Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from Susan Spivak - Wachovia.
Susan Spivak
I just wanted to follow up on the trend of the increasing retentions. I kind of look at it as a good news-bad news scenario because it puts you further away from the risk and protects you in a quarter like this, but at the same time premium is shrinking and it forces you to manage capital, which is tough to balance given the monoline focus.
So that being said, could you update us on any potential diversification plans and how have some of your recent conversations about this with the rating agencies gone?
Jim, could you give us an outlook on what you see in terms of the renewals in June, July in Florida?
Jim Bryce
I think in terms of the issue of retentions, we saw in '06 retentions starting to go up. They went up dramatically again in '07. And I think this first quarter of '08 is probably the last calibration, I would say, of retentions going up.
We've had a rather benign '06 - '07. People feel comfortable with the retentions, but the level of retention on a national basis has ratcheted up by billions and billions of dollars. So I think the retention level is probably where it should have been pre-Katrina, Rita and Wilma, so right now retentions will probably remain a part from, I would say, companies with M&A activity may slightly increase, but again, these retentions are representing a significant part of earnings. And the ceding companies truly have skin in the game, which makes us feel very comfortable.
I think in terms of the renewals, as I said, 60% - 65% was [1/1]. We've seen the second quarter renewals. Japan, it looked good. I think the U.S.; unfortunately, we're getting more and more pressure on rate. Our underwriting discipline will hold, but we are not prepared to write business for the sake of writing business. If it's not properly rated, we will continue to reduce.
I think in terms of the results, we've now had nine solid quarters and these have been really quarters with loss activity, but as you quite rightly highlighted, the retention levels now really have the low to medium-sized events fully on the balance sheets of our insureds, and we're really here for the major event, which is what the cat treaty is there for.
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