濱特爾 (RNR) 2011 Q4 法說會逐字稿

Good morning. I will be your conference operator today. At this time, I would like to welcome everyone to the RenaissanceRe fourth quarter 2011 financial results call. (Operator Instructions). I would now like to turn the call over to Mr. Peter Hill.

Good morning and thank you for joining our fourth quarter 2011 financial results conference call. Yesterday, after the market closed, we issued our quarterly release. If you didn't receive 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 from approximately noon Eastern time today, through midnight on February 29. The replay can be accessed by dialing 855-859-2056 or 404-537-3406. The pass code you will need for both numbers is 44625687.

Today's call is also available through the investor information section of www.renre.com and will be archived on RenaissanceRe's website through midnight on April 19, 2012.

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; Jeff Kelly, Executive Vice President and Chief Financial Officer; and Kevin O'Donnell, Executive Vice President and Global Chief Underwriting Officer. I would now like to turn the call over to Neill. Neill?

Thank you, Peter. Good morning, everyone, and thank you for joining us today. 2011 proved to be one of the worst years on record for insured catastrophe losses. As one of the largest participants in the property catastrophe reinsurance marketplace, our results for the year reflected this. I am pleased to say that we were able to achieve positive operating results for the fourth quarter even though the industry continued to experience significant global insured catastrophe losses.

We had good underwriting results and a rebound in investment income during the quarter. We recorded an annualized operating return on equity of 7.7% for the quarter and an increase in book value per share of 2.4%. For the full year, however, the Company sustained its second operating loss since 1993, the year we were founded, with an operating return on equity of negative 5.3%, and a decline in tangible book value per share, plus the change in accumulated dividends of 1.8%. Given the extent of loss activity over the last year, I believe RenaissanceRe performed admirably in 2011.

Through the earthquakes, tornadoes, and floods and the economic volatility that has dominated the news, we calmly set about serving our clients. We paid claims promptly, quickly assessed our losses and incorporated new learnings from each event, and returned to the market equipped with new information and insights. Our losses were within our expectations and well within our risk tolerances. We managed the Company to be able to withstand multiple extreme events in one year and this was illustrated last year in 2011, as it was in 2005.

No one event alone would have caused us to lose money during either of those years, which included record losses such as Hurricane Katrina and the Tohoku earthquake. We absorbed changes to natural catastrophe models quickly and were able to share our insights with our clients. We were there at renewal to quote protection for existing clients and others seeking solutions to their problems. Consequently, we were rewarded with strong January 1 renewals and the ability to build an attractive portfolio of business.

As we were expecting, the property catastrophe market continued to indicate signs of gradual firming, driven by the catastrophe losses incurred during the year, learnings from those losses and, to some degree, by the new model releases. We do expect to see these drivers continue to play out in the months ahead. I am pleased with the continuing evolution of our specialty reinsurance operation and our Lloyd's Syndicate. Both operations have great teams and I am confident in their ability to contribute significantly to RenaissanceRe over the coming years.

Our joint ventures, Top Layer Re and DaVinci Re, demonstrated their value to our franchise once again during 2011. Top Layer Re incurred losses as a result of the New Zealand earthquake and the Tohoku earthquake and was there to accept renewal business for our clients when they needed protection. For DaVinci, as well as achieving a successful capital raise back in June, we were able to further diversify our investor base and bring in three new long-term partners effective 1/1. DaVinci continues to be a key element of our strategy and our ability to manage our net risk by attracting external investors.

In addition, we were able to attract capital into a new retro sidecar, Upsilon Re, which we established for January 1 to write aggregate retrocession protection. This vehicle is already proving to be successful and offers the flexibility to be scaled up as opportunities warrant.

Our weather and energy risk management operation, REAL, posted a significant loss in the fourth quarter due to unusually warm temperatures for the winter season in the UK and parts of the US. REAL manages weather related risk for clients in the power and utility sectors and just as for our other underwriting businesses, our goal is to achieve superior financial returns over the long term. We expect results in this unit to be volatile and seasonal. Over the past 12 months, the team has successfully grown its customer base by helping their clients manage their weather related risk.

2011, then, was a year in which we continued to position our Company for success and build for the future. Despite our losses, we begin 2012 with a strong capital position and industry-leading financial strength ratings. We are ready for the attractive opportunities and improving conditions in the markets we target in the months ahead. We are focused, as always, for the long term.

With that, I will turn the call over to Kevin.

Thanks, Neill, and good morning, everyone. I will focus my comments for this call on the events of the fourth quarter as well as on the renewal and market as we see it. Starting with cat, I think the overall market is relatively balanced in terms of supply and demand. Due to some large reductions in specific purchases and frankly fewer than expected new Top Layers purchased at year-end, the overall US cat market did not grow appreciably. However, according to our market segmentation, we did see an increase in the size of what we call the acceptable or most attractive portion of the market, which reflects an increase in the number of desirable risks. We did see rate increases in the market generally but this varied significantly by region and the account loss experience.

For the US, I would estimate the rate increase was approximately 10% for the entire market. However, accounts that had seen losses were up approximately 25% and accounts without losses, but with hurricane exposure, were up by as much as 15%. Higher layers with low rate onlines saw larger increases than lower layers with high rates online. In general, I am very pleased with the renewal, the rates we achieved moving up slightly more than I expected.

In addition to the losses, rates were affected by the continued adoption of the new catastrophe models with an updated view of risk being increasingly incorporated into pricing. As expected, the rate change for the 1/1 accounts was more easily absorbed by the more geographically diverse accounts that typically renew at 1/1. We had a very good showing of business at year-end and we achieved a combination of rate increases on existing accounts and growth in our portfolio.

Overall, the US cat market expected loss ratio is higher after adjusting for the increase in rate given the revised estimates of expected loss as seen in the vendor models. This increase is not an across-the-board adjustment but one that needs to be evaluated at the account level to determine rate adequacy. I believe our proprietary tools and our understanding of the impacts of the vendor models separates us from the pack and has allowed us to maintain the quality of our portfolio through a combination of rate increase and portfolio construction changes.

With regard to the international primary business, markets continue to be significantly weaker than the US. And although we did see rate increases, unfortunately, the net effect of the renewal was to increase this spread between the US and the international book as a whole. As we have seen over the course of the year, accounts with losses had greater increases than accounts without losses.

For instance, Australia and Japan were up more than 50%, albeit from a very low base. Loss free accounts, such as the European renewals, were up around 5%. We observed that even very modest rate increases attracted new or increased capacity from market players which capped the upside pressure on rates.

As in previous years, our portfolio continues to be dominated by non concurrent or private deals. We continue to be pleased with the composition of our own book and the returns we are achieving.

I think the retro renewal was the most dynamic one we've seen in years. The renewal was very late and capacity remained uncertain to the very end. We saw significant opportunities and grew into what I would characterize as a dislocated market.

We saw rate increases for retro, driven by a combination of forces including reduction in supply and increased discipline in underwriting which was a result of both new models and more careful risk assessment by the market. For non US exposed retro, we saw positive improvements in economics. In general, buyers became increasingly shy about [purchasing] layers in the 30% rate online range. These layers tended to be further geographically restricted, which increased our appetite. Layers in the 20% rate online range were up over 15%.

In general, I think focusing on price changes is not the way to look at retro as coverages and the underlying risks ceded often changes materially year-to-year. But directionally, the market did improve materially.

In the past, our retro book was more heavily dominated by non US exposure. While we continue to participate in this area, we also saw more opportunity to increase our US exposed retro. The US exposed retro comes in two main forms.

The first is traditional excessive loss retro accounts and the second comes from our entrance into the aggregate structured retro market. Worldwide retro is an area that we've participated in at different times in meaningful ways but it pulled back substantially over the last few years due to pricing. The aggregate retro market is a market that has increased in size since 2005, and is one that we did not historically participate in as the structures and pricing were not attractive to us. This market was heavily impacted by losses in 2011 resulting in significant improvement in both structure and price.

In addition to the improved pricing, our underwriters increased our share of the market with Upsilon Re, the sidecar that Neill mentioned that was designed to efficiently accept this risk and allow it to be more readily available to the capital markets. Historically, much of this risk has resided in the collateralized markets because it's single shot, which fits a collateralized product offering well, and because for more tactical reasons, it's a heavy user of capital on rated balance sheets.

Upsilon Re is structured so that we can very quickly scale it up, in response to increased opportunity or exit the market without much friction. We are pleased with the initial results at year-end as we successfully wrote over $30 million of premium into this vehicle. We are confident that our understanding of this risk and our retro underwriting capabilities generally will serve us well in attracting more capital should the opportunity persist.

Overall, 2011 was an active year for the cat business. Of course, we were affected by the losses around the world. We have discussed many of these events on our previous calls but I want to touch briefly on the Thailand flooding as it was a big part of the year-end renewal discussions for accounts with exposure in the region. There is very little data available about real ultimate economic and industry total losses and how it may flow through the reinsurance and retro markets.

Additionally, I believe that the business interruption component of this loss will be very slow to determine and potentially unusually complex, even for BI generally. We continue to estimate that most of our exposure comes from retro, which I believe in this case reduces uncertainty for us. At this time, we believe that the loss will likely be considered a single event for retro, whereas it will be considered multiple events for reinsurance. It remains early days and developments here will only play out over time.

As with all losses, we worked hard to evaluate the specifics of each event and to the extent needed to make adjustments to our macro view of risk as well as adjustments at the deal level to better reflect the risks that we took. The losses of last year, although painful, have been a good learning experience for us and we have emerged with a better understanding of risk and stronger relationships due to our quick claim paying response and ability to provide customers with their understanding of their risk. As Neill mentioned, our specialty book is doing well. We continue to see new opportunities to grow and diversify our book of business. That said, the market remains difficult and the pricing environment in many lines is challenging, although we are beginning to see a few bright spots.

Much of the opportunities that we saw came from credit-related lines. Additionally, we decided to provide some proportional capacity into certain casualty lines and some credit-related specialty market lines.

I am very pleased with our Lloyd's operation in the franchise we are building in London. We made great progress in building the Syndicate and believe that we have sufficient scope to continue to grow the franchise in this environment as we are still coming off a very small premium in a very large market.

Finally, I would like to discuss our Ventures operation which has been very busy over the last quarter. Our Ventures team, among other things, looks after our joint venture partners, structures new deals like Upsilon, and manages our weather and energy risk management business.

As Neill mentioned, the weather and energy risk management business had a difficult year. To remind everyone, this business provides risk mitigation products against weather events, primarily temperature and precipitation, for corporate clients worldwide.

As customers are end users, commonly utilities, we often sell them dual trigger weather and energy products, which more efficiently capture the customers' exposure than a weather only transaction. This approach has differentiated us in the market.

For this winter season, we had a large exposure in the UK which experienced the warmest fourth quarter in 50 years which significantly contributed to our loss. We had largely hedged the natural gas exposure we assumed and were able to manage the size of the weather loss through certain of the hedges we had in place.

In general, we believe that our approach to weather risk modeling, pricing and portfolio management in this business is consistent with our underwriting approach overall. Thanks, and I would like to turn the call over to Jeff.

Thanks, Kevin. Good morning, everyone. For my portion of the call, I will cover our results for the fourth quarter and full year 2011, and also give you an update to our top line forecast for 2012.

The fourth quarter was a profitable one for RenaissanceRe despite it being another active period in terms of large catastrophic loss activity. As we pre-announced on January 25, the net negative impact on our financial results from the flooding in Thailand totaled $45 million and we had a $31 million after tax loss related to our weather and energy risk management business.

In aggregate, changes to loss estimates for large catastrophic events that occurred earlier in 2011 had a $7 million net favorable impact. This was due to a reduction to our loss estimate for the Tohoku earthquake and Australian flooding more than offsetting increases to our net losses for other events, including the tornadoes in the US and the February New Zealand earthquake.

On a net basis, our overall estimate of losses from these large catastrophic events has remained relatively unchanged from where they were originally booked. As you can imagine, though, the number and scale of the events during 2011 makes estimating these losses challenging. But I think under the circumstances, our risk, underwriting and finance teams have done a thorough job in analyzing our reserve adequacy for each of these events.

As a reminder, the net negative or positive impact is the net loss or profit amount after accounting for net claims, reinstatement premiums assumed and ceded, loss profit commissions, non controlling interest in joint ventures, and our share of Top Layer Re losses. We've provided a detailed table on page 10 of the press release relating to the calculation of the net impact of these losses.

Investment performance was relatively strong in the quarter, benefiting from a narrowing and fixed income spreads and a rebound in the valuation for alternative assets. We reported net income of $82 million or $1.58 per diluted share and operating income of $58 million or $1.11 per diluted share for the fourth quarter. Net realized and unrealized gains, which accounts for the difference between the two measures, totaled $24 million. Our annualized operating ROE was 7.7% for the fourth quarter and our tangible book value per share, including change in accumulated dividends, increased by 3.1%.

For the full year 2011, we reported a net loss of $92 million or $1.84 per share and an operating loss of $162 million or $3.22 per share. This was largely a result of the close to record level of global and insured catastrophe losses during the year.

Also, for the full year 2011, tangible book value per share plus change in accumulated dividends declined approximately 1.8%.

Let me shift to the segment results beginning with our Reinsurance segment which includes cat and specialty followed by our Lloyd's segment. In the reinsurance segment, managed cat gross premiums written in the fourth quarter totaled $1 million compared with negative $4 million in the year ago period. The fourth quarter tends to be a pretty light one in terms of catastrophe reinsurance renewals.

For the full year, managed cat gross premiums written, increased approximately 8% from a year ago adjusted for $160 million of reinstatement premiums in the current year and $28 million of reinstatement premiums in the prior year period. Managed cat premium growth during 2011 was largely a result of improved pricing trends during the June and July renewal seasons last year. As a reminder, managed cat includes business written on RenaissanceRe Limited' s balance sheet as well as cat premium written by DaVinci, Top Layer Re, and our Lloyd's unit.

The fourth quarter combined ratio for the cat unit came in at 30.1%. This included underwriting losses of $47.5 million related to the flooding in Thailand. As I mentioned earlier, there were a number of adjustments made to loss estimates for several large recent catastrophic events. We reduced our loss estimate for the Tohoku earthquake primarily due to what we believe will be lower retro losses than we had originally anticipated and higher recoveries, partially offset by higher losses on one large client.

This more than offset moderate increases to our estimates for other large events in 2011, including the February New Zealand earthquake and the large US tornadoes in the spring. The cat combined ratio also benefited from $27 million of prior period net favorable reserve development, including for the 2010 events I mentioned earlier. For the full year, the cat combined ratio was 126.7%, primarily as a result of severe losses related to major catastrophic events that occurred earlier in the year. Favorable reserve development for the cat unit came in at $59 million for the full year 2011.

Specialty reinsurance gross premiums written totaled $21 million in the fourth quarter which was down compared with $26 million in the prior year quarter. For the full year, specialty gross premiums written increased 13% compared with a year ago to a total of $146 million. This is roughly in line with our full year forecast for top line growth of 10%. The percentage growth rate for this segment can be uneven on a quarterly basis, given the relatively small premium base.

The specialty combined ratio for the fourth quarter came in at a negative 3%. There was no meaningful large loss activity during the quarter and the combined ratio included $5 million of prior year net favorable reserve development. For the full year, the specialty combined ratio was, again, a profitable 47% and benefited from $78 million of favorable reserve development.

In our Lloyd's segment, we generated $24 million of premiums in the fourth quarter compared with $9 million in the year ago period. Specialty premiums accounted for most of this amount. For the full year, Lloyd's gross premiums written increased 69% to $112 million compared with the year ago period. This compares with our guidance of growth in excess of 50% for the year. The Lloyd's unit came in at a combined ratio of 149% for the fourth quarter.

The results of this segment included $6 million of losses related to the flooding in Thailand. The expense ratio remained high at 60.9% although we would expect the expense ratio to decline over time from this level as we continue to expand business volume written on this platform. For the full year 2011, the combined ratio for the Lloyd's unit was 162.4%, largely a result of the severe catastrophe losses seen over the course of the year.

Moving away from our underwriting results, other income was a loss of $44 million in the fourth quarter and a breakdown is provided in the financial supplement. As we pre-announced, this was primarily because this line item includes a $41 million pretax loss or $31 million after tax loss related to REAL. The loss arose on a few concentrated derivative transactions that REAL had entered into, protecting its clients in the power and utility sectors from the risk of an unusually warm winter weather in the US and the UK.

Equity in earnings of other ventures was a loss of $23 million. This was driven primarily by a $23 million loss we recorded for our share of Top Layer Re's exposure to the Tohoku earthquake. Recall that Top Layer Re is a 50/50 joint venture we have with State Farm whereby our partner provides a $3.9 billion stop loss in excess of a $100 million retention.

Our results for the quarter included a $2.9 million income tax expense. Essentially what is going through the tax line here this quarter is a large tax benefit related to the losses in our US operations, including REAL, which is then offset by the $22.6 million write-down of our net deferred tax asset within continuing operations and $3.8 million within discontinued operations. The net result then is the $2.9 million of tax expense.

We recorded a full valuation against the net deferred tax asset during the quarter due to three years of cumulative losses within our US group. Had we not put up this valuation allowance, our results would have improved by $26.4 million during the quarter. But we felt it prudent and appropriate under GAAP to establish this valuation allowance. From an economic perspective, though, the deferred tax asset principally relates to net operating losses and these are available to be carried forward to offset future profits. Our corporate expense line item includes $5 million of impairments for goodwill and intangible assets related to certain write-downs at our WeatherPredict subsidiary.

Turning to investments, we reported net investment income of $52 million and total investment income of $76.8 million, which was driven by a few factors. First, our alternative investments portfolio generated a $28 million gain. Performance was strong across our private equity, hedge fund, and bank loan and high yield funds, driven by a rebound in valuations for these asset classes during the quarter.

Recurring investment income from fixed maturity investments remained under pressure due to low yields on our bond portfolio and totaled $26 million for the fourth quarter. The total investment return on the overall portfolio was 1.2% for the fourth quarter. Net realized and unrealized gains included in income totaled $24 million during the quarter.

For the full year, we generated net investment income of $118 million and total investment income of $180 million benefiting from healthy performance on our alternative investment portfolio. Recurring net investment income from fixed maturity investments includes approximately $27 million in derivative-related losses for the year resulting from hedging strategies employed by our external managers.

Our total investment return for the full year 2011 was 2.9%. Our investment portfolio remains conservatively positioned primarily in fixed maturity investments with a high degree of liquidity and modest credit exposure.

During the fourth quarter, we did continue to take a little bit of risk out of our portfolio by further reducing the allocations to corporate bonds and to non-US sovereign debt. At the same time, we increased our allocation to treasuries and FDIC guaranteed corporate debt.

Our current allocation reflects our outlook for potentially uncertain economic and financial market environment. The duration of our investment portfolio increased slightly to 2.6 years. The yield to maturity on the fixed income and short-term investment portfolio declined to 1.9%.

As we'd said on the prior call, the sharp decline in the percentage of AAA-rated credits reflects the impacts of the ratings downgrade on US government debt that we hold by one of the rating agencies. Our capital position remains strong and we continue to have industry-leading financial strength in ERM ratings.

As Neill alluded to in his opening comments, our Ventures team brought three new cornerstone investors to DaVinci. As a result, we took the opportunity to reduce our own stake in the joint venture to around 34.5% from approximately 43% at the end of the third quarter. We viewed DaVinci as a long-term vehicle that offers clients a balance sheet that is parallel to that of our own.

During the fourth quarter, we resumed share repurchases, buying back a modest 234,000 shares at a total cost of $17 million. Recall that we had stated last quarter that the level of share repurchases would likely be determined by our view of the market opportunities and capital utilization as we approached the January renewals. For the full year 2011, we repurchased 2.9 million shares for a total of $192 million with most of these buy-backs completed in the first quarter.

As we head into 2012, we will continue to look for attractive underwriting opportunities to deploy our capital and we remain committed to returning excess capital to our shareholders. So far this year, we've repurchased a very modest 51,000 shares for a total of $3.6 million.

Finally, let me give you an update to our top line forecast for 2012. Before I do, though, please remember that there is considerable uncertainty around these top line estimates. The June and July renewals are our largest and are several months away. A lot can happen over the remainder of the year, so obviously, our actual premium growth could be higher or lower than these estimates.

With that qualification, for managed cat we estimate premiums will increase 15% in 2012, excluding the impact of reinstatement premiums. This compares with our prior top line guidance for managed cat of an increase of up to 10% including reinstatement premiums.

In specialty reinsurance, we are maintaining our forecast for the top line to be up over 20% and in our Lloyd's unit, we continue to expect premiums to be up 50%. Recall this growth is off a relatively small premium base and we are in the building and growth phase for this platform. Thanks, and with that, I will turn the call back over to Neill.

Thank you, Jeff. Good job, guys. But there may be a question or two outstanding and we are happy to answer those.

(Operator Instructions). Keith Walsh.

Good morning, everybody. First question for Neill, just with the change in the guidance and the managed cat from 10% to 15% for 2012, has there been any tweaks to how you view retentions at your clients within that number? And I've got a follow-up.

It will be --. Good question, Keith. First of all, it's almost an admonition that I say every time, it's not my preference to give guidance but we found over the years it is helpful to give you guys a view of the future. Otherwise it can be a pretty wide distribution of guesses about the future. So, you always have to take this with a grain of salt. Pretty sure it won't be 15%. It will be higher or lower.

We like the way the market is shaping up so I'm looking forward to the coming year. It's interesting. So, it varies client by client. There have been some increased retentions by some clients. One of the interesting things that we will be looking forward to during the year is will people be buying additional coverage on top of primarily due to the model changes. We think there might be a little pent-up demand there. So, let me turn it over to Kevin if you would like to elaborate, Kevin.

Are you speaking about retaining clients or is it retentions at which clients are purchasing?

Just as far as your clients retaining more risk.

I think it's different. I think that needs to be put into context of the model change as well. So, what we have seen over the last 12 months is really the increased adoption of some of the new vendor models and associated with those new vendor models, the expected loss for each dollar of premium is, in general, increased. So, even at the same level of purchasing, I think it's reasonable to assume primary companies are increasing their retentions just by standing still.

That leads me to my second question, I guess, you mentioned RMS 11, how it's been a factor in the market. And can you just talk more specifically about the rate of adoption that you have seen amongst your clients? Do you think 2012 will get full adoption by year end?

I think I would change adoption to kind of understanding. I think there has been a significant increase in the understanding of RMS 11 as well as the other vendor model changes that we have seen. There has been different strategies as to how that's going to be reflected in their view of their own risk. In general, there is a more uniform discussion around the way customers are viewing their risk in relation to the new version of the model. So whether it's explicitly adopted or the review has been amended by the changes in each of the models, it is much more organically within the market now.

Great, thanks a lot, guys.

Josh Stirling with Sanford Bernstein.

Good morning. Thank you. I wanted to follow up on if you can fit, first of all, just your -- one, your guidance plus 15% for the year versus what you have already seen at 1/1 and will you give a sense of whether we are on track to already be at that 15% level or whether you are going to accelerate through the year and separately, I think, related to that, are you -- should we think about a seasonal acceleration and are you saving more capacity for the possibility of greater hardening as we move through the year?

The 15%, I think, is based on the way we normally estimate our growth or portfolio construction which is to go account by account, make amendments and then build a portfolio from the bottom up. I think we have tried to incorporate our best view of the future into that estimate. As Jeff had mentioned, that's an uncertain future. There could be movement up or down around that. But it is incorporating for the rest of the year what we anticipate seeing in the market.

As far as saving capacity, it's really the same discussion where we look forward and we construct our book to optimize against the amount of capital we have as a group and try to deploy it against the opportunities that we see. So in my comments, I mentioned that we did increase the size of the portfolio. Going forward, there is an element of both price increase and portfolio construction change as well.

That's great. If I could ask a question around Japan, just to sort of make sure we understand how things are moving. It looks like you recognized favorable development on your own book against the Tohoku losses but then had losses, additional losses at Top Layer. I assume that is some function of how the two portfolios have been designed but I'm wondering if you can walk us through both sort of what is happening as well as how you are recognizing that and the disconnect in the reserves in that area and the direction of the changes and then I think most importantly, how you guys see Top Layer evolving next year with what will presumably be a pretty attractive 4/1 opportunity in Japan.

Josh, it's Neill. I will start off there. Being the very creative group that we are, I think we named Top Layer Re appropriately. So, if you think about the exposures typically for Top Layer, we don't go into detail on an account by account basis, but if you think about that a little bit, it would make sense that we had a little bit different view on the loss as the year progressed and as we got more and more information. That is a huge loss that has been a difficult one to reserve for. I think we have done a good job there.

As respects Top Layer's positioning, we think it's very well positioned for opportunities, both opportunities that have come up and opportunities that lie ahead of us over the coming year. Do you want to add anything, Kevin?

The only thing I would add would be there's significantly more deals in RenaissanceRe than there are in Top Layer Re due to the construction of the vehicles. So, they wouldn't always move in uniform, depending what is happening on the underlying individual accounts.

Okay.

For example, we could have a situation where just theoretically RenRe and DV were on bottom layers and Top Layer was on the top layer so they don't move in tandem.

Vinay Misquith, Evercore Partners.

Hi. Good morning. The first question is on pricing at the June 1 renewals. Do you expect pricing for midyear for the June renewals to be higher than it was last year?

I think as we talked about last year, I think it was a gradual adoption of the increased view of risk. I think that's likely to be the theme throughout the year, whether -- I don't think it's appropriate for us to talk in general about where the market's going to go from a pricing perspective as we look at it on an account by account basis.

We pride ourselves on being exposure-based pricers and between the renewals that we had last year in Florida and the renewals we had this year, our view of risk will be very consistent. I think the rest of the market may increase their adoption of the new view of risk. That may have an effect, but from our standpoint we are going to be very stable on our view of risk.

That is helpful. The second question was actually on the fixed income securities and the income from fixed income securities that was around $26 million this quarter. Last quarter, I recall there was a bit of an adjustment. So, if you add that back, that was about $30 million. So, we are seeing about a $4 million sequential decline last quarter versus this quarter. I was wondering if you could give some color on that?

We had about, I think, about $15 million in derivative-related losses last quarter, which would have run through the fixed maturity investment line. Actually, that is -- I think if you add it in -- we had just about a $1.5 million loss this quarter in derivatives. So, I think if you include both of those adjustments in the two lines, they are actually pretty close to one another.

The investment portfolio, the yield on the investment portfolio is pretty much unchanged. And given its relatively short duration, we don't look for any significant changes absent significant change in allocations.

That's helpful. One last one, if I may. So, Top Layer Re, given the loss that happened this quarter, do you expect to earn some income on Top Layer Re next year or is it a clawback from State Farm?

I expect -- well, yes, I expect next year will be on a standalone basis that we are looking forward, hopefully, Top Layer by nature what it does is pretty far out on the tail of distributions. So, I think there is a higher probability of making a profit there than there is of having a loss.

That is helpful. Thank you.

Mike Zaremski, Credit Suisse.

Good morning. I was curious about a lot of talk and news and bills in the Florida house about changes to Citizens and FHCF. Do you think -- any color there on whether you guys could be a potential beneficiary?

That's a great question. It's early days. We like the way the wind is blowing, if you will, in that area. And obviously if things ultimately pan out in the direction that you are hearing, we would be beneficiaries.

Could you remind us what percentage of your book is Florida-related?

I think that is a question that is difficult to answer because we participate in various segments of the market which have Florida-related exposure. So we don't really talk about it in context of what percent of the local Florida market compared to what percent of nationwide have Florida exposure, what percent of our retro. It's fair to say we are a meaningful participant in the local Florida market but we have exposure generally that's highly correlated with Florida as well.

Okay. Lastly, in terms of the weather and risk management trading losses, and you can disregard this question if you answered it in the prepared remarks, were they mark-to-market losses and they could reverse themselves? And if so, could you provide color on how to think about that?

They were mark-to-market losses. And so, some of them -- some of the loss was based on the weather that occurred in the fourth quarter and some of the loss related to the market's expectation for future weather patterns. So, without making a comment as to what will or will not happen in the first quarter, I think to some extent that some of the first quarter could be discounted in that fourth quarter mark.

Okay. Thank you.

Josh Shanker, Deutsche Bank.

Good morning, everyone. Thank you for taking my question. I want to talk about prior year development a little bit and understand your thoughts on earthquakes and what you saw that caused releases we saw in the tornadoes and what not. Are these IBNR reserves or are they case reserves? What are the movements there and what do you think about reserving for the future for those kinds of disasters?

Okay. I think starting with the earthquake component of your question, I think earthquakes, as we talked about before, are difficult to assess because of the way the damage -- frankly, just the damage is less visible at the early stages of a loss. I am very comfortable with the process that we have in order to estimate our losses which is both a bottom up and top down.

So, we'll look at what we think the market is, try to assess it using any resource we can, including satellite photos and then, overlaying exposure to looking at the accounts, specific information, and building a loss from that direction up to our best estimate. I don't see any change in the way that we are going to be estimating these losses in the foreseeable future.

So in taking down the number for the RenRe proper book for the fourth quarter, what kind of information came in that caused to you do that?

It's not any one single variable that I can point to. It's a combination of things. As we talked about before, a significant component of that loss came from our retro book. Part of the assessment that we were able to do in the fourth quarter was because of the increased information that we had from that -- from the renewals of that book. Additionally we had some retrocessional recoveries that we changed our view on as our determination of the sizable loss increased.

That's information from cedents, I assume?

For the first part, correct. About the [Edwards] book.

And in terms of the tornado information?

I think that's one where we are continuing to assess that that as just more time is passing, we are getting better clarity and some of it was from the discussions we were able to have with clients and their increasing comfort with their own estimates.

And in terms of [noting] on the last conference call Neill said that the hurricane losses were very favorable for you over time, do you expect there is any difference in duration on how long you maintain an earthquake IBNR reserve as opposed to a hurricane IBNR reserve?

I think -- forget whether it's IBNR or ACOR. I think the --in general, earthquakes have a longer payout pattern than hurricanes. Kind of there is some unique features within the Japanese market that I think challenges that general assumption.

Can you go into that a little bit?

I think there is -- it really comes down to understanding the way the policies are sold in any local market and being able to evaluate how the -- how expeditiously a claim can be settled based on the primary policy terms. So, if you are looking around the world, policies are sold differently in the US than they are in Japan than they are in New Zealand and sometimes they are different between stock companies and mutual companies.

Any further information you guys can give us on this, much appreciated. I appreciate the answers. Thank you.

Michael Nannizzi, Goldman Sachs.

Thanks. I had a question about Upsilon. You mentioned the structure being more capital-efficient than using a rated structure like DaVinci, for example. Can you talk about that a little bit and explain how that works? Thanks.

Yes. In general, if something is more correlated with your existing portfolio, it requires more capital to support the risk you are assuming. In a collateralized market, you can only use your capital once. So very simply, it's our view that if you build the diversification or the leverage into the product and provide the capital once, you are receiving a return on an artificially lettered basis against singularly used capital. Where if you go to a rated balance sheet and you write regional accounts, you can build a diversified portfolio in a way that is not available to you in the collateralized market.

Got it. That makes sense. Then one question I had about, you talked about rate online being on a relative basis better for higher risk layers or, I assume, lower rate online layers versus higher rate online layers. Can you talk about that and did the orientation of your book relative to last year change as a result of maybe seeing better changes in rates for the higher layer business if I understood that right?

I am talking percentage terms, too. So, going from 3% to 4% is a 33% increase on our rate online.

Got it.

Going from 30% to 40% is sometimes harder.

Okay. I see. I understand. And then, just one last one. On the NOL, so if it was based on a mark-to-market loss, and that could change, is there any other business that you can apply that NOL to other than the derivative business?

Yes, there is. So, we have in addition to the weather and energy trading business, I'm trying to think of our -- yes, we have our WeatherPredict subsidiary which generates a relatively small amount of income.

I see. I see. Okay. Great, thank you very much.

Doug McWhirter, RBC Capital Markets.

Hi. Good morning. I just have two questions. First, I guess Jeff or Neill or Kevin, on Upsilon Re, what is your percentage stake in that vehicle and what is your dollar stake, if any?

Doug, that is subject to change and we don't disclose that at this time.

Okay. That's fair enough. And I assume you would accrue profits via both profit incentive commissions as well as just straight underwriting profits?

Sure. So, for the part we keep now, we take underwriting profits and then, once again, we haven't disclosed the profit commission, et cetera, in terms of -- that we get from third party capital, but it's a similar thought process to a DaVinci or any other short-term sidecar where we take underwriting profits and fee and profit sharing companies really.

I assume that would -- any of that would run through the other section of your income statement, the other line item?

No, it would go through the underwriting result.

Oh, okay. Thanks for that. The second question, a little more conceptual, Kevin, is your attitude changed towards Southeast Asia enough where you would might potentially be more active in April?

I think we have been -- the risk we have taken is largely from our retro book and from international multi-territory accounts. I think if there is increased opportunity there from a pricing perspective, we understand the risk well. It is something that we can easily move into. I believe we have reasonably good access to the business there.

Okay, great. Thanks. That's all my questions.

Jay Cohen, Bank of America, Merrill Lynch.

Good morning. On the Lloyd's business, you obviously gave us some top line growth guidance that's helpful. We can model the expense ratio I think pretty easily. I guess the problem is the loss ratio. You've had it for about five, six quarters. During that time, obviously we've had a huge amount of events around the world. Can you give us even a range of what you would suspect a normalized loss ratio is for the business you are writing there?

I think there's the kind of two proponents to the business. The cat book is going to probably look reasonably similar to ours. I think what I would proxy for the rest of the book is whatever you are using for the specialty. I think even the fact that it's split between reinsurance and insurance, the specialty assumptions you are making on the reinsurance business are probably close enough to the specialty assumptions within the Lloyd's book.

That is great, Kevin. Thank you.

Greg Locroft, Morgan Stanley.

Good morning, guys. Wanted to just -- a quick one. Do you have any exposure to the Italian cruise ship at all or can you comment?

Yes, I think there is losses I think made from a lot of different places on that. We have a very, very small participation in the marine market. At this point our best estimate is that the loss will be less than $5 billion to us.

Okay, great. Thanks. And then secondly, for Neill. I'm trying to think through your ability to flex the balance sheet into the improving environment that you are citing. Obviously you had a great year in terms of partners coming into the business on the capital side through the sidecar and DaVinci. How big can you be from a top line perspective? What is the growth constraint for the business as you see it, if it is attractive?

Sure. Well, we can't give you as definitive an answer to that as you would like. I can tell you that we have excess capital at the holding company. We can -- we have got people we've developed additional interest in DaVinci. We can increase the capitalization in DaVinci if we wish. We have the ability to buy retrocession. We have the CPPs that we have so we do have material ability to grow the book going forward.

Okay. And without sacrificing the ability to buy back stock if it's attractively priced?

I would have to look at my accounting types over here. I don't think we can get away with that. I think mathematics either means you are going to be buying your shares back or you are going to be deploying your capital. We look first to deploy the capital and then then, secondarily, we look at buying back stock with excess capital and of course we take into account the valuation of the stock when we do that.

Okay. Thanks, guys. Congrats on the GEN one.

Thank you very much. So, operator, I believe you mentioned -- do we have one more or is that it?

Ian Gutterman, Adage Capital.

This will be our last question. Ian, how are you today?

Good. First, DaVinci, you said additional investors came in. Did that increase the size of the vehicle or did it stay constant and you reduced your actual ownership?

Thus far we have kept the size of DaVinci static. So, it's just reduced our ownership. But once again we have flexibility to increase. We can put money back in or raise additional capital.

Great. I was just curious if the size of the vehicle increased. And then just really quickly, Jeff, the changes from prior period cats that's on page 10, did some of that come through the specialty line because when I try to attribute it all to the cat line I got a combined -- ex-cat combined ratio that looked unusual for cat versus specialty.

There was some of it that went through specialty.

Do you have a rough number on that?

About $15 million.

Got it. Thank you very much.

Thanks, Ian. Well, operator, I believe that's our last one that we will take for today. We have run a little bit over our time. Good questions today. As always, we've enjoyed being with you and looking forward to an interesting and hopefully prosperous 2012. Thank you very much.

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

Good morning. I will be your conference operator today. At this time, I would like to welcome everyone to the RenaissanceRe fourth quarter 2011 financial results call. (Operator Instructions). I would now like to turn the call over to Mr. Peter Hill.

Good morning and thank you for joining our fourth quarter 2011 financial results conference call. Yesterday, after the market closed, we issued our quarterly release. If you didn't receive 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 from approximately noon Eastern time today, through midnight on February 29. The replay can be accessed by dialing 855-859-2056 or 404-537-3406. The pass code you will need for both numbers is 44625687.

Today's call is also available through the investor information section of www.renre.com and will be archived on RenaissanceRe's website through midnight on April 19, 2012.

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; Jeff Kelly, Executive Vice President and Chief Financial Officer; and Kevin O'Donnell, Executive Vice President and Global Chief Underwriting Officer. I would now like to turn the call over to Neill. Neill?

Thank you, Peter. Good morning, everyone, and thank you for joining us today. 2011 proved to be one of the worst years on record for insured catastrophe losses. As one of the largest participants in the property catastrophe reinsurance marketplace, our results for the year reflected this. I am pleased to say that we were able to achieve positive operating results for the fourth quarter even though the industry continued to experience significant global insured catastrophe losses.

We had good underwriting results and a rebound in investment income during the quarter. We recorded an annualized operating return on equity of 7.7% for the quarter and an increase in book value per share of 2.4%. For the full year, however, the Company sustained its second operating loss since 1993, the year we were founded, with an operating return on equity of negative 5.3%, and a decline in tangible book value per share, plus the change in accumulated dividends of 1.8%. Given the extent of loss activity over the last year, I believe RenaissanceRe performed admirably in 2011.

Through the earthquakes, tornadoes, and floods and the economic volatility that has dominated the news, we calmly set about serving our clients. We paid claims promptly, quickly assessed our losses and incorporated new learnings from each event, and returned to the market equipped with new information and insights. Our losses were within our expectations and well within our risk tolerances. We managed the Company to be able to withstand multiple extreme events in one year and this was illustrated last year in 2011, as it was in 2005.

No one event alone would have caused us to lose money during either of those years, which included record losses such as Hurricane Katrina and the Tohoku earthquake. We absorbed changes to natural catastrophe models quickly and were able to share our insights with our clients. We were there at renewal to quote protection for existing clients and others seeking solutions to their problems. Consequently, we were rewarded with strong January 1 renewals and the ability to build an attractive portfolio of business.

As we were expecting, the property catastrophe market continued to indicate signs of gradual firming, driven by the catastrophe losses incurred during the year, learnings from those losses and, to some degree, by the new model releases. We do expect to see these drivers continue to play out in the months ahead. I am pleased with the continuing evolution of our specialty reinsurance operation and our Lloyd's Syndicate. Both operations have great teams and I am confident in their ability to contribute significantly to RenaissanceRe over the coming years.

Our joint ventures, Top Layer Re and DaVinci Re, demonstrated their value to our franchise once again during 2011. Top Layer Re incurred losses as a result of the New Zealand earthquake and the Tohoku earthquake and was there to accept renewal business for our clients when they needed protection. For DaVinci, as well as achieving a successful capital raise back in June, we were able to further diversify our investor base and bring in three new long-term partners effective 1/1. DaVinci continues to be a key element of our strategy and our ability to manage our net risk by attracting external investors.

In addition, we were able to attract capital into a new retro sidecar, Upsilon Re, which we established for January 1 to write aggregate retrocession protection. This vehicle is already proving to be successful and offers the flexibility to be scaled up as opportunities warrant.

Our weather and energy risk management operation, REAL, posted a significant loss in the fourth quarter due to unusually warm temperatures for the winter season in the UK and parts of the US. REAL manages weather related risk for clients in the power and utility sectors and just as for our other underwriting businesses, our goal is to achieve superior financial returns over the long term. We expect results in this unit to be volatile and seasonal. Over the past 12 months, the team has successfully grown its customer base by helping their clients manage their weather related risk.

2011, then, was a year in which we continued to position our Company for success and build for the future. Despite our losses, we begin 2012 with a strong capital position and industry-leading financial strength ratings. We are ready for the attractive opportunities and improving conditions in the markets we target in the months ahead. We are focused, as always, for the long term.

With that, I will turn the call over to Kevin.

Thanks, Neill, and good morning, everyone. I will focus my comments for this call on the events of the fourth quarter as well as on the renewal and market as we see it. Starting with cat, I think the overall market is relatively balanced in terms of supply and demand. Due to some large reductions in specific purchases and frankly fewer than expected new Top Layers purchased at year-end, the overall US cat market did not grow appreciably. However, according to our market segmentation, we did see an increase in the size of what we call the acceptable or most attractive portion of the market, which reflects an increase in the number of desirable risks. We did see rate increases in the market generally but this varied significantly by region and the account loss experience.

For the US, I would estimate the rate increase was approximately 10% for the entire market. However, accounts that had seen losses were up approximately 25% and accounts without losses, but with hurricane exposure, were up by as much as 15%. Higher layers with low rate onlines saw larger increases than lower layers with high rates online. In general, I am very pleased with the renewal, the rates we achieved moving up slightly more than I expected.

In addition to the losses, rates were affected by the continued adoption of the new catastrophe models with an updated view of risk being increasingly incorporated into pricing. As expected, the rate change for the 1/1 accounts was more easily absorbed by the more geographically diverse accounts that typically renew at 1/1. We had a very good showing of business at year-end and we achieved a combination of rate increases on existing accounts and growth in our portfolio.

Overall, the US cat market expected loss ratio is higher after adjusting for the increase in rate given the revised estimates of expected loss as seen in the vendor models. This increase is not an across-the-board adjustment but one that needs to be evaluated at the account level to determine rate adequacy. I believe our proprietary tools and our understanding of the impacts of the vendor models separates us from the pack and has allowed us to maintain the quality of our portfolio through a combination of rate increase and portfolio construction changes.

With regard to the international primary business, markets continue to be significantly weaker than the US. And although we did see rate increases, unfortunately, the net effect of the renewal was to increase this spread between the US and the international book as a whole. As we have seen over the course of the year, accounts with losses had greater increases than accounts without losses.

For instance, Australia and Japan were up more than 50%, albeit from a very low base. Loss free accounts, such as the European renewals, were up around 5%. We observed that even very modest rate increases attracted new or increased capacity from market players which capped the upside pressure on rates.

As in previous years, our portfolio continues to be dominated by non concurrent or private deals. We continue to be pleased with the composition of our own book and the returns we are achieving.

I think the retro renewal was the most dynamic one we've seen in years. The renewal was very late and capacity remained uncertain to the very end. We saw significant opportunities and grew into what I would characterize as a dislocated market.

We saw rate increases for retro, driven by a combination of forces including reduction in supply and increased discipline in underwriting which was a result of both new models and more careful risk assessment by the market. For non US exposed retro, we saw positive improvements in economics. In general, buyers became increasingly shy about [purchasing] layers in the 30% rate online range. These layers tended to be further geographically restricted, which increased our appetite. Layers in the 20% rate online range were up over 15%.

In general, I think focusing on price changes is not the way to look at retro as coverages and the underlying risks ceded often changes materially year-to-year. But directionally, the market did improve materially.

In the past, our retro book was more heavily dominated by non US exposure. While we continue to participate in this area, we also saw more opportunity to increase our US exposed retro. The US exposed retro comes in two main forms.

The first is traditional excessive loss retro accounts and the second comes from our entrance into the aggregate structured retro market. Worldwide retro is an area that we've participated in at different times in meaningful ways but it pulled back substantially over the last few years due to pricing. The aggregate retro market is a market that has increased in size since 2005, and is one that we did not historically participate in as the structures and pricing were not attractive to us. This market was heavily impacted by losses in 2011 resulting in significant improvement in both structure and price.

In addition to the improved pricing, our underwriters increased our share of the market with Upsilon Re, the sidecar that Neill mentioned that was designed to efficiently accept this risk and allow it to be more readily available to the capital markets. Historically, much of this risk has resided in the collateralized markets because it's single shot, which fits a collateralized product offering well, and because for more tactical reasons, it's a heavy user of capital on rated balance sheets.

Upsilon Re is structured so that we can very quickly scale it up, in response to increased opportunity or exit the market without much friction. We are pleased with the initial results at year-end as we successfully wrote over $30 million of premium into this vehicle. We are confident that our understanding of this risk and our retro underwriting capabilities generally will serve us well in attracting more capital should the opportunity persist.

Overall, 2011 was an active year for the cat business. Of course, we were affected by the losses around the world. We have discussed many of these events on our previous calls but I want to touch briefly on the Thailand flooding as it was a big part of the year-end renewal discussions for accounts with exposure in the region. There is very little data available about real ultimate economic and industry total losses and how it may flow through the reinsurance and retro markets.

Additionally, I believe that the business interruption component of this loss will be very slow to determine and potentially unusually complex, even for BI generally. We continue to estimate that most of our exposure comes from retro, which I believe in this case reduces uncertainty for us. At this time, we believe that the loss will likely be considered a single event for retro, whereas it will be considered multiple events for reinsurance. It remains early days and developments here will only play out over time.

As with all losses, we worked hard to evaluate the specifics of each event and to the extent needed to make adjustments to our macro view of risk as well as adjustments at the deal level to better reflect the risks that we took. The losses of last year, although painful, have been a good learning experience for us and we have emerged with a better understanding of risk and stronger relationships due to our quick claim paying response and ability to provide customers with their understanding of their risk. As Neill mentioned, our specialty book is doing well. We continue to see new opportunities to grow and diversify our book of business. That said, the market remains difficult and the pricing environment in many lines is challenging, although we are beginning to see a few bright spots.

Much of the opportunities that we saw came from credit-related lines. Additionally, we decided to provide some proportional capacity into certain casualty lines and some credit-related specialty market lines.

I am very pleased with our Lloyd's operation in the franchise we are building in London. We made great progress in building the Syndicate and believe that we have sufficient scope to continue to grow the franchise in this environment as we are still coming off a very small premium in a very large market.

Finally, I would like to discuss our Ventures operation which has been very busy over the last quarter. Our Ventures team, among other things, looks after our joint venture partners, structures new deals like Upsilon, and manages our weather and energy risk management business.

As Neill mentioned, the weather and energy risk management business had a difficult year. To remind everyone, this business provides risk mitigation products against weather events, primarily temperature and precipitation, for corporate clients worldwide.

As customers are end users, commonly utilities, we often sell them dual trigger weather and energy products, which more efficiently capture the customers' exposure than a weather only transaction. This approach has differentiated us in the market.

For this winter season, we had a large exposure in the UK which experienced the warmest fourth quarter in 50 years which significantly contributed to our loss. We had largely hedged the natural gas exposure we assumed and were able to manage the size of the weather loss through certain of the hedges we had in place.

In general, we believe that our approach to weather risk modeling, pricing and portfolio management in this business is consistent with our underwriting approach overall. Thanks, and I would like to turn the call over to Jeff.

Thanks, Kevin. Good morning, everyone. For my portion of the call, I will cover our results for the fourth quarter and full year 2011, and also give you an update to our top line forecast for 2012.

The fourth quarter was a profitable one for RenaissanceRe despite it being another active period in terms of large catastrophic loss activity. As we pre-announced on January 25, the net negative impact on our financial results from the flooding in Thailand totaled $45 million and we had a $31 million after tax loss related to our weather and energy risk management business.

In aggregate, changes to loss estimates for large catastrophic events that occurred earlier in 2011 had a $7 million net favorable impact. This was due to a reduction to our loss estimate for the Tohoku earthquake and Australian flooding more than offsetting increases to our net losses for other events, including the tornadoes in the US and the February New Zealand earthquake.

On a net basis, our overall estimate of losses from these large catastrophic events has remained relatively unchanged from where they were originally booked. As you can imagine, though, the number and scale of the events during 2011 makes estimating these losses challenging. But I think under the circumstances, our risk, underwriting and finance teams have done a thorough job in analyzing our reserve adequacy for each of these events.

As a reminder, the net negative or positive impact is the net loss or profit amount after accounting for net claims, reinstatement premiums assumed and ceded, loss profit commissions, non controlling interest in joint ventures, and our share of Top Layer Re losses. We've provided a detailed table on page 10 of the press release relating to the calculation of the net impact of these losses.

Investment performance was relatively strong in the quarter, benefiting from a narrowing and fixed income spreads and a rebound in the valuation for alternative assets. We reported net income of $82 million or $1.58 per diluted share and operating income of $58 million or $1.11 per diluted share for the fourth quarter. Net realized and unrealized gains, which accounts for the difference between the two measures, totaled $24 million. Our annualized operating ROE was 7.7% for the fourth quarter and our tangible book value per share, including change in accumulated dividends, increased by 3.1%.

For the full year 2011, we reported a net loss of $92 million or $1.84 per share and an operating loss of $162 million or $3.22 per share. This was largely a result of the close to record level of global and insured catastrophe losses during the year.

Also, for the full year 2011, tangible book value per share plus change in accumulated dividends declined approximately 1.8%.

Let me shift to the segment results beginning with our Reinsurance segment which includes cat and specialty followed by our Lloyd's segment. In the reinsurance segment, managed cat gross premiums written in the fourth quarter totaled $1 million compared with negative $4 million in the year ago period. The fourth quarter tends to be a pretty light one in terms of catastrophe reinsurance renewals.

For the full year, managed cat gross premiums written, increased approximately 8% from a year ago adjusted for $160 million of reinstatement premiums in the current year and $28 million of reinstatement premiums in the prior year period. Managed cat premium growth during 2011 was largely a result of improved pricing trends during the June and July renewal seasons last year. As a reminder, managed cat includes business written on RenaissanceRe Limited' s balance sheet as well as cat premium written by DaVinci, Top Layer Re, and our Lloyd's unit.

The fourth quarter combined ratio for the cat unit came in at 30.1%. This included underwriting losses of $47.5 million related to the flooding in Thailand. As I mentioned earlier, there were a number of adjustments made to loss estimates for several large recent catastrophic events. We reduced our loss estimate for the Tohoku earthquake primarily due to what we believe will be lower retro losses than we had originally anticipated and higher recoveries, partially offset by higher losses on one large client.

This more than offset moderate increases to our estimates for other large events in 2011, including the February New Zealand earthquake and the large US tornadoes in the spring. The cat combined ratio also benefited from $27 million of prior period net favorable reserve development, including for the 2010 events I mentioned earlier. For the full year, the cat combined ratio was 126.7%, primarily as a result of severe losses related to major catastrophic events that occurred earlier in the year. Favorable reserve development for the cat unit came in at $59 million for the full year 2011.

Specialty reinsurance gross premiums written totaled $21 million in the fourth quarter which was down compared with $26 million in the prior year quarter. For the full year, specialty gross premiums written increased 13% compared with a year ago to a total of $146 million. This is roughly in line with our full year forecast for top line growth of 10%. The percentage growth rate for this segment can be uneven on a quarterly basis, given the relatively small premium base.

The specialty combined ratio for the fourth quarter came in at a negative 3%. There was no meaningful large loss activity during the quarter and the combined ratio included $5 million of prior year net favorable reserve development. For the full year, the specialty combined ratio was, again, a profitable 47% and benefited from $78 million of favorable reserve development.

In our Lloyd's segment, we generated $24 million of premiums in the fourth quarter compared with $9 million in the year ago period. Specialty premiums accounted for most of this amount. For the full year, Lloyd's gross premiums written increased 69% to $112 million compared with the year ago period. This compares with our guidance of growth in excess of 50% for the year. The Lloyd's unit came in at a combined ratio of 149% for the fourth quarter.

The results of this segment included $6 million of losses related to the flooding in Thailand. The expense ratio remained high at 60.9% although we would expect the expense ratio to decline over time from this level as we continue to expand business volume written on this platform. For the full year 2011, the combined ratio for the Lloyd's unit was 162.4%, largely a result of the severe catastrophe losses seen over the course of the year.

Moving away from our underwriting results, other income was a loss of $44 million in the fourth quarter and a breakdown is provided in the financial supplement. As we pre-announced, this was primarily because this line item includes a $41 million pretax loss or $31 million after tax loss related to REAL. The loss arose on a few concentrated derivative transactions that REAL had entered into, protecting its clients in the power and utility sectors from the risk of an unusually warm winter weather in the US and the UK.

Equity in earnings of other ventures was a loss of $23 million. This was driven primarily by a $23 million loss we recorded for our share of Top Layer Re's exposure to the Tohoku earthquake. Recall that Top Layer Re is a 50/50 joint venture we have with State Farm whereby our partner provides a $3.9 billion stop loss in excess of a $100 million retention.

Our results for the quarter included a $2.9 million income tax expense. Essentially what is going through the tax line here this quarter is a large tax benefit related to the losses in our US operations, including REAL, which is then offset by the $22.6 million write-down of our net deferred tax asset within continuing operations and $3.8 million within discontinued operations. The net result then is the $2.9 million of tax expense.

We recorded a full valuation against the net deferred tax asset during the quarter due to three years of cumulative losses within our US group. Had we not put up this valuation allowance, our results would have improved by $26.4 million during the quarter. But we felt it prudent and appropriate under GAAP to establish this valuation allowance. From an economic perspective, though, the deferred tax asset principally relates to net operating losses and these are available to be carried forward to offset future profits. Our corporate expense line item includes $5 million of impairments for goodwill and intangible assets related to certain write-downs at our WeatherPredict subsidiary.

Turning to investments, we reported net investment income of $52 million and total investment income of $76.8 million, which was driven by a few factors. First, our alternative investments portfolio generated a $28 million gain. Performance was strong across our private equity, hedge fund, and bank loan and high yield funds, driven by a rebound in valuations for these asset classes during the quarter.

Recurring investment income from fixed maturity investments remained under pressure due to low yields on our bond portfolio and totaled $26 million for the fourth quarter. The total investment return on the overall portfolio was 1.2% for the fourth quarter. Net realized and unrealized gains included in income totaled $24 million during the quarter.

For the full year, we generated net investment income of $118 million and total investment income of $180 million benefiting from healthy performance on our alternative investment portfolio. Recurring net investment income from fixed maturity investments includes approximately $27 million in derivative-related losses for the year resulting from hedging strategies employed by our external managers.

Our total investment return for the full year 2011 was 2.9%. Our investment portfolio remains conservatively positioned primarily in fixed maturity investments with a high degree of liquidity and modest credit exposure.

During the fourth quarter, we did continue to take a little bit of risk out of our portfolio by further reducing the allocations to corporate bonds and to non-US sovereign debt. At the same time, we increased our allocation to treasuries and FDIC guaranteed corporate debt.

Our current allocation reflects our outlook for potentially uncertain economic and financial market environment. The duration of our investment portfolio increased slightly to 2.6 years. The yield to maturity on the fixed income and short-term investment portfolio declined to 1.9%.

As we'd said on the prior call, the sharp decline in the percentage of AAA-rated credits reflects the impacts of the ratings downgrade on US government debt that we hold by one of the rating agencies. Our capital position remains strong and we continue to have industry-leading financial strength in ERM ratings.

As Neill alluded to in his opening comments, our Ventures team brought three new cornerstone investors to DaVinci. As a result, we took the opportunity to reduce our own stake in the joint venture to around 34.5% from approximately 43% at the end of the third quarter. We viewed DaVinci as a long-term vehicle that offers clients a balance sheet that is parallel to that of our own.

During the fourth quarter, we resumed share repurchases, buying back a modest 234,000 shares at a total cost of $17 million. Recall that we had stated last quarter that the level of share repurchases would likely be determined by our view of the market opportunities and capital utilization as we approached the January renewals. For the full year 2011, we repurchased 2.9 million shares for a total of $192 million with most of these buy-backs completed in the first quarter.

As we head into 2012, we will continue to look for attractive underwriting opportunities to deploy our capital and we remain committed to returning excess capital to our shareholders. So far this year, we've repurchased a very modest 51,000 shares for a total of $3.6 million.

Finally, let me give you an update to our top line forecast for 2012. Before I do, though, please remember that there is considerable uncertainty around these top line estimates. The June and July renewals are our largest and are several months away. A lot can happen over the remainder of the year, so obviously, our actual premium growth could be higher or lower than these estimates.

With that qualification, for managed cat we estimate premiums will increase 15% in 2012, excluding the impact of reinstatement premiums. This compares with our prior top line guidance for managed cat of an increase of up to 10% including reinstatement premiums.

In specialty reinsurance, we are maintaining our forecast for the top line to be up over 20% and in our Lloyd's unit, we continue to expect premiums to be up 50%. Recall this growth is off a relatively small premium base and we are in the building and growth phase for this platform. Thanks, and with that, I will turn the call back over to Neill.

Thank you, Jeff. Good job, guys. But there may be a question or two outstanding and we are happy to answer those.

(Operator Instructions). Keith Walsh.

Good morning, everybody. First question for Neill, just with the change in the guidance and the managed cat from 10% to 15% for 2012, has there been any tweaks to how you view retentions at your clients within that number? And I've got a follow-up.

It will be --. Good question, Keith. First of all, it's almost an admonition that I say every time, it's not my preference to give guidance but we found over the years it is helpful to give you guys a view of the future. Otherwise it can be a pretty wide distribution of guesses about the future. So, you always have to take this with a grain of salt. Pretty sure it won't be 15%. It will be higher or lower.

We like the way the market is shaping up so I'm looking forward to the coming year. It's interesting. So, it varies client by client. There have been some increased retentions by some clients. One of the interesting things that we will be looking forward to during the year is will people be buying additional coverage on top of primarily due to the model changes. We think there might be a little pent-up demand there. So, let me turn it over to Kevin if you would like to elaborate, Kevin.

Are you speaking about retaining clients or is it retentions at which clients are purchasing?

Just as far as your clients retaining more risk.

I think it's different. I think that needs to be put into context of the model change as well. So, what we have seen over the last 12 months is really the increased adoption of some of the new vendor models and associated with those new vendor models, the expected loss for each dollar of premium is, in general, increased. So, even at the same level of purchasing, I think it's reasonable to assume primary companies are increasing their retentions just by standing still.

That leads me to my second question, I guess, you mentioned RMS 11, how it's been a factor in the market. And can you just talk more specifically about the rate of adoption that you have seen amongst your clients? Do you think 2012 will get full adoption by year end?

I think I would change adoption to kind of understanding. I think there has been a significant increase in the understanding of RMS 11 as well as the other vendor model changes that we have seen. There has been different strategies as to how that's going to be reflected in their view of their own risk. In general, there is a more uniform discussion around the way customers are viewing their risk in relation to the new version of the model. So whether it's explicitly adopted or the review has been amended by the changes in each of the models, it is much more organically within the market now.

Great, thanks a lot, guys.

Josh Stirling with Sanford Bernstein.

Good morning. Thank you. I wanted to follow up on if you can fit, first of all, just your -- one, your guidance plus 15% for the year versus what you have already seen at 1/1 and will you give a sense of whether we are on track to already be at that 15% level or whether you are going to accelerate through the year and separately, I think, related to that, are you -- should we think about a seasonal acceleration and are you saving more capacity for the possibility of greater hardening as we move through the year?

The 15%, I think, is based on the way we normally estimate our growth or portfolio construction which is to go account by account, make amendments and then build a portfolio from the bottom up. I think we have tried to incorporate our best view of the future into that estimate. As Jeff had mentioned, that's an uncertain future. There could be movement up or down around that. But it is incorporating for the rest of the year what we anticipate seeing in the market.

As far as saving capacity, it's really the same discussion where we look forward and we construct our book to optimize against the amount of capital we have as a group and try to deploy it against the opportunities that we see. So in my comments, I mentioned that we did increase the size of the portfolio. Going forward, there is an element of both price increase and portfolio construction change as well.

That's great. If I could ask a question around Japan, just to sort of make sure we understand how things are moving. It looks like you recognized favorable development on your own book against the Tohoku losses but then had losses, additional losses at Top Layer. I assume that is some function of how the two portfolios have been designed but I'm wondering if you can walk us through both sort of what is happening as well as how you are recognizing that and the disconnect in the reserves in that area and the direction of the changes and then I think most importantly, how you guys see Top Layer evolving next year with what will presumably be a pretty attractive 4/1 opportunity in Japan.

Josh, it's Neill. I will start off there. Being the very creative group that we are, I think we named Top Layer Re appropriately. So, if you think about the exposures typically for Top Layer, we don't go into detail on an account by account basis, but if you think about that a little bit, it would make sense that we had a little bit different view on the loss as the year progressed and as we got more and more information. That is a huge loss that has been a difficult one to reserve for. I think we have done a good job there.

As respects Top Layer's positioning, we think it's very well positioned for opportunities, both opportunities that have come up and opportunities that lie ahead of us over the coming year. Do you want to add anything, Kevin?

The only thing I would add would be there's significantly more deals in RenaissanceRe than there are in Top Layer Re due to the construction of the vehicles. So, they wouldn't always move in uniform, depending what is happening on the underlying individual accounts.

Okay.

For example, we could have a situation where just theoretically RenRe and DV were on bottom layers and Top Layer was on the top layer so they don't move in tandem.

Vinay Misquith, Evercore Partners.

Hi. Good morning. The first question is on pricing at the June 1 renewals. Do you expect pricing for midyear for the June renewals to be higher than it was last year?

I think as we talked about last year, I think it was a gradual adoption of the increased view of risk. I think that's likely to be the theme throughout the year, whether -- I don't think it's appropriate for us to talk in general about where the market's going to go from a pricing perspective as we look at it on an account by account basis.

We pride ourselves on being exposure-based pricers and between the renewals that we had last year in Florida and the renewals we had this year, our view of risk will be very consistent. I think the rest of the market may increase their adoption of the new view of risk. That may have an effect, but from our standpoint we are going to be very stable on our view of risk.

That is helpful. The second question was actually on the fixed income securities and the income from fixed income securities that was around $26 million this quarter. Last quarter, I recall there was a bit of an adjustment. So, if you add that back, that was about $30 million. So, we are seeing about a $4 million sequential decline last quarter versus this quarter. I was wondering if you could give some color on that?

We had about, I think, about $15 million in derivative-related losses last quarter, which would have run through the fixed maturity investment line. Actually, that is -- I think if you add it in -- we had just about a $1.5 million loss this quarter in derivatives. So, I think if you include both of those adjustments in the two lines, they are actually pretty close to one another.

The investment portfolio, the yield on the investment portfolio is pretty much unchanged. And given its relatively short duration, we don't look for any significant changes absent significant change in allocations.

That's helpful. One last one, if I may. So, Top Layer Re, given the loss that happened this quarter, do you expect to earn some income on Top Layer Re next year or is it a clawback from State Farm?

I expect -- well, yes, I expect next year will be on a standalone basis that we are looking forward, hopefully, Top Layer by nature what it does is pretty far out on the tail of distributions. So, I think there is a higher probability of making a profit there than there is of having a loss.

That is helpful. Thank you.

Mike Zaremski, Credit Suisse.

Good morning. I was curious about a lot of talk and news and bills in the Florida house about changes to Citizens and FHCF. Do you think -- any color there on whether you guys could be a potential beneficiary?

That's a great question. It's early days. We like the way the wind is blowing, if you will, in that area. And obviously if things ultimately pan out in the direction that you are hearing, we would be beneficiaries.

Could you remind us what percentage of your book is Florida-related?

I think that is a question that is difficult to answer because we participate in various segments of the market which have Florida-related exposure. So we don't really talk about it in context of what percent of the local Florida market compared to what percent of nationwide have Florida exposure, what percent of our retro. It's fair to say we are a meaningful participant in the local Florida market but we have exposure generally that's highly correlated with Florida as well.

Okay. Lastly, in terms of the weather and risk management trading losses, and you can disregard this question if you answered it in the prepared remarks, were they mark-to-market losses and they could reverse themselves? And if so, could you provide color on how to think about that?

They were mark-to-market losses. And so, some of them -- some of the loss was based on the weather that occurred in the fourth quarter and some of the loss related to the market's expectation for future weather patterns. So, without making a comment as to what will or will not happen in the first quarter, I think to some extent that some of the first quarter could be discounted in that fourth quarter mark.

Okay. Thank you.

Josh Shanker, Deutsche Bank.

Good morning, everyone. Thank you for taking my question. I want to talk about prior year development a little bit and understand your thoughts on earthquakes and what you saw that caused releases we saw in the tornadoes and what not. Are these IBNR reserves or are they case reserves? What are the movements there and what do you think about reserving for the future for those kinds of disasters?

Okay. I think starting with the earthquake component of your question, I think earthquakes, as we talked about before, are difficult to assess because of the way the damage -- frankly, just the damage is less visible at the early stages of a loss. I am very comfortable with the process that we have in order to estimate our losses which is both a bottom up and top down.

So, we'll look at what we think the market is, try to assess it using any resource we can, including satellite photos and then, overlaying exposure to looking at the accounts, specific information, and building a loss from that direction up to our best estimate. I don't see any change in the way that we are going to be estimating these losses in the foreseeable future.

So in taking down the number for the RenRe proper book for the fourth quarter, what kind of information came in that caused to you do that?

It's not any one single variable that I can point to. It's a combination of things. As we talked about before, a significant component of that loss came from our retro book. Part of the assessment that we were able to do in the fourth quarter was because of the increased information that we had from that -- from the renewals of that book. Additionally we had some retrocessional recoveries that we changed our view on as our determination of the sizable loss increased.

That's information from cedents, I assume?

For the first part, correct. About the [Edwards] book.

And in terms of the tornado information?

I think that's one where we are continuing to assess that that as just more time is passing, we are getting better clarity and some of it was from the discussions we were able to have with clients and their increasing comfort with their own estimates.

And in terms of [noting] on the last conference call Neill said that the hurricane losses were very favorable for you over time, do you expect there is any difference in duration on how long you maintain an earthquake IBNR reserve as opposed to a hurricane IBNR reserve?

I think -- forget whether it's IBNR or ACOR. I think the --in general, earthquakes have a longer payout pattern than hurricanes. Kind of there is some unique features within the Japanese market that I think challenges that general assumption.

Can you go into that a little bit?

I think there is -- it really comes down to understanding the way the policies are sold in any local market and being able to evaluate how the -- how expeditiously a claim can be settled based on the primary policy terms. So, if you are looking around the world, policies are sold differently in the US than they are in Japan than they are in New Zealand and sometimes they are different between stock companies and mutual companies.

Any further information you guys can give us on this, much appreciated. I appreciate the answers. Thank you.

Michael Nannizzi, Goldman Sachs.

Thanks. I had a question about Upsilon. You mentioned the structure being more capital-efficient than using a rated structure like DaVinci, for example. Can you talk about that a little bit and explain how that works? Thanks.

Yes. In general, if something is more correlated with your existing portfolio, it requires more capital to support the risk you are assuming. In a collateralized market, you can only use your capital once. So very simply, it's our view that if you build the diversification or the leverage into the product and provide the capital once, you are receiving a return on an artificially lettered basis against singularly used capital. Where if you go to a rated balance sheet and you write regional accounts, you can build a diversified portfolio in a way that is not available to you in the collateralized market.

Got it. That makes sense. Then one question I had about, you talked about rate online being on a relative basis better for higher risk layers or, I assume, lower rate online layers versus higher rate online layers. Can you talk about that and did the orientation of your book relative to last year change as a result of maybe seeing better changes in rates for the higher layer business if I understood that right?

I am talking percentage terms, too. So, going from 3% to 4% is a 33% increase on our rate online.

Got it.

Going from 30% to 40% is sometimes harder.

Okay. I see. I understand. And then, just one last one. On the NOL, so if it was based on a mark-to-market loss, and that could change, is there any other business that you can apply that NOL to other than the derivative business?

Yes, there is. So, we have in addition to the weather and energy trading business, I'm trying to think of our -- yes, we have our WeatherPredict subsidiary which generates a relatively small amount of income.

I see. I see. Okay. Great, thank you very much.

Doug McWhirter, RBC Capital Markets.

Hi. Good morning. I just have two questions. First, I guess Jeff or Neill or Kevin, on Upsilon Re, what is your percentage stake in that vehicle and what is your dollar stake, if any?

Doug, that is subject to change and we don't disclose that at this time.

Okay. That's fair enough. And I assume you would accrue profits via both profit incentive commissions as well as just straight underwriting profits?

Sure. So, for the part we keep now, we take underwriting profits and then, once again, we haven't disclosed the profit commission, et cetera, in terms of -- that we get from third party capital, but it's a similar thought process to a DaVinci or any other short-term sidecar where we take underwriting profits and fee and profit sharing companies really.

I assume that would -- any of that would run through the other section of your income statement, the other line item?

No, it would go through the underwriting result.

Oh, okay. Thanks for that. The second question, a little more conceptual, Kevin, is your attitude changed towards Southeast Asia enough where you would might potentially be more active in April?

I think we have been -- the risk we have taken is largely from our retro book and from international multi-territory accounts. I think if there is increased opportunity there from a pricing perspective, we understand the risk well. It is something that we can easily move into. I believe we have reasonably good access to the business there.

Okay, great. Thanks. That's all my questions.

Jay Cohen, Bank of America, Merrill Lynch.

Good morning. On the Lloyd's business, you obviously gave us some top line growth guidance that's helpful. We can model the expense ratio I think pretty easily. I guess the problem is the loss ratio. You've had it for about five, six quarters. During that time, obviously we've had a huge amount of events around the world. Can you give us even a range of what you would suspect a normalized loss ratio is for the business you are writing there?

I think there's the kind of two proponents to the business. The cat book is going to probably look reasonably similar to ours. I think what I would proxy for the rest of the book is whatever you are using for the specialty. I think even the fact that it's split between reinsurance and insurance, the specialty assumptions you are making on the reinsurance business are probably close enough to the specialty assumptions within the Lloyd's book.

That is great, Kevin. Thank you.

Greg Locroft, Morgan Stanley.

Good morning, guys. Wanted to just -- a quick one. Do you have any exposure to the Italian cruise ship at all or can you comment?

Yes, I think there is losses I think made from a lot of different places on that. We have a very, very small participation in the marine market. At this point our best estimate is that the loss will be less than $5 billion to us.

Okay, great. Thanks. And then secondly, for Neill. I'm trying to think through your ability to flex the balance sheet into the improving environment that you are citing. Obviously you had a great year in terms of partners coming into the business on the capital side through the sidecar and DaVinci. How big can you be from a top line perspective? What is the growth constraint for the business as you see it, if it is attractive?

Sure. Well, we can't give you as definitive an answer to that as you would like. I can tell you that we have excess capital at the holding company. We can -- we have got people we've developed additional interest in DaVinci. We can increase the capitalization in DaVinci if we wish. We have the ability to buy retrocession. We have the CPPs that we have so we do have material ability to grow the book going forward.

Okay. And without sacrificing the ability to buy back stock if it's attractively priced?

I would have to look at my accounting types over here. I don't think we can get away with that. I think mathematics either means you are going to be buying your shares back or you are going to be deploying your capital. We look first to deploy the capital and then then, secondarily, we look at buying back stock with excess capital and of course we take into account the valuation of the stock when we do that.

Okay. Thanks, guys. Congrats on the GEN one.

Thank you very much. So, operator, I believe you mentioned -- do we have one more or is that it?

Ian Gutterman, Adage Capital.

This will be our last question. Ian, how are you today?

Good. First, DaVinci, you said additional investors came in. Did that increase the size of the vehicle or did it stay constant and you reduced your actual ownership?

Thus far we have kept the size of DaVinci static. So, it's just reduced our ownership. But once again we have flexibility to increase. We can put money back in or raise additional capital.

Great. I was just curious if the size of the vehicle increased. And then just really quickly, Jeff, the changes from prior period cats that's on page 10, did some of that come through the specialty line because when I try to attribute it all to the cat line I got a combined -- ex-cat combined ratio that looked unusual for cat versus specialty.

There was some of it that went through specialty.

Do you have a rough number on that?

About $15 million.

Got it. Thank you very much.

Thanks, Ian. Well, operator, I believe that's our last one that we will take for today. We have run a little bit over our time. Good questions today. As always, we've enjoyed being with you and looking forward to an interesting and hopefully prosperous 2012. Thank you very much.

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