RenaissanceRe Holdings Ltd. (RNR) Q1 2018 Earnings Report, Transcript and Summary

Good morning. My name is Kelly and I will be your conference operator today. At this time, I would like to welcome everyone to the RenaissanceRe First Quarter 2018 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. And I will now turn the call over to Mr. Peter Hill. Mr. Hill you may begin your conference.

Thanks Kelly. Good morning and thank you all for joining our first quarter 2018 financial results conference call. Yesterday, after the market closed, we issued our quarterly release. If you didn’t get a copy, please call me at (212)-521-4800 and we’ll make sure to provide you with one. There will be an audio replay of the call available from about 1:00 p.m. Eastern Time today through midnight on June 2nd. The replay can be accessed by dialing (855)-859-2056 or +1-(404)-537-3406. The passcode you will need for both numbers is 18690171. Today’s call is available through the Investor Information section of www.renre.com and will be archived on RenaissanceRe’s website through midnight on June 2nd. Before we begin, I am obliged to caution that today’s discussion may contain forward-looking statements and actual results may differ materially from those discussed. Additional information regarding the factors shaping these outcomes can be found in RenaissanceRe’s SEC filings to which we direct you. With us to discuss today’s results are Kevin O'Donnell, President and Chief Executive Officer; and Bob Qutub, Executive Vice President and Chief Financial Officer. I would now like to turn the call over to Kevin. Kevin?

Thanks Peter. Good morning and thank you for joining today’s call. I’ll open the call with an overview of our performance for the quarter, Bob will then go over the financial results and finally I’ll come back on to speak more about the segments and take your questions. Last night we released our first quarter earnings, I’m pleased to report that we had a strong quarter. We executed well into an expanding market and we’re able to grow our book materially. What we accomplished was not easy but rather was the culmination of years of preparation, creating new platforms, developing gross to net partnerships, sharpening our tools and relentlessly focusing on the three superiors. This preparation facilitated access to desirable risk across our Property and Casualty and Specialty businesses. Our team understood this strategy and pursued it aggressively. For the first quarter, we reported growth in book value per share of 0.6% and growth intangible book value per share plus accumulated evidence of 0.8%. We also reported an annualized return on average common equity to 5.7% and an annualized operating return on top and equity up 13.5%. The solid results we reported for the quarter were driven by a low level of cat activity during the quarter, higher net earned premium following the successful January 1 renewal where we targeted key announced and executed well and prior year favorable development. We had strong renewals at both January 1st and April 1st and are heading into the June and July renewals with a clear strategy. I will discuss the renewals in greater depth after Bob updates you on the financials. I’m confident however that we’ve constructed and improved portfolio that can generate shareholder value over the long-term. Consistent with our approach following the 2017 catastrophe events, we did not repurchase any shares during the first quarter. As we’ve discussed in the past, our first priorities to deploy capital into the business and we able to do so at both January and April renewals. As you know, the insurance industry has been experiencing increased competition for several years. The market must recognize the reality of lower returns and higher earnings volatility. As I discuss in my recent letter to shareholders, we anticipated these market conditions many years ago. At that time, we made the strategic decision to fundamentally transform RenRe. We increased underwriting, operating and investment leverage by diversifying into Casualty business, acquiring Platinum Re, aggressively implementing our gross-to-net strategy and growing our Lloyds syndicate. Over the past five years, we have nearly doubled our gross written premiums, while increasing shareholder equity only 25% and keeping operating and corporate expenses essentially flat. In addition, we increased our investment leverage potentially over the same period. In the first quarter, we continue to improve efficiency. We grow our top line significantly while keeping shareholder equity flat versus the prior quarter and reducing operational expenses versus the comparable prior year quarter. This is allowed us to continue to deliver shareholder value in the phase of the challenging operating environment. I should add, while we’re pleased with the improved efficiency, so we expect that our expense base will grow going forward. This is due to the need to support additional expansion in the business, although hopefully at a lower rate relative to that expansion. I’ll provide a few more details on the opportunities we’re seeing in 2018 later on the call, but first I’m going to turn the call over to Bob to take a look at our financials.

Thanks, Kevin, and good morning everyone. As Kevin noted, we are pleased with our performance this quarter and the portfolio risk we dealt at the January and April renewals and remained confident in our strategy given current market based dynamics. We believe our investment portfolio is well positioned given the widening interest rate environment in a short duration. Our balance sheet both owned and managed, are well capitalized, allowing us to take advantage of underwriting and other business opportunities. And finally, we continue to demonstrate our ability to leverage our well managed expense based. At this time, I’d like to take you through an overview of our financial performance for the quarter. I’ll then discuss our segment results, investment portfolio and capital activities. For the quarter ended March 31, 2018, we reported net income of $57 million or $1.42 per common -- per diluted common share and operating income of $135 million or $3.40 per diluted common share. Our annualized ROE for the quarter was 5.7% and our annualized operating ROE was 13.5%. During the quarter, our book value per share increased 0.6% and our tangible book value per share including accumulated dividends increased by 0.8%. Underwriting income for the quarter was $130 million and we reported a combined ratio of 71%. For additional details on our quarterly results, I would refer you to our earnings release and financial supplement, which we issued last night and can be found on our website. Let me now shift to our segment results beginning with the Property segment followed by Casualty segment. During the first quarter of 2018, our Property segment gross premiums written were up $186 million compared to the first quarter of 2017, a meaningful portion of our catastrophe line of business renewed in the first quarter and we saw good opportunities to deploy capital. We've raised over $600 million of third party capital in Upsilon to allow us to take advantage of these opportunities. As a result, gross premiums written in our cat -- catastrophe class of business were $590 million in the quarter, an increase of 42% compared to the first quarter of 2017. This growth was driven by a combination of rate increases and a number of new and expanded customer relationships. Given these market conditions, we’re also able to meaningfully grow the book of business written to our Upsilon managed joint venture, which accounted for just over half of that growth. In our property class of business, gross premiums written were $117 million, an increase of 10% over the comparative quarter, primarily driven by continued growth across our underwriting platforms. Ceded premiums written in our Property segment increased 53% to $353 million in the first quarter of 2018, compared to $231 million in the first quarter of 2017. A meaningful portion of the growth and our ceded premium written related to the Upsilon where the gross premiums written through this vehicle on 1/1 were ceded to its third-party capital partners, allowing us to continue to execute on our gross to net strategy. Our Property segment generated underwriting income of $127 million and a combined ratio of 43% in the first quarter compared to underwriting income of $91 million and a combined ratio of 51% in the comparative quarter, impacting the underwriting results in our Property segment was favorable development on prior accident year net claims and claim expenses of $28 million of both percentage points. Within the Property segment, this favorable development was split between property catastrophe of 12% or 8 percentage points and other property of $16 million or 20 percentage points. The net favorable development and our other property class of business included $27 million related to the large cat events of 2017 versus driven by the passage of time and information received to-date from our cedes. This was partially offset by some net increases in reserve related to certain attritional claims reported to us during the quarter. As communicated to you last quarter, we continue to receive and analyze information associated with the 2017 large cat events and plan to perform a deep dive within our property segment related to these events in mid 2018 as the anniversary approaches. Now moving on to our Casualty segment, our gross premiums written were up 13% in the first quarter of 2018 relative to the first quarter of 2017. However, after excluding premium adjustments totaling approximately five percentage points primarily related to general casualty and professional line of businesses, the top line increase was in the mid to high single-digit. We continue to be pleased with our disciplined growth in this segment and we’re able to selective execute on a number of new deals during the quarter. The Casualty segment generated underwriting income of $3 million and a combined ratio of 98.8% compared to an underwriting loss of $49 million and a combined ratio of 128% in the compared quarter, positively impacting the casualty segment combine ratio was 21 point decrease in the net claims and claims expense ratio in the first quarter of 2018 compared to the first quarter of 2017. This improvement was largely attributable to favorable reserve development of $4 million or 2 percentage points recorded in Q1, 2018 compared to adverse development of $30 million or 17 percentage points in the first quarter of 2017, mainly as a result of the decrease in the market rate during that period. Also impacted the casualty segments combined ratio was an 8 percentage point decrease in the underwriting expense ratio. This decrease was primarily driven by an increase in net premiums earned, while continuing the leverage, the Casualty segments existing expense base. Speaking of expenses, we are pleased that we have continued to keep our overall expense base relatively flat thereby achieving improved operating efficiencies across the organization. In addition, we have made some minor adjustments during the first quarter of 2018 to better align reporting of our operating and corporate expenses with the nature of those expenses. Turning to investments. In the first quarter of 2018, we reported a total investment result of negative $26 million, resulting an annualized total return of negative 1%. Our total investment result included $82 million of realized and unrealized losses during the first quarter of 2018. This is largely driven by an upward shift in the interest yield curve impacting our portfolio of fixed maturity investment. This compares to a less pronounced yield curve impact in the first quarter of 2017. Partially offsetting this was $56 million of net investment income largely stemming from our fixed maturity and short-term investment portfolios. We benefited from higher average investment assets and the impact of interest rate increases during the recent period. The yields maturity and our fixed maturity and short-term investment portfolios was 2.9% at March 31, 2018, an increase of 40 basis points from December 31, 2017. Our overall investment portfolio remains conservative with respect to interest rate, credit and duration risk with 88% allocated to fixed maturity and short-term investments with a high degree of liquidity and modest credit exposure. The duration of our fixed maturity and short-term investment portfolios is consistent with last quarter of 2.4 years. Now moving on to our capital management activities, we’re following the large catastrophe events of 2017. We deploy capital against well structured risks to the January and April renewals. Our balance sheet and joint ventures remain well capitalized as we enter into the midyear renewals and expectations of continued capital deployment. As a result, we have not repurchase any of our common share thus far in 2018. And to reiterate my comments from recent calls, first the capital management has not changed. We’re making capital management decisions we first and foremost look to deploy capital and underwriting and business opportunities to need our risk return hurdles. And we are pleased that we were successfully able to put more capital to work during the January and April renewals. We will continue to look for opportunities to deploy capital l into the business as we approach the Florida wind season, and are ready to leverage our superior customer relationships as we work with our customers during the upcoming midyear renewals. And with that, I would like to turn the call back to Kevin.

Thanks Bob. I’ll define my comments between Property segment and the Casualty segment. Starting with Property, overall we grew gross property written in our property segment 36% over the comparable quarter last year. Property cat grew 42% with the substantial portion of this quarter in our Upsilon joint venture. As we discussed, we raised capital in Upsilon late last year in order to take advantage of opportunities at January 1st, where customers chose to grow with us. The remainder of the growth came from a mix of better rate and new business. The growth at January 1st was possible due to our strategy and flexible approach to capital. When we see a good opportunity, we’re able to execute quickly. Our diverse capital sources including the ILS capital deployed through Fibonacci, Upsilon and Medici provided great assessments and maximizing our performance and the ability to leverage into the market. Gross written premiums in other property also grew by 10% over the comparable quarter primarily from our European platform. This growth was also the result of a combination of rate increases and new business. As previously noted, we experienced solid rate increases at January 1st albeit at the lower end of our expectations. As I discussed on the call last quarter, loss affected retro was up the most averaging between 10% and 25% with non-loss effective programs flat to up 10%. On loss affected U.S. cat business, rates were up between 10% and 20% and rates on other U.S. cat programs were flat to up 5%, while rates on other property were up 5% to 10%. Rates in international property market were flat to up 5%. Japan was a major focus at April 1st. The Japanese both continues to an important component of the international portfolio. Although demand increased this year, there was ample supply and renewals for order lease. Japan is viewed as one of the more desirable regions outside the U.S. In this market however incumbency is important. We were able to grow our Japanese book due to our deep and longstanding relationships with our customers in the region, pricing for the Japan renewals was risk adjusted about flat. The U.S. cat team is currently busy with the June 1st renewals, which are dominated by Florida and other peak zone U.S. risk. Unfortunately, early signs indicate capital is being deployed aggressively as third-party capital continues to seek share in the Florida market. In addition, we do not anticipate significant new demand in Florida. These factors lead us to expect that rate increases at midyear likely to be single-digit risk adjusted. We hope to see some opportunities to grow at June 1st, but do not expect to be able to do so anywhere near the rate we did at January 1st. This is part of the reason why we grew so assertively in the first quarter. Florida continues to be an important market for us. We will always be there to support our customers and rapidly pay claims in the aftermath of natural disasters as we did last year with Hurricane Irma. That said, Florida plays a significantly less substantial role in our portfolio now than it did even just five years ago. Consequently, rate changes in the Florida market do not affect our bottom line profitability as much as they once did. We continue to assess the 2017 catastrophe events as we received additional information from our customers. As I have discussed before, each catastrophic event is unique. In Hurricane Harvey, for example, we expected to see more risk losses than currently experienced in our other property business. As Bob discussed however, these risk losses have not emerged as expected and consequently we lowered our estimate. Similarly, the anticipated commercial losses in Hurricane Maria haven’t materialized as quickly as expected. But given the size of Maria, and its continuing impact on Puerto Rico, it’s too early to determine this indicative of lower actual losses. It is possible the losses just haven’t been reported yet due to conditions on the ground. Hurricane Irma and the California wildfires are developing as expected. We are very fortunate to have decades of experience with catastrophes in general and U.S. hurricanes in particular. We have our own proprietary pros loss estimation tools and loss development curves. More importantly, our years of experience estimating losses and settling claims provided us superior insight into the recent loss development in Hurricane Irma. For example, we really not surprised by the large number of reopen claims insurers are experiencing with a relatively high levels of loss adjustment expenses. This is similar situation with the California wildfires. Once again, our experience and for proprietary tools and models provided us better insight into the potential impact of these events, consequently recognizing that the Northern California fires or a tail event were comfortable with our loss estimate. Our WeatherPredict subsidiary, recently compiled the white paper on the 2017 wildfires analyzing the conditions that led to this historic losses. Combination of heavy rains in the first two months of 2017 followed by most extremely and drought conditions since 1895 resulted in large amounts of very combustible fuel for the fire. High winds then contributed to quickly spread the conflagration while at the same time overwhelming fire separation efforts. These conditions combined with high building density of wood structures in the wild land, urban interface resulted in historic wildfires losses. This deep insight into the nature and courses of wildfires, it was a distinct advantage in estimating losses at the time of the event while also improving our ability to serve our customers and provide them consistent underwriting and capital going forward. Moving to our Casualty segment, gross premiums were up 13% versus the comparable quarter. This number probably overstates how much we believe this book actually grew however. As Bob pointed out, the book grew somewhere closer to 8% once premium adjustments are backed out. Going forward, there should be some growth in this segment from business already on our books, but while we're looking hard to create new opportunities, we do not expect significant growth in new business absent improvement in the market. For our Casualty segment, this is a busy period of the year. Just over 40% of the book renews between March 1st and July 1st. During the January renewal, the Casualty reinsurance market exhibited some favorable adjustments in reinsurance terms and conditions. In addition, reinsurance exercised relatively more discipline. At April 1st, there is less over capacity and reduced willingness in the market to support programs at expiring terms. Underlying rates continue to increase modestly and high severity lines of business. The bigger question will be whether insurance rates can say ahead of loss trends, which have been rising most notably in line such as excess casualty. We have good visibility into loss trends and raising awareness of market divisions among our customers in order to help them navigate the current environment. Mortgage business continues to be attractive despite recent headlines of decreasing PMI rates and increased competition. These developments could make mortgage business more competitive overtime. We had low direct impact on the reinsurance that we assumed. However due to the levels, we attached and the structures of the risks. We are recognize leader and credit reinsurance product such as mortgage and expect to continue to maintain this franchise going forward. Across our Casualty segment, we continue to manage our shared business within classes of risks in order to way, the portfolio for the most profitable classes. Ultimately, our goal is to improve faster than the market and our strategy to achieve this goal has three components. First, extend expertise, strengthening leadership and creating best-in-class tools to optimize our portfolio of business. Second, continuing to focus on customer relationships. And third, targeting an overweight position in the most profitable classes and actively managing the portfolio. Interventions unit, we raised $70 million of notes from Fibonacci Re in February covering a portfolio of U.S. risk. The innovative solutions such as Fibonacci led us match the right capital to the right risk at the right time. This allows us to facilitate efficient bespoke solutions for our customers. Our ventures unit is a critical component of this execution of our strategy as it provides us with the flexible capital to meet the needs of our customers. The uniqueness of our structure and access to rated and ILS capacity is critical in today’s market. In conclusion, the first quarter was strong. Thanks to low catastrophe activity, continued growth and premiums and prior year favorable development. Coming up to the midyear renewals, we remain focused on implementing our strategy and maximizing shareholder value. We will continue to build our book by leveraging our platforms and our ability to optimally construct portfolios against all sources of capital. Rising interest rates have had a short term impact on our investment portfolio, but will benefit less over the long-term. Overall, I look forward to 2018 knowing that our team has the right strategy to deliver shareholder value and always, we’ll focus relentlessly on our three superiors of superior capital, management superior customer relationships, and superior risk selection. Thank you and with that, we’ll turn it over to questions.

[Operator Instructions] Our first question comes from the line of Kai Pan from Morgan Stanley. Your line is open.

First, my question is on the June 1 renewals. Your guided single-digit rate increases. My understanding is that there’ll be more loss impacted account in Florida at June 1 renewals. So which implied the weighted average price increase should be better than the January 1, but it seems like you see differently?

I think in one looking at how we were thinking about constructing our portfolio for 2018, we have the expectation that the greatest rate change would be at 1/1, which is one of the reasons we leverage them too the opportunity at the point in time. Right now, we’re working on the Florida renewal, so there is still more price discovery that will take place. But at the end of the day, we've constructed at the portfolio based on the way we think the market will shape out. We think there is a lot of supply looking for Florida risk right now, which is the reason we have a muted view of rate change in Florida compared to what we saw on 1/1.

And then back to your first quarter premium growth in probably cat. So, if I think simplistically and the rate increase in single digit on Jan 1, and last two years rate have been declining probably mid to high single-digit then effectively your rate only back to where they were two years ago 2016. At that time, you actually act to reporting back front probably cat underwriting because you don’t feel this which was attractive. What is different now given the pricing maybe just going back to that level?

So, I think it is common to think about what level pricing return to from a gross perspective, but the way we look at building this portfolio is on the net basis, and one of the larger components of growth we had at 1:1 was in the retro market both within our portfolio and using the Upsilon vehicle where rate changes were greatest. So, I think it’s thinking about what macro comments people made about what the market is and kind of what year that equates back to is certainly one way to look at it. But we look at it is really how to construct the portfolio on a net basis knowing that different lines of business and different layers within programs little differently.

You don’t disclose your PMLs, so given sort of premium increases. If 2017 were to repeat, will you have more or less like net losses?

So, I think that’s a better conversation to have as we get closer to wind season. When we have really gone through, what is likely to occur to our book with the renewals for the Florida and also as we complete the next construction of our portfolio. So rather than think about what 2017-2018, we look like 2017. So I would say, it’s too early to tell. Because we have a meaningful Florida renewal coming up and we’re still working on structuring the way our new portfolios will be positioned.

And your next question comes from the line of Elyse Greenspan from Wells Fargo. Your line is open.

My first question, I also wanted to get a little bit more color and how you’re thinking about the midyear renewals. I guess a couple of questions here. On your last quarter call, you guys had mentioned that you had some multiyear cover. Is that came up for renewal midyear that could potentially lead to stronger rate? Is that still the case or I guess just based on what you see the market you just think the rates won’t be there? And then my second question is I mean we’re still a little bit of away from the midyear renewals. Given the amount of capital that come back since last year as well as the fact that 1/1 fell short of expectations. Would you be surprised, if rates were actually down at the midyear renewals?

So, couple of questions here. Let me start with the multiyear cover and then I’m kind of move through them. So the multiyear covers are kind of spread, often there three-year deals and they are staggered each year. With the rate level changes, I’ve highlighted in my comments for the June and July renewals. I would say ’17 is kind of look a lot like ’18 and ’18 is kind of look a lot like ’17 from that perspective just as to how much is renewing and we’ll have rate change and what renewals, but it’s not going to having multiyear deals or not. It’s not going to be a meaningful move for our profitability. With regard to price, I think, there might be elements or there might be layers within Florida that have a risk adjusted reduction, it’s not my main thesis is to how the our market will ultimately renew. But I do think the amount of capacity seeking to be deployed in Florida will outstrip demand, which will definitely mute the level of price increase that’s achievable.

And then in terms of capital you guys -- conserved capital following the losses to take advantage of a stronger 1/1. As we think about the midyear renewals potentially being weaker than January 1st. You guys are sitting on a strong capital position now. How do you think about M&A? At one point, does that more into the equation you know its rates to continue to fall short and midyear and then depending upon the loss level maybe even go lower at next January?

Sure. I think the one thing to be clear is rates are not below our expectations. Rates in the lower end of what we expected. So, they within the range of expectations that we had, but I think your comments are probably more that they were below what the market expected. And so, I think we’re in a unique position to have great data over many years and our ability to build performance portfolios continues to become more precise each year. With regard to access capital, I think we were pleased at as our first objective is to pull the capital into a market where we’re getting good returns. We were able to do that so far this year, as we finish with the Florida renewals and the structuring of our net portfolios, we will make combination as to whether we want more capital or risk unless going into this wind season. With regard to how that forms M&A, I think from our perspective we feel like we’re in a great spot and if there are opportunities for us to deploy capital organically, we'll absolutely do that. And if there is inorganic opportunities to deploy capital that further our strategy in an financial viable, we'll absolutely take a look at those as well.

And your next question comes from the line of Amit Kumar from Buckingham Research Group. Your line is open.

Few questions, the first question goes back to the comments you made on the mortgage reinsurance business. And I wasn't clear what you were trying to suggest. Were you trying to suggest that based on your position, gaining pricing decline to the market still do not impact you to that extend? Maybe just expand on that a bit more?

Sure. So, we like the mortgage portfolio that we've written, I mean, earned premium in our mortgage book, much of it was originated in 2013 to 2017, which obviously had a good profile of risk. The pressure on pricing that we’re seeing now it was something that we expected and we think it’s normal within any insurance or financial market, but there could be that sort of cyclical move between access rate and not. We think the mortgage business is really no different than that, and although rates are down for the first quarter that we’ve observed in 2018, we still think, there is good adequacy and the rates that we’re seeing. But more importantly than rate what we’re spending a lot of time looking at is other risk metric. FICO score LTV, DDI, large and making sure that the layering of these factors is being reflected in the price that we’re getting and start making sure that we’re structuring caps against those metrics.

The other question I had was going back to the previous discussion on capital. Obviously, you’ve made an investment in Catalina and there is Langhorne. Is that how we should view further I guess investments? Or how you would view the market as I guess more opportunistic versus during the old schools that of consolidation?

I don’t see Catalina or Langhorne is anything different than what we’ve historically done in our ventures group. With Catalina, we have right to reinsurance programs and there is also opportunities for us to partner with them where there is live book in conjunction with an acquisition of a runoff book. So, that sort of partnership is something that we done for many years, it might be a little bit different approach to it with them being a runoff company. Langhorne, again we partner with lots of people over the years and partnering with the leader and Life Re, against our ability to find capital into build unique structures. I think again that is something that we’ve done for many years. So, I wouldn’t see there is any shift in the way we’re deploying capital. It's just those two opportunities happened to come together at the same time. So it may have looked more like a shift, but it’s a normal process for us.

And just the final question. Going back to the discussion, I guess Kai or someone else question on pricing and the growth. Is it fair to say that your retro vehicle such as Upsilon et cetera, do they position you just more favorably to take benefit of pockets or marketplace versus other competitors? And hence we should view this profile as different from any other traditional reinsurance. Or is that I guess because everyone is trying to figure out the growth numbers here versus the market pricing discussion?

Yes, I think we are unique in several ways. One is our ability to use the data that we have to forecast where we think the market is going to be. And as I mentioned, we’re constantly working on buying tuning and adding more precision to the pro forma portfolios that we’re building and then writing into those. I think the excess to third-party capital and the ability for us to deploy that were where we think this good opportunity for that capital to need the return objectives is unique. And then our ability to figure out what capital goes to, what risk goes to, what capital. And then how the structure the net portfolios is something that the tools and experience we have is typical to replicate. So I feel like, we’re in a unique position to build industry leading cat portfolios and I think what you said at this 1/1 is, are leveraging into that.

And your next question comes from the line of Brian Meredith of UBS. Your line is open.

Couple of quick questions here. First one, I know you've talked about growing kind of your expense base a little bit here investing in the business. And I noticed that G&A expenses factoring corporate about 9% in the quarter year-over-year. How should we think about that here going forward?

Brian, a couple of things that I’ve pointed out in my comments is, we continue to try and leverage the growth of the platform to keeping focus on operating expenses. We have seen some reductions that’s in the percentage, but that’s generally through a lot of the leverage we have out there. We did have some overwrite, but going forward we expect to continue to invest in the platform. But it's a balance between the profitability and maintaining that leverage as how we see it going forward.

So the down 9%, there was anything unusual on that number?

Down 9%, we did have an increase in overwrite in the operational side, which did bring it down some. The core operating costs were down slightly just as we continue to focus on it. And we did do a revaluation or reevaluation of what goes in the corporate versus the segments. And you can see that the corporate site went up just a little bit. But you’ll continue to see some growth over the course of the year like I said balancing that growth between managing the platforms and leveraging that growth.

And then next question, just looking at kind of your book yield on your investment portfolio. I would have thought, I mean, I saw in the short-term investments kind of talked nicely. Should we see that kind of move up on your general fixed income portfolio given what’s happened with deals in the marketplace?

As I said in the comments, that’s right Brian. The short term did go up, obviously, we see more movement in the shorter end of the curve that's been out there. We expect the shorter term rates to continue to go up with what fed has been saying. With the duration of 2.4 years, we expect to be able to move with that overtime. So, we feel we’re in a good position, it’s been reflected. You’ve seen the yield go up slightly 2.9%, which is the new money yield. So, as the fed continues to rate on a shorter end given the duration of our portfolio, we should see some advances that.

And your next question comes from the line of Meyer Shields from KBW. Your line is open.

Kevin, I want to back to your comments -- sorry. Hi, about how you’re anticipating sort of the pressure that we’re seeing from access capacity. Longer-term, if feels like five years, how much worse can aggregate return than Property catastrophe get compared to where they are now? Kevin O’Donnell: So, I think you’re talking about my comments with regard to Florida. So, I’ll put in our perspective, Florida is about 5% of our premium now. We recognized that when you look at where third party capital is most likely looking to deploy and is going to be we believe in the land of risk and obviously in Florida market. So, our ability to construct a portfolio where Atlanta Hurricane is still on a peak risk, but to have diversified the way we’re building our portfolio in Florida, I think it does exercise us a bit from the strong appetite third party capital as from domestic water market.

Okay. And second question again taking a few year outlook, what should we expect in terms of alternative capital preferring not catastrophe and non catastrophe line? Kevin O’Donnell: I think fewer to have this conversion with us 10 years ago, we would have thought that third party capital would have looked more of horizontally across different lines of business and entered found ways to come into Casualty and other lines. And I think on the pure sense we’ve seen third party capital drill down and try to get closer to our insurance risk. There are other vehicles associated with the hedge front type approach where there is Casualty business that one can argue is move to the third party capital model. But the long-term nature of this security concerns all of that stuff is at the substantial optical for that capital to come into other lines. I do think there is, opportunities for us to come in, but it will take longer for those structures to be developed.

Your next question comes from the line of Kai Pan from Morgan Stanley. Your line is open.

Thank you for the follow up. I have a question on the Casualty and Specialty business. The combined ratio, the underlying combined ratio improved 10 points year-over-year, but it's still above 100%. So, I just wonder what’s your desired level for probability for that business as that business now matures and how long will it take to get there?

As I mentioned, we believe that that there are greenfields within the casualty market. We're seeing rates moving up particularly in some of the more hazardous classes. I think it’s a question is to whether as to stay ahead at some of the underlying trends. I think of that book over 10 years and where we are now, the book does need some rate enhancement for what I think of as a sustainable return for over 10 year period. I think the way we constructed the book, it's poised to leverage into a better market where we can restructure some ceded, and we have -- over the years, we’ve built great access to the risk there. So, I wouldn’t say that what we’re seeing today is what I would want to see for a 10-year average. But to be in that business, you're going to have to manage the book through times where there is some degree of rate pressure knowing that, it’s going to move back to greater rate adequacy overtime.

And there are no further questions at this time. I'll turn the call back over to Mr. O'Donnell for closing remarks.

Thank you all for participating in today’s call. And we look forward to our call in a couple months time. Thanks again.

And this concludes today’s conference call. You may now disconnect.