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RenaissanceRe Holdings Ltd. (NYSE:RNR)

Q4 2009 Earnings Call

February 10, 2010 9:30 am ET

Executives

David Lilly - IR

Neill Currie - CEO

Jeff Kelly - EVP & CFO

Kevin O'Donnell - EVP & Global CUO

Analyst

Josh Shanker - Deutsche Bank

Vinay Misquith - Credit Suisse

Doug Mewhirter - RBC Capital Markets

Brian Meredith - UBS

Ian Gutterman - Adage Capital

Jay Cohen -Bank of America-Merrill Lynch

Samuel Hoffman - Lincoln Square

Josh Smith - TIAA-CREF

Operator

Ladies and gentlemen, thank you for standing by and welcome to the RenaissanceRe fourth quarter and full year 2009 financial results conference call. (Operator Instructions).

Thank you. I would now like to turn the conference over to Mr. David Lilly. Sir, you may begin your conference.

David Lilly

Good morning, thank you for joining our fourth quarter and full year 2009 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 beginning at 2'o clock p.m. Eastern Time today through February 24, at 8'o clock PM. Replay can be accessed by dialing 800-642-1687 or 706-645-9291. The pass code you will need for both numbers is 48506457. Today's call is also available through the investor's section of www.renre.com and will be archived on RenaissanceRe's website through midnight on April 21st, 2010.

Before we begin, I'm obliged to caution that today's discussion may contain forward-looking statements and actual results may differ materially from those discussed. Additional information regarding the factors shaping these outcomes can be found in RenaissanceRe's SEC filings to which we direct you.

With me to discuss today's results are Neill Currie, Chief Executive Officer; 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

Thank you, David and good morning everyone, thank you for joining us. I am pleased to report we had a strong fourth quarter and a great year. As you know, we focus on building tangible book value per share plus the change in accumulated dividends and this year the increase was extraordinary, a 38%, that's not going to happen to all.

There are a number of factors that drove these results. While our reinsurance portfolio is quite attractive on an expected basis, our actual results were better than we anticipated due to an unusually light level of cap losses, favorable loss development and an ongoing rebound in the value of our invested assets.

While volatility is inherent to our business, our goal is to build a portfolio of risks with attractive expected returns and with the potential to achieve superior returns in good years like we had in 2009 and keep losses within manageable levels in high cap years.

Our success in building a great portfolio of business frankly is attributable to the terrific experienced team we have here at RenRe. We saw continued pressure on the top line during the January renewals as several major clients elected to purchase less reinsurance.

Compared to a year ago there is much less fear in the system today as improved investment performance and stronger balance sheets have increased the appetite for risk from both our clients and our competitors. In this environment we will focus on maintaining the quality of over book of business. Kevin O'Donnell is here to provide more color on that in few minutes.

As I'm sure you are aware we announced senior management changes in January, this was the result of two factors, our decision to consolidate our global underwriting operations and the announcement of retirement Jay Nichols who headed up our Ventures unit and Bill Ashley who ran our Individual Risk operations. I'd like to thank Jay and Bill for their valuable contributions to our company and wish them each the very best in the future.

Kevin O'Donnell, who was running our reinsurance operations, will now have responsibility for both our reinsurance and insurance businesses. This is in line with our strategy to further enhance the consistency and effectiveness of our global underwriting in general and to boost the performance of our Insurance segment in particular. Kevin has demonstrated his talent for building and managing strong disciplined underwriting teams and we are confident that our global underwriting operations will fly under his leadership.

Jon Paradine and Ross Curtis each with over 10 years at RenRe and reinsurance have both stepped up into broader roles. Jon has been named Chief Underwriting Officer of RenaissanceRe Ltd., and Ross has been named Chief Underwriting Officer of our European operations, which includes our Lloyds operation, both will continue to report to Kevin.

Aditya Dutt, who has been an [enterable] member of our Ventures unit since joining our company from the leading investment bank, has taken over from Jay as head of RenaissanceRe Ventures. He has ongoing responsibilities for Joint Ventures and Venture Capital, as well as responsibility for RenRe Energy Advisors Limited.

Aditya now reports to Jeff Kelly, whose overall responsibility for capital management will now also encompass strategic investments and joint ventures. These changes reflect our commitment to maximizing effectiveness and performance through the best possible alignment of businesses and responsibilities.

Looking ahead, our industry faces a number of challenges; pressure on pricing is expected to continue through 2010, we are closely monitoring legislative developments in Florida with the financial help of many primary companies' remains an issue. We're watching the evolution of the government's SRA agreement or Standard Reinsurance Agreement for 2011 underwriting year and its potentially impact on our multi-peril crop insurance business.

The good news is that, whatever agreement is finalized, we have a good book of business and an experienced capability team at Agro National. You know there are always challenges some disappear and then new ones appear. I'm confident, however, that our RenRe management team will guide us through these challenges to continue our record of performance and success over the long term.

We have been through many cycles and our approaches always will be to remain disciplined yet nimble. We will not write business unless it is adequately priced and we will continue to focus on generating strong returns for our shareholders.

So with that, I'm going to turn it over to Kevin. Kevin?

Kevin O'Donnell

Thank you, Neill and good morning everyone. I will update you on a reinsurance including cat, specialty and Lloyds and then discuss the Individual Risk segment. With regard to the reinsurance renewal, I would describe that January renewal season is orderly with programs achieving their capacity needs.

Some of the factors impacting that supply of reinsurance capacity with a strong recovery in the financial markets and the absence of meaningful loss activity during 2009, which resulted in an increased apatite for risk.

In terms of demand for reinsurance, the improvement in the balance sheets strength of insurance companies led to increased confidence and a significant reduction in limits purchase by several large buyers. Despite the more competitive landscape, we are satisfied with the business we were able to write and expect healthy returns on a reinsurance portfolio in 2010 absent of significant events.

We estimate that the size of the U.S. cat market was relatively stable and the amount paid per dollar of limit purchase declined. Adding to the pricing pressure was the impact of the introduction of the new vendor model, particularly earthquake.

The simple adoption of these models would indicate increased economics as prices did not decline by as much as was implied by the changes to the models. As we take our view of risk rather than solely relying on the vendors, we view the economics as being less attractive but still acceptable, as prices decline by more than our updated view of the risk. Our ability to continually develop and update our model remains an important differentiator for us.

For International Cat, the market was essentially flat, while some of the territories with recent losses experienced price increases, most territories experience modest price reductions.

In the Russia market we saw an increased underwriting appetite from existing players and the emergence of some new players. This follows a familiar pattern, whereby competitors enter or reenter the market to make up for loss income on the primary cat side. Looking purely at prices in this business maybe misleading, since in some instances the softening of terms and conditions have led to significant decrease in expected profitability. While we prefer long-term relationships, we believe the willingness and discipline to increase or decrease dramatically in this line is critical to managing this book through the cycles.

With regard to specialty the market remains competitive with ample capacity. Overall, price reductions were modest, generally in the single digit range for the lines of business that we write. We continue to focus on select opportunities in existing and lines and premium growth was driven by the expansion into classes of business that were impacted by the credit crisis and experienced some (inaudible).

Our Bermuda specialty book remains focused on low frequency high severity business as this risk profile best fits our current portfolio. We're seeing good opportunities and are continuing to build our Lloyds platform. At one-one within Lloyd's, we saw a good flow of business, which has allowed us to add some specialty risk that would have been more difficult to write without our own syndicate. With the pricing trends that we were seeing, we anticipate the growth will be modest.

As we have stated, we're investing in Lloyd's for the long-term and slowly measured growth in the current market is the best strategy to achieve our long-term objectives, we remain happy with our progress there so far.

Moving over to Individual Risk, to begin with, I'm excited about the opportunity to work more closely with our U.S. operations. My goal is to further align our underwriting systems and processes with those of the other units around the company.

I'll divide my comments first to discuss our crop business and then give an overview of the other primary PMC businesses. Full year 2009 result for the crop insurance business were impacted by sever hailstorms that hurt the profitability of our profile both during the third quarter and also by adverse development on the 2008 underwriting year that took place during the first quarter.

Corn and soybean prices end of the year approximately inline with the level set in the spring and didn't materially effect the profitability of the crop insurance book. For the vast majority of the crops we have insured and have already been harvested, there is some uncertainty regarding our results due to a small portion of our book for which harvesting was delayed.

As many of you are aware, in early December the USDA risk management agency released its initial draft of the Standard Reinsurance Agreement or SRA for the 2011 underwriting year. It's still early days in the SRA will be subject to meaningful negotiation in the coming weeks.

In its current form the SRA contemplates the number changes that serve to reduce the level of profit and losses retained by private insurers. We will closely monitor the proposed changes, but it's too early in the legislative process to conclude the impact on our crop insurance business.

Finally, turning over to PMC insurance business in the U.S., the market remains competitive and we remained focused on the underwriting only the classes of risk that meets our underwriting criteria and return hurdles. Overall, our book remains profitable, so we believe it can be improved.

Over the coming months we will evaluate all of our business in this segments and build a plan to optimize our current portfolio. I'm confident on focusing more of our internal resources on this business will provide us with even greater precision in shaping our portfolio, allowing us to match these risk with the right balance sheet and enhance the overall returns for the group.

Thank you and I'd like to turn the call over to Jeff.

Jeff Kelly

Thanks, Kevin, and good morning, everyone. This morning I'd like to cover fourth quarter and full year results and also provide an update to our topline forecast for 2010. The fourth quarter was characterized by strong underwriting results from the Reinsurance segment driven by continued fact of meaningful loss events and favorable reverse development.

Investment performance was positive, but was less of a factor in the fourth quarter than it was in the prior two quarters. We reported net income of $212 million or $3.38 per share, and operating income of $178 million or $2.82 a share. Our annualized operating return on equity was 23% for the fourth quarter and 27% for the full year of 2009. Our tangible book value per share including accumulated dividends increased 5.5% in the fourth quarter and was up 38% in 2009.

For the full year 2009 we generated underwriting income of $697 million, a combined ratio of 45.3% and investment income of $324 million. I will walk you through the operating results starting with the Reinsurance segment. Managed cat gross premiums written were negative $29 million compared with $25 million in the year ago period.

The fourth quarter historically tends to be light in terms of cat premium volume. Impacting managed cat premium volume in the fourth quarter were a $19 million adjustment to reflect lower estimated premiums written by ceding companies in 2009. A $15 million adjustment due to credit issues for ceding companies in Florida that are facing financial difficulties in the non-renewal of a large program intercepted a year ago.

As many of you are aware, the Florida Home Owners insurance market place remains troubled. For the full year managed cat gross premiums written adjusted for prior year and reinstatement premiums increased by 15% compared with a year ago. The fourth quarter combined ratio for the cat unit came at a negative 2.3% driven by low reported losses and $57 million of favorable loss reserve development. The favorable development was driven by reductions to estimated ultimate loses for the 2004, 2005 and 2008 hurricanes.

The reduction to the loss estimates for 2004 and 2005 events relates primarily to adjustments we made to our methodology for reserving for mature, large Atlantic hurricanes.

Specialty gross premiums written declined by 27% from a year ago in the fourth quarter. As we've mentioned in the past, premiums in this unit are prone to quarterly volatility since the unit is dominated by a relatively small number of large contracts.

The premium decline relative to a year ago was driven by the non-renewal and portfolio transfer out of a single personal line's quarter share transaction. For the full year, specialty reinsurance gross premiums written declined 28% from a year ago. The specialty combined ratio came in at 59% for the fourth quarter benefiting from a relatively low loss experience and $9 million of favorable loss reserve development.

Within the individual risk segment, premiums declined 23% compared with a year ago period. The decrease was largely driven by a decline in multi-peril crop insurance premiums as a result of a meaningful drop in commodity prices compared with 2008. For the full year, gross premiums written declined by 10%, an increased presence in crop insurance partially offset declines in commercial multi-peril, commercial property and personal property books of business.

The individual risk segment came in at 94.2% combined ratio in the fourth quarter. The sequential and year-over-year improvement was a result of lower loss experience on our multi-peril crop insurance book of business and $9 million of reserved releases primarily related to the 2005 hurricanes.

For full year results for the individual risk segment, full year results for the individual risk segment were hurt by adverse reserve development of $27 million in the first quarter on business written in 2008 and $18 million of losses from severe hail storms in Nebraska during the third quarter.

Moving away from our underwriting results, other income totaled $7 million in the fourth quarter. This was driven by $5 million increase in the valuation of our platinum warrants the company holds which are mark-to-market. Other income also includes $12 million and pretax income from RenRe Energy Advisors Limited, our weather and energy derivative based risk management business.

This unit provides products to protect its customers from weather and commodity related risks and it has grown in recent years and become a larger contributor to our overall earnings. The increase in these two items was partially offset by $10 million expense for assumed and ceded reinsurance contracts accounted for at fair value. The meaningful increase in operating expenses relative to a year ago, relates largely to increased headcount and higher performance related compensation expenses.

Turning to investments, our performance remains solid, but as I mentioned earlier it was much less of a contributor to overall earnings than it was the case in the prior two quarters. We reported investment income of $61 million and the total return for the portfolio was 0.8% for the quarter.

A slight decline in credits spreads was partially offset by an increase in interest rates. Our portfolio of other investments contributed to $24 million of net investment income generating a 3% return. Performance of our hedge funds and private equity investments continued to stabilize in the quarter.

Our investment portfolio remains conservatively positioned with high liquidity and modest credit exposure. We continue to increase our allocation to U.S. Treasuries and non-U.S. government backed corporate bonds, while reducing our exposure to U.S. agency debt.

The duration of our investment portfolio increased slightly to 2.6 years and the yield of maturity on the fixed income and short-term investments is 2.3%.The average credit quality of our fixed income portfolio remains high at AA with 72% being AAA rated.

During the fourth quarter, we began designating certain fixed income securities of acquisition as trading rather than as available for sale. As a result, we recorded an $11 million unrealized loss in these securities. The impact of this change will be that changes in the value of these trading securities will be reflected in net realized and unrealized gains and losses and will flow through the income statement. There will not be an impact to reported operating income or book value per share.

Given our strong capital position and what we believe is an attractive valuation for our stock, we reentered the market and repurchased 951,000 shares of our stock for a total of $51 million in the fourth quarter.

As of February 9, we have repurchased an additional 1.7 million shares so far this year for an aggregate cost of $90 million and planned to opportunistically repurchase our shares in the open market.

Finally, let me provide an update to our guidance for 2010. For managed cap, which includes premiums written on behalf of DaVinci and Top Layer Re, we now expect premiums to decline approximately 10% in 2010. This is down compared to the guidance for flat managed cat premiums that we provided on our last call.

As Kevin mentioned in his comments, the combination of reduced demand from ceding companies and greater supply of capital led to a more competitive property cat reinsurance environment in January.

In specialty reinsurance, we had good visibility in renewals were approximately in line with our expectations. As a result, we are maintaining our prior guidance of up in excess of 20%.

There is considerable variability around this figure depending on the level of business written to our Lloyd's platform and also because the business tends to be lumpy and characterized by a few large transactions.

In individual risk, we would expect premiums to be roughly flat driven by continued expansion of our crop insurance book and somewhat offset by declining premium volumes in other alliance.

With that I'll turn the call back over to Neill.

Neill Currie

Thank you, Jeff. We're happy to take questions now operator.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Josh Shanker, Deutsche Bank.

Josh Shanker - Deutsche Bank

I'm interested you glossed over, but of course that is something on everyone's mind, you said you are opportunistically be repurchasing shares in the market place. What does that say about your view of the market opportunity this year and maybe I don't have any specific questions, but maybe elaborate a little further on what you see as your appetite for your own shares?

Neill Currie

We'll try to team up on your two to one. There's actually two things, opportunities out there and also the stock price and I'll just make a blank statement, how many times do you get to buy RenRe shares at this price. So I'll turn it over to Jeff for further elaborations.

Jeff Kelly

Yes, with respect to other opportunities, I think Josh I think we said this even on our last call by almost any measure, we consider a capital position to be somewhat in excess of that which we need to support the book of business, we either have or can envision building and in fact did build and so, I think what we had been waiting on in terms of deployment of that at least in the form of repurchases was further evidence that the U.S. economy and world economy had stabilized somewhat and that the financial markets had stabilized and we got more and more comfortable with that as the fourth quarter ran on and that's what moved us to begin repurchasing shares.

Josh Shanker - Deutsche Bank

The second question along those lines, to what extent is catastrophe protection economically sensitive line of business? If you will, see probably have to buy even in an economically stressed scenario I would mentioned?

Neill Currie

I think if you go back to last year, it is an interesting case study and that companies were suffering on the asset side, because of the financial crisis and with that they wanted to reduce the level of risk inherent and their overall business structured, one way to do that was to reduce the volatility from cat. So, they are purchased more reinsurance, so we saw the market grow in 2009. Most of that growth is really in the fourth quarter because they were looking to manage the overall enterprise risk that they had, seeing that their assets were more exposed, they want to reduce the probability that they had to access the capital markets and wanted to better protect the financial stability of the company. So, I think it is tied, but not necessarily directionally the same as we saw in 2009.

Operator

Your next question comes from Vinay Misquith, Credit Suisse.

Vinay Misquith - Credit Suisse

Could you elaborate on what impact that State Farm's decision to stand on in Florida is having a new business and the guidance for this year?

Neill Currie

I think, State Farm standing in Florida I think is, there has been a lot of development with the relationship there. I think Florida is an interesting case study generally. We have good relationships across the board in Florida. I think State Farm standing in is beneficial and that it keeps a lot more policies in the private market increasing the potential proprietary reinsurance. I think commenting specifically on how one relationship affects our book is not necessarily what we have historically done, but in general, having more private insurers available to policyholders in Florida is a good thing.

Vinay Misquith - Credit Suisse

Well, the State Farm really doesn't buy much in the form of private reinsurance, correct?

Neill Currie

Vinay, if you could just speak up?

Vinay Misquith - Credit Suisse

Sorry, but State Farm really doesn't provide much in the form of private reinsurance, correct?

Neill Currie

They do buy some, I think if you look at comparing State Farm to some of the local companies in Florida, some of the local companies due to the financial structure that they employ, they are more reliant on reinsurance than a company like State Farm, but the alternatives to State Farm pulling out might be Citizens and certainly State Farm buys more than Citizens.

Vinay Misquith - Credit Suisse

The second question was on the investment income, the fixed income of the yield fell this quarter, but I'm just curious whether there was a one-time item in there or would this be the run rate at least in the near-term until short term interest rates rise?

Neill Currie

Vinay, I would say really the decline in the portfolio yield is really just the function of the further decline and credit spreads that we've seen and bit of the restructuring that we did out of agency mortgage backed securities and into both U.S. Treasuries and investment grade corporate says we really believe that a lot of decline in spreads that we've seen here just don't warrant some of the risks that we had on the book. So, I'd say that the current yield in the absence of any significant shift and the overall level of rates is probably a reasonable expectation for the future.

Vinay Misquith - Credit Suisse

One last question if I may is on the debt that you acquired, when did you pay back the debt, was it at the beginning of the quarter or was it at the end of the quarter?

Neill Currie

We paid back the revolver; I believe that was in early November.

Operator

Your next question is from Doug Mewhirter, RBC Capital Markets.

Doug Mewhirter - RBC Capital Markets

Just two questions. First, I guess maybe kind of technical question about Florida. So, the Florida homeowners companies right now are under a bit of pressure from these Windstorm Mitigation Credits, which I guess have very effectiveness, is really taken a bite out of their profitability. In your contracts, whether I guess a mix of quarter share and excess of loss. Does any of those credits get passed on through your reinsurance contracts?

Neill Currie

We are predominantly an excessive loss player in Florida, so the way we participate in the market is putting our price on the risk that we are accepting. So the amount of price that the primary carriers are getting really is less relevant to us. Because we are pricing the contract independent of the pricing they are getting on the front-end. I think it does effect the overall financial health in the market and that the mitigation credits can be quite large, there is less premium in the system. So, the present for reinsurance is higher due to fact that the mitigation credits exist, but it is not something that affects us from our pricing exclusively.

Doug Mewhirter - RBC Capital Markets

I guess to follow-up with that, have you seen any movement in the Florida legislature recently I know that there is some talk of trying to rationalize the system, do think that this year there may be any kind of improvement in the way that system is administered.

Neill Currie

I would rather bet on the direction of RenRe stock than bet on what's going to happen in the Florida legislature, it's constantly influx, we keep a very close eye on it. Kevin anything to add to that.

Kevin O'Donnell

I think we are about as close to the legislative process in Florida as we possibly can be. I think there is a lot of time between now and 61 and 71 and to try to determine how its going to impact the renewals it's probably premature.

Doug Mewhirter - RBC Capital Markets

And I guess the last question is regarding investments. Now that your duration has been picking up, is that more a result of your new change in asset allocation going from mortgage backs to corporates or is that more of a natural flow, because your shorter-tail businesses is really kind of running off and sort of leaving your slightly longer-tail business, which will be backed by longer-tail and assets.

Neill Currie

Yeah well the duration of the investment portfolio, I mean it ticked up just a little bit and I wouldn't relate that necessary to a fundamental change in strategy. We are a manager of managers in this investment portfolio. So, to some degree, the managers that we employ have some discretion over duration, but that said, I would not say that the increase in duration that you see is reflective with any significant change in investment strategy.

Operator

Your next question comes from Brian Meredith, UBS.

Brian Meredith - UBS

Two questions here. First one Kevin, back into the Florida legislature quickly, I understand there is a proposal out there, at least people talking about potentially lowering the detectable of the FHCF, have you heard that, what do you think the possibility of that is and if that does happen, what kind of impact could that potentially have in your business, I mean how much do you write below the fund?

Kevin O'Donnell

Yes, I think there is a lot of things that are on the table from the legislative discussions, but as far as reducing the retention on the FHCF, I think it depends on really how that affects the overall system. We tend to [buyout] our portfolio a little bit lower than most people, just because we think there is a good risk reward there. I think our (inaudible) on that is a little bit less than it has been in other years. So, could have an effect on us, but it really depends in exchange for lowering that they may change the participation along side the FHCF, which could be a benefit to us. So, I think focusing on just one of the aspects that are influx can be difficult to say if it's going to have an explicit effect on our portfolio.

Brian Meredith - UBS

And then the second question, I was wondering if you could talk a little bit more about the methodology change and I am reserving I guess for catastrophe losses and what impact that could potentially have here going forward with respect to reserved releases?

Kevin O'Donnell

I will talk a little bit just about one of things that we did in the quarter as we try to more explicitly take into account, the passage of time as an explicit input into our reserving methodology. With that, we establish some curves that allow us to more uniformly run off older losses based on the experience that we're having and in the experience of the industry. So I think it's something that is an improvement in our overall process, but I wouldn't necessarily say I have a view as to directionally what is going to do the portfolio on a going forward basis.

Brian Meredith - UBS

Because it looks like you had a pretty big drop in your additional case reserves in the quarter and that's I guess where it came from right?

Kevin O'Donnell

A big piece that came from that, but again this is implemented for the first time, it can have a large effect, I'm hopeful over time and it will be something with the diminishing effect as it becomes more institutionalized on the losses.

Operator

Your next question comes from Ian Gutterman, Adage Capital.

Ian Gutterman - Adage Capital

Just a follow-up. I'm wondering how much in reserves do you have left from the ‘04, ‘05 or ‘08 cat events?

Jeff Kelly

We will get that Ian for you.

Ian Gutterman - Adage Capital

Okay may be I can ask another one while you do that. Just about Florida and I guess specifically on the take outs or capital build outs, whatever you want to call them. What does it mean for the market and for how you approach the market that these companies in the last two years had no losses are losing money just because of the mitigations and the sinkholes and all the other issues that are just making the basic underwriting a problem. How do you think about potential liability of reinsuring and how does that change maybe who you are willing to underwrite?

Neill Currie

It's a great question, Ian, the system is not in balance in Florida. We think it's heading in the right direction, but it's going to take a few years to get there. Our underwriters, we make two judgments, we realize those credit risks inherent in the system in Florida and then in particular we take that into account when we underwrite specific transactions in Florida. But when we take it on the whole, there is still enough premium after taking credit risk into account for us to write reinsurance assumed in the state of Florida. Kevin would you like to add to that?

Kevin O'Donnell

I think that's spot on him. I think we have great relationships down there and to the extent that it isn't affecting all companies uniformly. I think we're about as well positioned as possible to make sure that we're participating with the right players in the right way. Again, this reflected that we're in excess of loss players though it is important to kind of separate from the beginning and that we're not participating on a proportional basis with the payment of dealing on the primary side, but it does affect us on how we're thinking about providing (Inaudible) capacity?

Ian Gutterman - Adage Capital

I guess I was thinking about, I mean traditionally if we think about payback right, after event prices go up you get to essentially get back your losses, but if the carrier is not around you have to find someone else essentially and you have to sort of win over a new relationship, someone else's relationships to get that payback. So, I was wondering how you think about that, I assume you what someone that you can have a lasting relationship with and it doesn't just give you the loss and go out of business?

Neill Currie

Ian, that's a great point, we take that into account. It's the same one that happens. Frankly the wonderful aspects of our business is when we understand the risk we're accepting, we can be there the next year for our clients when they really need us, and it does exactly what you say and if you have an odd official system going on, it makes the business less attractive.

Ian Gutterman - Adage Capital

Okay, that hasn't affected necessarily your appetite for the Florida-only players this year?

Neill Currie

We take it into account. Now I'll turn it back over to Jeff to answer your first question if I might.

Jeff Kelly

On the 2004 and 2005 hurricanes our outstanding reserves are $427 million and on the 2008 hurricanes, $250 million.

Ian Gutterman - Adage Capital

Okay. Why were the '04 and '05 still be so high after so much time?

Jeff Kelly

Good numbers.

Operator

Your next question comes from Jay Cohen, Bank of America-Merrill Lynch.

Jay Cohen -Bank of America-Merrill Lynch

Could you talk more specifically about the $15 million impact on premiums in the fourth quarter related to the credit related issues? What exactly gave rise to that?

Jeff Kelly

I think again that was something that we were looking at, what we are talking about a little bit for is, within Florida there is some financial stress going on with some of the players. Many of the deals that we have in Florida have quarterly payments and were reflecting forward the potential that some of those payments maybe less certain than we originally hoped due to the financial pressure that the companies are feeling?

Jay Cohen -Bank of America-Merrill Lynch

Okay, some of this was prospective essentially?

Jeff Kelly

Yes

Operator

Your next question is from Samuel Hoffman, Lincoln Square.

Samuel Hoffman - Lincoln Square

I just wanted to follow-up on some of the questions earlier on excess capital. In 2006 I believe you wrote about $1.5 billion of premiums and $1.8 billion is becoming of your capital for a ratio of 0.87 times. This year you have $3.3 billion of capital and it looks like you are on the run rate of kind of $1.2 billion to $1.3 billion of premium implying a ratio of less than half of where you were in '06. And so my first question is, how do you guys calculate excess capital and then I have a follow-up?

Neill Currie

It's not a particularly simple process, because premium alone can be quite misleading if we had to shift to low rate online severity business. So it's a good starting point which you have to actually look at the entire portfolio. We do calculate on a (inaudible) basis, our capital position and your somewhat rule of thumb outlook there is pointing you in the right direction. So do we have more additional capital than we had four? Yes. So, Jeff would you like to elaborate?

Jeff Kelly

I guess maybe expand a little bit on what Neill said, it is very much related to the composition of the portfolio and capital is calculated at the deal level and rolled up actually every night. And so it not only reflects the composition of the individual deals in the portfolio, but also that degree to which they might be correlated with one another are not correlated with one another. So I agree with what Neil said to and we've said I think consistently, we do think we have some significant amount of excess capital we were actually comfortable with that position given the fragility of the economic environment and the financial market environment through much of 2009 and I think we're more comfortable in thinking about returning that given the improvement in both of those.

Samuel Hoffman - Lincoln Square

Okay, but basically what you're saying is that, half of your capital is not an excess because you may have peak exposures and place like Florida, which maybe maintained to a level which it doesn't create as much excess capital as the premium ratio would make it a peer?

Neill Currie

I wouldn't necessarily use the precise point one half, but there was a number. And actually, a fair amount of questions in the call were gravitating towards stock buybacks et cetera, it just be black on the record to be clear buying back shares at the right price is a very smart thing to do, it is not a defense move, it is very good management.

Samuel Hoffman - Lincoln Square

Can you just quantify how much capital you think is excess and then what your strategy is to redeploy that or are there any strategies other than buybacks?

Neill Currie

First of all the answers is no. We won't be too specific, but, yes, we look at things all the time we have all sorts of opportunities that come our way in terms of small acquisitions, having teams come on board, we want to get in various lines of business et cetera. So, there are lots of opportunities we look at, it's just not solely buying back our shares.

Jeff Kelly

The only other comment I'd make in addition to that ways you could deploy capital in the business itself that Neill referenced. I think just from the other methods of returning capital like either increasing the regular common dividend or special dividends or retiring preferred stock or something like that, our conclusion is and why we decided it on beginning share repurchases is just, again as Neill said, the attractiveness of it has in investment had less than 110% of book value.

Operator

Your next question comes from Josh Smith, TIAA-CREF.

Josh Smith - TIAA-CREF

Can you remind us what your share repurchase authorization is? The amount?

Neill Currie

As of today we have remaining share repurchase authority of above $240 million.

Josh Smith - TIAA-CREF

And are there any plans to increase that?

Neill Currie

We will, yes we intent to ask the Board for a greater authorization. Yes.

Josh Smith - TIAA-CREF

When is the next, when will that happen?

Jeff Kelly

Our next board meeting is next week.

Josh Smith - TIAA-CREF

Next week, great. And I think on your last call you mentioned how much (inaudible) was focusing on excess in the business, but I think you mentioned last quarter how much you had at the hold-co to be in excess of that. How much cash you had at the hold-co?

Jeff Kelly

Yeah, I think at the holding company the way in terms of just liquid cash as it currently stands is about $725 million if I remember correctly.

Josh Smith - TIAA-CREF

That's at 12/31?

Neill Currie

No, that's as of today.

Josh Smith - TIAA-CREF

As of today, great. Okay, I guess the Neill's comment about how many times do you get to buyer end at this price. I hope there are very limited times to buyer end at this price.

Operator

At this time, we have no further questions. I will now turn the conference back over to Neill for any closing remarks.

Neill Currie

No thanks, we enjoyed answering those questions, there were some good ones there. I just want to close by saying the underwriting excellence that has been the foundation of our success since our inception serviced well this past year and we it will continue to underpin all that we undertake in the following years. I'm excited about the coming years for our company and thank you for joining us today.

Operator

Thank you. This concludes your conference you may now disconnect.

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Source: RenaissanceRe Holdings Ltd. Q4 2009 Earnings Call Transcript
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