濱特爾 (RNR) 2016 Q4 法說會逐字稿

Good morning. My name is Kelly and I will be your conference operator today. At this time like to welcome everyone to the RenaissanceRe fourth quarter 2016 financial results conference call.

(Operator Instructions)

Thank you and I will now turn the call over to Peter Hill from Kekst. You may begin your conference.

Good morning and thank you for joining our fourth quarter 2016 financial results conference call. Yesterday after the market closed we issued our quarterly release. If you did not get a copy please call me at 212-521-4800 and we will make sure to provide you with one. There will be an audio replay of the call available from about 1 PM Eastern time today through midnight on March 1. The replay can be accessed by dialing 855-859-2056 or plus 1-404-537-3406. The passcode you will need for both numbers is 49123700.

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 12.

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 us to discuss today's results are Kevin O'Donnell, President and Chief Executive Officer and Bob Qutub, Executive Vice President and Chief Financial Officer. I'd now like to turn the call over to Kevin. Kevin?

Thanks Peter. Good morning and thank you for joining today's call. RenaissanceRe performed well in 2016 against the backdrop of a challenging market. For the year we grew book value per share by 9.4% and tangible book value per share, plus accumulated dividends, by 11.4%. Also for the full year our return on equity was 11% and our operating return on equity was 7.8%.

Our results were driven by several factors including the pricing environment in the reinsurance business, loss activity, reserve releases, and movement in interest rates. By focusing on our core strengths, superior risk selection, client relationships, and capital management, we executed well against a difficult and rapidly evolving market.

We have strengthened our operating platforms globally, developed deeper relationships with clients, brought more efficient capital solutions to market, and exercised underwriting discipline in building a diverse and profitable portfolio of risk.

I look forward to 2017 with confidence knowing that our teams have all the tools, relationships and capital to successfully execute our strategy. Though we continue to face challenging market conditions and evolving industry landscape and heightened macroeconomic uncertainty, our platform and team are well prepared to serve our clients.

Overall, I believe the challenges of 2016 will continue into 2017. The pricing in our market continues to be pressured by capital supply, increasing at a faster rate than demand for reinsurance.

At the most recent renewal in general rates in property cat were down, but the reduction was smaller than in prior renewals driven by the same oversupply of capital and relatively flat demand. In casualty and specialty, reinsurance terms were relatively flat, but we began to see some rate competition in underlying books being ceded that required careful underwriting and monitoring. Our advantage in such an environment has always been our ability to identify relatively well priced individual risks and construct an attractive portfolio against the market average.

Our gross portfolios are often managed and optimized as we match our risk with the most efficient sources of capital. Our ability to execute this process consistently and seamlessly has helped establish RenaissanceRe, a first call market for our clients.

Most recently, we raised additional capital in Upsilon and created the FibonnaciRe, which demonstrated our ability to respond to changes in the market and deliver a more optimal solution for our clients. Partially as a result of pricing trends, we have also seen a wave of consolidation in their industry in the past few years.

Consequently, many of our clients have grown in size, expanded their capabilities and demonstrated a need for broader and more sophisticated solutions from the reinsurance market. We welcomed this trend and viewed these changes as additional opportunities to serve our clients in more ways. We acquired Platinum in 2015, integrated the company quickly and developed new products on our unified RenaissanceRe platform early in the consolidation wave.

Today 40% of our clients are now served by all three of our underwriting platforms. For us, moving quickly and early and anticipating that larger clients would have new risk needs was a strategic imperative marked, but not limited to our acquisition of Platinum.

We are also operating in a period of heightened macroeconomic and geopolitical uncertainty. The new administration in the United States has signaled several changes to economic policy that could have wide-ranging impacts on the insurance and financial services industry broadly. Additionally, we have already seen interest-rate volatility that has affected the results of insurance companies across a range of businesses including life and property-casualty.

Today our customers want to do more with us. And the growth we choose to pursue will be disciplined and built around a framework of adding value to clients through underwriting.

Finally I believe our reputation, experience and long track record of partnership in the capital markets will continue to enable us to source the most efficient capital that earns an attractive return for our investors, but provide optimal underwriting solutions for our cedants. I will provide a few more details on the opportunities we are seeing in 2017 later in the call, but first I will turn the call over to Bob for a look at our financials and our new segment recording approach.

Thanks Kevin and good morning everyone. As we mentioned on the third quarter earnings call we have presented our fourth quarter results under new reportable segments, property and casualty and specialty. In connection with the move to our new segments, we committed to providing transparency into our Lloyd's platform and catastrophe underwriting results for a period of time. This information is now provided in our fourth quarter financial supplement.

In the 8-K we filed in early December, we provided historical underwriting results under the new segments back 2014. We hope you found this disclosure useful and we believe our new segment presentation will provide you better transparency into how we manage and measure the performance of our business.

Moving on I will provide you an overview of our consolidated results for the fourth quarter and full-year and outlined a few key themes before turning to our segment results. For the fourth quarter ended December 31, 2016, we reported net income of $69 million or $1.69 per diluted common share and operating income of $119 million or $2.92 per diluted common share. We generated an annualized ROE for the quarter of 6.3% and an annualized operating ROE of 10.8%.

Our book value per share increased 1.3% and our tangible book value per share, including accumulated dividends, increased by 1.8%. Underwriting income was $104 million and we reported a combined ratio of 71%. For the full year we reported net income of $481 million or $11.43 per diluted common share and operating income of $339 million or $8.03 per diluted common share.

As Kevin mentioned, we generated ROE for the year of 11% and our operating ROE for the year was 7.8%. Our book value per share increased 9.4% and our tangible book value per share, including accumulated dividends, increased 11.4%. Underwriting income for the year was $386 million with a combined ratio of 73%.

As noted, the fourth quarter capped off another profitable year for the Company despite a moderate level of insured catastrophe losses during the year. We also experienced a rise in interest rates for the fourth quarter reversing some of the unrealized gains we booked earlier in the year. Our equity portfolio continued to perform well and partially offset the unrealized losses in our bond portfolio for the quarter.

For the quarter and full-year, we reported a net negative impact from Hurricane Matthew of $44 million after giving effect to the redeemable noncontrolling interest in DaVinci. Now as a reminder, net negative impact includes the sum of estimates of net claims and claim expenses incurred, earned reinstatement premiums assumed and ceded, lost profit commissions, and the offset of by the redeemable noncontrolling interest in DaVinciRe. Given the magnitude and recent occurrence of Hurricane Matthew, meaningful uncertainty remains regarding losses from this event and the actual net negative impact from this event will likely vary from this estimate.

During the fourth quarter we also recorded favorable development reserves of $87 million, with $67 million in our property segment and $20 million in our casualty and specialty segment. Favorable development in our property segment was driven by normal course reviews of large losses that reduced our estimate of expected ultimate losses on certain large events and a number of other smaller weather events in the US from recent years.

In our casualty and specialty segment, actual reported losses came in better than expected on attritional net claims and claim expenses. Now let's shift to our segment results beginning with the property segment followed by casualty and specialty.

During the fourth quarter our property segment gross premiums written were up 19% relative to the fourth quarter of 2015 driven by our other property class of business. The fourth quarter generally is light in terms of renewals for our property segment. Included in gross premiums written in the property segment for the fourth quarter of 2016, was $9 million of reinstatement premiums associated with the Hurricane Matthew.

For the fourth quarter the property segment generated underwriting income of $100 million and a combined ratio of 45%. Impacting the underwriting result was a reduction in operating expenses and favorable development on prior accident years of $67 million as I mentioned earlier. Offsetting these items was net negative impact to the property segment underwriting result of $49 million associated with Hurricane Matthew before giving effect to the redeemable noncontrolling interest in DaVinci.

For the full year, our property segment gross premiums rates written increased 4% over the year reflecting growth in our other property class of business, partially offset by a continued soft market conditions in property catastrophe. As a result, managed cap premiums were down 5% for the year. Included in property gross premiums written and managed, cat premiums for the year were $21 million of reinstatement premiums related to a number of US weather events, the Fort McMurray wildfire and Hurricane Matthew. The property segment generated underwriting income in 2016 of $363 million and a combined ratio of 50%.

Included in our year-to-date property segment underwriting results is a net negative impact of $101 million associated with losses from a number of US weather events, the Fort McMurray wildfire and Hurricane Matthew. For the fourth quarter, our casualty and specialty segment gross premiums written were down 7% relative to the fourth quarter of 2015. The main driver for the decrease in the quarter was a reduction in premiums in the credit which had a several large multi-year deals incepting in the fourth quarter of 2015.

Recall that we booked a premium of mortgage deals at inception however they tend to have a longer duration and are consequently earned over a period of 10 or more years. This book can be influenced by a small number of relatively large transactions.

In comparison to the decrease in gross premiums written, net earned premiums in our casualty and specialty segment were up 2% in the fourth quarter. The casualty and specialty segment generated underwriting income of $3 million with a combined ratio of 98% in the fourth quarter.

For the full year, our casualty and specialty premiums are up 35% from a year ago reflecting continued growth in the mortgage reinsurance and the inclusion of Platinum results in our financials following the close of the transaction in March of 2015. As we have grown our casualty and specialty book, we have increased the use of reinsurance to manage our assumed risk and enhance overall returns. Consequently net premiums written in casualty and specialty were up 17% for the year compared to the larger increases in gross premiums written, previously noted. For the full year 2016, underwriting income in casualty and specialty was $21 million with a combined ratio of 97%.

Turning to investments, in the fourth quarter we reported net investment income of $47 million comprised mainly of interest income from fixed maturity securities of $39 million and net investment income from our alternative investment portfolio of $10 million. Our strategic investment portfolio, managed by our ventures unit reported gains and we continue to be satisfied with the long-term fundamentals of the companies we own. For the quarter, the annualized total return on our overall investment portfolio was about flat, or negative 2% [but 0.2%]. Due in large part to mark-to-market losses on our fixed maturity investment portfolio as interest rates rose in the fourth quarter.

Strong returns in our portfolio public equity investments partially offset the impact of rising rates. For the full year our investment portfolio generated a total return of 3.5% compared to 0.9% in 2015. Our investment portfolio remains conservative with respect to interest rate, credit, and duration risk with 89% allocated to fixed maturity and short-term investments with a high degree of liquidity and modest credit exposure. The duration of our investment portfolio remained relatively short at 2.4 years and is consistent with recent quarters.

The yield to maturity on fixed income and short-term investment was 2.1% at December 31, 2016 compared to 1.8% September 30, 2016. Finally, I liked to note that our capital position remains very strong with modest leverage and efficient access to capital through multiple sources. For the full year we have repurchased $309 million of our common shares.

In looking across the spectrum of our managed balance sheets, we kept DaVinci flat, continued to raise capital in other select areas through Upsilon, Medici and our newest venture FibonacciRe. Our capital management actions reflect a quickly evolving market and we believe we have developed a unique agility to deploy capital where it is needed most and remove it from areas where it is not earning a suitable return. In short, RenaissanceRe continues to match well structured risk with the most efficient forms of capital across several balance sheet and capital sources.

As we head into 2017 we are confident that our ventures teams is actively building on relationships high-quality, long-term investments as well as looking for new strategic transactions that can enhance our underwriting franchise.

In closing, I would be remiss if I did not mentioned that since my arrival last August I continue to be impressed with the caliber of talent at RenaissanceRe and appreciate the ongoing support throughout the organization that has ensured a smooth transition of leadership in the finance team as we close the books on 2016. We have a deep bench, not only on the finance team but throughout the Company with the necessary resources to continue to provide superior customer relationships, superior risk selection and a superior capital management in 2017 and beyond.

And with that I'd like to turn the call back over to Kevin.

Thanks Bob. I'll divide my comments between our property segment and our casualty and specialty segment. Starting with the discussion of the 2016 results and then moving to the January 1 renewals and opportunities in 2017 after that we will open it up for questions. As we discussed last quarter and as Bob mentioned, we revised our reporting segments to property and casualty and specialty to give you greater transparency into how we think about our business.

Our property segment includes our catastrophe excess of loss business and other property. Included in other property is property written on either a proportional or pro-risk basis, the property component of our regional multi-line business and E&S property insurance written on our Lloyd's platform. All of which were previously reported as part of either specialty or our Lloyd's segment. I should point out that our property business is also exposed to catastrophic events although to a lesser extent than our catastrophe book.

For the full-year in 2016 we grew our property segment marginally in a tough market. This growth came from our other property business which grew significantly although from a relatively small base. Our other property business is predominantly written on our US and the Lloyd's platforms and demonstrates how the strategic choices we have made over the last several years have developed into increased opportunities. Our catastrophe book was down year-on-year as we either reduced or exited business that no longer met our return hurdles.

Any growth in this market is an achievement. We were able to writes more business by moving from the transactional to the strategic, increasing ties with our clients and continuing to act as a trusted advisor across multiple lines of business.

We are proud to have a value proposition that extends beyond price as our clients and brokers recognize the importance of our problem-solving capabilities and our ability to match risk with capital. They also appreciate the expertise provided by our scientists at WeatherPredict and the integrated solutions we can offer through our Lloyd's platform and our various joint ventures to help them grow their business.

Moving to the January 1 renewal, my comments will primarily address the catastrophe excess of loss market as most of the renewals are in this line of business. Property rates continue to decline. In the US, rates were down by about 5%. Rates in the international market were down somewhat more than the US, while retro prices were down somewhat less. The relative outperformance of retro was the result of several new programs being placed.

Despite the price reductions we grew our property segment at January 1. This growth came across the board in both our catastrophe and other property business in the US and internationally and in assumed retro. This growth was driven by both new opportunities and growth on existing lines. What is particularly rewarding is the fact that we were able to identify attractive opportunities on each of our platforms.

Growth in the property segment was augmented at January 1 by the expansion of UpsilonRe and the creation of FibonacciRe and we anticipate that we will continue to help this grow over the year. If you recall last year we shrank UpsilonRe, which is our collateralized reinsurer as opportunities were limited. In 2016 we saw increase client demand and heightened investor interest for retro and were consequently able to grow Upsilon. The FibonacciRe is our newest vehicle and has helped us bring additional capacity to RenaissanceRe insurance clients in the US for more remote property risk.

One new opportunity worth noting, both due to its size and potential, is the NFIP flood reinsurance purchase. We were a significant participant on this program, which demonstrates the appetite of the private market for flood risk and which going forward could see considerable expansion.

In 2017, we anticipate that our property segment will be up slightly with the growth in our property business more than offsetting the expected decline in catastrophe. We believe we can grow our other property business as our expanded platform and strategic approach to clients will continue to provide us new opportunities. Another area targeted for growth is our regional multi-line business where there continues to be significant opportunities.

We cede a significant portion of our property risk which allows us to optimize our portfolio further even with deterioration in rates. After adjusting for retro purchase and the use of joint venture vehicles, we retained roughly half our gross written premium in the property segment. As I have said before this may look expensive in a low cat environment, but we believe this is the right strategy for our portfolio.

Within our casualty and specialty segment we write various classes of business. These include traditional casualty lines, such as general liability and professional lines, the casualty business written through our Lloyd's platform and the casualty aspects of our regional multi-line businesses. Casualty and specialty also includes financial and credit business such as our mortgage reinsurance book and trade credit.

Additionally contained in this segment are specialty lines such as marine, surety, terrorism, and cyber. Previously our specialty segment had certain proportional and per risk property business, which has been moved to the new property segment for increased transparency. The casualty segment now represents more than half of our business globally and has grown into a sustainable franchise that is core to our ability to meet client needs.

For the year we grew our casualty and specialty segment almost 35% with growth coming across all of our platforms. This growth broke down to be about 25% growth in casualty lines, 50% growth in our mortgage book and 10% growth in specialty lines.

There were three general drivers of growth for the year. The first driver was increased signings on existing programs where clients look to consolidate their panels. The second driver was the writing of additional lines of business with existing customers. And the third was from specific strategic initiatives such as helping clients expand to new lines of business and developing a marine and energy book at Lloyd's.

At the January 1 renewal, conditions were consistent with recent experience with rates declining slightly and terms and conditions generally remaining stable. Overall ceding commissions were flat. Clients with attractive results probably got a little more ceding commission and conversely those with weaker results probably got a little less, which demonstrates at the market is showing discipline in response to cedant performance.

In 2017 we believe there will be some opportunity for modest growth in our casualty and specialty segment, although we do not anticipate the same pace of growth as we experienced in 2016. For example given our leadership position we expect to be first call for new opportunities in the mortgage space. Much of our growth in this book however has come from legacy business, so future opportunities will be more constrained. It bears repeating however, that due to the long-tail nature of our mortgage book, the premium we have already written will continue to earn over several years.

Another area of potential growth will be in marine and energy reinsurance at Lloyd's. We have been diligently building capabilities in this area and are hopeful that we will be able to grow this book. We also anticipate growth in our commercial multi-line business run out of our Chicago office and US casualty business written out of New York. On the other hand, we continued to monitor certain lines of business for signs of price competition, such as D&O and the accident and health business.

Similar to our property segment, we executed our gross to net strategy in casualty and specialty with ceded purchases remaining fairly consistent during the quarter and for the full-year. We currently cede approximately one-third of our premiums in this segment. While we will find the casualty and special business attractive overall and diversifying to our portfolio, we nonetheless make significant retro purchase on this book for three reasons.

First, it helps us maximize shareholder value by enhancing our overall risk adjusted return profile. Second, it allows us to maintain our leadership lines such as mortgage as we can deploy larger limits. Finally, our gross to net strategy helps us transform risk income into fee income. We have seen significant demand for our casualty and specialty ceded programs, which we believe demonstrates strong market validation of our tools and capabilities in underwriting casualty and specialty.

I was pleased with our team's performance in the fourth quarter and throughout 2016 as a whole. Across both of our segments, we continued to deepen our relationship with key clients and expand our ceded program to improve the capital efficiency of our portfolio. We also continued to leverage existing platforms and resources in order to manage expenses and optimize operational efficiency. Going forward we will continue to execute our strategy, maintain our underwriting discipline and drive growth in areas we find attractive. Thanks and with that Ill turn it over to questions.

(Operator Instructions)

Kai Pan, Morgan Stanley.

Thank you and good morning. First question is Kevin, you mentioned last year that from the Atlantic hurricanes might be overdue, over time, but then we had Hermine and Matthew. And seems not that losses was not big enough to really moving the pricing to the positive territory. I just wonder in your opinion what could turn the pricing?

Really what a large hurricane can do is ratify the normal system of capital within our business where premiums are paid and returned to clients through losses. I think what we need is some shock loss in the system and it doesn't necessarily mean to be of excise or in X location it really is something that people are surprised to be paying. So it is my belief that a much smaller new Madrid earthquake can have as profound a market impact as a very large Florida hurricane. So I think it is really just about having more losses and more of our premium return to the buyers through losses or some other mechanism.

Okay. Then on the capital management front. You guys did not purchase any shares in the fourth quarter, but for the full year you actually returned more than you earned. I just wonder is that 100% payout ratio still reasonable assumption for 2017?

Thanks Kai. That's a good question. As I've mentioned before nothing has changed regarding our philosophy, our approach to capital management. Our framework remains the same. We will always favor allocating capital to the businesses where the opportunities make sense and returning capital to shareholders over time when it is appropriate.

It is, I think, critical to remember that this is not a quarterly or an annual event but a long-term commitment. It takes into account how our business is evolving over time. Timing will depend on a number of factors including business opportunities, I would say the profile of our Company as well as liquidity profile. But regarding guidelines for returning capital, we don't have a set dollar, or calendar, or target for returning capital, nor do we have really an operating benchmark that we would action against. As indicated last quarter we do take into consideration net income available to shareholders.

But that is just one of many factors that we have to consider. Let me close with the fact that there is no single metric we use to benchmark our capital levels. As you look back over the history you will see that we've demonstrated that we've really been good stewards of our capital and returned over a $1 billion over the last three years.

That's great. Last is my is a [market] question on US tax reforms. Somehow view that US insurers tax rate could go lower, but some of the global offshore insurance companies tax rate could go higher. What is the potential implication for RenaissanceRe?

As Kevin mentioned there is a lot going on in the legislation in the US. There is much discussion and I would have to say there is a lot of uncertainty but we have been watching this very close. Keeping an eye on what has been happening with the Ryan Bill, the Neal, all of those things they are moving parts. As you see there is a lot of volatility. But what we will say is we have comfort in our platform that gives us a lot of flexibility and we'll react accordingly as we see that.

Great. Thanks so much.

Thanks Kai.

Amit Kumar, Macquarie.

Thanks and good morning comrades. Maybe a couple quick follow-ups and that I will requeue. Going up to the broader discussion on cross-border taxation. It is too early days in terms of what is going to happen, but if you were to think this through and talk about the planning, do you think that RenRe -- obviously the Company is morphed, would be able to address any potential changes in terms of redomiciling operations or do you think you will be taking pricing action at that point if some tax reform does go through?

There is a lot of broad things to consider and I hear what you are saying. We are looking at all of these different perspectives that we continue to hear in the market. We do have a flexible platform.

We do have the ability to make adjustments to react accordingly and yes in some scenarios you do see that there could be significant impact to the end consumer, but these are all things that are being drawn out in the scenarios that are out there and it is too early to make a call. But there are a lot of being circulated that could have in some cases a significant impact in other cases not as much.

Just to amplify Bob's comments, I feel really good about the investments that we've made over the past several years which have been strategically important for our business. With investing in a US platform, continuing to grow the Lloyd's platform, Singapore and other things provide additional flexibility to the platform which will serve us well going forward.

Got it. That is what I was looking for. The second and final question also goes back to the broader discussion on capital management. Assuming the tax discussion heats up over the next few months, could there be a likelihood that you would probably take your foot off the gas pedal at that time and say let's see how this situation involves? Or is that a separate discussion based on your excellent capital strength? Thanks.

Going back to what I said and I will give Kevin an opportunity to say a couple of comments here, but it really looks like our framework has not changed. We still are looking at buybacks as our means of returning capital and you are right there is a lot changing in Washington and the US administration has a lot of volatility.

Where it lands could have been impact or not have an impact on how we look at our deployment of capital. Too early to tell. Again we are going to sit back and watch and still proceed to return capital over time. Not really set against any benchmarks. I don't know Kevin if you want to add anything?

I think that is exactly right, Bob. I think you are focusing on, and a very important variable which is what the legislative changes may be and how they can affect us. That is a singular component of how we think about deploying capital and managing capital. And it may inform how we ultimately invest in our business, but the process that we have, first deploying into our business and then thinking about ways in which we can return excess capital to shareholders is exactly the way we will approach it. And an important component of that will be legislative changes with the new administration.

Got it. That is helpful. I'll stop here. Thanks for the answers and good luck for the future.

Elyse Greenspan, Wells Fargo.

Thank you. A few questions. First off Kevin in your remarks, you mentioned when you were talking about the January 1 renewals that you guys found opportunities to grow in cat and other property but then you also in your full-year comments you talked about a decline in catastrophe. Am I not tying those two thoughts together or did you grow at January 1 and you expect the cat business to decline as we move throughout the year?

I think that is exactly right. We did see a couple of opportunities which allowed us to expand our catastrophe writing at 1/1/17. I think the guidance I would point to is our belief is over the course of 2017 our cat book will be down, but less than the 5% it was down from last year. So that means going forward we do anticipate continued rate pressure and possibly some reduction by us. Offsetting that though is we think we have increasing opportunity in our other property business. So I think our property segment will be up marginally, but it will be a yin and yang with property cat down and other property being up slightly.

Okay thank you. In terms of share repurchase, just another question. Is there a certain valuation where you guys take a pass on repurchasing stock? And then also as you guys have slowed down on the share repurchases, we have not seen any repurchase since the summer. Do you think in a way are you also holding on to capital for potential M&A? How do you balance where your stock is trading versus holding on to capital for M&A opportunities down the road?

Thanks Elyse. That's a good question. Go back to my response to Kai. Really nothing has changed in where we have our framework on how we look at allocating our capital. The first order of allocation is going to be to the development and growth of our businesses.

We return excess capital but we have many things to consider out there. We don't look at a metric. Share price is important, but also a lot of other things are important and what we are being able to deploy into the business, what's our risk portfolio, so just a lot of factors, Elyse that we look at. And again no set benchmark and we feel that over time we have been a good steward of our capital. As I mentioned to Kai we've returned over $1 billion in the last three years.

And then if I look at the total casualty and specialty current accident year combined ratio backing out the reserve releases, you guys are running above 100 -- about 110 for the fourth quarter, 105 for the full year. As we think going forward, that book will grow some more, but how do you think about the margin profile? What combined ratio do you envision that book running at either in 2017 or over time?

Thanks for the question. That's a good opportunity to get some comments on there on this. The casualty and specialty as we look at is a longer tail business that is out there. It takes longer and looking at it in a quarter or a single year timeframe is probably not the best perspective to look at it.

We look at it as a longer tail aspect, the attritional nature of it, some of these pan out over years. Obviously we feel good about the book and on a current accident year you can see on a full-year basis what you want to look at on a relative basis. It is down about a point when you think about in that context. But again this is something that takes time to develop and we really have not seen any trends at this point.

Okay and then one last question if I may. As we think about just higher interest rates, what is the delta between new money yields and your portfolio yield and how do you think -- do you think we can see given the rise, the recent rise in the industry it is a little stronger investment coming in 2017?

That is a great question, Elyse. Here is how I look at it. When I think about the investment portfolio and some of my comments just reflecting back on what I said. A couple data points is that we ended the year 2.1% yield, it was 1.8% in the third quarter so that started ticking up.

You have to remember we do have a very liquid for portfolio duration of 2.4 years. Nearly 90% is shorter fixed maturity and liquid securities so it gives us a lot of flexibility that we have out there. With that being said I feel good about our prospects for 2017 and our ability to adapt to where the market may take us and we also have a strong equity portfolio as well too.

Okay. Thank you very much.

Quentin McMillan, KBW.

Thanks very much guys. I just wanted to touch on the over all underwriting. Looks like the accident year combined ratio for the core margin was down about 450 Bps and that's coming from the two factors of both price declines as well as the mix shift of the portfolio towards the specialty and casualty. I was wondering if you could help us in 2016, how much of that came from one bucket versus the other on a broad brush statement and secondarily and connected with that, how far along are we for that drag for casualty and specialty before that starts to normalize?

Can I just ask -- I'm not sure what you mean by drag on casualty-specialty and normalizing.

Sorry. What the combined ratio of that business is naturally going to be higher than the run rate, expected combine ratio is naturally higher than you property cat portfolio. So I am talking about the drag as the mix shift moves more towards specialty and casualty are we at a steady state now with the portfolio being 50/50 or could there be some more drag in the first half or even through 2017.

Let me just frame how I think about our combined ratio and that I will try to zero in a little on the questions that you have. Starting with property. Our property segment loss ratio or combined ratio will increase. That is -- so property cat is as it has normally been and that will be really reflected as to whether there is events or not. But on the other property line there will be attritional losses which will come in as a component of the overall segment and it will be transparent but it will something that will change the combined ratio on that side.

Going over to casualty-specialty, again breaking it down for the combined ratio between our underwriting expenses our loss ratios, I look at our loss ratio as being reasonably consistent over time. I am pleased with the way the triangles are developed. I'm not seeing any trends that are alarming. On the acquisition costs, acquisition costs are relatively elevated but reasonably flat. So looking at it from that side I think it is reasonably stable.

The second question you are asking is an optimal combination between how much property and how much casualty and specialty. We don't have an optimal target for that. We are constantly looking at how to change the profile of our business. An important component of that balancing is our ceded.

For many, many years we have been active in capital management on our property cat business and increasingly we are active in capital management through ceded and other protections on our casualty and specialty business. So it is a little bit more of a convoluted way to think about it but we think it is the appropriate way for us to structure our portfolios. There is no target mix. Our combined ratio will arise for the reasons I talked about and it's an outcome but we feel good about that book knowing the fundamentals beneath it are different than property cat.

That is really helpful. Thank you. Secondly for clarification in terms of your reporting structure. You guys are going to continue to report both property cat and property other going forward or will property other disappear eventually and it will be property versus casualty and specialty segment reporting?

That's a good question. As we laid out earlier when we talked about this right now we have our property which includes property other and catastrophe because if you go back to the third quarter call when we talked about this we committed to showing catastrophe as a separate standalone given the significance of it and we also committed to for a period of time showing the Lloyd's platform and that's in the supplemental disclosures that you can see in what we distributed yesterday.

So it will be one bucket eventually?

No that's not what I said. We committed to showing catastrophe separately from other property as part of the segment.

Great. And then just in the other property it looks like the loss ratio and the lost cost, with elevated and obviously I think part of that was coming from Hurricane Matthew. Could you help us -- how much of Matthew of the $50 million was bucketed into property cat versus property other? Because the loss number looks fairly elevated in 4Q just on a modeling question.

Most as you would expect most of our losses on Matthew would have been reflected in the catastrophe side of the property aspect. There is a little bit I talked about that spills over into property and then casualty and specialty, but we are talking about the majority 90% plus was in the catastrophe side.

Is there a reason that the $36.5 million of losses in property other. It seems like a higher number versus the run rate of that segment for what you have us in the 8-K.

I believe most of that is actually the attritional. The other thing to look at is what we are writing in that other property book is exposed to per-risk losses so there is some activity there. But also with the regional book we are writing out of the Chicago offices is not necessarily Matthew but it could be the Southeast tornado outbreaks or the Oklahoma earthquake. It could be smaller Midwestern events that is probably more likely to impact that the some of the Florida events. The per risk and the proportional books written elsewhere might have more Florida but the Chicago book will be more mid-western.

Great. Thank you very much guys.

Josh Shanker, Deutsche Bank.

Good morning, everyone.

Hi, Josh.

I'm just trying to understand the preferred share issuance in Upsilon and is that a netting out of capital or netting in of capital?

There is a lot of movement in the disclosure about capital coming in and out of Upsilon. The net result for us going into 2017 is Upsilon is bigger than it was in 2016, but not as big as we've had it at different times in the past.

And the combination Upsilon plus Fibonacci, are you materially larger than you were one year ago or are you in the same zip code -- can you frame how much capital you are working with compared to a year ago?

Yes. Let me comment. I think there is more opportunity over the course of the year for both Upsilon and Fibonacci. Right now I would say we are between $200 million and $250 million up on those two vehicles in a ballpark range, of committed capital to the vehicles

And can you describe a little bit the different appetites of each of those vehicles?

Sure. Upsilon is a vehicle we've had for several years. It was originally targeted to write capital intensive retro at reasonably exposed levels. It has morphed in size and it's morphed in appetite. It is still more directed towards retro but it participates higher up in the capital stack hence the reason for our shift in appetite.

FibonacciRe is something when we were speaking to our clients we realized that they had increased appetite for high-quality, top-end cover. So we were able to put together a vehicle to bring that capacity to them mostly in contemplation or in complement to large participations within RenRe Limited. Importantly UpsilonRe is worldwide and Fibonacci is US only.

And Fibonacci is publicly traded as well?

No it is not. That is a private placement behind it.

Okay it says it is on the Bermuda stock exchange. I was just trying to understand exactly how that capital books there.

It's 144A notes.

Okay. Thanks for all the detail.

Thanks Josh.

Brian Meredith, UBS.

Thanks. A couple questions for you. Kevin, does any of the M&A that is happening recently -- has that had any impact on your ability to get additional share in programs. Was that a contributing factor at all?

It is hard to point to specific wins from that but what I would say is as our customers consolidate I think they've become a lot more sophisticated in thinking about the synergies with their books and how they are managing their placements. With that it leads to two things. One they want to consolidate their panels with people who can add value beyond capital and secondly they want to trade with people on a more composite basis.

With the changes that we have made I think we are in better position to continue to serve them. Net-net I think it is probably a benefit. We do obviously look for opportunities to take advantage of the fact that we are only a reinsurer and not competing with them. As many of these are around the insurance businesses, but it is hard to point specifically to wins.

Great. Next I am just curious. You mentioned opportunities in the marine and energy market getting some growth there and bring it in your reinsurance market. My understanding is pricing is probably stabilized in that market but it is still at pretty low levels. Why the attractiveness at this point? There is plenty of capacity there too.

I agree with all your observations. I think we are not looking to write an index of the marine and energy market. We have built good tools, we have good relationships and we're looking to come in it any pretty targeted way and we are coming in with our eyes wide open. There is full recognition that particularly on the insurance side it's a very competitive market and a lot of that translates to the reinsurance side. I do think there is some opportunities there and we are going to leverage into it slowly.

Great. Last question. Historically you actually provided what the credit part of the specialty and casualty business is. Are you going to provide that going forward or not? Just because it is easier from a modeling perspective.

That's a good question, it stems back to how we manage the Company and the segments. There are several classes of product lines like credit. We really don't manage them separately. And the fact of the matter is, they have similar characteristics but separating them from a fully-loaded basis would be inconsistent with how we look at it. But having said that we are planning to have a further premium breakdown in our [cave] that gets installed later this month.

Great just because the earned premium part of that can make it a little complicated if you lump it all in. Thanks.

Ian Gutterman, Balyasny.

If I could just follow up on the Fibonacci question. Will it, for financial reporting, will it look similar to Upsilon and that we will see a managed cat if you will gross and most of it comes out net other than -- or will it look different than Upsilon does and maybe look more like DaVinci?

My understanding is Fibonacci is not consolidated. I think it will look a little different.

It is a variable interest, but we don't have a controlling interest so it will not be consolidated.

So therefore Upsilon we will see them in managed cat or not even there?

No we won't be reflecting it as a managed cat.

Okay so it will show up as other income, is it fee income or something? How will we see how you make money is what I am asking.

We will be getting fees for servicing it and providing the management fee.

Okay so that will be outside of underwriting income then it will be in the fee income line. Okay got it. And then you mentioned you took a big share in the NFIP program I was hoping you could talk little bit more about that. The very little bit I have read about that sounded like frankly the rate online wasn't that great because it was the first time out and it's maybe more uploading something down the road but it did not sound like the returns on that were so hot. Is there anything you can clarify on that?

I think firstly I would like to point out that I think it is thematically good for risk to reside in the private market because the conversation we are having now is a really important conversation which is, is it priced appropriately for the risk being ceded. I think for that type of risk against the capital that we have it was appropriately price. I do believe it will grow over time and I believe the input and the exchange between the private market, FEMA and the NFIP will be extremely valuable in how to think about setting appropriate actuarial rates going forward.

Is it fair to say it is probably a higher combined ratio than typical cat?

I think there is two pieces to that question. What is the standalone return and what is the marginal return. Marginally within our portfolio I can say it looks great.

Sure that makes sense. Okay and then my other one is on the tax. Hypothetically, as you said there is a lot of different ways this can play out but if there were an outcome that made it worth your while to write more business on your US paper, how difficult is that? Obviously I assume a lot of that -- you probably keep as little capital in the US today as you can and keep more of it in Bermuda. How easy would it be to restructure that to put more capital into the US and are there any costs to doing that?

So there is a couple questions there. Firstly we've got a fully functioning platform in New York and we are proud of the fact that we recently were upgraded with our US-based balance sheet so we have a lot of flexibility as to how to underwrite business there. Your second question is how do we put together a capital structure that is optimal.

I think a lot of that is going to need to be determined depending on what is changing within the tax codes in the US over the next several months. I think we are in a very good spot to be able to think about it and I am delighted in the investments we have made over the last 12 to 18 months about building out the US platform.

Do you have handy or if not will it be in the 8-K how much capital is in the US at year end?

We don't tend to carve that out separately.

It is in the yellow book. It is in our marketing materials. We have about $500 million in our main balance sheet in the US.

Okay. Thank you.

Jay Cohen, Merrill Lynch.

Most of my questions were answered. Just a follow-up on an earlier question on the rise in interest rates. Can you guys specify what new money yields look like relative to your portfolio yield right now?

Thanks Jay. That is something I can get back to you on. I've seen that written before and just given the newness I want to get comfortable before I say anything. Let me get back to you on that one.

I do feel good about where the portfolio is positioned to take advantage of rates and where they are at right now. We're short. Duration 2.4, we've got very liquid short maturity portfolio. I see it as a pretty good ability to adapt into 2017.

I'd love those numbers if you get a chance later.

Sure.

Sarah DeWitt, JPMorgan.

Good morning. I want to ask a question about the demand for reinsurance longer term. If US corporate tax rates were cut, the spread between a primary insurers tax rate and a Bermuda reinsurers tax rate would be more narrow. Would that make reinsurance a relatively less efficient vehicle and less attractive on the margin?

I think there is a lot of speculation that we would have to make to map out a full scenario. In general I don't think that is the case. I think reinsurance provides a lot of advantages beyond just tax and earnings. I think the way I would look at it is something we are going to have to solve over time, but I don't look at the tax rate between insurance and reinsurance as a gaining issue as to whether the demand will rise or fall.

Okay. So you would not expect any incrementally less demand on the margin?

I think a lot of it is going to been really on what happens. But I don't think tax rate when people are looking at their top five reasons to buy, I'm not sure they are looking at the relative spread between the tax rates as one of the important elements of it. I do think there is potentially if there is more tax generally in the system there is more expense in the system but that will be uniformly applied whether it is insurance or reassurance.

This concludes today's Q&A portion of the call. I now turn it back over to Mr. O'Donnell for some brief closing remarks.

Thank everybody for participating in today's call. Before I close I am sure many of you have seen the news that Todd Fonner will be leaving us on March 31. Todd joined us shortly before the September 11 terrorist attacks and he has been a great contributor from the very beginning.

He has advanced our thinking beyond just investments in the treasury function where he has mostly dedicated his time and has always been willing to help in areas around the Company. I'll miss Todd and I wish him nothing but continued success and future happiness. And with that I would like to say thanks again and look forward to speaking to you in a couple months.

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