Q1 2022 Renaissancere Holdings Ltd Earnings Call

Good day and thank you for standing by welcome to the Renaissance Res Q1 earnings results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star.

One on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to Keith Mccue, SVP Finance Investor Relations. Thank you. Please go ahead.

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 four one to three 943 zero and we'll make sure to provide you with one there will be an audio replay of the call available from them.

Two P M. Eastern time today through midnight on June four the replay can be accessed by dialing 85859056 U S toll free or 14045, 37 3406 internationally.

<unk> you will need for both numbers is 754 at 97, one <unk> today's call is also available through the Investor information section of Www Dot Renren com and will be archived on <unk> website through midnight on June four 2022, before we begin I'm obliged to caution.

That today's discussion may contain forward looking statements and actual results may differ materially from those discussed additional information regarding the factors shaping these outcomes can be found in Renaissance Reis SEC filings to which we direct you.

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

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

Thanks Keith.

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

Last night, we reported solid topline growth and an annualized operating return on average common equity of 11%.

Good start to the year in the second quarter in a row of reporting double digit operating ROE during active cat quarters.

As Ive discussed with you over the last 10 years, we have made key strategic decisions to build the capabilities and scale that we think are needed to generate superior returns.

All of the marketplace.

This is included.

Carefully growing our casualty and specialty business.

Eloping leadership and other property underwriting.

Maintaining our leadership in property cat and continuing to be trusted partners for capital, while growing our fee generating businesses.

As a result, we have built one of the worlds largest reinsurance business as to where we now manage about $8 billion in gross written premium with about 650 employees.

This has allowed us to build considerable asset premium and operational leverage and we continue to invest in internal initiatives to make us more effective and efficient as we scale.

We are now seeing the benefit of these.

<unk> decisions across each of our three drivers of profit and believe our financial results should continue to improve over the course of the year.

I would like to begin my comments by explaining why our prospects are increasingly bright.

Across the P&C industry, where you're seeing reinsurers increasingly stepped back from risk.

On the other hand, I've never been more confident and positioning as a lead reinsurer, both in casualty and specialty as well as in property.

We believe that the pullback by competitors in the reinsurance market, particularly in property cat risk will inure to our benefit.

Starting with our casualty and specialty business, which constitutes about 60% of our net premiums written for the quarter.

We intentionally but carefully we began building this segment.

During a more challenging phase of the market constructing a portfolio with embedded options for growth.

But the last three years, we've accelerated this growth into an improving market in the first quarter.

2022, net premiums were up nearly three and a half times from the same quarter in 2019.

As a consequence, we believe our casualty business will be a significant tailwind to our earnings profitability. On this book continues to improve and the leverage it provides our investment portfolio will be increasingly valuable in a rising interest rate environment.

This quarter, we also introduced a new strategic dimension to the casualty business. Our most recent joint venture Fontana rig.

Montana is the first fund that is 100% dedicated to writing casualty and specialty risks, including long tail lines.

Continues our track record of innovation and reflects robust external validation of both the market leadership, we have built in casualty specialty.

As well as our recognition as a leading manager of partner capital across multiple risk classes.

We are unique among our peers as we are the only reinsure that has both owned and managed.

<unk> and fronted add scale vehicles for every class of risk that we write.

In our casualty business. We are now employing the same strategy that for 20 years, we successfully deployed in our property business.

Fontana deliver significant benefits to our stakeholders.

For customers it helps us to be broader and deeper partner by providing long term capital that allows us further flexibility to grow our casualty and specialty business and bring additional capacity to dislocated markets.

For our capital partners. It gives investors direct access to market, leading underwriting and claims management through a whole account quota share of our casualty and specialty businesses.

And for our shareholders it reduces volatility and furthers our strategic aim of monetizing our competitive advantage and underwriting like trading underwriting risk for fee income.

I believe the strategic choices, we have made in the last decade make us uniquely capable of bringing a solution such as Fontana to market. For example, we built the underwriting infrastructure necessary to source attractive casualty and specialty risk and underwrite it profitably.

We have 40 underwriters in this segment, many with decades of experience as well as strong relationships with the largest and most prominent insurance companies.

Equally important we have built a robust casualty specialty claims infrastructure, which is vital to managing the lifecycle of the casualty business.

Our underwriting focus also distinguishes fontana from other investments centered vehicles as its return primarily derives from underwriting profit not investment return.

None of the competitive advantages, we bring to Fontana can be quickly or cheaply replicated by third capital.

Thereby third capital third party capital, providing investors the confidence they need to invest in long tail lines.

And the liquidity they will ultimately desire to efficiently exit, which creates a deep and sustainable moat around this business.

Moving now to property.

Well, we have well we have evolved as a broadly diversified writer of property and casualty business. We have remained steadfast in our commitment to underwriting catastrophe risk.

Deep institutional knowledge in this area is a critical component of who we are as run rate and the value that we bring our shareholders both directly through underwriting income and through the fees that we earn managing risk in our capital partners business.

In contrast, the overall trend in the P&C reinsurance market has been an increasing reticence to accept catastrophe volatility at any price for example, third party capital in this space continues to contract.

Obviously independent reinsurers have been absorbed into a larger more risk adverse organizations law.

Large carriers are cutting back on their reinsurance business and few recent startups are focusing on writing reinsurance.

Our willingness to accept volatility is increasingly valuable as the level of a catastrophe risk in the world continues to grow.

Climate change and its amplification of the frequency and severity of natural disasters is a well known phenomenon.

European Windstorms Australian floods, and Midwest tornadoes once again reminded our customers up the threat of climate change and the value of the protection, we offered to them and just society more broadly.

So a lot of volatility is increasing.

There are smaller number of reinsurers willing to help students manage it.

We distinguish ourselves and continuing to sport.

Our customers, maintaining a strong appetite for property cat risk and the ability to profitably underwrite business that clears our hurdle rates.

Our decades of experience in industry, leading understanding of volatility places us in a preferred position to price the risk of loss from climate change and remain comfortable accepting cat risk.

This is due to our strength in modeling.

Which has been a core component of our strategy since we formed almost 30 years ago. We've.

We frequently update our models as part of our regular incremental process to which we have committed to.

Considerable resources. This provides several competitive advantages first we are not dependent on vendor models, where changes tend to be less frequent and more acute.

We are better able to anticipate and understand trends, giving us greater comfort and rapidly changing environment, and making us less inclined to pull back from this risk class.

Climate change has long been part of our view of risk this quarter with the expertise of ran very rich.

Our risk Sciences.

We further updated our north Atlantic Hurricane model to reflect our view of increased risk from the impacts of climate change as well as rising social and economic inflation.

Closely related to our long term strategic decision to be a leader in catastrophe reinsurance is our commitment to addressing climate change as part of this strategy.

I wrote in my most recent letter to shareholders anthropogenic climate change as both an existential threat to the planet and the risks to our industry and we believe that Renren bears the responsibility of being part of this solution.

As part of this we need to recognize the potential threats of climate change.

Our underwriting results and our investment performance as well as the opportunities we have to provide protection in an increasingly risky world.

In furtherance of these objectives this quarter, we took several steps.

To advance our response to climate change first I was delighted to accept the role of chair of climate Wise. This is an organization that brings together insurers reinsurers brokers and industry service providers to promote a systematic response to climate change across the financial sector in cooperation with the University of Cambridge Institute for sustainable.

Hey inability leadership.

This rollout will be working closely with the leaders across every industry to further our response to climate change.

In addition, we appointed one of our most experienced property underwriters as global head of climate and sustainability strategy.

We believe so.

Climate change is a risk that needs to be managed it also brings opportunities across our business. This rule will be focused on designing and executing and coordinating our climate and sustainability underwriting strategy across both property and casualty, which includes new product development to respond to emerging underwriting opportunities.

I would now like to take a minute to address inflation, specifically, which has become more significant as of late.

For us inflation as both a headwind and a tailwind that cannot be viewed exclusively as good or bad rather it needs to be anticipated and adjusted for.

The obvious downside to inflation is the impact it has on our loss costs more accurately and property, where the confluence of social inflation commodity inflation and economic inflation can intersect to materially amplify industry loss.

Frankly, this is not new.

There is always inflation after a large event, which means we have deep.

Experienced modeling inflation of all types and are regularly updating our models to reflect anticipated conditions.

Inflation can also impact the casualty and specialty which has been experienced loss cost inflation for several years due to elevated court verdict. As a result, we are familiar with the in place and with inflation impacts and have the ability to capture and price for it.

On the opportunity side inflation is often correlated with both higher interest rates and insurance rates were enjoying significant amounts of both which will benefit our results. This year, despite experiencing some mark to market losses this quarter.

So inflationary environments are both an opportunity and a threat, but we have deep expertise in managing the threat and anticipate material benefits from the opportunity.

In summary.

Due to growing volatility they believe that the reinsurance market as greater relevance now than at any time in our recent history climate change and other large recent losses have increased awareness of systemic risks at.

At the same time, many reinsurers have reduced their appetite for volatility.

Sequentially, we are in an excellent position to execute our strategy into a strong market.

I anticipate that we will continue to grow our top line, albeit at a slower pace than the last several years and more importantly, improving underwriting profitability.

That concludes my opening comments I'll provide a more detailed update on our segment performance at the end of the call, but first Bob will discuss our financial performance for the quarter up thanks, Kevin and good morning, everyone.

This quarter, we continued to demonstrate the power of our platform reporting operating income of $152 million in an annualized operating return on average common equity of 10, 8%, we had underwriting income of $200 million generating profits across both segments and a very attractive quarter.

Looking forward to the end of 2022, we expect improvements in each of our three drivers of profit, which should increasingly benefit our financial results as the year progresses, making them more resilient to natural catastrophe volatility first.

We expect our net investment income to benefit from rising interest rates and increased investment leverage.

Our retained investment leverage defined as the ratio of our retained fixed maturity and short term investments portfolio to common equity is about two three times. This means that at 100 basis point increase in our retained yield will generate about 230 basis points of incremental operating room.

Turn on equity over time as long as rates continue to rise, we anticipate that investment earnings will be a greater contributor to operating Roe.

Second the casualty and specialty business continues to improve and we believe that it can produce a mid ninety's combined ratio on a growing premium base.

Finally, we expect fee income to improve over the course of the year and anticipate we should be earning in the range of $45 million per quarter by year and absent any large losses. This improvement reflects capital growth and normalization of performance fees in da Vinci and the launch of our new vehicle Fontana.

But these tailwind you can understand why I'm, so confident about the strategic decisions that we've made in the earnings power of our business today I'll cover these points in more detail. In addition to our capital management activity and expenses I'll also provide an update on our engagement with SMT and their proposed model changes.

Starting with capital management, and we remain in a strong capital position with excess capital in the upper end of our targeted range.

As I have discussed in the past.

And excess capital buffer that supports our ability to execute our strategy, allowing us to take advantage of underwriting and investment opportunities.

And supporting at this during the quarter, we purchased 577000 shares for $93 million at an average share price of $162.

We've got a long history of being good stewards of capital and will remain consistent in our approach to capital management. Our first priority is to deploy capital into the business and second to return the excess to shareholders, we anticipate having the ability to do both in the second quarter.

I'll now shift to our three drivers of profit starting with underwriting income where this quarter. We grew gross premiums written by 11% and net written opinions by 19%. This growth was driven by the casualty segment as property reduced on both a gross and a net basis.

Bind ratio of 87% included seven percentage points from the weather related large losses, and two percentage points from the Russia, Ukraine War.

For our property segment, specifically, we reported a combined ratio of 70%, which included 17 percentage points from weather related large losses.

Premiums written declined by $273 million or 17%.

While net premiums written declined by $118 million or 12% as Kevin mentioned last quarter, we reduced epsilon our aggregate retro vehicle significantly and at January one decreasing the size of Epsilon drove almost two thirds of the decline in overall property gross premiums written with the remainder related to lower re.

Instatement premiums and a reduction in other property.

This reduction to upsilon and lower reinstatement premiums, mostly impacted property cat with a cumulative decrease of $255 million in gross premiums written absent. These two items property gas property cat gross written premiums increased by about $10 million.

As a reminder, we only retain about 15% of Epsilon premiums. So the reduction in Epsilon did not have a significant impact on net premiums written.

Property catastrophe net premiums written were down $58 million, but this included $69 million decline in net reinstatement premiums and a decrease of $21 million for a portion of Epsilon adjusting for these items net premiums written were up.

Both gross and net premiums written for other property were down this quarter as Kevin discussed two years ago, we have been re underwriting the attritional part of the other property book the decline in the quarter came from the non renewal of quota share deals that were below our return hurdles last quarter most of our growth in other property came.

From cat exposed E&S.

This business attractive and are continuing to see double digit rate increases on our existing book.

The other property current accident year loss ratio of 51% included losses of $15 million or four percentage points from the weather related large losses.

The Attritional portion of this book continues to improve due to our underwriting actions personal losses have been running below 50% for the last five quarters, which is consistent with our expectations for this business.

Well other property did have three points of adverse development. It was primarily driven by late reported losses on the severe convective storms that occurred in December 2021 filing.

Finally, the overall property acquisition expense ratio increased by two percentage points to 25% primarily related to a decrease in reinstatement premiums excluding the impact of reinstatement premiums of the property acquisition expense ratio was flat to the comparable quarter.

Now moving onto our casualty results, where we had another great quarter, both gross and net premiums written were up over 50% of the.

$564 million in growth in gross premiums written about 40% came from new deals and 34% came from growth in existing deals from expanded share or better than expected premiums.

As I discussed last quarter going forward, we believe the casualty book should produce a mid ninety's combined ratio absent significant loss events, while the combined ratio for casualty was 98%. This quarter. This included three one percentage points or $27 million related to the war.

We undertook a robust process to assess the potential direct and indirect impact of the war in our business.

Kevin will discuss more about this from an underwriting perspective in his comments on the investment side, we have no direct exposure to Russia, or Ukraine, with only minimal exposure to eastern Europe .

Now moving onto our second driver of profit the income as Kevin mentioned, we launched the new casualty and specialty joint venture Fontana in April .

Montana S M a.

Whole account quota share of our global casualty and specialty business. It is a long term strategic vehicle for us providing another flexible form of capital to enhance our gross to net strategy, while extending our suite of offerings available to our third party capital partners.

We launched Fontana with $475 million of capital committed including $150 million from Renaissance free with the opportunity to raise additional capital and increase in scale overtime, Montana will be reported in our Q2 results and will be fully consolidated it has both in management fee based on net premiums earned.

And the performance fee based on the underwriting performance of our casualty and specialty business, both of which will be recognized through noncontrolling interest.

Moving onto our fee income for the quarter, which was $28 million and performance fees continued to be negatively impacted by cat events in 2021.

Isn't large loss events, we expect that it will take another quarter or two to recover the losses in da Vinci and if that occurs anticipate performance fees will normalize by the fourth quarter.

More stable management fees were slightly lower than the comparative quarter, driven by a reduction in epsilon and structured reinsurance products, partially offset by an increase in the size of da Vinci.

Overall this quarter, we shared $12 million of losses with partners in our joint ventures as reflected in our redeemable Noncontrolling interest. This result was primarily driven by $92 million of Mark to market and foreign exchange losses, which was mostly offset by strong operating income and our joint ventures.

Turning now to our third driver of profit investment income this quarter financial markets experienced historic increases in U S interest rates, which resulted in $673 million in mark to market losses in our investment portfolio 585 million of which were retained and impacted our net income.

These losses stem from our fixed maturity portfolio drove the difference between net and operating income as well as the decline in our tangible book value per common share.

These increasing interest rates had a short term negative impact on our results as I mentioned in the beginning of my comments, we believe that we will benefit meaningfully meaningfully from increased yield and net investment income due to a relatively low duration portfolio.

In March we added some investment grade corporate credit and public equity exposure to our portfolio and reduced duration slightly.

<unk> very comfortable with the composition of our investment portfolio and believe that it provides the liquidity that we need to support our underwriting business.

Turning briefly now to our expenses, where our direct expense ratio, which is the sum of our operational and corporate expenses divided by net premiums earned was five 4%, which is slightly better than the comparable quarter on an absolute basis operational expenses were up in the quarter, but the operational expense ratio stayed largely flat.

At four 6%.

Now turning to an update on the S&P proposed model changes our teams have been working closely evaluating the proposed criteria. Since it was first announced back in December we have been engaging with our peers industry trade groups and S&P directly to understand the new model changes and also to provide constructive feedback as part of the continent process without a detailed.

While it's difficult to quantify the impact of the proposed changes at certain aspects of the current proposal could benefit US now this could have a negative effect.

Regardless of the final model I'm comfortable with our position because we have a very strong balance sheet with low leverage. We also do not consider that as underwriting capital and have many flexible forms of capital to managing our own balance sheet.

The model changes in the past have actually created opportunities to sell more reinsurance cat cover in particular, so we continue to monitor this as well.

So in conclusion I want to close with we are in a strong capital position with excess capital at the upper end of our targeted range, we generated profits in both our underwriting segments and a cat expose quarter and looking forward. All three drivers of profit are poised to benefit from improving conditions. We expect net investment income to increase due to rising interest.

Rates are.

Our casualty business should generally produce a combined ratio of mid nineties on average and our fee business continues to expand with Fontana and growth in da Vinci in short, we believe our financial results should be increasingly attractive and resilient to natural catastrophe volatility with that I'll turn the call back over to Kevin.

Thanks, Bob.

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

After January one the first quarter of the year tends to be quiet for a property portfolio marked by the four one renewals, which were orderly as well as preparation for mid year renewals.

In the U S. Our other property business continues to do well underlying rate momentum persists as insurers continue to withdraw capacity from the property E&S market.

We have multiple competitive advantages in this space, including deep long term relationships.

The pricing system and rated paper.

At the January renewal, we continue to.

Our focus on the insurance component of the other property portfolio.

You recall two years ago, I spoke about our strategic shift to increasingly focusing this book on property cat risk from insurance E&S markets. This quarter that ongoing shift resulted in a reduction of gross premiums written as we non renewed less profitable nutritional business.

In property Cat, we continue to see double digit rate increases in advance of the mid year renewals.

With respect to Florida, even with these rate increases we are unlikely to increase offered limits after June 1st renewal.

Florida has a social inflation problem that can't be solved by rate because it is ultimately impossible to know.

How much to charge to cover fraught.

But now also has a capacity problem due to reduced third party capital appetite limited retro availability and severe financial distress at many domestic Florida insurers.

We know this market well and could be substantially more interested in taking additional risk and Florida as long term structural problems were addressed.

That said over the last several years, we have steadily reduced our exposure to the Florida domestic homeowners market and it now represents about two 5% of our gross written premium.

Consequently, the ultimate outcome of the Florida renewal is a diminishing consequence to us relative to several years ago.

Moving now to a quick summary of the quarter's events in.

Europe Windstorm units brought major Hurricane force winds.

Initial industry loss estimates are in the 2.2 to $3 $3 billion range likely making it one of the top five costliest European Windstorms.

In Australia, a series of slow moving low pressure systems produced long intense rainfall and significant flooding in both Brisbane and Sydney.

The initial industry loss estimates are around two and a half to $3 3 billion, which is the largest blood loss on record in Australia.

The quarter also saw events in Japan, and the U S. While neither of these events materially impacted our financial results. They contributed to the overall growing perception of natural catastrophe risk that continues to drive reinsurance pricing.

Moving now to casualty and specialty overall this segment continues to demonstrate healthy underlying profitability.

We expect this profitability to continue to grow in part due to ongoing rate increases driven by concerns over inflation.

Our casualty and specialty strategy, and where we take risk is constantly adapting to anticipated future conditions.

Our underwriting tools give us the ability to determine where the best opportunities lie and grow individual lines or whole segments. Accordingly.

Over the past few years aided by the TMR acquisition, we grew general casualty and professional lines significantly as rate.

Paste trend.

As of 2021 progressed, our focus increasingly shifted towards other specialty as market conditions began to improve considerably in these lines. This year, we expect specialty will continue to experience.

<unk> increased rate in part due to the Russia, Ukraine War. We also believe that we will find many opportunities to grow in financial lines.

With respect to the Russia, Ukraine War as Bob discussed, we booked about $27 million in I B R. I b in our for the quarter as the result of a robust process to assess the potential impact on our underwriting results.

Our initial conclusion is.

Is that we have relatively minimal exposure to the war to begin with we do not expect material exposure in our property segment in part due to widespread applicability of war exclusions. Additionally exposure in traditional casualty business also is likely not material.

The most likely sources of exposure would be in our specialty and credit portfolios, but of course. This is an ongoing event and our reserve is subject to change we will continue.

Continue to work with our customers and brokers to monitor the impact.

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

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Your first question comes from the line of Elyse Greenspan with Wells Fargo.

Hi, Thanks. Good morning. My first question was just on the level of buyback on the.

Last quarter, you guys had said that buyback would be driven by net income.

So did that negative mark to market from a higher interest rate impact on the slow down in the quarter and then tying into that I guess I was also a little surprised that they slowed down given that you said.

Capital rate remains at the top end of your range. So I would I think that what it's a good point, perhaps more buyback activity in the quarter.

Thanks Elyse. Good question first I'll start with we still are at the high end of our excess capital. We did reflect the mark to market that came through on the portfolio. We look at that as more timing as opposed to absolute and future. What I was talking about the rise in interest rates our models on a pro forma basis, and so that's going to have.

The ability to look forward and actually look at the increasing rates that will get on the portfolio and bring that back into our capital. So that's the support of our capital well.

There was a lot of activity this quarter between inflation between the war and rising interest rates did start off the quarter and bought about $93 million back, but we just took a pause we look at this on a quarterly basis. So as we look forward into the second quarter.

A number of things, where we can deploy capital and actually we already have in Fontana, we've got the ability to put $150 million to work. There. We also have the ability to do both and we have it.

To look at both options that we have to deploy both into the business and also return.

Thanks, and then my follow up on you know last quarter you guys had said within property right that gross premiums are going to be down and that was expected to be about flat.

Accounting for Ryan.

Excluding reinstatement. So it does seem like you guys sound better growth within casualty, but then perhaps not as much growth in property is when you made the statement. So how should we be thinking about the growth within both growing.

And that within your property book this year has anything changed relative to that guide.

Now theres been really no change what I tried to point out was there is a lot of times, we get focused on the growth and that's what I was trying to walk it down in my comments about upsilon and reinstatement and get into the net and that's really when I look at the net premiums written in our property and broke it down between catastrophe, which actually showed modest growth that we had in.

They're reflective of the rate and the positioning of the portfolio other property over the last couple of years, we've seen significant growth in what you saw in the decline in other property on a net basis, which was down about 17 point was really just refining the profitability that Kevin has been talking about until we nonrenewed on some proportional lines on a quota share.

That's accurate.

One thing you mentioned is anything changed in our view a property if anything we are increasingly seeing green shoots in.

Further dislocation in pricing, so if I think about how to underwrite a property or property portfolio.

Firstly from a growth perspective, Bob explained where we are over a couple of years. The growth has been strong and we've had the pendulum kind of swung over to the risk accumulation as an underwriter you need to think about when you want to focus on margin expansion and risk accumulation. We are swinging the pendulum towards margin expansion. So.

On a like for like basis, all of our property is now producing more expected profit for the premium that we're bringing in we think that's the right focus coming into what is coming up for renewal is largely going to be wind exposed business. We like the construct of the portfolio, but we're gonna press right. So I still have optimism that were.

We're going to see opportunities for growth from rate and largely with X within expectations of where pricing is likely to be we'll hold the risk curve is relatively flat to where we were last year.

Okay. Thanks for the color.

Yep.

Your next question comes from the line of yarn Kinner with Jefferies.

Thank you good morning, everybody.

I guess, maybe to follow up on Lisa's question, because I'm not sure I fully understand the response with regards to the buyback capacity for this year.

So.

If buybacks, we're going to be tied to net income and net income was definitely you lost this quarter given the marks.

Do you still expect them to do buybacks over the course of the year do you expect the slower buyback as a result of that or is it that youre looking at the pro forma operating income benefit from higher interest rates that would still drive by that.

It's it was the point I was trying to make and thanks for the follow up on that for clarification. The point I was trying to make on the mark to market S&P, We had absolute net income loss, but the point I was trying to make on the mark to market as we view a lot of that is more timing as opposed to absolute will realize very small amounts of it. So we're still looking at a positive base we have.

The ability to buy back shares we have the ability to deploy capital and we look at each quarter on a discrete basis.

So conceptually wouldn't it make sense to tie the buybacks to operating income.

I don't want to get too disconnected. He because it is the net income that it creates to capital and we have to look at what our available capital is and that was the point I was making when I said, we did take a hit on the capital to the Mark to market, but we have to look forward to the investment earnings going forward as kind of a balance in a situation like this this was a lot of activity this quarter and we took a kind of.

We took a breath that doesn't mean, we didn't stop.

Yes.

We're not formulaic on our buybacks we are looking at lots of different things one thing Bob had mentioned as you know buying back as a way for us to.

To manage excess capital our first one.

First priority is to deploy capital into the business and you know we invested significantly in Fontana, we think Montana.

<unk> long term strategic.

The advantages to us in managing our casualty business. So again beyond the share buybacks, we did invest more in building out the platform.

Okay got it and then my second question.

Higher level.

Kevin in your comments sounds like you're still confident in being in the property cat business more so than many of your peers.

That's why you are you are also scaling back a little bit in property, which is not to be.

We're seeing others and I guess my question would be does that essentially mean that youre comfortable with having higher volatility over the long run even with higher Roe.

And even with kind of.

And then maybe the investment community seems to be.

I'm.

A bit more negative on such volatility in underwriting results, even with the higher RV.

Yeah.

I think youre thinking about it through the right lands and then it's two degrees I believe there's more rate coming in property. I also believe we have more skills more access and more vehicles to think about how to construct.

Property portfolios and specifically property cat portfolios to extract more also from the market. So I think it's rational for others to take a different view on how to think about property cat, but I look at what we're building and the portfolios that we're able to create in each of our vehicles.

And we're getting paid more for the risk that we're taking.

And I think the volatility is a trade that investors make for the amount of returned were producing but I see more return on the horizon for every dollar of premium were taken in and property cat and other property in E&S exposed property cat.

Thank you.

Your next question comes from the line of Mayor Shields with K B W.

I guess, Kevin I'm trying to reconcile your I think optimistic tone about market opportunities now with comments you've made on previous calls that we thinking your overall risk expectations I'm forgetting the phrasing wrong.

Are you seeing current opportunities now or is it that you think that the pullback of competitors means that at some point in time.

Even with the higher level of anticipated risks that you come out ahead.

Yeah.

<unk>.

I'm not exactly sure what commentary you're you're adjusting to so let me just talk about what we're actually doing it in property and see if that answers. Your question. So from the property perspective other property, we're seeing excess return in cat exposed.

Other property so that has been the focus what you've seen this quarter is a shift one to our updated our normal process of updating our view of risk requires some changes to the portfolio, but also the opportunity for us to press for margin. So you're seeing some change just to the construct of the other property portfolio, but no shift in strategy from a prop.

Pretty cat perspective.

You know a lot of focus right now is on Florida, we're not that interested in the Florida market, but we do have a lot of.

Southeast Atlantic Hurricane risk, which comes in through different ways. We think we're going to hold that relatively flat, but harvest more margin for the risk that we're taking there. So when I think about the overall construct to the portfolio I'm delighted with the size I'm delighted with the pricing prospects that we see on the construct of the portfolio and the efficiency that we're.

<unk> to enhance in the overall returns in each of our vehicles. So when I I am very optimistic about where we are and the opportunities I think there'll be in addition to that from the demand side. We said that after the January one renewal, we had an expectation that companies would sit back and realize that they were retaining perhaps more risks in there.

Might be comfortable with we're seeing that affect the supply through reinsurers reassessing their desire to write property cat and they're seeing new substantial new demand come to the market for increased purchasing so all of those dynamics set up for what I think is a really accretive market for us to be bullish on.

And we're working into that market right now by enhancing margin.

Okay No that's helpful.

The second question not to be terribly cute, but according to a lot of media reports there are some reinsurance businesses for sale and I'm wondering how you think about that.

Additional acquisitions in reinsurance.

I think I, probably should read fewer tabloids for the insurance industry.

I think from my perspective, I feel strategically compete complete.

We have a great portfolio, we fully absorbed the last acquisitions, which.

Platinum in TMR.

I think the lens, we have hasnt changed which would be if it advances our strategy and is financially accretive we take a look but right now I think the opportunity costs from distracting our underwriters from the pursuit of organic opportunities in the market is significant so and I think that's the lens in which any opportunity needs to be viewed from so I think.

The barrier for us to enter into and get into an engagement where acquisition is higher than perhaps it was with TMR, but if the right opportunities there.

It's impossible to say you'd never looked at anything.

Okay perfect. Thank you very much.

Sure.

As a reminder, if you would like to ask a question at this time simply press Star then the number one on your telephone keypad. Your next question comes from the line of Josh Shanker with Bank of America.

Yes. Thank you for taking my question.

Obviously youre pulling back on Remixing for the best opportunities available.

Does that mean last year that the.

Property Cat business, you wrote was probably underpriced given what your model thing right now or Youre not the only ones who are pulling back maybe theres better opportunities everywhere, but if you could if you could do over 2021 again is the model different enough that it's giving a different.

Output for the risks that you took a year ago.

That's a great question and one we are we obviously spend a lot of time on so first we're not pulling back what we're doing is we're looking at ways to expand the profit in the portfolio.

Our risk levels will be.

Ballpark the same as last year.

With regard to under pricing last year and over an adequately pricing this year.

Let me break it down into some of the things that we looked at in the in the change.

Firstly, our models are always updated and what we tried to do is get ahead of the moment and build into where the markets are headed.

From an inflation perspective inflation is higher this year than last year. So we want more money for the same risk just because it's loss costs are going to be higher social inflation trends are continuing.

So we learned more about that so there's more precision in our social inflation application in the model I wouldn't say that that's making a judgment as to prices higher or lower and then climb its a mix.

Climate is going to change and so.

The benefit we have with building our own model is we've long reflected climate change a component of reflecting climate change is incrementally changing your model as the environment changes.

That's very consistent with the best science out there. So I would say that that is a very big part of our change in yield here for the next 20 years I was talking in context of changes to reflect where the pace of change for climate change is going and then when there's an event we learned more so I don't know if we're getting.

<unk>.

Excess margin compared to what we should have gotten last year or if were just catching up to where we are what I can tell you is we do measure.

On a like for like basis were being paid more for the risk and our objective now is under an elevated view of risk to get no less margin than we had last year and we're achieving that as well so so.

It's an imprecise answer to it to something that is kind of unknowable, but I think if you take the rationale as to how we are addressing it we're trying to get ahead of the curve and incrementally always stay there and I think our pricing and the opportunities we have to expand margin are allowing us to do that in a way that under any measure is we're building a better and more profitable portfolio now.

And last year.

Okay. Thank you and the other question, which probably I can figure this out if I work for.

Friends of accountant, but it's really a question for Bob I think so the new money yields you guys are earning right now are far higher than where.

The yield of your portfolio is but also you have a lot of ventures and whatnot where are the investments are in short term rates cash.

It doesn't really have any duration or credit risk to it at all.

When I think about the portfolio how much of the portfolio is subject to those new money yields and how long should we expect it for that portfolio turnover again, what percentage of that portion it turns over a 12 month period.

Okay.

That's a good question for clarity and we're not going to racket brand and I'm going to give you. The answer page 14 in the supplemental tells you exactly what we consider to retain fixed maturity and short term investment portfolio of about 12.1 billion. That's all of our fixed maturity that comes out of the investment portfolio and some of the short term investments the lion's share of the shorter term investments in <unk>.

Talking about is really where we're managing on behalf of third party capital the new money yield and Thats, what the new money yield of two 7% represents and Thats up from one six.

We expect that to accrete into earnings rather quick.

Back to see some of that benefit coming in the second quarter and increasingly in the third and fourth quarter.

Okay. Thank you.

Your next question comes from the line of Ryan Tunis with Autonomous research.

Hey, Thanks. Good afternoon first question apologize. If this has been covered even as just ignore but on the other property segment with the non renewals.

An indication of how much more of that's on the come in subsequent quarters. This year.

A lot of that books.

Renewed already.

And I think what we're doing at.

A fair amount of its quota share so it's going to depend on what the underlying companies are doing.

I still believe that that portfolio is.

Gonna be relatively flat to sorry relatively up on a net earned.

Earned basis, but theres a lot of variables moving around.

If I were to guess.

That is a conservative assumption.

Got you, Kevin you've seen obviously more confident in the profitability of that portfolio.

Some of the actions you've taken.

I was just wondering if maybe.

You can kind of share observations about I don't know the math behind that like last year. It looked like you did like a 44% attritional and other property excluding large losses.

Have you thought about or looked at the math on if we didn't right. If it would have been X points lower or just anything you could share on those lines about.

And what type of tailwind that you see on renewables can offer you.

So I'll kick it off a little bit Ryan we've seen the profitability in that book.

Come on pretty strong I'm not sure about the 44% maybe we can go offline and talk about that but we've been around upper forty's. We've been focused on keeping that below 50 61 this quarter, but it was four points coming in from the weather related large losses, but we see that the business that we've grown significantly over the last three and a half years.

50% 2021 over 'twenty, we're going to see the magnitude of that accretive income over the course of the year pretty significant.

I guess I'll just ask one more too.

So I guess, it's been this has been something that we've discussed over time you guys had struggled in other property with the <unk>.

Non cash now.

Sure.

What is it about that business and obviously the history of the company goes back to property count like what is it I.

I guess, Kevin like what's your assessment of.

Why you weren't quite as successful.

And writing similar noncash comp.

Pretty.

I think.

Non cat.

As you know there are two skills you are absolutely right theres understanding nutritional element of getting that right and then understanding the cat leveraging into more cat exposed. We think is an area that a lot of insurance companies have nutritional expertise but.

Either less expertise or less desire for the cat, we're getting a lot of excess margin. There. So that's that we're leveraging into the strength.

Historically, we've demonstrated at the other property frankly.

Issues that we had were.

The bottom.

Decile of the portfolio and being too patient from an underwriting perspective, we're not making a mistake again and what youre seeing in some of the changes in other property is us working aggressively on leveraging very very narrowly into our strategic objectives on that and having less of a historic Tal.

For those that arent getting there.

Thank you.

Sure. Thanks, Brian .

Your next question comes from the line of Brian Meredith with UBS.

Yes. Thanks, a couple of months here for you first Kevin I'm just curious.

The growth that Youre seeing in your in your casualty and specialty segment.

Do you think about social inflation. There are you are you thinking about when you're pricing reserving that business.

Current social inflation environment or are you building in something significantly higher because it is the core to reopen and there's a lot of uncertainty there.

But absolutely agree with your last commentary, there's a ton of uncertainty in some of the observations we have about the outperformance, particularly in 'twenty, one things were shut down.

We are being very very slow to recognize because the historic lens for recognition of that may not be accurate because of the courts being slower.

From I think commentary broadly over the earnings season, and our absolute observations on our portfolio as is.

Measuring trend and rate is kind of the art of casualty and specialty reserving and pricing and we're still seeing rate above trend.

That.

Is discounted because we're uncertain our confidence in trend because of the slowdown is lower and social inflation as a component of that so I would say everything we see under a normal environment would be even more bullish than I feel we're tempering that bullishness because of the uncertainty of outcome.

But it has affected the emergence of claims.

Great. That's helpful. And then just a quick I'm just curious you know.

Looking at the breakdown of kind of the growth across our casualty and specialty segments.

Gross obviously throughout all of them, but financial lines kind of jumped out at me is kind of the big growth there.

What areas within the financial lines right now or are attractive.

We're seeing lots of it attractive opportunities.

One area that we spoke about and we continue to see lots of opportunities in the mortgage.

We were very large protector.

The GSE use as well as the <unk>.

PMI market. So we still see opportunity there I know inflation is as a known risk to the mortgage market. We're obviously watching that closely but the portfolio continues to develop really well, we're seeing strong demand and good opportunity.

Great and if I could sneak one more in just quickly.

With respect to your Russia, Ukraine exposures have you had any claims notifications yet.

As we look forward you know where are the other areas that potentially you think you might see some development if at all.

We don't have any everything we've done as a shift in our we just think risk is elevated so we've upped our ABR.

Okay.

The areas that are getting the most press short term as the aviation market and aviation leasing specifically, we are underweight in that market.

And there's some war on land coverage. So a lot of it's in the marine market in the aviation market.

I think there are elevated chances for the the global impacts from the war for credit businesses. So this can become pretty.

Pretty broad in its impact we're monitoring it all internally we have a very sophisticated reserving approach to this where every deal every class of business that we write is categorized as to how exposed to it as to potential risks emerging from the war and when I look at that and I add up kind of what I think.

Our exposures, we are significantly underweight relative to where our peers are in the market.

This is not at this point this is not a risk that is.

Is it.

Changing anything strategically or fundamental.

Who we are what we're doing.

Makes sense. Thank you.

Your next question comes from the line of yarn, Ken <unk> with Jefferies.

Thanks for taking the follow up.

Just one quick one I know you said that you still have very limited appetite for growth in Florida.

But with the special Legislative session scheduled for through May how do you see that impacting six one renewals for the industry more broadly.

I don't think I've ever successfully forecast, what's going to happen in the Florida Legislature I know, it's being discussed in particular the drop on the F. HCF about the dropdown and attachment that doesn't change that actually.

But from <unk> perspective that is no change in what we do or how we're looking at the market I think there's a lot of problems in Florida.

Solving it by a drop in the HCM I think is is potentially relieving some short term pain for the for the domestic carriers I think the structural issues are my.

Bigger concern.

And you know I think it's hard to want to.

To perform in that theater.

When you know at the end of the day.

The theater is kind of on fire because of all the issues within the market.

I appreciate it thank you.

Yes.

And there are no further questions in queue at this time I would like to turn the call back over to you Kevin for closing remarks.

Thanks, everybody for joining the call you all things equal we believe our results should improve steadily over the course of the year and will be paid more for the risk that we take.

We will benefit from expanded capital partners business and anticipate that rising interest rates will translate materially higher investment income.

So frankly in today's volatility should translate into Tomorrow's improved financial performance and reward our shareholders with superior returns I am optimistic about where we are I like our portfolio and look forward to speaking to you on our next call. Thanks.

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

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Yes.

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