Q2 2022 Renaissancere Holdings Ltd Earnings Call

July 26, 2022

Good morning, My name is Chelsea and I will be your conference operator today.

At this time I would like to welcome everyone to the Renaissance <unk> second quarter 2022 earnings conference call and webcast.

After the prepared remarks, we will open the call for your questions.

Instructions will be given at that time.

Lastly, if you should need operator assistance, Please press star zero.

Thank you and I will now turn the call over to Keith Mccue, Senior Vice President of Finance and Investor Relations. Please go ahead.

Thank you.

Good morning, Thank you for joining our second quarter financial results Conference call yesterday. After the market close we issued our quarterly release, if you didn't receive a copy. Please call me at one to three 943 zero and we will make sure to provide you with one there will be an audio replay of the call available from about one PM eastern time today.

Through midnight on August the.

The replay can be accessed by dialing 890 38206 in the U S were 140 to <unk> zero nine.

For international.

Today's call is also available through the Investor information section of Www Dot <unk> Dot com.

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 <unk> SEC filings to which we direct you with us to discuss today's <unk>.

<unk> or 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.

Sure.

Thanks Keith.

Everyone and thank you for joining today's call.

We are pleased to report that ran really generated strong second quarter results that combined consistent bottom line profitability with continued topline growth.

For the quarter, we delivered an annualized operating return on average common equity of 18%.

Third sequential quarter of double digit Roe.

Importantly.

We also increased our net premiums by 23%.

On a year to date basis, we have a reported operating ROE of 14, 4% and growth in net written premium of 21%.

Overall, our strong financial performance this quarter reflects the resilience of our business model across macroeconomic environments.

It demonstrates that our strategy can consistently deliver profitable growth with improved performance across all three of Renren as drivers of profit underwriting fees and investments.

From an underwriting perspective.

We're especially pleased by the growing contribution of our casualty and specialty segment to our operating results.

Increasing fee and investment income also serve as a stable platform to support our more volatile property cat portfolio.

Turning now to the operating environment.

We are confident in our ability to continue creating near and long term value for shareholders notwithstanding challenges in the global macro economy.

As we all are well aware.

<unk> broad economic indicators continued to <unk> during the quarter driving concerns over inflation and increasing fears of recession.

I would like to take a minute to discuss that.

The economic conditions, and how they might impact our strategic approach and business results.

Inflation and in various forms social economic and event driven is a factor we have always taken into consideration in running our business.

Given the resurgence of economic inflation, we have implemented a robust framework across our underwriting portfolio to estimate and price for its impact.

As a result.

We are acquiring materially increased rate to compensate for the loss cost impact of inflation.

As such even given our increased view of risk we are still receiving rates ahead of trend.

We have applied a similar framework to our reserving process, which.

Which we continue to assess and review based on our increased inflation assumptions that said, we remain comfortable with our reserves even after stress testing for inflation.

On the asset side of the balance sheet inflation, driven interest rate increases are materially improving our investment returns.

This should significantly offset the impact of inflation on our business as the increase in interest rates is likely to persist longer than elevated inflation.

In summary.

We have adopted a proactive approach to inflation and expect that once we have balanced the tradeoff between inflation and increased yield the net impact on our operating results will be positive.

The risk of recession.

Is it more recent but growing concern our business model has historically proven to be less sensitive to this risk.

Several reasons for this first.

Across the insurance value chain, there is limited discretion discretion in purchasing decisions most policyholders must purchase coverage.

Please the case with homeowners insurance and many commercial coverages by extension most insurance carriers require a reinsurance to maintain their portfolios.

Second inflationary pressures in recessions can raise demand for reinsurance inflation increases the cost of goods and services. Consequently, raising total insured values and by extension demand for additional reinsurance limit recession also decreases tolerance for risk. So the demand for volatility protection goes up.

Third recession and inflation reduced the supply of capital.

While increasing its costs, consequently, reinsurance rates typically rise, while simultaneously, becoming more competitive competitive versus other forms of risk capital.

As a result of these supply demand dynamics over the course of the next year, we expect increasing demand for our products across both property and casualty and specialty in addition.

<unk> should continue to face upward pressure in some cases materially.

We saw this at the mid year renewals with property cat demand, increasing by about 5 billion against constrained supply leading to substantially higher rates.

The constrained supply of reinsurance is being.

Driven by Investor concerns over reinsurance generally as a class and property cat specifically.

As you know we have deep roots as a writer of property catastrophe reinsurance and remain committed to this risk is a core component of our underwriting strategy.

This is due to our competitive advantage in understanding property cat risk and our conviction that we will be paid for the volatility over time.

<unk> strategic commitment to reinsurance enhances our value proposition to customers along three critical dimensions first our participation is consistent we manage risk on behalf of the biggest and best seasons and provide.

Consistent exposure driven pricing, regardless of short term weather predictions or deteriorating macroeconomic conditions.

Second.

Our participation is broad.

Our customers value the scale and breadth of our offerings and our ability to meet all their reinsurance needs and third we do not compete with our customers our strategic focus on reinsurance minimizes potential channel conflict.

This strategy is clear consistent and increasingly differentiating we believe that it provides us outsized participations on the best reinsurance programs and ensures we are.

First Karl market for new or increased reinsurance demand.

Before I hand over to Bob I wanted to address one of the major factors behind the market's perception of property cat risk and.

That is the poor historic performance of Cat models.

In no small part this is due to an overreliance on vendor models that inadequately capture the growing influence of climate change.

Our scientists excuse me.

Yes.

Okay.

Our scientists and engineers at <unk>.

Risk Sciences believes that the commercially available models do not properly reflect a climate change as an evolving phenomenon for.

For Sunpower also all vendors may have adjusted their views to reflect recent experience.

We believe that they have not robustly captured the physics of climate change.

From a risk management perspective. This means that the vendor model outputs are likely to underestimate the risk that insurers and reinsurers are managing.

This could cause companies to expose more capital than intended and their returns for managing risk will be lower than expected.

Consequently, investors may question, whether the entire insurance industry truly understands the potential impact of climate risk, whether it being correctly incorporated in the industry's evaluation of risks and most critically whether it is appropriately reflected in rates.

Now let me explain why we are confident in our management pricing and portfolio construction of this risk.

Yes.

We have invested considerable resources and modeling and understanding climate change our team at Renren <unk> Sciences ensures our models always reflect the most up to date data informed science. This enables us to steadily increase our current view of risk to reflect the present day impact of climate change.

As a result, we believe our models are better predictors of the impact of climate change on loss costs. In addition, our rems underwriting system provides us an additional competitive advantage and underwriting property catastrophe risk.

All of our risks must be underwritten and modeled through Rems, which is continuously updated to fully reflect.

The best understanding of the physical parameters of shifting weather patterns.

This ensures that our underwriting decisions are based on an elevated view of risk that fully reflects climate change. It gives us confidence that we are being paid appropriately for the risk we are assuming.

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

Thanks, Kevin and good morning, everyone Q2 was a strong quarter for run rate as we reported operating income of $238 million and an.

<unk> operating return on average common equity of 18, 4%. These are excellent results that demonstrates strong underwriting performance the capabilities of our platform and our continued focus on executing our strategy to consistently deliver profitable growth.

As I said last quarter, we believe that there is further upside to our earnings across each of our three drivers of profit we progressed each of these drivers in the second quarter.

Our casualty and specialty business is on track to consistently deliver a mid <unk> combined ratio on a growing premium base.

This quarter casualty and specialty reported a 94% combined ratio and generated $52 million of underwriting income.

Second our net investment income is benefiting from rising interest rates and increased investment leverage this quarter. Our managed net investment income was $107 million.

Up almost 30% from the first quarter and we anticipate continued improvement as our new money yield is nearly double our current net investment income yield and finally fee income increased to $34 million and we remain on target to earn fee income in the range of $45 million per quarter by the end of the.

Year absent any large losses all of these factors should reinforce a stable earnings foundation that we believe will benefit our shareholder returns.

Now moving on to capital management, and as you know our first priority is to deploy capital into the business, which we view as our highest return potential and then return excess capital to shareholders over time at attractive levels.

In the second quarter, we chose to return a modest amount of capital to shareholders through share repurchases at attractive levels.

We also continued to make modest share repurchases at the beginning of the third quarter.

We remain in a strong capital position despite significant mark to market losses in the first half of 2022, our investment portfolio remains high quality and we expect to earn back the losses in coming quarters.

As we head into the wind season, we are not planning additional share repurchases in the third quarter as Kevin said, we believe that we are in a position of strength in the current macroeconomic environment and we'll benefit from supply and demand imbalances in both property and casualty and specialty we have a strong balance sheet and are keeping our powder dry.

Capitalize on potential underwriting opportunities as we believe this is the best way to maximize long term value creation for our shareholders.

I'll now shift to our three drivers of profit starting with underwriting income, which showed $316 million. This reflects strong performance across both segments, our normal level of expenses and favorable development that is mostly shared with our joint venture partners.

In short there were no significant one off items driving these favorable results.

We grew overall gross premiums written by 18% and net premiums written by 23% growth was driven by the casualty and specialty segment. The property also grew on both a gross and net basis.

The overall combined ratio was 78%, which increased by six percentage points compared to the second quarter of 2021.

A little more of half of this increase relates to mix shift in our underwriting portfolio casualty and specialty and other property now make up a larger portion of our portfolio. This business is less volatile than our property catastrophe class of business, but it also carries higher attritional loss ratios and expense ratios, which are more visible and low cat quarter.

The remainder of the variance relates to a higher level of cat activity. This quarter combined with lower favorable development cat activity. In Q2 2022 was above the second quarter 10 year average, while Q2 2021 was close to average.

Moving to our property segment, where we reported a combined ratio of 58% and favorable development of six percentage points. We only retained about a third of this favorable development is the remainder with shared with our joint venture partners. As a result, it was not a material contributor to our bottom line results.

Property gross premiums written increased by $35 million or 3% and net premiums written increased by $85 million or 11%.

The growth in the quarter was driven by property catastrophe and is an excellent example of our ability to employ our gross to net strategy as we found attractive opportunities to grow at the mid year, we were able to share more risk with our joint venture partners, particularly da Vinci Epsilon and Vermeer.

We continue to retain about one third of property catastrophe gross premiums written with the balance being seeded through traditional retro and our joint ventures.

The other property book continued to perform well and within our expectations. We reported an 83% combined ratio and current accident year loss ratio of 52%. This included about $9 million or three percentage points from floods in South Africa other property Attritional losses, it generally been running well.

So, 50%, which is consistent with our expectations for this business.

Other property gross and net premiums written were roughly flat to the second quarter of last year, we continue to find cat expose E&S business attractive and a growing premium two rate increases consistent with last quarter. This growth is being offset by non renewals of certain attritional quota share deals that do not meet our return hurdles.

Net premium earned for other property has been running around $340 million per quarter for the first half of the year and we anticipate a similar amount per quarter on average for the remainder of the year.

The other property acquisition cost ratio of 29% was slightly higher than expected due to a few one off items generally we expect this ratio to be around 28%.

Moving on to casualty and specialty where we reported strong results gross premiums written were up 37% and net premiums written were up 38% with notable growth in professional liability and financial lines.

The growth in financial lines relates predominantly to mortgage deals that can take up to seven years to be fully reflected in our net premiums earned.

Year to date net premiums earned are about $1 seven up 44% for the second half of the year. We are also projecting approximately $1 7 billion in net premiums earned for a total of about $3 4 billion for the year.

Our combined ratio of 94% improved by four percentage points from the second quarter of 2021, driven by improvements in the current accident year loss ratio and acquisition expense ratio.

Now moving onto our second driver of profit fee income, which was $34 million in total for the second quarter management fees were relatively stable to the comparative quarter driven by an overall reduction in epsilon and structured.

Our reinsurance products, mostly offset by an increase in the size of da Vinci premiere the DG in Fontana.

This is the first quarter, we have started to accrue management fees on Fontana, our new casualty specialty joint venture vehicle Fontana as management fees are based on net earned premium and we will take several quarters to fully ramp up.

In the second quarter performance fees continued to be impacted by a deficit related to 2021 cat events. We have now largely earn out of this deficit and expect performance fees to pick up in the third quarter as long as there are no significant cat events.

Overall, we shared $49 million of our net income which includes $124 million of our operating income with partners in our joint ventures as reflected in our redeemable noncontrolling interest that.

Difference between those two numbers is the operating figure does not include $75 million in mark to market and foreign exchange losses attributable to our joint ventures, the mark to market losses, primarily rate of da Vinci in Fontana, while the foreign exchange losses relate to Medici.

Turning now to our third driver of profit investment income, where we're starting to see the benefits of interest rate increases in our net.

Net investment income.

It was up 33% on a managed basis and 19% on a retained basis compared to the second quarter of 2021.

We anticipate continued growth in our net investment income while our retained net investment income yield as two 2%. The current yield to maturity is almost double at four 1% and we expect to realize much of this benefit relatively quickly as the fed increases interest rates and we turned over the portfolio.

The significant increases in U S interest rates drove $654 million in mark to market losses in our investment portfolio, principally in our fixed maturity portfolio.

$576 million of those losses were retained and drove the difference between our net and operating income as well as the decline in our tangible book value per common share.

Turning to our expenses and foreign exchange, our direct expense ratio, which is the sum of our operational and corporate expenses divided by net premiums earned was 6% which is flat to the comparable quarter.

Operational expenses were up in the quarter. The operational expense ratio also stayed flat at 5%.

It was a volatile quarter for foreign exchange, we reported a $51 million foreign exchange loss, which was driven by large movements of the euro pound and yen against the dollar and is not included in operating income.

Loss had three components first $21 million relates to hedges on behalf of Medici investors. This is completely offset in noncontrolling interest and has no bottom line impact on us second $24 million relates to a one time adjustment regarding treatment of certain foreign exchange exposures, and finally 6 million.

Relates to basis risk inherent in our overall hedging strategy.

Finally, I'd like to call your attention to the enhancements we've made to our financial supplement our goal is to provide our investors with additional disclosure to help better understand our business and three drivers of profit among.

Among other changes we have provided more granularity on premiums, including the impact of reinstatement.

Have highlighted the operational component of NCI and have provided significant detail on our retained investment portfolio. We hope you find the enhancements helpful and if you have any questions. Please give key ill call it.

In conclusion, we have reported excellent results with an 18% operating return on equity and solid underwriting performance across both segments. We are in a strong capital position with plenty of dry powder to take advantage of opportunities and finally, we continue to see positive momentum across each of our three drivers of profit.

Which we believe will make our financial results increasingly attractive and resilient to natural catastrophe volatility.

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

Thanks, Bob as usual I'll divide my comments between our casualty and specialty and property segments.

The second quarter was an active renewal cycle with a busy period in casualty and specialty in the June one and July one renewals in property.

Beginning with our casualty and specialty segment.

We are pleased to report that it was a solid quarter across the board with robust topline growth and accident year loss ratio running as expected.

And favorable prior year development. This resulted in a combined ratio of just under 94%.

And $52 million of underwriting profit.

This is a good result in line with our current expectations and one we believe we can continue to build upon.

And our traditional casualty book, we are seeing reduced overcapacity on the best deals as.

As well as reduced pressure on ceding commissions. These trends are in response to underlying rate moderation and general inflationary for years, and we expect them to persist and drive Bottomline profitability.

Market conditions in the specialty book continued to improve driven by uncertainty from the Russia, Ukraine War and concerns related to cyber risk cyber has presented an ongoing opportunity with demand consistently exceeding supply and rates up significantly.

We have been underwriters of cyber risk for many years and are focused on prudently growing with partners that we think are the best underwriters.

Our financial lines business is also facing an improving market and over the last few quarters. We have found multiple attractive opportunities to grow predominantly in the U S mortgage space Fannie.

Fannie Mae and Freddie Mac.

Placed around $11 billion in limit into the reinsurance market. So far this year.

This is about the same volume as for all of 2021, which was a record issuance at that time we.

We are also finding opportunities in the U S PMI space, where our role as a lead market helps us drive structure and pricing.

We think the mortgage business is attractively priced given the economic backdrop.

We assume that this portfolio at a particularly attractive moment due to the embedded low mortgage rates and significant increases in home equity.

We are given further confidence by the fact that over 95% of our mortgage portfolio is fixed rate and 95% is owner occupied.

Overall, we have written almost half a billion of gross premiums in our financial lines business. So far this year double what we wrote during the same timeframe last year.

Shifting now to property.

As anticipated the June one renewals in Florida were dislocated with continued upward rate momentum driven by reduced reinsurance third party appetite limited retro capacity and severe financial distress at many domestic Florida insurers.

At an industry level rate increases in Florida average, 10% to 30% with pricing, particularly challenged in the lower layers.

We have been reducing our exposure to Florida over the last five years and currently only provide material support to six domestic insurers.

That said decreased exposure to Florida Domestics is not the same thing as decreased exposure to Florida Hurricanes Southeast wind remains the peak risk in our portfolio.

What has changed is that we have moved away from Florida domestic companies to more regional and nationwide programs and have increasingly taken southeast wind risk through our other property book.

Overall.

At the mid year renewals, we decided to hold our <unk> flat, while taking the benefit of increased rate.

More broadly across the U S. We saw a significant increase in demand mid year with about $5 billion of new limit purchased.

This was.

The mixture of mid year renewals and some January one clients coming back to buy additional limit.

As a result favorable pricing continued into July one with non loss impacted business rates up roughly 10% to 20% risk adjusted loss impacted programs were up more in some cases greater than 50% risk adjusted.

Internationally renewals in Australia were dislocated because of losses over the last year.

Europe European business also experienced rate increases, although at a more moderate pace.

In other property. We also achieved strong rate increases consistent with last quarter, we continued to optimize the other property portfolio and chose to non renew a few large deals.

We are closely monitoring meteorological conditions, as we head into the third and fourth quarters as always and Renaissance Reread Sciences has provided valuable information to help us understand the climate dynamics likely to influence the remainder of the year.

We are expecting another active hurricane season, and our wild fire outlook is elevated due to a drought in the western U S.

Closing now with our capital partners business as you recall last quarter, we launched our casualty specialty joint venture Fontana re.

It is performing well so far and we expect it will bring material capacity to our customers diversifying risk to our capital partners and attractive fee income to our shareholders.

Across all of our joint ventures. This quarter underlying performance was strong the cat bond market continues to be an attractive market and as a result, medicis assets under manager up 25%. So far this year.

So in conclusion, we delivered a strong quarter with robust premium growth in and up 18% operating return on equity looking forward market volatility and anticipated improvements in underwriting conditions should provide us with ample opportunities to grow profitably and continue to build the foundations for long term shareholder value.

Thanks, and with that we'll open it up for questions.

At this time, if you would like to ask a question. Please press star one on your telephone keypad.

If you wish to remove yourself from the queue you may do so by pressing star Q.

We remind you to please on mute your line when introduced and possible pickup your handset for optimal sound quality.

The interest of time, we will ask that you. Please limit yourself to one question and one follow up.

We will now take our first question from Elyse Greenspan with Wells Fargo.

Hi, Thanks. Good morning, My first question on the capital side of things you guys mentioned that you wanted to have.

Some dry powder to capitalize on opportunities as they emerge.

Does that imply that you guys are going to be on the sidelines with buyback until there's more clarity on the January one renewals or how should we think about the timing and when do you guys.

Consider returning to buying back your shares.

Yes. Thanks for the question Lisa Bob Hope, you're doing well today, yes in my comments I did indicate we're not going to buy any more shares back in the third quarter and we'll keep a careful eye on the fourth quarter and how we see the opportunities developing for the one one renewals. So in short dry powder, it's better deployed into the business then returned to highest return value.

Okay. Thanks, and then my second question.

Kevin.

You guys, you said well I think you guys pulled back in Florida, but south east win rate remains the pic portfolio.

Is the net exposure to Florida this year compare to last year.

And all of the reinsurance treaties that you have with the Florida Domestics are there termination provisions and the advent of seating is downgraded below a buy demo tech and where you guys are also successful in.

Efforts to obtain upfront payments.

So.

Let me break it out with regard to the <unk>.

Across property and other property, we kept the southeast wind BMS roughly flat from a dollar amount from where we were last year. So with that we are getting a lot more right and a lot more margin in the business, even adjusting for inflation and climate change.

So we feel really good about the portfolio, but we decided to hold risk levels relatively consistent to where they were last year.

The <unk>.

Few accounts that we have I think I mentioned, we had six major relationships with Florida domestics.

These are companies, we think are better positioned than most in the Florida market and its one in which we've had long standing relationships. There are provisions for cancellation not each of them are the same.

And we did not get upfront payment on the premium we've known these guys for a long time, we're pretty comfortable with the portfolio, we built down there.

Thank you.

We'll take our next question from Jimmy <unk> with Jpmorgan.

Okay.

Hey, good morning, So first just a question on the pricing environment.

So obviously pretty positive.

Wondering if youre seeing any.

Any of your competitors of the market as a whole.

Often up on rates a little bit just given the fact that interest rates are higher and thats benefiting investment income.

Yes.

No if anything we're seeing continued disciplined from competitors not only with price, but with terms and conditions.

No.

We've seen some contraction, particularly on the on the cat related capacity side, where there is.

Increasing reluctance for competitors to put cat capacity out which is helping support pricing.

Then generally across as I mentioned within casualty and specialty.

Programs are less oversubscribed than they were last year, so again, pushing more power to the reinsurance market.

Okay, and then on the non-GAAP side have you seen any changes in session rates by.

Any of your clients.

Not not meaningfully, but they're not increasing so we are seeing.

Well performing accounts, we're seeing session rates being relatively flat on accounts that need some remediation work there is increasing pressure on session rates.

Thank you.

Our next question comes from Meyer Shields with K B W.

Thanks, Good morning, a couple of quick ones one.

Bob can you give us a sense in terms of with.

With the one third of the cat premium Youre, retaining where the geographic exposures are.

It's the peak risks around the world the number one.

Peak risks that we manage the Atlantic Hurricane and within Atlantic Hurricane is specifically southeast Hurricane.

So when we think about that that's where our capital decisions and that's what's dominating the tail of the distribution, even with the larger casualty and specialty portfolio. It's the mix has been pretty consistent with what it's been for several years.

The major exposure regions around the World, California earthquake, North Europe , then followed by Japan.

Okay perfect.

Second in casualty and specialty I guess the <unk>.

Year over year.

The.

Loss ratio improvement slowed a little bit is that cat activity in that segment and something else.

No that's.

Just the current accident your loss rate that we have in there.

It's a blended rate between our casualty specialty specialty credit moved around a little bit, but we did take an adjustment for <unk> side. This quarter. Once the settlement was announced it was going to be paid small and management at less than a point.

Yeah.

Thank you Laura.

Right no understood.

And I think this is mostly an accounting question, but if I look at the operational expenses in the Cat segment. They are up in the mid 30% range on a year over year basis and was hoping you could talk us through that.

It's mainly the fees that come through that offset expenses that are reflected in our in our underwriting expense. So thats a lion's share of it. There's also been some investments that we've made in the property cat modeling that Kevin has talked about.

Okay perfect. Thank you.

Thank you.

Our next question comes from Ryan Tunis with Autonomous research.

Hey, Thanks. Good morning first question for Kevin could you give us some sense as well.

How much better would.

Pricing had to have been at mid year for you to want to increase your Florida PMO.

Okay.

Yeah.

Hello.

Yes, I'm just thinking.

So think about that.

Let's talk about that.

With the book that was renewing and some of the issues in Florida.

The reason I'm hesitant I am not sure what rate would have.

Entitled Us to put more capacity out.

I think had there been more.

Nationwide programs.

And with rates that we were seeing we were pretty close to wanting to put out more within the whole organization on balance we did put out more limit, but more of it was shared with.

Our partners then kept on our retained balance sheets. So I would say, we're pretty close to where rates should be for us to want to begin to think about adding to P&L, Florida, specifically being a different story because of the issues within the low to the domestic market there, but for southeast wind I would say we're pretty close.

Understood. Thanks, and then just a follow up.

Sure.

From a loss ratio perspective, the mortgage business youre, adding in casualty and specialty is that it sounds like.

Thats a decent mix shift.

I'm, assuming the loss ratios are quite a bit lower than.

In the casualty business is that the right what do you think about it.

Yes, yes.

<unk> business generally specialties generally outperforming casualty currently from from expected Ulta.

Ultimate developed loss ratio.

And within that the mortgage portfolio is kind of leading the pack.

Thank you.

Thank you. Our next question comes from Josh Shanker with Bank of America.

Thank you a question on.

You did mention a little bit, but obviously one of your.

A competitor said they don't want to be in the property reinsurance market anymore and.

Property reinsurance has increasingly become a negative.

We're for a lot of your competitors to what extent do you measure the amount of capacity available in the market has declined over the past 12 months.

So we definitely measured the amount of limit purchased and we can measure that quite precisely it is a little bit more difficult to manage.

How much supply is uncommitted to the market.

So we look to see.

From the from the demand side, how many deals are repriced, how many deals that we're getting.

Yes.

How many deals are we getting preferred private terms on because thats an indication that the capacity is at pretty close to equilibrium with the demand I would say right now the sense that we have is that supply has decreased but it's pretty closely matched to where the market is buying I think with increased demand at <unk>.

One we're going to see further rate pressure come into the market.

Reinsurance led pricing, which we haven't seen for a long time or at least that's what I'm optimistic for.

And when I look at the.

The premier.

Premiums ceded in your P&L and then I also look at the.

The fee income you are generating on third party vehicles. It seems like Theres been a lot less third party retro purchased and a lot more first party retro to what extent is that the pricing has changed to the point, where you want to be buying it for your own book and to what extent is that just the third party capacity out there in the market.

Just just so I answer to your question third party MIM.

Outward ceded and pardon me.

One of your own sponsored vehicles as opposed to ceded to a non <unk> related party.

Okay, Yes.

Ceded ceded reinsurance has become more expensive and with that we are looking carefully we have got some long term partnership deals that continue to support the portfolio that we have.

Have more straight excess of loss, we've been very successful buying a similar program to support the London business.

Some of the other portfolios, we have reduced the amount of third party outward ceded that we purchased from a from a capacity and from a pricing standpoint with that.

<unk> ability of our platform, we have added more capital to some of our joint ventures and allowed.

To participate on the risk that otherwise would have been written and protected and limited excuse me <unk> limited.

So the answer to your question is we are buying less third party and we are sharing more with partners.

Okay. Thank you.

Yes.

Thank you once again that is star one to ask a question.

And our next question will come from Michael Phillips with Morgan Stanley .

Thanks, Good morning.

Quick numbers question first I think property expense ratio you talked about some of the reasons why that was elevated mix shift and then some other nuances there.

Any way you can quantify the magnitude of that second piece of nuances specifically the lower amount of managed capital net impact of the expense ratio.

On the bank just like in your question you were talking about the performance and management fees coming through as an offset to less of it coming through management team.

The agencies have been remained relatively stable the performance fees come off against that.

You can do the math on it I just don't have the number exactly on what the reduction here is in front of me, but that would be less of an offset this year than there was last year. We have also made like I said some investments in the property cat space.

And also in the other property space to understand the risk better.

And Bob because of the mix component of that.

Some of the companies with more other property versus property cat, but comments.

What kind of opportunities in property cat should that mean that maybe we could see a little bit more of a benefit to the expense ratio going forward than otherwise we might.

Yes.

Is that fair to say.

Okay.

Hello.

Lot of the other property portfolio is written on a proportional basis with that theres much higher acquisition cost.

Property got it.

Is it pretty consistent.

Portfolio with much much lower acquisition costs. So if we wait more towards property cat. The overall property segment expense ratio should decline.

Okay. Good thank you.

And then the second question.

<unk> relates to the reserving process, Kevin Kevin you talked about a little more due diligence because of inflation I guess that's.

Another angle on the reserving pieces I'm curious, if you've seen any kind of backlog or.

On claims payment of slower payment pattern at all any of your segments that leads to kind of a bigger body of claims that are out there than otherwise the case that could also impact the populations have you seen any kind of slowdown in payments.

Question.

Yes.

Right question, and it's very hard to quantify we believe that some of the good news, we're observing and looking at our reserves warrant additional conservatism because of the COVID-19 related slowdown in the courts and potentially in processing. So we are we believe that there is a slowdown.

Again very difficult to measure it but with that we are being even more cautious on recognizing good news in our reserves.

Do you think that's more pronounced slowdown.

On to recognize one.

One of the segments together.

You've cut out for the lesson of.

Sorry, Yes, do you think that slowdown that's hard to quantify is that more pronounced in one of your segments or the other.

I think that's difficult I think.

No no I would say the longer tail lines is where we are most worried about it. So it's something we're probably more concerned in casualty and specialty that in property, but within the casualty specialty classes I would say, we're equally concerned among most of the glass, it's certainly in casualty.

Okay cool thank you very much.

Thank you.

Our last question will come from Euro and Qunar with Jefferies.

Good morning, and thanks for taking my questions.

First question is one that I actually asked about last quarter, and then I apologize, but I'm still a little confused over it and with regards to the buybacks.

I think you've said in the past you're tying the buybacks to net earnings that said there is a little bit of a transitory component. There mainly you had some marks on interest rates that I guess youre expecting will reverse and therefore, you can continue with buybacks.

I just want to make sure that I'm thinking about the moving parts correctly is it tied to net earnings is it tied to temporary net earnings is it tied to operating earnings how should we think about buybacks.

There's two parts to that one.

Sure.

One is we had tied to income we declared it as net income we did have temporary differences.

But we see it as an opportunity to it's not an absolute test, but we did buy shares back when we did have a mark to market loss, we tried to clarify that on the call, but more importantly, what we're looking at is deploying it into the best opportunity.

Right now we're looking in the macroeconomic environment, we see that opportunity is to deploying into the business. So in the absence of doubt we will not be buying any more shares back in the third quarter, which I outlined here earlier and we'll be looking cautiously at the fourth quarter to see if those opportunities continued to develop at the one one renewal process that Kevin feels optimistic.

About so I hope that's clear in terms of our guidance. There is no single metric that we have out there, it's where is the best opportunity for us to deploy it and create long term shareholder value.

We're excited about what we're seeing in the markets and preserving capital to be able to deploy it as we approach year end that we think is the smartest thing to do right now.

Got it.

And then in terms of the opportunities you're seeing in the market maybe tying this back to one of your competitors' decisions to pull out of the property reinsurance do you see that is offering you additional opportunities in the casualty and specialty book as well.

Yes, I'm generally pretty optimistic right now where the market is going and the way I think about it as I look at what is the drivers of our results through the lens of kind of the three areas of profit Bob highlighted so if we take our underwriting we're still seeing very strong cash.

I'll Tee rates, we have great access to the best business and rate is continuing to be above trend.

Looking at what's happened to the yield curve and the new money rates, we're seeing on the investment portfolio lots of opportunity for us to continue to grow investment income and have that be a major contributor to earnings our fee business is continuing to grow and doing great. I think there is a little bit of.

Reticence, among third party capital investors, but there's been a flight to quality and we're certainly the winner of that.

And then from the property perspective.

We're continuing to see new demand come to the market. We're seeing increased reluctance from competitors to put out capacity with that we're seeing strong rate change, which we think will persist. So on a breakdown of the things that are currently embedded in the things that drive our earnings. There is no reason for me to think that they're going they're going to do anything but persistent <unk>.

We get even more beneficial to two to our strategy.

I appreciate that I guess, what I'm trying to get to though is ultimately I guess there is a view in the market that says that you have to be able to compete in both property and casualty reinsurance in order to compete effectively.

Do you think that is.

That's a dynamic that could play in your favor considering the pullback from some of your competitors.

So.

<unk>.

We definitely benefit from providing coverage across all lines at scale to our seasons.

A lot of times, a buyer looks to how much property cat theyre going to purchase and start thinking about their sessions first from a property cat lines that should additionally, put us in the most preferred position going into year end as well.

Thank you.

Yes.

Thank you.

I would now like to turn the floor back over to Kevin O'donnell for any additional or closing remarks.

Thank you for joining today's call.

To deliver the strong quarter that we did and hopefully our comments reflect the optimism we are seeing in the quality of the current portfolio and for what's to come. Thanks again.

Ladies and gentlemen, this does conclude the Renaissance <unk> second quarter 2022 earnings call and webcast. Please disconnect. Your line at this time and have a wonderful day.

Okay.

[music].

Hello.

[music] component.

Yes.

Okay.

Yes.

Okay.

Sure.

Okay.

Yes.

Okay.

Yes.

<unk>.

Okay.

Thank you.

Yes.

Okay.

Yes.

[music].

Okay.

Thanks.

Sure.

Yes.

[music].

Yes.

Okay.

Thanks.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

[music].

Yes.

Okay.

[music].

Yes.

Okay.

Sure.

Okay.

Sure.

Yes.

[music].

Yes.

Okay.

Yes.

[music].

Yes.

Sure.

Yes.

Sure.

Yes.

Okay.

Sure.

Okay.

Yes.

Sure.

Yes.

[music].

Sure.

Thanks.

Okay.

Sure.

Yes.

<unk>.

Okay.

Sure.

Yes.

[music].

Sure.

Yes.

Okay.

Sure.

[music].

Yes.

[music].

Yes.

Okay.

Yes.

Okay.

Sure.

Okay.

Yes.

Okay.

Sure.

Okay.

Yes.

<unk>.

Yes.

Okay.

Yes.

Sure.

Okay.

Yes.

Thank you.

Sure.

Yes.

Thanks.

Okay.

Yes.

Sure.

Thanks.

Okay.

Yes.

Okay.

Sure.

Okay.

Yes.

Right.

Okay.

Sure.

Yes.

Okay.

Sure.

Yes.

Okay.

Yes.

Sure.

Yes.

Sure.

Okay.

Yes.

Sure.

Yes.

Sure.

Okay.

Thanks.

Sure.

[music].

Yes.

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

Sure.

Yes.

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

<unk>.

Sure.

Yes.

Okay.

Sure.

Okay.

Thanks.

Okay.

Yes.

Okay.

Yes.

[music].

Yes.

Okay.

Thanks.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Sure.

Okay.

Yes.

Okay.

Thanks.

Okay.

Sure.

Yes.

Okay.

Yes.

Understood.

Okay.

Yes.

Okay.

Yes.

Okay.

<unk>.

Okay.

Yes.

Okay.

Yes.

Okay.

Sure.

Okay.

But.

Sure.

Yes.

Okay.

Yes.

Okay.

Sure.

Yes.

<unk>.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Yeah.

Okay.

Yes.

Okay.

Q2 2022 Renaissancere Holdings Ltd Earnings Call

Request a DemoDemo

RNR

Renaissancere Holdings

Earnings