RenaissanceRe Holdings Ltd. (RNR) Q1 2012 Earnings Report, Transcript and Summary

Good morning. My name is (Naina). I will be your conference operator today. At this time, I would like to welcome everyone to the RenaissanceRe's First Quarter 2011 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 session. (Operator Instructions) Thank you. Mr. Peter Hill, you may begin your conference. Peter Hill – Investor Relations: Good morning and thank you for joining our first quarter 2012 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 from approximately noon Eastern Time today through midnight on May 24. The replay can be accessed by dialing 855-859-2056 or 404-537-3406. The pass code you will need for both numbers is 68232084. 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 July 12, 2012. Before we begin, I am obliged to caution that today's discussion may contain forward-looking statements and actual results may differ materially from those discussed. Additional information regarding the factors shaping these outcomes can be found in RenaissanceRe's SEC filings to which we direct you. With me to discuss today's results are Neill Currie, Chief Executive Officer; Jeff Kelly, Executive Vice President and Chief Financial Officer; and Kevin O'Donnell, Executive Vice President and Global Chief Underwriting Officer. I'd now like to turn the call over to Neill. Neill? Neill Currie – Chief Executive Officer: Thank you, Peter. Good morning, everyone and thank you for joining us this morning. After two years of severe catastrophe losses, the industry experienced its first period of low-to-moderate catastrophe loss activity during the first quarter. Our underwriting results reflected this along with improved risk adjusted pricing for our core product. We've reported operating income of $155 million for the first quarter and an increase in tangible book value per share plus accumulated dividends of just over 6%. Over the course of the last 12 months, we have been speaking on these calls of our expectation that conditions in the property catastrophe market would improve gradually and steadily. The pricing in terms we saw at the January first renewals bore out this view. Against the backdrop of a favorable environment, our whole markability to integrate science with sound underwriting judgment and to deploy risk capital efficiently allowed us to grow our book of business significantly. As we have many times over the history of our company, our strong technical capabilities, excellent customer relationships, and underwriting experience enabled us to provide coverage for our clients following large events while still building an attractive portfolio. At the recently concluded April renewals, we continued to serve our Japanese clients by remaining a stable source of capacity for them after an extremely difficult year. We did not back away from risk in Japan or any of the other regions that were impacted by the catastrophe losses in 2011. Rather we used this information gleaned from the event including local seismic stress changes post event along with our own internal assessments of risk and took steps to further sharpen our underwriting. Our underwriters have been at work for sometime now on the June/July Florida renewals, where we are seeing interesting dynamics at play. We continue to be encouraged by the latest initiatives in Florida with respect to reforming the property insurance market, reducing reliance on bonding and assessments and increasing risk transfer to the world market. We are hopeful that the Florida primary homeowners market is trending towards health after several challenging years. Kevin will talk about Florida in more detail in a few minutes. Outside of property catastrophe, we continued to position our specialty reinsurance franchise to expand meaningfully when market conditions improve. And our Lloyd's unit continues to develop business we would not have seen in Bermuda. Our Ventures unit has been active in recent months. As we announced earlier in the first quarter, we said of the sidecar vehicle, Upsilon Re to target the structured retro marketplace globally. Capital was provided by RenaissanceRe and third-party investors. We continue to meet with investors regarding opportunities to deploy third-party capital. The potential for new ventures will likely depend on the level of attractive business opportunities we see emerging during the June/July renewals. The work of our Ventures unit remains core to our strategy as these vehicles allow us to bring significantly more capital to bear for our clients, while earning us fees and profit commissions. Our investment portfolio benefited from the decline in credit spreads in some sectors, and a strong rebound in the value of our alternative investments. This was partially offset however by losses at REAL, our weather and energy risk management business, as the abnormally warm winter in parts of the U.S. and Europe persisted through the first quarter. Looking ahead to the remainder of 2012, we expect ongoing favorable market conditions overall. This should help top line trends. As always, we will remain disciplined in our underwriting. Our capital position remained strong. Our client relationships are robust and we are well-positioned to continue to grow our book of business in the right market conditions. With that, I'll turn the call over to Kevin. Kevin? Kevin O'Donnell – Executive Vice President and Global Chief Underwriting Officer: Thanks, Neill and good morning. The first quarter was typically quiet once we get past the January 1 renewals both in terms of renewals in loss activity. For the last year that wasn't the case in terms of losses. We are very pleased with the portfolio that we constructed this quarter. We achieved strong growth at January 1 and April 1 renewals and that positioned our portfolio well for the summer season. Going into January 1, we felt that an increase in the geographical diversity of our book of business, which serviced well and allow us to build a more attractive portfolio. I believe that even after adjusting for our updated view of risk, we achieved our objectives at this renewal and will enter this wind season with a portfolio that is superior to our portfolio of 18 months ago. As I discussed in the last call and really have touched on for the last several calls, we have been in an improving U.S. cat reinsurance market with pricing firming in each of the last four quarters. We saw another positive move in pricing this year and have been executing well improving the quality of our book and successfully deploying more risk capital. The Florida renewal is approaching quickly and we believe there are opportunities to increase business this year. It has been our view that we would see a slower move by re-insurers to adjust fully for the updated view of risk. And as predicted, we are continuing to see the effects of RMS version 11. Even though this model was released early last year, it appears that most markets are only now incorporating it into their risk modeling. As I have discussed before, not only did we adopt certain changes in RMS version 11 last spring, we had anticipated many of these changes prior to its release. This has positioned us well with our customers as we are ahead of the curve in understanding the effects of the new model on their books and have led the market dialog around the changed perception of risk. In general, as a result of model changes and other factors including the increasing awareness of counterparty credit risk, we expect another small step forward toward rates – improved rates on our book during the current Florida renewal period. We think there will be some new demand and our expectation is that supply will remain relatively flat resulting in what we believe will be an orderly market renewal. There is new demand due to reductions in the size of the cat bond, some specific increased purchases, and the ongoing effects of RMS version 11, but not all of this increase will transfer to the private market. Turning to international property now, last year was an active last year in the international property market and we are seeing price increases in loss affected regions. For example, at the April 1 renewal, Japanese earthquake layers became more attractive with rate increases on some programs in excess of 100%. And we are now writing more of this business. We have been working closely with our scientists to better understand how earthquake exposure in Japan has changed after the Japanese earthquake. It is our belief that there is an increase risk in specific areas in Japan and certain parts of the distribution and we have adjusted our pricing accordingly. Japanese wind is also firmed, but it's still not to the point, where we find the open market business attractive. We built some exposure in premium from Japanese wind risk, but it was largely from our retro ridings and some private layer reinsurance relationships. In Thailand, the post flood pricing was up substantially, but we struggle to find local Thai business reached our hurdle rates. Outside lost affected regions, prices were up, but disappointingly so. With regard to retro, the vast majority of our book renews at January 1, but what did renew post 11 was positive. Like what we saw with the U.S. primary market, we were disappointed that more post 11 purchasing did not materialize. We are a first-go market for retro and are well positioned to write more should demand pickup. Our specialty business is performing well and we are seeing good business a trend we anticipate will continue. While the long predicted turn in the soft market is yet to recur, some markets are becoming attractive. We are growing our quota share platform and expect it to continue to provide attractive terms. Our specialty book continues to experience low loss emergence, which adds to our comfort with our underwriting. Moving on to our Lloyd's syndicate, I am happy with the continued progress made by the team as they are now about two-thirds larger than at this time last year. With this growth has come improvements in both loss and expense ratios, we continue to build out their underwriting teams, which adds depth in existing lines and allows us to exploit more diversifying lines of business. It is likely that growth will slow on a percentage basis going forward as we now are working off a larger base. That said, we are seeing rate increases in our property business and are hopeful that the softening is not only soft in the casualty side, but will slowly start to improve over the course of 2012. Overall, we are very pleased with the progress today and the franchise we are building in London. Looking at our ceded portfolio, we remain active with our sessions from our assumed risk. These are at all forms from very traditional structures to private bespoke offerings designed to offer diversification to our counterparties. Additionally, we remain successful in attracting both mainstream markets and more diversified sources. I’d like to spend a few minutes on our Ventures unit now. So, as we have discussed in previous calls manages our joint venture partners and strategic investments. The group performed well in attracting new capital and enhancing the performance of our existing investments. They continue to bring us opportunities to marry attractive risk with efficient capital. The team is also responsible for managing our weather and energy portfolio through a very difficult season. As Neill mentioned earlier, we all had a large seasonal loss, which affected both the fourth quarter of last year and the first quarter of this year. As you probably recall from my comments last quarter, REAL provides mitigation products against weather-related events, such as temperature and precipitation for corporate clients worldwide. Given that our customers, our end users commonly utilities, we often sell them weather continued contingent energy products. In winter, we are generally protecting customers from unusually warm weather, and in the summer, we are generally protecting customers from unusually cold weather. As many of you may have seen or experienced, this winter was unusually warm across both the U.S. and the UK and we have provided protection for this warm weather. As stated last quarter, the REAL deals are seasonal. So, we remained on risk for this business through the first quarter of this year. Unfortunately, the warm weather not only continued, it got warmer. For many of our key markets, March was one of the warmest Marches on record. In fact, there were over 15,000 warm temperature records set over the winter making this winter the temperature equivalent of a catastrophe. The first quarter and the season as a whole were modeled appropriately and our results were within our expectations. We are actively reviewing the book to better understand and manage this portfolio. As with any laws, we will continue to improve our modeling and strive to have the most updated view of our risk. Going forward REAL is seeing a good flow of summer business and is continuing to invest in systems and distribution channels. Looking forward, I see we have a very strong portfolio and a great platform. I am very pleased overall with the way the quarter progressed and I am enthusiastic about our outlook going forward with reasonable opportunity to grow the book and to continue to pursue some rate increases. Thanks. I’ll turn the call over to Jeff. Jeff Kelly –Executive Vice President and Chief Financial Officer: Thanks, Kevin and good morning everyone. I'll cover our results for the first quarter and then give you an update to our 2012 top line forecast. The first quarter was a profitable one for RenaissanceRe due primarily to the relatively low catastrophe loss activity, a higher level of earned price increases, favorable reserve development, and strong investment returns. Top line growth was strong in the quarter as we benefited from improving market conditions in property catastrophe reinsurance and our strong market position there. The only significant loss activity during the quarter was the series of tornadoes in late February and early March which resulted in a net negative impact of $22 million on our financial results. As a reminder, the net negative impact is the net loss after accounting for net claims, reinstatement premiums assumed and ceded, lost profit commissions, non-controlling interest in joint ventures and our share of Top Layer Re losses. We did not make any changes to our loss estimates for large catastrophic events that occurred in 2011. And our overall estimate of aggregate net losses from these events has remained relatively unchanged from where they were originally booked. There still remains some uncertainty with respect to these events including the nature of contingent business interruption, some data and reporting complexities in some of the affected regions. Investment performance was very strong in the quarter benefiting from a declining credit spreads and a strong rebound in the valuations for alternative assets, especially in private equity. We reported net income of $201 million or $3.88 per diluted share and operating income of $155 million or $2.98 per diluted share for the first quarter. Net realized and unrealized gains, which accounts for the difference between the two measures totaled $46 million. The annualized operating ROE was 19.7% for the first quarter and our tangible book value per share including change in accumulated dividends increased by 6.3%. Let me shift to the segment results beginning with our Reinsurance segment, which includes cat and specialty, and then followed by our Lloyd's segment. In the Reinsurance segment, managed cat gross premiums written in the first quarter totaled $559 million compared with $529 million in the year ago period. Adjusted for $113 million of reinstatement premiums in the prior year, managed cat premium growth was 35%. This compares with our top line guidance of managed cat growth of 15% excluding reinstatement premiums for the full year. This includes $34 million of gross premiums written by our new sidecar venture, Upsilon Re, which is targeting opportunities in the structured retro market. The top-line growth was largely driven by hardening market conditions in the property catastrophe business as well as growth of our book as more opportunities met our return hurdles. As a reminder, managed cat includes the business written on our wholly-owned balance sheets as well as cat premium written by our joint ventures DaVinci and Top Layer Re and our current sidecar Upsilon Re. The first quarter combined ratio for the cat unit came in at 16.9%, the results included losses from the February/March tornadoes that hit Kentucky and Tennessee. These losses related primarily to regional covers we wrote that tend to attach lower down. Catastrophe loss activity overall through was relatively low. There were no meaningful adjustments to loss estimates for the large catastrophe events of recent years. The cat combined ratio also benefited from $35 million of prior year net favorable reserve development, largely related to smaller events that occurred prior to 2009. Specialty reinsurance gross premiums return totaled the $101 million in the first quarter, which was also meaningfully compared with $75 million in the prior year quarter. This is a bit above our full year forecast for top line growth of over 20%. The percentage growth rate for this segment can be uneven on a quarterly given the relatively small premium base. The specialty combined ratio for the first quarter came in at 60.4%. There was no meaningful large loss activity for our book during the quarter and the combined ratio included $12 million of prior year net favorable reserve development. In our Lloyd's segment, we generated $55 million of premiums in the first quarter, compared with $37 million in the year ago period. Growth in the segment was consistent with our full year top line guidance of up 50%. Specialty premiums accounted for most of this increase. The Lloyd's unit came in at a combined ratio of 95.6% for the first quarter. The results of this segment included $7 million of favorable reserve development which helped the loss ratio by 29.3 points. The expense ratio remained high at 59.3%, although we would expect the expense ratio to decline over time from this level as we continue to expand business volume written on this platform. Moving away from our underwriting results, other income was a loss of $39 million in the first quarter and a breakdown of this is provided in the financial supplement. As mentioned in the press release, this was primarily driven by a $35 million pre-tax loss related to REAL. As Kevin discussed, the loss arose due to the continuation of abnormally warm weather over the winter that we highlighted on the fourth quarter earnings conference call. Equity and earnings and other ventures was a gain of $6million. This was driven primarily by a $5million gain recorded that recorded for our share of Top Layer Re's results. Recall that Top Layer is a 50-50 joint venture we have with State Farm, whereby our partner provides a $3.9 billion stop loss in excess of $100 million retention. We also booked $1 million gain related to our stake in Tower Hill Companies. Turning to investments, we reported to net investment income of $67 million that was driven by a few factors. Our alternative investments portfolio generated again a $43 million gain. Performance was strong across our private equity, hedge fund, and bank loan and high yield funds driven by a rebound in valuations for these asset classes during the quarter. Recurring investment income from fixed maturity investments remained under pressure due to low yields on our bond portfolio and totaled $26 million in the quarter. The total investment return on the overall portfolio was 1.8% for the first quarter. Net realized and unrealized gains included in income totaled $46 million during the quarter. Our investment portfolio remains conservatively positioned primarily in fixed maturity investments with a high degree of liquidity and modest credit exposure. During the first quarter, we continue to reduce risk in our fixed maturity portfolio to some degree by further reducing our allocation to corporate bonds and to non-U.S. sovereign debt. At the same time, we increased our allocation to U.S. treasuries and short-term investments. Our current allocation reflects our outlook for a potentially uncertain economic and financial market environment. Our first quarter investment performance was strong than we anticipated and we would caution against assuming annualized returns at this level. While we like the way our investment portfolio is currently allocated, with the current level of interest rates and credit spreads, we could see some volatility around these levels and perhaps even periods were some of their return is eating away by either rate increases or spread widening. The duration of our investment portfolio decreased to 2.3 years from 2.6 years at the end of the year. The yield-to-maturity on fixed income and short-term investments declined slightly to 1.6%. The lower duration of the overall portfolio was largely the result of our increased allocation to short-term investments. Some of the allocation to U.S. treasuries in short-term investments is due to some funds being parked as we transition funds from one investment manager to another. So, both the duration and the yield on the portfolio could rise a bit as these funds are redeployed. Despite having deployed more capital to our underwriting activities, our capital and liquidity positions remained strong. As always, we will evaluate our options to deploy capital profitably in our underwriting activities and should we remain overcapitalized we will consider returning excess capital. As Neil alluded to in his opening comments, our Ventures team continues to speak with potential long-term investment partners about joint venture opportunities that could help bring additional capacities in the market. We have frequent dialog with investors looking to purchase a stake in DaVinci Re for our current ownership stake stands a 34.5%. We viewed DaVinci as a long-term vehicle that offers clients a balance sheet that is parallel to that of our own cat book. During the first quarter, we continued with a very modest level of share buybacks. We're purchasing $51,000 of a total cost of $3.6 million. The level of share repurchases for the remainder of the year will likely be determined by a number of factors, but especially our view in market opportunities and capital utilization as we approach the midyear renewals. Finally, let me give you an update to our top-line forecast for 2012. Keep in mind that there is considerable uncertainty around these top-line estimates given that the June and July renewal reasons are still a few weeks away. With that qualification, for managed cat we now estimate premiums will increase 20% and for the full year 2012 excluding the impact of reinstatement premiums. This compares with our prior top-line guidance for managed cat of an increase of up to 15% excluding reinstatement premiums. In specialty reinsurance, we are maintaining our forecast for the top-line to be up over 20%. And as we said on many occasions including this call, premiums in the segment can be a little uneven from – continue to expect premiums to be up 50%. We call this growth is off a relatively small premium base and we are in the building and growth base for this platform. Thanks and with that, I'll turn the call back over to Neill. Neill Currie – Chief Executive Officer: Thank you, Jeff. Operator, we are happy to accept questions now.

Thank you. (Operator Instructions) Your first question comes from Mike Zaremski with Credit Suisse. Mike Zaremski – Credit Suisse: Hi, good afternoon.

Hi. Mike Zaremski – Credit Suisse: I am hoping we can get a more color on how to size up and think about the real weather segment. Is that a book that renews on a quarterly basis or is the contracts that have been causing losses locked in for longer?

Mike, hi, it's Neill. Why don't I start off responding to the topic, and then I'll turn it over Kevin. It's interesting one of the things are look at with the losses we've incurred it real is a difficulty of growing a new business. Is it still a relatively new business for us and the value of having a good portfolio of business so, here at RenRe, we've been in business about 20 years and sometimes people say (ji), RenRe is pretty good at what they do, are they worth paying over book value for, I think this shows you the value of being around the while and putting together very attractive portfolio of business. So, with that, preemptory comment, I'd like to turn it over to Kevin. Kevin?

Great, thanks, Neill. Very simple, there is two seasons for that book. There is a winter season, which is really predominantly exposed in the fourth quarter and the first quarter may extend a little bit into the second quarter. And then there is a summer season, which is really the more the third than the second, but it's the second and third quarters. The two sets of deals are discrete from each other and we enter into most of our contracts to be single season deals. The overall risk that we take generally is significantly more in the winter than the summer. So, hopefully that's a good way to frame it for you. Mike Zaremski – Credit Suisse: Okay, okay, that helps. And second can you provide color on where the growth within specialty reinsurance is coming from?

Sure, it's – we've driven a little bit more quota share business as a component of it that in more specialty casualty lines. And in general we've been in success on some credit lines, but I would think of it more specialty casualty than traditional casualty. Mike Zaremski – Credit Suisse: So, pricing is getting better in those lines I'm assuming them.

Within certain segment, I wouldn't say across casualty I think it's were hopeful that it's going to get better, but within very specific lines there are few opportunities. Mike Zaremski – Credit Suisse: Okay. And lastly the growth pickup or slower at the April 1 renewal season versus 1Q.

I guess for the overall book, it's such a smaller percentage of our book that the overall growth on the book is a lower percentage, but we did experience pretty good growth at the specific deals that renewed at 41, but against the overall, it’s not -- it's just not that bigger piece of our book. Mike Zaremski – Credit Suisse: Okay, thank you.

Your next question is from Sarah DeWitt with Barclays. Sarah DeWitt – Barclays: Hi, good morning. First on the top-line growth and clearly plus 20% is a very good result, but why do you expect that to slow versus the first quarter given the opportunities that you are seeing, is that driven by rates or something else?

What renews now is really a Florida-specific book. So, I think it’s a little bit of apples and oranges as to what elements are available to construct your portfolio. And we’ve – looking back in the fourth quarter of 2011 when we are setting up our pro forma portfolio for 2012, we felt that increasing the diversity of geographical and diversity within the book was going to be a helpful in constructing the portfolio with the way, we thought the market was going to shape up. So, it’s really a specific portfolio shaping to us more than a market comment. Sarah DeWitt – Barclays: Okay. And then separately if we go through this hurricane season with no losses, could you talk about what your view on the sustainability of rate increases is?

I hope to be in that case I guess to think about that, but I think we'll be under there is excess capital in the market if there is no – if there is light hurricane activity I would expect that there will be increased excess capital. So, I would anticipate that, that would put pressure on rates whether it will drive rates down or flat or up at a lesser degree. I think it's something that’s harder to call.

Sarah, its Neill. I was the reinsurance broker for 17 years and I remember going through a loss free hurricane season and a client wanted a rate reduction on a top layer. I am saying you’ve gone through one season with out losses you want a rate reduction on something that's a 3% rate online, are you kidding? So, there is a little bit of human emotion that goes into a loss free year, but frankly there are more technical reasons that come into play that offset any emotional reaction to a loss free year. Sarah DeWitt – Barclays: Okay, great. Thanks for the answers.

Your next question is from Michael Nannizzi with Goldman Sachs. Michael Nannizzi – Goldman Sachs: Hi, thank you, Just a couple of questions on the Florida market. Can you kind of talk about the market there we have seen some releases related to Everglades Re on the supply side. I'm just wondering what the impact there is and then maybe a little bit more context on your comment on the demand side of the equation there and just one follow-up? Thank you.

Sure. I think there is a couple of things, one, you were seeing some positive movement in reduction in the FHCF, which is helpful and some other structural changes with the state provided reinsurance which will add demand to the private market. One thing that I think needs to be considered in thinking about that though is how much of that ultimately sticks private re-insurers compared to state – private insurers compared to state insurers. Our view is that a private – each dollar of premium like goes to a private insurer in Florida has more reinsurance associated with it than that which stays with the state. So, that will dampen the increased demand based on the reductions from the state provided reinsurance programs. As far as new people coming into the market you were in the midst of the renewal now. So, I think that’s more just of an expectation for the market, but its harder to read. Michael Nannizzi – Goldman Sachs: Great, thank you. And then just thinking about growth throughout the year, you are seeing some better opportunities or feeling better about June renewals. How capital intensive, do you expect that business to be and how much capacity do you have to write more kind of given you've written more already both from a peak zone and from a capital perspective?

Again, going back to what we – when we construct our portfolio for 2012 with pro forma of the full year included in that pro forma is our expectations to what we are going to change at the June and July renewals. So, we do have more capacity should the rates be sufficient for us to deploy it. Florida in general, Atlantic hurricane in general is among the most capital intensive risks to put on most reinsurance books, because it tends to be the peak user of surplus. So, with that it is expensive surplus to deploy ventures and you need to match it up against the rates they offer for the deployment. Michael Nannizzi – Goldman Sachs: And is growing DaVinci also an option, I mean, you mentioned taking your ownership stake down there. But is that another lever if you choose to exercise it in terms of grabbing more business that you like?

Yeah. I think one of the real benefits of the platform that we have is we have lots of different ways to match capital with risks and growing DaVinci, growing RenRe limited, as Neil mentioned to decide further we started, there is a lots of different options that we have and we look at the efficiency of the capital we have and deploy it best against the risk we desire. Michael Nannizzi – Goldman Sachs: Great, thank you very much.

Your next question is from Greg Locraft with Morgan Stanley. Greg Locraft – Morgan Stanley: Good morning and thanks. I wanted to just once again pursue the second quarter improvement in the supply demand equation you're seeing for Florida. I guess it's hard to size, but I'm trying to put dollars around the Florida market and the opportunities up there because as I look at it the book is about the same size as it was in 2009, it was the same size sort of last year or so or there about I'm trying to understand how big the market opportunity is growing and then lateral and whether or not you'll be taking share on that world. Is it sounds like – sounds like your – it sounds like you will? Can you put some parameters around that in terms of how big the market is growing for private re-insurers?

Yeah. I think – a couple of things I would rather talks specific and talk about the way we think about it. Is how much of the – is the private market growing relative to what's going to state insurers, I think it's the first part and then looking at, how the reductions in the FHCF, the LAC, and other programs. How much of that really sticks with the private market, is kind of the way that we break the roll down. So, I think when you extrapolate the macro changes that have occurred. The amount that actually sticks to the private market is significantly less than the reduction seen in the FHCF and LAC is this really the way we size it up so, there is an increase, but it's not one that I'd say is significantly – particularly large. Greg Locraft – Morgan Stanley: Okay, okay, good. And then on a separate topic just you – relative to your peers, I don't think there is another carrier on the planet that is taking this much market share, I'm just looking at first quarter results if you just look at the top-line growth in managed cat of 35%. So I guess just a general question, is your view with the world different than your competitors, maybe can you talk about how that’s one execute in a world where supply demand is changing the way it is. What is sort of propelling your market share gains right now vis-a-vie your competition.

Yeah. I think one is we – early before 11, we started the dislocation in retro. So, we grew our retro ratings pretty substantially components of that work is what Neil mentioned with our sidecar. Additionally, we have very strong relationships in some international markets and with the capacity that we have we were able to continue to build out some private layers within the international market. With the rest of the book at 11, we have a lower percentage of our book that renews in 11 in most of our competitors. So, being that we have a lower percentage of our book, the opportunity to deploy more there I think was greater for us then for some others as well.

Right, Greg. I would just had to this sort of taking of macro and the way companies operate and pressures on management interactions with boards and analysts such as yourselves. As we just have been through two years of a lot of losses in cat area and this management feel confident thus the Board have confidence in management to write more of a catastrophic exposure. We have to feel comfortable with the risk you are taking, I think some people after the losses said boy, I am not sure I want to increase my catastrophic writings. I think that happened with a few of our competitors and we remain quite comfortable with the risk attributes, some of the risk has changed in the world, but we were able to step up confidently to drive more business as things evolved. Greg Locraft – Morgan Stanley: Okay, great. And then one last one if I can, I mean it was a great quarter probably outside of the weather, energy business and I guess you mentioned some sort of the triggers for that business and how it works and I know it's an emerging platform. But what I am wondering is, is this book constructed in a way where we just took a catastrophe or effectively a catastrophe in the first quarter in that book? Can we see a gain or profitability of $30 million out of this unit in the specific quarter or is what sort of profit metrics can we expect in a more normalized return period for that book of business?

I think – we think about this book very similar to where we think about our reinsurance book and other books, where we are providing protection for extreme events to customers. And before that we expect to be paid a margin. The margin that we're paid though is really affect, is how much capital is being deployed and we see this book as adding a degree of diversification to the overall risk that we are taking. So, on a marginal basis, the returns are actually quite strong and on a standalone basis we obviously have a profit. Otherwise, we wouldn’t be in the business. The type of loss we had in the fourth quarter is certainly towards, moving out towards the tail of the distribution, so there – which we would expect from the extreme weather that we experienced. So, the upside would be more in the meat of the distribution as we would in a normal year. But it disclose specifically what we – our margin is in on any line of businesses, probably more detail and we're comfortable giving. Greg Locraft – Morgan Stanley: Okay. It just I guess what I am trying to understand is this like the reinsurance, I guess, it is like the reinsurance business analytically and I am just trying to understand is because you've effectively endorsed two quarters of a catastrophe in that world. Does that mean that this line item is going to grow significantly going forward from a profit contribution perspective?

Yeah. I think that’s a good question. I think we would look – we are coming into the summer season, which is a smaller season generally in the market and for our book as well. We are really going to have the opportunity to you look at the book as a renewal book for the first time coming this coming winter season. Greg Locraft – Morgan Stanley: Interesting. Okay, great. Well, thanks and congrats on the start to the year.

Yeah. Thanks Greg.

Your next question is from Josh Shanker with Deutsche Bank. Josh Shanker – Deutsche Bank: Yeah, thank you. Greg touched upon a number of my questions. Just one of you could touch upon the incidences that where the favorable development is emerging from and maybe talk a little bit about claims emergence from the 2011 catastrophes?

Okay, thanks Greg. In the – on the cat side of the ledger, we had $35 million of favorable reserve development. The vast majority of that was from smaller events predating I think I said in my comments 2009 or earlier. So, more than two thirds of the favorable reserve development in the cat book came from things prior to that. The remainder was related to smaller events in 2011, but virtually none of it related to the large events that occurred in 2011. The favorable reserve development that we had on the specialty book really derives from a review every year that we do have of our actuarial assumptions in the specialty business on initial expected loss ratios and loss development factors and that was the outcome of that review. And then sorry your other question was… Josh Shanker – Deutsche Bank: And so what are you seeing, although we are not beginning to touch in reserves, what are we seeing on claims emergence from the 2011 catastrophes?

Well, it depends. And the answer is a depends on the event and there is actually kind of a very wide distribution of things that we are seeing so – to take an event like the April and May tornadoes from last spring. Those have paid out over 50% of what we expect is our ultimate loss. So, something like that is paid out relatively quickly and significantly. By way of contrast, some of the earthquakes that we saw last year have paid out very slowly and one of the earthquakes is actually paid out reasonably quickly. So – and then something like the Thai floods which occurred late last year virtually – we have seen virtually no claims activity paid there. Josh Shanker – Deutsche Bank: And in terms of this is going to probably be a difficult one you guys have which don’t have the answer, that's fine. To what extent are you guys paid up on Hurricane Ike?

For the 2008 hurricanes we are about 85% paid out of what we anticipate is our ultimate loss. Josh Shanker – Deutsche Bank: Okay, thanks very much. I appreciate all your answers.

Yeah.

Your next question is from Doug Mewhirter with RBC Capital Markets. Doug Mewhirter – RBC Capital Markets: Hi, thanks. Good morning. I just had one kind of big picture question just trying to maybe help understand how you’ve shifted your portfolio that – your reinsurance portfolio that is. So, it looks like you I guess you expanded your appetite a little bit in January both because of favorable pricing and also that little more diversity help. So, and then also you sort of implied that in June that the market might be a little more finite, but there is still lot of opportunities and you could mainly grow the book through better pricing. So, could you give me an idea like in January how much of that expansion was due to taking on more risk, however, you might define it and how much would be expansion in the price per unit of risk, however, you might define it?

Yeah. That's a great question. And I think at the broadest level, the rate environment we think is very strong and as we have always done we grew into a better rate environment. When we think about price or return in capital, we actually think about it across the whole distribution. So, what we talked about is geographically we did write more business. We wrote a more diversifying book, which improved the efficiency and the return. So, within some specific areas, we did increase the risk we are taking to certain parallels and regions. Also, we were successful in adding some diversification across the whole distribution. So, in some areas we found more low layers out. We are attractive in other areas. We found more high layers that were attractive. Again, that improved the efficiency in the return of the portfolio. So, it’s really a combination of things that we are looking at as to what the portfolio – at the end of the day what the portfolio looks like and we’ve improved the quality of the portfolio as a whole, but to think about as a price increase or price change in any one region is inconsistent with how we manage it. Being that we saw more opportunity to build a more diversified portfolio we were able to add more risk capital to it as well. So, in general, we are paid more for the risk. We are certainly going to look to deploy more of our capital and that’s what we did, but it’s not in any one region it’s we improved the overall efficiency of the portfolio. Doug Mewhirter – RBC Capital Markets: That’s a fair answer. And if I heard you correctly, correct me if I am wrong, it does sound like that although I guess the Florida is a more finite market and you’ve actually been able to sort of nail down how it’s going to change that you actually do have the capacity and you actually can see a path towards even taking a little more risk in that area with all the caveats that you have explained in the first part of the answer?

Yeah, absolutely. And the one thing I would add as well is we included in the growth that we had a 11 as we took on more Atlantic hurricane risk in that platform, which we thought was adding efficiency of the portfolio, but we do have more capacity that we can deploy with all the right opportunities should the Florida market needed. Doug Mewhirter – RBC Capital Markets: Okay, thanks. That’s all my questions.

Your next question is from Josh Stirling with Sanford Bernstein. Josh Stirling – Sanford Bernstein: Hey, good morning. Thanks for taking the call. So, listen, two questions. One around your comments on RMS version 11, I just want to make clear survey, you sort of commenting on the slow phase adoption by scenes or whether there are sort of pockets of the reinsurance universe either perhaps, I know the European Lloyd's, cat bond investors, ILW funds of whether sort of systemically people who aren't using RMS11. And therefore, there is a little bit less of a frothy edge on the price firming, then perhaps people would have expected?

Yeah, I think it's been adopted differently in all segments of the market, I think in general that the comment I was making is last year coming into the Florida renewal. There was a feeling that it was both re-insurers and insurers didn’t have an opportunity to digest the changes so, most of the risk we saw was absent RMS11 view. This year is much more part of a dialog, but it's not – I wouldn't say it's been a specific adoption from RMS10, RMS11. There has been much more creativity in picking about blended models and interpretation just to how to think about the risk to someone has, but we are in the dialog certainly is RMS11. Specifically our view of it is we built our own models always have, RMS11 when that was released we did what we always do, which was we dissected the model and then pulled out the elements of the risk that we like. Over the course of the year, we've been having the dialog with each of our customers about the elements that we like in RMS11 and what they may see by endpoint some of those elements into the own risk. So, the bit of the mix, but I wouldn't say that last year's RMS10 for Florida and this year RMS11 is much more of a plenty of approach, but it's – it needs – it is part of the dialog, which last year was not. Josh Stirling – Sanford Bernstein: Yeah, that's helpful. I guess I m trying to just give a sense of do we think a story is largely played out or and we are now sort of a basis we are in the market – the reprising that might have occurred from a combinational view – greater view of risk plus increasing demand has already is completed whether or that something that you think is going to support demand or again sort of competitors sort of reprising over a some extended time period.

So, one of the things I think Neil has been talking about is the slow that we've been a hardening market over an extended period of time, I think with the Florida renewal this year we've completed the first cycle of that which is each renewal has in through the new model releases. So, with that, I think that part of the dialog will shift, that the one thing I reflect back on is my comments is we can surprise that there has been less increased purchasing from U.S. domestic carriers and then as a knock-on in the retro market. So, that shoe may still fall. And we may ultimately see that increased purchasing based on everybody's updated view of risk, but that's harder to tell at this point. Josh Stirling – Sanford Bernstein: Great. And that just waiting for the rating agencies to be more direct and prescriptive or do you think that there are still sort of an organic process of people kind of just digesting the numbers.

Yeah, I think rating agencies always play a component, people is thinking about structure and the reinsurance programs, but it's – I have to think it something more organic within each of the companies. Josh Stirling – Sanford Bernstein: Okay, great. Hey listen, I don't take much more time, but I just wanted to point out appreciate your disclosures on the real story and this was never obvious to me, but presumably you guys have gotten into the business, could you see effectively negative correlated with lot of your exposures especially down the Gulf where warm weather presumably drive losses, and I guess the question would be one is that sort of how you strategically think about, but also just if that's true given the number of scientist you guys on your payroll, do you guys have a view on should we expect one why that persist and drive in a greater frequency this summer.

I think, couple of questions in there so taking real firstly we look at real the same we look at all of our other businesses, we look at see that it is standalone profitable and then we look at see whether it's marginally profitable against the portfolio against the portfolio. The second analysis includes obviously correction with the other risks that we are taking. We believe that we don’t' believe we have a negatively correlated with our portfolio. So, we believe that there is a diversifying element of having that risk within the overall constructive or risk portfolio. The second question is really our view on forecasting and I think there – we are familiar with all the research about whether trends and increasing warmth and then weather that will ultimately mean that will be greater volatility. But that's really kind of a sign that is emerging and one which we are closely connected with, but now something that we would put out a specific opinion on. Josh Stirling – Sanford Bernstein: Great, thanks so much.

Your next question is from Vinay Misquith with Evercore Partners. Vinay Misquith – Evercore Partners: Good morning. Just a few quick questions, first is on the Upsilon Re, the $33 million is the first quarter most of the premiums are do you expect that to go on for the remaining year and do you expect that to continue next year or that is just a one shot deal.

Most of that premium will be the first quarter. Just by the nature of the type of risk that's in there, which the most of the retro premium is early January 1st. We do have capacity right more and then we continue to look for opportunities to write more into that vehicle. The second part of the question is really whether the vehicle persists into 2013. We are – we remained flexible to have it or not have it. But we are optimistic that will be able to deploy it other lease a same size in 2013. Vinay Misquith – Evercore Partners: Okay, that's great. The second question was in Florida and now just seems that the guys are pretty full up, but do you have a little bit more capacity to write more business to pricing rises. So, my question is what level of rate increase do you think in Florida is required for you to take up your exposures.

That's an account-by-account discussion and a layer-by-layer discussion. We don't think that the market has something that needs price or doesn't need price we look at it based on the exposures and how they changed for specific clients. One of the things that kind of reflecting back on before is many of have an increased fuel of risk because of model change, but the many have also changed the constructed their portfolio, which mitigates that and we take all of those factors into a fact when looking at it. But it really is a client specific answer, not something we look at for our market. Vinay Misquith – Evercore Partners: Okay, great. And then finally on the share repurchases, given what the guidance is for the top-line growth. Do you think it will be able to do some further share repurchases for the rest of the year?

So yes, Vinay, we do our current assessment of our capital position would indicates a fair amount still of excess capital and we will consider share repurchases over the course of the remainder of the year. Vinay Misquith – Evercore Partners: Okay, that's helpful. Thank you.

Jay Cohen – Bank of America/Merrill Lynch: Thank you. Question within the Lloyd's business and you may have mentioned as I missed it, but the net to gross went down quite a bit there, what's going on there, what's we expect for the full year.

I think the net to growth is we are not changing our strategy there, I think that the books become a little bit bigger. We will purchase a little bit more. But it's not something that we are going to look to have it run with a significantly different seeded strategy than what we've had to-date except for managing it against some of the Lloyd's criteria, which really only comes into play at the books become a sufficient size. So, overtime, a greater percentage it will have an increased session, but it's really kind of be in the context of the Lloyd's capital framework, but it's not a strategy shift. Jay Cohen – Bank of America/Merrill Lynch: Okay, no big change, thanks Kevin.

Okay.

(Operator Instructions) Your next question is from Ron Bobman, Private Investor. Ron Bobman – Private Investor: Hi, (indiscernible). I had a couple of questions. I hope you'll be patient with me. You comment on the pay to encourage actually difference on the quakes in 2011, I assume New Zealand is the quick pay and Japan is the slow pay. Also what our magnitude for each of those at pay to incur, obviously correct me if I'm wrong in my guessing?

Yeah, actually you are wrong in your guessing. Yeah, our paid – level of paid claims on the New Zealand quakes to this point is actually much lower than the Japan quake. Ron Bobman – Private Investor: That’s extent to the relative ratio you will give us.

Well, I would – to this point our guess, not our guess, but our – what we have paid out on the Japan quake exposure is nearly half of what we estimate to be our total incurred loss there. New Zealand is probably 20% of that or less. Ron Bobman – Private Investor: Okay, thanks. Moving along, the weather business, are those exposures, are those contracts supported on your main balance sheet or is there a special capital identity?

Yeah, there is -- we did put some guarantees out, those guarantees come from holdings, but they are finite. We are writing on the guarantee we are not yet closing the balance sheet we are just closing guarantees from the balance sheet. Ron Bobman – Private Investor: Got you. And then like you said the guarantees themselves are also limited in specific, I guess, dollar amounts or contract limits or something like that?

That’s correct. Ron Bobman – Private Investor: Okay, thanks. You made a mention I think Kevin did about the – or someone did about the sort of uncertainty, I think it was in discussion which relates to the Thai flooding. And I was wondering in the early days of the Thai flooding, there was some discussion as to sort of qualifying the losses, one event to multiple events, and maybe there are other elements to sort of raising questions as to which losses would be aggregating towards a retro cover. So, I was wondering if there is any level of disagreement between your counterparties and rent with respect to the Thai covers that you've written as far as losses that are allowed to aggregate or eligible for coverage for the coverage issue written?

Yeah, I think we are certainly aware of that is the market dialogue. Most of the exposure that we have from the Thai losses really comes from our retro writings and due to the retro contract not having an hour's cost, there is strong support that it's going to be one event from a retro perspective. At this point, we don’t have any disagreements with any of our counterparties on that. Ron Bobman – Private Investor: Okay. And I think my last question is Florida – the Florida primaries, I guess already private, but any of the Florida primary that right facing higher reinsurance costs, but at the same time getting more primary rate. Are they – Kevin, do you estimate that their 2012 underwriting margins have widened, stayed flat versus '11, any sort of thoughts on their margin? Thanks.

I think there is a – that's a hard one to answer frankly, because the system in Florida between the managing agent of Florida company re-insurers and then attritional losses has moved around quite a bit. So, going back, the primary insurers had faced increased attritional losses from sinkholes which is something that we didn’t really foresee. So, I think they are building a platform obviously with better rates to have more sustainable better margins, but it's such a complex system. I think really we need to look at on each account basis, look at the percent of premium for reinsurance expenditures and all, then how much is moving among the different entities within the Florida. Each Florida private companies own holdings meaning between the insurance company and the managing and the… Ron Bobman – Private Investor: Right now, I was sort of thinking on a collapse basis, were you consolidated all of their service companies in effect, is that enterprise that consolidated group has fine cover, but has part of it, the services, you think they are running in place or you just don’t know?

Part of it is going to depend on what happens through this renewal, but compared this March to last March they are better positioned strictly from reinsurance cost effective, because they've gotten rate increase. The other components of their book have moved which are adds complications to that. We look at this on each account that we renew, because being with the dynamics in Florida we gave each company a credit rating, so that we can manage the credit risk we’re taking for premium. But it is a pretty complicated analysis. Ron Bobman – Private Investor: Thank you very much. I appreciate that help and best of luck. Neill Currie – Chief Executive Officer: Well, operator, it looks like we have gone over our time slot by a measurable amount. And I don’t believe there are any other questions in the queue. So, with that, I just like to thank everyone for being with us this morning and look forward to updating you next quarter on how things went June and July. Thank you very much.

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.