Q4 2024 RenaissanceRe Holdings Ltd Earnings Call
for our business and results of operations.
It's important to note that 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.
During today's call, we will also present non-GAAP financial measures.
Kevin: Reconciliations to gap metrics and other information concerning non-gap measures may be found in our earnings release and financial supplement, which are available on our website at renree.com. And now I'd like to turn the call over to Kevin. Kevin?
Thank you.
Kevin: Thanks Keith. Good morning everyone and thank you for joining today's call. I want to begin today by extending our sympathies to everyone impacted by the California wildfires.
Kevin: At the end of my comments, I will provide some perspective on the impact of the wildfires and our role in ameliorating the significant damage that they have caused to the Los Angeles community.
Kevin: Moving now to our full year 24 financial results. We had a strong year across our most important performance metrics.
Kevin: Our primary metric, tangible book value plus accumulated dividends, grew by 26%. Operating income exceeded $2.2 billion, and operating income per share was a penny shy of $43 per share.
Kevin: Breaking this down by our three drivers of profit. In underwriting, we delivered 1.6 billion dollars in income and an 81.5% adjusted combined ratio.
Kevin: This was in a year with over $140 billion of industry catastrophe losses, as well as persistent casualty trend.
Kevin: In investments, retrained investment income exceeded $1.1 billion, and in capital partners, fee income was $327 million, which demonstrates our leadership in third-party capital management.
Kevin: Repurchases continued in 2025, all in since we began the second...
Kevin: the quarter of 2024, we have purchased a little over $800 million of our shares at an average share price of $250 per share. Bob will speak to you in greater depth regarding our results for the quarter and the year, but overall I'm proud of our performance.
Bob: Moving now to address our strategic results in 2024. Our achievements were as equally impressive as our financial returns. Of course, Validus was the most prominent. From start to finish, our execution was outstanding.
Bob: We retained substantially all the Validus underwriting portfolio. We fully integrated the Validus team and entities into our operations.
Bob: We generated significant capital efficiencies as a result of the combined platform and our partnership with AIG continues to flourish.
Bob: Shifting now, I'd like to briefly comment on the performance of our Casualty and Specialty segment.
Bob: For the year, we reported an adjusted combined ratio of 98%, which is up from 94% a year ago. There are a few drivers of this increase, including the Baltimore bridge collapse earlier in the year and a few one-off losses.
Bob: The largest driver, however, is the elevated loss strength of general liability lines.
Bob: We have done a good job keeping up with this trend and strengthening prior year general liability reserves. As a result, we remain comfortable with our casualty specialty reserves.
Bob: I should note that our casualty and specialty segment has had favorable development for both the quarter and the year. This is one of the benefits of a diversified portfolio. At any given time, some lines are performing well and others are underperforming.
Bob: General liability falls into the category of an underperforming line right now.
Bob: They exceeded our forecast. And overall, I believe progress has been encouraging.
Bob: That said, at January 1 we continued our proactive management of our general liability book. We have reduced on programs where we saw greater exposure to loss trends.
Bob: We expect the overall impact of these changes to our earned premium will be relatively small. They will be spread over the next several years and will be offset in part by increased rate.
Bob: I want to briefly touch on the January 1 renewals and our outlook for 2025.
Bob: David will address the renewals in greater depth, but they proceeded as expected.
Bob: Property cat rates were down by single digits. We found some opportunities to grow which should keep top-line premium for property cat about flat.
Bob: It's important to keep in mind that with the step change over the past few years, rates in PropertyCat remain attractive and our reinsurance portfolio is still one of our best.
Speaker Change: Finally, before I hand over the call to Bob, I wanted to address the California wildfires.
Bob: The level of destruction in the affected areas is truly catastrophic. An important component of our purpose is protecting communities. By rapidly plant paying our claims, we hope to reduce the impact of this tragic event on the many people who have lost homes or otherwise have had their lives disrupted.
Bob: David will provide more detail about the wildfires in his remarks, however, I would like to provide a few key observations.
Bob: First, this is a tail event for the wildfire peril, both in terms of absolute dollar loss, but especially with respect to return period.
Bob: While our models performed well in our assessment of return period, a loss of this magnitude implies that both our models as well as the vendor models will need to steepen the curve in the tail to better reflect the higher frequency of severe events.
Second, natural catastrophe losses are becoming larger and more frequent.
Bob: Of course, climate change is one driver of this. It is equally true, however, that human behavior is also contributing to growing losses.
Bob: For example, dense building with combustible materials in wildlife-urban interface was a major contributor to the California wildfire loss, as was land management practices.
Bob: We currently estimate that our pre-tax negative impact will be approximately 1.5% of the California wildfires aggregate insured loss.
Bob: This market estimate is preliminary and due to the recency of the wildfires subject to meaningful uncertainty that could cause material variation.
Bob: There are numerous factors contributing to the size of the market loss, including the relatively high values of the properties located in the impacted areas, including a large component of fine art and other scheduled coverages.
Bob: The influence elevated demand surge is likely to have on replacement cost values.
Bob: The level of additional living expense exasperated by competition for temporary housing of a similar character to damaged properties.
Bob: the prevalence of smoke damage across a broad geographic area, assessments for the California Fair plan offset by potential future recoupment, and finally the potential for subrogation recoveries from the California Wildfire Fund.
Bob: These factors can cause the estimated $50 billion insured market loss to shift up or down. As the market loss develops, our negative
impact should vary accordingly.
Bob: We sensitivity tested our potential exposure at different industry loss levels and our net negative impact remains around 1.5%.
Bob: The industry losses we expect from the California wildfires are at a scale where we would expect them to affect supply and demand for reinsurance. The first quarter of 2025 will be the third consecutive quarter of elevated catastrophe losses.
Bob: Most of our U.S. property catastrophe programs are loss-impacted. This will create increased demand for our products.
Bob: We have the capital and we have the appetite to continue providing the protection that our clients and states like California clearly need. In order to do so, however, property catastrophe rates need to remain firm or even increase.
Bob: Two years ago the reinsurance market underwent a step change in pricing and terms and conditions.
Bob: At the time, I explained that this was to the benefit of the industry, as adequate rates would allow us to continue providing protection to our customers at the appropriate level, which is balance sheet protection.
Bob: The California wild loss is a good example of the value of our approach to the step change. The magnitude of loss we anticipate paying is consistent with the tail nature of this event, and we were paid appropriately to protect against this risk.
Bob: Since the step change, there has been much discussion regarding the relevance of reinsurance. I believe that the California wildfires once again demonstrate the continuing, if not growing, value of the protection we provide our customers.
Bob: That concludes my initial comments. I'll turn over to Bob now to discuss our financial performance for the quarter before Dave provides a more detailed update on the renewal and our segments.
Bob: Thanks, Kevin, and good morning, everyone. Building on Kevin's opening remarks, we had a strong year with operating income of $3.2 billion, which is the highest in our history, and an operating return on average common equity of 23.5%.
Bob: 2024 was not a low-cat year. In fact, industry losses exceeded $140 billion. Against this backdrop, our diversified underwriting portfolio was resilient and provided superior returns.
Bob: In addition, we're able to achieve our strong operating results because all three drivers of profit outperform.
Bob: Fees and net investment income contributed more than half of our total operating income for the year. These drivers of profit tend to be relatively stable, positioning us well for 2025.
Bob: I plan to spend most of my time today discussing our annual results and outlooks, but would like to start with a few comments on the fourth quarter.
Bob: The fourth quarter was a solid end to the year and we delivered operating income of four hundred and seven million dollars and annualized operating return on average common equity of sixteen percent.
Bob: To put this in perspective, we achieved these results on a common equity base that has more than doubled over two years to $9.8 billion.
Bob: Across three drivers of profit, our underwriting income was $208 million with an adjusted combined ratio of 89%.
Bob: There are a few specific items to highlight related to these results. First, we reported a property segment adjusted combined ratio of 69% in the fourth quarter.
Bob: As a reminder, Hurricane Milton is a fourth quarter event and we reported a $270 million net negative impact in our overall results.
Bob: In addition, the property segment was positively impacted by 37 points of favorable development. Second, we reported an adjusted combined ratio of 101% in our casualty and specialty business.
Bob: This is driven by elevated casualty loss ratios and some specific loss activity in the quarter. We expect some volatility in this business from time to time and continue to expect an adjusted combined ratio in the mid to upper 90s on average.
Bob: Third, from an investment perspective, Treasury yields moved higher in the quarter.
Bob: leading to $552 million in retained mark-to-market losses. This drove up our retained yield to maturity to 5.3% from 4.9% last quarter and should help maintain net investment income at similar levels in 2025.
Bob: Given our relatively low duration portfolio, we can benefit quickly from these higher yields.
Bob: And finally, moving now to capital management, as we mentioned in the last call, we freed up significant capital and liquidity last year as we brought the Validus Balance business onto our platform.
Bob: In the fourth quarter, we returned some of this excess capital to shareholders, repurchasing shares worth $462 million.
Bob: In January, we purchased additional shares worth $138 million. So, in short, we've repurchased $600 million since the last time we talked to you.
Bob: And since we began buying back our shares in 2024, we have repurchased shares worth $815 million at an average price of $250 per share.
Bob: We remain consistent in our approach to managing our excess capital. First, we plan to deploy it into desirable underwriting opportunities, and second, return the excess to our shareholders.
even after the California wildfires.
Bob: Fees were $327 million, up 38%, and investment income was $1.6 billion, with retained net investment income of $1.1 billion, up 37%.
Bob: Moving now to a discussion on the 2024 results, starting with underwriting, where we grew gross premiums written by 32% to $11.7 billion, driven by our successful integration of validates.
Bob: Growth was the greatest in property catastrophe and specialty lines, where risk-adjusted returns have been the strongest, and we were able to capture some incremental opportunities. These portfolios now make up almost 50% of our gross book.
Bob: Net premiums written for the year were $10 billion at 33%, and our combined ratio for the year was 84%, and the adjusted combined ratio was 81.5%. Property reported a 55% adjusted combined ratio, and Casualty reported a 98% adjusted combined ratio.
Bob: Shifting now to our property segment and starting with property catastrophe where the 2024 gross premiums written were up 40% and net premiums written were up 30%.
Bob: We delivered excellent results in property catastrophe with an adjusted combined ratio of 32.5%. This reflected a current accident year loss ratio of 39% and 28 points of favorable development from prior year events.
Bob: Our property catastrophe current year results included a 29 percentage point impact from large loss events in a year with the most impactful being Hurricanes Helene and Milton.
Bob: Moving now to other property where gross premiums written were up 29% and net premiums written were up 28%.
Bob: Net premiums earned were $1.5 billion, up 12%. In the first quarter, we expect net premiums earned of approximately $375 million.
Bob: For the year, the adjusted combined ratio for other property was 88%. This reflected a current accident to year loss ratio of 69% and 11 percentage points of favorable development.
Bob: The current year results include a 17 percentage point impact from large loss events in the year, with the most significant being Hurricane Milne. Next quarter, we continue to expect an attritional loss ratio in the low 50s.
Bob: Turning now to our casualty and specialty segment where gross and net premiums written were up 30% and 36% respectively.
Bob: In 2024, net premiums earned were $6.2 billion, up 43%. In the first quarter, we expect casualty and specialty net premiums earned of about $1.5 billion.
Bob: Our casualty and specialty adjusted combined ratio was 98% in 2024.
Bob: The current action year loss ratio ticked up through the year as we prudently increased our initial loss ratios to reflect trend and general liability.
Bob: Going forward, we expect a casualty and specialty adjustment funding ratio in the mid to upper 90s.
Bob: Moving now to our second driver of profit, fee income, generated by our capital partner business, where fees for the year were $327 million, up 38%, with strong growth in both management and performance fees.
Bob: Management fees were $219 million, up 24%, largely because of growth in our third party vehicles, DaVinci and Fontana.
Bob: 2024 also included some theory capture from prior years that were impacted by catastrophic events.
Bob: Performance fees in 2024 were 107 million dollars, up 78% due to strong performance across our capital partners vehicles.
Bob: Performance fees dipped slightly in the fourth quarter compared to Q3 due to losses from Hurricane Milton, but were partially offset by favorable development. Looking ahead to next quarter, we expect performance fees to be down significantly given the impact of the wildfires.
Bob: Moving now to our third driver of profit, or investments, our average retained investment assets grew over the year by $5 billion to $23 billion.
Bob: Retained net investment income was $1.1 billion, up 37% this year.
Bob: There was significant volatility in treasury yields from quarter to quarter, but overall our mark-to-market was about flat for the year.
Bob: Similarly, our retained yield to maturity stayed relatively flat compared to December 23 at 5.3%. We have increased in duration, however, over the year from 3.2 years to 3.4 years.
Bob: We can tell you that the government's income has increased every quarter since June started at $267 million in the first quarter and it hit $295 million in the fourth quarter.
Bob: You'll also have to remember that we expect that the number of R-16s provided in our delivery to the present level of impact is 2025. This is where we anticipate that the number of R-16s that will be in our products in the world.
Bob: Next, we will take a second to look at the ratings of TechShare with 4.9% of the year, which is priced at $2.23.
Speaker Change: A letter of recommendation presented to the Congressional Writers andokolay State Conventions, the Congressional Auditor General came forward with this file and asked for members to take part in it and send them photographs or any communication experiences anything at all.
Speaker Change: I'm trying to get to 2025. We've got to pull back right now, and make sure that this is 2025.
Speaker Change: Her emails and messages were very meaningful for us, we are Superman's Participators in Arabs. Thank you to the people of Ahis College whose determination was wonderful forgiveness is important for us for With our communities. God bless you.
Speaker Change: These transactions were made in 2017 with the help of Robert Qutub. Robert's expenses were $34,000 to $16,000 related to traffic and other assistance. We are discussing the significance of this transaction related to the 2017 2020 tax law.
Speaker Change: As we have previously discussed, the Bermuda government has implemented a 15% corporate income tax starting in 2025 in response to the OECD Global Minimum Tax.
Speaker Change: We will begin accruing for this tax on our own Bermuda balance sheets in the first quarter of 2025.
Speaker Change: In January 2025, the OECD released an additional guidance related to the Minimum Tax Rules. This guidance would need to be adopted and implemented by member countries before it takes effect.
Speaker Change: Further, a recent United States executive order has introduced additional uncertainty to the global minimum tax regime.
Speaker Change: closely monitoring any potential impacts from these new developments. However, we will be accruing a tax expense or benefit on our Bermuda balance sheets in 2025 and will also be able to benefit from the DTA in the near term.
Speaker Change: And finally, in conclusion, we delivered solid results for the fourth quarter, capping off an excellent year with strong contributions from all three drivers of profit.
Speaker Change: We believe that the momentum across our three drivers will persist with income from our attractive, diversified, underwriting portfolio and persistent fee and net investment income.
Speaker Change: Our strong capital position should enable us to capture emerging underwriting opportunities while at the same time repurchasing shares at attractive valuations. In summary, we are in an excellent position to continue generating value for our shareholders. And with that, I'll turn the call over now to David.
David: Thanks Bob and good morning everyone. Our thoughts are with all those affected by the wildfires in Los Angeles this month. Our team is paying claims quickly and helping clients understand and manage through this catastrophe so that people can begin to rebuild their lives.
David: California wildfires have impacted entire communities. They are the costliest in history as well as a likely top five insured loss for natural perils. We have the strength and capital and liquidity to absorb our portion of this loss and are prepared to deploy additional capacity to support our customers as the market reacts to these catastrophes.
David: Looking forward, we expect an improving market for property catastrophe reinsurance with upward pressure on rates and new opportunities to deploy capacity to support our customers.
David: As Kevin mentioned, we have now seen three large catastrophes in the last three quarters. Seventy-five percent of our U.S. property catastrophe accounts renew over the next six months, and most are loss-impacted.
David: Kevin spoke about our estimate of a 50 billion dollar aggregate industry loss for the California wildfires. We expect the reinsurance portion of this to come from a few different areas.
David: First, wildfire is typically a covered peril in catastrophe access of lost towers. The California wildfires will exceed retentions for many nationwide players, and could exhaust the towers of some California insurers.
David: Should that happen, some treaty language may allow insurers to treat the fires as two separate events.
David: However, were they to do so, they would need to take two retentions.
David: Second, many reinsurance treaties cover assessments related to the California Fair Plan, the state-run insurer of last resort. Third, some large losses, both from high-value homes and commercial properties, will be ceded to the reinsurance market through quota share and per-risk treaties. This will impact our other property book.
David: And finally, there could be losses to the casualty market through third-party liability or losses to the specialty market from collectibles and fine arts.
David: As with every large event, our Underwriting and Risk Sciences teams are working closely together to update our catastrophe models to reflect what we have learned. At the upcoming renewals, we will be ready to deploy capacity, but only if prices are commensurate with the additional risk levels.
David: We are now moving to a discussion of our 2024 underwriting performance and January 1 renewals.
David: As Kevin and Bob explained, we had an outstanding year which culminated in a successful January 1 renewal. I'm proud of what our team accomplished and I'm excited about the opportunities ahead of us as we begin 2025.
David: We aim to be a first-call market for our clients and differentiate ourselves through the leadership role we play, the expertise we bring, and our partnership approach. This means that we provide lead market quotes and significant capacity
David: and clearly communicate our risk appetite and ensure consistent pricing and delivery of capacity across segments and product lines.
David: Being a true partner to our clients requires a high level of coordination and planning across underwriting teams.
David: We stand apart in our ability to do this. In 2024, our clients rewarded us through their support in retaining the combined Renaissance Re and Validus underwriting portfolios.
David: In doing so, we deepened our partnerships and grew our portfolio more than 30% into an attractive underwriting market.
David: We effectively communicated our risk appetite well in advance of renewal and followed through with a high level of consistency. In many cases, markets were oversubscribed, but we achieved our targeted signings across property, casualty, and specialty.
David: As a result, we were able to construct an underwriting portfolio that leads the market in expected profitability and offers shareholders attractive diversified earnings from our three drivers of profit.
providing a few comments on property specifically.
David: As we expected, at January 1st, demand increased at the top end of programs, but we also saw competition for attractive placements.
David: Overall, we experienced rate reductions of around 8% with top layers down more and bottom layers down less.
Retentions held and terms and conditions were stable.
David: and a portfolio that is similarly attractive to those we have constructed over the last two years.
David: As I mentioned earlier, we expect that the recent catastrophe events will increase growth opportunities across our property portfolio in a strong rate environment.
David: We are in a preferential position to access this attractive business, just like we did through 2024 and at the most recent year.
Thank you. Thank you.
David: Moving to casualty and specialty, and starting with specialty, where about three quarters of our portfolio renewed January 1st.
The specialty market continues to enjoy favorable underlying conditions.
Now turning to credit, which, similar to specialty, remains attractive.
David: We continue to have appetite for this business and achieved our target growth on some key programs at one time.
Thank you very much. Bye.
Moving to casualty.
David: Kevin spoke about the challenges in the U.S. general liability market.
David: There is broad recognition that this business needs to improve to keep up with lost inflation. Insurers made good progress in the quarter by accelerating rate increases and improving their claims handling and defense against an aggressive plaintiff's bar.
David: We are optimistic insurers will continue to improve in 2025, which should have a positive effect on the profitability of future underwriting years, while also benefiting prior year claims.
David: As we've discussed, casualty business needs to be managed over a 10-year cycle. While we aim to generate an underwriting profit every quarter in casualty and specialty, this quarter we reported a small loss.
David: This was from our current accident year loss ratio and is within the range of potential volatility that we may experience.
Our prior accident year loss ratio was stable this quarter.
David: The acceleration in general liability trends have been offset by favorable trends in other lines of business, such as professional liability, marine energy, cyber, and credit.
David: Each of our financial segments have different risk and volatility profiles and contribute in distinct but equally important ways to our three drivers of profit.
David: Casualty and specialty, on the other hand, is less volatile, generating a smaller but more predictable underwriting result, as well as some fee income from content.
David: Diversification and loss reserves is equally important to diversification in the underwriting portfolio and critical to our portfolio management approach. Some risks are event-based and manifest within the year, some have longer duration and are only known once claims work through the court system.
David: We consider this mix when we construct our inwards portfolio, manage the net mix with seeded reinsurance, and apply our reserving process to establish reserves that are resilient to adverse trends if they arise.
David: This diversification has also been beneficial when certain classes or underwriting years experienced increasing trends and needed more reserves, like general liability in the soft market years 2014 to 2018.
David: More recently, we increased our recent years in general liability to reflect accelerating loss trends. In other classes, we are seeing positive trends in favorable loss emergence, such as the recent years of professional liability, cyber, and credit.
David: Even if current trends continue, however, we do not have an over-concentration in any one line of business and I am comfortable with our casualty and specialty reserve position.
David: We will certainly experience some movement up or down within different lines, but this is the nature of the business and all part of managing a diversified underwriting level.
And with that I'll turn it back to Kevin.
Kevin: Thanks. So, summing up our prepared comments, our performance in 2024, both financial and strategic, was outstanding.
Kevin: We delivered excellent profitability to our shareholders through each of our three drivers of profit.
Kevin: In addition, we completed our integration of Validus and retained the combined portfolio.
Kevin: Overall, reinsurance rates remain attractive, our fee-generating business remains healthy, and our investment returns remain elevated. As a result, we expect to continue delivering outstanding shareholder value over the course of 2025. And with that, I'll open it up for questions. Thanks.
Kevin: Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star 2.
Kevin: We remind you to please unmute your line when introduced, and if possible, please pick up your handset for optimal sound quality. In the interest of time, we also ask that you please limit yourself to one question and one follow-up.
Kevin: Thank you. Our first question will come from Elise Greenspan with Wells Fargo. Your line is now open.
Elise Greenspan: Hi, thanks. Good morning. My first question is on casualty specialty, you know, the combined ratio, adjusted combined ratio, right, trended higher.
Elise Greenspan: and over 100% in the fourth quarter. So I just want to spend more time on why that doesn't change your forward outlook for the business. If I remember last quarter, you said you guys were taking action based on discussions with clients.
Elise Greenspan: and he would up the guy to the mid to high 90s. So I just wanna more understand why the weaker Q4 in GL doesn't make you wanna be more conservative with the booking of specialty casualty going forward.
Yeah, thanks, Elise.
Elise Greenspan: I think your question really is focused on the GL line, which is where most of the attention has been coming lately. If we look at what we've done on the GL side, we've been using a trend of about 10-12% for some period of time, so we feel pretty comfortable with that.
Elise Greenspan: And he said, thinking about the way in which we bring business onto the platform, he said, thinking about where...
Elise Greenspan: The reserves are really requires us to go back to think about the underwriting as well from an underwriting perspective said within GL Said we are targeting what we believe to be the best accounts
Elise Greenspan: Within the sub lines within GL, we're trying to avoid the lines where we have seen or where the market has seen the biggest problematic. So we've been underweight in auto and we reduced our excess casualty portfolio.
several years ago.
So, when I think about where the...
Thank you for coming.
Elise Greenspan: Yeah, I can just add to that. I mean, everything we're seeing on the underwriting side adds comfort to where we are with the portfolio decisions we've made and the way we've reserved each class.
Elise Greenspan: At 1.1, we did engage with customers and we got a lot more information on what they're seeing, how they're managing their claims, and very optimistic that rates are improving. That will lead to improvements, but that will take time and we'll wait for the business to season and for that to come through before we reflect that in what we're booking. But the rate they're getting and then the way that they're managing claims is definitely a differentiator which will lead to improvements in the future.
Speaker Change: Thanks. And then my follow-up is on PropertyCat. You know, you guys, David, like you said, 75% of your U.S. PropertyCat book renews.
Speaker Change: Does most of your, I guess, California business where you're going to be impacted renew during 25 or would it be a 1-1-26 renewal? I'm just trying to get a sense of, do you think this will impact pricing during renewals in 25? 1-1-26? Is it a combination of both?
Speaker Change: Yeah, hi Elyse, this is David. The California specifics that this event is large enough to impact some nationwide and the California specifics.
Speaker Change: The second quarter renewals is a mix of Florida, nationwide, and California specifics. That's all embedded in the numbers we gave. Only a relatively small portion of the pure U.S. exposed accounts are new at 1.1. So most of those are to come in the second quarter and will be loss impacted.
Speaker Change: So, we do expect the rate that we saw, the competition that we saw at 1.1 that drove rates down, you know, still trading around a high level, we think that will reverse and we'll see better opportunities going into the second quarter renewals.
Thank you.
Speaker Change: Thank you. Our next question will come from Josh Shanker with Bank of America. Your line is open.
Speaker Change: and you know when investors are looking at this higher loss pick and cashly they're immediately suspicious because it's in target. You said in your previous remark that it's going to be volatile there will be large losses if there were this quarter that move it around and I know you don't want to get in the habit of talking about individual losses on every call but given that this is so at attention right now is there any detail that you can give
Speaker Change: So that's, we have several different reserving classes. When we run our reserving process, we'll set initial picks, we'll monitor how things emerge, and adjust to the news that comes in. You know, we've talked about, we take bad news quicker than good news. That's all going on in the normal course of business.
Speaker Change: We don't book where our clients book, so just what we see in the market doesn't necessarily mean that we're going to see that as well. The movements that we're seeing are the outcomes of that process, and nothing we're seeing on the underwriting side or out in the public domain gives us any more concern about where we are and that the outcomes of that process are a good representation of the book.
Speaker Change: I think, Josh, I agree with everything that Dave said, I think the question you're asking is what is signal and what is noise?
Speaker Change: There was some noise in the quarter with Juju Airlines and things that came through the casualties specialty, but we they're relatively small
Speaker Change: We've historically said we think about the casualty market over 10 years. So if you think about the fact that the casualty market
Speaker Change: is in a period of challenge, but rates are above trend, one should expect that as long as the rate...
Speaker Change: enhancement that they're getting on the primary book continues to flow through. So the signal that we're sending is trend is up, rate is up, and rate is above trend, which is a positive sign for where the market is.
Speaker Change: Well, thank you for that. And I think everybody, all three of you, have sort of set out that you're at comfort with the position of the reserve portfolio there. In the quarter, the reserve releases were ambivalent in cash, and they were slightly favorable in the year.
He's raw.
I'm just curious
Speaker Change: You know, we've seen other competitors and other companies release a bunch of specialty reserves that are shorter tail and fortify the longer tail, the years, and when it comes to us on a gap-based or reported basis, it looks like it's negligible, but there are big movements.
Speaker Change: Offset by reserve releases on a shorter tail line or has really the book as a whole been proceeding as you guys reserved for a year ago?
Speaker Change: Yeah, it's a good question, and it is something the Schedule P's will provide transparency for and have provided transparency for. So, obviously, we're managing a reinsurance platform, but we've reported in segments.
Speaker Change: With that, there's a lot of transparency that we provide. The answer to your question, just to be clear, is yes.
Speaker Change: We've had favorable development in many of the shorter tail specialty lines, and we've added to the two casualty. That is not to say that we're moving one reserve to the other. We have 50 or 60 reserving classes within casualty specialty.
Speaker Change: One of the ways in which you manage a portfolio like that is you need to get the right balance of short-tail, long-tail.
Speaker Change: risks and a right diversification of the types of exposure that are coming in. At any given time one class is having favoreable development another class may be having either in a quarter or on a trend some adverse development.
Speaker Change: From a casualty perspective, we have added to that. We feel like that's been the right decision from a specialty and from a property, which is a different segment. We've had favorable development. But overall, we're looking at our job is to think about the overall reserve pool and the overall reserve pool is.
Speaker Change: is in a place where we feel abundantly comfortable and we're seeing in the most problem class, which is DL, we're seeing a lot of things to feel optimistic about.
No. Dave.
Dave: Yeah, I would just reiterate, as I said in my prepared remarks
So all that is consistent with what Kevin was saying.
Thank you for watching.
Thank you very much.
Thank you. Bye.
Speaker Change: Thank you. Our next question will come from Mike Zyrinski with BMO. Your line is now open.
Mike Zyrinski: Hey, good morning. I'm going to go back to casualty specialty. Sorry to belabor this, but you know, the stock is moving on it. So I feel like some of the
Mike Zyrinski: The things you're saying are a bit counterintuitive. I'm not saying they're wrong in explaining it. Just saying it may be different from what other companies do. So, you know, to unpack that, so.
Speaker Change: You're saying the loss trend environment is, you know, at 10 to 12 and pricing is improving and claims handling is improving, but you're also, you know, you've been picking at a worse
Ross Peck
Speaker Change: And I think you're also saying you, you know, unlike others, you're not taking reserve.
Speaker Change: I hope it makes sense, but why would you not be taking some charges or adding reserves to that class?
Speaker Change: and why why prospectively are are you saying margins are aren't going to be worse if if you know things are are turning for the better
Yeah, um...
Speaker Change: Sorry that we're presenting this in a confusing way because we don't feel confused, we feel quite confident. When I think about what the question that you're asking is, you're basically asking why do we push up the current year?
Speaker Change: ILR and I think we that is in recognition of what I said is we need to have rates continue because so thinking about the current year there is uncertainty so we're adding a buffer of
Speaker Change: of concern to the loss ratio, because we need to make sure that they...
Affirmative behavior we're seeing today persists.
Speaker Change: So I think there's an extrapolation that's going on that Because of that we think the world is worse We just think that there's a volatility on uncertainty and we want to reflect that at the starting point of our underwriting ultimately if the markets continue to
Speaker Change: recognizing the uncertainty in the market and recognizing the need that the current behavior needs to continue for us to feel comfortable that we're getting the margin that we're observing if we only look at a snapshot for today.
Speaker Change: Okay, that helps, Kevin. Switching gears to property, and I might touch on some of this in the prepared remarks, but margins are excellent, and specifically prior year development, I'm guessing this is probably one of the biggest
Speaker Change: ones in a long time, but for the year as well, you know...
Speaker Change: consensus, and I'm typically, and I'm guilty of this as well, we typically see the big
releases and we kind of fade.
Thank you.
Thank you.
Speaker Change: You know, as these events occur, you know, we have, you know, information which will give us on total insured values.
Speaker Change: We have models that reflect what the impact on that would be based on given events, whether it's wind, flood, fire, or anything else in that matter. Our models will reflect some outcome. We also have information from our students and active conversations that go on. So what they reflect is our best estimate.
Speaker Change: And our best estimates also reflect degrees of uncertainty, and over time, the degrees of uncertainty or our best estimates get better. So what you see unfolding is a process on how we think about approaching our large-cap events and the reserving process. We look at these each quarter and annually as we go through it, and so what you see is a refinement. There's some adverse mixed in there, but there's a lot more, obviously, that you can see as an outcome as it being positive.
Speaker Change: And just as a quick follow-up on that then, so you know it you know I guess our
R.K. Cassette, you know, Wren.
historically has been very conservative on its booking, has that
Speaker Change: The margin of conservatism is that it widens out, for example, when we see you all using a $50 billion lawsuit on the California wildfires, and other sources are
Speaker Change: saying, kind of closer to 30, just, you know, so we're kind of assuming you're right is just being naturally conservative, but is there a greater degree, you're saying, of conservatism you've been using recently versus historical?
Yeah, so let me answer that.
Speaker Change: In a macro way and then specifically on the wildfire. So on a macro perspective, nothing has changed
Speaker Change: We have a good process. It's a ground-up process. We go through account by account, look at what we believe the exposure is. We talk to clients. We get their loss information. We make an assessment, check it against the model, and come up with our assessment.
Speaker Change: This the reason we are reporting this loss as a market share is because You know, the fires are largely under control, but you know, this is a very Recent event there has been limited access
Speaker Change: to the most affected ZIPCOs. I think it just lifted up earlier this week where they're increasing a little bit of the access for more specific settlement. We do have primary company information. With that though,
Robert Qutub. David Marra.
Speaker Change: We do believe that this specific loss is a loss in which we have
Speaker Change: tolerance for greater variability because of the lack of access that has occurred so far. We think 50 is a reasonable estimate with the information that has been given to us to date and with the
Speaker Change: You to make an assessment should the market begin to see the losses smaller or larger that as we sensitivity tested this so we didn't go in with a market share we did a bottom up analysis but as we sensitivity tested it is if it's lit up a little bit or
Speaker Change: So, the answer to your question is nothing has changed, but there is a greater probability of variability from this $50 billion than what we would normally produce because of the recency of the event, the limited access, and the complications of it being in California.
Very helpful.
The End
Thank you. Bye-bye. Bye-bye.
Speaker Change: Our next question will come from the line of Meyer Shields at KBW. Please go ahead.
Great, thanks. Just a couple of very quick questions.
Speaker Change: I guess this is a question for Kevin. How far back, like you acknowledge that some of the general liability older accident years reserves needed some strengthening, how far back does that go?
Thank you. Bye.
Speaker Change: I would say, let's divide it into the way the market has traditionally thought about it.
Speaker Change: You know, there's kind of the soft market years, which were probably 14 to 18, 19, something like that.
Speaker Change: That's where our focus has been with when I'm talking about the 10 to 12% and where we've added to the reserves. You know, 23 is probably too green to talk about, so if you were getting more specific, it's probably 19, 20, 21, 22, something like that.
Speaker Change: Okay, perfect. That's what I was hoping to hear. And just on the one-one renewals, I was hoping you could comment on rate changes for lost impacted accounts and Renry's appetite for writing aggregate covers.
Hey Marra, this is David.
Supply got pushed into the market.
Speaker Change: Rates started to come under more pressure, so it wasn't much differentiation also with loss impacted accounts, because they're far fewer of the one-ones were loss impacted.
Speaker Change: If you think about the nature of the events that were losses at that time, it was Pauline and Milton, which impacted a lot of the Florida Domestics. Many of those are 6-1 accounts in second quarter. So that wasn't as much of a differentiation.
There are...
Speaker Change: Area covers used to be placed in much more scale pre the step change post the step change There are a couple out there, but they're all attached at remote attachment points
Speaker Change: so they don't provide the volatility that would have been the case pre the step change. So there are a handful of those out there. We do write them as long as we think we're getting the right return on capital for those and that they attach at the right level.
Speaker Change: and many of those have been aggregates for a long time.
Speaker Change: Okay, so just to follow up on that if I can, how worried should we be given that in early January we got a 50 billion dollar loss?
Speaker Change: So that's something we look at when we think about our risk appetite into wind season, and we'll structure the portfolio with that in mind. It's not something that concerns us because we have good transparency into that and we'll figure out how to structure the portfolio with that in mind.
Speaker Change: It actually can be, it may, it's one of the things that's going to...
Speaker Change: We talked about is the supply-demand dynamics. You know, if those losses, if those contracts are more loss-controlled, we'll have great transparency. We're in a very strong capital position. We're able to move into the market with confidence. It would potentially reduce the supply for others going into win season, which will create more opportunities for us.
Okay, fantastic, thank you so much.
Thanks.
Speaker Change: Brian Meredith with UBS you have our next question. Yeah thanks just to follow up my question there just just maybe understand this do you think that the loss is going to have an impact on call it non-California exposed programs like Florida and stuff from a renewal perspective?
Speaker Change: Florida is going to go up because of Milton. We're a smaller player there, but I have a degree of optimism for Florida. We're saying that there's a reversal of the reduction, so we're looking at flat right now.
Speaker Change: Part of it is we've got the first quarter where we're going to be talking to clients and understanding what their capacity needs are. Are they buying backups? Do they need more top-end cover? And none of this really comes up to the second quarter. So what we're looking at is we've got an opportunity to learn a lot more about how rates are going to change, but we're going in from a top, from a, from a strong rating environment.
Speaker Change: with capacity to bring to clients that have suffered losses and we'll solve their problems, but we're going to solve them at the level of margin that we require to put our capacity up.
Speaker Change: I'm just curious, with all the demand that's probably going to come through for backup covers and stuff, but obviously a pretty meaningful loss, I'm assuming, to your JVs also. Do you need to go out and kind of raise more capital there? Maybe you can explain to us again how that all works in like a DaVinci or some of your other ones?
Speaker Change: Yeah, they're all well capitalized. As you know, other than Upsilon, most of our vehicles are rated. So top layer is not impacted.
Speaker Change: Vermeer is in a very strong capital position. We're already talking to them about our deployment into the year. DaVinci would have had a dividend come back. We may redeploy the dividend back into the balance sheet, but there's no capital issue with DaVinci. Upsilon is...
much of the retro didn't have wildfire coverage.
Speaker Change: Medici is largely in good place. Fontana is doing fine because it's...
Speaker Change: It's obviously not protecting the property portfolio. So, as I look across it, if you go back to the challenges that others have had in the ILS market, we really never suffered from. We've had good access and right now we're in a strong capital position and the way the deals are structured, we should be in pretty good shape going through 2015.
Terrific, thank you.
Thank you.
Speaker Change: Our next question today will come from David Motmuddin at Evercore ISI. Please go ahead.
Speaker Change: Hey, thanks for squeezing me in. I'll just leave it at one question, just on casualty and specialty. So it sounds like you guys have started to recognize some adverse reserve development on the recent accident years and general casualty, which I believe is new.
Speaker Change: So I just was hoping you could confirm that because I think last quarter you had expressed some confidence
Speaker Change: So, I'm just wondering, like, what happened this quarter that resulted in you starting to recognize some adverse on the more recent years, and how we should think about the potential?
Speaker Change: or, you know, how confident you guys are in that you've sort of closed the book on that.
Speaker Change: Thanks for the question. Let me try and unpack that and clarify, actually restate what we said.
Speaker Change: About the current accident year, that's the current accident year has had some volatility and noise that Kevin talked about If you look back and I think it was commented here earlier about our schedule piece from last year and what you're going to see put Out there you're going to see
Speaker Change: trade-offs between the, you know, the general liability has increased in those years that we've mentioned, but you can see offsets that are coming from the shorter tail. So this is all being reflected down in the prior year, not in the current year.
Speaker Change: and that's the focus that we've been seeing. So that's not something that's happened this quarter. This goes on with 50 or 60 different classes of business. You're gonna see puts and takes across it. And that's the balance of a diversified portfolio that David was talking about.
Okay, got it. I guess I'll look for the...
Speaker Change: the K to come out. I was just looking, I see adverse on 19 and prior and then releases on 20 through 22, at least in the K last year, but I guess that's total casualty and specialty, so that does not break out specifically general casualty. So any sort of detail you guys could provide on that, that would be helpful.
Got it.
I'll be looking for that. Thank you.
Alex Scott at Barclays. Please go ahead with your question.
Speaker Change: Hey, thanks for fitting me in. First one I had is just to see if you could put a little more color around the estimated California wildfire loss and you know in particular
Speaker Change: You know, it's always tricky from the outside trying to understand the way that the...
Speaker Change: Gross loss comes in and how it affects the business you're retaining versus what's in the vehicles and sort of moves out to the NCI. If you could help us think through how it translates to expected total loss and what we should expect to see in the actual.
P&O and so forth.
Speaker Change: Yeah, I mean, let me give you a kind of a mechanical view of that. It starts with our
Speaker Change: industry loss that we look at, but that's based on what I said earlier.
Speaker Change: on the insured values that we understand. So it comes down to a gross loss number.
Speaker Change: that we would reflect, now we have seated, so we'll reduce that by the seated.
Speaker Change: of what Gross Loss minus C did and then you'll see the reinstatement premiums.
Speaker Change: Then what we do is we get down to the NCI impact. We'll take out da Vinci's share.
Speaker Change: which they have a piece that goes into that based on their underwriting and what we share with them, and that's about 50% on that piece of it. And then it goes down to the third party. It nets down in a series of steps that ultimately is the seeded that comes out of the underwriting managed.
Speaker Change: ultimately also within the net NCI that comes out that we show in our supplemental. That's a very mechanical, happy to take you through that offline. You can kind of see that when you look at our net negative table that we put out in the releases and you'll see that in RK.
Speaker Change: Got it. Okay, that's helpful. The follow-up question I had is just on the comfort and performance of the Tokyo Millennium piece of the reserve specifically. A bit more developed at this point, so interested in if that's still showing any kind of movement.
Speaker Change: If you provide any, I can't, I can't recall where the Tokyo ADC is.
to update us on that.
Speaker Change: into that. So a lot of that's largely developed. There's still some left to develop, but we're still comfortable where we are with that contract.
Thank you.
Speaker Change: And that was our final question for our session this morning. I'm happy to turn the floor back to Mr. O'Donnell for any additional or closing remarks that you have, sir.
Speaker Change: Thank you for joining today's call. Obviously, we are proud of the performance that we had last year. We appreciate your questions on the wildfire. There's uncertainty with that event. We think we've done our best work to come up with a way to parametrize the loss and understand it. And from the casualty and specialty portfolio, it's a difficult time in the market. I recognize there's a lot of…
Speaker Change: that are being absorbed from investors, from others. From an unearning perspective, we've done the right things in structuring the portfolio. And from a reserving perspective, said we have a very
Speaker Change: a practical lens on this. We've had good transparency on the trend. We've used a good development factor on the portfolio and we feel comfortable with where we are. With that, we'd like to thank you for being on today's call and we look forward to talking to you after the close of the first quarter.
Speaker Change: Ladies and gentlemen this does conclude today's teleconference and we thank you all for your participation. You may now disconnect your lines.
Jamminder Bhullar, David Motemaden, David Motemaden