Q3 2022 Renaissancere Holdings Ltd Earnings Call

November 2, 2022

To all sites on halt we appreciate your patience and ask that you. Please continue to hold.

[music].

Okay.

Good morning, My name is <unk> and I will be your conference operator today.

This time I would like to welcome everyone to the Renaissance <unk> third 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 I will now turn the call over to Keith Mccue Senior Vice President of Finance and Investor Relations. Please go ahead.

Yeah.

Thank you. Good morning, Thank you for joining our third 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 four warranty three 943 zero and we will make sure to provide you with one there will be an audio replay of the call.

Billable from about one PM eastern time today through midnight on November nine the replay can be accessed by dialing 890, 38159 E U S toll free or 140 to <unk> 015 hundred 45 internationally.

This 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.

With us to discuss todays results are Kevin O'donnell, President and Chief Executive Officer, and Bob <unk> Executive Vice President and Chief Financial Officer, I would now like to turn the call over to Kevin Kevin.

Thanks Keith.

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

Third quarter was once again, particularly active the most significant event was our Canadian which was one of the costliest natural disasters to impact the United States.

Likely only second to Hurricane Katrina in 2005.

The other significant driver of third quarter results with the historic increase in interest rates, resulting in our retained investment loss of $340 million driven by.

Mark to market losses on our fixed income and equity portfolios.

Bob will discuss our investment return in greater detail in his comments.

Despite the quarter's volatility we continue to enjoy a strong capital position.

Through a combination of holding company capital and committed partner capital.

Our rated balance sheets will bring the same level of risk and face capital to our customers next year as they did prior to hurricane Ian this year.

Our customers need this capacity reinsurance is a critical link in the insurance value chain and absorbing volatility is an important component of our value proposition.

But in order to ensure the long term availability of reinsurance capacity, we must realign the interest of our customers and investors investors need to be appropriately incentivize to continue providing their capital.

This is especially true now as investors have numerous attractive deployment opportunities in other asset classes.

Consequently property cat needs to be the most profitable business line and the PMC market commensurate with the level of volatility it absorbs to achieve this there must be a step change in the pricing and structuring of reinsurance coverage to ensure an additional margin of safety for our investors.

Overall, we believe that our models are accurately and consistently capture the risks that we have assumed.

But to ensure an increased margin of safety, we will be recalibrating, our underwriting approach.

To property cat in the following ways.

By requiring substantial rate increases whether or not the business is loss impacted. This is this will not be a glide path, but rather a step change by increasing retentions on property programs.

By tightening terms and conditions and narrowing coverage in most instances to named peril Lonely.

By offering non concurrent capacity and private placement on many deals.

And by requiring broad participation at improved economics across seasons reinsurance programs not only in property, but also in casualty and specialty.

And finally by reducing our participation meaningfully on any program, where these conditions are not met.

I am confident that this reasonable approach will restore Renaissance III to its long term track record of rewarding investors, while ensuring long term capacity our customers need.

Yes.

We expect the next several years will provide significant opportunities for reinsurers.

We have multiple competitive advantages that make us our customers preferred trading partner and which will allow us to optimize our underwriting portfolio.

First our capital position is strong as I discussed we have the capital necessary to lean into the upcoming renewal.

We also have strong liquidity, Bob will discuss capital and liquidity in greater detail in a few minutes.

Second we remain focused on profitability in 2023, we will be paid more for every dollar of risk that we take.

This increased profit will buffer our investors against potential loss. In addition, we will evaluate opportunities to grow where higher rates and significantly improved terms and conditions warrant.

At January one these opportunities are more likely to manifest themselves in property cat as well as certain lines in casualty and specialty.

Third we will lead for property cat.

Every reinsurance program is anchored around property cat coverage.

We are one of the largest writers of property cat risk in the world and our ability to provide material capacity in this line will provide us opportunities across reinsurance programs.

And fourth we will lead from the top down.

Increased demand for property cat will be at the upper end of programs.

Our top layer re and Vermeer re joint ventures have ample capacity to grow on these lines, which will provide us opportunities throughout placements.

Once again, our strategy of having the most efficient capital will give us access to the most desirable risk.

All of these advantages.

We will position us for a great year ahead, we are entering one of the hardest markets. We have observed in decades, and we expect this to be evidenced at the January one renewals.

Renaissance, where he has been a leader in property cat for almost 30 years, and we know how to underwrite in a hard market. Our senior underwriting team will be heavily involved in client negotiations on a deal by deal basis to ensure that we're protecting the interest of our shareholders.

We will take a win win approach in line with our goal of better aligning the interest of our customers and investors at the end of the day. However, the only way to ensure that our customers will get the capacity they need is to make sure that our investors get the returns they require.

While the market seems particularly focused on the opportunities in property and rightfully. So we are also seeing dislocated markets and continuing momentum in casualty.

Casualty once again performed well and despite an active quarter reported a mid <unk> combined ratio.

I am very pleased with the growth and performance of this business and increasingly expect casualty to contribute to our bottom line in the future.

That concludes my opening comments I will provide more detail.

On our segment performance at the end of the call, but first let me turn it over to Bob.

To discuss our financial performance for the quarter.

Thanks, Kevin and good morning, everyone.

Kevin said in many ways hurricane and feels like a turning point for the industry. We're looking forward to 2023 and I want to talk about how we have positioned ourselves for outperformance and what we expect to be one of the best markets in years.

There are several things I'd like you to take away from my comments today first our casualty and specialty book is performing in line with our expectations and continues to reported mid Ninety's combined ratio on a growing premium base.

Second our capitals partners business has the capital to take advantage of underwriting opportunities in 2023, and we are confident that management fees, which are a component of overall fees will be around $25 million to $30 million per quarter going forward and.

And finally, our net investment income continues to grow and will be a significant income generator for us going forward importantly, our balance sheet is strong and we are uniquely positioned to take advantage of the attractive opportunities. We anticipate in the 2023 property cat market and across our other lines of business.

Now, let me turn to our three drivers of profit starting with the casualty and specialty business.

Once again this quarter, we reported strong results with a combined ratio of 95, 7%, which included one percentage point of impact from weather related large losses year to date, our casualty specialty combined ratio was 95, 9%, which includes the loss impact of the Ukrainian War.

And on track to consistently deliver a mid <unk> combined ratio, which could contribute approximately $200 million of our underwriting income in 2023 importantly, this profitability is on a growing premium base gross premiums written were up 42% and net premiums written were up 40% with financial.

<unk> driving the increase.

Financial lines gross premium increased by $237 million doubling as compared to the third quarter of 2021.

The majority of this growth was in our mortgage book and this included a $100 million of premium on seasoned mortgages written between 2016 and 2020 as a reminder, our mortgage business has a longer tail. So gross written premium can take up to seven years to be fully air but the majority of the mortgage growth in the period will earn in over.

The next three to five years.

Net premiums earned for the casualty and specialty segment came in above our expectations at $927 million.

This is due to higher estimated premium adjustments, reflecting growth in the underlying rate and assume risk on a quota share basis for the fourth quarter. We're also revising our estimates up and expect net earned premiums to be about $950 million.

We have been proactively monitoring our casualty and specialty book of business to make sure. We have incorporated the impact of inflation based on this we believe rate continues to exceed loss trends now.

Now turning to our property segment and the cat events of the quarter weather related large losses, including hurricane in the French hail and typhoons in Asia resulted in a net negative impact to our overall results of $650 million most of which was entirely in our property segment.

This led to a significant property underwriting loss of $723 million and a combined ratio of 186%.

Hurricane and had an impact on both the property cat and other property books as we have been increasingly taking U S. Southeast cat exposed E&S business through our other property book specifically the other property combined ratio was 197% with weather related large losses, having a 104 percentage point impact.

The property Cat combined ratio was 179% with weather related large losses, having a 152 percentage point impact.

Well Ian had a large impact on our results this quarter on a year to date basis. The current accident year loss ratio for property was 90% compared to 107% for the first three quarters of 2021, both years had significant cat activity, but the relatively better performance. This year as a result of the increased rate and tightening terms and.

<unk> that we have been getting in our property book.

In the third quarter premiums were relatively stable year over year with a $56 million gross premium increase in property cat, partially offset by a $29 million decline in other property, which was primarily related to the non renewal of one large other property deal.

Net premiums earned for the other property were $333 million for the quarter and the fourth quarter. We are expecting net premiums earned of around $350 million for other property.

On page 12 of the financial supplement you can see that there were $231 million of gross reinstatement premiums this quarter, which is roughly the same compared to the third quarter of 2021.

Now moving to fee income in our capital partner business, where overall fees were $26 million with.

<unk> is continuing to provide a steady source of $25 million in the quarter.

Year over year management fees have increased reflecting more capital manage that da Vinci for Amir with DCM Fontana, partially offset by a reduction in structured reinsurance products and Epsilon.

As I mentioned going forward, we expect management fees to be around $25 million to $30 million per quarter.

And finally as in the case with large weather related large losses. They were minimal performance fees in third quarter. We expect these fees to start recovering by the second quarter of 2023.

Our overall net loss was reduced by $372 million and our operating loss was reduced by $278 million as reflected in our redeemable non controlling interest you can see this on page 19 of the financial supplement.

This quarter, there were $127 million of mark to market losses related to catastrophe bonds, which you can see on page 22 of the financial supplement this predominantly related to the DT and we only retain $17 million of the marks as the rest is backed out through Noncontrolling interest our capital partners team is benefiting from a flight to.

Quality and a very challenging environment for raising third party capital in the quarter, we raised $122 million with a $100 million and vermeer and $22 million in Medici the.

The rated balance sheets that we manage capital partners, namely da Vinci, Vermeer and top layer bring over seven $5 billion in total market facing capital, providing an excellent platform to take advantage of opportunities in the property cat market.

Moving now to investments for the current interest rate environment has created a very volatile bond market <unk> and magnitude of losses in the treasury market.

And the increase in interest rates has been historic this is both a headwind and a tailwind driving mark to market losses, while meaningfully increasing our current and future net investment income.

Continued increases in U S interest rates drove $453 million and retain mark to market losses in the quarter and $1 6 billion year to date, principally in our fixed maturity portfolio.

Partly these are highly rated securities and we anticipate earning these mark to market losses back in time in two ways first by accretion to par for the securities that we choose to hold this will be accrued through mark to market gains for securities trading below par.

By proactively choosing to sell securities prior to maturity and reinvesting the proceeds have materially higher coupons. This will be recognized through increases in our net investment income the.

The combination of these two processes has contributed to the growth in our retained current yield to maturity portfolio, which has increased from one 8% to five 3% in the last three quarters. This is the best measure to understand the potential return generated by our investment portfolio.

Page 24 of our financial supplement you will see that the retained portion of our unrealized losses in our fixed maturity portfolio are currently $768 million or <unk>.

$17 58 per common share this represents potential accretion to par if we decided to hold these securities to maturity.

Putting this all together our retained net investment income was $110 million in the third quarter. We expect retained net investment income will be about $125 million in the fourth quarter and anticipate further growth in 2023.

Now, finishing with capital as I've said many times the first our first preference and our capital management framework is to deploy excess capital into profitable business opportunities. This.

This year the cat four Hurricanes hit, Florida, and 10 year U S. Treasuries were down 18% year to date, which is the worst performance in a century, our investors rightly want to understand if we have the capital to take advantage of profitable opportunities in 2023.

The answer is yes.

Our group and rated balance sheets are strong and gives us a wide range of flexibility to access attractive risk. There are three things I would like to highlight first as Kevin pointed out through a combination of holding company capital and committed partner capital R rated balance sheets will bring the same level of capital to our customers next year.

As they did prior to end this year.

Second our reserves are strong and reflect our current view of the impact of inflation and finally, we are in a very strong liquidity position across all our balance sheets.

And in this very attractive market, we believe that deploying capital into underwriting is the best way to maximize long term value creation for our shareholders and are not planning repurchases in the fourth quarter.

In conclusion, I'd like to point out our future earnings power is as strong as it has been in a decade.

Even with Hurricane M, which is projected to be the second costliest catastrophe ever where essentially breaking even on an operating basis year to date.

We're seeing significant positive momentum across our three drivers of profit and in 2023 expect underwriting income from casualty and specialty to be around $200 million.

The property segment to benefit from increased rates and tightening terms and conditions.

Management fee income to be around $100 million with.

With potential upside in performance fee, starting mid year and.

And finally, our investment results will benefit from increased net investment income in addition to accretion to par in fixed maturity investments that we choose to hold.

And with that I'll now turn the call back over to Kevin.

Thanks, Bob.

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

It was an active third quarter with several large events, a few of which I would like to highlight.

Beginning with Hurricane Ian which made initial landfall on the West Coast of Florida on September 28, with near category five wind speeds torrential rain and substantial storm surge.

Additionally, France was impacted by severe hail and Thunder storms at the end of the second quarter, causing significant damage to residents and cards industry loss estimates recently increased to about $8 billion.

And finally southeast Japan with stroke on September 18th by the strong category to Typhoon <unk> at all detract along the southern half of Japan with more than 24 inches of rain reported in several locations and widespread power outages industry loss estimates for this event are in the low to mid single digits.

Billions.

Shifting now to our other property business, which was also impacted by weather related large losses this quarter.

As I've discussed in the past this business is material exposure to catastrophes, including Florida. However, unlike our property cat business only a small portion of other properties results are shared with our capital partners as a consequence more of the net negative impact this quarter was from other property.

Going forward, we are obtaining a high double digit rate increases in the other property business.

Likely we will initially keep premiums here relatively flat, which will effectively serve to reduce risk in this business.

This will help facilitate a potential shift in our focus towards property cat, where we expect greater opportunities at January one.

That said as the year progresses, we will reevaluate the opportunity set another property in a great increases in terms and conditions warrant we may choose to grow here also.

Let's move to the retro protection that we purchased for ourselves Hurricanes and other events of the quarter.

An outsized impact on the retro market, which was already fairly dislocated.

A combination of losses and trapped capital have resulted in material reduction of capital in this market.

Unlike in prior years. This also includes cat bonds as a result.

Retro protection will be less available and more expensive in 2023.

Consequently, we plan to purchase less retro protection and take more risk net.

Adjusting our retro purchases there has always been one.

The core components of our gross to net strategy to help shape our risk portfolios.

The retro purchases are only one tool in this toolbox. However, in 2023 increased rate and better terms and conditions will be far better tools to control and shape our portfolio.

Moving now to casualty and specialty.

As we approach the January one renewal. We also believe that the cost of capital has increased materially for casualty and specialty this dynamics should further.

And in particular improved rates across this business, particularly in specialty where we expect a very hard market.

I would like to address where we're seeing opportunities in each of these classes.

In traditional casualty, we believe that most classes of business are at the top end of their rating cycle with a balanced supply and demand dynamics.

Rates are moderating and some lines such as D&O, whereas others, such as E&S casualty continued to trend positively.

As we have done in the past, we will step back when market conditions in a specific subclass do not meet our expectations. Overall, we are confident that the portfolio, we will construct will be well priced.

In specialty we believe hurricane Ian will cause significant dislocation to the industry and we are anticipating a hard market across most specialty classes.

We find ciber.

In Marine and energy Terror, and aviation, particularly attractive and are open to growth at the right price.

And credit Bob has already explained that the material growth in this business was due to writing several large legacy mortgage deals overall.

Overall in credit our appetite remains selective as we write into what is likely to be a recessionary environment.

We continue to believe our portfolio is positioned to withstand current macroeconomic headwinds.

Within the mortgage portfolio, we continue to execute on our targeted strategy.

As recent fed rate hikes have increased required hurdle rates for credit risk transfer.

This phenomenon.

Has enabled improving pricing dynamics for reinsurance placements, which leases selectively took advantage of while moving up the capital stack the more risk remote layers.

Overall, I am very pleased with our credit business and expect it to be a strong contributor contributor to our profitability.

Across our casualty and specialty segment, we have recently seen ceding commission stabilized after several years of increases.

At the January one renewal, we will be seeking reductions for many customers. We expect to achieve these reductions due at least in part to our ability to offer property cat capacity.

Shifting now briefly to inflation and its impact on the casualty and specialty portfolio.

Economic inflation persisting worldwide and has added 40 year high this.

This is a trend we continue to proactively monitor with a newly enhanced inflation framework.

Over the years, we have consciously constructed a portfolio that under waste lines of business that are most acutely impacted by inflation.

<unk> verdicts.

Such as auto trucking and medical malpractice.

Going forward, we will continue to focus on our renewal efforts on lines of business less vulnerable to inflation and customers that have demonstrated better track records on prior year loss emergence.

Moving now to our fee business in preparation for the January one renewals and the many opportunities we expect the capital partners team has been focused on investor outreach.

We anticipating writing more business in top layer Vermeer and da Vinci at the January one renewal.

As a consequence, we plan to raise capital and Vermeer and da Vinci top layer re continues to have ample capacity for deployment in 2023.

Sure.

We were one of the few successfully bringing third party capital to the market our ability to raise capital in such a challenging market is representative of our industry, leading position and investors continued flight to quality.

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This was a difficult quarter marked by material net and operating losses.

We remain in a strong capital and liquidity position heading into a robust investment environment and what could prove to be one of the best underwriting markets, we have ever experienced.

Each of our three drivers of profit is poised to contribute materially to superior shareholder return in 2023 and beyond.

Thank you 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 two we remind you to please on mute your line when introduced and if possible pick up your handset for optimal sound quality.

In the interest of time, we 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. Please go ahead.

Hi, Thanks. Good morning, My first question is on the capital side.

Kevin and Bob both.

You mentioned that you have the same capacity as Ian Mike If we look at the common equity that's obviously gone down due to the losses and the movement in interest rates on the bond portfolio. So.

Is the capital comment.

Election of the committed capital from your partners.

Offsetting lower.

Capital that you have on your own with clean balance sheet.

Al Tom that I'm missing.

Sure.

Yes.

Thanks Elyse.

I think the number one message we are trying to say is we are in a strong capital position across the platform. So let me give some specifics on that.

With regard to third party capital.

Is a very difficult environment for.

Many ILS managers to raise capital we want to highlight the uniqueness of the hybrid model that we have deployed.

And the alignment that we have maintained with our ILS partners and the preferred position that puts us into recapitalize. The rated balance sheets that we have with regard to our owned balance sheets. I think it's important that we are from self funding taking excess capital that we hold at the holding company.

And moving it down to the rating agencies to make sure that their footprint in the market remains consistent.

We have additional capital I think it's important going into a market that we think has persistence with hard with strong rates that we keep there to be a degree of scarce.

Capital and as opportunity continues to grow the capital we deploy in the market will continue to grow.

Okay, and then I guess.

My second question.

You also said right Kevin can comment.

Our filing from cancel rate.

Boston packet or not.

Substantial mean to you and then Mike.

We've heard about some pretty high numbers for rate increases at January one where do you see things today.

<unk>.

Program.

I'd like to thank Ms next year.

So I think it's important to look at the full spectrum of things, we intend to change so narrowing terms and conditions.

Is extraordinarily important with some of the losses in some of the experience thats been in the market raising retention is extremely important.

I feel that by putting a number out on rate change youre almost setting a cap.

For those that are higher than the number feels like they didn't get a good deal and those that are lower than the number feel.

<unk>.

Cheated the system.

The numbers that I've seen are at the lower end of our expectations for where we see rate change right now.

We will talk more about that after we've achieved the rate change on the February call, but right now our expectations are at the high end of what I've seen others talk about.

And then one more quick like when you say tightening terms and conditions like what are you specifically mean.

I mean by that comment.

Even simple things.

Again, it's early in the renewal season, but.

I recently saw some quotes that we put out there were named perils only geographic confined territory.

Again being much more determined to make sure that there is no gratuitous exposure coming into the programs and then also picking attachment points that you've either.

Feel comfortable you're above some of the secondary barrels or you've narrowed scopes.

Terry barrels are either coming in when they are extraordinarily dislocating and.

And you're charging for them or they're not coming in at all.

It's a wide spectrum of things cyber exclusions everything you might expect.

Great. Thanks for the color Kevin.

Sure.

Thank you.

We will take our next question from Josh Shanker with Bank of America. Please go ahead.

Obviously this is a market <unk> been waiting for for a couple of years. When you raised capital a couple of years back two months things don't happen timing exactly when we see it but when you look at your portfolio construction in last couple of years.

U as defensive as Ren <unk> long term business model would require for these last couple of years and now you can turn on and should we assume that the last couple years of results are what <unk> looks like in the turtle position.

And as we go into 2023, the orientation of the book looks very very different from what it might have been in 'twenty, one or 'twenty two.

So.

Thanks for the question.

We never wait for markets.

What we do is we build a platform that can execute.

Any environment that we believe we can get the right risk price for the risk that we're taking when we raised the capital we saw opportunities.

After the capital raise we also had some favorable interest rate moves that created additional capital on top of that we deployed it into 'twenty. One so feel good about that decision your defensive comments I think are.

Difficult to reconcile against this opportunity.

We are always defensive whenever you are thinking about taking risk you're seeking.

The reward for the risk not the enjoyment of taking the risk.

Going into this market, we are pushing to make sure that investors are getting excess reward for the risk that we're taking so when I think about the portfolio construction that we're about to make.

The net number will be closer to the gross number for the comments for the reasons I mentioned with regard to ceded.

For many that's a problem because they are using retro to build capacity, we use retro to shape portfolios and we are just substituting terms and conditions and price for retro. So when I think about a defense a defensive posture or change I think in any market. When your risk taking you want to think about managing the tail and if that.

Is the definition of defense I think we've been good at that.

In a market like this it's a matter of harvesting the excess margin. That's available we have a long track a track record of being able to do that and we will leverage into this market.

With a degree of patients because I think it's going to persist and making sure that we are building a portfolio that is resilient not just at one 123, but for years to come.

Thank you and on the July one renewals.

The premium growth in catastrophe lines was very strong other property not so much.

What you experienced at July one a preview of what you expect to see it January one is the price already begun to move and you took advantage of it.

Yes.

What we saw last year and I think what we talked about is that we did see prices move over then we had.

Okay.

Conflicted view of the market because we still remained cautious on.

The.

The overall business environment in Florida.

I think rate changes in Florida are not at anywhere near the level that we expect to see rate changes in 2023, So I think the ability to find the opportunity to take the entire platform.

And find ways to deploy it not only in property cap of using property cat is the wedge to provide an increased opportunity for our relationships more broadly across reinsurance programs. So I think I think narrowly one can say thinking about opportunities in Florida.

And how to behave there, but I think this is a different animal coming into 2023 with broad changes both across loss loss programs and programs without loss and then opportunities to take that.

Precious cat capacity, we can bring to the market to increase our opportunity to enhance.

Turns within the capital the casualty and specialty portfolio that didn't happen at 671, it will happen in 'twenty three.

Alright, Thank you for painting the picture good luck.

Thanks, Josh.

We will take our next question from Johan <unk> from Jefferies. Please go ahead.

Thank you good morning.

I guess first question.

Can you maybe talk a little bit about your internal capital model and how you are treating the marks and the OCI.

Changes that we've seen year to date.

And more specifically do you think that you can grow exposure in P&L.

On the current capital base I guess, both on internal capital model and maybe where.

The rating agencies aren't.

Yes.

<unk>.

Thanks, Ed.

Good question.

Sure.

I think one needs to differentiate those.

Timing losses in actual losses, so hurricane in a loss of capital we think of the marks as more of a timing.

We don't have credit issues within the portfolio. We are just simply responding to the shift in the yield curve.

We do.

As we build pro forma portfolio as we've talked about this on other calls right now our October 23 portfolio was constructed within that.

There is benefit for enhanced earnings in the first half of the year, including a pull to par that said, we will never be over exposed because we have the opportunity to throttle our peak exposure materially.

As we earn that premium so I think it's important to consider.

The actual capital Thats available during peak season, but you need to make sure that you don't overwrite your hedge or your capital.

And we maintain the flexibility to respond to unforeseen issues that can emerge in any portfolio. So it's a little bit of both.

But you can't write into that without the flexibility to throttle should things develop differently than you expected case.

Okay.

And I apologize prefer im going back to this again.

Several questions on the call on this subject specifically, but in terms of.

Net cat exposure change in 'twenty three do you see that being do you see that the net exposure growing.

It depends on where we look on the distributions.

I think at the low end because of the changes, we're making there'll be less exposure.

We will have lots of room, and Vermeer and lots of room and top layer re will bring more da Vinci capital more run recapitalize. So there could be more exposure towards towards the towards the more remote end of of the distribution importantly, I think it is to think of.

Think of the whole company, though.

And what our job is to do is to make sure that.

Across the distribution of outcomes, we are providing the best opportunity for investors to play into this market and achieve the returns that you desire we've got.

Substantially stronger investment income coming in we have very solid casualty expectations for earnings and the property market is moving at a pace that I haven't seen in decades.

That produces expected profit expected profit is the number one thing that buffers investors against loss and thats going to be substantially higher in 'twenty three across the platform. So regardless of where the <unk> is investors are going to enjoy a much higher probability of much higher returns.

Thank you.

And we will take our next question from Meyer Shields with <unk>. Please go ahead.

Thanks, Kevin you mentioned a couple of times that you expect the current situation to persist I was hoping you could flush that out and maybe talk about what could challenge that expectations.

Yes.

Thank you for the question.

We've talked about before is theres been a U shaped pricing where insurance has been leading reinsurance.

What has shifted as reinsurance will now lead the pricing cycle for insurance.

Behind that is capital leading reinsurance.

I don't see capital, having expectations of a relaxed atmosphere I don't see them are relaxing their appetite for cat in the foreseeable future with that they will only deploy when they perceive excess margin for the risk that they're taking they've had six tough years.

They are looking for additional buffers of safety to continue to deploy the market has to provide it and I don't see that abating through 'twenty three and beyond.

Okay is that a function of.

Alternative investment opportunities or the risk in cat.

That's a good question I think it's the persistence of realized losses within cat I think on an annual basis each individual individual year in isolation looks okay, and I think investors have been willing to tolerate that until now I think it's the persistence is the issue.

I also think that there is there.

They understood there is a strong understanding across the capital markets and opportunities to deploy at higher rates across different areas within capital markets as rising so the competition for capital is elevated.

Which also plays a role.

The <unk>.

Third party capital is facing numerous challenges and theyre looking for ways that they are committed to staying in the business to only partner with those that are aligned with them with our hybrid model. We are uniquely positioned to be able to service that capital. So I think it's a full spectrum of capital.

<unk>.

Constraints that are feeding into this and capital one of those constraints certainly has the opportunity to have to play elsewhere in areas that are well understood to them.

Okay. That's helpful.

Sure.

I'll answer the second question because it sounds dumb even to me, but when you talk about these temporary impediments to capital.

Like the Mark to market you have to wait for the capital to actually recover.

To access that or the prospect.

The reversal of the marks enough to allow you to use capital on your own balance sheet.

It does.

That's actually a great question.

And that's kind of what I was alluding to I think I think we will we are preparing our portfolios for increased capital with strong earnings in the first half of the year for all the reasons, we talked about that said.

Things can happen, particularly when you are writing.

Property cat portfolio that are on knowable today, and you need to be prepared to respond to that so it's a little bit of both.

We will be in a position that will our portfolios will be designed to.

To be written against an increased capital base.

But we're going to maintain the flexibility to amend that.

Should something unforeseen happened in the first half of the year and what I mean by that is it.

Southeast wind is likely it will be our binding constraint at the tail of the distribution. So our capital will be largely built around supporting that in the tail and we have an ability.

Just prior to wind season at 671 to change that risk profile materially that is really important in how we're thinking about using the capital that's going to be.

Earned and the pull to par in the first half of the year.

Okay. Thank you that's helpful.

We will take our next question from Brian Meredith with UBS. Please go ahead.

Yes. Thanks, a couple of them here for you Kevin Kevin I just wanted to.

Understand.

Great commentary, but I guess, just simplistically speaking with a gross limits that youre going to be have got in the market on property cat be higher or lower as we look into 2023, so you're going to have the ability to go out there.

And really take advantage of what could be a shortfall in property cat cover at many programs and what would the knock on effects maybe beyond some of your casualty business.

Okay.

That's a good question.

And I think I'm going to redirect you actually to our net.

Because that is actually what sticks to ups.

I think from a third party capital perspective, our gross limits will be up.

The important thing from our portfolio as the reduction in ceded is basically replacing gross for net.

And so when I think about that I'm not sure what will be the winning piece of the equation I think our net will be up.

And I'm less focused on where gross ultimately ends up because it is a combination of <unk>.

Writing more reducing in epsilon buying less all of that kind of feeds into that.

The final equation, which is how much money are we going to make from property cat, which solely focuses on the net for our retained portfolios. So growth will be the growth will be up on our third party rated balance sheets.

I don't have an answer for you on our retained because because I think the net is the key and I think our net will be up.

Got you. So therefore do you anticipate that.

Youre youll have that ability to go.

Get more casualty reinsurance business right, because that's a big debate going on right now with some companies are pulling back on property. They may lose some of that good casualty business.

Vice versa.

Sorry, I missed the second I didn't answer the second part so your second part is.

Between so think of that.

Theres a lot of new purchasing going in and there's a very large.

This equilibrium between the supply of cat and the demand, hence the price change, but but when people are looking at when buyers are looking at the program.

The new purchasing comes at the top.

Very strongly in a position to write the tops of programs between Premier and top layer re with very substantial amount of capacity available. So as they think about the new layers. When I mentioned in my comments, we're going to come from the top down we're going to bring that capacity and bring the rest of the program.

Along with it with Renren da Vinci included in that is what we require for the entire package to be.

Accepted from the casualty and specialty programs.

Programs as well so when I think about it.

Reason, we built out the casualty.

Specialty over the last several years and the reason we have so many forms of capital is for exactly this type of market.

Want to trade more deeply with those that have stable capacity and increased appetite. We're there for them in states in this renewal.

Makes sense and then second question, how do you think Europe's going to unfold here in 2023.

Yes.

<unk>.

Early signs are positive.

The European market tends to be dominated by.

The professional reinsurers within Europe .

Strong disciplined come out there.

It's an important part of our portfolio, but it's not it's not the most critical part of our portfolio but.

Main optimistic that we're going to see very strong rate change there if not we'll shrink im not that worried about it.

Great. Thank you.

Thank you.

Our next question comes from Ryan Tunis with Autonomous Research. Please go ahead.

Hey, Thanks, good afternoon.

The first question.

I was wondering to get your perspective on something.

Oh.

It's kind of more on the pulmonary side, maybe six years ago.

Barry.

Really high attaching a current space reinsurance over the past five years.

You'll be getting reinsurance recoveries on small events.

<unk> growth outside of wind season.

When we look forward to next year and 112.

It is a supply demand imbalance.

As the most logical way with Gibson.

The market.

It starts to gravitate more toward the much much higher.

Great.

On a more prevalent.

2010 to 2015 or are we still going to see a lot of those lower collection programs.

Okay.

I think I think the way you categorized the market is right the market.

The market is going.

Reinsurance budgets can only expand by so much the first thing they're going to do is take out extensive bottom layers.

Thing that reinsurers at least want to.

To write highly exposed low level cat in aggregate cat. So I think the product is going to simplify and it's going to shift up.

To be more remote from loss.

Got it.

Your assessment is correct.

Okay.

And then.

Yes.

A couple of just talking about so first of all you mentioned.

Shrinking your retro trading book could you give us just.

So the idea of what the recovery looks like on your non JV retro book from Ian also.

You seem pretty confident heading into one.

Yes.

We will be having plenty of capital.

Within the JV.

Yes, maybe you could give us a little color.

Thanks, Tom.

Are you getting that level of visibility I am not exactly sure what the range of one more component like how much of that is.

And your control multi year I'm, just trying to how confident are we that the JV board.

Look similar in size is bigger than it is today.

100% confident of that so from the JV perspective.

We have strong interest in.

In da Vinci in particular.

And between our interest in da Vinci, New investor interest in existing.

I feel highly confident about that so again once again separating us from the pack within the ILS market.

The top layers of different structure that's.

Amply capitalized for.

20, <unk> all we have to do is find opportunities to deploy the cash capacity that is already resident within the vehicle and same for premier So if ramiro grow.

But we also have capacity to deploy in there so.

That's not an area that is giving me pause.

The question on <unk>.

<unk> ceded in the supplemental with regard to his Ian ceded question.

Yes.

That has been treating retrofit so I was just curious.

That's helpful.

Yes, Thats something we.

We disclosed we assume that there are material companies.

Yes, I think with us with a loss within our current loss the size of Ian.

One should expect.

Retro from a market perspective to be materially impaired.

And we tend to be good buyers of retro.

And then just lastly.

So rates are up another 20 basis points since the end of the quarter you feel okay about your capital position.

I think rates have gone up 80 basis points a quarter. The last three which is kind of annoying, but wood.

What's your posture change if we had another quarter, where if interest rates went up on the other.

50 basis points or so on the one one.

That's a good position.

That's a good question. Thanks, So we feel pretty good about our investment portfolio is highly liquid highly rated so Paulo.

Pull to par to shorter duration, you are already seeing we've realized some of the.

The losses and reinvested into higher coupon. So we're feeling pretty good about our portfolio, yes. It can have some volatility, but given the shorter duration of it.

The opportunity and pull to par comes back pretty quick.

Thanks Bill.

Thanks.

We will take our next question from Jimmy <unk> with J P. Morgan. Please go ahead.

Hey, good morning. So first question just on the.

The same topic, that's come up a lot just on capital have you gotten.

Would it be Oakland mutations unlikely, but the rating agencies on the decline in book value and I realize that the recovery part.

But there is a possibility that there is a further decline in.

In the <unk>, but just with what rates have done and we've heard conflicting comments from your peers and some of them have said that there is some pressure.

Thats limiting their ability to write business others have said, that's not much of an impact.

What can you add to that.

That's a good question. Thanks, Jeremy it's Bob we've had active conversations all the time with our rating agencies, they're all looking at basically the same when it's at a point in time conversation. It's a period of time, it's a dynamic process and a lot of things that we talked about on this call. There is absolute losses, and there was temporary ones, which is timing, which Kevin talked about that we're talking about the poor.

Folio, so you sit down and we will go through it once we get the enforce book and we will look at two to three years outlook on how we feel about the earnings stream and how comfortable we are in some of that in fact, a lot of that we'll have conversations on what I talked about on the call today.

Okay, and if you think about the.

Property, both obviously lots of dislocation in the marketplace is going to harden terms or terms are going to tighten how much of your.

Your business do you think you'll end up re pricing over the next year as it comes up for renewal at different periods versus is there. Some part of your business that maybe has multi year guarantees or yield.

There will be tied to their pricing was prior to Ian at least for the next year or so.

Yes, that's a good question it depends I assume youre talking about property cat, So I'll answer.

Okay.

The vast majority of our book is placed on an annual basis. So over the course of the year, we will have the opportunity to renew at those deals that are multi year. They tend to be staggered so anywhere between a third and a half comes up each year for renewal.

It is a portion of our book that as we'll enjoy price stability in this market because it's been placed multiyear, but it's not it's not a big piece of the overall portfolio.

And then just lastly on the Eon losses it seems like.

The primary companies the losses haven't been that high, especially if you go pre.

<unk> pre all deeply announcements and stuff the reinsurance companies losses have been obviously very high and do you think that looks like.

So the structures and how they've changed over the last few years with attachment points coming lower.

And somebody is getting more extensive or is it maybe.

Added conservatism on the part of the <unk> or on the part of reinsurers because they are not seeing.

Claims come in.

Like the primary dollars, where they might have a little bit the primaries might have a little bit more information on what the actual claim is going to be like.

Yeah. It's a good question as well I think the primary companies I think in general are seeing.

Lower claims emergence than certainly than <unk> and potentially even than they expected.

Reinsurers.

Are heavily influenced by what happened with Irma and the uncertainty, particularly to the excess for what the Florida environment.

<unk>.

What can emerge from that so.

I know, we we took a view irma influenced our view.

We're watching it closely but.

Probably after Irma this conversation would have been exactly the same and then the emergence Roes and things came in later, so again always cautiously optimistic but feel good about the estimate that we have.

Okay. Thank you and if I could just ask one last one.

On the and how do you think about it in the context of <unk>.

The storms overall.

Yes.

I don't know if you want to categorize the London, how many years or just in terms of quartile decile just.

What is this reflective of a normal storm you expect to see every few years or was this truly unusual because of whatever.

Whichever way.

Whatever the path was and everything else in the market.

Yes, I think.

Over my career I would expect to see another and I wouldn't expect to see any and every year for sure I think if you're taking it in isolation actually even looking at the vendor models.

Is that a reasonable return period.

For that sized storm for.

For the southeast.

So I won't give a return period on it but I would say that.

Certainly not something that you should expect to see with great frequency, but this is not something thats out at the tail of the distribution and I think I think that the market's responding not specifically to air but it's to the CRE ality of.

Hurricane losses over the last six years.

Thank you.

Yes. Thank you.

We will take our final question from Michael Phillips with Morgan Stanley . Please go ahead.

Thanks, Good morning actually this fee.

It's gone on Kevin will be good for my question just one question.

Lots of interesting things around next year.

Obviously with where rates are headed and points you supply demand imbalances in property cat, but if we take a step back a bit and look further out.

Interest rates are today, obviously, probably means that the ROE threshold expectation for investors is probably also moved up a bit in tandem. So question kind of comes down to.

Your ability to kind of get the no longer 10% that might've been okay, before but maybe the mid teens Roe.

Going forward not just next year, but over the next couple of years because it seems like every time, we get something like this it's inevitable theres going to be capital again this winter.

Sort of Dampens on ability, so maybe not be in the near term, but maybe over the next couple of years, just kind of thoughts on kind of a mid teen Roe prospect.

Past 'twenty 2023.

So.

I think investors at an expectation.

Order for them to be incentivize sustaining the market. They want returns that are above what they would consider to be adequate they want excess return everything we have done is built the portfolio to give excess return in 'twenty three and beyond.

And that has to be substantially higher than what our economic portfolios, we're showing from the portfolios were building and beyond it out.

Far far in excess of GAAP returns for sure reinsurance as I mentioned in my comments property cat.

Has to be the highest returning line of business or capacity will leave and that is the sole objective we have for putting property cat out at this renewal.

Okay. Thank you.

Yes. Thank you.

At this time I will turn the call back over to Kevin O'donnell for any additional and closing remarks. Please go ahead.

Thanks to everybody for participating on today's call.

It's an enormously exciting time for a company like us with a hybrid model the positioning we have the liquidity the capital the opportunity and I am.

Sitting on the edge and I see it as we go into 'twenty three couldnt be more excited about the opportunity and look forward to speaking to you in February . Thank you.

This.

The Renaissance Reis third quarter 2022 earnings call and webcast. Please disconnect. Your line at this time and have a wonderful day.

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Q3 2022 Renaissancere Holdings Ltd Earnings Call

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