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RenaissanceRe Holdings Ltd. (NYSE:RNR)

Q4 2008 Earnings Call

February 12, 2009 09:30 AM ET

Executives

Peter Hill - Investor Relations

Neill A. Currie - President and Chief Executive Officer

Kevin J. O'Donnell - Senior Vice President of RenaissanceRe Holdings Ltd. and President of Renaissance Reinsurance Ltd.

William J. Ashley - President and Chief Executive Officer, Glencoe Group Holdings Limited

Fred R. Donner - Executive Vice President and Chief Financial Officer

Analysts

Vinay Misquith - Credit Suisse

Jay Cohen - Banc of America-Merrill Lynch

Terry Shu - Pioneer Investment

Operator

Good morning. My name is Crystal and I will be your conference operator today. At this time, I would like to welcome everyone to the Renaissance Fourth Quarter and Full Year '08 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. Hill you may begin your conference.

Peter Hill

Good morning. Thank you for joining our fourth quarter and full year 2008 financial results conference call. Yesterday, after the market closed, 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 1 PM Eastern Time today through February 26 at 8 PM. The replay can be accessed by dialing 800-642-1687 or 706-645-9291. The passcode you will need for both numbers is 79903761. 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 23, 2009.

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 these factors shaping these outcomes can be found in RenaissanceRe's SEC filings to which we direct you.

With me to discuss today's results are Neill Currie, Chief Executive Officer; Fred Donner, Chief Financial Officer; Kevin O'Donnell, President of Renaissance Reinsurance Limited; and Bill Ashley, President and Chief Executive Officer of Glencoe Group Holdings Ltd. I'd now like to turn the call over to Neill. Neill?

Neill A. Currie

Thank you Peter, good morning everyone. In the year which featured the deepest financial market prices that most of us have ever seen and which like to num with top three for industry catastrophe losses, RenaissanceRe have seen strong underwriting results in a drawling attractive portfolio of business.

Our prudent risk management which underlies all that we do enabled us to avoid some of the more high portfolio upsets experienced by part of the industry, leaving us with a strong balance sheet and a strong capital position. This allowed us to continue delivering outstanding service to our clients and importantly places us in an ideal position to capitalize on improving market conditions in several segments of the business.

We then fit not only from the strong capital position of our wholly owned companies but also of Top Layer Re and the DaVinci Re for whom we also underwrite. The combined capital resources of these companies including our stock loss protection within Top Layer Re is in excess of $8 billion and all of these companies enjoy strong ratings from Standard & Poor's and A.M. Best, a testament to the consistency and success of our products, even at a time of great turmoil.

Top Layer and DaVinci are long term partnerships, in fact we just celebrated our 10th anniversary with our partners State Farm and Top Layer Re and DaVinci was the first new company that we started in Bermuda after 9/11.

This total capacity enables us to punch our way if you will in the marketplace. During the soft market conditions that prevailed early last year, we continue to built our franchise, identify opportunities and invest for the future. We extended our capabilities organically, made select acquisitions, and also made some important high caliber hires. These new capabilities have been integrated into our organization and are already generating important new business opportunities.

We did however sustain losses in our investment portfolio as result of the extraordinary dynamics of the financial downturn. This was the first year of negative investment returns in our history and the primary driver of this result was our moderate allocations to high-yield private equity and hedge funds. Our own personal philosophy has always been and continues to be to prioritize the preservation capital, liquidity, and diversification of risk and a large majority of our investments consist of highly rated fixed income securities. Our focus in investing our assets continues to be to support the underwriting risks we assume in our core businesses.

And certainly the dislocation in the capital markets is creating very attractive opportunities to grow our book while also making it more expensive to bring in new capital. Companies continue to seek ways to reduce their overall risk profile and so the reinsurance markets is an attractive alternative to accessing the capital markets.

The strength of our balance sheet, the strength of our relationships, and our infrastructure position us well to meet our clients needs. Kevin, Bill, and Fred will now provide more detail in each of their areas. Kevin.

Kevin J. O'Donnell

Thanks Neill and good morning everyone. In most years typically the renewal season starts quite early in September with discussions with our customers and the picture becomes clearer as we approach January 1st. This year was different and that the world changed drastically since these early discussions and correspondingly price expectations in the reinsurance business changed dramatically.

There are many drivers to the hardening of the market, including I can do stuff, but the most profound impact is coming from the overall financial crisis. As we discussed on the last call the market force is curbing supply and increasing demand are the same and that companies want to manage their risk down to reduce the probabilities that they need to access the capital markets.

The buyers are buying more and sellers are selling less. Having supply and demand move in our favor at the same time is a unique situation for this market. More typically as demand grows, capital flows into the business, through equity raises from existing players, side guard's hedge fund retro participation, and startups.

In more specific terms we saw an increase in the overall U.S. market of approximately 10% and an increase in premium paid per dollar of limit purchase. Interestingly almost all of this growth was in the fourth quarter. The changes in price was not uniform with hurricane exposed limits increasing more than other non-hurricane exposed limits and low weight online layers we see the greatest percentage increase in rate.

Outside the U.S. for us the biggest influence on our exposure and our measuring up the market was the exchange rate. So even holding original currency limits flat, we'll be down particularly in euro and pound contracts. Finally actually it is hard to classify is that it was a highly tangible market. The terms as well as price change made macro year-on-year comparisons difficult. It is fair to say however, that we saw significantly more of the retro that we would like to sell.

Moving over to specialty, we had a good one-one renewal and grew this book of business. It's difficult to classify the growth in any one area as we had success in several lines of business some of which are existing lines for us others are new lines. Although we found some new opportunities to increase the size of the book, we believe that the specialty market is lagging the prices changes we are seeing in the U.S. and retro cat markets. The main reason for this is that the primary casualty market has not moved yet.

With the financial crisis and the prospect of increasing cost we expect it to change over the next 12 to 18 months. We continue to exercise discipline first and foremost and are seeing a healthy flow of new opportunities. In addition to the growth that we achieved I am very pleased that we also increased the efficiency of our portfolio by adding diversifications on the invoice book. Additionally we increased our purchasing as we built our book for 2009, which added to the improved efficiencies as well as improving our expected returns of the portfolio.

I think we have a good pulse on the dynamics of the market and we have been able to quickly identify these opportunities presented by the dislocation. More importantly we've been able to capitalize on these opportunities due to our integrated understanding of capital and as Neill mentioned on our long standing relationships and over our market reputation. Thank you, I'd like to turn the call over to Bill Ashley.

William J. Ashley

Thank you Kevin. Good morning. We're pleased to receive an upgrade from A.M. Best for A- to A for the Glencoe Group, in the last few weeks. This upgrade is important to our customers given the slide to quality and security in today's market conditions. It also testimonies for our results, solid management team, and superior risk management as part of the Renaissance group of companies. Despite experiencing multiple hurricane events during 2008 including Hurricane Ike, and extremes in commodity price volatility, I'm happy to report that we produced an underwriting profit that was well within our expected results for the year. Our agriculture business was profitable for the year and within our expectations for the long term average.

We believe the ability to make better decisions to data mining and utilization of the meteorological resources within the Renaissance organization are having a positive impact on our expected results. Our integration plans for our acquisition Agro National are doing well and we are on target within our growth plans for the supporting segment of our business.

We are starting to see signs that the primary commercial property market maybe beginning to harden. Brokers and agents are starting to find it difficult to place lines fully due to capacity constraints. There have been some requests to cancel and reiterate the change effective dates ahead of primary insurers to test recover renewals. There exists more concern in the market than we have seen prior, over credit quality and two larger line placed with single carrier.

The development of unique technology and hiring of key personnel and support teams over the last several months, including our two acquisitions will enable us to take advantage of additional profitable business when the pricing is right. We've spent the last several months building out our own capabilities and are preparing ourselves for what may become a very interesting market in the future.

There are some indications that the patterns of price changes for commercial property business, and hurricane exposed critical catastrophe areas are following same patterns since 2006. It is early days and we're monitoring the market conditions carefully.

There is little more uncertainty in our 2009 premier projections than usual considering the potential for hardening market and due to the continuing volatility of commodity prices for corn and soybeans. Given today's commodity prices, premium charged per unit of revenue coverage are projected to be down 10% to 20%. However, we still expect to have a net growth of agricultural premium for the year.

With our upgraded ratings, strong balance sheet, comparative systems advantage, and our recent build out of internal capabilities, we believe we are well positioned to take advantage of additional opportunities this market may presents to us. And thank you. And I'll turn the call over to our CFO, Fred Donner.

Fred R. Donner

Thank you Bill and good morning everyone. On today's call I'd like to cover four topics and I'll provide you with highlights from the fourth quarter and full year results, and give some further detail on our investment portfolio and results. Then I'll provide some insight to our current capital position and I'll close with an update on our top line forecast for 2009.

We'll begin with the highlights. As you heard Neill mention, our strong underwriting results this quarter were always shadowed by disappointment in investment returns as a result of the turmoil in the financial markets.

Our annualized operating return on equity was 4.8% for the quarter and 7.4% for the full year. For the quarter, our book value per share remained relatively flat down less than 1%, and for the full year our book value per share declined by 5.6%. But about 5 points of that decline comes from the share repurchases we made towards the end of the year.

As we mentioned on the last call, given the opportunities we've ensued to deploy capital, we discontinued our share repurchases late in the second quarter of '08.

In terms of underwriting results for the quarter our combined ratio was 36% resulting from a low level of cat events during the quarter and favorable loss development. Gross premiums written increased in both of our segments. In our reinsurance segment, gross premiums written was up $27 million, a $35 million increases in our cap unit driven by a combination of new business and early renewals of existing business, was offset by a $9 million decline in our specialty unit.

Our individual risk business premiums increased about $15 million over the prior year primarily from an increase in our agro premiums resulting from higher relatively commodity prices in 2008 versus the prior year. Our loss ratio for the quarter was just under 9%, which includes $104 million of favorable loss development, which benefited the loss ratio by about 32 points.

I'll give you more color on that in a minute, but I want to make to two points regarding our claims reserves. First, we made no change in our current reserves for hurricanes Ike and Gustav and continue to be comfortable with the estimated losses we've reported at the end of the third quarter. Our robust reserving process took into consideration the depth and breadth of the storm and we didn't have any significant culture of energy exposure.

Second, after reviewing our exposures in light of the financial markets crises and we established approximately $15 million of reserves for potential losses that might emerge from the mid-off related matter.

Moving on to the full year results of our business segments, starting with cap unit of our reinsurance segment. Managed cap premiums on a normalized basis declined about 4% versus prior year. To derive no loss premium I am backing out $58 million of reinstatement premiums related to Ike and Gustav that we recorded in 2008.

Our cat unit combined ratio came in at 69%, versus 35% in 2007. 2008 results include $378 million of underwriting losses related to Ike and Gustav, which added approximately 60 points to the full year combined ratio.

Favorable development on prior year losses was a $132 million of which $83 million resulted from a review of our reserves relating to the 2005 hurricanes in the fourth quarter. The net positive impact from this development was $46 million after consideration of reinstatement premiums and minority interest intervention.

Specialty gross premiums written were approximately 44% versus the prior year. The decline principally reflects the impact of one large quota share contract, than we originally run in 2007 knowing it was not likely to renew the original terms and that we were meeting 2008 at a lower participation percentage and more premium volume. Our specialty unit generated combined ratio of 68% as compared to 75% in the prior year, a little better than last year, as last year's results include a large number of losses.

Individual list premiums were up 6% over 2007, principally due to a $94 million increase in the company's multi-peril crop insurance business resulting from higher commodity prices. This growth was offset by our decision to terminate one program and continuing softening the market conditions during 2008, at our commercial property book. The individual risk combined ratio come in at 98% versus 89% the prior year. This was driven by a higher level of losses resulting primarily from $40 million of underwriting losses from the hurricanes this year, which added 8 points to the combined ration for the year. Expense ratio was down from 38% to 31% which reflects a change in our business mix due to an increase in multi-peril crop business. This business carries a lower net acquisition expense ratio than the other lines in our individual risk segment.

Turing to investments, the total return on our investment portfolio was negative 1.7% for the quarter and negative 2.4% for the full year. It did contribute to the poor results for our investments in private equity, hedge funds, and senior secured bank loan funds.

To give you a sense for the returns this year, private equity funds negative 28%, hedge funds returned to negative 17%, and the bank loan funds returned to negative 27%. It was a difficult year, however, we look at these investments over a longer term and while these sectors have performed well for RenRe historically we will expect these allocations to reduce over the near term, while we develop more clarity as to how to the current economic crises will play out.

One item worth noting that in the past we recorded a portion of our private equity funds on one quarter lag. This quarter we used our best efforts to bring the entire portfolio current to date. We continue to enhance the disclosures of our investment portfolio. We provide additional detail on our press release which highlights some of the changes we have made in the portfolio during the quarter. To keep take away this quarter, is that we have repositioned our fixed maturity portfolio reducing our exposure to non agency mortgages and asset backed securities and increase their allocation to cash, agency debt and FDIC guaranteed bad debt.

While we believe we have taken some of the mark-to-market volatility and of the portfolio, it also resulted in shortening our duration to 1.5 years and reducing our forward yield.

I might also note our accounting policy on other than temporary impairments and its impact in the quarter. We recorded $66 billion of OTPI principally from a widening of credit spreads. Our process is that we recognize principally broad fixed maturity investments available for sales that are in an unrealized position. That is we take the unrealized loss through net income as a component of realized losses.

As Neill mentioned we remain in a strong capital position and continue to have ample capital. We met our capital adequacy by considering several factors including our internal risk test, rating agency test, as well as the capital resources that we have at the holding company that we can deploy into our operating subsidiaries.

All of these indicate ample capital. Also in January we increased our ownership in DaVinci to 37.6%, up from 22.7%. Overall, we continue feel comfortable that from the capital perspective we are well positioned as we move into 2009 to take advantage of the market opportunities.

I'd like to close with our expectations for 2009 and as you heard Kevin mention we were very pleased with our strong January renewals. Our managed cap renewals were up about 15% year-over-year. Last quarter I indicated that we expect to be up about 10% for the full year on a normalized basis. From the January renewals we're little better than expected based on where we are today and now expect our managed cap premiums to be up 15% for the full year.

There is no change to our forecast for specialty and individual risks, for specialty we expect to be up about 20%, and individual risk we expect to be flat. As you know there are number of significant moving parts that can cause these forecast to change. This is particularly true given the present substantial economic uncertainty in the U.S. and world markets and a fairly turbulent conditions in our industry. More than that our top focus is on discipline and execution. And with that I will turn the call back over to Neil.

Neill A. Currie

Thank you Fred. Operator we're happy if you can call up for questions.

Question-and-Answer Session

Operator: (Operator Instructions). Your first question comes from the line of Vinay Misquith with Credit Suisse.

Vinay Misquith - Credit Suisse

Hi, good morning. First question on the guidance of the managed cap premiums up 15%. Curious how much of that is units versus growth? And the second question would be how much of capacity do you have to grow a bit do you have more capacity to grow your property cap business this year versus last year?

Neill Currie

Cap growth I think is something that is very much driven by what the market is presenting. We saw the U.S. primary market grow which created some opportunity as per its growth to deploy more into that market and then the area where we thought a substantial dislocations in the retro market where the retro book is about as large as it has ever been and one of the benefits of our writing the retro the way we write it is, it helps us diversify our book, they will make their overall portfolio more efficient.

As far as our capital, we do have and we told our brokers going into the renewal season that we had capacity to grow at 1-1 because we had excess capital. We believe that we still have capacity available to deploy so going in to the upcoming renewals for Florida, Japan whatever else is coming up. We will deploy more capital in to the market.

Vinay Misquith - Credit Suisse

In terms of the guidance at 15%, would you say that most of it is from a higher pricing or would you also say that it's from unit growth?

Neill Currie

That is a difficult thing to classify for a couple of reasons, I think one of these is we definitely have taken more aggregate into the balance sheet but the way we've done it is, we haven't increased the amount of required capital to support the portfolio that we have been able to diversify our book. In previous calls to talk about vertical diversification and horizontal, horizontal is more geographic diversification. We definitely achieved that at 1-1. We achieved some vertical diversification with I say the, vast ponderous (ph) of our growth through the horizontal diversification. So, although we were putting out what I would say is more aggregate, the over all efficiency of the portfolio was greater because we had more diversification. The other thing is we definitely had that sort of growth, the other sort of growth we had as we are getting more premium per dollar of limit we are putting out particularly in the U.S. So, we had rate increases on the business as well, so it is just a little bit of both.

Vinay Misquith - Credit Suisse

Fair enough and your increased investment in DaVinci, how should we look at that in terms of risk?

Neill Currie

I am sorry, can you repeat that.

Vinay Misquith - Credit Suisse

Your increased investment in DaVinci, I think its now about 37.6%, versus roughly 20% last year. How should we look at that in terms of the risk reward, obviously it gets a higher return, this year should things be fine, but how should we look at it in terms of risk? That will increase your risk profile this year versus last year?

Fred Donner

We managed the DaVinci portfolio with the same kind of robust profits that we managed the RenRe portfolio, the difference being that not all the business that is in RenRe is in DaVinci. Anything that's in DaVinci is already in RenRe. So the way I would probably think about the investment in DaVinci is that we're able to deploy more capital into the property tax areas directly through our investment in DaVinci where we -- as we're putting more money into Renaissance we're investing more into diversified portfolio than Renaissance will be able to achieve by riding the specialty lines and some non-DaVinci lines in the property cap market.

Vinay Misquith - Credit Suisse

Alright, fair enough. One last question is on the individual risk. What would be your target combined ratio on this business; historically it's been low 90s, this year we had about 98%, just curious what the guidance is for the future? Thank you.

William Ashley

The targets really haven't changed, I mean obviously the softening market. It moves around from 90s to low 90s. The 98% you're seeing as Fred mentioned, 40 million or eight points of that was directly related to catastrophe losses, net losses during the year. So, we really haven't changed our mind on appropriate targets for that.

Vinay Misquith - Credit Suisse

Thank you.

Operator: Your next question comes from the line of Jay Cohen with Banc of America.

Jay Cohen - Banc of America-Merrill Lynch

It's Banc of America-Merrill Lynch. Several questions, I guess first on the capital. Have you explored other options, you guys in the past have been very good about finding other capital options and vehicles when opportunities do arise, has that been a big issue for you guys to explore at this point?

Fred Donner

Jay, this is Fred. We're always exploring other options for our capital. Whether it's bringing additional capital on to DaVinci, whether it's establish sidecar, whether its using retro's capital, whether it's cap funds there is lots of different things we look at, we're looking at lots of different sources today as well. There is still opportunities to raise capital today, it is a little different than it's been in the past. It's obviously little more expensive. But, certainly based upon what we're seeing, while we don't believe we have to go out raising the capital. Today we feel very comfortable with our capital position. And in addition we feel comfortable that we can continue to grow with our current capital position. Ahead we -- if we need to go out and raise capital, I feel pretty good that there are some sources available to us.

Jay Cohen - Banc of America-Merrill Lynch

That's great. And the second question. I think it was about a year ago you added to your reserves, the clash side because of the potential crunch in the credit crises. Two questions, have you other than the mid-off reserve addition, have you added more to those reserves and are you beginning to see any claims activity at all?

Neill Currie

We're first, let me answer the first part of that question. We hadn't made any significant changes to those reserves. We're still comfortable with the amount we put out which was approximately $60 million last year. There continues to be some notices coming in, but there is not a lot of activity yet in terms of co-tangent payments relating to those exposures.

Jay Cohen - Banc of America-Merrill Lynch

Okay. Thank you.

Neill Currie

Next question operator?

Operator: Your next question comes from the line of Terry Shu with Pioneer Investment.

Terry Shu - Pioneer Investment

If you could give an update on the Florida situation about the general market conditions and any kind of political or regulatory update that's my first question?

Neill Currie

Hi, Terry it's Neill.

Terry Shu - Pioneer Investment

Hi Neill.

Neill Currie

I will start off. Alright Terry. Then perhaps Kevin, you can give some color if you like. Florida is a very fluid situation. There has been a commentary in the press recently about the possibility of changing the structure to Florida hurricane cat funds. There is some good ideas floating around out there, we've been part of a dialogue. I'll just say that when we looked at everything that we can help in Florida.

We have been working with them for seven years now and we'll continue work for it. So if the structure changes to the bigger co-insurance or they decide to dropdown, we'll continue to walk around and win the Florida hurricane cat folks. Kevin do you have anything to add to that.

Kevin O'Donnell

Yes, I think one of the things that Florida has to talk about in the quarter is the large market for us and I think that Neill is absolutely right that we are fully aware of the proposals that have been put forth on a regulatory changes. I think your second question, which I'll talk more about is the rates in Florida. And then it's really kind of an integrated situation between what's going to change from a legislative process if anything and then what's going to happen on the rating side.

So with most of the renewals coming up at 6-1 and 7-1 there really isn't a lot of price trends down there as to what the market is going to do and with the uncertainty as to whether there is going to be changes to the amount of SHCS (ph) coverage provided or how much private reinsurance is going to be needed. It's difficult for us to have a full picture as to what the rates are going to do. But I would suffice it to say that we are about as well first on the topic and as Neill mentioned we are part of the dialog. So as things develop we should be very well positioned to determine how the market is going to change in response to anything that comes up.

Terry Shu - Pioneer Investment

But generally speaking, you find it a very attractive market for RenRe?

Neill Currie

Historically yes.

Terry Shu - Pioneer Investment

Right and any proposed changes, you don't see your relative position change a lot. Is that a fair way to look at it?

Kevin O'Donnell

I think it depends on the change to be perfectly honest. I think whatever might change there could be some real benefits with additional reinsurance purchase on private market where other things -- it is too early to tell kind of what would ultimately materialize down there.

Terry Shu - Pioneer Investment

If you can also elaborate on the comment that the -- having the highest amount of retro session business that you have had at the current time, you said you have been able to achieve greater I would assume horizontal diversification, so it's more geography?

Neill Currie

That's, I think the way we have we typically rate the retro book on a ex-U.S. basis so not including the United States and the reason we do that is to help us diversify our book. We find that we have this penetration into the U.S. primary cat market and we have good penetration to the international primary cat market but the way we measure our capital we look at kind of the best area's to deploy whether it be even individual risk or U.S. primarily retro and we will make determinations as to how to allocate into those markets based on how much capital they were using by deploying into them. So with that a lot of the retro that we rate is on a non-U.S. basis helping to diversify the book geographically.

Terry Shu - Pioneer Investment

Can you talk a bit more about the international markets, are there are still many areas where rates are not quiet attractive and any movements there?

William Ashley

Yeah, I think the -- it is hard to talk about that market as one thing because its --

Terry Shu - Pioneer Investment

Right.

William Ashley

Because each area is different.

Terry Shu - Pioneer Investment

Right.

William Ashley

I think if you look at the UK there has been some model changes around some of the perils within the UK markets. I think knew you I think you might even say that the UK total limits purchased are down in regional currency. That will be amplified in a dollar basis. But correspondingly Europe is probably up slightly so we need to kind of talk about it by region. The way we kind of think about the world is with adequate return market, a low return bucket, and a negative return bucket.

Terry Shu - Pioneer Investment

Right.

William Ashley

And on the international side, looking at it on a very macro basis, the allocations into each of those three buckets is about the same in 2009, as what we saw in 2008.

Terry Shu - Pioneer Investment

Okay. Thank you.

Operator: Your next question comes from the line of Jay Cohen with Banc of America and Merrill Lynch.

Jay Cohen - Banc of America-Merrill Lynch

These Australian wild fires and the storm in Europe well I forget the name of it, top my head. Can you talk about your potential exposure and if you have any sense what the magnitude of the industry loss could be for both of those events?

Kevin O'Donnell

Yeah, I think there has been a couple of storms in Europe. I think the one you are probably asking about is Crouch (ph). Crouch is one which is actually pretty broad range on industry estimates at this point, and it's very early days. But, I think the range is probably from what we have seen people reporting it is about 350 million industry loss to potentially the biggest is 2 billion. Our participation in event like that'll probably come from our retro book and I wouldn't expect although its way too early for us to make a determination, I wouldn't expect it to be that material to us. As far as the Australian wild fires, I think we've seen estimates in the range and again this is very early days of about Australia 500 million for insured loss and possibly as much as 2 billion economic loss.

From RenRe's perspective, we have a different view of the non-major perils in Australia, so not typhoon and earthquake but wild fire, hail, and some of those perils which has precluded us from writing the lower layers of cat programs, typically in Australia. So I would expect that this wild fire will probably attach some of the lower layers within Australia but that probably is not a big impact to us because of the difference on how we look at the non-critical cat expected loss for those layers.

Jay Cohen - Banc of America-Merrill Lynch

Those are helpful comments. Thanks Kevin.

Kevin O'Donnell

Great. Thanks.

Operator: (Operator Instructions). Your last question comes from the line of Vinay Misquith, with Credit Suisse.

Vinay Misquith - Credit Suisse

Hi. Thanks. One follow-up on the guidance, once again the 15% guidance, does it include significant growth in Florida for the June renewals?

Fred Donner

Vinay, it's -- if you look at our book you approximately have lets says comes in the January 1 renewals so that's up about 15%. So we have another 50% come true. On average you can expect that to be 15% as well. So while we don't go into specifics and it is tough for us to go into specifics, that is exactly where the business is coming from. You could have seen that it is 15% across the board there?

Vinay Misquith - Credit Suisse

Hey, that's great and on the alternative funds, do you have a sense for how they have done so far year-to-date?

Fred Donner

No, it's really too early to tell you know. I think you begin to guess --

Vinay Misquith - Credit Suisse

Okay thank you.

Neill Currie

Thank you everyone for joining us today. I would like to close by saying that we have an experienced talented team that is excited about our growth opportunities in 2009 and beyond. So we look forward to sharing our progress with you over the coming quarters and look forward to talking to you in about 90 days. Thank you very much.

Operator

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

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