Q2 2021 Renaissancere Holdings Ltd Earnings Call

July 23, 2021

[music].

Good day, and thank you for standing by welcome to the Renaissance Free and Sir Sure Inc. Second quarter earnings 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 of press star 1 and your telephone please be advised the today's conference.

Is being recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to 1 year of speakers today, Keith Mccue of.

V P of finance and Investor Relations. Please go ahead.

Thank you.

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 4.1.

And 2394830 and well.

Make sure to provide you with 1 there will be an audio replay of the call available from about 130 P. M. Eastern time today through midnight on August 23 of the replay can be accessed by dialing 8 and 5.5 to 8592056 U S toll free or 1404 of 537.

3406 internationally.

You will need for both numbers is 5371939 today's call is also available through the Investor information section of Www Dot dot com and will be archived on Renaissance <unk> website through midnight on August 31.2021.

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 and Renaissance <unk> SEC filings to which we direct you.

With us to discuss todays results are Kevin O'donnell, President and Chief Executive Officer, and Bob <unk> Executive Vice President and Chief Financial Officer.

I'd now like to turn the call over to Kevin Kevin.

Thanks, Keith Good morning, everybody and thanks for joining today's call.

The last night and our earnings release, we reported a solid quarter with strong topline growth and increasing bottom line profitability.

This resulted in annualized return on average common equity of 27, 6% and annualized operating return on average common equity of 16, 8%.

Now the many of our locations are tentatively reopening we are excited to begin reestablishing our normal cadence of business and many ways last year was the triangle 1 but it was also a year of great opportunity.

Credibly thankful for the loyalty of our customers and the resilience of the Renren community.

I'm, especially proud of our team's ability to continue to thrive and execute and a time of great uncertainty.

And for many 2020 was a year of challenges for US. It was also a time of opportunity and growth I am pleased with all of that we accomplished and we'd like to take a few minutes to talk about the journey, we've been on and how that effects, who we are and what we do.

Back into the 2013 and the market was evolving rapidly we anticipated and investors will increasingly seek yield which would result in capital, becoming more interested and reinsurance risk.

At that time, we made the strategic decision to focus on our vision, which is to be the best underwriter for us this meant leveraging our skills and 2 remaining the.

The leading reinsurer of while diversifying both geographically and into traditional casualty lines. It meant remaining focused on reinsurance business and not pursuing and insurance strategy. It also meant committing to grow our hybrid business model by expanding our capital partners franchise.

We knew that achieving the strategic imperative would require us to become more efficient we set specific goals to increase our capital leverage investment leverage and operating leverage with a particular focus on managing expenses and interest.

Because we expected the market to become more efficient and we wanted to insulate our investors as best we could from the effects of the soft market low.

During our expense ratio of help to mitigate the effect of the falling rates and offset its impact on our Roe.

In short we transfer.

We transfer transform the profile of the company to ensure we continue to for shareholders over the long term.

We knowingly began building our casualty business during a challenging phase of the market with the intent that by doing so we can construct the portfolio with embedded options for growth when pricing improved.

This is not a strategy for the faint apart you must believe that you understand the risk of you were taking because there is little room for error, you need conviction and your beliefs.

And how when and why the market will change and you must be positioned as a respected market participants and so you can grow quickly when opportunity arises.

I'm pleased to report that we have succeeded in executing the strategy and our casualty book.

Of course, we continue to monitor the impact of social inflation and other trends, but I am confident of however is that the successful execution of our strategy to grow casualty and of clearly improving market will serve us well and the favorable balance of profitable business will ultimately benefit our shareholders.

As we've said many times, we evaluate our casualty business over rolling 10 year periods for the last few years, we've been writing well rated risk that we believe will serve as the foundation for a strong portfolio with superior returns.

While we believe that we are already beginning to see this profitability. We are in no rush to make changes today.

Long term shareholders supported and they will be rewarded.

Shifting gears briefly the capital management, which Bob will address in greater detail, we have always been thoughtful and careful stewards of our capital and have methodically grown our capital base and at a pace consistent with scaling our business, while maintaining strong ratings.

Since the second quarter.

We have of 2020, we have raised $1.1 billion and equity capital.

Raised over $1 billion of partner capital.

Gross gross written premiums and our in force portfolio by $1.8 billion.

And 1 billion and net income and returned over $700 million to our shareholders through share repurchases and dividends.

As a result, we now find ourselves and the enviable position of having what we believe to be the most seem to be more than ample financial flexibility to support our existing risk take advantage of potential opportunities and continue repurchasing our shares of what we believe are attractive valuations.

Cannot emphasize too strongly wherever that last year's common equity raise was the cornerstone of all of these capital management and underwriting successes, having the right capital at the right time provided us the fortress balance sheet necessary to accomplish all of that we have.

That concludes my opening comments I will provide more detailed update on our segments performance at the end of the call, but first let me turn it over to Bob to discuss the financial performance for the quarter.

Thanks, Kevin and good morning, everyone. My comments today will focus on our accomplishments during the quarter and items that drove our results, including our 3 drivers of profit.

Starting with our consolidated results, where we reported net income of $457 million and operating income of $278 million for the quarter.

These results were driven by strong performances in each of our 3 drivers of profit excellent underwriting results increased fee income and high quality net investment income as well as robust mark to market gains and our strategic investments and fixed income portfolios and.

This produced annualized return on average common equity of 27, 6% and annualized operating return on average common equity of 16, 8%.

I'll now shift to our 3 drivers of profit starting with underwriting income.

Our topline grew significantly in the quarter gross premiums written were up $392 million of 23% with the property segment growing $141 million and the casualty segment growing $251 million.

Year to date, we have grown net premiums written by $886 million or 36% and remain on track to grow well over $1 billion.

We reported underwriting profit of $329 million and the quarter and a combined ratio of 72%.

For our property segments, specifically gross premiums written grew $141 million over the comparable quarter of 14% and we reported a combined ratio of 44% gross.

And by a lack of cat losses, and strong performance and our other property business and $51 million and prior year favorable loss development.

Growth and gross premiums written was $50 million or 7% and property cat and $91 million or 28% and other property.

Most of the growth and our property catastrophe business took place and our joint ventures. As a result, we currently only retain about 28% of the gross premiums written and our property catastrophe business.

Attritional losses, and other property book ran at about 46%. This is somewhat favorable to our expectations for this business. As a reminder, and addition to Attritional risk. We also take catastrophe risk and our other property business.

Moving onto our casualty results, our casualty segment reported gross premiums written of $911 million growing $251 million or 38% versus the comparable quarter, Kevin will elaborate on the drivers of this growth and his discussion of the underwriting performance.

We experienced a small amount of favorable development and the combined ratio and the combined ratio was 97, 8%.

Underlying this was a 67% current accident year loss ratio, which is a 1.4 percentage point improvement from the same quarter last year and consistent with our expectations.

This quarter there were no significant changes to our COVID-19 loss estimate.

That said this is a developing situation and we will continue to receive information over time, we continue to monitor COVID-19 development across both segments and our current reserves represent our best estimate of potential losses.

Now moving onto our second driver of profit the income.

Total fee income was $46 million, which is up from the second quarter of last year.

Management fees increased and we expect that they will continue to serve as a strong stable source of recurring revenues going forward.

Overall, we shared of $114 million of income with the partners and our joint ventures as reflected in our redeemable non controlling interest driven by profitable performance and a low cat quarter and prior year favorable loss development.

On the D G and Epsilon and funds raised in aggregate over $200 million and the new quarter capital This year, which we deployed the June 1 renewal.

<unk> was to provide additional disclosure on the geography of our fee income and the income statement.

Turning now to our third driver of profit investment income.

We recorded strong investment returns this quarter due to falling interest rates as well as gains and our equity portfolio.

Net investment income was $81 million and we had $191 million of Mark to market gains. This resulted in total investment returns of $272 million.

The decrease in interest rates has lowered the yield on our retained fixed maturity and short term investment portfolio to 1.3% the day.

<unk> on our retained portfolio remained roughly flat the 3.8 years.

You'll note that we reduced our exposure to corporate credit this quarter shifting the portfolio to the U S. Treasuries. We did this as credit spreads approach multi year lows.

And turning now to our expenses and starting with the acquisition expense ratio, which was up slightly to 24%. This was driven by of casualty acquisition ratio, which increased by 1 percentage point to 28%.

The current expected run rate of our casualty acquisition expense ratio is and the upper Twenty's. So this quarter is consistent with expectations. Meanwhile, the property acquisition ratio expense ratio acquisition expense ratio was flat.

Our direct expense ratio, which is the sum of our operational and corporate expenses divided by net premiums earned was flat from the prior quarter at 6%.

And on an absolute basis operational expenses were up and the quarter, but remained below 5% as the ratio of net premiums earned.

Going forward as we grow our top line. We will also continue to invest and the business to support our growth.

Our direct expense ratio to remain generally consistent with this quarter absent 1 time items.

I'd like to now shift to our discussion on our capital management during the quarter.

Earlier this month, we issued $500 million of our series G perpetual preference shares with a fixed for life dividend of $4.2 zero percent.

And we plan to use $275 million of the proceeds to refinance our 5 and 3 H series E preference shares, which we have already been called and the remainder of the proceeds for general corporate purposes.

As a reminder.

Last year, we redeemed the outstanding $125 million of our 6% series the preference shares and written.

<unk> $250 million of our 5 and 3 quarters senior debt.

So in total we have replaced $650 million of capital at an average cost of 5 and 2 thirds of percent with $500 million of capital at a cost of $4.20.

This is part of our long term strategy to minimize the cost of capital.

Even with the incremental $225 million raised this month, we are comfortable with our various capital ratios, which are stronger than 2 years ago.

Also in the quarter, we participated and the issuance of additional $250 million tranche of our mono lease of cat bonds.

Consistent with our strategy. This adds additional efficient underwriting capital to a fortress balance sheet.

As Kevin noted.

Since June since last June we have earned $1 billion and.

And the second quarter of 2021, we continued returning these earnings to shareholders repurchasing $1.9 million common shares for $309 million.

This works out to an average price per share of about $159 and and average price to book value of 1.1 times, our current book value.

Subsequent to the quarter and we continued to repurchase shares and as of July 19 had repurchased an additional 920000 shares for $138 million at an average price of just over $149 of share.

In total this year, we have purchased 3.9 million shares for $618 million at an average price of $157 per share. This has reduced our share count by about 7.8% from the year end 2020 total.

Despite substantial quarterly share repurchases, we ended the quarter with more capital than we began which reflects our excess earnings net of share buybacks and dividends. Our common equity now stands at $6.7 billion.

To be clear about the use of the $1.1 billion of common equity we raised last year that money has and fully downstream into our operating entities to support the attractive opportunities. We took advantage of to substantially grow our book this year and position us well for the future.

Now before turning the call back over to Kevin and I'd like to finish with a brief discussion on tax.

We have been closely following recent G 7 and G 20 announcements on setting and global minimum corporate tax. The OECD is work on pillar, 1 and 2 and president of <unk> proposals for U S tax changes when it comes the tax reform the details matter and they are not yet clear over the years. However, the flexibility of our global operating platform.

Arm has proven resilient and we anticipate this resilience will persist that said, we will continue to monitor the this issue of closely.

So in closing we are pleased with our solid financial performance this quarter across our 3 drivers of profit and believe we have demonstrated the proactive capital management, which should continue to contribute to shareholder value.

With that I'll turn it back over to Kevin.

Thanks, Bob.

Usual I'll divide my comments between our property and casualty segments, starting with property.

Well, we always maintain our leadership and property cat underwriting to be clear, we are increasingly doing it differently.

Currently take more of our cat exposed risk through our other property portfolio because of that is where we are seeing better returns for taking cat risk and.

Our existing other property book has access to some of the most dislocated property lines and the U S E&S market.

We have the platforms capital and expertise to focus across classes to target and obtaining the best risk due to the long term relationships that we've cultivated with customers for over 25 years.

This is evident and the 28% year on year growth, which our other property book has delivered and we now have and enforce portfolio of over $1 billion.

We also grew our property cat portfolio this quarter, but by a smaller percentage. The June 1 renewals proceeded as anticipated and overall, we believe that we have constructed 1 of our best Cat books and years.

The Florida renewal.

So rate increases, averaging 5% to 20% with abundant capacity for upper layers, while many lower layers struggled to get placed especially if they were loss impacted.

As we anticipated on last quarter's call, we reduced the number of Florida programs that we wrote from 18% to 13, which is the continuation of last year's trend when we reduced from 25 programs since.

Since 2019, we have reduced our bottom line exposure to Florida domestic companies by almost half the Florida market remains highly challenged due to social inflation and.

And as anticipated proposed reforms do not appear likely to materially change the landscape.

Reiterate that the Florida domestic market and now represents less than 3% of our gross written premiums.

That said.

Decreased exposure to Florida Domestics is not the same thing as decreased exposure to Florida Hurricane and southeast wind remains the peak risk and our portfolio.

What has changed is that we have moved away from Florida domestic companies to more regional and nationwide programs and over the last year of increasingly taken and southeast wind risks through our other property portfolio.

I should note that as we have grown so has our tail risk on an absolute basis on.

And on a percentage of equity basis. However, it is similar to where we were prior to last year's capital raise.

It is easy to grow and this business by simply going risk gone, but we created a larger and more efficient portfolio and we had prior to the capital raise and we did this by holding a relative risk levels consistent with prior years.

Inflation and that's been in the news recently with headline CPA and may exceeding 5%.

Most relevant to our property book, however, as inflation and the commodity and labor markets.

That is more likely to impact rebuilding cost after an event lumber and other commodity prices up and elevated this year, although recently the appear to be moderating.

We price for inflation and our models given the elevated risk and the current environment, we have stress tested our portfolio and remain comfortable with its exposure to inflation.

From our perspective is the reinsurer.

A quiet quarter for cats glut at made landfall and Louisiana is of disorganized weak tropical storm.

And at the beginning of July also made landfall in Florida as the strong tropical storm and was the earliest east storm on record.

These storms May result in some losses, we currently do not anticipate the used to be material.

We are closely monitoring meteorological conditions, as we head into the third and fourth quarters.

Probably read news reports about wildfires and record droughts already and the U S, particularly in California.

We are expecting and active hurricane season, having already having 3 U S land falling storms.

And recently experienced a significant flooding event, which we are closely evaluating although it's too early to estimate potential losses.

And as always the Renaissance re risks and sciences is proving invaluable and helping us understand the climate dynamics likely to influence the remainder of the year.

I'm often asked if we vary the amount of business that we write based on weather forecasts.

Strongly believe that due to our superior tools and better understanding of climate change, we play a critical role and managing our customers' natural catastrophe risk behaving like a partner by providing long term stable capacity as part of our value proposition for which I expect we will be rewarded.

Moving now to our casualty and specialty segment.

Our casualty portfolio is performing well the original insurance rates continuing to increase although the magnitude of appears to be moderating and those glasses, which have experienced the greatest uplift such as D&O.

We have grown our casualty business by more than 300% since 2015, and and enforce basis. This includes adding over $1 billion of new business and the last 12 months also on and important spaces, which should position us well as the market has clearly improved.

The reflecting over my career I believe that many underwriters do not go large enough when opportunity knocks and we're small enough when it receipts I am proud of how our team has performed and believe that we have executed into this market opportunity with great skill and dexterity.

Our competitive advantages, including our long term relationships and first mover status of <unk>.

Served us well this year.

We anticipated this market well in advance and adopted a strategy of competent provision of consistent capacity.

Well the other reinsurers haggled over terms and conditions, we were discussing new structures and coverages. We believe that this was the appropriate approach and it explains our ability to grow proactively into and improving market, which should benefit.

And from building, our largest and what we believe to be our best casualty specialty portfolio as the market hits the multiyear high.

Right.

Cyber insurance has been getting a lot of attention lately rate changes have been greater than 40% year on year and the market.

And it's been growing by about 25% each year for the previous 5 years.

Recently, this is being driven by multiple large cyber attacks and increasing instances of ransomware as a result, the cyber market is currently experiencing increasing demand and limited supply.

We have been re insuring cyber liability for almost a decade and believe there are of good opportunities to grow this book.

Casualty and specialty losses, including those related to COVID-19 continue to develop within our expectations and are.

The credit book.

The mortgage forbearance rates also continued to improve and the U S housing market continues to be very healthy.

As I mentioned on our previous calls and the casualty business, our actuaries are being patient and recognizing positive rate movement. We are optimistic that over time, we will benefit from the improved underwriting terms and pricing that we believe we are enjoying.

Closing now with our capital partners business. The Big news for this quarter was that our Mcgeachy capital and fund surpassed $1 billion and capital under management this quarter experienced near record Cat Bond issuances, and we continue to see strong demand for our Mcgeachy fun.

Our strategic approach.

Asset management is not as an asset accumulator, but rather as an underwriter and looking to match the most efficient capital with desirable risk to.

To achieve this and provide the best solutions to our customers, we need multiple capital structures and capital sources. It is for this reason that we <unk>.

Managed several vehicles, both rated and unrated to provide additional capacity to our customers from third party capital.

Since 2015, we have grown our capital partner business from 4.4 vehicles and $6 billion and capital to 6 vehicles with more than $11 billion of capital.

This is of critical component of our strategy provides our customers efficient capital winter owned rated balance sheets are less efficient and it allows our third party investors to partner with the best underwriter and benefit from on from our unparalleled understanding and modeling of the catastrophe risk that the desire.

And it is good for our shareholders that it results in the stable growing source of fee income.

So in conclusion, we delivered a solid quarter with strong premium growth improving profitability and proactive capital management, we maintained a fortress balance sheet and while heading into the wind season, and continuing to build the foundations for long term.

Shareholder value.

And with that I'll open it up for questions.

As a reminder to ask a question you will need the press star 1 and your telephone and we ask that you. Please limit yourself to 2 questions before re entering the queue to withdraw your question. Please press the pound key.

Our first question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open. Please go ahead.

Hi, Thanks, Good morning, My first question Kevin.

And picking up on.

I got the right on your last comment where you said you guys have the gorgeous balance sheet heading into win season, if I remember correctly. When we typically does not like to be of asking for buybacks during the winter.

Suzanne.

And the disclosure of July, which I know isn't the active part of Lindsay.

Wednesday's and you guys kind of continue to buy back your stock at a pretty robust clip so Kevin.

And on top of buildings.

Can you just give us the Samsung.

Thoughts around buyback.

Throughout Wednesday, and this year.

Yeah I think.

We have and other years paused our buybacks during wind season the.

We look at our capital and our capital position and going into wind season is first and make sure you're right. The portfolio that we've targeted and desire, which we have done we hold capital available for opportunities that are there.

Net debt or are likely to emerge during the quarter and then we look at what excess capital is available and look to manage it typically through buybacks I would say looking at this wind season, and we're in a very strong capital position to continue to execute our strategy, we have ample financial flexibility for us.

The new opportunities and I would say that with that we are and a stronger position to continue to think about buybacks. During this wind season, and then we were last year.

Okay. That's helpful. And then my second question when you buy and raise the capital and we had the question last year. After that you spoke about wanting to parts of the capital to work right and 2021 and then in subsequent years. So you still sound pretty bullish on the opportunities within casualty and specialty and also within the other.

Part of the market.

And I know, we're still away you know a little bit away from thinking about next year's renewals, but and you kind of think about just the opportunity and is it still seem like you'll be able to continue to put that capital to work.

Relative to what you guys. The thought you know kind of following the capital raise last year.

Sure 2 firstly, we've deployed everything we've reduced.

And the way I think about that is is we have very high renewal retention, so our deployment and I think of us and annuity for future value.

We brought it on onto our platform.

Bob discussed briefly we are still yet to earn much of the the benefit of the premium that we've already written and when and we look into 2020.2.

We are building our performance pro form is with the assumption that that business remains with us and we have further opportunity to grow so and I think about the future, where we're and our capital position where that money is deployed we of additional capital that we are targeting for future growth going into 2022, and we still have the financial flexibility.

The 2 research and repurchase shares and what we think of attractive prices. So I couldn't be in it.

Looking back over the history of <unk>.

The role at run rate I think this is 1 of the strongest financial positions, we've been and with the greatest flexibility we've ever had.

Thanks for the color.

Sure.

Thank you and our next question comes from the line of Ryan Tunis with Autonomous Research. Your line is open. Please go ahead.

Hey, Thanks, good morning, guys.

Kevin I guess, just looking at your your 1.3% retained investment portfolio yield.

Isn't that it's extremely inefficient given how much your mix more toward the longer liabilities in recent years.

And I'll take that 1 Ryan 1 where we're very comfortable with our investment portfolio of first you have to remember we're an underwriting company.

And we were and we underwrite and instead of reserves and I'll answer the reserves question and the second here, but we're very comfortable with the liquidity and good stewards of that liquidity and we look at our balance sheet and totality and how the liabilities developed overtime. We have extended duration. If you look back over the last few years, we've taken it out from a very conservative duration that you would expect with the <unk>.

Pretty cat company short tail, we've extended that to 3.8 years right now so we're consciously looking at that but what we're not doing Ryan is trying to swing for the fences and generate yield right. Now we're trying to be good stewards of the liquidity to ensure that our reserves are taken care of.

1 thing I'd add to that is and thinking about the portfolios that we construct and my comments about southeast wind still being a peak risk for US. We also placed very high.

Our goals for our liquidity so that has given any sort of cat event and of our liquidity is available.

And that obviously affects returns and it's and it is.

Been a consistent part of our capital management.

And frankly since I've been here.

And it just seems like a pretty obvious lover, and it's a place where you're giving up a few roe points relative to the rest of the Bermuda.

Go ahead of it.

Yeah.

Thank you and our next question comes from the line of Josh Shanker with Bank of America. Your line is open. Please go ahead.

Yes, thank you very much.

So I'm trying to do some work to figure out in the past and.

And when you interpolated Platt.

Platinum into your business.

And there wasn't favorable development that was coming off the platinum acquisition, and maybe things of seasoned enough and your legacy canceling and especially portfolios that you felt comfortable.

We with the season and improving underlying.

Loss ratio coming through on that business.

How is the out of the lessons of I guess, the 14 to 16 period and the favorable development that we saw and the canceling of the specialty segment, what lessons can we apply to where your reserve and the book right now and following the TMR acquisition.

So.

Yeah.

The let me talk a little bit about our portfolio, so and so we within the casualty, especially the way of a diverse portfolio. We do of reserving at of line of business basis.

And we generally as I've talked about on previous calls have a long period before we begin to recognize the positive news.

And we don't really think about periods of pretty platinum and postpartum, because we integrated that portfolio and we integrated the Tokyo portfolio.

What I would say is our methodology is exactly the same as what it was 3.4 of 5 years ago. The the differences and is that we're substantially growing our casualty portfolio and we're growing it into a much better market, we havent fully earned the.

The growth that we've already achieved and the growth that we're achieving is at substantially higher rates and the in force portfolio. All of that will take time, but when I think about our casualty portfolio, sometimes think of it as of battery and how much energy we put into the battery we have not only made the battery big bigger the pipe.

Charging the battery is much stronger so when I look at our the quality of our portfolio I think.

It's better than it's ever been and it's bigger than it's ever been and if and when you think about managing the casualty portfolio of being able to grow and leverage the portfolio into what is now of the high Mark for the portfolio. So far from a pricing perspective is exactly what you want to be where you want to be so the portfolios and exceptional condition.

It's going to take a little bit of time to earn it which is natural with the writing quota share business and we're enjoying the full benefit of the underlying rate change that has been available and the market for the last several years.

Alright, I appreciate it and I realize you guys are trying but I mean I look at the you guys reserving the right now and your capacity of the special booked at about a break even combined ratio.

Is that based on the that you think that a recent accident years not current but you know just being it.

The recent accident years, and we're looking at the industry, producing and much much better margins than the <unk> reinsurance on the casualty business.

Or are you of the view that there are a lot of I guess ECR that you were seasons Havent put up enough for those recent accident years and the way your.

The reserves were contemplated as your IV and earn and ACR and access of what Youre getting from the students.

Okay.

The.

Let me just talk a bit about property taxes, I think the ACR is a little bit more relevant there within the our property portfolios and and.

And event driven property portfolios and we generally carry significantly higher reserves and the primary companies.

Looking at our casualty portfolio of lot of what is booked.

I B and our.

And.

We are then given border of reporting and then we reconcile the actual against the curve that we built from the from the App for the IV and are in general we start with the higher expected ultimate and many of our customers. That's just who we are and what we do over time that can be reconciled back to the performance at the underlying and carriers, having because ultimately that's.

The portfolio, we're protecting so I feel it's a prudent way to think about it when you're 1 step further away from the original risk and it takes.

Some period of time for the earnings to come through because of that strategy, but I think it's the right strategy as a reinsurer.

The fact that our portfolio of so much bigger than where it has been historically also amplifies. The the change you did that the.

The pricing should have on the overall return of the portfolio. So I think we're in good shape.

The way we reserve our portfolio I think it's appropriate and in general it is higher than what we're seeing on the underlying portfolios that were protecting as the starting point.

Ultimately the reconcile.

Mike.

We hope so and I'm learning I appreciate it thank you very much.

Thank you and our next question comes from the line of Meyer Shields with <unk>. Your line is open. Please go ahead.

Great. Thanks, Kevin and your comments I guess, when you talk about moving towards I'll.

And I'll say, a bigger national carriers that have Florida exposure. So I would assume that that means that you're writing and higher layers is that just because of their biggest and they can retain more risk because that of fair interpretation and or are there other changes in the profile of the book Besides that.

I think the there.

There's 2 ways nation national carriers by 1 is including Florida, and 1 of the Florida specific the Florida specific specifics replicate a little bit more to how the regionals by your comment in general on our property Cat portfolio is that we are higher skewed in our attachment point for Florida.

That is not true for our overall property portfolio because on the other property portfolio. We are writing more proportional exposure through the full risk distribution, which will add exposure at the lower point of the curve or the more frequent return periods. So when I look at our portfolio at the overall property level of your comments.

The accurate for property cat, but our overall property portfolio is.

About equally exposed as it has been historically too small events and and large events.

And that is mostly because of the other property writings.

Okay. No that's helpful that makes sense.

And then a quick answer of Bob if we have some of the management piece of offsetting expenses and the asset pools are growing well.

And so that translate into expense ratio improvement over time, assuming that you continue to grow our invested capital.

Okay.

Yes, I think as we as we continue to grow the fees, which we have been over the past several years, you'll see the geography and the income statement come through part of it will be and the property and is an offset to the expenses using of disclosure we put in the supplemental this quarter, you'll be able to see that going forward on the training basis. The other is really its down.

And the non controlling redeemable interest and does not affect expenses and it just effects of the amount that's released back into our capital partners.

Right no I understand that that's helpful and just.

The earlier you or in your prepared comments, you talked about expecting basically a flat the sensation of I'm trying to reconcile the 2 ideas.

All of the extent, okay, sorry, I misunderstood. The question I was thinking of is definitely the expense ratio as of <unk>.

Ratio is going to continue to growth.

Gonna have that that is what our measure us and we continue the investments around just under 5% right now on the underwriting side of it the <unk>.

Fees as they grow will continue and be an offset to the operational expense, but we're going to continue to invest and our teams and our platform.

Okay, that's great and thank you so much.

Thank you and our next question comes from the line of Michael Phillips with Morgan Stanley. Your line is open. Please go ahead.

Thanks, and good morning.

I guess, 1 quick numbers question for Bob Bob You mentioned, the change and the imports and the asset mix from corporate to the treasuries.

But there was a couple of the monitor things, but most of them.

Comment on.

Cash and moved up quite a bit anything there that was kind of noteworthy for that most of the investment expense kind of jumped as well and almost of the Thanksgiving day.

Okay.

And so I think.

The question, Mike was on cash and changes in the in the portfolio, Yes, cash was up quite a bit and the quota and what kind of lumpy, but at the exactly jumped up this quarter and then the investment expenses I think it was a little over $7 million and excuse me of around 4 so sort of.

Yeah.

Got it on a cumulative of starting with the expenses and was $7 million. This quarter was it was the timing of the accruals on a year to day basis, Mike and should be normalized.

Consider comparable to what last year was on the cash side you see we did raised a couple of hundred million dollars and our funds that that'll be on our balance sheet and until we get that put into some of the short term investments that are out there just.

And just more minor on the geography, and the inflection of what we've had and our and our third party capital.

Okay Cool that's helpful. Thanks.

Kevin you mentioned it and I appreciate the little too early to talk about European flooding the exposure there but.

But we've seen some stories and I guess late reported large claims activity from last quarter's wonder if the euro.

And I'm wondering if you could.

And so I guess, not but any concerns there of that moving off of the industry level and what we've seen so far.

Yeah and when.

I'm aware of the changes that you were discussing that's from our from our estimate and looking at our portfolio we.

We still we don't see that affecting us the same way it's affecting the market. So we feel good about the estimates and we have up.

Okay. Thank you guys.

Thank you and again, ladies and gentlemen, if you have a question at this time. Please press Star then 1.

And we have a question from the line of Brian Meredith with UBS. Your line is open. Please go ahead, yes.

Yes. Thanks.

Kevin and I was hoping we could get back a little bit into the whole inflationary and a question and kind of what the impact could be on and losses here as we go through hurricane season, and I know you said you're comfortable with your exposure but.

How do we kind of think of it frame and when you when you renew contracts at 1.1 were you thinking about the same type of inflationary environment, we are and today and.

And then as we kind of look like potential hurricanes hitting.

Could they be 510, 15% higher given the labor shortages and as well as lumber prices.

So firstly I believe losses will be more expensive this year because of inflation.

And I would have said the same thing last year and the way I think about inflation is most of the and both the inflation and specifically for the property cat portfolio is going to be after an event that's captured in our models through.

What we call demand surge and we hold demand surge curves significantly higher than the commercial models hold them.

So we've already had a degree of of conservative relative to the industry with our view of inflation post event.

Going and this year, we already know there's pressures there I think labor.

The pressures post event could be significant but we haven't reflected and our model. We've done some stress testing on where the where inflation is we feel comfortable with the way we modeled the book So the inflation is probably higher than what we thought at 1.1 but and thinking about how we built the portfolio. It's unopposed event demand search basis, I think we're well covered and kind of be higher.

And we already have and held higher than the industry.

Great. Thanks, very helpful. And then the second question I'm, just curious could you give us a little bit of color on kind of what's your exposure right now as to the aggregate covers and the obviously with the first quarter events being high and the wildfires.

Do you think that's a book of business that's at risk for some kind of decent sized losses again this year.

It is early I think.

All aggregate covers are going to be closely monitored if there's large events and the first quarter. We've reduced our writing of aggregate covers this year, we have a vehicle upsilon, which tends to be better suited capital for a whole host of reasons for that type of risk.

And that has reduced its exposure to aggregate covers as well so it's.

Again, it is we do of exposure to it its less than last year on a relative basis and it's not something that at this point we have.

A significant concerns about.

Great really helpful. Thank you.

Sure.

Thank you and our next question comes from the line.

The funnel with Deutsche Bank. Your line is open. Please go ahead.

Yeah, Thanks, and good morning, and response to an earlier question you talked about the the.

The difference and the ultimate expectations between yourself and the students.

And I was hoping you could layer into that and give some commentary around pricing.

And when we see the favorable pricing environment and the primary side that we have right now does it feel like that's spread between the ultimate gross.

And maybe your your ultimate expectations and it stayed flattish, but the the expectations of students come down to reflect the pricing maybe more and real time.

Yeah and then.

And the spread between us and our seasons from a pricing perspective is true. It's also of the spread between our reserving actuaries and our pricing average pricing.

Actuaries spread has and enhanced as well so what that means is the.

The the our pricing actuaries in the moment are reflecting the price change that is occurring on our portfolio. Our reserving actuaries are monitoring trend and 1 more slowly reflect reflect the price change that there the pricing actuaries are affecting immediately so it's a normal part of of <unk>.

The market. The good news is as we're moving into a by any measure a better price market. We are substantially larger so the beneficial impact of the quality of the portfolio that we currently written.

Will emerge over time.

As we earn it out so when I think about the portfolio and that my comments about it being the best casualty and specialty portfolio. We've written I couldnt be more excited about the profile of the risk that I'm seeing and it'll just take time to earn out.

Okay understood and all of those.

And just the depreciate the comments earlier that the the full 1 billion and so that was raised the year ago was deployed and.

It works through the excess capital you feel like you have enough levers in place to continue to grow and continue to repurchase shares I mean, how should we be contemplating the excess capital position.

Now versus a year ago, and maybe 2 years ago and how kind.

Without putting numbers on it how should we think about.

The drivers moving this excess capital position versus the capital returns that Youre doing.

Yeah.

And so.

I think the not all of these are things that are easily seen from outside the us.

The 4 walls of run rate, but our portfolio is more efficient we actually have more ability to share risk both with third party capital and I'd mentioned, we raised $1 billion third party capital.

Last year and over the last 12 months the.

We've seen more opportunities for portfolio enhancement through some traditional ceded and we were able to grow our top line more than we originally forecast. So all of that plays into the the consumption of capital within our portfolio and that's where the deployment of the billion came from.

We burned out and we've earned $1 billion and you kind of of the simple math and we've only bought about 700 million of stock back so right. There we've already created more.

Room for for growth just by not even keeping up with the earnings that we've had.

So when I look at it and it's a combination of greater efficiency with our portfolio, partially because we've had more opportunity to share it with third party investors and others.

The fee income we've earned more than expected, partially because of the the investment returns and the second half of last year and as we look forward.

And that gives us a lot of financial flexibility to think about continue to invest and the portfolio and then also have the scale and the flexibility of the buy more shares back. So it's a combination of things not always easy to point to 1 number on our reports to reflect it.

Yeah.

Thank you and our next question comes from the line of Jimmy Gilbert with J P. Morgan. Your line is open. Please go ahead.

Hi, Thanks. Good morning. So most of my questions were answered I just had a couple of items. The first can you talk about the drivers of and the favorable reserve Goldman and that you saw this quarter and any sort of color on.

Either accident years or region or pieces of what really drove that.

Thanks for the questions Bob It really came.

And across most of our years of apparel and said part of our review review that we go through I would point out that of the $52 million 28 of it was in da Vinci and so that was the lion's share of it and that's aligned with our property cat business and we have 30% of that so really $20 million of that favorable development was actually released back to our capital partners and the non and redeem them.

The controllable interest so favorable development that was on houses all day about $32 million.

Okay, and then on pricing overall, obviously, the the pace of increases has slowed but how do you feel about the adequacy of pricing.

Given the rates have gone up over the past several years and but then there are some pressures as well such as inflation, so and just across your various businesses.

Yeah. So I think you know.

And we've been getting rate on rate and so so the the level of rate increase is reducing but still positive. So that's good news just to start with so we look at our portfolio our observations of broadly we're seeing rate above trend.

We do watch social inflation carefully to make sure that we are assessing that element of trend.

And we feel as if the portfolios that we're writing rate adequate.

So we believe that there is further rate increase coming in the pipeline, but we're already dealing with portfolios that are seeing way.

Right above trend and are great.

And and have rate adequacy, and so I think the books and good shape.

Okay. Thank you.

Yeah.

Thank you and our next question comes from the line of Mike <unk> with <unk>. Your line is open. Please go ahead.

Hopefully this is the good continuation of the Jimmy's question you've.

You've talked about the improving rate environment, I think that's undeniable, but it seems like eventually we're going to see softening in casualty and specialty and was hoping you could.

Talk about how your expectations for maybe the shape of this price cycle and that's what we're seeing.

Yeah, I think you know rates won't go up forever. So I think.

We certainly expect that.

I think 1 sometimes and.

And back on the last comment.

We do monitor rate change, but we're disciplined and understanding rate adequacy. So we believe that there is more rate coming through the system.

I'll take US you know again.

So we're optimistic about where the portfolios are once we observe and whether that's from an increase and trend or a reduction and rate that the.

Balance is no longer in our favor we will reduce the size of our books, we're nowhere near that point at this at this time and it's in our observation of where the markets are the.

Okay.

Okay. Thank you.

Thank you and I'm showing no further questions at this time and I would like to turn the conference back over to Kevin for any further remarks.

Okay. Thanks, everybody for joining our conference call today, and I think this is an exciting time to be and the market. It's an underwriter's market. We are the best underwriter and the market looking for the right risk at the right time, we grew successfully and early when the opportunity arose and I think that'll be the cornerstone for the portfolio going forward. So thanks again for.

Tuning and and we look forward to speaking to you next week next quarter. Thanks.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Good day, and thank you for standing by welcome to the Renaissance ramps or share of second quarter earnings 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 of press star 1 and your telephone please be advised for today's conference.

And is being recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over the 1 year of speakers today, Keith Mccue SVP of 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 4412394830, and we will make sure to provide you with 1 and there will be an audio replay.

Hey of the call available from about 130 P. M. Eastern time today through midnight on August 23 of the replay can be accessed by dialing 8 and 500.585920 of $5.6 U S toll free 1 and 404 of 537 and 3406 internationally and the past.

And you will need for both numbers is 537 and 1939 today's call is also available through the Investor information section of Www Dot <unk> dot com and will be archived on Renaissance <unk> website through midnight on August 31.2021.

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 and Renaissance <unk> SEC filings to which we direct you.

With us to discuss todays results are Kevin O'donnell, President and Chief Executive Officer, and Bob <unk> Executive Vice President and Chief Financial Officer.

I would now like to turn the call over to Kevin Kevin.

Thanks, Steve Good morning, everybody and thanks for joining today's call.

Last night and our earnings release, we reported a solid quarter with strong topline growth and increasing bottom line profitability.

This resulted in annualized return on average common equity of 27, 6% and annualized operating return on average common equity of 16, 8%.

Now the many of our locations are tentatively reopening we are excited to begin reestablishing our normal cadence of business and in many ways last year was the triangle 1 but it was also a year of great opportunity and I'm incredibly thankful for the loyalty of our customers and the resilience of the Renren community.

Im, especially proud of our team's ability to continue to thrive and execute and a time of great uncertainty.

The back into the 2013 and the market was evolving rapidly we anticipated and investors will increasingly seek yield which would result in capital, becoming more interested and reinsurance risk.

And at that time, we made the strategic decision to focus on our vision, which is to be the best underwriter for us this meant leveraging our skills and 2 remaining and Lee.

Leading reinsurer of while diversifying both geographically and into traditional casualty lines and <unk>.

<unk> remaining focused on reinsurance business and not pursuing and insurance strategy. It also meant committing to grow our hybrid business model by expanding our capital partners franchise.

We knew that achieving this strategic imperative would require us to become more efficient we set specific goals to increase our capital leverage investment leverage and operating leverage with a particular focus on managing expenses.

And so just because we expected the market to become more efficient and we wanted to insulate our investors as best we could from the effects of the soft market.

Lowering our expense ratio of help to mitigate the effect of the falling rates and offset its impact on our ROA and <unk>.

In short we transfer.

Excuse me, we transfer transform the profile of the company to ensure we continue to benefit our shareholders over the long term.

This is not a strategy for the bank of heart you must believe that you understand the risk you were taking because there is little room for error, you need conviction and your beliefs.

And how when and why the market will change and you must be positioned as irrespective of market participants. So you can grow quickly when opportunity arises.

I'm pleased to report that we have succeeded and executing this strategy and our casualty book of course, we continue to monitor the impact of social inflation and other trends what I am confident of however is that the successful execution of our strategy to grow casualty and of clearly improving market will serve us well and the favorable balance of profitable.

Bill's business will ultimately benefit our shareholders.

And as we've said many times, we evaluate our casualty business over rolling 10 year periods for the last few years, we've been writing well rated risks that we believe will serve as the foundation for a strong portfolio with superior returns.

While we believe that we have.

And we're already beginning to see this profitability we are in no rush to make changes today, our long term shareholders supported and they will be rewarded.

Since the second quarter.

We have of 2020, we have raised $1.1 billion and equity capital.

Raised over $1 billion of partner capital.

Grown gross written premiums and our in force portfolio by $1.8 billion.

Earned 1 billion and net income and returned over $700 million to our shareholders through share repurchases and dividends.

As a result, we now find ourselves and the enviable position of having what we believe to be the most to be more than ample financial flexibility to support our existing risks.

Take advantage of potential opportunities and continue repurchasing our shares of what we believe are attractive valuations.

I cannot emphasize too strongly however that last year's common equity raise was the cornerstone of all of these capital management and underwriting successes, having the right capital at the right time provided us the fortress balance sheet necessary to accomplish all of that we have.

That concludes my opening comments I will provide more detailed update on our segment performance at the end of the call, but first let me turn it over to Bob to discuss financial performance for the quarter.

Thanks, Kevin and good morning, everyone. My comments today will focus on our accomplishments during the quarter and items that drove our results, including our 3 drivers of profit.

Starting with our consolidated results, where we reported net income of $457 million and operating income of $278 million for the quarter. These results were driven by strong performances in each of our 3 drivers of profit excellent underwriting results increase the income and high quality net investment income as well as robot.

And mark to market gains and our strategic investments and fixed income portfolios.

This produced annualized return on average common equity of 27, 6% and annualized operating return on average common equity of 16, 8%.

I'll now shift to our 3 drivers of profit starting with underwriting income.

And our topline grew significantly in the quarter gross premiums written were up $392 million of 23% with the property segment growing $141 million and the casualty segment growing $251 million.

Year to date, we have grown net premiums written by $886 million or 36% and remain on track to grow well over $1 billion.

We reported underwriting profit of $329 million and in the quarter and a combined ratio of 72%.

For our property segments, specifically gross premiums written grew $141 million over the comparable quarter of 14% and we reported a combined ratio of 44% driven by a lack of cat losses, and the strong performance and our other property business and $51 million and prior year favorable loss development.

Growth and gross premiums written was $50 million or 7% and property cat and $91 million or 28% and other property.

Most of the growth and our property and catastrophe business took place and our joint ventures. As a result, we currently only retain about 28% of the gross premiums written and our property and catastrophe business.

Moving on to our casualty results, our casualty segment reported gross premiums written of $911 million growing $251 million or 38% versus the comparable quarter, Kevin will elaborate on the drivers of this growth and his discussion of the underwriting performance.

We experienced a small amount of favorable development and the combined rate and the combined ratio was 97, 8% underlying this was a 67% current accident year loss ratio, which is a 1.4 percentage point improvement from the same quarter last year and consistent with our expectations.

This quarter there were no significant changes to our COVID-19 loss estimates that said this is a developing situation and we will continue to receive information over time, we continue to monitor COVID-19 developments across both segments and our current reserves represent our best estimate of potential losses.

Now moving onto our second driver of profit the income.

All of fee income was $46 million, which is up from the second quarter of last year management fees increased and we expect that they will continue to serve as a strong stable source of recurring revenues going forward.

On the DG and Epsilon funds raised in aggregate over $200 million and new quarter capital This year, which we deployed to the June 1 renewal.

We made a small addition to our financial supplement this quarter you will see that on the bottom of page 11, and we have broken out our fee income to show its contribution to underwriting results. The goal was to provide additional disclosure on the geography of our fee income and the income statement.

Turning now to our third driver of profit investment income.

We recorded strong investment returns this quarter due to falling interest rates as well as gains and our equity portfolio.

Net investment income was $81 million, and we had $191 million and mark to market gains. This resulted in total investment returns of $272 million the.

The decrease in interest rates has lowered the yield on our retained fixed maturity and short term investment portfolio to 1.3% the day.

<unk> on our retained portfolio remained roughly flat at 3.8 years.

You'll note that we reduced our exposure to corporate credit this quarter shifting the portfolio to U S. Treasuries, we did this as credit spreads approach multiyear lows.

Turning now to our expenses and starting with the acquisition expense ratio, which was up slightly to 24%. This was driven by a casualty acquisition ratio, which increased by 1 percentage point to 28%.

Our direct expense ratio, which is the sum of our operational and corporate expenses divided by net premiums earned was flat from the prior quarter at 6%.

And on an absolute basis operational expenses were up and the quarter, but remained below 5% as the ratio to net premiums earned.

Going forward as we grow our top line. We will also continue to invest and the business to support our growth.

Our direct expense ratio to remain generally consistent with this quarter absent 1 time items.

I'd like to now shift to our discussion on our capital management during the quarter.

Earlier this month, we issued $500 million of our series G perpetual preference shares with a fixed for life dividend of $4.2 zero percent.

As a reminder.

Last year, we redeemed the outstanding $125 million of our 6.8% series D preference shares and retired $250 million of our 5 and 3 quarters senior debt.

So in total we have replaced $650 million of capital and an average cost of 5 and 2 thirds of percent with $500 million of capital at a cost of $4.20.

This is part of our long term strategy to minimize the cost of capital.

Even with the incremental $225 million raised this month, we are comfortable with our various capital ratios, which are stronger than 2 years ago.

Also in the quarter, we participated and the issuance of additional $250 million tranche of our mono lease of cat bonds.

Consistent with our strategy. This adds additional efficient underwriting capital to our fortress balance sheet.

As Kevin noted.

Since June since last June we have earned a $1 billion.

And the second quarter of 2021, we continued returning these earnings to shareholders repurchasing $1.9 million common shares for $309 million.

This works out to an average price per share of about $159 and and average price to book value of 1.1 times, our current book value.

Subsequent to the quarter and we continued to repurchase shares and as of July 19 had repurchased an additional 920000 shares for $138 million at an average price of just over $149 a share and.

In total this year, we have purchased 3.9 million shares for $618 million at an average price of $157 per share. This has reduced our share count by about 7.8% from the year end 2020 total.

And despite substantial quarterly share repurchases, we ended the quarter with more capital than we began which reflects our excess earnings net of share buybacks and dividends. Our common equity now stands at $6.7 billion.

Now before turning the call back over to Kevin I'd like to finish for the brief discussion on tax.

We have been closely following recent G 7 and G 20 announcements on setting and global minimum corporate tax the Oecd's work on pillar, 1 and 2 and president of <unk> proposals for U S tax changes when it comes to the tax reform the details matter and they are not yet clear over the years. However, the flexibility of our global operating platform.

Has proven resilient and we anticipate this resilience will persist that said, we will continue to monitor this issue closely.

With that I'll turn it back over to Kevin.

And.

Thanks, Bob.

As usual I'll divide my comments between our property and casualty segments, starting with property.

Well, we always maintain our leadership and property cat underwriting to be clear, we are increasingly doing it differently.

Currently take more of our cat exposed risk through our other property portfolio because that is where we are seeing better returns for taking cat risk.

Our existing other property book is access to some of the most dislocated property lines and the U S E&S market.

We have the platforms capital and expertise to focus across classes to target and obtain the best risk due to the long term relationships that we've cultivated with customers for over 25 years.

This is evident and the 28% year on year growth, which our other property book has delivered and we now have an important portfolio of over $1 billion.

We also grew our property cat portfolio of this quarter, but by a smaller percentage of the June 1 renewals proceeded as anticipated and overall, we believe that we have constructed 1 of our best Cat books and years the.

And the Florida renewal.

Saw rate increases, averaging 5% to 20% with abundant capacity for upper layers, while many lower layers struggled to get placed the especially if they were loss impacted.

As we anticipated on last quarter's call, we reduced the number of Florida programs that we wrote from 18% to 13, which is the continuation of last year's trend when we reduced from 25 programs.

Since 2019, we have reduced our bottom line exposure to Florida domestic companies by almost half the Florida market remains highly challenged due to social inflation and.

And as anticipated proposed reforms do not appear likely to materially change the landscape.

Reiterate that the Florida domestic market and now represents less than 3% of our gross written premiums.

That said.

Decreased exposure to Florida Domestics is not the same thing as decreased exposure to Florida Hurricanes Southeast wind remains the peak risks and our portfolio.

What has changed and is that we have moved away from Florida domestic companies to more regional and nationwide programs and over the last year of increasingly taken and southeast wind risks through our other property portfolio.

I should note that as we have grown so has our tail risk on an absolute basis on a percentage of equity basis. However, it is similar to where we were prior to last year's capital raise it.

It is easy to grow and this business by simply going risk gone, but we created a larger and more efficient portfolio than we had prior to the capital raise and we did this by holding a relative risk levels consistent with prior years.

Inflation has been and the news recently with the headline CPA and may exceeding 5%.

Most relevant to our property book, however, as inflation and the commodity and labor markets.

That is more likely to impact rebuilding cost after an event lumber and other commodity prices up and elevated this year, although recently the appear to be moderating.

We price for inflation and our models given the elevated risk and the current environment, we have stress tested our portfolio and remain comfortable with its exposure to inflation.

From our perspective as a reinsurer it was a quiet quarter for cats glut at made landfall and Louisiana is of disorganized weak tropical storm.

And the beginning of July also made landfall in Florida as the strong tropical storm and was the earliest E storm on record.

These storms may result in some losses and currently do not anticipate the used to be material.

We are closely monitoring meteorological conditions, as we head into the third and fourth quarters.

Probably read news reports about wildfires and record droughts already and the U S, particularly in California.

We are expecting and active hurricane season, having already having 3 U S land falling storms Europe recently experienced the significant flooding event, which we are closely and evaluating although it's too early to estimate potential losses.

And as always Renaissance and re risks sciences is proving invaluable and helping us understand the climate dynamics likely to influence the remainder of the year.

I am often asked if we vary the amount of business that we write based on weather forecasts.

Strongly believe that due to our superior tools and better understanding of climate change, we play a critical role and managing our customers' natural catastrophe risk behaving like a partner by providing long term stable capacity and as part of our value proposition for which I expect will be rewarded.

Moving now to our casualty and specialty segment.

Our casualty portfolio is performing well the original insurance rates continuing to increase and although the magnitude of appears to be moderating and those classes, which have experienced the greatest uplift such as D&O.

We have grown our casualty business by more than 300% since 2015, and and enforce basis. This includes adding over $1 billion of new business and the last 12 months.

So on and in force basis, which should position us well as the market has clearly improved.

Reflecting over my career I believe that many underwriters do not grow large enough when opportunity knocks or small enough when it receipts.

I am proud of how our team has performed and believe that we have executed into this market opportunity with great skill and dexterity.

Our competitive advantages, including our long term relationships and first mover status.

Served us well this year.

We anticipated this market well in advance and adopted a strategy of confident provision of consistent capacity.

Which should benefit.

And building, our largest and what we believe to be our best casualty specialty portfolio as the market hits the multiyear high.

Cyber insurance has been getting a lot of attention lately rate changes have been greater than 40% year on year and the market.

And it's been growing by about 25% each year for the previous 5 years.

The recently this is being driven by multiple large cyber attacks and increasing instances of ransomware as a result, the cyber market is currently experiencing increasing demand and limited supply we.

We have been re insuring cyber liability for almost a decade and believe there are good opportunities to grow this book.

Casualty and specialty losses, including those related to COVID-19 continued to develop within our expectations and our.

The credit book.

The mortgage forbearance rates also continued to improve and the U S housing market continues to be very healthy.

As I mentioned on our previous calls and the casualty business, our actuaries are being patient and recognizing positive rate movements. We are optimistic that over time, we will benefit from the improved underwriting terms and pricing that we believe we are enjoying.

Closing now with our capital partners business the <unk>.

Big News for this quarter was that our Mcgeachy Capa and fund surpassed $1 billion and capital under management this quarter experienced near record Cat Bond issuances, and we continue to see strong demand for our Mcgeachy fund.

Our strategic approach to asset management is not as an asset accumulator, but rather as an underwriter and looking to match the most efficient capital with desirable risk to achieve this and provide the best solutions to our customers, we need multiple capital structures and capital sources. It is for this reason that.

We managed.

The managed several vehicles, both rated and unrated to provide additional capacity to our customers from third party capital.

Since 2015, we have grown our capital partner business from 4.4 vehicles and $6 billion and capital to 6 vehicles with more than $11 billion and capital.

This is of critical component of our strategy provides our customers efficient capital whether owned rated balance sheets are less efficient and it allows our third party investors to partner with the best underwriter and benefit from on from our non parallel to understanding and modeling of the catastrophe risk that the desire.

And it is good for our shareholders that it results in the stable growing source of fee income.

So in conclusion, we delivered a solid quarter with strong premium growth improving profitability and proactive capital management, we maintained our fortress balance sheet, while heading into the wind season, and continuing to build the foundations for long term.

Shareholder value.

And with that I'll open it up for questions.

And as a reminder to ask the question you will need the press star 1 and the telephone and we ask that you. Please limit yourself to 2 questions before reentering the queue to withdraw your question. Please press the pound key.

Our first question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open. Please go ahead.

Hi, Thanks. Good morning, My first question, Kevin is picking up.

Right on your last comment where you said you guys of the balance.

Balance sheet of honey into win season, if I remember correctly, when we typically does not like to be at the top side.

And that's during wind season, and looked at the disclosure of July which I know isn't the active part of Lindsey's and parties Wednesdays and you guys kind of continue to buy back your stock at a pretty robust clip.

Kevin.

The strong capital today can you just give us the fact the thought around buyback.

Throughout Wednesdays and this year.

And I think.

Who we have and other years paused our buybacks during wind season, and the way, we look at our capital and our capital positioning going into wind season is first to make sure you're right. The portfolio that we've targeted and desire, which we have done we hold capital available for opportunities.

<unk>.

And that are likely to emerge during the quarter and then we look at what excess capital is available and look to manage it typically through buybacks and I would say looking at this wind season, and we're in a very strong capital position to continue to execute our strategy, we have ample financial flexibility for.

And new opportunities.

And I would say that with that we are and a stronger position to continue to think about buybacks. During this wind season, and then we were last year.

Okay. That's helpful. And then my second question when you by way of the capital. We had the question last year. After that you spoke about wanting to put the capital to work right and 2021 and then in subsequent years. So you still sound pretty bullish on the opportunities within casualty and specialty and also within the <unk>.

The other property market.

Have you say no were still away a little bit away from thinking about next year's renewals, but and you kind of think about just the opportunity of and does it still seem like you'll be able to continue to put that capital to work relative to what you guys had thought kind of following the capital raise last year.

Sure.

Firstly, we've deployed everything we've reached.

And the way I think about that is as you know we have very high renewal retention. So our deployment I think of us and annuity for future value. So we brought it on onto our platform and as Bob.

<unk> discussed briefly we are still yet to earn much of the the benefit of the premium that we've already written.

And when and we look into 2022.

We are building our performance pro form is with the assumption that that business remains with us and we have further opportunity to grow so and I think about the future we're in of capital position where the.

Money is deployed we have additional capital that we are targeting for future growth going into 2022, and we still have the financial flexibility to repurchase.

And repurchase shares and what we think of our attractive prices, so I couldnt be it.

Looking back over the history of <unk>.

My role at run rate I think this is 1 of the strongest financial positions, we have been and with the greatest flexibility we've ever had.

Thanks for the color.

Sure.

Thank you and our next question comes from the line of Ryan Tunis with Autonomous Research. Your line is open. Please go ahead.

Hey, Thanks, good morning, guys.

Kevin and I guess, just looking at your 1.3% retained investment portfolio yield.

Isn't that extremely inefficient given how much your mix more towards the longer liabilities in recent years.

And I'll take that 1 Ryan 1 where we're very comfortable with our investment portfolio of first you have to remember we're an underwriting company.

And we were and we underwrite and instead of reserves and I'll answer the reserves question and the second here, but we're very comfortable with the liquidity and good stewards of that liquidity and we look at our balance sheet and totality and how the liabilities develop overtime. We have extended duration. If you look back over the last few years, we've taken it out from a very conservative duration that you would expect with the <unk>.

Pretty CAC company short tail, we've extended that to 3.8 years right now so we're consciously and looking at that but what we're not doing Ryan is trying to swing for the fences and generate yield right. Now we're trying to be good stewards of the liquidity to ensure that our reserves are taken care of.

1 thing I would add to that is and thinking about the portfolios that we construct and my comments about southeast wind still being a peak risks for US. We also placed very high.

Our goal is for our liquidity so that has given any sort of cat event of our liquidity is available.

And that obviously effects returns and.

Been a consistent part of our capital management.

Frankly since I've been here.

Thanks, and just seems like a pretty obvious lever and it's a place where you're giving up a few roe points relative to the rest of Bermuda.

Go ahead.

Yes.

Thank you and our next question comes from the line of cash <unk> with Bank of America. Your line is open. Please go ahead.

Yes, thank you very much.

So you know I'm trying to do some work to figure out the packs.

And when you interpolated platinum into your business.

And there wasn't the favorable development that was coming off the platinum acquisition and maybe things of seasoned enough in your legacy cash, especially of portfolios that you felt comfortable.

With a seasoned and improving underlying the.

Loss ratio of coming through on that business.

How is the out of the lessons of I guess, the 14 to 16 period.

And the favorable development that we saw and the khamsin and specialty segment, what lessons can we apply to where your reserve and the book right now and following the TMR acquisition.

So.

Okay.

The let me talk a little bit about our portfolio so within the casualty, especially the way of a diverse portfolio. We do of reserving at of line of business basis.

And we generally as I've talked about on previous calls have a long period before we begin to recognize the positive news.

And we don't really think about periods of pretty platinum and postpartum, because we integrated that portfolio and we integrated the Tokyo portfolio.

What I would say is and our methodology is exactly the same.

As what it was 3.4 of 5 years ago. The differences and is that we're substantially growing our casualty portfolio and we're growing into a much better market. We havent fully earned the.

The.

The growth that we've already achieved and the growth that we're achieving is at substantially higher rates than the in force portfolio. All of that will take time, but when I think about our casualty portfolio, sometimes think of that is of battery and how much energy of we put into the battery we have not only made the battery big bigger the pipe charging.

The battery is much stronger so when I look at our all of the quality of our portfolio I think it's as it's.

And it's better than it's ever been and it's bigger than it's ever been and if.

And when you think about managing the casualty portfolio of being able to grow and leverage the portfolio into what is now of the high Mark for the portfolio. So far from a pricing perspective is exactly what you want to be where you want to be so the portfolios and exceptional condition. It's.

It's going to take a little bit of time to earn it which is natural with the REIT and quota share business and we're enjoying the full benefit of the underlying rate change that has been available and the market for the last several years.

Alright, I appreciate and I realize you guys are trying but I mean I look at the use of reserving the right now and your casualty and specialty book at about a break even combined ratio.

Is that based on the that you think that a recent accident years not current but just bringing the recent accident years and we're looking at the industry produce much much better margin than the <unk> reinsurance on the casualty business.

Or are you of the view that there are a lot of I guess ECR that yours didn't haven't put up enough for those recent accident years and the way your AR reserves were contemplated as euro IV and earn and ACR is and access of what youre getting from the students.

Okay.

Let me just talk a bit about property Capex I think the ACR is a little bit more relevant there within the our property portfolios and and.

And event driven property portfolios and we generally carry significantly higher reserves and the primary companies.

Looking at our casualty portfolio of lot of what is booked as IV and are.

And.

We are then given border of reporting and then we reconcile the actual against the curve that we built from the from the App for the IV and are in general we start with the higher expected ultimate and many of our customers. That's just who we are and what we do over time that can be reconciled back to the performance of the underlying carriers, having because ultimately the.

The portfolio, we're protecting so I feel it's a prudent way to think about it and when Youre 1 step further away from the original risk.

And it takes.

Some period of time for the earnings to come through because of that strategy, but I think it's the right strategy as a reinsurer.

And our portfolio of so much bigger than where it has been historically also amplifies the the change that the.

The pricing should have on the overall return of the portfolio. So I think we're in good shape.

Like the way we reserve our portfolio I think it's appropriate and in general it is higher than what we're seeing on the underlying portfolios that were protecting as the starting point.

Ultimately the reconcile.

Hi.

And we hope so and I'm learning I appreciate it thank you very much.

Thank you.

Thank you and our next question comes from the line of Meyer Shields with <unk>. Your line is open. Please go ahead.

Great. Thanks, Kevin and your comments I guess, when you talk about moving towards.

I'll say, a bigger national carriers that have Florida exposure. So I would assume that that means that you're writing and higher layers is that just because of their biggest and they can resonate more risk because that of fair interpretation and are out there.

The other changes in the profile of the book decide that.

I think the.

Theres 2 ways nation national carriers by 1 is including Florida, and 1 of the Florida specific the Florida specific specifics replicate a little bit more to how the regionals by your comment in general on our property Cat portfolio is that we are higher skewed in our attachment point for Florida.

That is not true for our overall property portfolio because on the other property portfolio. We are writing more proportional exposure through the full risk distribution, which will add exposure at the lower point of the curve or the more frequent return periods and so when I look at our portfolio at the overall property level of your comments.

The accurate for property cat, but our overall property portfolio is.

About equally exposed as it has been historically too small events and and large events.

And that is mostly because of the other property writings.

Okay, No that's helpful and that may cause.

And then a quick question for Bob if we have some of the management piece of offsetting expenses and the asset pools are growing.

So that translate into expense ratio of improvements over time, assuming that you continue to grow our invested capital.

Yes, I'd say as we as we continue to grow the fees, which we have been over the past several years Youll see the geography and the income statement come through part of it will be and the property and is an offset to the expenses using of disclosure we put in the supplemental this quarter, you'll be able to see that going forward on the training basis. The other.

And there is really its down and the non controlling redeemable interest and does not affect expenses and it just affects the amount that's released back into our capital partners.

Right no I understand that that's helpful.

The earlier you or in your prepared comments, you talked about expecting basically a flat with penetration of the contract and how the 2 ideas.

All of the extent of Okay, sorry, I misunderstood. The question I was thinking of is definitely the expense ratio as of <unk>.

And it's going to continue to growth.

And to have that that is what our measure us and we continue the investments around just under 5% right now on the underwriting side of it.

The fees as they grow we will continue and be an offset to the operational expenses, but we're going to continue to invest and our teams and our platform.

Okay.

And that's it thank you so much.

Thank you and our next question comes from the line of Michael Phillips with Morgan Stanley. Your line is open. Please go ahead.

Thanks, and good morning.

I guess, 1 quick numbers question for Bob Bob You mentioned, the the change in the airports and the asset mix from corporate to the treasuries.

But there was a couple of the monitor things of that noise.

Some of it on.

Cash and moved up quite a bit of anything near that was kind of noteworthy of 1 that most of the investment expense kind of of jumped as well and all of those 2 things moving.

Okay.

So I think.

The question, Mike was on cash changes and the in the portfolio cash was up quite a bit and the quarter I know it kind of lumpy, but it is definitely jumped up this quarter and then investment expenses I think it was little over $7 million of excuse me of around 4 so sort of.

Yeah.

Got it on a cumulative of starting with the expenses and was $7 million. This quarter was it was the timing of the accruals on a year to day basis, Mike and should be normalized.

Consider the comparable to what last year was on the cash side you see we did raised a couple hundred million dollars and our funds that that'll be on our balance sheet and until we get that put into some of the short term investments that are out there.

Just more minor on the geography, and the reflection of what we've had and our and our third party capital.

Okay Cool that's helpful. Thanks.

Kevin you mentioned at the and I appreciate the well too early to talk about European flooding the exposure there.

But we've seen some stories I guess late reported large claims activity from last quarter's 1 or so of our Cherokee.

And I was wondering if you could.

Operating here, so I guess, not but any concerns there of that moving off of the industry level and what we've seen so far.

Yeah.

And I'm aware of the changes that you were discussing the from our from our estimate and looking at our portfolio we.

We still we don't see that affecting us the same way it's affecting the market. So we feel good about the estimate that we have.

Okay. Thank you guys.

Thank you and again, ladies and gentlemen of you have a question at this time. Please press Star then 1.

And we have a question from the line of Brian Meredith with UBS. Your line is open. Please go ahead.

Thanks, Kevin and I was hoping we could dig back a little bit into the whole inflationary and a question then and.

With the impact of could be on and losses here as we go through hurricane season, and I know you said, you're comfortable with your exposure, but how.

How do we kind of think of that frame and you know when you when you renew contracts at 1.1 were you thinking about the same type of inflationary environment, we are in today and.

And then as we kind of look.

The potential hurricanes hitting.

Could they be 510, 15% higher given the labor shortages and as well as lumber prices.

And so.

Firstly, I believe losses will be more expensive this year because of inflation.

And I would have said the same thing last year and the way I think about inflation is most of the and both the.

Inflation and persist specifically for the property cat portfolio is going to be after an event that's captured in our models through.

What we call demand surge and we hold demand surge curves significantly higher than the commercial models hold them.

So we've already have a degree of of conservative relative to the industry with our view of inflation post event.

Going and this year, we already know there's pressures there I think labor.

And we already have and held higher than the industry.

Great. Thanks, very helpful. And then the second question and I'm, just curious could you give us a little bit of color on kind of what's your exposure right. Now is the aggregate covers the obviously with the first quarter of events being high and wildfires.

Do you think Thats a book of business, that's at risk for some kind of decent sized losses again this year.

Its early I think.

And that's reduced its exposure to aggregate covers as well so it's.

Again, we do have exposure to it its less than last year on a relative basis and it's not something that at this point we have.

The significant concerns about.

Great really helpful. Thank you.

Sure.

Thank you and our next question comes from the line.

The panel with Deutsche Bank. Your line is open. Please go ahead.

Yeah. Thanks, Good morning, and response to an earlier question you talked about the the <unk>.

And the ultimate expectations between yourself and the students.

And I was hoping you could layer into that I guess the commentary around pricing.

And when we see the fever.

The pricing environment and the primary side that we have right now does it feel like that spread between the ultimate gross.

And maybe your your ultimate expectations.

But the the expectations of seed and come down to reflect the pricing maybe more and real time.

Yes.

And the spread between us and our seasons from a pricing perspective is true. It's also of the spread between our reserving actuaries and our pricing average pricing.

<unk> spread has been enhanced as well so what that means is the the our pricing actuaries in the moment are reflecting the price change that is occurring on our portfolio of our reserving actuaries are monitoring trend and 1 more slowly we're effect reflects the price change that there the pricing.

Actuaries are affecting immediately so it's a normal part of a rising market. The good news is as we're moving into a by any measure a better price market, we are substantially larger.

So the beneficial impact of the quality of the portfolio that we currently written.

We will emerge over time.

As we earn it out so when I think about the portfolio and my comments about it being the best casualty and specialty portfolio. We've written I couldnt be more excited about the profile of the risk that I'm seeing and it'll just take time to earn out.

Understood and all that stuff.

Understood and I appreciate the comments earlier the.

The 1 billion and so that was raised the year ago was deployed and.

As you work through the excess capital you feel like you have enough levers in place to continue to growth and continued share repurchase shares and how long.

Should we be contemplating the excess capital position.

And now versus a year ago, and maybe 2 years ago and book.

And without putting numbers on it how should we think about the.

The drivers moving this excess capital position versus the capital returns that Youre doing.

So.

I think this is not all of these are things that are easily seen from outside the.

The 4 walls of run rate.

Our portfolio is more efficient, we actually have more ability to share risk both with third party capital and it had mentioned we raised $1 billion third party capital.

Last year and.

Over the last 12 months of the.

We've seen more opportunities for portfolio enhancement through some traditional ceded and we were able to grow our top line more than we originally forecast. So all of that plays into the consumption of capital within our portfolio and Thats, where the deployment of the 1 billion came from.

We burned and we've earned $1 billion and kind of the simple as Matt and we've only bought about 700 million of stock back. So right. There we've already created more room for growth just by not even keeping up with the earnings that we've had.

So when I look at it it's a combination of greater efficiency with our portfolio, partially because we've had more opportunity to share it with third party investors and others and converted to fee income we have earned more than expected partially because of the the investment returns and the second half of last year and as we look forward.

And that gives us a lot of financial flexibility to think about continue to invest and the portfolio and then also have the scale and the <unk>.

Flexibility of the buy more shares back so it's a combination of things not always easy to point to 1 number.

On a reported to reflect it.

Okay.

Thank you and our next question comes from the line of Jimmy <unk> with J P. Morgan. Your line is open. Please go ahead.

Hi, Thanks. Good morning. So most of my questions were answered I, just sort of couple of items. The first can you talk about the drivers of.

And the favorable reserve Goldman and that you saw this quarter and any sort of color on.

Either accident years or region or cases of what really drove that.

Thanks for the questions Bob It really came across a lot of most of our years and parallels and said part of our review review that we go through I would point out that of the $52 million 28 of it was and da Vinci and so that was the lion's share of it and that's aligned with our property cat business and we have 30% of that so really $20 million of that favorable in the valley.

And that was actually released back to our capital partners and the non redeemable controllable interest so favorable development that was on US was all day about $32 million.

Okay, and then on pricing overall, obviously, the the pace of increases has slowed but how do you feel about the adequacy of pricing.

Given the rates have gone up over the past several years and but then there are some pressures as well as such as inflation, so and just across your various businesses.

Yeah, So I think.

And we've been getting rate on rate and so the the level of rate increase is reducing but still positive. So that's good news.

With so we look at our portfolio.

And our observations of broadly we're seeing rate above trend.

We do watch social inflation carefully to make sure that we're assessing that element of trend.

And we feel as of the portfolios that we're writing rate adequate.

So we believe that there is further rate increase coming in the pipeline, but we're already dealing with the portfolios that are seeing.

Above trend and are great.

And have rate adequacy, and so I think the books and good shape.

Okay. Thank you.

Okay.

Thank you and our next question comes from the line of my ex sales with <unk>. Your line is open. Please go ahead.

The thing hopefully this is the good continuation of the Jimmy's question.

You've talked about the improving rate environment, I think that's undeniable, but it seems like eventually we're going to see softening in casualty and specialty and something.

Can you talk about how your expectations for maybe the shape of the price cycle and that's what we're seeing.

Yeah, I think rates won't go up forever, So I think.

We certainly expect that I think 1 sometimes and.

Reflecting back on the last comment.

We do monitor rate change, but we're disciplined and understanding rate adequacy. So we believe that there is more rate coming through the system and it'll take US you know again.

So we're optimistic about where the portfolios are once we observe and whether that's from an increase and trend or a reduction and rate that the.

Balance is no longer in our favor we will reduce the size of our books, we're nowhere near that point of this at this time and this.

And our observation of where the markets are though.

Okay. Thank you.

Thank you and I'm showing no further questions at this time and I would like to turn the conference back over to Kevin for any further remarks.

Yeah.

Okay. Thanks to everybody for joining our conference call today and I think this is an exciting time to be and the market. It's an underwriter's market. We are the best underwriter and the market looking forward of the right risk at the right time, we grew successfully and early when the opportunity arose and I think that'll be the cornerstone for the portfolio going forward. So thanks again for tuning in and.

And we look forward to speaking to you next week next quarter. Thanks, Mike.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q2 2021 Renaissancere Holdings Ltd Earnings Call

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