Sure. A couple of points on it. One, certainly on a calendar year basis, we are very happy with it. Secondly, on an accident year basis, if you were able to pull it apart -- and I realize you don't have this information in front of you -- on the gross loss ratio side, I think you'll see very consistent year-over-year and we are quite pleased with the gross loss ratios.

So what is really happening is our ceded cost is going up as the book declines. So the ceded cost is a little out of proportion with the book, which will be corrected in 2008 as we renew our ceded treaty.

Okay. Thank you very much.

Terry Shu, JPMorgan.

I have a few general questions. First on the outlook for '08, I think you talked about being very satisfied with your book. Your broad guidance is for lower premiums, which I assume is a combination of pricing as well as exposure. And given that '07 once again was a low cat year. So one would have to assume that there will be some more erosion of overall profitability, but still pretty acceptable. Is that the right way to look at it?

Yes.

But profitability is generally eroding.

Well, you know, I couldn't help but just say yes, Terry. I guess that is true, but we are coming off a pretty nice plateau. The existing portfolio is a quite nice portfolio.

Right. The second question, Neill, if you could offer us some broader comments about the financial guaranty business. You have written down ChannelRe to zero, but can you talk broadly about whether or not you see opportunities; what you think about it and what happens to ChannelRe?

Sure, good question, Terry. You know, if you look at our experience at RenRe over the years, we are never afraid to look forward into an area where there has been a dislocation or some problems. So yes, we are looking at things, and based on facts and circumstances we may have an opportunity to act or we may not. But I can tell you we will approach this segment just the way we would any other segment, and look for opportunities.

Do you think that the business model is broken, because people talked about the notional risk for years and years, and this time around it really -- the investor confidence has been shattered. So do you think that there is still a business there?

Well apparently, some people think so. And yes, I know the erosion of confidence is a problem, but there is an ebb and a flow in these sorts of things, and there is still a need for a product along these lines. And so we think there will be opportunities of one sort or another going forward.

Thank you.

Gary Ransom, Fox-Pitt Kelton.

Yes, just a couple of questions. One was just numbers, whether you actually have the limited partnership income dollars for the fourth quarter. And the second question was on expense levels, which seem to be a little bit -- even though they were down from a year ago just on a run rate looking through the first three quarters were a bit higher, and whether there was anything unusual there.

Okay. Let me first -- answer your first question was -- you are looking for -- I'm sorry, could you repeat it?

Just the dollar amount of partnership income separate and apart from the ordinary bond portfolio income.

Yes, we don't have those details with us now. That is going to be disclosed in the 10-K, so if you could hang on just a little bit longer, you will be able to get that information.

Okay.

And your second question was regarding --

On expenses, anything -- because it seemed to sequentially tick up a little bit in the fourth quarter.

I think there are a couple of things and we talked about what was going through that other loss line. I think, if you look at operational expenses, that has gone up a little from the lows of the second and third quarters and I think a lot of that is just the growth in our business year, added headcount. You heard a little bit about some of the activities that Bill has in the Individual Risk business, sourcing business. So we continue to make some investments there. So that is driving those expenses up a lot, up a little I should say.

In terms of the corporate expenses, that has ticked up a bit as well. As part of our settlement with the SEC, we were required to engage a monitor, an independent consultant. So those costs are reflected in there as well.

All right, thank you for those answers.

Vinay Misquith, Credit Suisse.

Good morning. Could you share with us your plans for Starbound II? It is probably going to be wound down I guess early next year. Do you plan to have another Starbound III?

Yes, a lot of that is going to depend on what happens frankly in Florida. Last year, I think looking at -- at this time looking forward, we weren't sure we were going to have a Starbound II. Starbound III would be contingent really on the need -- one -- three things. The pricing, it is largely composed of one significant counterparty and whether the structure is beneficial to them and then thirdly, what happens in Florida. So whether it renews or not I don't know. The thing I would say is with it -- whether I think we have an opportunity to keep the relationships that are contained within Starbound within RenRe and then it is just a matter of whether the vehicle or not makes sense to continue to provide capacity using that structure.

Fair enough. Now I heard on the call before that some more opportunities and ventures were being explored. Could you share with us some of those opportunities and whether we will see some of that income flow through the other ventures line?

We can't comment on deals that are in the process. I think it is just important to note that there is a continual flow there and we will just let you know as things solidify that are of note.

Fair enough. And Kevin, if you could help us understand on the Florida, particularly our proposal being reduced, how would that really affect reinsurers? Some of them (inaudible) that the primary insurers have a fixed dollar number that they spend on reinsurance. So how much of a benefit, if it happened, would it be for the reinsurers?

Yes, Florida is unique in the way that people purchase their reinsurance and I think a lot of what is purchased is based on the ratings that -- the rate filings that they have and the structures that are available to them from the state. So we have seen increased purchasing out of Florida in addition to more FHCF being available. So reducing FHCF -- I think there is some uncertainty as to how much of that would flow into the reinsurance business. I think some -- I think what would be revisited is potentially the amount of sideways cover that is purchased on the low-end of the programs and potentially dropping from low rate online layers further down into -- so to avoid a gap, if some of the FHCF layers were to disappear is probably the best guess as to how people would react.

All right. Thank you.

There appears to be no further questions at this time. I would like to turn the floor back over to Mr. Neill Currie for any closing remarks.

Thank you, Judith and thank you all for joining us today. I was thinking back on the Super Bowl recently. As illustrated in the Super Bowl, sometimes you think you know what the future holds, but you can't be certain. At present, there is downward pressure on pricing, but this can change quite quickly. I feel that RenRe is well-positioned for the coming years irrespective of the cycle whether it is a hardening market or a softening market. We have got a strong franchise, a very good book of business and a terrific team. So we look forward to the coming years and look forward to speaking with you next quarter. Thanks.

Thank you. This concludes today's RenaissanceRe fourth-quarter and full-year 2007 financial results conference call. You may now disconnect.