RenaissanceRe Holdings Ltd. (RNR) Q4 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the RenaissanceRe's Fourth Quarter and Year-End Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Keith Mccue, Senior Vice President, Finance and Investor Relations. Thank you. Please go ahead, sir.

Good morning. Thank you for joining our Fourth Quarter and Year-End Financial Results Conference Call. Yesterday after the market closed, we issued our quarterly release. If you didn't receive a copy, please call me at 441-239-430, and I will make sure to provide you with one. There will be an audio replay of the call available from about 01:00 pm eastern time today through midnight on February 26th. The replay can be accessed by dialing 855-859-2056, U.S. toll free or 1404-537-3406, internationally. Passcode you will need for both numbers is 2256505. Today's call is also available through the Investor Information section of www.renre.com. And we archived on RenaissanceRe 's website through midnight on February 26th, 2022. Before we begin, I'm obliged to caution that today's discussion may contain forward-looking statements and actual results may differ materially from those discussed. Additional information regarding the factors shaping these outcomes can be found in 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'd now like to turn the call over to Kevin. Kevin? Kevin O’Donnell: Thanks, Steve. Good morning, everyone and thank you for joining today's call. For investors, and many of our Capital Partners, 2021 was a difficult year. The insurance industry experienced its fifth consecutive year of elevated catastrophe losses, which by several estimates exceeded a $100 billion in insured loss, and a continuation of the themes of climate change, rising inflation, and the increasing occurrence of secondary barrels. We saw these themes repeated in the fourth quarter, with severe convective storms causing widespread damage across the Midwest and wildfires impacting Colorado. In contrast to the year’s catastrophe losses and in part due to them, we had a strong January 1 renewal. We expected a divergence between the Property and Casualty and Specialty renewals, anticipating that the property renewal would be challenging and entail difficult conversations. Given this, we communicated our risk appetite and expectations, early declines and brokers and worked closely with them to avoid surprises. We had several goals we wanted to achieve and property at the renewal. The most important of which were seeking rate, improving terms and conditions, adjusting for our increased view of risk, decreasing exposure to aggregate deals and keeping our PMLs relatively flat. We achieved these goals at the renewal, which proceeded well despite being rather late. By January 1, most programs were filled and property catastrophe lines, however, lower layers and retro covers struggled more to be placed than higher layers. As reinsurers increasingly shifted away from frequency exposed layers. As always, we were a consistent partner, offering capacity across the risk spectrum. Which resulted in many opportunities for us. That said, in our Property business rate increases were sufficient to maintain our current book, but not enough to warrant significant growth. The renewal in our Casualty business proceeded smoothly, which I will discuss in greater detail in part 2 of my comments. Overall, I believe we optimized the portfolio, significantly increasing both the model's profitability, and the efficiency of our underwriting portfolio. We reduced our growth rate at this renewal, as we have increased our net premiums written by 75% over the last few years. In 2022, we will be paid more for the book we have already built and will focus on capital management and profit maximization. As usual, at the end of the year, I'd like to review our performance by responding to two questions. The first is, how did we do financially, and the second is, have we executed our strategy effectively. Starting with the first question. How did we do financially? As previously mentioned, it was a difficult year, where 3 out of 4 quarters were impacted by weather-related catastrophic losses and interest rates remain near record lows. As a result, our operating return on average common equity was 1.3%. As I made clear last quarter, this performance was disappointing. I'm confident however that we have the right strategy to deliver superior returns over the long term. This quarter, we demonstrated the benefit of our growing diversification as we achieved an operating return and average common equity of 14.4%, despite over $50 million of net negative impact from large catastrophic events. In 2022, we think we have -- I think we can improve on this performance, as we will be paid more for the risks that we take, earn more on the investments we make, and continue to grow our fee generating Capital Partners business. Which leads to my second question. Have we executed our strategy effectively? It is essential for a company to have a consistent vision, clear purpose, and coherent long-term strategy. Thanks to the diligent efforts of our employees, we executed well on our strategy in 2021 and distinguish ourselves in the consistent application of our three superiors. Superior customer relationships, superior risk selection and superior capital management. Beginning with superior customer relationships, we built a global, multi-line, specialist company in order to write more business with more customers in more locations around the world. The trusted relationships we have developed have provided us an incumbency position, allowing us to grow significantly in 2021. At the January renewal, this incumbency position continued to provide us a competitive advantage and the opportunity to acquire attractive business across many lines. As I already discussed, it was a difficult year for property but we communicated early and often in the lead up to the renewals, managing expectations, and ensuring that our customers were not surprised. Moving to superior risk selection, we continue to be recognized as the best underwriter of property catastrophe risk. The market trend in 2021, was to move away from property cat risk due to fears of climate change, social and monetary inflation, as well as a lack of confidence in cat modeling. However, our expertise and experience gave us the confidence to know when we were being paid adequately to assume this risk, which we are uniquely positioned to understand in price due to our strong underwriting bench, with many of our underwriters having experience over multiple market cycles, are scientists, engineers, and risk modelers at RenaissanceReRisk Sciences and our integrated system. We're also a leader in casualty and specialty underwriting. Our superior risk and capital management technology along with deep underwriting expertise has provided us a competitive advantage, enabling us to grow on the best deals and access new business as rates and profit margins have improved. Finally, the superior capital management. Bob will have more to say about our achievements here. But the highlights include deploying $1 billion in new capital to grow into a strong market, returning over a billion to shareholders and maintaining our robust excess capital position. Superior capital management was also distinguished by the continued growth of our Capital Partners business. It is difficult to overstate the competitive advantage that Capital Partners provides us, which is most obvious in the fee stream it generates. Equally important as the ability to use our Capital Partners business, to provide flexibility and optimize our gross to net strategy across all our balance sheets and thereby complement superior risk selection. This was evident at January 1, where we grew Da Vinci by $500 million, and increase the percentage of property cap business we allocated to it. This is a wind for our customers. As we continue to support their programs during a period of market dislocation of win for third-party capital investors who continue to have opportunities to grow by investing in Da Vinci. And a win for shareholders who will benefit from increased fee income and optimized portfolio construction across all vehicles. [Indiscernible] to that, bond fund continues to execute extremely well and had a strong return in 2021. This portfolio has grown to $1.1 billion and we anticipate continued robust investor demand in 2022. And finally, with respect to capital partners, Upsilon was significantly smaller at January 1, due to losses and trapped capital offering less than half the limit it did in 2021. Before turning the call over to Bob, I want to update you on our progress on our ESG strategy. As a reminder, we formalized our ESG efforts around three priorities, where we believe we can make the most meaningful impact on society. First, promoting climate resilience and adaptation, including societies transition towards net zero. 2. Closing the protection gap. And 3. Inducing positive societal change. You can read more about our accomplishments on our website, but there are few endeavors I'd like to highlight. We furthered the transition to a net zero world through our participation at the United Nation's 26th Climate Change Conference in Glasgow. We were active in several risk-focused initiatives, including the Building Resilience in A Riskier World event sponsored by the Insurance Development Forum, as well as the launch of the Global Risk Modeling Alliance, which is supported by the UN, IDF, and the German government and the V20. In 2021, we also continued our focus on diversity, equity, and inclusion through our global sponsorship of the Dive in Festival. We reduced the carbon intensity of our corporate credit in public equity portfolios by 70%, as measured by MSCI, with negligible expected impact on the portfolio's yield. And finally, we participated in BlackRock's U.S. Carbon Transition Readiness Fund, with a $100 million seed investment, which actively supports the transition to a low carbon world. I am proud of the progress we are making as a company on ESG. This is important to all of our stakeholders, including our employees, though I would like to thank for their meaningful contributions towards achieving these goals. That concludes my initial comments, I'll provide more detailed update on the renewal and our segments at the end of the call. But first, Bob will discuss our financial performance for the year.

Thanks, Kevin. And good morning, everyone. We finished the year with a strong fourth quarter, reporting an annualized operating return on average common equity of 14.4%, despite recording a net negative impact of $53 million from weather-related large losses. Both our segments were profitable with Casualty in particular, performing well. For the year, our results were impacted by an elevated level of catastrophe and we reported an operating return on average common equity of 1.3%. I want to start my comments today discussing the platform we've built and how we have the capabilities and scale needed to generate superior returns. I'll then cover our capital management activities in the three drivers of profit in greater detail. Starting with the platform, which generates diversifying earnings streams for our investors from three drivers of profit. And to put this in perspective, 2021 was the second highest loss year for natural catastrophes in our industry's history, we are estimating -- which are estimated to exceed a $100 billion. In a year like this, you can see the power of the platform we have built. We reported a modest operating profit where we were able to absorb net negative impact from current year catastrophes of nearly $1 billion because of our larger and more diversified business. In the fourth quarter, industry cat losses were about the 10-year average and well above the medium. Even with weather-related large losses of $53 million, we reported a 14.4% operating return on average common equity. Our property book readily absorbed the quarter's volatility with a 64% combined ratio and our casualty book performed well for the 93% combined ratio. We achieved these quarterly results with relatively modest fee and investment income. As we look forward, we believe that each of our three drivers of profit is poised to benefit from improving conditions. First, we have significantly grown our underwriting book in a period of improved rates and higher expected margins across almost all of our lines of business. Second, we've expanded DaVinci, Medici, and Vermeer and as Kevin mentioned, allocated more business to DaVinci, all of which should reduce volatility and generate a steadier source of fees for our investors. And third, interest rates are rising, which should benefit our net investment income over the long term. In short, we believe we have built a platform that is increasingly resilient to catastrophic events. In 2021, we proactively managed our capital to improve the efficiency of our platform. As I said many times before, our first preference is to deploy capital into the business through profitable underwriting and infrastructure improvement. And second, to return the excess to shareholders. This year, we did both on a large scale. We grew net premiums written by $1.8 billion or 45% with Property up 41% and Casualty up 49%, At the same time, over the course of 2021, we returned over $1 billion of capital to shareholders, which includes $327 million in the fourth quarter. In total for the year, we repurchased $6.6 million shares at an average price of just under $157 per share and paid common dividends of $68 million. Subsequent to quarter end, we continue to repurchase shares, and as of January 21st, had repurchased an additional $339,000 shares for $57 million at an average share price of just over $167 per share. These aggregate repurchases have reduced our outstanding share count by 13% to just above $44 million shares effectively, where it was prior to our capital raise in 2020. Since the beginning of 2020, we have grown net premiums written by over 75%. So we are now a materially larger company with the same share count. One outcome of the share repurchases in the year is a tangible book value per share declined by 5%. But partly driven by our GAAP net loss for the year, three percentage points of the decline related to repurchasing shares at a premium to book value. Long-term growth in tangible book value per share remains our primary metric and focus and repurchasing shares in 2021 was the right decision for our shareholders with that objective in mind. We began 2022 in a strong capital position, with the ability to grow, but equally comfortable continuing to return capital to our shareholders at attractive multiples. After our successful January 1 renewal, we expect to grow our underwriting portfolio in 2022. Although at a more modest pace than last year, we continue to find our shares attractive and believe we will have the ability to return excess capital to investors roughly in line with our net earnings. Shifting now to our three drivers of profit and starting with underwriting income. In the fourth quarter, gross premiums written were up 40% to $1.3 billion, driven by ongoing robust growth in the Casualty segment, as well as our -- with our other property class of business. We reported an underwriting gain of $277 million current accident in the year loss ratio of 55% and a combined ratio of 79% in the quarter. Weather-related large losses added 5% points to the combined ratio. Moving to the year, where gross premiums written were $7.8 billion increasing by $2 billion or 35% with the Property segment growing $960 million and the Casualty segment growing $1.1 billion. We recorded $349 million of reinstatement premiums from the 2021 weather-related large losses, primarily in our property catastrophe class of business. This compares to 2020 reinstatement premiums have $79 million from the weather-related events and $35 million from COVID-19. Excluding these reinstatement premiums, gross premiums written were up 31% for the year. For the year, net premiums written were $5.9 billion up $1.8 billion, or 45%. As a reminder, we initially expected to grow net premiums written by $1 billion in 2021. Market conditions surpassed our expectations, particularly in the casualty, and other property. And we decided to right significantly more of this attractive business. Reporting underwriting loss of a $109 million for the year, and a combined ratio of a 102%, 29 percentage points of which are from weather-related large losses. Moving to our casualty results, I'm pleased to report that the segment performed well this quarter with growth in gross trend premiums of 48%, a current accident year loss ratio of 64% and a combined ratio of 93%. The key drivers of our strong results were a reduction in initial expected loss by 3% points than I explained in the third quarter, modest favorable development and reduced operating expenses. I'll discuss this later in my comments but the two primary drivers of reduced operating expenses this quarter were lower performance-based compensation expenses and growth in net premiums earned, together contributing about a point to the reduction. Going forward and all things equal, we would expect operating expenses to normalize by about 1 point to reflect anticipated performance-based compensation expenses. In addition, acquisition expenses will likely increase by 1.5 points in 2022, which Kevin will further explain. As we have discussed, rates in Casualty have been rising since the end of 2018. Over this time, we have grown our gross Casualty book by more than $2 billion or 150%. In 2021, we grew gross written premiums by 38% from the prior year. For the current year, the current accident year loss ratio was 67% and the combined ratio was 97%. The weather-related large losses adding 1% point to these ratios. Moving now to our Property segment, where in the quarter, we grew gross written premiums by 25% with other Property up 51% and Property catastrophe down 87%. As a reminder, we do not write much property cat business in the fourth quarter. The decline in premiums from the prior years due to higher reinstatement premiums from weather-related losses in the fourth quarter of 2020 from Hurricane Delta, Beta in addition to COVID-19. The fourth quarter, property current accident year loss ratio was 44% and the combined ratio was 64%. The combined ratio included 11%-point impact from the weather-related large losses, including severe convective storms in the Midwest and impacts aggregate contracts. The other property current accident year loss ratio of 54% included 5% points from the weather-related large losses. This quarter, we recorded five points of prior-year favorable development in Property. This favorable development stem from the 2017 to 2019 years across both other property and property catastrophe. For the year, we grew gross written premiums by 32% with other property up 55% and property catastrophe up 18%. Reinstatement premiums from large events in the year increased by $237 million year-over-year in the property catastrophe class of business, driving about 2/3 of the growth in CAT. We reported a current accident year loss ratio for 2021 in the property segment of 92% and a combined ratio of a 107%. In 2021, weather-related large losses added 59% points to this combined ratio. For 2021, other property current accident year loss ratio of 71% included 24 percentage points from the weather-related large losses. Attritional losses continue to run below 50% which is within our expectations for this business. And moving on to our second driver of profit, fee income. Our total fee income was $30 million in the quarter, and $129 million for the year, both of which reflect the impact of the weather-related large losses in 2021. Management fees in the fourth quarter continued to be impacted by the deferral in DaVinci management fees, that I just discussed with you on the last call, and we expect to recapture these management fees in future quarters. In general, management fees are related to the growth in our joint venture vehicles and we expect these to steadily increase over time. Even after adjusting for the decrease in the size of Upsilon. Performance fees were impacted in both -- were impacted in both the quarter in the year, by the cumulative effect of weather-related large losses in 2021. was partially offset by the favorable development from prior losses in DaVinci. We expect to start recapturing these performance fees later on in 2022. In preparation for the 2022 renewal, we raised over $663 million across our joint ventures. In connection with this capital raise, we grew our ownership at DaVinci by two percentage points to 31%. Further strengthening our alignment with longstanding Capital Partners. This was an addition to the $1.1 billion in capital that we added to our joint venture vehicles over the course of 2021. As a reminder, we earned fees on the management and performance of our joint venture vehicles and increasing their size and capital raising enhances the earnings power of our fee income over time. And with a challenging year for third-party, and our ability to raise these funds is a testament to the deep experience of our Capital Partners team and their relationships that we have built over the 20 years in this area. Moving to our third driver of profit; investment income. We reported stable net investment income through the year and closed 2021 with net investment income of $319 million for the quarter -- this was for the year. This was partially offset by $218 million in realized and unrealized losses, resulting in total investment returns for 2021 of a $101 million. For both the quarter in the year, realized and unrealized losses, were driven by our fixed maturity portfolio, we're primarily related to increased yields on U.S. Treasury. This was partially offset by gains in our public equity portfolio and favorable valuations in our fund investments. As you can see in our financial supplement, although we reported $22 million in realized and unrealized losses in the fourth quarter, on a retained basis, we actually gained $2 million. The yield on our retained fixed maturity portfolio for 2021 increased [Indiscernible] to 1.6% and the duration on our retained portfolio stayed constant at 3.7 years. We continue to monitor inflation and are comfortable with the positioning of our investment portfolio. The above market expects to fed to raise interest rates several times in 2022. The rising rates would have an initial negative mark-to-market on our investment portfolio with our relatively low duration, we would expect to more than recoup these losses over time through reinvestment in higher yielding securities. At this point, I will turn to our expenses starting with the acquisition expense ratio, which was up slightly for the quarter at 25% and flat for the year 23%. In the quarter, the property acquisition expense ratio increased by 6% points, primarily driven by lower reinstatement premiums and profit commissions when compared to the fourth quarter of 2020. Our direct expense ratio was 4% for the quarter and 5% for the year with the decline primarily related to reduced corporate expenses. As a reminder, there were a number of one-time corporate expense items in both the fourth quarter and full-year of 2020. In the fourth quarter, operational expenses were also down due to reduced performance-based compensation expenses. For the year, operational expenses were up on an absolute basis but down as a percentage of net earned premiums. Going forward, we will continue to leverage our platform in 2022. However, we anticipate operational expenses will increase on an absolute basis as we further invest in the scalability of our platform. And finally, we finished the year, a difficult year, with a strong quarter and believe that we have built a solid platform with multiple diversifying streams of income that will benefit our shareholders in 2022 and beyond. And with that, I'll turn the call back over to Kevin. Kevin O’Donnell: Thanks, Bob. As usual, I will divide my comments between our Property segment and Casualty segments. Starting with Property, the January 1 renewal is the largest for our Property business. And as I noted, we were pleased with the results. By almost any measure, our Property portfolio has improved and is reflective of better market conditions. Rates on Property CAT treaties were up 5% to 20% for U.S. business. With aggregate covers up between 15% & 30%. In general, we wrote fewer aggregate covers and restructured those that we did right to reduce overall risk. Europe also experienced decent rate increases as a result of the summer floods, most notably in Germany. Across markets, we pushed hard for rates and remain disciplined when rate increases were not sufficient. Many customers chose to retain more risk and as a result, it is likely that the gross written premiums on our property book will be down in 2022. That said, we anticipate that net premiums will be flat to slightly up. A significant amount of growth in our property premiums over the last few years has been in other property due largely to the substantial rate increases in the U.S. property E$S market. Capacity for CAT -exposed primary property business remains constrained with many large players pulling back. In addition to increased rate, ceding commissions remained flat and terms and conditions continue to improve. The tight retro and property CAT markets at January 1, should ensure these trends continue well into 2022. As we expected, there was significant dislocation in the Property retro market at January 1st, with quota share capacity down meaningfully. We moved early and we're able to secure capacity on our renewing programs, at terms that met our objectives. Overall, we are pleased with the Property portfolio we constructed at the renewal, as well as the steps we took to optimize our gross to net strategy. We were paid significantly more for the risks that we took, and as a result, we have written the book of business with higher average profit and capital efficiency. Looking forward to the midyear renewals, we anticipate the positive trends in this market to persist and should remain first call on any opportunities that arise. Moving now to our casualty and specialty business. Similar to property, January 1, is an Important renewal for our casualty book. Casualty business has become increasingly desirable due to a combination of robust multi-year rate increase, as well as recent favorable plans performance. In traditional casualty lines, we continue to grow through both rate increases and the volume of underlying business, retaining attractive shares in the face of increased competition. We also grew our specialty portfolio with focus on cyber lines. Cyber is particularly dislocated with very strong demand and limited supply resulting in triple-digit rate increases and tightening terms and conditions. Finally, our credit portfolio, we saw a positive growth at January 1st and strengthened our relationships with key customers. In aggregate, we grew our Casualty premium at January 1st, although at a more moderate pace relative to previous years. In addition, we realized significant improvements and expected underwriting margins, which were principally driven by strong underlying insurance rate increases. This improved profitability is already becoming evident in our Casualty results, as the quarter's combined ratio of 93% demonstrates. One trend evident at the renewal was the willingness of primary companies to increase their retention's of Casualty business. Despite this trend, we successfully maintained our shares of the most attractive lines, demonstrating the value of our incumbency as well as our robust ratings and capital position. The quota share protection we purchased for our casualty segments was more readily available than property retro. But given the improvement in the portfolio, we decided to reduce our purchase modestly. As Bob noted, reinsurance generally agreed to increased ceding commissions of about one-and-a-half points at the renewal to acquire casualty business. Rate increases have been strong since at least 2019 and underlying expected profitability and performance continued to improve. So we view the increase in acquisition cost to be acceptable. Overall, we were pleased with the casualty renewal. We have grown this book by more than 60% over the last two years and have written what we see as our largest and most attractive portfolio to date. Before I close, I wanted to address the issue of inflation. We've been speaking about social inflation for many years and expected to be an ongoing trend. Over the course of 2021 however, we saw the rapid increase of monetary inflation, which had been muted for the past two decades. Particularly impactful to our industry's inflation that drives rebuilding costs, such as increases in wages and commodity prices. We account for expected inflation in our models by adjusting the demand surge function up to reflect increased post-event prices. We also stress test our portfolios against increased inflation consequently we are comfortable, that we have been paid adequately for the risk of inflation, but continue to watch it closely. Once again, we had another challenging year with the effects of climate change and resurgent inflation drove elevated catastrophe losses. Nominal interest rates remain low, limiting investment returns. Throughout the year, we remain true to our strategy and focused on growing our business profitably in solving our customer’s biggest problems. Looking forward to 2022, I believe our shareholders will benefit from the strong growth and portfolio optimization that we implemented in 2021. And with that, I'll open it up for questions.

[Operator Instructions]. We do ask that you limit yourself to one question and one follow-up. Your first question is from Elyse Greenspan of Wells Fargo.

Hi, thanks. Good morning. My first question, Kevin, goes to some of your comments that you just shared at the end of the prepared remarks. You talked about higher average profit and capital efficiency of your property book at one-one. Can you just maybe dive into that a little bit more and just give us a sense of the return profile of the business that you wrote? This January 1 versus last year, just to give us a sense of the expected return that we could see over the course of this year. Kevin O’Donnell: Thanks, Elyse. Sure. There has been a lot of press about what the rate change was at 1-1, and in general, I think it's been reasonably accurate as to what our observations have been. Our objectives at 1-1, were not simply to write more because rates are up. We were looking at the underlying reasons why rates were changing and trying to think about how we can best optimize our portfolio knowing rates were going to be improving. So when going into the renewal, we recognized supply would be constrained, more constrained for retro and aggregates than potentially other covers, and that demand was going to be increasing. Looking at the opportunity that we had with the growth and the incumbency that we had on programs, we recognized that by restructuring into the improving market beyond just price, we could take advantage of building a better and more efficient portfolio. We increased our capital in DaVinci and increased our share of CAT to DaVinci. With that, we've created room for us to continue to grow into 2022 as opportunity continues to present itself. So I think it's a more nuanced question for us than simply thinking about rate change and how to leverage into a better market. This has been a two-year journey for us to build options into how to construct our portfolio. In general, larger portfolios create more opportunity for us to think about how to spread risk across our platform. And when I look at all the things that we set out to achieve, between holding PMLs relatively flat for our own balance sheets, thinking about restructuring aggregates, increasing our view of risk, particularly for Atlantic hurricane, and then thinking about secondary perils. I don't think we could have had a better renewal or constructed a more efficient portfolio. So when I look at where we are in 2022, I couldn't be happier with the portfolio reconstructed, I think we'll have more opportunities as we head into the second half of the year.

That's helpful. Thanks, Kevin. And then my second question relates to the potential capital changes put forth by S&P. Just a few parts to this one. First of all, is your internal model, the binding constraints on your capital or S&P? Then second, as things stand today, would you be required -- would your required capital, under the new model go, up or down? And the last question there is, do you think the changes to the capital model could be meaningfully -- could lead to a meaningfully increased demand for reinsurance? Kevin O’Donnell: Yes. Let me start with your last question. The model changes in past have created opportunities to sell more, CAT cover in particular. I'm not sure that this model change will create the same opportunity but we're certainly looking at the effects on our own balance sheets as well as opportunities presented in the market. Our internal model is how we continue to manage our business and build our portfolios. We've spent in an awful lot of money over the years, and have deep understanding of the way in which we write property cat and manage it. So in that, we'll continue regardless of what changes within the S&P model. So when I think about it, there are in the early phases of the adoption of the new model. We are looking to see if they can create opportunities. I think the bigger opportunity for growth in property cat will potentially be from the lack of retro that's been available and the shift in primary companies purchasing to have fewer aggregates and higher retentions, which will impact income statements. I think that might be a driver for potential new demand, but S&P certainly can contribute to that. With regard to our required capital that -- Bob, talk a little bit more specific quickly about that.

Yeah, that's a good question and timely too at least. It is -- this came out last month, frankly, for the holidays and we're just now getting a chance to try and understand it. I'll just say we haven't seen all the technical that go behind it. There's a lot of different things there and we're not getting focused on one thing, like debt. We don't underwrite against our debt. There's a number of different factors and considerations that we're looking at now and then we have a common period that extends through the end of February. We're working with other trade groups as well to make sure we understand it and [Indiscernible] on how we can react and comment back to S&P later on in this process.

Okay. Thanks for the color.

Thanks.

Your next question is from Meyer Shields of KBW.

Thanks. Good morning. I'm hoping you can clarify. And you gave us a lot of information, but you talked about a broadly flat Property book and roughly stable PMLs. So hoping you could reconcile that with the expectation that the book of business improved overall? Kevin O’Donnell: Yes. Remember that we had a lot of changes in the portfolio. In thinking about added constructor, we reduced the size of Upsilon, materially. We wrote those contracts that more on an occurrence basis, which fit our rated balance sheets that created opportunity for us to think about, what are the optimal programs to retain and what are the optimal programs to continue to press for rate. So when I think about the holding of our PMLs flat, that's on our retained business. And we're being paid more for the risks that we're taking. We have changed our view of risk, so when I'm talking about changing the stable PMLs, it's on an elevated view of risk. But all that said we are being paid more for the same level of risk, and we have ample excess capital to continue to leverage into the market. One thing is I'll say is the binding constraint for a portfolio that's heavily skewed to Property CAT typically is Southeast Hurricane. And much of the Southeast Hurricane, absent the other Property portfolio that we write, comes up after 11. So depending on where rates go, we can revisit the decision to hold PMLs flat, which judging from where the market was in our ability to improve the capital efficiency of the portfolio and the profitability holding PMLs stable, is the right call.

Okay. No, that's helpful, thank you. If we turn to the Casualty and Specialty, but we've seen decent amount of loss ratio progress, and I was wondering whether you could break that down. How much of that is sort of a true-up or true-down for the first nine months of 2021? And how much of it is just the meeting of the minds between pricing and reserving actuary?

It's good question. We talked a little bit about this last quarter. We talked about the three percentage point in the current accident year reduction going forward. That's really -- I think that's the convergence of the reserving and pricing actuaries. We have to go through a development period and about a third of it, we wait, hold back, the actuaries will look at it and then made the positive adjustment going forward. We talked about that. The last call, and I'm trying to reiterate that for 2022 in my prepared comments. Other could be noise that can happen, but that's kind of the baseline where we're starting.

Okay. Excellent. Thanks so much.

Josh, your line is open.

Thank you. Hi there. Meyer kind of asked my question but I just want to understand something and he [Indiscernible] question. Was there, the first nine months of the year, intra -year reduction that went into the [Indiscernible] to depict this for this fourth quarter or is that based mostly on loss incurred in 4Q '21?

Actually, Josh that is Bob and thank you. There was actually a third quarter adjustment that we made and we talked about it on our call in November. So that was a midyear change in the convergence going back to accident years, and when we started to see the rate increases in 2019, 2020. So that's what we're carrying forward into the fourth quarter. And now we're going into 2022, we're still the same.

Good. My only comment, I guess, is not that it's going to be just a perfect situation every quarter, but it's a whole lot more improvement than 300 basis points. I'm just wondering if you guys are ahead of plan?

Last year, I think when you look at it from a year-over-year, we had I think four or five points of cat -- 4.5 points of catastrophe impact on the loss ratio for casualty. And so that would have actually raised it up higher. So you have that factor that and when we had 1% -- one point for the year on casualty. So that does create a little bit of noise in there, Josh.

And that's wild for reliability?

Yeah. We are focusing -- what I wanted to focus you on in my comments, adjusting for the operational and acquisition is that we're looking at the mid-90s plus or minus, they're from a combined ratio. Kevin O’Donnell: Nothing changed in our approach to casualty and specialty.

Okay. That helps me and I'm going to go back and try and put some catastrophe into the casualty and see what I come out with. Thank you.

Your next question is from Michael Phillips with Morgan Stanley.

Thanks. Good morning. I guess I wanted to touch on your philosophy on, I assume that there was no reserve release from the initial sets that have been our reserves set up last year for COVID reserves. So I'm just going to talk about your philosophy behind timing of releasing any of that? Kevin O’Donnell: I missed something. Did you say COVID?

Yeah. Your COVID reserves that you set up last year, I think it's somewhere $200 million, $300 million. I believe it's still the case and still in IBNR. So what's your thoughts on when that gets released, timing around that? Kevin O’Donnell: I think, if we review our COVID reserves each quarter, we did a fulsome review in the fourth quarter, we feel like we're in the right place. The world is developing differently, and if you look back as to how we initially reserved go of it, we had three categories. The first category was more transparent covers, such as, event cancellation. I'd say, that is paying out in developing kind of as expected. The second was more about adjustments to lines that could be affected for COVID. I'd say, we've seen a lot of that's more U.S. exposed. We probably continue to see favorable trends there. But that's not the biggest component of the reserve and then the third piece is the -- is the property portfolio and the uncertainty around business interruption. The U.S. continues to have favorable news from the challenges to those coverages. But I think we're still in the early innings. Europe, there has been more explicit coverage and more payment. When we review it, we feel like we're in a good spot. It's part of our normal reserve process and we don't have an anticipated scheduled to make changes to it. We'll do it as we learn more in need to make adjustments.

Thanks, Kevin. That's helpful. A pretty broad and then I apologize here, pretty broad question here. But we got kind of mix signal from casualty primary writers over where the next few years might be added for that book of business in general. Not really one in specific. But can you talk about how you see the demand for casualty reinsurance this year and next year possibly versus what it's been in the in recent years, is the demand for casualty reinsurance changing at all? Kevin O’Donnell: I think that can be a longer conversation as we break it down, there's a lot of lines in Casualty, as I mentioned in my comments, we think of Casualty Specialty as a segment. We're seeing enormous demand for credit, sorry, for credit, but I meant to say cyber. And great increase, I don't think that's going to abate anytime soon. When I look at the Casualty environment, I think there is probably a continuing trend of rate increase at a decelerating rate. I think that from a reinsurer's perspective, I touched a little bit on higher ceding commissions. I think there could be some pressure on ceding commissions if rates fail to continue to increase. With that, companies may retain more, so to your demand question, there might be less demand for casualty reinsurance if rate flattens and reinsurers put pressure on ceding commissions. I think we're in a strong enough position with the relationships that we have that we're less likely to be affected in the early stages of that change. We've been disciplined portfolio managers against all the lines of business that we write, we'll continue to monitor it, we'll think about ways in which we can build more flexibility on our casualty platform for sharing risk so that we can maintain the same flexibility in that business as we've had in our property business as well.

Okay. Thank you, Kevin. I appreciate.

Your next question is from Brian Meredith of UBS.

Yes, thanks. A couple of ones here for you. First, Kevin, I'm just curious, what's your thoughts with respect to alternative capital and demand from investors, as we look towards midyear renewals. Will trapped capital be freed up? I mean, you were somewhat unique obviously in your expertise on an alternative capital. But do you expect to take investor demand to increase given the price increases you saw at 1-1? Kevin O’Donnell: So as you said, there's a few questions there. So with regard to trapped capital, it's been a difficult year for particularly the more volatile funds, so those that are exposed to retro for the past several years. Some of the older years there might be some role of capital but I don't think it's going to be meaningful. I think investor skepticism is extremely high. And I think there is an -- if you look at where we're -- I'll separate us from the market for a second. Investors are flocking to CAT bonds, and if you look at the spectrum of transparency and simplicity to enter a CAT market, to take diversifying risk, CAT bonds are a good place to do that. As you move through the spectrum of reinsurance and then all the way to retro, the lack of transparency and understanding diminishes materially. And I think there'll be continued skepticism at the more risky end of the risk perspective from ILS Investors. That said, I think a company like us, with our track record and with the flexibility of our platform, we maintain opportunities for ILS investors to continue to deploy across our platform. We've increased with Medici. We've increased DaVinci, Upsilon as anticipated is reducing. So I think we still have opportunities for third-party capital, but I think it's going to be a difficult year for our third-party capital managers to continue to solicit funds.

Great, thanks. And Kevin, my second question is, and I know I think Elyse asked it and Meyer kind of asked it also, but I just want to clarify this. So I'm just curious, if rates were up nicely for property CAT at one-one, better book of business, why would you raise more capital at DaVinci? Why wouldn't you retain more of it yourself? Is it that you want to keep some more dry powder for mid-year renewals? I'm just curious given that the business is better this year than it was last year. Why would you put more to DaVinci and why not keep more net yourself? Kevin O’Donnell: It's a great question. I think if you look over two years and look at the growth that we've achieved, we feel really comfortable that we built ourselves into this market with great skill and effectiveness. From the DaVinci perspective, we did raise some capital in DaVinci but we saw an opportunity to continue to add risk to that portfolio and optimize it even further, more in line with the growth that RenRe Limited and some of our other vehicles have achieved. Additionally, we reduced Upsilon which created a pool of incumbent risk for us that we had the opportunity to restructure and bring to the limited balance sheet and the DaVinci balance sheet. So it's not a single grow here and not there. It was a multi journey -- multi-year journey from when we raise the billion dollars in '22 thinking about how to optimize it in this renewal which saw as I said significant rate increase and a reduction of supply which provided more flexibility for us to move the portfolio around and optimize.

Makes sense. Thank you.

Your next question is from Ryan Tunis of Autonomous Research.

Hey, thanks. Good morning. I have a couple on capital. First one, thinking about the Other Property line and just the marginal capital requirement of ready more of that business, because that's still growing nicely, you only think about the marginal capital requirement in terms of what it does to your PMLs or is there attritional consideration alongside that? Kevin O’Donnell: The Other Property portfolio, is much more reflective of the economics of our primary portfolio, so we definitely consider the Attritional element of that portfolio. When we split it though, we do keep secondary CAT perils in the Attritional side of the development. And the CAT component of the pricing is strictly for major perils like earthquake and hurricane. So the Attritional is a little less clear, than what it would be on stream slip and falls and fires. We have some CAT in that as well.

And given how much that book has grown, Kevin, I guess you saying your PML is flat. What percentage of that PML is emanating out of the faculty -- the other property book versus [Indiscernible] at this juncture, is it most of it or is still substantially all the PML coming from property cat, [Indiscernible]? Kevin O’Donnell: I don't have that number in front of me, but I can tell you how it works. From the other property portfolio is more of a proportional participation in the property market. So if we think about the excess of loss portfolio that we're writing on the CAT side, there's going to be greater concentrations of CAT x oil layers at the more remote return periods. And at the most frequent return appearance, other property will have a more dominant portrayal in our capital utilization. So when we think about it, we are constantly optimizing the return we're getting on a marginal basis between other property CAT and then also within other property deals. And we're thinking about the best way to allocate into the portfolio to make sure that we're efficiently using the full distribution of outcomes. So it's a slightly different answer across the portfolio but property CAT at the more extreme levels are the more remote return periods dominates the curve.

So thinking about wanting to keep the PML flat, or maybe just a little bit up this year that doesn't really put a gating item on growth and Other Property that's really just much more of a consideration with property CAT? Kevin O’Donnell: And the other interest of highlight is we reduced our footprint in the aggregate market, which creates room in the property CAT, but also creates significant room in the other property portfolio. So we got a lot of things moving around to make sure that we can continue to grow where we see opportunities. And then we can share risk differently in other Property compared to Property CAT which is the retro market where its constrained. So we feel --

Got it. [Indiscernible] Sorry, just shifting gears. Kind of a bigger picture one. So the plan is to return capital at the pace of earnings. So we'd be thinking to have a flat capital base at the end of this year. Is your thinking that the capital base you have today can kind of support a historical level of RenRe growth over the next few years? You have that level of excess, maybe not super outsize, but the thinking is we can continue to grow our casualty book, grow other property, maybe grow our PML is a bit for next few years just given the capital base we have, is that kind of the way you're thinking about it in the medium-term or what do you need to build your balance sheet a little bit more to make that a reality? Kevin O’Donnell: We built a portfolio that we're proud of and the growth that we've achieved over the last two years is not really our objective in 2022. Our objective in 2022 is to continue to optimize that portfolio and maximize its capital contribution or its profit. From a capital perspective, casualty still does not constrain us so we have opportunities to grow casualty. From a property perspective, our first objective is to deploy into markets where we see it accretive to returns over the long-term and then secondly, to manage it effectively through share buybacks or whatever. Nothing has changed there. We also feel like we have, as I mentioned in my earlier comment, very strong access to capital. So we do not feel constrained by growth. The decisions we're making about how to construct the portfolio are active decisions, we're making as to what is optimal to produce the highest return for our shareholders.

Your final question is from Jimmy Bhullar of JP Morgan.

Hi. Good morning. So I have a couple of questions. First, you obviously bought back a decent amount of stock last year, but you had gone into the year with a lot of excess capital, I guess, because you raised about $1 billion the year before. How do you think about your capital levels now and whether you still have on-balance sheet excess capacity that might be used towards buybacks or are buybacks and dividends going to be -- or buybacks going to be dependent primarily on the free cash flow that you generate going forward?

I think we characterized it, this is Bob. We did start the year for two reasons, we raised a billion dollars in capital back in June of 2020 but then over the course of 2020, we earned about another a billion dollars through the investment portfolio. So we came into the year with a very strong capital position which allowed us to understand the risks that we're going to underwrite coming into 2021 and over the course of '21, allowed us to return that capital back. We finished last quarter with the excess capital we talked about. Now we still remain near the high end of that range that we've talked about where we we're at last year. So we do have sufficient capital to be able to invest in the business or find opportunities that we can deploy it to and yet at the same time continued in return earnings. That's -- we have the ability to do that. Things can change. We can see opportunities; we can find areas where the mid-years could be better. But right now we feel comfortable where we're at with the capital position.

And then how should we think about the pace and magnitude of the recapture of DaVinci fees? Kevin O’Donnell: As I put in my prepared comments, the management fees are going to start to come back here in the first quarter, we'll recapture that. That's pretty straightforward. On the profit commissions, there is basically DaVinci has got to come back into profitability. So towards the back-end of the year is going to see the profit commissions coming in.

Okay. Thank you.

We have no other questions in queue. Kevin O’Donnell: Thank you for joining the conference call today. We appreciate your time. Just in closing, I think we executed extremely well into a rising market, it's been a multiyear journey. The decisions we've made about how to construct the portfolio, increase the capital efficiency and profitability will serve us well throughout the rest of 2022. Thanks for joining the call and look forward to talking to you next quarter.

Ladies and gentlemen, this concludes today's Conference Call. Thank you for your participation. You may now disconnect.