RenaissanceRe Holdings Ltd.

Ladies and gentlemen, thank you for standing by, and welcome to the Renaissance Re, first quarter 2020 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Keith McHugh, Senior Vice President, Finance and Investor Relations. Please go ahead.

Thank you. Good morning. Thank you for joining our first quarter financial results conference call. Yesterday, after the market closed, we issued our quarterly release. If you didn't receive a copy, please call me at 441-239-4830, and we'll make sure to provide you with one. There will be an audio replay of the call available from about 1.30 p.m. Eastern Time today through midnight on June 5th. The replay can be accessed by dialing 855-859-2056, U.S. toll-free, or 1-404-537-3406 internationally. The passcode you will need for both numbers is 427-3902. Today's call is also available through the investor information section of www.renry.com and will be archived on Renaissance Re's website through midnight on June 5, 2020. 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 Renaissance Re's SEC filings to which we direct you. With us to discuss today's results are Kevin O'Donnell, President and Chief Executive Officer, and Bob Qutub, Executive Vice President and Chief Financial Officer. I'd now like to turn the call over to Kevin.

Kevin? Thanks, Keith. It's nice to be back in the office today after several months from working from home. Good morning, and thank you for joining today's call. I hope everyone is staying safe. And before we start, I want to recognize the tremendous sacrifices being made by medical personnel and other first responders around the world. They are working hard and risking their own lives for all of us, for which we are grateful. Today, we find ourselves at the beginning of a long journey for which the past is an imperfect guide. Our industry, the financial markets, and the whole world are in the midst of an unprecedented situation. COVID-19 will be a challenge for our economy and for our industry. Renrui has been challenged many times in the past, and I assure you that this is a challenge that we will meet. I'm confident that we understand our present risk and have consequently, I've shifted my primary focus toward the future opportunities that will arise from COVID-19 in respect to both supply and demand. We are strong and have many competitive advantages, including our impressive team, dynamic strategy, unique culture, and solid capital and liquidity position, which will be the foundation for our success, both in managing the pandemic and in leveraging into future opportunities. Starting with our team, I am extremely proud of our people and what they are accomplishing under difficult circumstances. They are what makes us special, and in times like this, we are starkly reminded that RENRE is about who we are and not what we do. Bob will give you more details in a moment, but as a company, our platform is stable and functioning at a very high level. We are working very efficiently from home, and we will not rush to return to our offices. Rather, we will only return when it is safe to do so. Moving on to COVID-19's impact on our business. Pandemic is a complicated problem. It is broadly systemic, which makes it extremely challenging to diversify as part of an insurance portfolio. This pandemic has demonstrated once again that in the tail, all correlations converge toward one. It has correlated many business lines and geographies and is the number one item of focus everywhere in the world. As long as COVID-19 is still developing, our industry will be challenged to estimate the size of the loss. The determination of loss is made even more challenging, if not impossible, by the enormous uncertainty regarding what might happen due to the potential scale of economic destruction. Discussing an expected value for COVID-19 ignores the fatness of the tails of the distribution driven by this extreme uncertainty. While I believe the most severe outcomes are unlikely, such as the government's nullification of valid contract language to require additional payments from insurers, even a small percentage chance that these could occur creates a very fat tail that materially increases the size of the mean outcome. In our parlance, this distribution is strongly negatively skewed, which means it's influenced so significantly by the tail that the mean no longer provides meaningful information. making any discussion of the expected loss of limited use. For example, if two people live in an island and one is 99 years old and the other is one, stating that the average age is 50 is at best meaningless and at worst misleading. This difficulty in estimating losses is further increased by the relationship between the virus and society's response. In people, it is sometimes not the virus itself that is harmful. Rather, it is the response of the immune system. In a similar fashion, it is not necessarily COVID-19 itself that will cause most of the losses to our industry. Rather, it is the reaction of people, including politicians, that could be the most significant source of loss. There will be many second and third order effects driving loss, such as the length and breadth of the economic downturn related to government policies to suppress the virus, followed by monetary distortions from central bank policies to remedy these economic effects. While this starts with the government's unprecedented shutdown of the world of comedy, it extends to other effects, such as the inevitable attempts of the plaintiff's bar to extract money from the insurance industry. In many ways, the insurance industry's losses are much less associated with biological risk than they are associated with political risk. Loss estimates are further complicated by the limited usefulness of physical models in estimating the size of an ongoing severe financial loss driven by political and social elements. So we recorded $104 million reserve related to COVID-19 for the first quarter. It is not possible yet to estimate the full impact of the pandemic on our financials because we cannot yet measure the damage to the economy or the speed of the recovery. Given its uncertainty, we approached our estimates for COVID-19 risk by dividing our exposures into three categories, from those that are most quantifiable to those that are most complex. Category one includes event-like losses, such as event contingency, event-based casualty class, and certain types of accident and health. Category two includes developing losses, such as traditional casualty lines financial credit lines, such as mortgage and trade credit and surety. Category three includes the known unknowns, which is primarily business interruption. The $104 million reserve this quarter is mostly from additions to IB&R, reflecting increased expected losses in category one. To help you understand how we estimated this reserve, let me explain our process for the event cancellation reinsurance book. We took a pragmatic approach and canceled all events in our portfolio until January 2021, effectively booking a full limit loss for 2020. We took a similar approach for Casualty Clash Book, where we reserved for the vast majority of our event-based limit. Finally, we reserved full limit losses for all ANH treaties with significant pandemic exposure. These lines may not ultimately result in losses, But at this early stage, we thought that this addition to IBNR was appropriate. For Category 2, we have increased the reserving loss ratio for D&O and MedMal for Enforce Book of Business. While the impact and severity are difficult to estimate, we believe that the likelihood of loss in these lines has risen. We are closely monitoring our mortgage and credit reinsurance books, but feel that we have them adequately reserved at this point in time. We may need to add two reserves depending on how the recession and unemployment progresses. That leaves us with category three, the known unknowns, including business interruption. You've probably heard many insurers state publicly and in no uncertain terms that business interruption coverage is not triggered by COVID-19. As I've discussed, this is a developing situation. In the meantime, we rely on our students when they tell us there is minimal exposure. We do know that in some instances, certain insurers have provided a limited number of manuscripted communicable disease coverage extensions. All coverages under the property policy, however, are not necessarily suitable to a property cat reinsurance treaty. If business interruption losses start to develop, however, there are several important mitigating factors for us. To begin with, About half our property cat book is residential, which is generally not exposed to business interruption. Further, due to the growth of our ventures business, we now share more than two-thirds of our property cat premium with ventures and retro partners. This means we retain less than one-third of our gross premium, which reduces our exposure to an amount substantially less than our top line numbers might imply. In the current environment, Capital and liquidity are vitally important. As of the end of the first quarter, after taking into account COVID-19 losses, mark-to-market losses, and a considerable amount of return capital through buybacks and other activities, we have about a billion dollars in excess capital based on our internal models. Additionally, as of the end of the quarter, we had over a billion of excess liquidity measured against our internal tests. Looking forward, we have modeled the multiple loss scenarios against our risk portfolio, and even under the most stressed scenario, we remain in a strong excess capital position. In those same scenarios, we also maintain substantial liquidity. Our most stressed scenario contemplates loss consistent with severe unemployment and deep depression. Due to the heightened uncertainty from the pandemic, we will continue to hold excess capital and remain highly liquid. This may have a drag on earnings, but it is the right call at this time. Also, we are hoping to find opportunities in the near future and want to hold some dry powder in anticipation. Over the years, I have speculated that market dislocations would look and feel different, with decreased amplitude of rate increases, shorter temperable persistence, and more narrow geographic distributions. I am pleased to report that I was wrong. We now find ourselves in a traditional hard market. Even before March, the price of risk was rapidly rising across most, if not all, P&C lines. We believe that COVID-19 will accelerate these rising rates for at least three reasons. First, the market is uncertain about the breadth and depth of losses that could arise from COVID-19. This uncertainty will reduce the market's appetite for risk and constrain supply. Second, we expect that retro capacity from third-party investors will be constrained. This will be another challenging year for third-party capital, as we believe substantial amounts of collateral will be trapped at year's end. Every year since 2017, third-party capital has suffered substantial losses and the drag of trapped capital. Unlike prior years, however, pandemic is more likely to be correlated to their other investments. Additionally, many traditional asset classes are better understood by ILS allocators and now look more attractive from a relative valuation perspective, increasing internal competition for new funds. The likely result is another reduction in third-party capital, which will further constrain supply. The story for Renry partner capital business is different. Many of our capital partners have been with us for over a decade. While we do expect to see some redemptions, the capital arrangements that we have with many of our partners are long-term in nature, which reduces our exposure to large and immediate redemptions. We anticipate that current circumstances will accelerate the flight to quality that we have already seen in the third-party capital market. We believe that our partner capital platform is in an advantaged position relative to other funds and given our structural advantages and broad access to capital, will only become stronger. The dislocated third-party capital market may also affect the amount of retro that can be purchased. We can manage any reduced availability by simply retaining more risk, which is consistent with our strategy of retaining more when the price of risk is rising. Others may need to shrink if their retro reduces, which will further reduce supply. Third, we suspect that the plaintiff's bar will not pass up the opportunity to benefit from the crisis, which will result in increased loss ratios and casualty classes. There has been some speculation that the need for cash flow may moderate the rapacity of the plaintiff's bar and result in smaller, quicker settlements. While this is possible over the short term, I have no doubt the plaintiff's bar will quickly revert to old habits. The Florida market will be the first to be impacted. This is because it is currently renewing. It is the peak property zone and it is volatile. The Florida renewal was going to be difficult before COVID-19. Now reinsurers in the market will demand even more rate to go risk on and many will prefer to preserve their capital and liquidity for what they expect will be less volatile and more predictable opportunities. The elevated price for risk, however, will also impact the vast majority of P&C lines. In our casualty segment, significant rate momentum continues across both casualty and professional lines. Over the short term, a few lines of business may experience less demand due to the shrinking economy. These tend to be lines which we do not write heavily, such as auto, aviation, or workers' comp. In general, we are expecting increased demand for reinsurance, likely in the property business over the short to medium term and across all lines, including casualty and specialty over the longer term. In sum, in the market, capital is now scarce and risk is now abundant. Given our strong capital and liquidity position, we will be looking for opportunities to deploy more capital in the second half of the year. I'll provide more details on the Japanese and Florida renewals later in the call, but first I want to turn the call over to Bob to take a look at our financials. Thanks, Bob.