RenaissanceRe Holdings Ltd. (RNR) Q4 2007 Earnings Report, Transcript and Summary

Good morning. My name is Judith, and I will be a conference operator today. At this time, I would like to welcome everyone to the RenaissanceRe Fourth Quarter and Full Year 2007 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions]. Thank you. It is now my pleasure to turn the floor over to your host, Mr. David Lilly. Sir, you may begin your conference.

Good morning. Thank you for joining our fourth quarter and full-year 2007 financial results conference call. Yesterday, after the market close, we issued our quarterly release. If you didn't get a copy, please call me at 212-521-4800 and we'll make sure to provide you with one. There will be an audio replay of the call available at 2 o’clock p.m. Eastern Time today through February 20 at 8 p.m. The replay can be accessed by dialing 800-642-1687 or 706-645-9291. The pass code you will need for both numbers is 30910928. Today's call is also available through the Investors section of www.renre.com and will be archived on RenaissanceRe's website through midnight on April 21, 2008. Before we begin, I'm obliged to caution that today's discussion may contain forward-looking statements and actual results may differ materially from those discussed. Additional information regarding the factors shaping these outcomes can be found in RenaissanceRe's SEC filings to which we direct you. With me to discuss today's results are Neill Currie, Chief Executive Officer; Fred Donner, Chief Financial Officer; Kevin O'Donnell, President of Renaissance Reinsurance Ltd.; and Bill Ashley, President and Chief Executive Officer of Glencoe Group Holdings Ltd. I'd now like to turn the call over to Neill. Neill?

Thank you, David. Good morning. I'm pleased to report a profitable fourth quarter and strong financial results for 2007. Our key financial metric, growth in tangible book value per share, was just over 19% for the year. We enjoyed quite good results in both Reinsurance and Individual Risk with a 45% full-year combined ratio for our Reinsurance segment and an 89% combined ratio in Individual Risk. While market conditions were challenging in 2007 as many competitors reduced prices, through our strong relationships and reputation for meeting our clients' needs, we maintained an attractive book of business during the year. Gross premiums were roughly flat in our Reinsurance segment and down approximately 19% in our Individual Risk segment. These strong broker and client relationships served us well again at the January 1 renewals and the resulting portfolio continues to be quite attractive. In our Individual Risk segment, the strength of our franchise is reflected in a terrific set of quota share and program partners and a pipeline that is providing a good flow of attractive opportunities to choose from. We are seeing a similar flow of attractive opportunities in our Ventures unit. I am pleased to say we had a strong year in investments, reporting record net investment income of $402 million. While we are a company known for our focus on underlying profit, as we continue to grow and diversify over the years, we expect investment income will become an increasingly significant contributor to our overall profitability. As we've previously announced, our fourth quarter results were negatively impacted as a result of our investment in ChannelRe and losses in our casualty clash book of business. While ChannelRe is an investment and casualty clash is a line of reinsurance business we underwrite, the manageable impact they had on our results underscores our disciplined approach to containing and managing the risks we accept. Our financial guarantee exposure is limited to the value of our equity investment in ChannelRe. As respects our casualty clash book, we've worked proactively with our clients in an effort to contain any subprime losses to the 2007 underwriting year. We believe these outcomes demonstrate that how you assume risk is often as important as the type of risk that you assume. But for many of you like us, your focus is on the path ahead. Certainly, there are challenges presented by the softening market conditions in many lines of business, a slowing economy and lower interest rates, but these are issues we are well equipped to address. During December of 2007, Standard & Poor's raised the rating of Renaissance's reinsurance from A plus to AA minus and Amwest raised our rating from A to A plus. While the ratings were strong before the upgrade, the new rating were helpful during the recently renewal season when our allocated lines were being discussed with clients, and of course strong ratings are helpful in maintaining or attracting business in any market cycle. Above all else, we will remain disciplined and will only assume risk for which we are being paid appropriately. Through our strong relationships and leadership role in the markets we serve, we expect to maintain an attractive portfolio of business and a steady flow of new opportunities. This is the benefit of the franchise we have built over the last 13 years by providing consistent exposure based pricing and meeting the needs of our clients, especially when others in the markets may have backed away. So I am quite pleased with where we are and our prospects for continuing to deliver strong results for our shareholders going forward. I'm also pleased to say that Kevin O'Donnell who runs our Reinsurance Operations and Bill Ashley who runs our Individual Risk Operations are with Fred and me today. So with that, I'd like to turn the call over to Kevin.

Thanks, Neill, and good morning. Leading up to year-end, there was a growing feeling that we are going to see a softening market and from a Reinsurance perspective we are never quite clear if the chatter predicts the fall or if it causes the fall, but either way we did see softening at year-end. Another point worth noting about the renewal is that over the last few years we have seen a growing market, especially for US win [ph] business. The growing demand was able to keep up with the increased appetite to deploy capital in this space, but unfortunately at 1/1 this year this trend stopped and the reinsurance market did not grow for the first time since 2005. The lack of growth in the market and once again, increased appetite for cat risk caused [inaudible] and prices to reduce. In prior years, we have discussed the cat world in terms of three categories of risks, negative returning business, low returning business, and acceptable returning business. As you would expect, we focus our attention on the acceptable return universe, and at 1/1/08 we saw this bucket of business shrink by between 5% and 10% in terms of worldwide market premium. In spite of the shrinking of the acceptable bucket though, we are very pleased with the overall spread of risk in return profile that we achieved in our 1/1 renewals and remain very comfortable with the overall return of the portfolio. The attractiveness of our portfolio is largely attributable to our preferred positions in the market, strong ratings and underwriting leadership. Our book moments were less pronounced, and by our measurements we increased our spread to the overall market. More specifically, in the U.S. cat book, we saw rate reductions that were pretty widely dispersed depending on the individual account attributes. But in general, accounts with growing exposure were in some instances seeing exposure-based reductions approaching 20% and programs with flat or reducing exposures were seeing exposure adjusted reductions of between 7.5% and 12.5%. Our underwriters did a great job of maintaining discipline while managing our quotes and launched to best optimize our position. We achieved large lines on most yields that we targeted, and we're disciplined in reducing or canceling businesses that was either too few or too far from our quotes. Both our international cat and rental books held up very well with no premium reduction to speak of. This was due to our achieving above market non-concurrent terms on several large places. Overall, the open market business saw rate reductions that were pretty widely dispersed depending on region, but the two regions we care most about, U.K. and Continental Europe, and those were down about 5% and 7.5% respectively. Overall, business for the cat side was very sticky this renewal and incumbents seemed to have a very strong position in retaining desired or targeted businesses. Moving over to specialty, we found very few new opportunities in our specialty line of business, saw extreme price competition on certain deals, but we’re able to manage other deals with only moderate reduction in the spiraling [ph] economics. The main topic I would like to discuss with this book is the impact of subprime number. Firstly, we've done a comprehensive review of our underwriting of this book. From a model perspective, we've assessed our current subprime related losses against the market loss curves we developed for pricing and we’re comfortable with the results that we found. We anticipate completing an update of our casualty clash pricing models in 2008 incorporating lessons learned from these specific events. This is the same process we’d do for any loss and it's no different for specialty. Secondly, we have refined our approach to the renewal of the casualty clash book by adding the exclusion to the 2008 renewals as well as documentation to the in-force 2007 deals in hopes that we provided a roadmap as to how covered losses will be handled for these contracts. You've already heard about the 60 million event specific IBNR, which is in addition to the normal IBNR that we’ve posted. This relates to our potential exposure onto the casualty clash books of business. Historically, we've always been prudent around reserves, and our reserving philosophy remains unchanged. We continue to look for new opportunities in the professional and casualty lines of business. We believe that these markets are in an elevated period of risk due to the stresses of subprime and the general prediction of the increase likelihood of economic sluggishness, which could cause some dislocations, and we believe these dislocations will create opportunities for us. Thank you. And at this point, I would like to turn the call over to Bill.

Thanks, Kevin, and good morning. Thank you for the opportunity to speak with you this morning. Our property and casualty programs, as Neill mentioned, and our quota shares continued to produce profits at or better than expected levels. For the fourth quarter and for the year, Individual Risk business unit finished at just an 89% combined ratio. 2007 had lighter than expected losses from catastrophes, which had a resulting positive impact on our overall property results. As discussed on prior earning calls, our 2007 gross written premium was down from prior year. The majority of this decline was a result of two proactive decisions we made during the year. We terminated a large commercial property quota share, and we also decreased our participation and in a Florida homeowner’s quota share, reducing our business unit’s overall volatility. The remaining reduction in written premium can be attributed to holding the line on pricing. We continue to be pleased with our program enclosure partners’ execution of pricing discipline in what is becoming very difficult market conditions. We are also pleased in 2007 that we added two new programs and expanded a few of the existing programs. We have not yet realized a full year's premium from these two new programs, but we’ll realize the annualized effect in 2008. We continued to work on and see new opportunities and yet continue to be cautious due to the current pricing disciplines that we are seeing in the primary market. Commercial property that is hurricane exposed continues to present opportunity for us in 2008. However, it is possible that during the year pricing for this segment of the market could decrease to levels below our required returns. The market prices for California commercial property earthquake coverage had decreased dramatically in 2007. In 2007, our written premium from California earthquake coverage declined more than we had anticipated at the beginning of the year. We do not see a growth opportunity in the segment under current market conditions of 2008. We are fortunate to have both an onshore and offshore multiple insurance company balance sheets. We've been busy building out our infrastructure in the U.S., which not only manages our programs, but adds a lot of value to our partners. During 2008, expect us to continue to commit resources to enable our capabilities even further. We are not about competing on price, but by adding value to our partners. As examples, we have built data mining technology and modeling to assist not only in risk selection but targeting marketing to attract the risk we would like to write. We are profit motivated and not topline motivated. We will continue in 2008 not to sacrifice the bottom line by holding onto under-priced business. And now, I'd like to turn the call over to our CFO, Fred Donner.

Thanks, Bill, and good morning everyone. Now that you've heard from our business unit leaders about the marketplace, I'll take you through the financial results. After the market closed last evening, we reported net income for the quarter of $62 million or $0.88 per share and operating income of $186 million or $2.64 per share. Operating income excludes the impact of net realized gains and losses and the mark-to-market unrealized losses on Channel. On a full-year basis, we generated net income of $570 million or $7.93 per share, and $735 million of operating income or $10.24 per share. For 2007, we achieved the 27% operating return on common equity, and as you heard Neill mention, grew our book value per share by over 19%. Our share buybacks negatively impacted our growth in book value per share by approximately 2 percentage points. So excluding the buybacks, our book value per share grew by 21%. I'll give you more details on our share buybacks later on the call. Consistent with our forecast, our topline declined by about 7% for the full year, driven primarily by our disciplined approach in the softening market. However, our underwriting profits remained strong, and as you heard, we're pleased with the combined ratios in both of our segments. On a consolidated basis, we generated a 59.3% combined ratio for the full year. Let me take you through some of the details for the quarter starting with ChannelRe. As previously reported, our share of ChannelRe’s unrealized mark-to-market losses related to its credit default products exceeded our carrying value and therefore we reduced our investment charge to zero. External charge related to Channel this quarter amounted to $131 million. We have a 32.7% interest in ChannelRe, which we account for under the equity method. We had no reinsurance or other support arrangements, so our loss isn’t limited to our investment. Therefore, we have no further exposure to losses from ChannelRe. Let me move on to the operating results, starting with the catastrophe unit of our Reinsurance segment. On a managed basis, our cat unit had negative gross written premium of $5 million as compared to $25 million of positive gross premiums written for the same period last year. The negative premium results from approximately $20 million return premium adjustment estimates that we recorded this quarter. On a full-year basis, managed care premiums were $1.033 million, down about 5% from last year. And as you heard Kevin mention, we were pleased with the full-year results and also pleased with the portfolio we built at January 1. Underwriting income during the quarter for our cat unit amounted to $169 million, up from $110 million for the same period last year. This period's results were favorably impacted by a low level of current year losses and $61 million in favorable development from prior accident years. On a full-year basis, underwriting income was $471 million, which is relatively flat with last year, and we generated a combined ratio of 35%, also consistent with last year. In our specialty unit, gross premiums written grew to $38 million from $28 million last year. This increase is the result of one particular contract, which we have previously discussed. For the quarter, we suffered an underwriting loss of $4 million, a result of the $55 million reserve increase in our casualty clash book in the quarter. For the full year, our underwriting income was $57 million compared to $164 million last year, driven by higher current year losses and lower favorable loss reserve development. Moving onto our Individual Risk business, gross premiums written for the quarter were $93 million compared to $142 million last year. The declines were primarily in the commercial property and personal lines and property lines of business. As Bill previously mentioned, these declines reflected decisions we made in '06 and '07 to reduce participations on certain [inaudible] and re-deploy the capital to our cat unit where we will be able to achieve higher returns in the current market. Underwriting income for the quarter was $12 million compared to $37 million for the same period last year. The business produced a combined ratio of 88% for the quarter compared to 73% last year. Last year's combined ratio was lower than our typical run rate because the recognition of underwriting gains on our crop program were weighted more towards the fourth quarter in 2006 than they were in 2007. For the full calendar year, the combined ratio for Individual Risk was flat with last year at about 89%. Our investment portfolio continues to perform well generating more than $80 million of net investment income for the period. Total return for the quarter, which includes realized and unrealized gains and losses, was just over 6%, driven in part by strong returns, principally from our fixed income portfolio. And for the full year, total return was just under 7%. Our portfolio was well positioned for what played out in the second half of 2007 with only modest exposure to credit and securitized products. You'll notice though that we took the opportunity in the fourth quarter to increase our credit exposure by adding to our securitized asset portfolios to take place of meaningfully wider spreads. These are high quality investment grade securities with no subprime exposure. We have no material subprime exposure in our fixed income portfolio. We have no CDOs and no CLOs in our portfolio, and also we have not directly invested in any securities that are wrapped or enhanced through financial guarantees. Also during the quarter, we recorded a one-time $19.3 million tax benefit resulting from a reversal of a tax valuation allowance. The reduction in allowance is driven by the fact that our U.S. operations now have three years of modest taxable income and we expect that to continue for 2008 and beyond, and therefore expect to be able to use these deferred tax assets. As you've heard, while we hope to continue to grow our U.S. operations, all of our Reinsurance Operations and much of our other operations are conducted exclusively from Bermuda. We do expect this to continue, and therefore as of today, we do not expect our tax expense to be significant on a go-forward basis. Turning to capital management, during the quarter we purchased approximately $112 million of our stock, bringing the year-to-date total to just over $200 million. We continue to be active this year, and since January 1, we have purchased an additional $186 million of our stock. So since we began our program in the first quarter of '07, we have repurchased approximately 6.8 million shares for $386 million, representing approximately 9.5% of our total outstanding shares. Our philosophy around capital management has not changed, and we will continue to buy back our stock when we believe the prices are attractive. Currently, we have $191 million remaining under our existing Board authorization. With our January 1 renewals behind us, we continue to feel comfortable with the forecast that we provided to you on our last earnings call. Managed cat premiums are expected to be down around 10%, specialty down around 25%, and Individual Risk down around 5% and consistent with our focus of maintaining our underwriting standards in this softening market. And as always I would just like to remind you though, there is significant amount of uncertainty around these estimates. Thanks. And with that, I'll turn the call back over to Neill.

Thank you, Fred. With that, let’s open up to some pre-lunch questions. Operator? Question and Answer

Thank you. [Operator Instructions]. Your first question is coming from Dan Johnson [ph] of Citadel Investment Group. Please go ahead.

Great. Thank you very much. Couple of follow-ups, could you highlight again what you had said about the tax rate, I wasn’t sure you were saying that there is no taxes going forward or I'm not sure if you're referring to a particular segment? Number two, can you highlight the size of your California earthquake book in '07 and are you really saying that there is not much interest in that book at all in 2008? And finally, the... I thought I caught a 5%... 10% down on January 1, were you specifically referring to the property cap renewal at January 1 or total renewals? Thanks a lot.

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

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

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

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

On a written basis.

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

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

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

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

And how much… how did your participation change within that? Have you got a pretty good estimate?

Well, we… by our measurements we did better than that reduction for that book of business.

Good. Thank you very much.

Yes.

Thank you. Your next question is coming from Tom Cholnoky of Goldman Sachs. Please go ahead.

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

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

Oh, really, because there is... it’s already in the marketplace that you are out with it. JPMorgan… you read it through JPMorgan… I mean I can read you… well I'll try to. If you don't feel like talking about it we can wait then.

Tom, because it's in the preliminary offering stage, it's a...

Oh, I'm sorry. Okay. I'm sorry. So it's in the offerings… it's just like an offering. Okay, that's fine. We can talk about it later. Then let's turn to the clash cover, if we can. I'm just curious, how... was this… was the IBNR that you put up, I assume this relates to the potential... do you actually get notice of loss on this or is it pure IBNR? And then how many different clients are there that could be exposed to… that you could have in this area that could be exposed to this whole subprime issue, and how big is the book? Sorry for a lot of questions.

I think that’s all my questions rolled up in one. What we try to do is… let me break down what we actually do. We tried to… we went back and we look at… for a lot of these norms we have detailed underlining risk information. So we are writing reinsurance in retro, but we have on a large percent of our book the ability to look through to see what the primary insurance looks like. We ranked those as to what we thought their exposure was and then we rolled that up and matched it against the terms for the coverages that we are providing. That's the first thing. The second thing we did is we went through the January 1 renewals and we had discussions, talked about our approach to the renewal, and tried to ferry out what we… what the management thought their exposures were. So, with that we were able to come up with the approach that we did, which was to exclude it from… exclude subprime from 2008 and then try to add an endorsement to 2007, which defined how covered losses would be treated. So that's a kind of what we did. Your next question was I think, did we get notices, with that we did receive notices because we are excluding it from 2008. So lot of the notices we had are very big and they expect to have losses. So I am not sure that's the position that we normally expect with someone putting a dollar amount on it. It was really such a… preliminary stages of the event that is difficult to be about that precise, but with that information I think we did a good job lasering in on what we think our exposure is. As far as… this is not a tremendously big book for us, it's about 50 million in premium, and we got say less than 2000 accounts.

And then… and what's the kind of the average then that you put out on this?

Yes, that's not something… I think what I’m focused back on is the 60 million in recognition of the two things that I told you. I think it's fair to say that this is a significant portion of [inaudible], the one thing actually also is worth saying is that all this is written with limited than one reinstatement at 100%, so it is a limited exposure for us.

Okay. Sorry, one last question and once again unrelated. Just in your individual segment in terms of the premium outlook of down 5%, that assumes the inclusion of these two new programs, which I think [inaudible] before?

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

Yes, relative to the two new programs that you mentioned you had written, but haven’t shown up yet?

Yes, now a good question. Thank you. Yes, that contemplates the two new programs coming on-line further in '08 in that 5% down.

Okay, great. Thank you.

Thank you. Your next question is coming from William Wilt of Morgan Stanley. Please go ahead.

Good morning, thanks. A couple of questions. I guess on the casualty clash, just understand the dynamics, you’d said in the renewal of… well, I guess the first question is, did you… if you’d written $50 million in premiums with the year 2007, a sense for what the written premiums in year 2008 would look like?

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

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

No. I think, one, there is a… in a normal claims made policy, which this book is claims made book, you will have an extended reporting period that people can purchase if they do not renew.

Right.

If renewing with a cat… with an exclusion for 2008, most people are going to put the claim in some form in 2007. Otherwise, they are not going to have cover. So with or without the extended reporting period, I think the question is, have we cut the potential for the risk to grow from 2007, the answer is no. That wasn't the intention of what we tried to do.

Okay, that's helpful. Thanks. The accelerator here, the review of the IBNR increase is a false review of all… you said, about 24 accounts, about two dozen is a review of the exposure of all the accounts where casualty clashes was sold?

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

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

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

Okay. Is that... it strikes me initially as counterintuitive, that the exposures are increasing that they would get a reinsurance rates decrease. I guess it is because of...?

I didn't say rates decrease, I said exposures adjusted reductions, so rates may have increased but the overall economics degraded by up to 20%.

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

Yes. I think Florida is a pretty dynamic environment, so I don't have any particular insight as to how it's going to change. I'm aware of lot of the conversations about potentially changing the amount of coverage operated under either the thicker layer of the FHCF. But I think it's premature to say that we have any certainty as how it will affect the market. The thing I’d say is we’re as close to this as I think we can be, and we’ll be ready to act either way the FHCH changes. So if… it's a difficult question to answer definitively that this is how it is going to change and this is what we are going to do. We are monitoring it closely and I think we will be among the first to understand what the changes mean to the market and how we can react to capitalize them.

Thanks very much.

Thank you. Your next question is coming from Brian Meredith of UBS. Please go ahead.

Hi, guys, a couple of quick questions here. First one, can you just remind us what goes into that other income expenses line item or other loss line item, it was minus 20 million in the quarter? I know the Platinum went away and that was part of the sequential I guess change, but it looks there's another 5 million loss. Is that a run rate number we should expect going forward?

Yes. Brian, it is Fred. I would say that… let me start by saying that's not a run rate you should expect going forward. There is a couple of things going through there. The Platinum fees did go away as we’ve discussed last quarter. But going the other way, this quarter we have I guess a couple of large things. We do all… still have a fair amount of Platinum warrants. With the decline in the stock prices of platinum, there is a $3 million movement coming through in that line. In addition, we have a service arrangement with ChannelRe where we provide services and we get fees based on profits, because… and we accrue that during the course of the year. Well, this quarter based on what happened we had a reversal of about $3 million coming through there as well. The biggest component of that line item continues to be expenses coming through for ceded re-insurance that we account for either as a depositor or a derivative, and that's running about $6 million a quarter, which we expect to remain pretty much flat. So I think there is a couple of large items coming through that we wouldn't expect to see going forward, and I would not suggest you use the number we have this quarter as a run rate.

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

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

Okay, and then last question, if I look at your cat bond I guess exposure in that other investment from line item, it's down… sequentially down year-over-year. And then, as Tom mentioned, you've got this falling out there in exchange, you don't want to talk about that. But just philosophically, can you can talk a little bit about… do you find the cat bond market… all of a sudden returns there probably becoming less attractive and maybe more of a buyer's market than… more of a seller's market than a buyer's market?

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

Brian, hi. This is Neill. I just want to mention that we're pretty much agnostic when we're accepting or ceding risk, whether it's in the cat bond space or whether in the underwriting space. So you will see us move around over the years based on the opportunities. Kevin, anything you’d think you like to add?

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

Right, but isn't it true that that market is becoming more attractive from I guess a seller's perspective, given the market’s receptivity towards structuring these things?

I wouldn't make a comment as to whether… because the market is becoming more or less attractive, because our… so much if how we look at it is dependent on what our portfolio looks like at the time. So we may think one deal against a pro forma portfolio that we’ve created looks great. We do our portfolio with more precision in a different pro forma and think it now looks so good.

Got you.

I think it's so much dependent on our own risk.

Great, thank you.

Thank you. Your next question is coming from Jay Cohen of Merrill Lynch. Please go ahead.

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

Yes, what I said was that I was comfortable with how the loss… the $60 million that we are putting up stacks up against the market loss curve that we used for pricing. Whether we have the exact number for subprime, and I think it's too early to tell. There is a lot of moving parts as to how this is going to flow through the markets. So I don't… I wouldn't say we have a precision around that, but I do have a sense that looking at where it sits on the curb for our return periods against the 60 million, which you can calibrate your industry loss as uncomfortable.

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

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

And Jay, for us, we don't like quoted share... I meant quoted shares on lines of business like that. So it's less important, to us it’s a curiosity, but it's not important to us.

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

Jay, this is Fred. There was no… you didn’t miss anything there. So let me discuss that. I think you know the way I'd like everybody to look at it is look at it on a year-to-date basis. I think when you look at some of the earlier quarters, we had exceptional results coming through our private equity and hedge funds, which I have always cautioned folks that those results really exceeded our expectations as well. If you look at the quarter, total return of somewhere in excess of 6%. Our hedge funds, our private equity funds generating about 10%, it might have been a little lower than what we expected, but overall we feel pretty good about it. On a year-to-date basis, total returns for the portfolio of about 7%, hedge funds, private equity funds did extremely well, hedge funds generating about down 20% and private equity funds generating 30% for the year. That's not what we expect. Those are much higher than we expect. So while we might be a little off this quarter, there is nothing in the portfolio that's causing us any concern. And I think when you look at it on a full-year basis, we feel pretty good.

Great. Thanks for that answer.

Thank you. Your next question is coming from Alain Karaoglan of Banc of America. Please go ahead.

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

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

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

Sure, a Couple of points on it. One, certainly on calendar year basis, we are very happy with it. Secondly, on a accident-year basis, if you were able to pull it apart, I realize you don't have this information in front of on the gross loss side, I think you'll see very consistent year-over-year, and we are quite pleased with the gross loss ratios. So what is really happening is our ceded cost is going up as the book to clients. So the ceded costs is a little out of proportion with the book, which will be corrected in 2008 as we renew our ceded treaty.

Okay. Thank you very much.

Thank you. Your next question is coming from Terry Shu [ph] of JPMorgan. Please go ahead.

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

Yes.

Okay, but profitability is generally eroding?

Well, I couldn't help but just say yes, Terry. I guess that’s true, but we are coming out for pretty nice plateau.

Right.

The existing portfolio is a quite nice portfolio.

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

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

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

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

Thank you.

Thank you. Your next question is coming from Gary Ransom of Fox-Pitt, Kelton. Please go ahead.

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

Okay. Let me first answer… your first question was you're looking for… I’m sorry, could you--?

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

We don't have those details with us now. That's going to be disclosed in the 10-K. So if you could hang on just a little bit longer you will be able to get that.

Okay.

And your second question was regarding--?

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

Yes, I think there is a couple of things, and we talked about what was going through that other loss line. I think if you look at operational expenses, that's gone up a little from the lows of the second and third quarters, and I think a lot of that is just growth in that business, you added headcount. You talked a… you heard a little bit about some of the activities that that still has in the Individual Risk business, sourcing business. So we continue to make some investments there. So that's driving those expenses up a lot… up a little I should say. In terms of the corporate expenses, that’s ticked up a bit as well. As part of our settlement with the SEC, we are required to engage a monitor, an independent consultant. So those costs are reflected in there as well.

Okay. All right. Thank you for those answers.

Thank you. Your next question is coming from Vinay Misquith of Credit Suisse. Please go ahead.

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

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

Fair enough. Now, I heard on the call before that some more opportunities and ventures were been explored. Could you share with us some of these opportunities and whether we will see some of it in terms both of the ventures line?

Vinay, we can’t comment on deals that are in the process. I think it's just important to note that there is a continual flow there and we’d just like to know as things solidified that are of note.

Fair enough. And Kevin, if you could help us understand on the Florida [inaudible] being reduced, how would that really affect the insurers? [inaudible] that the primary insurers have a fixed dollar number that will be spend on Reinsurance. So how much of a benefit as it happened would it be for the reinsurers?

Yes, Florida is unique in the way that people purchase their reinsurance and I think a lot of what is purchased is based on the ratings that… the rate followings that they have and the structures that are available to them from the state. So we have seen increased purchasing out of Florida in addition to more FHCF being available. So reducing FHCF, I think there is some uncertainty as to how much of that would flow into the Reinsurance business. I think some… I think what would be revisited is potentially we are not a sideways cover that is purchased on the low end of the programs and potentially dropping from low rate and line layers further down in to sort of avoid a gap if some of the FHCF layers were to disappear. It’s probably the best guess as to how people would react.

All right. Thank you.

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

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

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