Q4 2023 RenaissanceRe Holdings Ltd Earnings Call
Operator: — and results of operations following the Validus Transaction. It's important to note that actual results may differ materially from the expectations shared today.
Patients following the Validus transaction.
Important to note.
Actual results may differ materially from the expectations shared today additional information regarding the factors shaping these outcomes can be found in our SEC filings and in our earnings release.
Keith McCue: Additional information regarding the factors shaping these outcomes can be found in our SEC filings and in our earnings releases. During today's call, we will also present non-GAAP financial measures. Reconciliations to GAAP metrics and other information concerning non-GAAP measures may be found in our Earnings Relief and Financial Supplement, which are available on our website at renre.com. Now, I'd like to turn the call over to Kevin.
During today's call. We will also present non-GAAP financial measures reconciliations to GAAP metrics and other information concerning non-GAAP measures may be found in our earnings release and financial supplement which are available on our website at R. E. N R E Dot com and now I'd like to turn.
The call over to Kevin.
Kevin: Thanks, Keith. Good morning, everybody, and thank you for joining us on today's call. In 2023, Renaissance RE achieved several strategic milestones. We began the year with two overarching goals. First, to achieve a step change in property catastrophe reinsurance pricing, and second, to grow into one of the best underwriting markets in a generation. I can now say we have successfully achieved both of these goals and exceeded even our own high expectations. As a result, we delivered excellent financial returns for the year and positioned the business to create enduring shareholder value moving forward. This was evident in robust contributions from each of our three drivers of profit, underwriting fees, and investment income during both the fourth quarter and the year. For the quarter, we reported $623 million of operating income and a 33% operating return on common equity. For the year, we reported $1.8 billion of operating income and a 29% operating return on common equity.
Kevin: Thanks Gabe.
Good morning, everybody and thank you for joining today's call.
Kevin: In 2023 Renaissance, we achieved several strategic milestones we began the year with two overarching goals first to achieve a step change in property catastrophe reinsurance pricing and second to grow into one of the best underwriting markets in a generation.
Kevin: I can now say, we successfully achieved both of these goals and exceeded even our own high expectations.
Kevin: As a result, we delivered excellent financial returns for the year and positioned the business to create enduring shareholder value moving forward.
Kevin: This was evident in robust contributions from each of our three drivers of profit underwriting fees and investment income during both the fourth quarter and the year.
Kevin: For the quarter, we reported $623 million of operating income and a <unk> and a 33% operating return on common equity.
Kevin: For the year, we reported $1 8 billion of operating income and a 29% operating return on common equity.
Kevin: Also for the year, we grew our principal metrics, change in tangible book value, plus accumulated dividends by 48%. Before I turn the call over to Bob to discuss these results in more detail, I'd like to take a few minutes to share a bit more context on our strategic achievements in 2023, starting with the step change in property catastrophe reinsurance. To achieve this step change, we needed to fundamentally realign the protections we provided our customers against large catastrophic events. We did this by significantly increasing rates and retentions and improving terms and conditions. We also rationalize structures to reduce overly broad exposure to relatively small events.
Kevin: Also for the year, we grew our principal metric change in tangible book value plus accumulated dividends by 48%.
Kevin: Before I turn the call over to Bob to discuss these results in more detail I'd like to take a few minutes to share a bit more context on our strategic achievements in 2023.
Bob: Starting with the step change in property catastrophe reinsurance to achieve the step change we needed to fundamentally realign the protections we provided our customers against large catastrophic events. We did this by significantly increasing rates and retentions and improving terms and conditions.
Bob: We also rationalize structures to reduce overly broad exposure to relatively small events.
Kevin: Ultimately, we provided an additional margin of safety against volatility, protecting our equity and our return. We accomplished these objectives on January 1st last year and sustained the step change momentum throughout the year. As a result, in 2023, we constructed what was the largest and most profitable underwriting portfolio in our history. As I will discuss later, the momentum behind this portfolio is persisting into 2024. Turning to our second strategic goal, we recognize the importance of growth in this favorable underwriting environment, and we substantially accelerated our growth by acquiring one of the best reinsurance assets in the market, Validus REIT. Leading up to our acquisition of Validus, reinsurance and property catastrophe were disfavored.
Bob: Ultimately, we provided an additional margin of safety against volatility protecting our equity and our returns.
Bob: We accomplished these objectives at January one last year and sustained this step change momentum throughout the year.
Bob: As a result in 2023, we constructed what was the largest and most profitable underwriting portfolio in our history.
As I will discuss later the momentum behind this portfolio is persisting into 2024.
Bob: Turning to our second strategic goal, we recognize the importance of growth and this favorable underwriting environment and we substantially accelerated our growth by acquiring one of the best reinsurance assets in the market.
Bob: All of this rig.
Bob: Leading up to our acquisition of Validus reinsurance and property catastrophe, where just favored but we have conviction in our vision of being the best underwriter, we recognize the competitive advantage.
Kevin: But we had conviction in our vision of being the best underwriter. We recognized the competitive advantage that the large, well-diversified Validus RE portfolio could bring to us. This is in part because there is substantial value and incumbency in the reinsurance industry, especially true in strong markets.
Bob: That the large well diversified validus re portfolio could bring to us.
Bob: This is in part because there is substantial value and incumbency in the reinsurance industry. This is especially true in strong markets.
Kevin: A critical component of Renaissance Re's value proposition to customers and brokers is our provision of consistent capacity across market cycles. This consistency, coupled with increased incumbency, was our formula for strategic success in 2023. In addition to a substantial amount of attractive premium, the Validus acquisition brought us several additional benefits. This included the addition of the Validus team, which has quickly become a valuable part of the Renaissance Re team. We continue to be impressed by their professionalism, strong work ethic, and deep industry knowledge.
Bob: A critical component of Renaissance <unk> value proposition to customers and brokers is our provision of consistent capacity across market cycles.
Bob: This consistency coupled with increased incumbency was our formula for strategic success in 2023.
Bob: In addition to a substantial amount of attractive premium the Validus acquisition brought us several additional benefits.
Bob: This included the addition of the Validus team, which has quickly become a valuable part of the Renaissance routine.
Bob: We continue to be impressed by their professionalism.
Bob: Strong work ethic and deep industry knowledge.
Kevin: Our industry's leading risk expertise has been enhanced by their contribution. In addition, we now have a deeper and broader relationship with AIG, a long-term and valuable client. In summary, these two strategic achievements, delivering the step change and locking in profitable growth by delivering the validus portfolio, are great examples of our ability to execute decisively when market conditions are favorable. We have built the industry's leading platform to accept reinsurance risk efficiently and effectively. Looking ahead to 2024, this platform positions us to continue delivering strong financial performance and creating enduring value for our shareholders. Consequently, at the recent January 1st renewal, our overriding objective was to retain Renaissance Reis legacy lines while renewing the ballot as a business we choose to keep. Critically, we sought to do so without disrupting the favorable market conditions brought about by the step change in reinsurance. I am pleased to report that we were overwhelmingly successful in this endeavor.
Bob: Our industry.
Bob: Leading risk expertise has been enhanced by their contributions. In addition, we now have a deeper and broader relationship with AIG, a longtime and valuable client.
Bob: In summary, these two strategic achievements delivering a step change in locking in profitable growth by delivering the validus portfolio are great. Examples of our ability to execute decisively when market conditions are favorable.
We have built the industry's leading platform to accept reinsurance risk efficiently and effectively.
Bob: Looking ahead to 2020 for this platform positions us to continue delivering strong financial performance and creating enduring value to our shareholders.
Bob: Consequently at the recent January one renewal our overriding objective was to retain Renaissance, we used legacy lines, while renewing the validus business, we choose to keep.
Bob: Critically we sought to do so without disrupting the favorable market conditions brought about by the step change in reinsurance.
Bob: I am pleased to report that we were overwhelmingly successful in this endeavor clients and brokers broadly supported our efforts to become a larger and more relevant partner a role that we are proud to serve.
Kevin: Clients and brokers broadly supported our efforts to become a larger and more relevant partner, a role that we are proud to serve. The result was beneficial to all of our stakeholders. Our customers benefited from increased access to our highly rated, well-capitalized balance sheet; brokers benefited from access to an expanded and more influential market known for providing certainty of execution and a market-leading view of risk; our capital partners benefited from increased access to desirable risk; and our shareholders, of course, benefited from improvements in each of our three drivers of profit. The underwriting environment remains robust, and our success retaining the Validus portfolio provides a significant tailwind. As Bob will discuss in a minute, our investment portfolio should meaningfully add to our bottom line, and growth in our fee-generating business capital partners should persist. That concludes my initial comments.
Bob: The result was beneficial to all of our stakeholders our customers benefited from increased access to our highly rated well capitalized balance sheets.
Bob: Brokers benefited from access to an expanded and more influential market known for providing certainty of execution and a market leading view of risk.
Bob: Our capital partners benefited from increased access to desirable risk and our shareholders of course benefited from improvements in each of our three drivers of profit.
Bob: The underwriting environment remains robust and our success retaining the validus portfolio provides a significant tailwind.
Bob: As Bob will discuss in a minute our investment portfolio should meaningfully add to our bottom line.
Bob: And growth in our fee generating business capital partnership persist.
Bob: That concludes my initial comments I will provide a more detailed update on the renewal and our segments at the end of the call, but first Bob will discuss our financial performance for the quarter, Thanks, Kevin and good morning, everyone.
Bob: I'll provide a more detailed update on the renewal and our segments at the end of the call, but first, Bob will discuss our financial performance for the quarter. Thanks, Kevin. And good morning, everyone.
Bob: We finished 2023 with an exceptional fourth quarter with a return on average common equity of 84% and operating return on average common equity of 33%. This quarter was the capstone to one of Renaissance RE's historically strongest years, where we earned operating income of $1.8 billion and delivered an operating return on average common equity of 29%. In 2023, we outperformed across all three drivers of profit with underwriting income of $1.6 billion, fees of $237 million, and retained investment income of $831 million. We also grew our principal metric, tangible book value per share plus change in accumulated dividends by 48% and book value per share by 58%. This growth was primarily driven by our strong earnings and the acquisition of Validus, as well as mark-to-market gains and a one-time deferred tax benefit related to Bermuda's adoption of a 15% corporate tax rate effective in 2025, which I'll discuss in more detail shortly. Importantly, we have positioned ourselves to continue delivering strong shareholder returns driven by several factors. First, the acquisition of Validus Re will be a material contributor to our financial results. The integration is proceeding smoothly, teams are working well together, and, as Kevin said, we had a very successful January 1 renewal.
Bob: We finished 2023 with an exceptional fourth quarter with a return on average common equity of 84% an operating return on average common equity of 33%.
Bob: This quarter was the capstone to one of Renaissance res historically strongest years. When we earned operating income of $1 8 billion and delivered an operating return on average common equity of 29%.
In 2023, we outperformed across all three drivers of profit with underwriting income of $1 6 billion fees of $237 million and retained investment income of $831 million.
Bob: We also grew our principal metric tangible book value per share plus change in accumulated dividends by 48% and book value per share by 58%.
Bob: This growth was primarily driven by our strong earnings and the acquisition of Validus as well as mark to market gains and a one time deferred tax benefit related to Bermuda. This adoption of a 15% corporate tax rate in setting in 2025, which I will discuss in more detail. Shortly importantly, we have positioned ourselves to continue to deliver.
Bob: Our strong shareholder returns driven by several factors first the acquisition of Validus re will be a material contributor to our financial results.
Bob: The integration is proceeding smoothly teams are working well together and as Kevin said, we had a very successful January one renewal.
Bob: Second, we have built a solid foundation across all three drivers of profit and expect them to continue contributing meaningfully to our results. And finally, we are in an excellent capital and liquidity position, which will provide us with opportunities to deploy and manage our capital to the benefit of our shareholders. I'll dive deeper into our financial results in a moment, but first, let me discuss some new disclosures related to the purchase accounting adjustments from the ballot of transactions and a one-time deferred tax benefit that we reported related to the Bermuda corporate income tax legislation. Starting with accounting for valid.
Bob: We have built a solid foundation across all three drivers of profit and expect them to continue contributing meaningfully to our results and finally, we are an excellent capital and liquidity position, which will provide us with opportunities to deploy and manage our capital to the benefit of our shareholders.
I will dive deeper into our financial results in a moment. However, let me discuss the new disclosures related to the purchase accounting adjustments from the Validus transaction and a one time deferred tax benefit that we recorded related to the Bermuda corporate income tax legislation.
Bob: Starting with accounting for Validus as we discussed with you last quarter. Our calculation of operating income now includes an additional adjustment to exclude the impact of purchase accounting. These purchase accounting adjustments include the impact of amortization of net value of business acquired other purchase intangible and a fair value adjustments.
Bob: As we discussed with you last quarter, our calculation of operating income now includes an additional adjustment to exclude the impact of purchase accounting. These purchase accounting adjustments include the impact of amortizing the net value of the business acquired, other purchase intangibles, and a fair value adjustment. By removing the impact of purchased accounting from operating income, we will better reflect the performance of our business, provide a more comparable metric to that of our peers, and ultimately offer greater transparency to our core results for shareholders.
Bob: Removing the impact of purchase accounting from operating income, we will better reflect the performance of our business provide a more comparable metric to that of our peers and ultimately offer greater transparency to our core results for shareholders.
Bob: We've included additional disclosures on these Purchase Accounting Adjustments in our financial supplement. Specifically, on page 32, you can see that at the end of 2023, the Purchase Accounting Adjustments are $917 million. This included $90 million of goodwill, with the remaining $827 million in amortizing and tangible assets. Other than goodwill, we expect these assets to amortize over 10 years, with about 40% amortizing by the end of 2023. As these assets are amortized, they will increase acquisition costs and net claims and claim expenses, which will increase our reported combined ratio. To provide clarity on these adjustments, we have included a schedule on page 33 of the financial supplement that shows an adjusted combined ratio that excludes the impact of purchase accounting adjustments. Throughout my comments, I will refer to this combined ratio as the adjusted combined ratio. Moving now to an update on Bermuda's corporate income tax and the deferred tax benefit we took in the quarter. In December, the Bermuda government adopted a 15% corporate income tax starting in 2025 in response to the OECD Global Minimum Tax Reform.
Bob: We've included additional disclosures on these purchase accounting adjustments in our financial supplement specifically on page 32, you can see that the end of 2023, the purchase accounting adjustments are $917 million.
Bob: This included $90 million of goodwill with the remaining $827 million in amortizing intangibles.
Bob: Other than goodwill, we expect these assets to amortize over 10 years with about 40% amortizing by the end of 'twenty 'twenty four.
As these assets are amortized they will increase acquisition costs and net claims and claim expenses, which will increase our reported combined ratio to bright clarity on these adjustments. We have included a schedule on page 33 of the financial supplement that chosen adjusted combined ratio that excludes the impact of purchase accounting adjustments throughout my comments.
Bob: Refer to this combined ratio has the adjusted combined ratio.
Bob: Moving now to an update on Bermuda corporate income tax and the deferred tax benefit we booked in the quarter and December the Bermuda government adopted a 15% corporate income tax in <unk> and 'twenty 'twenty five in response to the OECD global minimum tax rules.
Bob: As a result, all things equal, we expect our effective tax rate will increase starting in 2025. However, it is important to remember that our non-Bermuda balance sheets are already in taxpaying jurisdictions, so the incremental impact will be less than 15%. As part of this, we have recorded a net deferred tax asset or DTA of $594 million. This includes an amount related to an economic transition adjustment provided for in the Bermuda legislation which is intended to provide a fair and equitable transition into the tax regime. The DTA increased our book value and tangible book value in the quarter by $11.27 per share, and it was not included in operating income. This DTA will be utilized predominantly over a 10-year period, starting in 2025. It will reduce, but not eliminate, our Bermuda Cash Tax payments in those years. This provision is independent from any credits or expense offsets that Bermuda Together may adopt in the future.
Bob: As a result, all things equal we expect our effective tax rate will increase starting in 2025. It is important to remember that our non Bermuda balance sheets are already in tax paying jurisdictions, so the incremental impact will be less than 15%.
Bob: As part of this we have recorded a net deferred tax.
Bob: Asset or DTA of $594 million this.
Bob: This includes an amount related to an economic transition adjustment provided for in the Bermuda legislation, which is intended to provide a fair and equitable transition into the tax regime. The.
Bob: The DTA increased our book value and tangible book value in the quarter by $11 27 per share and it was not included in operating income.
This DTA will be utilized predominantly over a 10 year period, starting in 2025, it will reduce but not eliminate our Bermuda cash tax payments in those years.
Bob: This provision is independent from any credits or expense offsets the Bermuda government may adopt in the future.
Bob: Throughout this process, the Bermuda government has consulted extensively with stakeholders, including the international business community, with a strong focus on maintaining Bermuda's attractive business environment and robust regulatory framework. Over the course of 2024, our focus will be on working together with our trade groups and other international businesses to engage with the government as it implements this new tax regime. Moving now to our results and starting with our first driver of profit, underwriting, where we reported consistently strong underwriting results in 2020. We delivered a 77% adjusted combined ratio for the year and a 74% adjusted combined ratio for the quarter, with seven percentage points of favorable development across both segments in the quarter. Estimated industry catastrophe losses are approaching $120 billion this year.
Throughout this process the Bermuda government has consulted extensively with stakeholders, including the international business community with a strong focus on maintaining Bermuda attractive business environment and robust regulatory framework.
Bob: Over the course of 2024, our focus will be on working together with our trade groups and other international businesses to engage with the government as it implements this new tax regime.
Bob: Moving now to our results and starting with our first driver of profit underwriting, where we reported consistently strong underwriting results in 2023, we delivered a 77% adjusted combined ratio for the year and a 74% adjusted combined ratio for the quarter was seven percentage points of favorable development.
Both segments in the quarter.
Bob: Estimated industry catastrophe losses approached $120 billion and this year, our strong underwriting results reflect the actions. We took at the beginning of 2023 to increase reinsurance rates and attachment point and tightened terms and conditions.
Bob: Our strong underwriting results reflect the actions we took at the beginning of 2023 to increase reinsurance rates and attachment points and tighten terms and conditions. As I've discussed with you, our 2023 focus was to grow inorganically through the Validus diversified book, as well as organically in classes of business where we have been seeing the best returns, such as property cad excess of loss and special. We accomplished that. The 1-1 renewal was again tremendously successful, and we renewed the combined Renaissance RE and Validus portfolio according to plan. In addition, throughout 2023, we proactively shaped the portfolio to favor attractive lines.
As Ive discussed with you our 2023 focus was to grow inorganically through Validus diversified book as well as organically and classes of business, where we have been seeing the past returns such as property cat excess of loss and specialty.
Bob: We accomplish this.
Bob: One one renewal again with again tremendously successful and we renewed the combined Renaissance re and Validus portfolio. According to plan.
Bob: In addition throughout 2023, we proactively shape the portfolio to favor attractive lines.
Bob: 2023 net premiums written for $7.5 billion, up 4%. But there was significantly more growth in our target areas. Property catastrophe net premiums written were up 23%, or 42% without reinstatement premiums, and specialty was up 47%. Overall, gross premiums written were $8.9 billion, down $351 million. They were roughly flat when you exclude the impact of $235 million of reinstatement. Within gross premiums, we had a growth in property catastrophe, specialty, and general casualty of $914 million when you exclude the impact of reinstatement. This was offset by reductions in other property, professional liability, and mortgage.
Bob: <unk> 2023, net premiums written were seven 5 billion up 4%, but there was significantly more growth in our target areas.
Bob: Pretty catastrophe net premiums written were up 23% or 42% without reinstatement premiums and specialty was up 47%.
Bob: While gross premiums written for $8 9 billion down $351 million. They were roughly flat when you exclude the impact of $235 million of reinstatement premiums.
Bob: Within gross premiums we had a we had growth in property catastrophe specialty and general casualty at $914 million when you exclude the impact of reinstatement premiums.
Bob: This was offset by reductions in other property professional liability and mortgage.
Bob: Collectively, the actions we took through 2023 should serve as a tailwind to both our top and bottom lines in 2045. Moving now to our Casualties and Specialties segment, where gross premiums and net premiums written were up 20% and 26%, respectively, in the quarter, as we brought validated business onto our platform. Net earned premiums were $1.4 billion, up 46%, also driven by Validist. For the first quarter, we're expecting net earned premiums to be about $1.5 billion. For the year, casualty and specialty net premiums written were up 3.5%. This year, we continued to manage the cycle, growing in specialty and general casualty, while reducing professional liability, and more. Our Casualty and Specialty Adjusted Combined Ratio was 94% for the quarter and the year.
Bob: Collectively the actions we took through 2023 should serve as a tailwind to both our top and bottom lines in 2014.
Bob: Moving now to our casualty and specialty segment, where gross premiums and net premiums written were up 20% and 26% respectively in the quarter as we bought validus business onto our platform.
Bob: Net earned premiums were $1 4 billion up 46% also driven by Validus in the first quarter, we're expecting net earned premiums to be about one 5 billion.
For the year casualty and specialty net premiums written were up three 5%.
Bob: This year, we continued to manage the cycle growing in specialty in general casualty, while reducing in professional liability and mortgage.
Bob: Our casualty and specialty adjusted combined ratio was 94% for the quarter and the year. This was consistent with our expectations and we continue to expect mid nineties adjusted combined ratio as we integrate the validus portfolio in 2024.
Bob: This was consistent with our expectations, and we continue to expect a mid-90s Adjusted Combined Ratio as we integrate the Validate Portfolio in 2020. Additionally, the casualty acquisition cost ratio of 31% was elevated in the fourth quarter due to the impact of purchase accounting adjustments. This contributed 2.3 percentage points to the ratio. There's been a lot of focus across the industry on the robustness of casualty reserves given social and economic inflation trends. As we've discussed in the past, we have a prudent reserve reserving process and are confident in our reserves.
Bob: Additionally, the casualty acquisition cost ratio of 31% was elevated in the fourth quarter due to the impact of purchase accounting adjustments. This contributed two three percentage points to the ratio.
Bob: There's been a lot of focus across the industry on the robustness of casualty reserves, given social and economic inflation trends.
Bob: As we've discussed in the past, we had a prudent reserving process and are confident in our reserves.
Bob: Turning now to our property segment, starting with property catastrophe. The fourth quarter is a quiet period for property catastrophe renewals, and gross premium rents were $55 million, roughly half of which were reinstatement premiums. Net premiums earned were up 78% in the quarter driven by organic growth through the year and additional premium earned from value. We reported excellent results in property catastrophe for the quarter and for the year with an adjusted combined ratio of 16% and 29%, respectively. Well, there are a few large cats in the corridor, including Hurricane Otis and European windstorms.
Bob: Turning now to our property segment and starting with property catastrophe for the fourth quarter as a quiet period for property catastrophe renewals in gross premium written were 50.
$55 million, roughly half of which will reinstatement premiums.
Bob: Net premiums earned were up 78% in the quarter driven by organic growth through the year and additional premium earned from Validus.
Bob: We reported excellent results in property catastrophe for the quarter and for the year with an adjusted combined ratio of 16% and 29% respectively.
Bob: There are a few large cats in the quarter, including Hurricane Otis and European Windstorms. These largely did not make it into reinsurance towers or lead to significant catastrophe losses.
Bob: These largely did not make it into reinsurance towers or lead to significant catastrophe losses. Within catastrophe, we reported 26% favorable development in the quarter. This positive development was across the 2017 to 22 underwriting years, with a significant amount related to Hurricane. Moving now to other property, where we reported strong results through 2023. This reported a 79% adjusted quarterly combined ratio in Q4 and an 82% adjusted combined ratio for the year. The other property Q4 current accident year loss ratio of 53% included a 4 percentage point impact from large cats, including Hurricane Otis, and increased losses from previous events. All things equal, we expect a nutritional loss ratio in the low 50s going forward. We reported favorable development of 4 percentage points in the quarter and 6 percentage points for the year, almost all of which related to attritional losses. We have continued to reduce our other property class of business, primarily in the pro rata and retro quota share lines, with both gross and net premiums written down in the quarter.
Bob: Within catastrophe, we reported 26% favorable development in the quarter. This positive development was across 2017 to 22 underwriting years with a significant amount related to hurricane Irma.
Bob: Moving now to other property, where we reported strong results through 2023.
Bob: <unk> reported a 79% adjusted quarterly combined ratio in Q4, and an 82% adjusted combined ratio for the year.
Bob: The other property Q4 current accident year loss ratio of 53% included a four percentage point impact from large cats, including hurricane Otis and increased losses from previous events, all things equal we expected an attritional loss ratio in the low fifties going forward.
Bob: We reported favorable development of four percentage points in the quarter and six percentage points for the year, almost all of which related to attritional losses.
Bob: We've continued to reduce our other property class of business, primarily in the pro rata in retro quota share lines with both gross and net premiums written down in the quarter. Net premiums earned also declined to $359 million were bringing premium from validus into the book and in Q1 expect net premiums earned and other property of about three <unk>.
Bob: Net premiums earned also declined to $359 million. We're bringing premium from valid into the book, and in Q1, expect net premiums earned in another property of about $325 million. When that burn premiums are down, we will have built a much more profitable book. Moving now to fee income and our capital partners business, where fee income continued to increase with fourth-quarter fees of $71 million, up 133% from the comparable quarter. For the year, fees were $237 million, up 100%. In 2023, we consistently grew both management and performance fees quarter on quarter. Growth in fees was almost entirely driven by our joint venture vehicles and followed successful capital raising to support premium growth and continued strong underwriting performance. Starting in the first quarter of 2024, we expect management fees of around $50 million and performance fees to stay relatively stable, absent large losses.
And $25 million.
Bob: While net earned premiums will be down we have built a much more profitable book.
Bob: Moving now to see income in our capital partners business with fee income continued to increase with fourth quarter fees of $71 million up 133% from the comparable quarter for the year. These were $237 million up 100%.
Bob: In 2023, we consistently grew both management and performance fees quarter on quarter growth in fees is almost entirely driven by our joint venture vehicles and follow a successful capital raising to support premium growth and continued strong underwriting performance.
Bob: Starting in the first quarter of 2024, we expect management fees of around $50 million and performance fees to stay relatively stable absent large losses.
Bob: Once again, we effectively deployed capital in our partners' business, in our capital partners' business, to match attractive risk with capital. This enabled us to bring more property catastrophe risk onto our platform, including additional risk from the Validus portfolio. In 2023, we raised $1.2 billion in third-party capital across our joint venture vehicles with an additional $495 billion effective January 1, 2024. We continue to be good stewards of capital, returning $1.3 billion of our third-party capital to investors, with two-thirds of this relating to the release of trapped capital in our upswamp yet. As expected, AIG invested $350 million in our capital partners business effective January 1, with three
Bob: Once again, we effectively deploy capital and our partners business and our capital partners business to match attractive risks with capital. This enabled us to bring on more property catastrophe premium onto our platform, including additional risks in the validus portfolio and.
Bob: In 2023, we raised $1 $2 billion in third party capital across our joint venture vehicles with an additional $495 million effective January one 2024.
Bob: We continue to be good stewards of capital returning $1 3 billion of our third party capital investors with two thirds of this relating to the release of trapped capital and our Upsilon vehicle.
Bob: As expected AIG invested $350 million and our capital partners business effective January one with $300 million in da Vinci and $50 million in Fontana.
Bob: We facilitate most of this investment by reducing our ownership stake in da Vinci from 28% to 24%.
Bob: Moving now to investments where retained net investment income was $256 million for the quarter up 18% from Q3 and $831 million for the year more than double 2022.
Bob: In the fourth quarter, we saw a sharp rally in treasury yields leading to a $490 million of retained mark to market gain and effectively eliminating.
Bob: The retained unrealized loss that we have been carrying in our fixed maturity portfolio.
Bob: Our retained yield to maturity came down by <unk> six percentage points to five 4% and this is roughly on par with our net investment income return.
As we go forward.
Bob: We expect to maintain our net investment income at a similar level for Q1, we anticipate that retained net investment income will come in around $260 million.
Bob: After funding and closing Validus, our retained investment portfolio has grown by about $3 billion to $21 billion duration has increased from $2 six years in Q3 to three two at the year at year end.
Bob: Now finally, turning to expenses, our operating expense ratio increased in the quarter by about one six percentage points to 6%. This was driven by performance related compensation expense and increased head count. These factors also drove a slightly higher annual operating expense ratio of 5% up <unk> six percentage points from 2022.
Bob: Hi.
Bob: Going forward, we expect the operating expense ratio to stay relatively flat to 2020 for Corp.
Bob: Corporate expenses were also elevated by about $60 million in the quarter as a result of the Validus acquisition. These transaction related expenses are excluded from operating income with about two thirds of these expenses being one time charges and the remaining one third related to ongoing integration costs.
Bob: These ongoing cost should carryover into 2024 before tapering off later in the year.
Bob: And in conclusion, we finished an excellent year with an exceptional quarter. All three drivers of profit made strong contributions to our results both segments performed very well due in part to the underwriting actions we have taken this year across both segments.
Bob: Management and performance fees increase through the year as our capital partners team substantially grew our joint venture vehicles, and a strong underwriting market and finally net investment income doubled over the year as we grew our investment portfolio at attractive yields as we look forward. We believe that the Validus acquisition will benefit all three drivers.
Profit generating significant value for our shareholders and with that I'll now turn the call back to Kevin.
Kevin: Thanks, Bob.
Kevin: As you can see a financially we had a great year and our expectations are high for what we expect to accomplish in 2024.
Kevin: In my opening comments I explain to you how we first led to change in property cat reinsurance pricing and second locked in profitable growth through the acquisition of Validus at.
Kevin: At this point I would like to provide more information on how the January one renewal proceeded and the underwriting decisions that we made.
Kevin: Our strong underwriting performance was the result of our disciplined repricing and restructuring of our portfolio. We proactively made improvements to have better pricing and better structures further from loss in many ways 2023 was a robust test of the <unk>.
Kevin: <unk> ability of property reinsurance portfolio and the effectiveness of the step change we pass this test.
Kevin: There was a very active year for natural catastrophes with estimates of industry loss approaching $120 billion.
Kevin: In this environment, we delivered a property catastrophe combined ratio of 30%, while growing net premiums written 42%, excluding the impact of reinstatement premiums.
Overall, our property combined ratio was 53% for the year this demonstrated.
Kevin: Our ability to generate attractive returns for shareholders against the ongoing backdrop of significant natural catastrophe activity.
Kevin: At the recent January one renewal, we improved this already strong underwriting portfolio.
Kevin: Due to our overwhelming success in renewing the Validus business, we grew substantially into a market that remains highly favorable.
Roughly half of our combined premium renewed at January one.
Kevin: And our retention rate exceeded our already high expectations more critically we overwhelmingly capped our combined cat lines.
Rates in the property cat market remains strong.
Kevin: And markets remain disciplined market rates were flat to up a few percentage points programs that needed rate got rate improving overall portfolio.
Kevin: Terms and conditions were largely consistent and retentions held steady.
Kevin: And in other property.
Kevin: <unk> continues to experience rate increases, particularly in the U S and parts of Europe.
Kevin: We held our exposure is relatively flat, while achieving higher rates in 2024, we will continue to monitor other property.
Kevin: If risk adjusted returns approach similar levels to what we are obtaining in property cat I expect there will be opportunities to grow exposure to this business.
Kevin: Similar to property January one was a successful renewal for our casualty book.
Our ability to participate broadly across our customers' portfolios. Once again served as well, helping us renew the business, we targeted at terms and conditions that made sense.
Kevin: This includes the Validus portfolio.
Kevin: Looking forward to 2024.
Kevin: We expect strong performance from a considerably larger book benefiting from the Validus lines. This is because we are observing increased discipline in the market.
Kevin: General liability is benefiting from a combination of improving underlying rates reductions in ceding commissions and improvements in terms and conditions.
Kevin: In specialty lines the market continues to be attractive and we grew our net premiums written almost 50% in 2023.
Kevin: Validus brings a significant amount of specialty business and provides us an even more influential position in this market.
Kevin: We were successful in renewing this book at January one and are excited about future potential here.
Kevin: Overall across our segments. Our January one 2020 for underwriting portfolio is larger and more efficient than 2023 and.
Kevin: And we believe we will continue to benefit over the year.
Kevin: Based on our success of January one we are likely to have significant upside against the $2 7 billion.
Kevin: Of the Validus portfolio, we initially expected to retain.
Kevin: We are expecting to renew at least $3 billion of Validus premium and probably more including most of the property and specialty lines.
Kevin: We achieved this favorable outcome at January one by consistently communicating our risk appetite to brokers and customers. After we announced the Validus deal.
Kevin: We are now the leading participant on many placements.
Kevin: This prominent position allowed us to engage early with brokers and customers and work to secure airlines before many others in the market where even approached.
Kevin: Across property and casualty markets, we have been a consistent long term reinsurance partner supporting our customers when they needed us most.
Kevin: Our approach gave our customers certainty with airlines and allowed us to successfully combine the validus and Renaissance III portfolio.
Kevin: I would now like to touch on what we refer to as our gross to net strategy and how it contributes to our financial performance. It is difficult to overstate the capital efficiencies that we can bring to the large profitable underwriting portfolio. We now have this is because we have a broader array of capital management tools than any.
Kevin: Other reinsurer.
Kevin: To begin with the book of business, we assume from our customers is already.
Kevin: Im very diversified we then increase the efficiency of our portfolios.
Kevin: Bring substantial additional capital to our customers through a combination of our highly rated wholly owned balance sheets and our capital partners business.
Kevin: All our risk is underwritten by the same teams of underwriters on our Rem system.
Kevin: And we have substantial skin in the game for any risks we write.
Kevin: Given such strong alignment of interest between Renaissance, we and our partner capital investors. We view this capital as a permanent franchise. This provides our investors the confidence to remain committed with us over the long term.
Kevin: At January one we renewed the validus portfolio onto Renaissance re managed balance sheets. We also deployed our capital partner vehicles and began incorporating the larger portfolio into our ceded reinsurance programs.
Kevin: This year retro capacity was more available on acceptable terms, which when deployed in combination with capital partners vehicles improves our overall portfolio and enhance the shareholder return.
Kevin: As a result after bringing on Validus, we have kept risk relatively flat on a percentage of equity basis. It is rare to find an acquisition with this combination of capital efficiency and very little topline waste.
Speaker Change: In closing.
Speaker Change: Outperformance in 2023, both strategic and financial was outstanding we delivered exceptional profitability to our shareholders through each of our three drivers of profit at the same time, we bolstered the future of our company with the addition of one of the best reinsurance and the market's Validus re as a.
Speaker Change: We expect to deliver material shareholder value over the course of 2024.
Speaker Change: And with that we'll open it up to questions.
Speaker Change: Yes.
Speaker Change: 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.
Speaker Change: We remind you to please on mute your line when introduced and if possible pick up your handset for optimal quality and.
Speaker Change: Interest of time, we ask that you. Please limit yourself to one question and one follow up.
Speaker Change: We'll take our first question from Elyse Greenspan with Wells Fargo. Please go ahead.
Elyse Greenspan: Hi, Thanks, Good morning, Kevin My first question, you said that you guys expect to routine.
At least 3 billion might previously was $2 7 billion from Validus.
Elyse Greenspan: Does that is that that $300 million essentially.
Elyse Greenspan: Will transpire to January one and it can also.
Elyse Greenspan: Have.
Elyse Greenspan: More successful than the expected renewal season of the year, then that could be additive.
Elyse Greenspan: The $3 billion.
Speaker Change: Yes, I think so.
Success, we had at one one certainly inspired us to increase from two $7 billion to $3 billion, we have tremendous confidence in the underwriting team and their ability to execute against that $3 billion and we believe we have upside.
About half of the Validus book renewed at one one.
Speaker Change: And we had.
Speaker Change: <unk> success.
Speaker Change: Specifically targeting the property cat lines.
Speaker Change: In the specialty lines, a few of the casualty clashes we exercised the same discipline, we've been exercising in our own book of business and we're a little bit more selective on some of the more challenged casualty classes, but as I look forward to that what's coming for the remainder of the year I feel very confident about $3 billion with upside.
Speaker Change: For both the casualty specialty and property portfolios.
Speaker Change: And then.
Speaker Change: Sounds like you pointed out a little bit of incremental price at January one on property cat.
Speaker Change: Thank you.
Speaker Change: Give back any of the improved terms and conditions that we insurers bought in 2023 so.
Speaker Change: How would you think about the expected return on the property Cat portfolio, you guys well at January one.
Speaker Change: 2024, and my thought was last year or.
Speaker Change: 20 plus percent.
Speaker Change: I'm, assuming it would be equivalent in perhaps a little bit higher.
At 124.
Speaker Change: Yes, I would say.
Speaker Change: It was relatively consistent with what we experienced with the step change we achieved in 2003, so when I look at the portfolio, we benefit from it being larger and more diversified.
Speaker Change: We have a little bit more flexibility.
Speaker Change: On how we are structuring the portfolios to between third party.
Speaker Change: Vehicles are on balance sheets, and a little bit more ceded so I think the overall portfolio's efficient efficiency has improved but when I think about terms conditions and pricing I think is largely consistent on a risk adjusted basis with last year, one could argue it's up a little bit but.
Speaker Change: Think being conservative in saying, it's flat is reasonable.
Speaker Change: Thank you.
Speaker Change: You're welcome.
Speaker Change: Your next question comes from Josh Shanker with Bank of America.
Josh Shanker: Thank you Kevin Master hole.
Josh Shanker: Summary of your one giving a lot of numbers I applauded.
But in terms of thinking about your book, if I'm doing my math right excluding validus.
Josh Shanker: About $1 $2 billion of equity capital $750 million more debt $1 6 billion more than the legacy third party money and then another $350 million of Aig's contribution with third party money, that's about a 30% more capital than you had a year ago.
Josh Shanker: Can you write 30% more cat exposure.
At the current prices under the model I realize the secret sauces, how you deploy that capital, but is it reasonable to think that you could accept 30% more risk than a year ago.
Yes, I think one of the comments that.
Josh Shanker: I tried to bring out on the portfolio is that on a percent of equity basis, we are holding our risk relatively flat. So knowing that that equity basis is up we are increasing our risk to make sure we remain.
Josh Shanker: Equivalently exposed in the tail against peak exposures.
Josh Shanker: One thing that debt.
Comment doesn't highlight sufficiently is.
Josh Shanker: The portfolio that we brought on from Validus is well diversified so when I make those comments I'm focused on property cat, but that risk capital that we brought on an exposed to property cat is very well exposed on a diversified basis with specialty classes and with casualty so the efficient.
Josh Shanker: C of bringing that portfolio on is far greater than going in writing strictly into the property Cat tower.
Okay, and then a question for Bob when we think about.
Josh Shanker: Tax going forward, you said that.
Bob: The DTA is not going to eliminate your tax obligations on a cash basis should we expect that your tax obligations on a cash basis.
Bob: Cash basis would materially different over the next decade or.
Bob: You'll still pay a similar type of cash tax rate and then you'll also have the benefit of the DTA.
Bob: Managing the overage.
Speaker Change: The short answer thanks for the question Jason The short answer to that question is the DTA at $600 million is going to give us.
Speaker Change: $60 million a year, because it's capped at 10% a year for 10 years. So we're going to get a benefit of reduced cash tax cash flows of up to $60 million a year for the next 10 years.
Speaker Change: And.
Speaker Change: If you are experienced a large <unk>.
Speaker Change: <unk> event in that decade that causes you to have a negative tax rate.
With that adds the DTA such that you could utilize.
Longer than 10 years.
Speaker Change: Yes, the DTA of your attitude for losses, there is going to be carryforward theres other things that will come out in the <unk>, we're going to be working through it over the course of this year when it became before it becomes effective in 2025, but short answer to that question is yes.
Speaker Change: Okay. Thank you very much.
Speaker Change: Thanks, Josh.
Speaker Change: The next question comes from Mike Zaremski with BMO.
Speaker Change: Okay.
Mike Zaremski: Good afternoon.
Mike Zaremski: Yes.
Mike Zaremski: No.
Give a lot of great guidance, and I think a lot of us need the handholding a bit on the Validus acquisition.
Speaker Change: So I appreciate that.
Speaker Change: I think back to kind of in May when the deal was struck I believe your guidance was.
Speaker Change: Double digit accretion on a run rate basis.
Speaker Change: Yes.
Speaker Change: And if I look at consensus estimates the deals close if I look at consensus estimates on a forward looking basis.
Speaker Change: Estimates are up.
Speaker Change: <unk> nine.
9%, if I'm looking at 'twenty 425 on average and so on.
Speaker Change: Unless I'm just curious I know, it's a long running question, but you've given a lot of details it points to the deal being actually a bit more accretive than.
Speaker Change: What your initial guidance was in May in May of last year, and so just curious if you think I'm interpreting this correctly that the deal is is more accretive and obviously this is just a deal in isolation, but the.
It doesn't feel like that the street is.
Speaker Change: It's clearly not moving.
Speaker Change: So we're believing.
We're leaving our guidance and isolation am I thinking about that correctly.
Speaker Change: Well I'd answer your question. Thank you for the question. It's a great question and we feel better than we did in May when we first announced the deal and as we've gone through the due diligence and integration process. We continue to feel stronger as Kevin evidenced with going from $2 7 billion to $3 billion in premium with even upside to that and this benefit ripples through all.
Three drivers of our profit in the same message I gave you back in May was better underwriting more efficient that we're getting it into both casualty and specialty will still hold at the mid ninety's. So that in of itself generates the profitability and also both the DD and Fontana will benefit by this additional premium in business that we have coming through for key.
Speaker Change: Income as you noted I have increased.
Speaker Change: Basically in our guidance on fees for management holding at 50, and then also the portfolio, we've got $3 billion more coming in there in this rate environment. So yes, we feel we feel better than we did back then just as we learn more especially with the quality of people that came over that Kevin referred to in his prepared comments so strong team strong results.
Looking into 2023, which I said offer tailored.
Speaker Change: Okay. That's helpful.
Speaker Change: My follow ups on the.
Speaker Change: Casualty and specialty segment and I appreciate there's a lot of different types of business and they are.
Speaker Change: The combined ratio for that segment has been.
Speaker Change: And improving.
Speaker Change: Whereas some.
Speaker Change: Some of the primary insurers haven't seen much improvement in their casualty segments, although IHOP business mix is different.
Speaker Change: You mentioned in your prepared remarks about the.
Speaker Change: The strength of the.
Speaker Change: Eric.
Speaker Change: The casualty I think reserves they also.
I think there was some.
Speaker Change: Remarks about some troubled casualty portfolios in the marketplace, which isn't a surprise but.
Speaker Change: Any more color you want to offer on kind of.
Speaker Change: Why you feel.
Speaker Change: Really good about.
Speaker Change: Youre casualty portfolio. Thanks.
Speaker Change: Dave why don't you take this one sure.
David: This is David.
David: Short by just saying as we structure the casualty and specialty portfolio. There is more than just casualty and it's a big portion of it is specialty in credit and it's always a focus of ours to overweight the portfolio towards the most attractive opportunities. So you saw us grow rapidly in casualty into the market post 2020, and pre 2020, our book was actually quite small.
David: We also avoided a lot of the lines at that time, which were more prone to social inflation like commercial auto so part of what Youre seeing in the continued strength of the segment is just our active weighting of the different classes.
David: <unk> now roll on to 2020 forward the balanced portfolio, we have an even bigger footprint in specialty classes, which went through a step change in terms and conditions last year and that's persisted. So all that comes together.
David: Strength in the segment.
Speaker Change: Thank you.
Speaker Change: The next question comes from Ryan Tunis with Autonomous research.
Ryan Tunis: Hey, Thanks, good afternoon.
Ryan Tunis: First question just.
Ryan Tunis: There's just more on just attritional and large losses post balance so I guess.
Ryan Tunis: We've got our spreadsheet.
<unk>.
Ryan Tunis: European Wind storm E bench.
Japanese typhoon normally.
Ryan Tunis: We've got a decent feel for what to expect in terms of branch market share.
Speaker Change: I'm just curious is there anything you'd flag combining the validus portfolio.
Speaker Change: What are you seeing them market share might be a little bit elevated relative to history and im not talking about like the one in 51 100, I'm just talking about more quarter to quarter Attritional large losses.
Speaker Change: Yes.
Speaker Change: Let me start here I think.
Speaker Change: Their book looks similar to ours and their book benefited from the step change. So in general the property cap portfolio is more remote to secondary barrels than it was in 2022.
Speaker Change: That said the combination of rendering and validus means where larger.
Speaker Change: So I would expect that we will have particularly on larger losses, a bigger percentage share.
Speaker Change: <unk>.
Speaker Change: No participation in the loss.
Speaker Change: Importantly, we also are growing.
Speaker Change: Many of the specialty classes.
Speaker Change: Not only on Renren portfolio, but with the addition of Validus.
Speaker Change: Some of those are <unk>.
Speaker Change: Cat exposed so I think some of the smaller losses that you mentioned.
Speaker Change: Dan.
Speaker Change: We can be a little bit more exposed because of our.
Speaker Change: Leveraging into a few of the specialty classes.
Speaker Change: I don't see it as a as a hugely material shift and being exposed to new losses, but our participation might be a little larger just because our scale is bigger so when I think about where the portfolio is most exposed pre validus and post validus, it's relatively consistent.
At larger losses, particularly larger peak losses will have a bigger percentage participation just because of our scale then we might participate more broadly.
Speaker Change: In.
Speaker Change: <unk>.
Speaker Change: In non peak territories, and perhaps non peak perils through some of the specialty classes that we write.
Speaker Change: And by specialty I should be thinking more like a manmade type loss.
Speaker Change: Marine energy programs.
Speaker Change: Yeah.
Speaker Change: Got it and then.
Speaker Change: Is it may aviation that kind of stuff.
Speaker Change: And then.
Speaker Change: And I guess, just a follow up on you.
Speaker Change: Mentioned, there were some reserve releases the areas obviously.
Speaker Change: You put up a big enough initial launch.
Speaker Change: Kind of wanted to check in on.
Is there still a good amount of IV in our ore reserves associated with that event or.
Is that pretty much fully season at this point.
Speaker Change: This is just the annual checkup that we do it came in in the last.
Week of the third quarter said really fell into our fourth quarter review and we got more information. They had another year of seasoning and this is the best estimates, but yes, it was far and away the largest piece of it when we go over all the accident years. So we are we will always continue to look at it ongoing in deeper on an annual basis.
Speaker Change: Thank you.
Speaker Change: Thanks.
Speaker Change: The next question comes from Meyer Shields with <unk>.
Meyer Shields: Sticking on reserves briefly if I can can we get a sense as to the accident years that were relevant for the casualty and specialty segments Reserve development.
Meyer Shields: Sorry, but I'm not sure I got the question here Youre looking at the relevant years in terms of kind of picking up over what David talked about and the Euro is under review by the industry <unk> and prior.
Meyer Shields: Going forward relative to 2020 and 21 I think.
Meyer Shields: In the in those years, we were didn't have and David referred to us having a lighter 10 back in there and a smaller presence we did grow through acquisitions, but with those acquisitions. We've got terms of conditions that help protect it and we actually did some of that protection on our own going back into pre 18 years, where we did grow under our Penn was in.
Meyer Shields: The year is that we talked about where the market has got better which is in 2021.
Meyer Shields: We actually shape the portfolio for lines that we thought we did well and so look at what we saw this year lay down in professional lines.
Meyer Shields: Way up in specialty.
Speaker Change: Okay, No thats perfect.
Speaker Change: Second modeling question. So we have the.
Speaker Change: Impacts from.
Speaker Change: Purchase accounting on the various segments combined ratios can we assume that for the near term if we tweak that up and the fact that there are only two months of Validus ownership. That's a good run rate for the near term or the purchase accounting adjustments that's.
Speaker Change: That's fair that's a fair mix is going to taper off like I tried to say, 40% of this is going to be gone.
Speaker Change: By the end of it by the end of this year. So it will start to taper towards the end of the year.
Speaker Change: Okay perfect. Thank you so much.
Speaker Change: Okay.
Speaker Change: The next question comes from Alex Scott with Goldman Sachs.
Alex Scott: Hi, good.
Alex Scott: I wanted to dig a little bit more into the net versus gross gross to net strategy I guess you are referencing.
Alex Scott: On one hand, it's sort of.
Alex Scott: The way Youre, bringing on this validus book and how much to third party capital providers are being used and then.
Alex Scott: So just interested in as youre going through year end renewals.
And the view that we get through your financials I guess includes the cash.
Alex Scott: Providers will there be any noticeable differences.
Alex Scott: Sort of the net to.
Alex Scott: Gross retention.
Alex Scott: So we should think about going into 2024 as part of your strategy at year end.
Speaker Change: Yes, I think.
Speaker Change: Bob had mentioned some shifts.
Bob: Excuse me in the percent participations, we have in da Vinci Fontana.
I think it's reasonable to think we split our book and retain about half of our property cat.
Bob: So half of it will be with third party vehicles have a it will be on our own balance sheets and ballpark, we keep about 85% of our casualty.
Bob: That moves around each year, it's not materially different.
Bob: From what we had last year.
Bob: But those are good estimates to think about how we're constructing the portfolio for.
Bob: The other piece is more of a trading account retro.
Bob: Where we did see more opportunities to provide.
Bob: More traditional excess of loss protection on some peak exposures.
Bob: I think that's very consistent with the way we've normally trade at the portfolio and there is nothing specific to report there.
Speaker Change: Okay helpful.
Speaker Change: Next one is just on the investment portfolio as you brought on this valve it sounds like you've added some duration.
Speaker Change: As the portfolio around where you want it in terms of the investments.
Speaker Change: Anything that you're planning on doing there in terms of whether it's on the duration side or just broad allocation.
Speaker Change: It came in actually shorter duration over the course of the due diligence and integration process, we matched it with our portfolio. So this is a reflection of our decisions to take it and extend it out a little bit longer than it was at the end of the third quarter.
Speaker Change: Got it too around despite you wanted already.
Speaker Change: Yes.
Speaker Change: Okay. Thank you thank.
Speaker Change: Thank you.
Speaker Change: Yeah.
The next question comes from Jimmy <unk> with J P. Morgan.
Jimmy: Hey, good morning, So first just a question on the competitive environment. It seems like your comments on pricing terms and conditions are fairly positive.
Jimmy: Have you seen any of your peers sort of start to come down in terms of offering coverage and lower layers and have you seen any move in attachment points at all.
Jimmy: Yeah.
2023 24 notes.
Speaker Change: Dave I'll take that.
Speaker Change: Hi.
Speaker Change: We didn't see much competition at all really billing pushing retention is down below where they were at in 2023. Those retention is largely held all of the new demand and the new capacity was more at the top end of programs, where we did see an increase in demand.
Speaker Change: For new top layers.
Okay and then if we think about your returns in 2020, obviously, they're pretty strong for you guys and your peers as well.
Speaker Change: To what extent is that a function of just the type of Gatsby saw where there were a number of events, but they're relatively small.
Speaker Change: Versus real sort of changes in terms and conditions do we ever had we've seen sort of a normal diet larger events.
Speaker Change: We will get returns have been what would they have been somewhat similar or would they have been significantly lower.
Speaker Change: So.
Speaker Change: When I look at 'twenty three every cat is different and you are correct in that there was.
Speaker Change: More small events than having.
Speaker Change: <unk> hundred $20 billion driven by one large event.
When I think about what's driving our performance in 2003.
Speaker Change: Those.
Speaker Change: Positive factors are persisting in 24, so we're in a rate environment that is very robust across most lines of business.
Speaker Change: <unk> and conditions largely held retention largely held we have a fee business that continues to grow and we expect greater capital partners participation not only in our own portfolio, but on Validus This portfolio.
Speaker Change: The investment returns look robust for the rest of the year on a larger portfolio.
Speaker Change: Your question is if the cat loss profile is different we have different results. The answer is yes.
Speaker Change: In the way the book is constructed we our.
Purposefully more exposed to peak territory large losses and as I mentioned in my previous comments, we would probably have a bigger percentage share of those that said the robustness and the diversification in the portfolio gives me great confidence in having.
Speaker Change: Construct to the portfolio that we have knowing its resilient to even large losses that can come in.
Okay.
Speaker Change: And then just lastly on can you comment on any reserve development that you might've seen related to the Tokio millennium ADC has that been exhausted or is there something else there.
Speaker Change: Yes.
Speaker Change: There is still a limit available on the cover.
Speaker Change: The reserves are paying down as expected so.
Speaker Change: Thing to report other than the coverage is still there and theres limit still available.
Speaker Change: Are you able to say how much that is what the remaining amount is.
Speaker Change: No.
Speaker Change: It's an estimate at this point nothing.
Speaker Change: Nothing is paid on it we're still working through the reserves that were part of the transaction originally.
Speaker Change: Thank you.
Speaker Change: Okay.
The next question comes from Bob Wang with Morgan Stanley.
Bob Wang: Hi, Good morning, Yes, most of my questions were answered just had one regarding the Validus acquisition obviously.
Bob Wang: Everything sounds fairly positive from this perspective.
Curious, how we should think about expenses synergies going forward.
Bob Wang: Is it more kind of come from scale and operations or is it more of a peoples related synergy maybe if you can just help us on the expense side of things a little bit.
Yes, that's a.
Speaker Change: A good question I touched on it in my prepared comments and you can go back I'll repeat a little bit of it but I'll point you back in there youll see a lot of.
Speaker Change: The validus related costs coming through in the both in operating expenses, while we retain a significant amount of people. We did anticipate significant synergies, but as we said and I remind that we have a lot of talented people that came over from analysis and we're going to reduce the amount of targeted synergies, but not materially we feel great about it.
Speaker Change: The integration costs are going to be down below and corporate expenses outside of operating income, which I said was going to be about $20 million going into the first quarter and that will carry through and then those synergies will taper off towards the back end of the year.
Speaker Change: Those centers you have to take those costs will taper off which reflect the realization of those synergies.
Speaker Change: Okay. Thank you.
Speaker Change: The next question comes from Brian Meredith with UBS.
Brian Meredith: Yes, Thanks, Kevin I'm, just curious when you put your portfolio together with Validus are there any areas geographically that you would say right now you're underweight and there is potential opportunity to kind of really increase your presence if market conditions.
Brian Meredith: So still warranted.
Brian Meredith: We have the ability to grow everywhere in every line of business should we choose to it would be.
Brian Meredith: Returns and then obviously it will demand more.
Speaker Change: <unk> ability for each dollar we put out in peak territories the portfolio that we picked up for Validus largely.
Speaker Change: Had a similar.
Speaker Change: Profile to peak risks that our existing portfolio.
Speaker Change: Slightly higher in Europe than us, but I would say is against the southeast. We can continue to grow very efficiently every other cat apparel and every other cat region, and then we have opportunities to grow specialty and casualty as well I think the one that we're focused on and thinking about what our next steps are going to be as the other property market.
Speaker Change: Typically the E&S cat exposed just as rates continue to change there that might be a further opportunity for us as well.
Makes sense and then just quickly on market conditions.
Speaker Change: A little early right now, but for one renewals, particularly looking at APAC.
Speaker Change: Thoughts on opportunities there.
Speaker Change: Thank you.
Speaker Change: We're just getting into.
Speaker Change: To the Japanese renewals it looks like the earthquake that happened earlier in January.
Speaker Change: We will have limited effect on the reinsurance I think Japan is a very stable market I'm optimistic that the solid rate that we achieved last year will be at least at least achieved this year and the renewals that we target.
Speaker Change: Okay. Thank you.
Speaker Change: Yes.
Speaker Change: The next question comes from Charlie Lederer with Citi.
Charlie Lederer: Hey, Thank you.
Charlie Lederer: Question.
Charlie Lederer: Is there a key gap impact in the loss ratio.
Charlie Lederer: And is that material.
Charlie Lederer: There is there is thank you for that question most of that you see right now is in the acquisition ratio. That's why I talked about in my prepared comments that was probably most predominantly in casualty about two three points the impact to the reserves will be modest and it will have a little bit longer.
Tail on it will go out probably 567 years, but it won't be as impactful as what youre seeing on the acquisition ratio.
Speaker Change: Got it.
Speaker Change: You mentioned it a little bit but is it your sense that the DTA has created this quarter for the corporate income tax are going to be enough or do you expect offsets to the P&L tax rates from things like payroll taxes or other things by the time 25 rolls around.
Speaker Change: It's early right now in this whole process. This the legislation was just passed in what we calculated was a deferred tax benefit to reduce cash payments going forward. How the legislation adapt in 2024 will be paying close attention to what those changes are I referred to some of maybe but we just don't know so it's too early to tell.
Speaker Change: Okay. Thank you.
Speaker Change: The next question comes from Andrew Klingerman with PD Cowen.
Andrew Klingerman: Hey, good morning.
Andrew Klingerman: Good question.
Andrew Klingerman: Growth in casualty and specialty I mean, it looks great obviously, a lot from validus there but.
Andrew Klingerman: Could you talk a little bit about this and then of course, the offset with professional liability down about a $109 million year over year could you talk about the specialty lines, where you were kind of most excited about seeing more growth can close the casualty lines, where within professional liability.
Andrew Klingerman: Are you moving away from is it just.
Andrew Klingerman: Public P&L and excess D&O or is there more to that professional lines.
Andrew Klingerman: Moving away.
Andrew Klingerman: Hey, Andrew This is David I'll start with that one.
David: Starting with your comment on casualty and professional lines and D&O. It definitely is the public D&O and the access in particular, which is under the most pressure most D&O books have a variety of different D&O exposures. So thats one opportunity. We have is to shave our underwriting away from public D&O and towards the other classes. The other thing thats happening.
David: As we're getting reduction in seeding commissions to compensate for some pressure.
David: Pressure on insurance rates at that focusing on the specialty classes. The validus had a very significant specialty footprint. We also had a significant specialty.
David: And we put those together, we're really excited about the opportunities there marine and energy and the associated lines like terrorism that is written as part of Marine and energy are big areas of focus. There. We also are growing in the aviation space, which is experiencing some positive rate in the excess of loss. So if lines like that.
Speaker Change: Very helpful.
With regard to the third party capital.
Speaker Change: I was a bit surprised to see that $364 million.
Speaker Change: I'm sorry, yes.
Speaker Change: Returning.
Speaker Change: Then I think I heard on this call that you raised another $495 million I'm not sure if I will.
Speaker Change: That rate, but just given the size valid is coming on.
Speaker Change: Book, coupled with the fact that you had some ratios you've cited earlier I think 60% in property cat, 15% casualty.
Speaker Change: Should we expect a lot more capital in the third party area to be raised throughout the course of the year.
Speaker Change: I think we will continue to look for opportunities to deploy into the market right now all of our vehicles are sufficiently capitalized to achieve the target state of where we want to renew the Validus book, the <unk> book and the additional growth that we have.
Speaker Change: So we do not need additional capital in any of the vehicles.
Speaker Change: But we'll be opportunistic should we see more opportunity.
Speaker Change: <unk>.
Speaker Change: Yes, so I would say we are rightly sized for where we want to be right now.
Speaker Change: Thanks very much.
Speaker Change: Our last question comes from David Martin with Evercore.
David Martin: Hi, Thanks for squeezing me in.
Just had a question on the competitive environment.
David Martin: And we've read a lot about.
David Martin: More competition.
And the higher layers of programs, but I think it was David you mentioned.
David Martin: There is more demand.
David Martin: Coming in at the top end of programs as well.
David Martin: So I'm wondering just maybe you could just talk about what youre seeing how you are managing that and your expectations going forward and if there is pressure on those higher layers.
David Martin: Yes. This is David I'll continue on I guess that in property Cat, we did see demand in the high single digit percentages, that's mostly in the top layers. That's also where the capacity was if you think about what capacity came in to the cap on market through 2023 at the same type of risk profile is attracting the capacity.
David Martin: In the property Cat towers at 102024.
David Martin: The increase in demand is a continuation of the trend that we saw in 2023 also.
Speaker Change: <unk> values are increasing clients are looking to protect their books, but the difference this year as they were able to have the budget to do that and so we did see more clients buying.
Speaker Change: Top end programs, we expect that that would continue a lot of clients were talking about it and not everyone bought but we think that that will continue through the mid year renewals.
Speaker Change: Got it thanks, and I think you guys had been talking about that.
Speaker Change: The demand Hasnt really come to market relative to your expectations is that after one one is it mostly in line with what you would expect or is it still do you think there is still a little bit extra demand that that should be coming.
Speaker Change: I would say, we're continuing on that path and theres more to come.
Speaker Change: Got it thanks, and then maybe just a quick numbers one for Bob.
Bob Wang: So thanks.
Bob Wang: Thanks for the numbers in terms of the.
Bob Wang: Earned premium expectations with Validus.
I'm wondering if.
Bob Wang: The C. The extra two months of Validus that you had in the fourth quarter if that.
Bob Wang: Did that distort any of the adjusted combined ratio metrics that you guys disclosed.
Bob Wang: Now consistently with casualty, we printed for the quarter and for the year 94 on an adjusted combined ratio basis.
Even if you add that for the year. The P. GAAP impact it's not significant so everything has been in line as we said it would.
Bob Wang: Validus portfolio is falling right in line with ours.
Speaker Change: Understood. Thank you.
This does conclude today's question and answer session I will now turn the program back over to Kevin O'donnell for any additional or closing remarks.
Kevin O'donnell: Thank you very much for joining today's call. We worked hard in 2023 to achieve the strategic objectives. We put forward that is the foundation for success that we achieved in 2023 and as I look at 2024 that foundation.
Kevin O'donnell: As as strong as ever and we're looking forward to a strong 2024 as well. Thank you.
Speaker Change: This concludes the Renaissance <unk> fourth quarter and full year 2023 earnings call and webcast. Please disconnect. Your line at this time and have a wonderful day.
Speaker Change: [music].