RenaissanceRe Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

Key Takeaways

  • RenaissanceRe delivered a Q3 operating income of $540 million, representing a 22% operating return on equity, and has earned $1.8 billion YTD with a 26% return on equity.
  • All three profit drivers outperformed: underwriting saw top-line growth of 35–75% YTD, investment income remains robust amid elevated interest rates, and Capital Partners fees rose 27%.
  • The acquisition and integration of Validus unlocked $1 billion in capital via a “3-2-1” portfolio transformation, optimizing the capital structure and boosting financial flexibility.
  • Strong capital generation—$4.5 billion in retained earnings YTD—enabled $350 million of dividends and buybacks, and management increased the share repurchase authorization from $500 million to $750 million.
  • Looking ahead, the property catastrophe market remains disciplined with little new capital, and U.S. cat limit purchases are expected to rise by ~$10 billion in 2025, while casualty lines will see proactive rate acceleration to address social inflation.
AI Generated. May Contain Errors.
Earnings Conference Call
RenaissanceRe Q3 2024
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good morning. My name is Jim and I will be your conference operator today. At this time, I would like to welcome everyone to the RenaissanceRe Third Quarter 2024 Earnings Conference Call and Webcast. After the prepared remarks, we will open the call for your questions. Instructions will be given at that time.

Operator

Thank you. I would now like to turn the call over to Keith McHugh, Senior Vice President of Finance and Investor Relations. Please go ahead, sir.

Speaker 1

Thank you, Jim. Good morning and welcome to RenaissanceRe's 3rd quarter earnings conference call. Joining me today to discuss our results are Kevin O'Donnell, President and Chief Executive Officer Bob Qtub, Executive Vice President and Chief Financial Officer and David Maher, Executive Vice President and Group Chief Underwriting Officer. First, some housekeeping matters. Our discussion today will include forward looking statements, including new and updated expectations for our business and results of operations.

Speaker 1

It's important to note that actual results may differ materially from the expectations shared today. Additional information regarding the factors shaping these outcomes can be found in our SEC filings and in our earnings release. During today's call, we will also present non GAAP financial measures. Reconciliations to GAAP metrics and other information concerning non GAAP measures may be found in our earnings release and financial supplement, which are available on our website at renre.com. And now, I'd like to turn the call over to

Speaker 2

Kevin. Kevin?

Speaker 3

Thanks, Keith. Good morning, everybody, and thank you for joining today's call. I am pleased to report that RenaissanceRe delivered another quarter of strong performance. We earned over 5 $40,000,000 of operating income. This represents an operating return on average common equity of 22%.

Speaker 3

Year to date, we have earned $1,800,000,000 in operating income and delivered a 26% operating return on equity. Our results this quarter were due to a strong performance by the entire team. I believe the superior returns we have been delivering can persist into 2025. Each of our 3 drivers of profit continues to perform well. In underwriting, we have demonstrated our ability to grow aggressively when markets are favorable.

Speaker 3

Both our Property business and our Specialty business are 2 years into very attractive markets that show little sign of abating. Year to date, top line growth in these businesses has been between 35% percent 75% depending on the particular line of business. In investments, interest rates have persisted at elevated levels and remain attractive relative to almost any point over the prior 2 decades. These elevated rates in combination with our increased asset leverage allows investment income to remain a significant contributor to our earnings. Finally, our Capital Partners business, already one of the largest managers of 3rd party capital continues to grow while generating consistent management fees and attractive performance fees.

Speaker 3

Our acquisition of Validus has been a significant contributor to growth across each of our 3 drivers over the last year. But that is not the only way we've already creating value from the Validus acquisition. Our recently completed integration efforts have also resulted in significant capital and liquidity. We purchased Validus knowing we would unlock value by bringing it onto our platform and sharing risk with our capital partners. We have access to multiple forms of efficient capital, which allowed us to best optimize its capital structure and by extension profitability.

Speaker 3

The easiest way to explain how we achieved this optimization is what we call the 321 Validus portfolio transformation. Prior to the acquisition, Validus had about $3,000,000,000 of equity capital. Just prior to close, this amount was reduced through a $1,000,000,000 dividend payment. This left the entities we acquired with $2,000,000,000 of capital, which represented the amount we needed to run the company through transition over the last year. By optimizing the Validus business onto our owned and partner capital balance sheets, we freed an additional $1,000,000,000 in capital.

Speaker 3

And finally, by merging the 2 main Validus balance sheets into legacy REN re balance sheets, we shifted this excess capital to our holding company. This increased our financial flexibility, enabled strong support for our customers, enhanced fees associated with our Capital Partners business and increased earnings for our shareholders. Our success in generating capital, however, extends beyond the efficiencies we brought to the Validus portfolio. When we began evaluating the acquisition of Validus in early 2023, our common equity position was about $4,600,000,000 Since that time, due to the strong performance of our 3 drivers of profit I previously discussed, we have generated almost $4,500,000,000 in retained earnings, while returning an additional $350,000,000 of capital to our shareholders through dividends and share repurchases. As a result, we ended this quarter with $10,500,000,000 in common equity.

Speaker 3

Obviously, with our significantly larger scale, we need more capital to run our business than we did 2 years ago. That said, a portion of this increase is on deployed capital. This positions us to both grow our business and increase capital returns to our shareholders. Bob will address our capital management plans in greater detail shortly. However, we are pleased to announce that we are increasing our share repurchase authorization from $500,000,000 to $750,000,000 Importantly, this increase reflects the greater scale we have achieved, the consistent superior returns we expect to continue generating and enhances our capital flexibility.

Speaker 3

Moving now to a few comments on the adequacy in our property catastrophe book. This market began hardening after Hurricane Irma and accelerated after Hurricane Ian. Unlike prior cycles, however, we have yet to experience an influx of new capital with the exception of certain corners of the market where we do not heavily participate such as cat bonds. As a consequence, the market remains disciplined with reinsurers holding on retentions in terms and conditions. At the same time, demand for reinsurance continues to increase.

Speaker 3

In 2025, we estimate that U. S. Cat limit purchases will increase by about $10,000,000,000 This should lead to new opportunities over the course of 2025 while keeping the rate environment favorable. We expect similar opportunities in other property where Helene and Milton should assure that rates remain at attractive levels. Moving now to our Casualty and Specialty segment.

Speaker 3

Regarding specialty lines, overall these continue to remain attractive. We expect an orderly January 1 renewal and our focus will be on maintaining our book book and to seek additional opportunities with existing customers. Regarding casualty lines, we are increasingly a top reinsurer on the programs that we participate on. This provides us a broad overview of the state of the market and puts us in a strong position to set the tone for renewals and drive positive change. This is important as much of casualty is written on a quota share basis, which means we depend on our customers' underwriting and rate setting more than in other lines.

Speaker 3

We think about the casualty business cycle over a 10 year timescale. We like our current portfolio, but believe casualty rates need to accelerate in order for this business to remain attractive over the next 10 years. Consequently, we are engaging with our customers and providing feedback regarding our observations on rate and trend. This engagement has been positive and our customer share a similar assessment of the market requirements. For this reason, we are optimistic that additional rate will be achieved and we can continue to support our customers.

Speaker 3

This concludes my opening comments. As discussed, Bob will cover our financial performance for the quarter followed by David, who will provide an update on our segment performance.

Speaker 4

Bob? Thanks, Kevin, and good morning, everyone. We had a strong Q3 with net income of $1,200,000,000 and annualized return on average common equity of 47%. Operating income was $540,000,000 and our annualized operating return on average common equity was 22%. During the quarter, we reported a net negative impact of 2 $43,000,000 from large events, including $125,000,000 from Hurricane Helene.

Speaker 4

As we have discussed, RenaissanceRe has built a very resilient platform to manage our customers' risk, while producing strong returns for our investors. All three drivers of profit performed well this quarter. Underwriting income was $394,000,000 with an adjusted combined ratio of 82%. Fees were $82,000,000 up 27%, and retained net investment income was $292,000,000 up 35%. When we acquired Validus, we noted that the transaction would be accretive to all three drivers of profit in addition to our key metrics.

Speaker 4

You can clearly see this in our 2024 results. Specifically, for the last 9 months, operating income is up more than 50% year over year with strong contributions from our three drivers of profit. Operating earnings per share are up 36% year over year and tangible book value per share plus change in accumulated dividends is up 30% since December 2023. Importantly, we have been generating these strong returns in a year with catastrophes. Year to date industry losses have exceeded $100,000,000,000 which is slightly above the 10 year average, and this is before considering Hurricane Milton, which occurred in the 4th quarter.

Speaker 4

Moving now to capital management. During the quarter, we repurchased $107,000,000 of our common shares. For the year, we have repurchased a total of $215,000,000 at an average price of $2.24 per share. Last night, we were pleased to announce a 50% increase in our share repurchase authorization from $500,000,000 to $750,000,000 This change reflects our larger scale and reinforces our commitment to being good stewards of capital. Our approach to capital management remains consistent.

Speaker 4

Our first priority is to deploy it into the business and then return the excess to shareholders. We do and we expect to do both. As Kevin mentioned, we are in a strong capital and liquidity position. Validus has been a tremendous success. We have scaled our business, grown our 3 drivers of profit, and built an increasingly resilient platform that has been generating strong, consistent returns over the last 2 years.

Speaker 4

As a result, we expect to continue growing our tangible book value per share plus accumulated dividends, while actively repurchasing our shares at attractive valuations. Turning now to our 3rd quarter results and starting with our first driver of profit underwriting, where gross premiums written were up 48% and net premiums written were up 52%. We continue to grow organically in both property catastrophe and specialty lines where we're seeing the most attractive risk adjusted returns. And as mentioned earlier, we have been able to continue growing profitably with an adjusted combined ratio of 82% in an active catastrophe quarter. Moving now to our Property segment and starting with Property catastrophe, the 3rd quarter is relatively quiet for renewals.

Speaker 4

Catastrophe gross premiums written were $344,000,000 up 114% or 65% without reinstatement premiums. Net premiums written were $262,000,000 up by 175% or 114% without reinstatement premiums. The growth was driven by primarily by new opportunities, increased demand from our customers and Validus. In the quarter, net written premiums grew faster than gross written premiums due to the timing of ceded contracts, which tend to incept at the first half of the year. Overall, our property catastrophe adjusted combined ratio was 40%.

Speaker 4

This reflected a current accident year loss ratio of 56% 36 points of favorable development from prior year events. This is a strong result, especially given the catastrophe activity of the quarter. The current year results include a 44 percentage point impact from Q3 large loss events, including hurricanes Helene, Debbie and Beryl as well as the hailstorms in Calgary. Moving now to other property where gross premiums written were up by 28% and net premiums written were up by 26% due to the addition of the Validus portfolio. Net premiums earned in the quarter were $403,000,000 Next quarter, we expect other property net premiums earned to be about $360,000,000 Overall, the other property book is performing well and we reported an adjusted combined ratio of 84%.

Speaker 4

The current accident year loss ratio was 72%, which included a 25 percentage point impact from Q3 large losses. We reported 20 percentage points of favorable development in other property, primarily in the attritional book. Looking forward, we continue to expect an attritional loss ratio in the low 50s.

Speaker 3

Finally, a

Speaker 4

few comments on Hurricane Milton. Milton made landfall in Florida on October 9th, so this will be a 4th quarter event. David will discuss Milton in more detail in his comments, but we currently estimate a net negative impact in the 4th quarter related to Milton of approximately $275,000,000 This is based on an industry loss estimate of $25,000,000,000 Moving now to Casualty and Specialty Workforce and net premiums written were up 45% 50% respectively. As in previous quarters, this growth primarily relates to renewing the Validus portfolio. We have retained the majority of the portfolio while capturing organic specialty opportunities.

Speaker 4

Net earned premiums were $1,600,000,000 up 60%, and we expect casualty and specialty net earned premiums in the 4th quarter to also be about $1,600,000,000 This quarter, we reported a small underwriting loss in casualty and specialty. As a reminder, this was adversely impacted by $37,000,000 of purchase accounting adjustments, which had a 2.4 percentage point on the combined ratio. The casualty and specialty adjusted combined ratio was 97.7% this quarter. This reflected about a point of integration related acquisition costs, which are not related to purchase accounting. As Kevin mentioned, we have been keeping a close eye on casualty loss trends, in lines being impacted by social inflation, most notably general liability.

Speaker 4

As we move forward in 2025, we expect to report an adjusted combined ratio in the mid to upper 90s on average. Our long standing approach is to recognize increasing trend early. We're reflecting our insights into the prudent reserving process to proactively stay ahead of these trends and the increase will be reflected in our current accident year loss ratio. One final point, on year to date business for Casualty and Specialty, we reported a $33,000,000 underwriting profit. This was adversely impacted by $116,000,000 of purchase accounting adjustments as well as $61,000,000 from the Baltimore bridge collapse in the Q1.

Speaker 4

Together, these totaled 177,000,000 dollars After adjusting for these impacts, our casualty and specialty underwriting income is running better than last year. Moving now to fee income in our Capital Partners business where fee income was $82,000,000 up 27 percent. Management fees were $55,000,000 up 24%. Management fees have been at this level for the last three quarters largely due to growth in da Vinci and Fontana. Performance fees were $27,000,000 This included the impact of favorable development in the quarter.

Speaker 4

Looking ahead to the next quarter, we expect management fees to be around the same level. We expect performance fees to be down significantly given the impact of Hurricane Milton. Moving now to investments, where retained net investment income was $292,000,000 up 3% from the 2nd quarter and 35% from a year ago. We reported significant retained mark to market gains $786,000,000 in the quarter. This was driven by 1st, a $511,000,000 gain in our retained fixed maturity portfolio, largely driven by decreased interest rates.

Speaker 4

And second, a $134,000,000 gain related to the successful IPO of TWFG, which we have held in our strategic investment portfolio since 2018. Overall, retained unrealized gains in our fixed maturity investments are now $283,000,000 or $5.46 per share. As a reminder, last quarter we reported an unrealized loss of $214,000,000 so some of the mark to market gains in the quarter reflect our investment portfolio falling back to par. As a result of declining interest rates, our retained yield to maturity decreased to 4 point 9% from 5.7% last quarter. We have increased duration slightly to 3.4 years.

Speaker 4

Interest rates are now up from where they were when the quarter ended. Consequently, we expect retained net investment income next quarter will remain flat around $290,000,000 As we look forward to 2025, given our positioning and anticipated asset growth, we should be less sensitive to rate cuts than shorter duration portfolios. Consequently, we expect our investment portfolio to continue providing a relatively consistent level of income next year. Turning briefly to expenses, the operating expense ratio was 4.8%, which is about flat compared to a year ago. Going forward, we expect the operating expense ratio will stay around this level as we continue to invest in the business to support our growth over the last several years.

Speaker 4

Corporate expenses were $26,000,000 including $8,000,000 from the Validus acquisition. These transaction related expenses have been tapering off and are excluded from operating income. And finally turning to tax, our income tax expenses were $102,000,000 in the 3rd quarter. This is primarily relates to an increase in investment gains in our taxable jurisdictions. Going forward in 2025, the Bermuda government will be implementing a 15% a 15% corporate income tax in response to the OECD global minimum tax rules.

Speaker 4

We will start accruing for this tax beginning in Q1 of 2025. In conclusion, we were pleased to deliver another strong quarter with robust performance across all three drivers of profit. Going forward, at our larger scale, we are confident that we will continue to generate strong results for our shareholders. As a result, we expect to continue growing our tangible book value per share plus accumulated dividends, while repurchasing our shares at attractive valuations. And with that, I'll now turn the call over to David.

Speaker 2

Thanks, Bob, and good morning, everyone. With less than 2 months to go in 2024, we are deep in preparation for the January 1 renewals and are excited about the opportunities ahead of us. Our customers have been overwhelmingly supportive of the Validus integration and we are entering the renewal season with a larger and more diversified portfolio and deeper partnerships. Our focus leading into January 1 is on serving customers and deploying capacity at our increased scale. Our enduring portfolio is very attractive.

Speaker 2

We will retain the combined portfolio and look for opportunities to deploy capacity where rates are at or above adequacy. As we have discussed, portfolio management is a continuous process. Our team is nimble and deeply experienced and we can increase our participations on deals or classes where returns are most attractive and reduce where our hurdles are not met. As we look forward, we are in a strong position to grow with our customers. They know we are a trusted partner to help them manage their risk across portfolios and across market cycles, especially in the current environment where the market is contemplating several large property losses and growing concerns around casualty trends, we offer certainty of execution that others cannot.

Speaker 2

This consistency and confidence is the direct result of our clear risk appetite, deep customer relationships, strong balance sheets and the flexibility of our gross to net strategy. Shifting now to a deeper discussion of the Property segment. This has been an active quarter for catastrophes and I want to express our sympathies to everyone impacted by these events. RenaissanceRe is proud of the role that we play in helping communities recover and we are paying claims quickly to aid in these efforts. Bidding deeper into the events of the quarter.

Speaker 2

Hurricane Aleen was the most significant event, making landfall as a large category for hurricane in the Florida Panhandle. The storm pushed heavy rain into the Carolinas, Georgia and Tennessee, causing devastating flooding and significant loss of life. Industry losses for Helene are likely to be in the low double digit billions. In addition to Helene, hurricanes Beryl, Debbie and Francine all made landfall in the U. S.

Speaker 2

As relatively small hurricanes and did not significantly impact reinsurance programs. Finally, industry losses in Canada are at record levels this year, driven by approximately $5,000,000,000 in the quarter from a significant hailstorm in Calgary and floods in Toronto and Montreal. In the Q4, Hurricane Milton followed closely on the heels of Helene, making landfall just south of Tampa on the West Coast of Florida as a Category 3 hurricane. As the storm approached Florida, its outer band spawned several tornadoes across a wide area of the state. Close to landfall, Milton encountered increasingly hostile conditions, which weakened the storm from a strong Category 4 to a low Category 3.

Speaker 2

While industry losses from Milton will be significant, they are much less than they would have been if the storm made landfall in Tampa as originally forecasted. Our diversified portfolio, platform of owned and managed balance sheets and 3 drivers of profit put us in a differentiated position to absorb these losses while still providing efficient capacity to our customers and producing strong returns for our shareholders. A core aspect of RenaissanceRe's purpose is to protect our customers against large events relative to their size. Storms like Killeen and Milton are large events for smaller insurance companies. These companies carry lower attention than nationwide or global carriers and storms of this size will trigger reinsurance recoveries to protect their capital.

Speaker 2

Our property cat portfolio demonstrated its value and its resilience in this active quarter, providing balance sheet protection rather than earnings protection at an appropriate level for each of our customers. We expect this dynamic to persist into 2025 a healthy reinsurance market and the consistent protection our customers need. It is too early to predict the outcome of January 1 renewal. Even before hurricanes Helene and Milton, we were expecting additional demand to come to market. Rates remain favorable and we will continue to grow with existing customers while capitalizing on opportunities to increase our market share of attractive placements.

Speaker 2

Moving now to a few specific comments on other property. While the loss events of the quarter also impacted other property, we delivered another profitable quarter with a significant level of favorable development. As a reminder, we accessed asset driven E and S business through the other property book. With the recent loss activity, we expect increased opportunities this space and are ready to deploy capital in the most attractive business. Now moving on to Casualty and Specialty.

Speaker 2

In 2024, we successfully brought on the Validus portfolio enhancing our market leadership position materially in the areas we target. This provides us with stronger access to business and more options to construct our portfolio. 1st and foremost, we aim to optimize underwriting returns in line with our vision to be the best underwriter. It is important to recognize, however, that the Casualty and Specialty book also brings a significant amount of investment income and fee income, both of which have increased since Validus. In combination, these income streams contribute meaningfully to earnings and book value growth as well as diversification of our property book.

Speaker 2

Our leadership position also means that we see the whole market, which provides us with unique insights on market trends and profitability drivers. As we discussed last quarter, we have been tracking general liability trends closely and engaging with the market to better understand and accurately price future loss trend. Inflation and claim severity have been increasing in this line driven by an aggressive plaintiff's bar and sympathetic juries. While social inflation is not new, we believe that the industry needs to continue to evolve to stay ahead. In the last 5 years, companies have responded by reducing limits and increasing rates.

Speaker 2

These remain important levers. But to stay ahead of loss trend, we believe that insurers also need to improve claims handling processes, refine their underwriting approach and accelerate rate increases. To support this, we are actively working with customers to share insights and improve data capture throughout the renewal process. This enables us to deploy our capacity in the right place and charge the right price for each program. While our goal is to continue to partner with all of our customers, we are prepared to reduce on those programs that do not meet our requirements, most notably in our general liability book.

Speaker 2

We believe that the steps we are taking to increase rates, improve data and practice disciplined underwriting will help create a more sustainable CAGNY market and an attractive portfolio that maintains stronger terms in the short term and over the cycle. Outside of CAGNY, we continue to see credit and these portfolios are stronger than ever due to our larger leadership position. We have access to the best business and continue to find lines such as aviation, marine, energy, mortgage and other credit classes attractive. We expect an orderly January 1 renewal and our focus will be to maintain our book and grow where possible. We also make efficient use of seated retro capacity to shape our portfolio, particularly in marine and energy and in cyber, where we have grown our gross portfolio but reduced our aggregate exposure to loss.

Speaker 2

And with that, I'll turn it back to Kevin.

Speaker 3

Thanks, David. In closing, we reported a strong quarter and what so far has been an excellent year. We delivered superior results across our 3 drivers of profit, underwriting, fees and net investment income with a manageable level of catastrophe losses. We have unlocked significant capital synergies with Validus. And as a result, we have now increased our share repurchase authorization by 50%.

Speaker 3

We expect the property market to remain attractive and in casualty, we are taking our proactive client by client approach. Consequently, I could not be more excited about our potential for future performance and ability to create value for shareholders. Thank you. And with that, we'll open it up for questions.

Operator

We will now take our first question from Elyse Greenspan at Wells Fargo.

Speaker 5

Hi, thanks. Good morning. My first question is about the oneone renewals on the cap side. You guys have pointed right to your excess capital to meet the additional supply that you're talking about and you're generating record ROEs. So isn't that an environment when you kind of put that all together where probably it shakes out to flat or rate declines during the renewals?

Speaker 3

So Elyse, thank you for the question. Just thinking pure supply and demand, we also believe there'll be $10,000,000,000 or so new capacity coming to the market. We've seen capacity be continuously introduced in 2024. We expect that to continue in 2025. That additional demand will help stabilize the pricing environment.

Speaker 3

So when we go in, we believe rates are fair and adequate for the property cat market and that's the way we'll approach the renewals. And I think it will trade, as we've said before, at the new level in which the market reset to in the beginning of 2024. Equally important, I think the slips that we that are in place with the level of retention will likely persist as well. So the reset and retentions I think will continue. And I think rates will be as with any financial market, but they'll trade roughly around the level that we're at.

Speaker 5

Thanks. And then my follow-up is on specialty casualty, right? So you guys said that you're going to start booking this to a higher adjusted combined ratio, right, mid to high 90s next year. I guess it's kind of a 2 part question. If you're responding to social inflation, why wouldn't you have, I guess, started booking it higher this year?

Speaker 5

And if you're thinking trends are going to go up, is that reflected in where your reserves sit today for the segment?

Speaker 4

Thanks for that question, Liz. I pointed that out in my comments that we have we are increasing the combined ratio. We've been booking it in the mid-90s for the last couple of years and now we're looking at changing in trend whether it's mix or trend that David was referring to and I'll turn it back to him in a second. But we did reflect that in the current two points to make. 1, it's in the current accident year on a forward looking basis.

Speaker 4

2, we've talked about our historical portfolio that we have and how we've shaped that portfolio over the years. Shaping being we didn't grow it back in the challenging years. We grew it later on and through acquisitions we did get protections around it. And we've talked about that in the past, but that's really the driver of it and it's more on the trends that we're seeing going into it and how we're responding to those trends on a forward looking basis.

Speaker 3

Hey Elyse, this is David. I can talk about what

Speaker 2

we're seeing on the underwriting side. We've been following loss trend for several years and it's a known issue in the market. There's a good awareness on the insurer side. Insurers are taking action and we've done what we can to support this by engaging early, getting more data in advance of renewal, data like claim settlement patterns, individual case reserving data that normally wouldn't be part of the annual submission process. So we're using that to have feedback loops with our customers.

Speaker 2

They're taking the right action, they're getting rate, they're improving claims handling processes. Trend is a cumulative thing. So, all those actions will be taking place over the next year and it's too early to know the net net result of cumulative loss trend versus all those actions. So it's a prudent thing to do to book it where we're going to next year, but it is a 2025 issue more so than a current issue.

Speaker 5

Thank you.

Operator

Our next question today will come from Yaron Kinar at Jefferies. Please go ahead. Your line is open.

Speaker 6

Thank you. Good morning. First one, maybe following up on the last question. I want to better understand why the loss trend issues that we're seeing kind of emerging wouldn't be also reflected in the potential need to revisit some of the reserves of the prior years, whether for the company itself or for decedents that could ultimately reflect company results?

Speaker 2

Yes. Hi, this is David. Thanks for the question. I think what goes into the current reserves is the cumulative effect of all the actions we've taken over the last 10 years and there's a lot to that. So it starts with just first of all good underwriting and how we constructed the portfolio, avoiding the most extreme areas of inflation like commercial auto.

Speaker 2

We've also been very active in scaling the book up into the better years. And so we have more exposure to more recent years and use ceded reinsurance as a way to manage our net risk in a lot of different ways. As far as the reserving process, our process is independent from what our clients book. So one of the examples of how that manifests itself is when we grew into the 2021, 2020 market rates were improving rapidly, but we didn't adjust our picks down as much as that rate would have implied we should. That has the effect of having our reserves be more resilient lower facing inflation like we are now.

Speaker 2

So our focus is more on how do we get the right rate in 2025 and differentiate between portfolios rather than the current reserve pool.

Speaker 6

Got it. And then my second question, I want to touch on the buyback authorization, the 50% increase. I just want to understand what changed this quarter because if my recollection is correct, we've already talked about the expectation of the benefits from the Valdez deal coming in when the $500,000,000 authorization was set last quarter. So what's changed in these 3 months? Is it that the very active protein season that we expect it turned out to be not as active?

Speaker 6

Or were there other puts and takes?

Speaker 4

Yes. Both Kevin and I talked about that in our prepared comments. The Palamazine is scale is really where I have to put that. The last time we did an increase in our share authorization was back in 2007. And so that was quite a long time ago.

Speaker 4

A lot has changed. You start to see a number of things change in terms of size, volume in the market. And we just felt it was prudent thing to do to be able to take advantage of what we'll see as attractive opportunities. That's the simple answer to that one.

Speaker 3

And adding to your comments, Bob, and the other thing that happened is we're able to consolidate the Validus balance sheets onto the RenRe balance sheets, which produced the final piece of liquidity that rolled up to the holding company. So nothing's changed in the way we're going to manage our capital position where we're going to deploy first into the market and then be good stewards and return capital to shareholders. This is really a reflection of the change in scale and the flexibility and the timing really reflects the fact that the integration of Validus is complete and the capital flexibility and liquidity that we expected from to achieve from the transaction has been realized.

Speaker 6

Thank you.

Operator

Our next question will come from the line of Ryan Tunis with Autonomous

Speaker 7

Research. Hey, thanks. I guess following up on that last question, Kevin, you said there's $10,500,000,000 of common equity and a portion of that is increased undeployed capital. Just trying to get a feel for how much equity capital does this combined business of RenRe involved is like need at this juncture? It's not 10.5 bill.

Speaker 7

Is it 10.5 bill minus 7.50 or is the excess share a lot more significant?

Speaker 3

So I think we generally manage the company with the decline of undeployed capital that provides us flexibility to leverage into markets. It also provides a buffer for the balance sheets should there be a loss. We don't specifically disclose the amount of excess capital. What I would say is that we are in an above average period of financial flexibility with the undeployed capital that we have. We do think we'll have some opportunities to deploy it into the market in 2025.

Speaker 3

We also believe we'll have equally strong opportunities to return to shareholders.

Speaker 7

Got it. And then guess just on the oneone renewal, it's been active last year in Europe, but then I guess the 3Q hurricanes are still more U. S. Centric. So I'm just thinking there might be a little bit more June 1.

Speaker 7

So I guess first part like to what extent are the elevated losses in Europe going to affect the conversation around the oneone renewal? And is there a reason to think that some of the momentum we might pick up from Pauline and Milton might be more evident in 61?

Speaker 2

Hey, Ryan, this is David. I'll start with that one. So there has been loss activity in Europe like you mentioned. That's in the bucket of attritional losses that we're seeing in North America and in Europe. So it does have the impact of keeping the conversation around stability and retentions and how important that is to the reinsurance market.

Speaker 2

So we see that U. S. And Europe, we're expecting stable retention, stable structures, and the conversation is around price. And like we say, the price will trade around the current levels we're at. And we see opportunities with our market position post Validus to potentially deploy capital in both sides, both North America and in Europe, with where we are now.

Speaker 3

Yes. Finally, I'd add to Dave's comments is Milton is a Florida event. So I would say that if there are to be loss specific reductions, those will be largely more 61. I also believe that the markets matured a bit with what happened in 2024 and discussions around loss and loss affected covers and that being the only catalyst for sustaining rate are no longer really the fixture of the market. I think everybody recognizes that today's structures and today's prices will persist.

Speaker 7

Thank you.

Operator

The next question will come from the line of Joshua Shanker at Bank of America. Your line is open please.

Speaker 8

Thank you for taking my question. So you guys have this larger share first authorization of $750,000,000 Over the past 12 months, operating income has been $2,500,000,000 and net income has been $3,500,000,000 We don't know what's going to be in the future for earnings, but at the rate you guys are generating capital, you're going to be you have a significantly higher capital position over the next few months heading into 25 as you did a year ago. Is that amount of share repurchase adequate to think about the year ahead? Or could you burn through that more quickly than you foresee?

Speaker 4

Thanks, Josh. It's Bob. Good question. I tried to address that in my prepared comments. You point out, Apurva, that we have been generating excess capital to our operating incomes.

Speaker 4

All three drivers of profit have been contributing significantly. Also, the efficiency on what Kevin described in this 321 for Validus generate excess capital. So we do have the capital. And what I had talked about in my prepared comments, we have the option to do both at the same time. We'll be deploying capital into the business at the renewals next year to which David and Kevin has spoken to regarding opportunities as well as new demand.

Speaker 4

But in the same light, we'll be returning capital as well at attractive valuation. The authorization increase from $500,000,000 to $750,000,000 is part of our scale that Kevin talked about. And we look at that each quarter. So if you go back in time, we approve we re approve that every quarter. So whether we use all of it or none of it or tap into it, we look at that every quarter.

Speaker 4

So it's not an annual, it's quarterly.

Speaker 8

And I realize that once you establish a quarterly common dividend, it's a promise in perpetuity to the future. Do special dividends make sense, maybe not at the current valuation? How would RenRe approach that as a way of giving capital back to shareholders?

Speaker 3

I think it's a great question. I think we look at every way possible for us to think about managing capital. Obviously, our first, as I mentioned several times, our first protocol is to deploy it into the business. Our preferred methodology and what we see as the most accretive over the long term to tangible book value per share is through the share through repurchasing our own shares. If that was a different calculation, we would certainly look at different mechanisms to manage capital.

Speaker 3

Our history suggests that we have a bias to share buybacks and that's simply because the economics are most accretive to our existing shareholders. I don't see that changing in the near term.

Speaker 8

Thank you very much.

Speaker 3

Yes. Thank you.

Operator

Meyer Shields, KBW. Your line is open.

Speaker 9

Great. Thanks. So one question I'm getting a lot of this morning is just whether the sort of flat reserve movement in casualty and specialty, is there significant variation by accident year or by casualty versus specialty?

Speaker 4

I mean, I talked a little bit about that in my prepared comments regarding the overall profitability of casualty. But more specifically, when it comes down to purchase accounting, it's amortized into the acquisition ratio and prior year reserves. So that was actually affected by about $10,000,000 $11,000,000 So when you negate to that, the the $1,000,000 actually becomes a much larger and more consistent number of what you've seen before. But again, it's the purchase accounting that's distorting up by about $10,000,000 or $11,000,000

Speaker 3

One thing I'd add to Bob's comments is, if you look at the reserve profile that we have, we grew pretty substantially in 2020 and forward, which are seeing to be better years. We also have a nice balance of casualty and specialty. Within the casualty segment, the area of problem for the industry has been commercial auto and we're not a commercial auto writer. So it's not only that we're in good years. I think we have a better balance of better business in our reserve pool than what the industry would reflect as well.

Speaker 9

Okay. That's helpful. Thank you. The second question and it's so easy for me to ask this, but how hard would it be to shift your focus on casualty lines to excess of loss, so you're not dependent on your clients' rate actions?

Speaker 2

Hi, this is David. The market does trade on a quota share basis mostly and that is a good structure with which we participate in the business because it aligns interest between the cedent and the reinsurer. So it's important that we engage with customers and understand how they're settling claims, understand how they're getting rate. And those are all very positive conversations and they're making strong actions now and we expect them to continue to do that into 2025. The other dial that we have to turn is the ceding commission and ceding commissions are reducing with the early renewals that we've seen up into this season.

Speaker 2

We expect that to continue and that had the effect of having we'll keep more of the net premium with a lower ceding commission than we move to the higher one, and it benefits our net position.

Speaker 3

Yes. One thing I'd add 2 things I'd add to Dave's comments is, it's a good time for quota share because the primary companies are aligned with our view of where of what needs to happen from a rate perspective. So as they are pushing through primary rates and we're harvesting the benefit of their work. The second thing is with trend there's been an increased frequency of severity. Being excess on that you can be more impaired by that trend compared to quota share.

Speaker 3

So again, it's another reason to support the quota share market at this time.

Speaker 9

Okay. For sure. Thanks so much.

Operator

Mike Zaremski at BMO. Please go ahead with your

Speaker 9

On back to the Casualty Specialty, some color you've offered in the guidance of mid to upper 90s. Can you give us a flavor of whether you're contemplating within that guide any improvement in casualty seating commissions for the reinsurance marketplace? And also just on just overall pricing in your prepared remarks, you did Kevin talk about the need for more rate. And at least the data points we see so far, especially in 3Q, point to the market moving higher in terms of rate. So I'm curious too if you're contemplating in that guide, especially since you're not taking any reserve charges on your back book, if you are contemplating the market moving in higher on rate materially?

Speaker 9

Thanks.

Speaker 2

Yes, we definitely are. And we priced in some additional loss trend into 2025 and some additional rate. It's the best estimate that we have at this point. We're seeing the same things you are. The market is responding to this known issue, which is accelerating loss trend in some areas.

Speaker 2

They're getting more rate. They're taking underwriting actions. They're also improving the way they settle claims. That's a big differentiator that I think will become more and more important over the next few years. But that's how we're approaching it.

Speaker 2

If rate continues to accelerate, that will be positive news. But as always with our reserving process, we'll wait to recognize that good news until the business seasons and recognize the potential for trend like we are now early.

Speaker 9

Got it. Okay. And sticking on casualty, and I know this question has been asked many different ways, but I'm still getting incoming questions on it from investors. So the reason you didn't take a reserve charge, is it in layman's terms, could I say it's because you rent read books more conservatively than and there is a cushion still even though you are seeing a materially higher trend line?

Speaker 2

So I'll continue on and kind of reference some of my remarks earlier about the process we follow in 2020, 2021. There were significant improvement in the business and we didn't reduce our reserving picks very significantly. That in some cases might lend to that we're booking those higher than some of the market. And that's just part of the process. The other thing that we have is we have curves, developing curves that are slow enough to make sure that we wait until we see positive development before we recognize the good news.

Speaker 2

And if our curves were faster, then the 2020, 2021 years might have reacted already, but that's not the way we approach the reserving process.

Speaker 9

Okay. That's helpful. Thank you.

Operator

Moving on, we'll hear from Brian Meredith at UBS.

Speaker 4

Yes, thanks. Two questions here for you. First one, just hopefully a simple one. Could you provide us some color on how much is left in the Tokyo Marine anniversary development cover? Is that kind of helping some of the reserve development?

Speaker 3

We don't disclose specific transactions. Tokyo has been a great partner. We're delighted to have that book as part of our portfolio. And we that's the last to pay cover. There's still limit available and it still remains unpaid.

Speaker 4

Great. Helpful. Thank you. And then second question, I'm just curious, what is your anticipation of kind of retro capacity availability as we look into 2020 5 property retro capacity, do you think we'll see any increase?

Speaker 3

That's a tough call right now because there isn't a ton of price discovery in the market. I think the retro market will have limited impact from the events that have happened so far this year. That's generally a good sign that capacity in the retro market will be at least stable. From our perspective, we use the retro market to really shape our portfolios. We'll build our performance with the expectation as to what we will likely purchase to help with that shaping.

Speaker 3

I would say at this point, we have an expectation that we will purchase slightly less retro in 2025, but we also have a belief that it will be available.

Speaker 4

Thank you.

Speaker 2

Yes.

Operator

And now we will hear from Evercore ISI's David Mokmaiden. Please go ahead.

Speaker 6

Hey, thanks. Good morning. I had a question. So I think a few times you've mentioned that you haven't assumed as much loss ratio improvement in your casualty picks during the hard market years. I'm just wondering how much improvement you guys have assumed if I were to look at accident year 2019 compared to accident year 2020 or 2021, 2022?

Speaker 6

How much improvement have you guys assumed?

Speaker 3

Let me talk a little bit about our process for reserving and kind of the way we think about it because I'm not sure that we have that information here with us for the call. What we do is we will set the initial loss pick and then we develop a curve. As the curve develops, we amend the curve to make sure we're reflecting what our observations are for trend. We believe we set the initial expected. We know we set it independent to the primaries and our observation is we set it higher.

Speaker 3

Additionally, we are very slow to recognize good news, which means our curves will develop slowly. I believe when I look at the balance of our reserves and they're in a very healthy state and they reflect our best estimate. The other thing which I do want to go back to is a lot of the conversation for casualty is around commercial auto. That is an insignificant part of our reserve base. The second thing is we've spent a lot of time talking about rate coming through on the current accident year for casualty.

Speaker 3

And one of the things that's important is when we talk about the need for rate, we are talking about the need for margin for the risk that we're taking. So we feel as if we're in a good position for the portfolio, but we want to make sure that we enhance the margin because we're looking at this over 10 years and the margin that we're getting today is not the margin that we would target over 10 years. So the book balance is in good shape. I believe we've got a great process which reflects the uncertainty that emerges in casualty and reflecting that uncertainty by being cautious and slow. And then we are in a position where we're enjoying the benefit of a shared view of a difficult casualty market, harvesting additional rate, which will help enhance margin.

Speaker 6

Got it. Thanks. And then it definitely sounds like you guys stepped up the engagement with the casualty seat into this quarter. I guess how far along are we in that information gathering process? And I guess is that something where we should expect you guys to reflect what you've gleaned from those conversations in your reserves and in your picks in addition to what has happened this quarter?

Speaker 2

Yes, I would say, so we're in the normal course of business, the submissions come in 10.1, 11.1, 12.1, 11. And we started much earlier than that and we engaged with the brokers and the clients directly to let them know that we're seeing this in accurate data because we see the whole market. We're not a borderline on just one company's data and we could see where the trends were and where they weren't and what we needed to be able to help price that as accurately as possible. Very positive conversations and the first focus of the outcome of those will be for us to select our portfolio, price the right rate, price the right ceding commission and make the right risk decisions into 2025. And we'll continue to keep you updated as we see more information on trends evolving, but that's the area of focus.

Speaker 3

And besides just the

Speaker 2

data, we're also getting the right level of information about claim settlement practices and underwriting adjustments, which all of those work together in order to create the right result into the future.

Operator

And that was our final question from the audience today. Mr. O'Donnell, I'm happy to turn it back to you, sir, for any additional or closing remarks.

Speaker 3

Thank you everybody for joining today's call. We're looking forward to the 1:1 renewal and looking forward to talking to you in February. Thanks again.

Speaker 7

Ladies and gentlemen, this concludes the

Operator

RenaissanceRe Third Quarter 2024 Earnings Call and Webcast.

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