Operator
Shortly, if at any time you need assistance, please press star zero, and a member of our team will be happy to assist. Ladies and gentlemen, my name is Beau, and I will be your conference operator this morning. At this time, I would like to welcome everyone to the Renaissance Re third quarter 2026 earnings conference call and webcast. After the prepared remarks, we will open the call for your questions, and instructions will be given at that time. Lastly, if you should need operator assistance today, please press star zero. Thank you. I will now turn the call over to Mr. Keith McHugh, Senior Vice President of Finance and Investor Relations. Please go ahead, sir.
Thank you, Beau. Good morning, and welcome to Renaissance Reef's third quarter earnings conference call. Joining me today to discuss our results are Kevin O'Donnell, President and Chief Executive Officer, In addition, for the Q&A portion of our call, we will be joined by Matt Neuber, current senior financial officer and corporate treasurer, and our incoming chief financial officer. To begin, some housekeeping matters. Our discussion today will include forward-looking statements, including new and updated expectations for our business and results of operations. It's important to note that actual results may differ materially from the expectations shared today. Additional information regarding the factors shaping these outcomes can be found in our SEC filings and in our earnings release. During today's call, we will also present non-GAAP financial measures. Reconciliations to GAAP metrics and other information concerning non-GAAP measures may be found in our earnings relief and financial supplement, which are available on our website at renry.com. And now, I'd like to turn the call over to Kevin. Kevin?
Thanks, Keith. Good morning, everyone, and thank you for joining today's call. To begin, I would like to welcome Matt Nuber to the earnings call. As previously announced, Bob will retire at the end of the year, and Matt will succeed in the CFO. Bob will handle prepared comments today, and both will be answering questions. This will be Bob's last call, so I would like to take this opportunity to thank him for his service. He has been an outstanding CFO For more than a decade, and has played an instrumental role in the company's growth over that time. He will be serving as a strategic advisor through 2027, so he will continue to benefit from his expertise. Shifting to our performance in Q3, we delivered another strong quarter, with operating income of $513 million and an operating return on average common equity of 19%. In aggregate, year-to-date, we have earned over $1.6 billion in operating income and produced a 20% operating return on average common equity. Our primary metric, growth in tangible book value per share plus accumulated dividends, declined 2% in the quarter as higher interest rates drove mark-to-market losses. On a year-to-date basis, however, we have grown tangible book value per share plus accumulated dividends by almost 6%. This includes the impact of approximately $650 million of aggregate unrealized losses in our retained fixed maturity portfolio, which should reverse as the underlying securities pull to par over time. I will address the significant upside of higher interest rates in a moment. We have delivered significant returns for shareholders over the last four years, producing operating ROEs near or above 20% in 14 of the last 16 quarters, with an average return of 23%. Our financial performance this quarter reflects a historically quiet Atlantic hurricane season. This is mostly due to a strong El Nino, which suppresses Atlantic hurricanes. An absence of hurricanes does not mean an absence of losses, however. This quarter, we had several large losses impact our specialty business. David will provide more details, but these losses were largely attributable to energy assets in the Middle East. The most significant development during the third quarter, however, was the rapid increase in interest rates. The benchmark 10-year rate was up 80 basis points, and as a result, we now find ourselves in the best fixed income investment environment in two decades. Bob will speak about our investment portfolio in greater detail, but this is a significant opportunity for us. At the beginning of this year, our retained duration of three years was relatively short, positioning us This is exactly what we did in September. As we acted quickly to capture the benefit of higher rates, extending our retained investment portfolio duration to 4.2 years, from 3.5 years in the previous quarter and three years at the beginning of the year. This locks in higher yields for longer, which you will see reflected in growing quarterly net investment income moving forward. I want to now shift to a higher-level discussion of how we think about our business and financial results. My goal is to provide you with an enhanced understanding of how we manage our business, as well as an appropriate lens for how to evaluate our results. When we report our earnings, we do so in the structure of two reporting segments, property and casualty and specialty. These two reporting segments are focused on underwriting, which serves as a good starting point for a comprehensive understanding of our business. In isolation, however, these segments are insufficient to achieve an in-depth understanding of our overall value proposition to investors. To begin, they are underwriting-focused. Consequently, they do not fully reflect the significant contribution of fees and investment income to our bottom line. In addition, these reporting segments do not fully reflect how we interact with clients across the full spectrum of their risks, which we consider to be a key competitive advantage. Rather than evaluate individual lines in isolation, we take a holistic approach and deliver comprehensive solutions to their most significant risk challenges across each of our balance sheets and vehicles. When we evaluate the performance of individual clients, it is through their contribution to each of the three drivers of profit, underwriting fees and investments. Every client contributes differently to each. For example, some contribute more to underwriting profit through strong margins, while others contribute more to investment income through the generation of flow. Our vision is to be the best underwriter. Consequently, our initial focus is, of course, on underwriting performance. When doing so, our two reportable segments serve as Building blocks to a single, integrated view of our underwriting portfolio. In summary, when evaluating our performance, the three drivers of profit provide the most complete framework. Underwriting remains central to that framework, and we write a unified portfolio consisting of two reportable segments, each of which contributes to overall profitability and diversification. Turning to our outlook for 2027, it is still early, but we expect property catastrophe rates to decline next year. In our casualty business, rate had been exceeding trend for several years. Recently, that has shifted. How we proceed in 2027 will depend on our view of the profitability of this business. While we consider all three drivers of profit, maintaining underwriting margin will continue to be a binding constraint. As I discussed in my letter to shareholders earlier this year, the balance of profits and casualty has been skewed towards investments. This is due to casualty's ability to generate significant asset leverage. As a result, there's an inherent tradeoff between underwriting and investment income, and underwriting technical ratios tend to rise and fall with the yield curve. In the higher for longer interest rate environment we now find ourselves, this will likely cause the Thank you. Bob will provide more detail on our capital management outlook, but its underlying financial strength, coupled with low-cats, allowed us to maintain a strong pace of share repurchases in Q3. We increased the pace of share repurchases in October, and absent a major event, we expect to maintain an elevated pace through the remainder of the quarter. So while there are some challenges ahead in the underwriting environment, the investment environment we find ourselves is one of the most favorable in decades, and our capital management remains robust. We think this makes the prospects for growing tangible book value per share in 2027 equally attractive as 2026. 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 underwriting.
Thanks, Kevin, and good morning, everyone. We had another strong third quarter with operating earnings per share of $12.71 and an annualized operating return on equity of 19%. Our reported results were impacted by increasing interest rates, which led to $763 million of retained mark-to-market losses. This drove a gap loss and a 2% decline in tangible book value per share versus Q2 of this year. We expect the majority of these losses to pull to par over time. At our retained investment leverage of 2.5, higher yields will be a significant tailwind to investment income as we continue to actively manage this portfolio. This improved investment outlook reinforces the strength and value of our diversified earnings to the three drivers of profit, underwriting, fee, and investment income. There are four numbers from the third quarter that help demonstrate our earning strength. First, 15 points, which is the annualized contribution from fee and investment income to our return on equity. This forms a Second, $426 million, which is our underwriting income. Underwriting builds upon the stable base of income from fees and investments. Third, 120 basis points, which is the amount that our weighted average yield to maturity has gone up this year. Now at 6%, we expect an increasing level of net investment income going forward as we proactively manage the portfolio. And finally, $310 million. This is the amount of capital we returned to share repurchases in the third quarter. We increased the pace of repurchasing in October and have bought back $144 million as of October 23rd, reflecting our ongoing commitment to strong capital management. Moving now to a discussion on our three drivers of profit in the quarter, starting with underwriting, where our underwriting portfolio performed well on both current and prior year results. Our adjusted combined ratio was 79%, which reflected a nine percentage point impact from a few large losses in the quarter. These losses impacted both our specialty and property books and included the war in the Middle East, an explosion in Ras La Fon liquefied natural gas facility in Qatar, and the earthquake in Colombia. In property catastrophe, the current accident-year loss ratio was 22%, and the adjusted combined ratio was 9%. These results included 37 percentage points of favorable development, primarily from large loss events. Other property also performed well, with a current accident-year loss ratio of 56% and an adjusted combined ratio of 64%. We had 26 percentage points of The large losses I described had a 10.5 percentage point impact on the casualty and specialty combined ratio. And as a reminder, we expect the specialty book will experience cat-like volatility, and the book has performed well year to date. Across the portfolio, gross premiums written were $2.1 billion, down $220 million, or 9%. More than half of the decline came from planned reductions in our casualty business as we continue to shape the portfolio. Property also decreased due to a combination of lower rates, timing of property catastrophe deals, and some planned reductions in other property. At the same time, we saw opportunities to grow credit and kept specialty flat. Overall, net premiums written were down 19%. As we have discussed previously, this reflects the increase in seeded purchases we made across our casualty book. Looking ahead to the fourth quarter, we expect other property net premiums earned of approximately $330 million and an attritional loss ratio in the mid-50s. In casualty and specialty, net premiums earned of around $1.2 billion and adjusted combined ratio in the high 90s. Turning next to fee income, well, we generated just under $82 million of fees, with $48 million from management fees and $33 million from performance fees. Both management and performance fees were in line with our expectations, with overall fees, though, down from Q3 of 2025. This decline was mainly driven by performance fees, which benefited last year from a lower level of current accident year losses and higher favorable development. Looking ahead to the fourth quarter, we expect fees to stay roughly at $80 million, with stable management fees and variable performance fees depending on large loss events and prior developments. Turning now to investments where retained net investment income was $315 million, up slightly from the second quarter and 4% from a year ago. As a result of the significant rise in Treasury rates in the third quarter, we recorded $763 million of retained mark-to-market losses, primarily in our fixed maturity portfolio. Total unrealized losses in our fixed maturity portfolio stand at $654 million, or $16 per share. These are highly rated securities, and we expect these losses to pull to par over time. Second, we are in one of the most favorable yield environments of the last two decades and took several actions to optimize the long-term earnings power of our investment portfolio. Specifically, as yields approach multi-year highs, we extended duration by 0.7 in the third quarter to lock in the benefit of these higher rates. Our retained portfolio duration is now 4.2 years, up from three years at the end of 2025. Second, we continue to shape the investment portfolio in the quarter, increasing our allocation to high-quality securities, primarily agency mortgage-backed securities. At the same time, we modestly reduce equities and corporates, but given the relatively tight credit spreads, we are not stretching for yield. As a result, we increase our yield and maturity by 70 basis points to 6% this quarter. These actions should result in higher net investment income over time. Looking ahead to the fourth quarter, we expect retained net investment income to be around $325 million, bringing retained net investment income to over $1.25 billion for 2026. This will be around 6% higher than 2025, and we expect continued growth into 2027. Moving now to expenses and taxes. Our operating expenses were down about $20 million year-over-year, driven by the Bermuda Substance-Based Tax Credits, partially offset by an increase in the accrual for performance-based compensation. The operating expense ratio for the quarter was 5%, and we expect it to be around 5% for the full year of 2026. Finally, moving to tax, where we recorded a $30 million tax benefit. Our overall effective rate on the net loss attributable to REN RE shareholders was just over 16%. This is slightly higher than the 15% corporate income tax and driven by higher rates in other jurisdictions. Let me close now with capital management. We continue to have strong conviction in the value of our shares and remain in an excellent capital and liquidity position. In the third quarter, We've repurchased 959,000 shares for $310 million at an average price of $323 per share. We increased the pace of repurchases in the fourth quarter, buying back an additional $144 million of our shares through October 23rd. We are committed to being disciplined and strong managers of our shareholders' capital. We expect to continue repurchasing through the fourth quarter at a similar pace we have in October, Before I hand over to David, as many of you know, this will be my last earnings call as the chief financial officer of Renaissance REIT. Since I joined in 2016, I've been proud to be a part of what we have built. It has been a privilege to work alongside such a talented team, and I can't thank this team enough for the years of support. I'd also like to thank the analysts and investors on this call for the thoughtful dialogue we've shared over the years. I have full confidence in Matt as he steps into this role. We've worked side by side for many years, and he has been instrumental in building the strength and resilience of our balance sheet, the diversification of our earnings across three drivers, and our disciplined approach to capital management. I look forward to Renaissance Re's continued success, and I'll be cheering the team on as a proud shareholder. And with that, David, I'll turn the call over to you. Thank you.
Thanks, Bob. It's been great to work together over the last decade. You've been a trusted partner to me and the underwriting team and wish you all the best in retirement. And, Matt, welcome to the call. I'm looking forward to continuing to work together with you and your new role as CFO. As Kevin and Bob discussed, we delivered strong underwriting results this quarter, with current and prior years performing well, generating $426 million in underwriting income and an adjusted combined ratio of 79%. We experienced a few specific losses in our property and specialty books with a combined net negative impact to shareholders of $111 million. As I've discussed on prior calls, we have two objectives in each renewal. Deliver our market-leading value proposition to clients and brokers and construct the optimal portfolio across lines of business to support each of our three drivers of profit. Executing on these objectives consistently drives our strong, persistent results. Over the last several years, we have built out differentiated client underwriting capabilities that support both objectives. More than two-thirds of our business comes from clients who buy from us across both casualty and specialty and property. Within each client portfolio, there are lines that are highly profitable for us and others that are less attractive. As Kevin discussed, while we report results in two segments, we underwrite the risk and deploy capacity in a coordinated way We do this in three ways. First, through superior modeling. We have built proprietary models for every line we write, which gives us an independent view of risk and an understanding of the client portfolio as a whole. We can identify positive or negative trends early, discuss them with clients, and reflect them in our pricing. Second is proprietary data sets. We have seen most of the market for decades, which gives us more and better sources of data. We use this to benchmark a client's performance across the market and through different parts of the cycle. This lets us make tradeoffs across lines and build a diversified portfolio with each client that earns attractive returns over time. As we look forward, we will extract even more value from this large proprietary data set through the AI capabilities that we are building. And third is the underwriting culture. Just as every deal has an owner, every large customer relationship has a senior underwriter responsible for managing the totality of a client's portfolio. We understand the client's needs, set clear plans by line, and communicate these plans early to reduce surprises. This approach has allowed us to increase our share of wallet with key clients on attractive lines, optimize the overall profitability of a client portfolio, and provide stable capacity over the cycle. It has been successful. In the last two years, in a competitive market, we have been able to grow Property CatLimit, our most profitable line, while reducing in casualty and holding profitable specialty business. By shaping the portfolio in this way, we are able to optimize returns across our three drivers and deliver strong ROEs through the cycle. As we look forward to 2027 and the January 1 renewal, I feel confident in our ability to construct an underwriting portfolio that builds on this strong track record. We have a clear view of what we want to write, what we want to reduce, and how we will manage each client relationship throughout that process. We also shape our net portfolio by sharing risk through seeded reinsurance and capital partners. We are one of the largest buyers of retrocessional protection and design seeded programs that add value through both long-term strategic relationships and opportunistic purchases. Casualty is a good example of this. In 2026, we scaled up our seeded We have a large number of government-based purchases in casualty, and year-to-date have retained about two-thirds of casualty and specialty net premiums net of CDC reinsurance and Fontana, compared to approximately 75% of premiums a year ago. This more closely mirrors our property approach, where we retain about half of the business. CDC becomes even more important as rates soften because it provides volatility protection, preserves underwriting margins, and generates fee income through overrides that is less sensitive to rate. Additional seeded purchases will reduce net written premium in 2027, but this is core to how we match desirable risk with efficient capital. Turning now to a few comments on specific classes of business, starting with property. The Atlantic has been quiet so far, with the first Atlantic hurricane of the season, East IES, forming and making landfall in October. While the storm was a Category 2 hurricane at landfall, we do not expect significant reinsurance losses from this event. As Bob explained, we reported a loss from the magnitude 7.4 earthquake that struck Western Columbia in August. This loss impacted property catastrophe and other property, but both classes performed well in the court. Looking ahead to January 1, we expect the property market to remain competitive but attractive. Demand will grow, although more slowly than in previous years. Supply will likely exceed it, which will put pressure on pricing, but we expect rates will We'll be down less than in 2026. Much of that supply comes from traditional reinsurers, and we expect the market to remain disciplined, including with respect to terms and conditions, coverages, and deal structures. We also expect the market will remain healthy with retentions that appropriately share risk between insurers and reinsurers, and legal reforms, notably in Florida, continuing to reduce litigation and support favorable claims trends. Risk selection is more important in a transitioning market, but this is where Our focus on being the best underwriter sets us apart. We have been here before. We know how to manage the cycle. And we have the right tools to shape both our gross and net portfolios. We anticipate our property business will remain rate adequate, which returns exceeding our cost of capital and opportunities to grow selectively. In specialty, we reported two large losses this quarter. The first is related to the war in the Middle East. As we said last quarter, the war continues to be active with attacks on oil and gas facilities and public infrastructure. We have reflected recent activity through the third quarter in our loss estimate and will continue to monitor the situation. The second is related to an explosion from an operational accident at the Ras Lofan Gas Complex in Qatar. This is a major loss for the energy market. We have reserved to our share of a full-limit loss of $1.7 billion. We manage one of the largest and highest-performing void syndicates, as well as one of the largest global specialty reinsurance books, and we expect to share in losses like these. Specialty lines have been profitable, but with several recent losses, we believe rates need to adjust in some areas. We expect to find opportunities in loss-impacted lines, such as marine and energy, as well as political violence and aviation. We are a Tier 1 specialty reinsurance market and in a strong position to access this risk because of our underwriting expertise and our ability to manage complex claims. In casualty, the market has been proactively Thank you. Thank you. Finally, our credit book remains attractive with structured credit, political risk, and surety providing diversified opportunities. We are committed to this high margin business and plan to hold our lines and deploy capacity where growth opportunities are available. In closing, we delivered strong underwriting results this quarter, reflecting disciplined underwriting decisions and portfolio management. As we head into 2027, we have the right tools to manage a transitioning market with enhanced client data and analysis, more sophisticated and efficient.
Thanks, David. I'd like to welcome Matt to the call and ask him to introduce himself.
Thanks, Kevin, and good morning, everyone. I've been with Renaissance Reef for more than a decade, and I've been fortunate to work closely with Kevin, Bob, David, and many talented Bob, thank you for your partnership and guidance, and for making this handoff so smooth. I've been a part of Renaissance Re's growth and transformation both organically and through three acquisitions. I am proud of the company we have built and the tools we have to compound tangible book value per share over time. First, our three drivers of profit provide earnings resiliency. Second, our strong balance sheet gives us options to react to opportunities in the market. And finally, we have a nimble capital management strategy to return excess capital to shareholders. Over the past few months, I've had the opportunity to meet many of our investors and analysts. I've enjoyed our conversations and look forward to building on these relationships and meeting more of you in As I step into the CFO role, you can expect me to build on our strong foundation with the same disciplined approach to capital allocation and return, and a continued focus on growing tangible book value per share. And with that, I will turn it back to Kevin.
Thanks, Matt. In closing, this was another strong quarter and a good example of how our three drivers of profit contribute to strong financial performance. As we look ahead, disciplined underwriting, stable fee income, and stronger investment earnings will provide competitive advantages to drive value to changing market conditions. And with strong capital, good liquidity, and substantial free cash flow, we have the flexibility to invest in the business, return capital to shareholders, and continue to build value over time. And with that, I'd like to open up the call for questions. Thank you.
Operator
Thank you, Mr. O'Donnell. Ladies and gentlemen, at this time, if you would like to ask a question, please press star 1 on your telephone. If you do wish to remove yourself from the queue, you may do so by pressing star 2. We do remind you to please unmute your line when introduced, and if possible, pick up your handset for optimal sound quality. Additionally, in the interest of time, we ask that you please limit yourself to one question and one follow-up. We'll go first today to Elise Greenspan with Wells Fargo.
Hi, thanks. You know, before I get into my question, just, Bob, you know, wanted to extend my congratulations to you, you know, on your upcoming retirement.
And then for my first question, you know, I was just, you know, wanting to start on the pricing discussion, right? So you guys did say you expect property cat rates to be down at 1.1. I was hoping to get a sense of The level of the decline you expect. And then you also said that you expect property will remain, you know, rate adequate with returns exceeding your cost of capital. So how much more room do you think there is to go with CAC declines before this is no longer the case?
Hey, Elise, this is David. I'll start off on that one. I think I can expand a bit more on the pricing discussion. Like we said, we expect rates to be down for a pressure on pricing, but stable terms and conditions. And we expect that to be less than what we saw in terms of pricing pressure in 2026. Year-to-date, we're down mid-teens in our cat book, so we expect to be less than that. A couple extra perspectives on that that might be helpful. The thing about where the supply of competition is coming from, it's mostly from cat bonds and then also from traditional reinsurers. So cat bonds put pressure on the top end of programs, and we expect pressure there. It could be more than what we saw this year. But the bottom of the middle is mostly competed with the traditional reinsurers, and that's where our sweet spot is in the net retaining portfolio. Traditional reinsurers also are the most influential at agreeing on what retentions to set and what terms and conditions to write the business on in the structures that have made the book less volatile. So we can trash that with previous cycles. There was more competition from less experienced managers, and we just think that the supply will be more disciplined. I would also add that from the demand side, we look back at the last few years. 2024 was the first year after the step change. That was a situation where there's a lot of growth in demand, and brokers prioritized execution over any rate savings. Then in 2025, the California wildfires put some ballast into the market and delayed some of the softening. I mean, 2026, there was a bit of pent-up pressure for clients to achieve discounts after a few profitable years. So we think 2027 will be a more normalized year with a more normal supply-demand pressure.
So hopefully that helps there.
I guess I would also add to that that the cat rate is just one part of the equation when we think about the overall adequacy and cost of capital. You know, at all the tools we have at our disposal, we have risk selection, we have seeded reinsurance to help shape the portfolio, And generally, seeded gets more attractive when there's pressure on cap. We also have the fee income stream from capital partners and diversified ROEs. So all in, we think there's great opportunities in the cap market ahead, and comfortable it'll seed our cost of capital.
Yeah, I'll add just to David's comments. I've been at Renree for 30 years. I've seen lots of different markets, and I've never seen a market that a company like ours, It's with the flexibility we have with different sources of capital, different ways to structure portfolios, where the cap market was not attracted to us. So I look at 26 into 27, 28 and beyond. I don't see a scenario where Renri is not in a position to write a large and profitable cap portfolio.
Thanks. And then my second question is on the specialty casualty segment. I'm just interested if there were movements, you know, certain lines favorable, certain lines adverse, and anything in particular you would call out by accident year as well?
Hey, this is Bob. Not really. I mean, we look at – I mean, they'll all change every quarter. I mean, they'll look at – as we get new information that comes in across the classes of business. So there's been definitely movement, not like what we did in the second quarter where we actually took a look at the actuarial assumptions around the curve. So you saw that that was a change in the second quarter in the queue, but nothing like that in the third quarter.
Operator
Thank you. We'll go next now to Josh Schenker with Bank of America.
Yeah, thank you. Good morning, everyone, and a little good afternoon in Bermuda. And, Bobby, have a great retirement, and I've always enjoyed our conversations, and the best to you. And, Matt, welcome. In thinking about capital you have available and the strength of the buyback, would your view of capital change at all if the Bermuda and OECD come to some sort of agreement to annul the tax credits at the end of the year? Does that change your buyback appetite at all? And does it change your capital at the company at all?
Hey, Josh. It's Matt here, and nice to talk to you. The short answer to your question is no, not at all. We have a strong balance sheet with a healthy liquidity position, as Kevin and Bob mentioned earlier, and we've no change to our capital management framework or approach to how we are going about the buybacks. So, as we mentioned, we did some more buyback I'd like to add,
Josh, that that asset is still, you know, deferring cash flows back to the Bermuda government, offsetting our taxes due. So it's unlike a traditional accounting deferred tax asset. It's an asset until it goes away from the legislation. It's still a valid asset on our Bermuda balance sheet.
And given the high investment losses from the rising interest rate environment and the strong underwriting profitability, as we head into the year, is there anything you can do to harvest some tax losses to neutralize some underwriting gains, or is that just mixing and matching things that don't really apply to one another?
Josh, it's Matt again here. We've always demonstrated that agility in the investment portfolio. Absolutely, those are some of the considerations that go into how we position the portfolio. I think the key thing to take away is we continue to see a good trajectory here in the way we're getting value to shareholders through compounding tangible book through both the net investment income tailwind that Bob mentioned, and then also the pull-to-par and the mark-to-market. So going forward, I feel good about the trajectory, and that's part of the reason we're buying back shares the way we are.
I'll defer to others to ask market condition questions, and thank you for the answers.
Operator
Thanks, Josh. And ladies and gentlemen, just a quick reminder, star one for questions today. We'll go next now to Meyer Shields with KBW. Thanks. I actually did have a market condition question, sort of.
If you go back to, like, 2016 and 2017, there was some, I would say, particularly aggressive examples of third-party capital within catastrophe reinsurance. And I'm wondering, should we have to worry about that in the short term as casualty ILS becomes a little bit more prevalent?
Hi, Meyer. This is David. I think I understand your point about some aggressive third-party capital back in that era. I think while we have seen capital come into the market, the capital is coming in not specifically for CAD. It is coming in looking at more whole account-type structures and appetite. We view that as another form of general competition, but also view it as an opportunity. We've been very proactive at the forefront of matching risk and capital and intermediating that very successfully. We started Fontanerie in 2022, and that's been successful. So, we see that as an opportunity in order to support our seeded reinsurance and fee income business. Obviously, more capacity does put some pressure on upfront pricing, but as this capital is mostly coming in behind lead reinsurers and insurers, we think it's less likely to do that than some of the capacity that you referenced in 2016 and 2017. Okay, that's good to hear.
The second question, I guess, is going to be an interest rate increase, and I'm wondering whether that has implications for property or cash fee loss trends.
Will the interest rate increase have implications for property loss trends? Could you be more specific there? I'm wondering, yeah, sorry, I should be more clear.
I'm wondering whether there is an underlying reflection of overall inflation, and not social inflation, just regular financial CPI inflation that would matter to significant short-tailed lines, underwriters.
Okay. Okay, yeah, I understand your question now. So inflation is a piece of our risk analysis across all lines. We've talked about social inflation in casualty, in particular, driving jury awards. That is still going on, and that really wouldn't be related to cost of goods sold or interest rates. Cost of rebuilding and cost of construction is something that we look at really closely in the property space and the specialty space, and we're continuing to update those. I don't see those personally as directly related to the recent increase in interest rates, but nonetheless, it's an important piece of our analysis. Okay. Fantastic. Thank you.
Operator
Thank you. We'll go next now to Yaren Kinnar with Mizzou Hosikaris.
Thank you. Good morning. Good afternoon. First off, I just want to echo some of the wishes to Bob. Congratulations and hope you enjoy the next piece in your career or post-career. And with regards to my question, I guess the first one, I just want to circle back to some of the comments I heard in the prepared comments around terms and conditions expected to be stable into 2027 renewals. I guess some of the headlines we've seen in some industry rags would have suggested otherwise. So I'm just curious to hear what you're seeing there and why you have the confidence that the terms and conditions will remain stable.
Hey, this is David. I'll start off on that one. I think it's consistent with some of the other commentary that we've had today. I think the structures experienced a step change in terms and conditions got very attractive starting in 2023. And as capital has come in, it's really been behind traditional reinsurers or retained earnings of traditional reinsurers. So the supply of capital willing to accept risk has been much more disciplined than what we might have seen 10 years ago, where flexibility and structure was more of the key. So we're confident that the types of structures that we're selling now work for our clients. There are some structures like aggregate structures, which we've always been writing, but to a lesser extent and a more catastrophic level than was written 10 years ago. There could be some evolution of those, but compared to what we saw 10 years ago, we're really confident that the ability to assume risk at the capital level versus the earnings level, which is really at the core of what we're talking about, will remain intact going forward.
Yeah, the thing I would add to David's comments, and I know he agrees with this, is when we think retentions were a hold, which was also something that was reset in 23, that we moved out of protecting the volatility of income statements to really providing capital to the balance sheets of our clients. And as we look into 27, that's likely to continue.
Got it. And then if we shift a second to the casualty and specialty business, you know, you've talked about the yield to maturity extending to about 6% now. You have two and a half times leverage. I assume that will be a bit higher in CNS relative to the overall portfolio. So, if I'm doing my math right, it would suggest that you can still be, you know, clearing a decent mid-teen ROE hurdle, even with 100% combined in casualty and specialty. So, we'd just like to hear how you're thinking about targets there, and if I'm thinking about it correctly.
You are thinking about it correctly. The longer the duration, the more the yield curve affects the profitability when investment income from the float is included. That's kind of the comments I was making, which is it is rational to expect technical ratios to rise as the yield curve rises because the overall profitability of the accounts will reflect the investment income. You know, several years ago, we talked about, you know, a dollar of casualty was producing about 20 cents of investment income. With the shift that's happened over the last couple months, that's closer to $1.30. So, again, we believe the skew is moving towards investment income. We have concerns about the trend in casualty. We have some concerns about the persistence in the discipline of continuing to push price through the primary markets. So we'll remain cautious, but we're not worried about the profitability of the portfolio.
And so with targeting 100% or above combined, is that a rational place for us to expect you to be?
I think at this point we haven't changed any of our guidance on that. I think I'll answer the question differently. If you were looking to make your cost of capital from writing casualty, can you do it above 100? The answer is yes. That's not a decision that we have made to do though. We will continue to look at, as David's comments highlighted, you know, what is the relationship we have with the client? How can we best preserve the margin in the share of wallet we have with that client? A component of that will be their casualty portfolio, and a component of the casualty decision will be the contribution from investments.
Operator
Thank you. We'll go next now to Tracy Benghigi with Wolf.
Thank you. You know, a couple quarters back, you were talking about NII contributing about 11 to 12 points of ROE, and I'm just wondering, in today's interest rate environment, do you have an update on that?
Hey, Tracy, this is Bob. As I said in my prepared comments, we're going to end the year at about $1.25 billion in net investment income that's retained on roughly a $10 billion capital base. So that math is pretty straightforward. I think looking ahead, Matt, if you have any comments on, you know, as we look into with the yield and maturity now at 6%, getting some insight there.
Yeah, Tracy, so that new money yield continues to be above the book yield, and that's the strong tail end to the NII that we mentioned. But the other thing to point out, too, is the pull-to-bar and the mark-to-market. As Bob mentioned, we're not stretching for yield here, and what we're doing is really recovering mostly risk-free related mark-to-market moves.
Got it. I also want to go back to the comment that casualty rates are no longer exceeding trends. You didn't mention any specific lines, so can I infer that it's broad-based and what is change in the market that led to that, And is that just in casualty, or are you seeing that in specialty, too?
Hey, Tracy, this is David. Yeah, in casualty, it's mostly the general liability line, the U.S. general liability specifically, where trend is the most persistent. And the trend has been double-digit, you know, 10% to 12%, but it actually varies more widely based on the layer that you're participating in in the subclass business, because not all U.S. general liability is homogeneous. And I'm going to talk to you about the last couple of years. And rates have been, over the last couple of years, as the market was focused on keeping up with trend and exceeding it, the rates have been well into the double digits. Year to date, we've seen rates in aggregate there more like 8 to 10. And so then the question is, what is going to happen next? And we think that there's a possibility that clients are not able to continue to get rates back into the 10 to 12 range. So we're just going to have to keep watching it. And what we essentially do is we get more selective. We can come off reinsurance deals that are underperforming. We can reduce seating commissions, and that ends up being influenced by the supply and demand for the treaty. So we're not necessarily assuming that that's going to be the solution here. We're ready to support our clients. We're also ready to cut back on the business if we don't see profitability get to the level that we need. And then your question was also about specialty business. Specialty is a mix of business, which has mostly been profitable, but because of some of the loss activity, some lines do need to adjust. We expect to see rates going up in marine, some energy areas, some areas impacted by the war in Iran. Those are all seeing positive rate momentum already. We'd expect some opportunities at 1-1.
Can I just ask something super basic? So it's just my understanding that property reinsurance is more transactional, so you could come off and on, but maybe on the casualty side, that's a little bit more difficult to do. I don't know if you had any comments on that.
I would say that, you know, there tends to be runoff and run on because a lot of the casualties risk attaching. I think anyone can come off something. Most deals are annual. I would say we approach it differently. You know, we look to partner with our clients and work with them on long-term solutions for their risk challenges. So I would say we're less likely to be transactional in either casualty or property and much more focused on How do we look to build value? How do we look to, you know, build a partnership that provides long-term profitability rather than optimized for a single year?
Operator
Thank you. We'll go next now to Pablo Singsan with J.P. Morgan.
Hi. Good morning. First of all, Bob, congrats on your retirement. So, I guess, first off, for Kevin, and I think some version of this question was already asked, but I'll ask again. So, I wanted to get your perspective on sort of market more broadly, right? So, you think about the number of sidecars, sometimes sponsored by primary residents, and, you know, other structures such as broker facilities funded by private capital. So, the question is, how does RAND position itself strictly with respect to these emerging pools of capital? It's just not clear to me that you can sort of trade with them the same way that you might have trade or continue to trade with traditional third-party capital or even retro. Thanks.
Yeah, I'm happy to start here. I think ILS capital is sometimes thought as one pool of capital. It is a constantly changing universe of investors that are seeking the risk that we can accumulate. You know, after 2001 or 2005, a lot of hedge funds came in. Those exited. Then we had sovereigns. We had pension funds. We had a whole other group of investors, I said. So it's constantly a moving environment, and I think we are uniquely equipped to determine what types of risks satisfy the appetite of the capital that's most interested in the risk that we accumulate. Currently, much of the capital is looking to harvest long-term liabilities to feed their existing investment strategies. That's different than what in property ILS capacity, which it has been looking for, which is low beta returns to improve the Sharpe ratio of returns of their existing portfolio. So they're paying for underwriting on property. They're paying for access to liability, long duration liability assets for casualty. I see it as, you know, an increase in supply of capital coming in. I also see it as an opportunity for us to intermediate that capital and risk. There's no platform that's better suited to do it. Ultimately, much of this capital will want to have someone to come in to accumulate the risk on their behalf. With regard to the facility you mentioned, broker facilities are something that have been in our business for a long time. Those will continue to change and morph. I think we feel protected from those facilities because we bring value beyond the capacity that we bring to a reinsurance transaction. Much of the target of those types of vehicles is to monetize the capacity providers on the bottom of the slip, so the disintermediation there is not It's not disintermediating us. It's disintermediating smaller players with a hope to capture some margin from that disintermediation. So, again, you know, it's more capacity in the market. We can manage that. It's a different type of capital. That's an opportunity. We understand how to deploy that capital into the market. So, again, it's just another iteration of the ILS market continuing to evolve and one in which we see ourselves in an important role between that risk and that capital.
Thank you. And then second question, I just wanted to unpack some of the comments made on general casualty. And I guess the question is, as you evaluate your appetite, you know, to write that business, what features of a client account might sway you to keep them versus bearing back, right? And for example, what I have in mind is just, for example, you know, MGE police business has grown quite large in casualty, especially, especially on the ENF side. So, you know, just trying to see if we can sort of like I'm going to dig down further into the general comment about casualty just being, you know, a little less attractive overall. Thank you.
Yeah, I can comment on that. So I think the, like I said earlier, general liability is a very heterogeneous large pool of risk, and most of my comments are on the U.S., although the heterogeneity would apply to international casualty also. It's really a mixture of, for a lot of the business, it's proportional. So the way we assume the risk, if it's proportional, then we're looking for one set of things. We're looking for something else. But if we think about proportional risk, we're looking for a client to get the right level of pricing and underwriting and claim settlement in their portfolio. And the extent that they can do that effectively, then we'll get share in that margin over time. Our negotiating piece there is what seating commission do we pay for them to them to access the business. And the seating commissions have been fairly stable the last couple of years because the best clients have been able to keep right up with trend. I think it's TBD what will happen. And if rate doesn't keep up with trend, whether reinsurance capacity will start to pull out and seeding commissions will have to adjust. If we're looking at excess of loss business, then there's more risk of trend hitting the excess of loss layer. So it's all about do we get the right pricing for the layer that we're assuming? And that those prices could change from year to year. Most of our book is proportional because as a reaction to the increase in trend, it's been the better place for us to put our risk positions. Even within the proportional, there's some insurers that play down at the bottom, some play at the middle, some play at the top. And so, we have databases that monitor all that. It's important to figure out where trend is the most impactful and where pricing is the most adequate.
Operator
We'll go next now to David Mott-Maden with Evercore.
Hey, thanks. Good morning. Also, Bob, I just wanted to congratulate you on your retirement as well. It's been great working with you. For my first question, just wondering, definitely there's been a bit more large loss volatility over the last, call it, four or five quarters here in casualty and specialty. I'm just sort of wondering if you guys could talk about sort of what is the expectation for large losses that's built within the high 90s combined ratio that you guys are targeting?
Hey, David. This is David Mara. I'll pick up on that. So I think the first thing about the casualty specialty segment is a diversified portfolio, and it has a long-tail business in the shorter-tail Specialty, the shorter tail credit. Within specialty, the shorter tail lines, it's a mixed bag as well. So a lot of that is marine and energy related. We also have aviation. We also have things like cyber. So in any given year, that mix is changing. The specialty business has been profitable overall. What we're looking at going forward is that with the frequency of losses we've seen in, say, marine and energy with some refinery losses over the last couple of years, aviation has seen losses. It started with American Airlines a couple of years ago, and then a couple of events since then. The war in the Middle East is hitting the political violence section of specialty, and we also have the Baltimore Bridge, which is essentially the largest marine loss ever. Many of those classes do need to respond in order to maintain profitability going forward, and the specific intention would be to cover that frequency of severity loss. We're already seeing good signs in the insurance renewals in those classes. Rates are going up at this point. I think the next opportunity for the reinsurance market to reprice the reinsurance risk would be at 1-1. And so we're working with our clients. We're a lead market there, and we're going to be working to make sure we get the right terms and conditions there. With that, I think we'll see opportunities going forward and profitability improve on the specialty side.
Thanks for that. Maybe just following up, David, you had also spoke about growth and demand in PropertyCat, or maybe it was Kevin, But just growth and demand in Property Cat at 1-1. And I'm wondering if you could just elaborate a little bit on how, you know, how much demand growth do you think there will be that will help absorb some of the increased supply coming in?
Yeah, definitely. We do expect more demand growth. That's part of a long-term trend where companies are using reinsurance to manage their own exposures, some of which are subject to inflation and total insured values going up. So, all positive there. The demand growth has been really strong the last few years. We saw $20 billion a few years ago, then $15 billion two years ago, and $10 billion of limit purchase last year. Now we're more in the single digits is what we expect and what we've heard so far from customers, looking at 1.1 and into next year. So, positive demand growth, but not as much as what we've seen in previous years.
Operator
Thank you. And, gentlemen, it appears we have no further questions today. Mr. O'Donnell, I'd like to turn things back to you, sir, for any closing comments.
Thank you for joining today's call. We're proud of the results we've produced. I'd like to, again, thank Bob for his 10 years, over 10 years as our CFO and the considerable contributions he's made. And, you know, glad that we introduced Matt and welcome, Matt, to the call going forward. We look forward to speaking to you in the new year. Thank you.
Operator
Thank you, Mr. O'Donnell. Ladies and gentlemen, this concludes the Renaissance Re third quarter 2026 earnings call and webcast. Please disconnect your line at this time and have a wonderful day.
