Earnings Call Transcript - RNR Q1 2023

Operator, Operator

Good morning. My name is Gretchen, and I will be your conference operator today. At this time, I would like to welcome everyone to the RenaissanceRe First Quarter 2023 Earnings Conference Call and Webcast. I will now turn the call over to Keith McCue, Senior Vice President of Finance and Investor Relations. Please go ahead.

Keith McCue, Senior Vice President of Finance and Investor Relations

Thank you, Gretchen. Good morning, and welcome to RenaissanceRe's first quarter 2023 earnings conference call. Joining me today to discuss our results are Kevin O'Donnell, President and Chief Executive Officer; and Bob Qutub, Executive Vice President and Chief Financial Officer. First, some housekeeping matters. Our discussion today will include forward-looking statements. 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 would like to turn the call over to Kevin.

Kevin O'Donnell, President and Chief Executive Officer

Thanks, Keith. Good morning, everyone, and thank you for joining today's call. Last night, we reported an annualized operating return on average common equity of 30%. This is a great start to the year and follows an equally strong finish to last year. This performance is the result of a consistent and differentiated strategy and an unrelenting focus on optimizing each of our three drivers of profit. Going forward, the macroeconomic environment should be a strong tailwind to our performance. The reinsurance industry now enjoys several advantages, including: reinsurance supply is constrained due to a diminished appetite for volatility. This has been true for third-party capital for several years. It is also increasingly true for equity investors. As a result, we have yet to see a significant influx of traditional capital into reinsurance markets. At the same time, reinsurance demand is increasing. Insurance companies are seeking strategies to reduce their volatility in order to stabilize their returns. Persistent inflation is also amplifying their losses. At its most fundamental, reinsurance is an efficient form of capital for insurance risk-taking, frequently the most efficient. Consequently, as the supply of risk capital diminishes, the competitive advantage of reinsurance increases. This supply-demand imbalance as well as concerns over climate change and elevated cat losses have resulted in a step change in property reinsurance rates. We do not see these underlying dynamics reverting and consequently believe this step change will be reasonably persistent. Finally, reinsurance terms and conditions have tightened. Reinsurers can use terms and conditions to manage the market cycle in ways insurers cannot. In some non-property lines, such as D&O, the market is experiencing diminishing primary rates. As reinsurers, we can offset underlying price reductions with lower ceding commissions. This helps to keep reinsurance of these lines attractive relative to their underlying products. These advantages are significant and taken together, make reinsurance relatively more attractive than insurance for the foreseeable future. I'd like to move now to a discussion of top line growth and how we use it to manage the insurance cycle. At the January one renewal, we optimized our portfolio in an improving market, choosing to grow in property-guided specialty lines where we saw the best opportunities. At the same time, we reduced exposure in other property and D&O lines, resulting in an increase in net premiums written. Bob will walk you through the numbers in greater detail for each of those segments at a high level. Property cat is in a very attractive phase. Given the positive outcome at the April one renewal and what we have seen so far, additional growth is likely. Other property, which includes a substantial amount of U.S. E&S business, has been experiencing rate increases of similar magnitude to Property cat. Despite this, as you saw this quarter, we pivoted away from exposure here, creating more room within our risk tolerances for higher returning Property cat business. We did this because right now, we are being compensated more for each unit of risk in our Property cat business, and that is where we are choosing to deploy our capital. For our traditional Casualty class of business, net written premiums were down, driven mostly by a reduction in D&O lines. This is an excellent example of our underwriting discipline. We leaned into this business during a recent good time and are decreasing our focus now that rates are leveling off. This helps us achieve the improved terms and conditions that, as I discussed, keep the returns for this business attractive despite underlying rate softening. We think about the Casualty business in roughly 10-year cycles due to its long-tail nature; proactively managing premiums is a critical aspect of navigating this business. You saw this in the period from 2014 to 2019, a notoriously soft market where we were underweight exposure to Casualty. Alternatively, you saw cycle management in 2020 to 2022 when we grew robustly in a very attractive casualty market. Finally, there is the Specialty class of business, which includes credit and other specialties. Last year, we grew the mortgage book fairly robustly as we had an opportunity to write business from prior years that had seasoned favorably. Given the potential for a recession this year, we are reducing the risk on our mortgage business that we write going forward. Other Specialty is a different story, and we grew this business almost as robustly as we grew Property cat, mostly in lines such as cyber and marine and energy. In aggregate, I'm pleased with our growth this quarter. It demonstrates our ability to effectively manage the reinsurance cycle by leaning into hard markets and reducing emphasis when markets soften. It's important to view growth through an appropriate lens. Growth for growth's sake is not an unmitigated good. We are being thoughtful about our portfolio construction and demonstrating underwriting discipline. And I believe that this should position us well to continue delivering strong profitability into the future. That concludes my opening comments. I will provide more detail on our segment performance at the end of the call, but first, Bob will focus on our financial performance for the quarter.

Bob Qutub, Executive Vice President and Chief Financial Officer

Thanks, Kevin, and good morning, everyone. As Kevin discussed, we started the year with a very strong quarter, reporting net income of $564 million, driven by operating income of $360 million. For the second quarter in a row, we reported an annualized operating return on average common equity of 30%. We also achieved a combined ratio of 78% against the backdrop of relatively high industry catastrophe activity, especially in the U.S. As we previously discussed with you, we have seen increased momentum behind our three drivers of profit: Underwriting, Fees, and Investments, with each of them contributing meaningfully to our results in the quarter. I'll discuss our results in more detail in a moment, but here are a few key takeaways that I'd like to highlight. First, Casualty and Specialty continued its strong performance with a combined ratio of 93%. We feel great about the positioning of this business and continue to expect a mid-90s combined ratio in 2023. Second, in an above-average first quarter for catastrophes, our Property segment also performed well, achieving a combined ratio of 57%. The Property catastrophe class of business had a particularly strong quarter with a combined ratio of 21% and growth in net premiums written of 35% or 45% without reinstatement premiums. Third, we have been employing our capital partners business to match attractive risk with capital to more effectively grow into this strong market. Fees continue to contribute consistent income to our bottom line with overall fee income of $45 million, up 58% from the comparable quarter. And finally, retained net investment income for the quarter was $168 million. This is up 17% from Q4 2022 and is a significant increase from the $63 million we printed in Q1 2022. As a result of these strong earnings, we added $540 million to shareholder equity in the quarter. The increase in tangible book value per common share plus change in accumulated dividends was 12.4%. As we enter the important midyear renewal period, we believe that this very attractive market will persist. We are in a strong capital position to take advantage of opportunities and anticipate continued momentum across all three drivers of profits. Now moving to our first quarter results and our first driver of profit underwriting. As I mentioned, our total combined ratio was 78%, which is a nine percentage point improvement from last year. Gross premiums written were down 5%, while net premiums written were up 5%. And as we've mentioned on previous calls, we think net premiums written is the appropriate lens to view both the portfolio and without reinstatement premiums, net premium growth is a bit higher. Following on Kevin's earlier comments on cycle management, it is important to consider growth over a longer period of time. Over the last three years, we have more than doubled net premiums written to $7.2 billion at the end of 2022. This growth has provided us with the scale to access attractive lines across both segments. This quarter is an excellent example of our ability to manage the cycle and allocate our capital to the businesses that we think will generate the best returns. Now moving on to our Property segment. As we discussed with you last quarter, we have been focusing our growth on Property catastrophe where we are seeing the best opportunities. You can see this playing out in our results. While overall net premium written for the Property segment were up 15%, Property catastrophe net premiums written without reinstatement premiums were up 45%. As a reminder, you can see that Property catastrophe reinstatement premiums declined by $44.8 million compared to Q1 2022. Other property net premiums written were down 30%, with much of the reduction in cat exposed business. Going forward, we expect this trend to continue and expect other Property net premiums earned will decline modestly into the second quarter. The Property segment overall reported a combined ratio of 57%, with a current accident year loss ratio of 39%. Catastrophes for the quarter, including the Turkish earthquake, tropical cyclone Gabriel, Auckland floods, and U.S. tornadoes had an overall net negative impact of $54 million on our consolidated results. This net negative impact is down over 20% from Q1 last year, even though industry cat losses for the same period were up by around 50%. Even with these events, our Property catastrophe class of business reported a 19% current accident year loss ratio, which is down 18 percentage points from Q1 2022. This reflects underwriting actions we took to increase rates, increase retentions, and tighten terms and conditions. The other Property combined ratio of 94% was impacted by six percentage points of large losses, several attritional losses, and some changes in business mix. Going forward, we anticipate the attritional loss ratio will be in the low 50s. In the quarter, there was also 12 percentage points of favorable development in the Property segment driven primarily by releases on large cat events in the Property catastrophe class of business. Moving now to our Casualty and Specialty portfolio. Our strong track record in Casualty and Specialty continued and we reported a combined ratio of 93% for the quarter. Gross and net premiums written were both down, reflecting a decrease in professional liability, specifically in D&O. Last year, we captured significant premium developments in this line. Since then, we have come off of some deals that did not meet our return hurdles. This decrease was partially offset by an increase and specialty risk where risk-adjusted returns have been very attractive. Net earned premiums for the segment were $993 million, up 14%. For the remainder of 2023, we expect quarterly Casualty and Specialty net earned premiums to hover around $1 billion, plus or minus. There was about two percentage points of favorable development in the Casualty and Specialty segment related to the credit and specialty classes of business. Moving now to fee income and our capital partners businesses where fee income reached $45 million driven by increases in both management and performance fees. As we grow our joint ventures, management fees continue to provide a steady source of income and were $40 million in the quarter, up 50% from Q1 '22. Going forward, we expect a similar level of management fees per quarter through 2023. Performance fees were $4 million this quarter. These fees have started to earn out of the deficit from the cat events of prior years, and absent large losses, we expect performance fees to continue to tick up in the second quarter of 2023. Overall, we shared $260 million of our net income with partners in our joint ventures, reflected in our redeemable noncontrolling interests. $242 million of this amount was operating income, and the remainder was mark-to-market gains. And finally, the Capital Partners team raised $621 million of third-party capital in the first quarter, primarily in DaVinci and Medici. After the end of the quarter, we raised an additional $146 million in Medici, which has now surpassed $1.5 billion in capital in April. This capital will continue to provide a steady source of management fee income going forward. Now moving to investments where net investment income continues to be a strong contributor to our results, with retained net investment income increasing to $168 million this quarter. Compared to a year ago, the net investment income return is up 2.8 percentage points to 4.5%. While there is still momentum behind net investment growth, we expect growth to moderate. Our retained yield to maturity of 5.4% is relatively flat from last quarter. Subject to interest rate movements, we expect retained net investment income to be about $175 million in the second quarter. This quarter, declines in interest rates and increased equity returns along with bond accretion to par led to retained mark-to-market gains of $225 million. Retained unrealized losses in our fixed maturity investments are now $342 million or about $7.78 per share. We expect this to continue to accrete to par over time. And finally, turning briefly to expenses, where operating expenses were up about 14% in the quarter with the operating expense ratio remaining flat. The increase in operating expenses reflects investments in people in our business to support our growth over the last several years. Going forward, we expect to hold the operating expense ratio relatively flat. Now finally, we reported strong results in the first quarter, driven by significant contributions from each of our three drivers of profit. We expect these drivers will continue to outperform and anticipate that our Property segment will benefit from the underwriting actions we are taking this year to increase rates and tighten terms and conditions. Casualty and Specialty will continue to provide a consistent stream of underwriting income. Our Capital Partners business will continue to bring stable management fee income with upside from performance fees. And finally, retained net investment income will be a significant contributor to our results. And with that, I'll now turn it back over to Kevin.

Kevin O'Donnell, President and Chief Executive Officer

Thanks, Bob. As usual, I'll divide my comments between our Property and Casualty segments. Starting with Property, positive dynamics from January one extend into the first quarter, and we continue to achieve significant risk-adjusted rate increases and improved terms and conditions on renewing deals. As expected, some of the deferred demand from January one has already come into the market, although we anticipate much of this to enter in 2024, as reinsurance allocate more spend in their budgeting processes. The 4/1 property renewals in Japan proceeded as expected with rate increases between 15% to 20%. This is a good outcome. Given the long-term nature of Japanese relationships, rate movements tend to be more gradual, both up and down. Overall, we held our exposure roughly flat. Shifting to the upcoming June one renewal, we continue to see robust demand. We have already found several midyear deals with large customers at rate increases and terms and conditions consistent with what we experienced at the January one renewal. Many of these deals were done on a non-concurrent basis where we enjoyed favorable economics. In addition, we have not seen significant new supply and consequently expect favorable market conditions to persist. Touching briefly on the Florida domestic market, we continue to take a cautious approach. Many of these companies are reducing risk and are financially constrained from purchasing more reinsurance. There is also increased subsidized reinsurance available from the state-run tax fund. So we are watching this market closely, but any changes to our view will depend on the rate environment. Moving now to a quick summary of the quarter's cat events. From an industry perspective, it was well above average. Some estimates of industry losses exceed $20 billion. Notable events in the first quarter included a powerful set of earthquakes in Southeastern Turkey and Northern Syria, where loss of life was unfortunately large and an estimated 25,000 buildings collapsed or were badly damaged. Industry loss estimates range from $2 billion to $5 billion. Typhoon Gabriel impacted New Zealand with record-breaking rainfall and catastrophic flooding caused significant damage to the North Island, and industry loss estimates are in the single-digit billions. In the U.S., Q1 was an active quarter with multiple severe convective storms. According to PCS, there were 23 separate events and aggregate loss estimates are approaching $15 billion, which is almost double the 10-year average. The largest storms struck Kentucky, Texas, and Tennessee, with an estimated $3.4 billion of loss, with $1.3 billion of that coming from Kentucky. Consistent with my comments last quarter, we performed well against industry losses of this size. As Bob mentioned, these events had an overall negative impact of $54 million on our consolidated results, and even with these events, our Property cat class of business reported a 19% current accident year loss ratio. Moving now to Casualty and Specialty. Overall, this segment continues to demonstrate healthy underlying profitability. As I discussed in my introductory comments, we continue to focus on optimizing our Casualty and Specialty portfolio, growing in areas where rates are exceeding loss trends and managing the cycle in lines where rates are less attractive. Specifically, in traditional casualty, rates continue to moderate. We are addressing this by pushing for lower ceding commissions and reducing business where expected margin does not meet our hurdle rates. Our diverse portfolio provides us a competitive advantage in these negotiations as clients appreciate being able to transact with us across many lines. In Specialty, favorable market conditions are persisting in many lines, including marine, energy, and tariff. Most of the business has already renewed, and we succeeded with the portfolio growth objectives. While cyber rate increases are decelerating from the significant growth we saw last year, cyber continues to be an attractive business that meets our risk appetite. In credit, we have shaped the portfolio to be defensive against recession and made some changes to optimize it given current macroeconomic conditions. Reinsurance pricing in mortgage continues to be positive, but we are reducing the new business that we are writing going forward. Overall, our Casualty and Specialty segment had a strong quarter and has been a consistent contributor to our three drivers of profit. We have built considerable size and momentum in this business, and I expect this performance to persist into the future. Shifting briefly to a discussion of potential exposure to the banking sector. From an underwriting perspective, we currently do not anticipate significant losses from the banking events. While D&O is one line that could be impacted, we are monitoring potential exposure closely. At this time, the likely impact to this line of business appears limited. Shifting now to Capital Partners. As Bob discussed, fees were very healthy this quarter and contributed significantly to financial outperformance. Following on from a very successful year for raising capital partners, we continue to see opportunities to grow our Capital Partners business despite widespread investor fatigue in this space. Overall, Capital Partners is performing well, and we expect it to continue to help us bring material capital to a dislocated market while generating low volatility fees that benefit shareholders. In conclusion, it was an excellent quarter and the start of what could prove to be a momentous year for RenaissanceRe. All three drivers of profit delivered strong performances. Underwriting conditions continue to be favorable, and we anticipate further opportunities in our Property catastrophe as well as our Specialty lines. Net investment income is increasing, and our Capital Partners business continues to grow and contribute to consistent management fee income. Across the board, we are increasingly resilient to volatility and in an excellent position to capture attractive opportunities throughout the remainder of the year. And with that, we'll open it up for questions. Thanks.

Operator, Operator

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

Elyse Greenspan, Analyst

Hi, thanks, good morning. My first question is on how to think about your exposure during the upcoming wind season given your property tax book is mostly XOL and I believe other property was more quota share. And then within that answer, Kevin, I'm hoping you could also give us a sense if Hurricane Ian would repeat, how much lower perhaps your loss could be just given the rate and changes in program structure you guys have seen over the past year?

Kevin O'Donnell, President and Chief Executive Officer

So yes, thanks, Elyse. Your assessment of the books is correct, where a lot of what we're writing in other property is proportional. With that, the portfolio as it currently sits is relatively flat at the tail, and we've reduced the exposure we have to more frequent return periods. What I anticipate after the April one renewals is that we will have increased the absolute dollar exposure we have going into the wind season, but it will probably be a smaller percentage of shareholder equity. So we'll have gone a little bit more risk on an absolute dollar basis, but relatively less from a shareholder exposure basis. We like the balance of that. We believe that by pushing the portfolio to a higher attachment point, we're bringing better risk to our balance sheet and to our investors. Ultimately, that risk will reside within the insurance platform below the retention, and a lot of that will ultimately get managed through increased rates at the insurance companies. With regard to Ian, it's difficult for us to kind of put a number on Ian at this point in time because we haven't finalized the April one portfolio. I would expect overall that our exposure to large events will still remain substantial. The severe convective storms and the more attritional cat losses will be something that will be buffered due to the higher retentions. We will have significantly more rate and reinstate premiums. So the financial impact from Ian, I think, would be less, but that's something we're still in the process of pulling the portfolios together to measure.

Elyse Greenspan, Analyst

And then my second question is on the other property segment. You guys mentioned that large losses and mix impacted the current quarter results and that the attritional loss ratio should be in the 50s going forward. So what are you assuming in terms of loss costs when you say with your assumption for the low 50s from here?

Bob Qutub, Executive Vice President and Chief Financial Officer

Yes, thanks. I'll take that one. What we have now is a shift in the mix. As we have reallocated the capital we deployed, the cat-exposed other property discussed earlier has been shifted over. As a result, you'll see a slightly higher current accident year loss rate due to a stronger percentage of the proportional book, which we previously estimated to be just under 50%. Now we are looking at it just over 50%, probably around 51% for the quarter. This gives you a rough idea of where it's heading, around 51%, give or take.

Elyse Greenspan, Analyst

Thank you.

Ryan Tunis, Analyst

Hi everyone. Kevin, you mentioned a significant cat quarter with a $20 billion figure. Your $54 million loss represented only about 30 basis points of market share. I'm curious if you could provide some context regarding how you think this compares to similar cat quarters in the past and how we should consider this 30 basis points of market share moving forward as we analyze other types of perils throughout the year.

Kevin O'Donnell, President and Chief Executive Officer

Yes. Let me discuss the other property. The other property portfolio is largely proportional, which means it is susceptible to ground-up losses, and we experienced reasonably small losses similar to what we saw in most of the catastrophe events this quarter. Therefore, a reduction in that portfolio will naturally lead to a decrease in our participation in small losses. The catastrophe portfolio has been adjusted to a higher retention level and now has more restrictions related to severe convective storms and other exclusions. I would say that for smaller events, our market share is likely to decrease going forward. However, for large events, our market share is expected to increase since we will have a greater exposure through our various vehicles and capital to those larger events, where primary companies find it more efficient to transfer risk to the reinsurance market.

Ryan Tunis, Analyst

Got it. And then I guess thinking about Professional Lines, Kevin and the recession risk or financial systems train risk there. Like if I recall, the Great Recession back in 2008, all that didn't lead to enormous losses for you guys, a little bit, but it wasn't a huge risk. I'm just curious, how would you evaluate that risk today, different types of social inflation at play? How are you thinking about the tail risk exposure that book could have if you do go into a recession and or some type of financial crisis?

Kevin O'Donnell, President and Chief Executive Officer

Yes. Our portfolio is quite different now compared to how it was during the financial crisis. We have a larger casualty portfolio and a more diverse range of exposures. We evaluate correlations across different lines of business and conduct financial stress tests on both our insurance and reinsurance portfolios, as well as our investment portfolio, to assess the impacts of both a soft and hard economic landing. Social inflation is a significant factor that we manage carefully regardless of whether there's a recession. While we are not the same company we were in 2008, we remain mindful of how a recession could impact the various lines of business we offer. We are confident in the portfolio we've created and are reducing our exposure to mortgages. We believe our investment portfolio is of high quality and well positioned in the event of a recession. Additionally, we are keeping an eye on the professional lines, particularly D&O, given the current banking challenges, but so far, we see no reason for concern.

Ryan Tunis, Analyst

Thanks.

Josh Shanker, Analyst

Yes, thank you. It's always a little bit tricky for us to model the noncontrolling interest in the minor share with your partners. As the premium earns through for the remainder of the year, what you're writing, what you're attending right in midyear. Should your share be overall unlearning results go up or go down?

Bob Qutub, Executive Vice President and Chief Financial Officer

Let me see if I can take that one. Josh, it's Bob. When you asked the question, I think if I answered the question correctly is, how should we expect to see the midyear premium flow through our net earned premium? I think the way I'd look at it, and it's probably a more technical question than...

Josh Shanker, Analyst

Or actually, Bob, I think, how should we see it flow through the RenaissanceRe shareholders' share of the net premium earned as opposed to the firm-wide experience with both RenaissanceRe shareholders and partners?

Bob Qutub, Executive Vice President and Chief Financial Officer

Yes, we have a set allocation that we really don't talk about externally on how we share that with DaVinci versus us, but we know it's the same risk that comes through. We also capture some of that through our interest in DaVinci, which is around 25% right now. But we haven't really shared that allocation percentage, and it varies depending on the environment that we go into and we share that benefit with our third-party capital partners, mainly in DaVinci where we do that.

Josh Shanker, Analyst

You can't directionally say more or less? I guess, as we're modeling.

Bob Qutub, Executive Vice President and Chief Financial Officer

It changes over time. We don't change it every day or every year, but we look at the cycle that's coming up, and we'll allocate more or less to the DaVinci shareholders.

Josh Shanker, Analyst

Okay. And you mentioned mortgage and cyber. Can you flesh out a little bit on the growth in the other specialty business was good? Can we talk about, I guess, the list of maybe the four or five biggest components in that line item for premium? Just trying to understand that business better.

Kevin O'Donnell, President and Chief Executive Officer

We experienced significant growth in marine and energy, identifying numerous opportunities in those areas. Additionally, while cyber rates have not increased as much recently, we still find cyber rate adequacy to be very appealing, leading to continued growth in that sector. This trend has been ongoing for about the last year. When we analyze our portfolio, the shifts are primarily toward marine, energy, and an increase in cyber, along with a few other specialty lines, though those two sectors stand out as the most prominent.

Josh Shanker, Analyst

Okay, thank you very much for the answers.

Operator, Operator

We'll take our next question from Yaron Kinar from Jefferies.

Yaron Kinar, Analyst

Thank you, and good morning. I think one of the components of the supply-demand imbalance we saw last year was marks on the balance sheet. We're seeing some recovery of that year-to-date and book value growth overall. Do you see that as having an impact on kind of the reinsurance market into midyear renewals?

Kevin O'Donnell, President and Chief Executive Officer

At this point, no, I think a lot of people look through the marks. A lot of the marks were credit good portfolios that the rating agencies provided some flexibility. So it wasn't as constraining as what the number looked like. I think the other thing to watch is as interest rates go up, are people going to look for kind of cash flow underwriting and taking higher loss ratios to capture the flow? We're not really seeing that yet either. So I'd say the market is remaining disciplined and benefiting from the pull to par and from the enhanced return within the investment portfolio.

Yaron Kinar, Analyst

Got it. And then my second question would be, clearly, market conditions and 4/1 and heading into midyear seem to be quite robust. Are those better than you expected three or six months ago or pretty much in line with expectations? And I guess tied to that, any updates on your thinking around your capital and maybe willingness to raise additional company capital as opposed to third-party capital to lean into this opportunity more?

Kevin O'Donnell, President and Chief Executive Officer

The midyear renewals are performing similarly to the January renewals, which aligns with our expectations. We are successfully engaging with the market and are involved in numerous private deals where clients value our established relationships and our ability to provide large lines. We anticipate continued stability and growth in the market, as previously mentioned. The market appears to be reaching a level of rate adequacy that we find comfortable. Specifically, Florida is showing improvement in rate adequacy, and we expect it to remain an attractive market. We believe there will be no pressure that would revert us to previous trading levels. Moving forward, our focus will shift from discussing rate changes to emphasizing rate adequacy. With the significant improvements we've seen at midyear and on January 1, we are building a portfolio characterized by strong margins that we believe will sustain through 2024 and 2025.

Yaron Kinar, Analyst

Thank you.

Pablo Singzon, Analyst

Hi, thanks, I'm calling for Jimmy. So just a broad question to start off. A lot of the brand began emphasizing higher combined ratios but low volatility, just like Casualty and Specialty. But just given market conditions today, it seems like this should shift back to Property cat. Do you see the shift increasing volatility in the results? And how do you rate the trade-off between Property cat in generating more stable lines?

Bob Qutub, Executive Vice President and Chief Financial Officer

Let me take that one off, and Kevin can jump in if he'd like. But I mean, the shift, yes, you will see more proportional business in the other property, which I talked about in the shift, and we took the cat exposed from other property into Property cat. So you'll see the behaviors, like you said, other property will have a little bit higher current accident loss rate. Does that mean more volatility? I think you have to put that into the broader context about how we've actually structured the Property cat. We're further from the loss, higher retentions, better terms and conditions. To a certain extent, you may take out some of the low-level, lower return referred care volatility that will come through. Some of that will disappear, but you'll still be exposed to large losses.

Pablo Singzon, Analyst

That makes sense. And then second question, unrelated topic. I was wondering if you could seize the professional lines or deal on your book and recognizing your flexibility to adjust ceding commissions. Still curious to hear how are your selling loss picks in that line given the stress that primary introduced ceding. And I guess just more broadly, are there other cash on lines where you've increased loss picks versus 2022?

Kevin O'Donnell, President and Chief Executive Officer

Yes, I think you asked a couple of questions there. From a ceding commission perspective, we are actively pursuing better ceding commissions, and we have had more success with midyear renewals compared to January renewals. In most professional lines, we are still seeing rates above trend. We have taken some action on Directors and Officers insurance, where we are experiencing increased pressure. We believe that the portfolio we have written is generating the targeted margin we aimed for, and we have not raised our initial loss picks. However, this is partially due to the benefits of reduced ceding. We consider the macro environment when thinking about the underwriting process for our portfolio and recognize that we are in a more stressed time. Nonetheless, with rates still above trend, we feel largely comfortable with the portfolio we have built.

Pablo Singzon, Analyst

All right, thank you for the answers.

Derek Han, Analyst

Good morning, guys. Thanks. Just going back to other property. It looks like your growth was impacted by a quota share non-renewal. Where are we in terms of optimizing the portfolio? I know you've had issues in the past with attritional losses. I'm just curious if your guidance for 50-ish attritional loss ratio kind of contemplates the changes you're making.

Kevin O'Donnell, President and Chief Executive Officer

I believe that given the significant opportunity we're observing in Property cat, we appreciate how our other property portfolio has been structured. What we are focusing on is optimizing how the company utilizes its capital, allowing us to capture additional margins by entering Property cat instead of relying on exposure through other property. Thus, I view this not as a solution for our other property but rather as an enhancement to our overall platform. We are making two key adjustments in other property, which Bob mentioned. First, we are reducing the size of the other property portfolio, which creates space for us to engage in Property cat. Second, we are adjusting our approach to decrease our cat exposure. This way, we can derive additional margins from the Property cat XOL book with our cat dollar capital. These two adjustments offer us flexibility in optimizing our portfolio, and I'm quite satisfied with how our book is performing.

Derek Han, Analyst

Okay. That's really helpful. And then my second question is on Casualty and Specialty. It looks like profitability is starting to show up. Your current accident year loss ratio improved 80 bps quarter-over-quarter. I know you had a pretty easy comp year-over-year. Just on the quarter-over-quarter change, is that just a rate over trend? Is there anything else in there that we should be thinking about?

Bob Qutub, Executive Vice President and Chief Financial Officer

I wouldn't point to anything macro. There are various factors at play, and we're primarily focused on the composition of our portfolio. The loss estimates we have for reserving are based on the best projections and the historical data from the actuaries. It hasn't changed much recently; it has remained fairly consistent from quarter to quarter, seeing a slight increase of 0.8. We are still anticipating a combined ratio in the mid-90s, give or take.

Derek Han, Analyst

Got it, okay. Thank you very much.

Operator, Operator

And it appears we have no further questions at this time. I will now turn the floor back over to Kevin O'Donnell for any additional or closing remarks.

Kevin O'Donnell, President and Chief Executive Officer

Thank you for participating in today's call. We're proud of the quarter. We're optimistic about where the year is, and we continue to work hard to execute the strategy in what is proving to be a very favorable market across all lines of business. Thanks very much.

Operator, Operator

This concludes the RenaissanceRe first quarter 2023 earnings call and webcast. Please disconnect your line at this time, and have a wonderful day.