Q1 2021 Renaissancere Holdings Ltd Earnings Call

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Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Renaissance of Reis first quarter earnings Conference call. At this time, all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session to ask the question. During the session you will need the press star one on your telephone.

Please be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to Mr. Keith Mccue, Senior Vice President Finance and Investor Relations. Thank you. Please go ahead Sir.

Good morning, Thank you for joining our first quarter financial results conference call yesterday. After the market close we issued our quarterly release you Didnt receive a copy. Please call me at 441 to $3 43 zero and we'll make sure to provide you with one there will be an audio replay of the call available from about two P M. Eastern.

The time today.

Midnight on May 29, the replay can be accessed by dialing 85550 of five six U S toll free or 140 of four 537 34006 internationally. The passcode you will need for both numbers. The six five for 470 <unk> today's call is.

Also available through the Investor information section of Www Dot run re dot com.

And will be archived on Renaissance <unk> website through midnight on May 29, 2021, before we begin I'm obliged to caution that today's discussion may contain forward looking statements.

Actual results may differ materially from those discussed additional information regarding the factors shaping these outcomes can be found in Renaissance Reis SEC filings, the which we direct you.

With us to discuss todays results for Kevin O'donnell, President and Chief Executive Officer, and Bob The Utah Executive Vice President and Chief Financial Officer, I'd now like to turn the call over to Kevin Kevin.

Thanks, Keith Good morning, everyone and thank you for joining today's call.

As you saw on our earnings release last night, our financial results were impacted by winter storm Yuri losses in the United States as well as mark to market losses on our investment portfolio.

As a result, we reported annualized return on average common equity of negative, 17% and annualized operating return on average common equity of positive.

3%.

The 0.3% despite.

Despite the channel the challenges of the quarter I am pleased with our performance and excited regarding our future business prospects I believe that we.

Continue to execute our long term strategy and the measures. We took this quarter will provide a strong foundation for growth and profitability of our business over the next several years, specifically I'd like to highlight three of these measures first we grew premiums materially in both property and casualty specialty and an improving mark.

Yeah.

Our gross was greatest in the lines, where we saw the highest rate increases and expect the most sustainable long term profitability and third we thoughtfully managed our excess capital by repurchasing shares at attractive prices.

To begin with opportunities to grow do not come frequently and you need the skill to recognize these opportunities as well as the determination to act decisively when they do Janney.

January one was one such opportunity by employing our flexible platform. We grew our gross written premiums in the quarter by 26% or $537 million and net premiums by 37% or $475 million both after adjusting for reinstatement premiums.

As we discussed last quarter, we expect to grow net written premiums by at least $1 billion in 2021 with a little over half of this growth in our casualty and specialty book and the balance mostly coming from other property.

This quarter, we also increase the contribution from property catastrophe two of our business through a combination of increased ownership in da Vinci and proportionately less ceded spend this combination of growing top line, while retaining more of the bottom line result of its fully deploying the $1 1 billion. We raised last June.

We did so while keeping the tail risk consistent with prior years on a percentage of equity basis.

This strong top line growth. We delivered is the direct result of the diligent execution of our long term strategy, which is to match desirable risk with efficient capital through the application of our three superiors superior customer relationships superior risk selection and superior capital management, while we.

We are a leader in property cat, we find casualty and specialty and other property, particularly attractive at this point in the cycle on continue extending our leadership into these businesses. There are three main reasons why the other property and casualty and specialty businesses are appealing to us first they are experiencing significant.

Above trend rate increases, which should provide attractive long term underwriting returns second we believe we have a competitive advantage in selecting the best risks in these businesses and monitoring the performance and third we have preferential access due to the trusted relationships and strong value proposition that we.

Of developed with our customers over many years.

Starting with the rate trends on previous calls Ive said that we believe we're on a hard market and this hard market differs from many in the past. However, as it is not driven by a lack of reinsurance capital rather it is an insurance underwriting hard market climate change modeling malpractice and social inflation have increased loss costs.

While historically low interest rates have decreased investment income.

As a consequence strong underwriting results are necessary to generate sufficient returns on equity due to this necessity, we've seen rate increases exceeding trend across the insurance industry for several years now these rate increases are approaching adequacy of them because they are necessary for profitability they should persist.

Both of our property and casualty and.

In the specialty bring us closer to this insurance risk, where we can benefit directly from improvements in underlying insurance rates as well as more stringent underwriting from improved terms and conditions on risks.

Such as communicable disease and silent cyber.

So while reinsurance markets have been stable with sufficient capital to fill programs. It is still possible the realized substantial rate increases by getting closer to the business.

Second we believe we are the competitive advantage in selecting the best of risks and monitoring of their performance and important aspect of our strategy of maintaining the capability to selectively choose among risks we have sufficient scale to access business, while still retaining the flexibility to increase on the best deals and decrease on the worst of.

Ultimately, we believe this affords us better margins.

Over the last several years, we have methodically built the necessary infrastructure to access both the other property and casualty business, leveraging our industry, leading risk and capital management technology and underwriting expertise.

There are some different strategic considerations. However between other property and casualty for example, we are increasingly positioning of the other property book to serve as an alternative means to assume catastrophe risk.

Currently our increase in exposure to catastrophe perils is largely emerging from the other property business, where we have tripled premiums over the last few years.

Other property differs from property cat excess of loss business in that an employee quota shares per risk Treaty has delegated authority and other pro rata of approaches by taking property risks in the form our customers increasingly choose the ceded we move closer to the rest of while helping students better manage their net risk.

In addition to catastrophe risk of wherever these pro rata approaches are also exposed to attritional loss. This involves a different underwriting skill set requiring substantial monitoring of our partners' performance over the life of the relationship.

Building, the system and infrastructure necessary to evaluate the catastrophe risk as well as monitor attritional risk has taken many years and much effort.

Since we are capable of underwriting for this enhances our value proposition and puts us in a preferential position to work with customers and access the best risk.

It is similar with our casualty business, we've invested in our casualty tools and methodically grown both organically and through strategic acquisition.

As rate and profit margins have improved we have expanded our positions and our customers have rewarded us with larger portions of existing programs or access to new lines cash.

<unk> is exposed to different risks than property and typically has a complementary risk curve lower volatility and an hour of dispersion between good and bad years, which increases our capital efficiency.

Over time, we expect the capital usage to increase but as long as our peak exposure remains property catastrophe casualty should remain extremely efficient.

At the January one renewal for example, only a small amount of capital we deployed was needed to support casualty because of this and provided we write profitable business. The return on required capital for casualty should be attractive.

In addition to the underwriting income that we earn on casualty book.

It brings substantial float which is the premium paid to us that we invest as we monitor loss trends this asset leverage contributes meaningfully to our earnings through investment income, while also reducing operating earnings volatility since.

2018, our casualty reserves of more than doubled to $6 billion and currently the duration of casualty liabilities is longer than property liability. So it allows us to extend the average duration of her of invested assets and consequently improve returns.

This combination of underwriting income and investment return not only drives profit, but also buffers volatility.

While we have grown casualty top line materially you have yet to see this reflected in increased profitability the higher rates from the business. We wrote over the last several years will be gradually recognized going forward as the business seasons and top of the growth rate exceeds trend. This should result in decreasing loss.

Ratio is reflected in our financials over time.

The third distinguishing factor in the other property and casualty business is that <unk> want to work with well known reliable reinsurers the demonstrate robust enterprise risk management high ratings and proven experience. They want long term partners with strong value proposition, who respect relationships and do not behave.

Transactional Lee.

They also want reinsurers with access to multiple forms of capital that can bring innovative large scale solutions to solve their biggest problems.

We believe this set of trades characterizes the reinsurer of the future the way of reinsurers increasingly need to be structured in order to be optimized for a change the market. We have worked hard to win body of this ideal and as a consequence are able to trade even more broadly with our best partners accessing the most desirable risks on the best terms.

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Our third big success for the quarter was the proactive steps, we took to reallocate our excess capital primarily through share repurchases.

In my letter to shareholders from 2015, I explained our strong preference per share repurchase.

Share repurchases to manage excess capital.

Even after deploying over $1 billion of capital at the January one renewal, we continue to hold more than ample dry powder to capture additional underwriting opportunities this year.

At the same time, we believe that our share price did not reflect the significant improvements in rates, we have been experiencing nor the strength of the earnings engine. We have built Bob will discuss these repurchases in greater detail, but we viewed it.

As an attractive opportunity to reallocate a portion of our excess capital on the way that we expect to be accretive to shareholders over the long term.

Before I hand, it over to Bob I'd like to briefly comment on our plans to return to working from our offices. We have always had a strong collaborative culture and I believe we work best when we work together.

We will be diligent in planning a return to our offices following best practices and always putting the safety of our employees and other stakeholders first.

I look forward to when we can return to our free parents that makes the operating model.

That concludes my opening comments I will provide more detail on the segment performance at the end of the call, but first Bob will discuss our financial performance for the quarter.

Thanks, Kevin and good morning, everyone as Kevin discussed we reported a net loss of $291 million in positive operating income of 4 million from the quarter. These.

These results were primarily driven by winter storm, Yuri along with Mark to market losses in our investment portfolio.

So before I discuss our results in more detail I want to call to your attention to the enhancements that we made to our earnings release. Our goal was to provide investors with additional disclosure on important themes in the quarter draw attention to key metrics and simplify the overall format.

With these enhancements my comments today will focus on our accomplishments during the quarter on items that drove our consolidated results, including our three drivers of profit share repurchases and continuing expense leverage.

Starting with our consolidated results, where we reported an annualized return on average common equity of negative 17% primarily related to mark to market losses in our strategic investment in fixed income portfolios.

Our annualized operating return on average common equity was 0.3% primarily driven by winter storm hearing whichever of furniture is Yuri.

We closed the first quarter, where the book value of approximately $7 billion, which decreased by $482 million or 6% from December 2020.

This decline was primarily from two factors first is the $291 million net loss for the quarter that I previously mentioned and second we repurchased one 1 million shares for $172 million at an average price of approximately $160 per share, which reflects an average price to book of 1.1.

Five.

We continued to repurchase shares after the quarter end and as of April 23, we have repurchased an additional 330000 shares for $55 million at an average price of $168 per share.

In total this year, we have repurchased one 4 million shares for $227 million at an average price of $161 per share.

We have a long track record of being good stewards of our investors' capital and believe that these repurchases have been an attractive opportunity to reallocate a portion of our excess capital to shareholders.

I'll now shift to our three drivers of profit starting with underwriting income.

We grew our top line significantly in the quarter with gross premiums written of $627 million of 31% with the property segment growing $396 million in the casualty segment growing $230 million.

The underwriting losses of $36 million in the quarter on a combined ratio of 103% 27 points of which related to Yuri.

You already had $180 million net negative impact on our overall results with $137 million related to property catastrophe $40 million related to other property and $3 million related to casualty.

From our property segment, specifically the gross premiums written growth of nearly $400 million was split roughly equally between property catastrophe and other property, excluding the impact of $90 million in reinstatement premiums. However growth in property premiums was about 25% with two thirds of that growth.

Other property.

The other property gross premiums written grew by $200 million, a 71% increase from the prior period. This reflects our growing expansion in primary property E&S plus additional underwriting opportunities. We are seeing in our other property class of business.

The property catastrophe grew by 21% or 11%, excluding reinstatement premiums, but that's on a much larger premium base of $1 billion.

We reported a combined ratio of 107% in our property segment driven by a 54 point impact from euro in the quarter. Most of these losses were on a property catastrophe business.

As a reminder, however, other properties also exposed to catastrophe risk and you already had a 15 point impact on both the combined and current accident year loss ratio for this class of business.

Excluding the impact of the already on our other property book Attritional losses of running about 50%, which is within our expectations for this business.

Now moving on to our casualty specialty segment and the results.

As we discussed on the last call. We had a very successful January of renewal and I'm pleased to report that this is the first quarter. Our casualty segment gross premiums written have surpassed $1 billion growing by 29% ex.

Except for financial lines of premium growth was at or above 30% and all disclosed casualty lines.

Other than the small impact of the area. There were no individually significant events in the quarter. There was a small amount of favorable prior year development and the kind of combined ratio for casualty was 98, 9%.

The finishing up the underwriting section I want to briefly address COVID-19. This time last year, we reported our first total 19 losses, which were primarily in the casualty book.

This quarter there was no significant changes to our COVID-19 losses that said this is of developing situation and we will we will receive more information over time.

We will continue to monitor COVID-19 development across all segments in line and our current reserves represent our best estimates of potential losses.

Now moving on to our second driver of profit fee income, which totaled 24 million and is down from $45 million in the first quarter of last year.

This decline is driven by a $23 million reduction in performance fees, primarily in da Vinci and Epsilon related to Europe. As a reminder, when a significant event occurs in the quarter. We typically unwind previously book profit commissions. This can result in negative performance fees like you've seen this quarter.

Management fees continue to grow and we expect that they will increase over time as we continue to grow our joint ventures.

Overall, the net non controlling interest attributable to these vehicles was $47 million. This was driven by reported losses in da Vinci and the DG, which were partially offset by income and Vermeer.

As I said last quarter, we raised $730 million on capital through Upsilon da Vinci and the D. G effective January one which included $131 million of our own capital as a reminder, as part of this capital raise we increased our stake of da Vinci to 28, 7% effective January one.

Subsequent to January one capital raise we raised an additional 132 million of in the D. G with $28 million on the first quarter and 104 million effective April one as.

As a result of this new capital our ownership percentage in the teaching declined slightly on April one to 13, 7%.

Turning now to our third driver of profit investment income our investment results declined in the quarter due to rising interest rates and volatility in our equity portfolio net investment.

Net income was $80 million offset by $346 million of mark to market losses.

This resulted in total investment results of negative $266 million the.

The $262 million in Mark to market losses from our fixed maturity portfolio related to the sharp upward movement in treasury rates during the quarter, particularly longer dated maturities.

This increase in interest rates has improved the yield on our retained fixed maturity portfolio to one 5% the duration on our retained portfolio has increased slightly to three seven years.

The $68 million Mark to market loss in our equity portfolio. It was primarily related to our strategic investments portfolio more specifically $91 million related to a long term investment in Japan offset by gains in the remainder of our equity portfolio.

Japan has been a tremendously successful investment for our shareholders over the last 14 years generating an annualized internal rate of return of 35% on of $6 million investment give.

Given the rapid appreciation of our investment in Japan and last year, we took steps early in the quarter to rationalize our exposure.

We sold down about $1.3 million of our two 8 million shares generating proceeds of about $130 million.

Subsequent to the end of the quarter and as of April 27th we sold an additional 411000 shares of Japan and generating another additional proceeds of $33 million.

Now before I move on to expenses I want to tell you about an investment we made the ties directly with the first prong of our ESG strategy promoting climate resilience, we were of seed investor and Blackrock, New U S. Carbon transition readiness fund, which is aimed at identifying the winners of the transition to a low carbon world.

This investment provides another opportunity for us to proactively manage climate risk on the underwriting capital partners and investing sides of our business. We were excited to participate with a 100 million dollar of investment in the ETF launch on April eight.

With a total of one of the quarter billion of assets, making it the largest exchange traded fund launch.

Yeah.

Now I'll provide additional information on our expenses and foreign exchange gains starting with the acquisition expense ratio, which remained flat overall at 23%. There was some noise between segments in the casualty acquisition ratio increased by three percentage points to 28%. This primarily relates to the impact of purchase accounting adjustments on last year's expenses.

Meanwhile, the property acquisition expense ratio decline driven by an increase in reinstatement premiums.

As a reminder, the current expected run rate of our casualty expense acquisition ratio is in the upper Twenty's. So this quarter was within our expectations.

Our direct expense ratio, which is the sum of our operational and corporate expenses divided by net premiums earned declined by three percentage points from the prior period to 6% for the quarter.

This was driven by a decline in expenses as we continue to leverage our platform.

Both operational and corporate expenses declined in the quarter on an absolute basis. The decrease in operational expenses is related to reduced travel and entertainment expenses in the first quarter of 2021 due to the COVID-19 pandemic.

The decrease in corporate expense is related to higher one off expenses in the first quarter of 2020 related to our acquisition of the TMR.

Going forward as we grow our top line. We will also continue to invest in the business to support our growth. However, we plan to do so at a proportionately slower rate and expect our direct expense ratio of run rate to the generally consistent with this quarter.

We reported a $23 million foreign exchange loss in the quarter approximately two thirds of this loss relates to Medici and has no impact on our bottom line as its backed out through noncontrolling interest the remainder of relates to our underwriting activities.

So in summary, we were very pleased with our strong underwriting growth this quarter on an improving market. We believe this growth along with the increased earnings potential of our fee business anticipated rising yields in our investment portfolio and ongoing leverage of our expense base will continue to contribute to shareholder value.

Now with that I'll turn it back to Kevin.

Thanks, Bob.

As usual I'll divide my comments between our property and casualty segments, starting with property. After January one the first quarter of the year of tends to be quiet for our property portfolio marked by preparation for 401 in midyear renewals. This quarter. However, winter storm Europe brought ice snow and freezing temperatures to a large portion of the.

The U S, resulting in physical damage and power outages, most notably in Texas.

As Bob explained we are estimating a net negative impact of $180 million from this event predominantly in our property catastrophe class of business in general, Texas insurers tend to have lower attachments on the reinsurance programs, which we believe will result in a greater proportion of the industry loss being shared with reinsurers.

Then in a similar sized loss in a different region.

Additionally, we expect net short.

Shortly of shortages of materials and labor as well as COVID-19 restrictions will amplify loss costs.

While not an unusual events statistically the last time of comparable winter storm struck Texas was $18 99, and I expect many of the industry were surprised by the size of this loss undoubtedly there'll be discussions across our industry.

As yet another example of the growing impact of climate change on our business.

We always capture freeze for any U S cat risks, we underwrite including in the Gulf that said systemic losses caused by widespread power interruptions can be challenging to model given the heavy sales distribution.

Our other property business was not as impacted by your yes, we do not write much residential quota share on Texas, and we reported a decent profit in the quarter.

Our conversations with clients in Japan at the April one renewal, we're productive and the renewal proceeded smoothly.

As expected we grew predominantly with our existing clients driven by increases in limit in rate.

When rates in Japan were up about 5% to 10% while earthquake rates were up low single digits.

We are deep in preparations for the Florida renewal and while we anticipate continued upward rate momentum. It is too early to predict what the outcome will be we have sufficient excess capital to grow if rates are adequate but structural issues in Florida continue to be of concern.

Overall, Florida Domestics have not performed well for many years with several Florida insurers, having experienced the ratings downgrades due to poor operating results.

This trend is likely to continue into the first quarter as many Florida insurers have diversified into Texas, making credit risk and increasing important consideration when underwriting these companies.

Even more troubling some seasons continue to report adverse development on Hurricane Irma almost four years after landfall well past the three year period for filing a claim.

<unk> did not impact our results in the quarter, but nonetheless brings into question. The supposedly short tail nature of these liabilities as well as the efficacy of prior legislative reforms in the Florida.

We welcome recent efforts by Florida, Governor incentives to limit social inflation would anticipate.

That few of the proposed reforms will be enacted in any actual benefit to the market will be minimal.

So when we anticipate opportunities to grow during the remainder of the year, we are not necessarily referring to the Florida domestic market.

Hoping critically about this market for many years and it represents an increasingly smaller portion of our property book.

Several of Florida companies have been good partners of ours for decades, and we will continue to support them on reasonable terms.

For the remainder of the Florida market, we believe additional material rate increases where necessary to offset credit risk operational deficiencies and social inflation absent. These increases we are unlikely to provide additional support and may even consider reducing for the second year in a row.

Okay.

Moving now to our casualty and specialty segment, where we continue to enjoy the benefit of accelerating underlying rate increases across multiple lines of business and geographies.

We believe that the expected profit on this book coming out of the January one renewal is strong although it will take time for this to be recognized in our financial results.

April through July is active for casualty and specialty renewals and conversations are progressing as expected.

Many of these deals did not benefit from COVID-19 related rate increases last year. So we believe that rates will continue to improve.

While we are monitoring supply and demand dynamics, we are entering the renewals in the leadership position and currently anticipate mostly stable terms and conditions with growth driven by underlying rate increases.

There were a number of potentially high profile of casualty events during the quarter, including Winter storm, you worry the greenfield and solve the insolvency and the ever given.

Blockage of the Suez Canal.

Winter Storm Yuri had a minimal impact on our casualty business and we anticipate losses will be relatively relatively muted as Texas energy companies tend to buy less liability limit.

Regarding the Greenfield insolvency Greenfields model involved complex and opaque financial engineering and as a result, we have consistently declined to participate on the reinsurance panels. While we may have some indirect exposure, we do not currently anticipate material losses from this event.

With respect to the ever given Suez Canal blockage this could impact the specialty lines, such as haul cargo and marine liability and we expect that there will be multiple complex claims from various parties attempting to recover from matures.

All of the losses to these primary insurance markets could be significant we do not anticipate that we will be materially impacted however of material liability claims arise our exposure could increase.

Closing out with the capital partners business. This quarter, we rebranded our ventures business as Renaissance III capital partners. This change reflects our partnership approach strong alignment with third party investors and growing leadership in the partner capital management space, Chris Barry The assumed leadership of the capital partners.

And we'll continue reporting in to me.

Also as part of the rebranding of the strategic investment pillar of our business has been renamed the Renaissance re strategic investments strategic investments is responsible for seeking and managing our own public and private investments that generate attractive risk adjusted returns, while advancing Renaissance of Reis business objectives. This team of.

Led by J, J Anderson reporting into Bob and the finance team.

In conclusion of our fortress balance sheet served us well this quarter, despite significant catastrophic losses and volatile equity and fixed income markets. We were able to return capital to shareholders at attractive multiples, while remaining strongly capitalized and highly liquid.

Look forward to executing our strategy and a strong market through the remainder of the year with each of our three drivers of profit position to benefit from improving conditions moving margins on a larger book of reinsurance gross in our capital partners business and increased net investment income from rising interest rates. This combination of strong execution in the business.

This coupled with the return of capital should continue contributing to shareholder value throughout the year. Thank.

Thank you and with that I'll open it up for questions.

As a reminder, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.

We do ask that you limit yourself to one question and one follow up the path.

For just a moment to compile the Q&A roster.

Your first question is from the yarn <unk> of Goldman Sachs.

Thank you very much good morning, everybody.

So a couple of questions.

First one you know what when looking at the proxy I think theres, a 7% hurdle for average growth in book value per common share of plus side of changing accumulate the dividends in order to achieve 100% compensation.

So it's the read through from that.

The company believes that of high single digit ROE is a good target.

Hey, Thanks for the thanks for the question Tomorrow, that's the proxy and that's how we look at the growth in book value per share and that's a function of earnings you know the return on earnings. It's a function of capital management and also included in there as an expense measures to make sure we're efficiently managing the platform. What we're really focused on is return on equity and our <unk>.

The drivers of profit that we talked about in our comments I think when Kevin talked about how excited he was on the underwriting book, we deployed $1 billion that we raised into what we feel is the rate exceeding trend in a very profitable business that will inure to us over time the <unk>.

Second thing that we both talked about was the fee income that's a huge driver of our profit and we had to get more capital to the to the Renaissance free risk partners under Chris Perry.

We see exciting opportunities on the management fees and that will continue to grow as we add more assets there the.

Third driver of profit achieved just the investment portfolio of $13 billion on the retained basis, it's not generating a lot of yield to be perfectly honest, it's one 5%, but what we're not doing with that is is in search of yield we're being good stewards of the capital on consistently managing and optimizing it to reflect the shape of our business to be in.

And from raising rates those are the three factors that we really focused on with the board on what we're trying to drive out and that's how our comments wrap around that.

Got it that's helpful. So essentially focus on the ROE.

It sounds like if I take the three building blocks can be in the double digits.

That's what we should not really be looking at.

Each of those levers because you've got tomorrow.

Yes, the second question, Yes, I do.

So looking at this last quarter.

You had $180 million negative impact from net negative impact from Yuri.

We had some lower fees as well if I just those out he kind of got the 200 ish million dollar quarter.

Benign cat environment is that a fair way of thinking about this or are there. Other one time items that I should be thinking about that maybe got the.

The earnings a bit higher.

Yes.

Let me start.

When I think about our portfolio of I'm less concerned as to kind of.

The.

Looking at on a quarterly basis and I'm thinking about what is the long term value that we can bring.

To our shareholders by the book on the underwriting book that we have so I often refer into on underwriters' view of our risk, which is really our in force portfolio and that has the the.

The underwriters' view of profitability on a fully developed basis when I look at the portfolio that we've created and that is in force. It is enormously efficient from a capital perspective, and producing very very healthy returns.

Largely because of the rate increase that we've been able to achieve over the last several years. So when I think about just taking what is observable in the first quarter I don't think we're capturing the embedded profitability in the underwriting portfolio, which will take a while the earn through and be developed over time from an actuarial perspective.

But everything that I'm seeing from the portfolio is.

The producing.

The producing extraordinary returns and very very efficient from the capital perspective, So we have a lot of flexibility going forward.

Okay.

Kevin.

Thanks for the answers.

Sure.

Your next question is from Elyse Greenspan of Wells Fargo.

Hi, Thanks. Good morning, My first question on you know throughout the.

The call.

<unk>.

The kind of see on incremental margin on hain over time.

I think he said Kevin as the book seasons, and the confidence grows on that.

In fact from feeding trend.

We're looking at your cash.

We'll keep on site, that's just around the 68% underlying loss ratio of backing out the favorable development on the quarter on.

So can you give us a sense of timeframe on when we might see improvement within that ratio is that layer of 2021 of that.

The out years.

The one we will see that incremental margin maybe blackman.

Yes.

Yeah.

Everything you're saying is true we are seeing rate above trend.

It's difficult to put it.

Specific point in time as to when the.

The reserving ratios will begin to.

Change if we are in fact.

Yeah.

Continue to observe better performance, what I mentioned on the last call us if you looking at the numbers as an underwriter would see them, we have an increasing GAAP between what our pricing actuaries are seeing too where our reserving actuaries, which is typical at this point in a market.

Reserving actuaries tend to recognize the good news a lot slower than bad news.

If our underwriters are right I would expect that we should see a migration of our reserving ratio towards our pricing ratios. So when I reflect back on my earlier comment with regard to our in force portfolio, that's what I'm looking at and that's where we're seeing significant.

The fit through the through the portfolio. So I won't put a specific time on it but I would say that each quarter, we are increasing our confidence that our pricing representation of the risky. He is right and over time that will be reflected by the reserving actuaries.

That's helpful. And then my second question on <unk>.

Back to the capital discussion you guys bought back a good amount of the stock so far the here on.

And the more color if possible of the kind of reconcile the basket.

Buying back a good amount of the tariff stuff so the.

Following the range of things that pop at all last year.

The second more today than there was in June on.

And then the second part of that can you just give us a sense of how we should think about buybacks trending from.

The year.

Thanks. Louis Good question. Thanks, I appreciate the offer to come back and talk more about that we did raise the $1 billion back in June we fully deployed that that we've talked about you asked if we had excess capital of Kevin did talk about we do have dry powder. We've been returning some of that you saw at 200 and nearly nearly $250 million I think through April 23rd.

But we also we didn't expect what we got was capital through earnings the Mark to market on the portfolio of post the capital raise generated about $750 million of Mark to market now having said that we gave some of the back this quarter, but that provides per capital from which we can underwrite on.

But going forward you know we.

We're going to be good stewards of the capital and we have been and I think this quarter here, we pulled all ever is demonstrating that we can return on capital we can identify excess capital that we'd like to continue to deploy into the business and we did and we have and we will continue to manage the capital. So nothing is going to really change you just suck all come together this past quarter.

Okay. Thanks for the color.

Your next question is from Josh Shanker of Bank of America.

Yeah. Thank you I just wanted to clarify first on the leases question about the.

The seasoning of the book the profitability.

Benefit in our casualty is going to come through a combination of reserve releases on current accident on the current accident year if of crude if your assumptions prove conservative as well as taking that debt.

<unk> knowledge and applying it to the accident your loss picks in future years.

That how we're supposed to understand it.

Yeah, I would say.

Yes.

It didn't do the combination of those things I think from a.

Probably more prior year, just ultimately how this will earn through.

I think the other thing that we can see as we could.

Depending on how long the rate change persist, we could see that our initial loss ratio picks would drop and that would come into the current year as well.

Okay, and then on a different track you said in the prepared remarks that you believe one of your advantages.

Is being better at risk selection.

Compared to your peers, if I go back through <unk> history. When you were more of a cat business.

I I would argue that people came to you first you always had a price for them under any circumstances, whether it was the price they wanted or not and you've got a lot of the first looks.

To what extent I think the first look maybe when you say that we are have a better ability to select risks in.

And non cat property in the specialty and casualty.

I mean, I think the what you were an exceptional provider in cat how many of competitors do you think have the capabilities you have in the non cat markets.

When I think about the.

Our presence in the market.

Think about it is everything that we do.

And we demonstrate leadership in property cat for sure our other property portfolio.

Yes.

Kind of unique in that the E&S business that we're targeting and there is a very high cat component to it. So a lot of people will look to for other property type business and try to limit the cash we're coming and seeking cat risk in that so we're bringing our expertise to that business and kind of a unique way and it puts us on an advantage because.

We're targeting both the as both the the Attritional loss in the cat component in a way of that a lot of other companies simply want more of the Attritional and wants to take less cat there.

We think we're getting excess margin in structuring of our portfolio of that way on the casualty side most of our casualty clients our clients across multiple things that we do including property cat and we are increasingly in the early conversation with them about how they are structuring their programs and with that we are able to pick up.

Each of those programs with I think greater skill and with greater access than others and so when I think about it.

The deployment of the entire.

The company with.

Large large insurers around the world that gives us that advantage and a lot of that is built on our heritage of the strong understanding of their cat risk.

And if I can just get another half of question and you know historically, obviously there was some cat risk that you've written that was exclusive to you because your relationships on the terms on the side, but there was also a lot of captains that was syndicated where some of your lesser skilled competitors would say on if rent <unk> on that deal I think probably the pricing of it fairly.

Good on all beyond two in the casualty business to what extent are syndicated deals part of what you're writing that others can get the terms that you get or to what extent are the exclusive deals that are only showing up on your book.

Yeah, a lot of the casualty.

And specialty businesses proportional.

That's one of the things of right now we like about it is because we were enjoying the underlying rate change there.

With that it is more of a syndicated market then.

On excess of loss structure, where youre of disassociated from the primary rate.

Proportionately participating in the rate change so I think the for casualty, we think about the world is how much is addressable so what business do we like and then how do we leverage into the best insurance underwriters. So that we have the largest participations on the most attractive programs. So I think of lot of it is about.

How we're using our line size and then bringing that onto our platform with the enormously efficient capital. So I would say in the property cash historically because of the way that market is structured we did have more.

Private layer business, which was uniquely priced by us and the solely with us in the casualty business. It is.

Is more of a syndicated market and we are participating.

Along with others, but our portfolio looks different because we're using volume size pretty aggressively to make sure we're largest on the best deals.

Alright, well good luck on thank thank you for the transparency.

Yes.

Thank you.

Your next question is from Meyer Shields of K B W.

Thanks, Kevin you've been very thorough explaining and Bob. It's also explains sort of the pacing of approach you're taking on the casualty and specialty sides to recognizing the margin, but I guess my one question is that if we take out last year's COVID-19 losses, It still seems like the <unk>.

Additional where accident your loss ratio went up on a year over year basis, and I'm wondering does that imply that you see more risk now to lufkin, whereas some of their factor driving that year over year change.

Youre, referring to the current accident year for casualty, especially the last year versus this year.

Yeah thinking of last year's COVID-19.

Yes, if you take out COVID-19, we had a couple of things that noise in the in the ex in the current accident here that I talked about this year.

Whether it was the casualty casualty impact of the winter storm.

A few minor movements that were unique to the quarter, but on balance were hinting around where we thought we would in the mid to upper sixties in this business now for the rate increases that we've talked about just started last year. If you think about it in 2020. The NDA that was 15 months ago and now we're seeing another round of the rate increase and so we're still really on as Kevin described.

Look back basis by the actuaries on the reserving youll see a bump up and down a little bit here, but as we look forward, we start to see that changing as different classes of business develop differently. They don't have to develop over the same period of time, but looking forward. We do expect to see the margin benefit in order to us in different classes of business. Some of some sooner. Some later.

The one thing I'd add to Bob's comments as well.

The business mix is different.

Between those two years and we have more casualty in the current book, which is at a slightly higher loss ratio. So that's a component of what you're seeing as well.

Okay. That's helpful. Second question I know, it's early on with regard to Florida discussions.

Got.

Is there any way of distinguishing between the relative attractiveness of free.

C or severity layers in the Florida market.

Uh huh.

I think if you go back of the way we would you know.

Historically referred to that as being of hot down low or we're not with the Florida market I think the the way the Florida market.

Is structured it is kind of below the HCS, which I would say is more of the frequency exposed players on the alongside and above would be more of the true cat players in that market.

I don't have a strong view as to which one is more attractive currently.

We were well equipped to look at all of those and the any structure with regard to two two of the placement of those programs at this point I don't have enough information to say I prefer the frequency of the severity letters.

Okay fair enough of it.

One final question, if I can squeeze it in we're getting I get a sense over this earning season of maybe decelerating rate increases in the number of excess and surplus lines.

Does the annual renewal schedule.

For reinsurance implied that the deceleration would be lags when it comes to the right.

That.

We will be writing over let's say the second quarter.

Yes.

Let me I think I think of your question is as we accept the new deal.

What is the what how quickly do we recognize on upward tick in the underlying rates are of downward tick in underlying rates.

There is.

It generally is delayed.

<unk>.

Often these programs are written on a risk attaching basis. So even the rate increases that were coming through last year are lagged throughout the calendar year of our treaty.

So it takes basically.

I think of it as about 18 months to kind of get a good view of it.

<unk> two.

In September.

Now it would be 12 to 18 months out before we see the the.

The full impact of the rating.

On an earned basis.

Okay perfect. Thank you so much.

Your next question is from Ryan Tunis of Autonomous research.

The new guys. So.

On other on other property profitability some of them trying to score as I think Bob made the comment low fifty's attritional loss ratio of just kind of your target.

And Kevin you mentioned that the difference between you and other underwriters of reinsurers of kind of a factor on where you're taking more cash.

So I'm trying to I guess kind of understand why that 50.

Is your target and why you wouldn't target something better because it's 30.

30% of expense ratio when you're at an EBIT pre cat combined obviously cat so.

Our low 50 is really where the attritional loss ratio needs to be in that business.

Yeah, I think when I look at that.

The attritional isn't always as clean as what it sounds.

It could.

It includes some cat loss that'll be in there from non critical cat perils.

So when I look at the combined ratio for that portfolio I do think of it as as.

If we can break it into the component pieces, but.

Including the Cat piece are we getting the margin that the targeting and the answer to that is yes, and when I compare the fully developed combined ratio for that business against a straight property cat ex ol.

I prefer the E&S business currently and I think the rate change that's coming through on the E&S business will also lag into our results over time, so that's how I feel on the on.

The combined basis I feel really good about it and I think about the the Attritional is not of pure attritional because it will have some non critical cat in it.

Okay, how much.

'twenty, maybe half of that 50, you think of as kind of of Attritional cats, Kevin or less than that.

I think it's hard to put a number on it like we could have on E&S book focused on on the the <unk>.

N handle on Florida, there's going to look very different than an E&S portfolio thats in the <unk>.

San Francisco, So it's hard to kind of the pinpointed on that.

And the definition of cash you guys could.

You could just use the insurance book.

I'll leave that be and my other question is just on for Bob.

The the fee income on underwriting income NII I think is helpful.

But I want to make sure I'm understanding of the story is the fee income not already in the underwriting income number is that actually separate and distinct thing I talked that ran.

You gave acquisition cost.

There is some element is in the underwriting in the form of profit commissions on overrides Youll see it there on the property book, but also a large part of the past give or take comes out of the Noncontrolling redeemable interest and it's the way the contracts are structured is the benefit in that.

SaaS and that's how we recognize that as fee income.

And thats been the NII then.

That's where that would show on the number do you actually.

It's unwinding the when we take out the non controlling interest part of that is really back to us for the benefit and the management team that we have out there got it.

Cool alright, thanks, I'll leave it there guys.

Thanks Ryan.

Your next question is from Phil Stefano of Deutsche Bank.

Yeah. Thanks, I was hoping you could talk about the impact of the tax rate on the of.

The the potential changes to the guilty and beat.

Oh, that's a good question timely, especially if you listen to the President last night, there was a lot going on in various jurisdictions and then youre looking at the U S. Looking at rate increases OECD is looking at some either from pillar one of our pillar two even the U K is looking at it. So it's going on a number of places that could or could impact us or not I mean, we've been.

In Bermuda to 25 years, and we feel pretty good about our position here, we've got the infrastructure here, we know it and we like it.

Relative to everyone else, it's much better now we will have to wait and see we don't know what's going to happen, we're not going to plan anticipate we're not going to do anything in anticipation of it but we'll keep an eye on it we've got a global platform and was demonstrated in the past that we have the agility to be able to adjust and still retain the relative value that we have and the offer to our shareholders.

Okay. Thanks, that's it.

Okay.

Your final question is from Jimmy Buhler of J P. Morgan.

Hi, I had a couple of questions first just on the.

The specialty lines of your commentary is obviously pretty positive, but so is it seems like everybody else is pretty bulled up about.

Specialty as well so what do you think about sort of as I understand the deal earn the price increases overtime, but what do you think about actual rates in that market.

Theyre going up here over the next year, given more interest from companies on that market.

The.

Everything we're seeing and we're still seeing positive rate move and most of the portfolios within the specialty classes, So I feel pretty good about it.

I think there's a strong in.

<unk> on the primary from the primary companies to recognize that.

The rate was required in some of those books. So there is still incentive for them to continue to push more rate.

On the specialty lines, so I feel pretty good about it I think the rate change will start to diminish, though so I think it'll be positive, but it will be out of D decelerating rate.

Okay.

And then on.

Just didn't.

Overall broadly on reinsurance, there's been optimism about price and everybody sort of talking about the rate increasing trend in exceeding loss cost.

How do you think about sort of the adequacy of prices because like the there's been a decent amount of optimism about pricing yet.

Yet the returns for reinsurance companies, including you and your peers haven't really been that good so.

And it's not just one.

One or two events they haven't been good for a while so how do you think about the adequacy of pricing in the market.

Like because obviously they are going up but are they going up from an adequate level of are they still need to catch up the where loss trends have gone over the past decade or so.

Yeah, So I think.

We've talked about on previous calls as we think of the casualty and specialty kind of rolling 10 year of blocks.

And do I think the rate that we're getting in most of the.

That book today is adequate I'd say the answer is yes in most classes. The issue is if you take the 10 year of block.

Not at a return.

That allows that block to achieve adequate returns.

There is more raise that should come into those portfolios because the it's been along the way it's been going up a couple of years, but it was a long period of rate reductions and that on the 10 year rolling basis.

Pretty heavy impact on insurers and reinsurers and right now I see particularly with the growth that we're able to achieve we are very quickly.

Approaching rate adequacy for the full 10 year of block and a lot of that is because we've been able to effectively grow into the improving market.

Yeah.

Okay. Thanks.

Yes.

Right.

There are no other questions. Thank you I'd like to turn it back to Kevin O'donnell for any closing remarks.

Thank you for joining today's call.

We enjoyed speaking to you and look forward to speaking to the next next quarter as well. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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